India’s HPCL eyes Bihar sugar mills for captive ethanol production

KOLKATA (ICIS)–India’s Hindustan Petroleum Corp Ltd (HPCL) is keen to venture into sugar production, making it the first among the country’s oil refiner-marketer to seek captive ethanol capacity through acquisition, a company official said on Friday.

The company has placed an initial bid of $9m for two of the eight closed sugar mills in India’s eastern province of Bihar, a provincial government official said.

The bid was a “trial case” for the oil refiner-marketer to acquire captive ethanol production capacity, the HPCL official said.

It was meant as a precursor to the government’s plan to hike the mandatory ethanol blending of petrol from 5% to 10%.

The prospective acquisition will assure HPCL of easier and more cost-effective sourcing of ethanol compared with public procurement from private mills, the company official said.

Details on volume of captive ethanol capacity that would be available upon the successful acquisition of the two sugar mills could not be ascertained at this time, the official said.

He cited variables such as the present condition of the sugar mills, additional investments needed, availability and procurement of sugarcane from the region and plant capacity utilization for production of sugar.

Meanwhile, the Bihar government is expected to announce the winning bidder within the next two months, the provincial government official said.

Previous attempts to re-open the eight closed sugar mills in the province since 2005 had failed since most prospective investors were keen to use the sugar mills’ assets exclusively for the production of ethanol. Existing laws in India expressly prohibit such exclusivity, to promote sugar production. Consequently, previous bidders for the sugar mills have backed out.

In its bid for the two Bihar sugar mills, HPCL has agreed to maintain production of sugar, as well as ethanol, the Bihar government official said.

The HPCL official is not ruling out making bids for other closed Bihar sugar mills and other such assets across India in the future.

The strategy would depend on the “experience gained from [the] first acquisition”, and to a commitment to maintain production of sugar, in tandem with ethanol as the law mandates, the company official said.

The Indian Sugar Mills Association (ISMA) estimates that the planned increase in mandatory ethanol blending of petrol to 10% would require 2.66bn litre of ethanol per year, while current availability was pegged at 2bn litres/year – catering to petrol blending, chemical production and alcohol beverage making.

India’s biggest oil refiner-marketer Indian Oil Corp (IOC) is investing $2.4bn to put up a plant that will produce 1m tonnes/year of synthetic ethanol, in collaboration with US-based Celanese Corp.