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Ailing sugar units see saviour in ethanol

Atul Prakash in Mumbai

India's sugar industry, the largest after Brazil, sees a big opportunity to revitalise itself after a government directive to oil firms to sell ethanol-doped petrol in several states from January.

Ethanol is a bio-fuel mainly produced from molasses, a by-product of sugar mills.

"Many players will now step in to exploit the emerging opportunity," an industry official in Maharashtra said on Friday.

The state is a key sugar producing province, home to nearly half of the country's 450 plus sugar mills.

The official said that about 25 millers, which were sitting on licenses for new distilleries in the state, were now expected to go ahead with their projects.

The government said this week that fuel stations in nine states must sell petrol from the start of 2003 with five per cent ethanol content. This will be extended to other states in a phased manner, and the bio-fuel ratio will be raised gradually.

The main impetus for the use of ethanol comes from the government's concern for sugar farmers, who at times are unable to sell their crop due to lack of demand. Some mills are also unable to make timely payments for the sugar cane purchased.

"More than 50 per cent of the sugar mills are facing acute financial stress," said S L Jain, secretary general of Indian Sugar Mills Association, adding millers owed about Rs 2700 crores (Rs 27 billion) to farmers for sugarcane bought over the past year.

India has stocks of about 18 million tonnes of sugar -- almost equal to its annual output.

OUTPUT

Industry officials expect several new units to open up, while existing distilleries would also likely raise production.

India has about 250 distilleries that produces rectified spirit, out of which nearly half are set up by sugar mills. Potable alcohol, derived from rectified spirit, is further processed to make ethanol, which is hardly produced now.

Ethanol, which could also be distilled from crops such as corn or grains, reduces greenhouse gas emissions and is a clean replacement for oxygenating additive MTBE (methyl tertiary bytyl ether), which pollutes water.

India annually produces some 160 crores (1.6 billion) litres of rectified spirit, consumed by chemical and alcohol-based industries.

Traders said the introduction of ethanol-mixed gasoline, also known as gasohol, in the first phase would require about 32 crores (320 million) litres of the bio-fuel a year, traders said.

"We hope to start producing about 30 crores (300 million) litres of ethanol annually in the next three to four months," Jain said.

India will be able to meet the demand for ethanol in the first phase as the country had surplus molasses, but there may be some impact on sugar output if demand rises further, he said.

"In the long term, sugar mills may find it more profitable to produce ethanol directly from sugarcane juice," said Abhay Chaudhari, associate vice president of Praj Industries, a firm supplying equipment and technology to distillers.

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