Govt curbs sugar diversion for ethanol, mills warn of losses during surplus year

The government’s latest procurement tender for the 2026‑27 supply year has drawn a sharp response from the sugar industry, following the exclusion of ethanol derived from sugarcane juice, sugar syrup and B‑heavy molasses. The decision, announced by the Ministry of Petroleum and Natural Gas, limits the sources of bioethanol that state‑run oil marketing companies may buy for use in petrol blending. Industry bodies argue that this move will hurt the sector’s profitability, particularly at a time when global crude prices and domestic demand for refined products are both volatile.The central government’s rationale centres on quality and safety..

The authorities say that ethanol from sugarcane juice and syrup contains higher levels of impurities, including residual sugars and trace metals, that can damage fuel‑cell components if used at high blending ratios. They also claim that B‑heavy molasses, a by‑product of sugar refining, often carries significant nitrogen and sulphur contaminants that could lead to increased corrosion in the fuel supply chain. As a result, the tender only recognises ethanol produced from B‑light molasses and from dedicated feedstock plantations that meet stricter purity standards.While the Ministry insists that these technical concerns are necessary to protect consumers and the broader fuel industry, several trade bodies and mill owners are sounding the alarm..

The National Sugar Mills Association (NSMA) has issued a statement urging the Centre to reconsider the restriction, arguing that the sugar sector has historically been a major source of bioethanol for the country. The association said that the exclusion could lead to a sudden drop in demand for their by‑products, forcing mills to seek alternative markets at lower prices.According to an interview with a senior executive at the largest sugar mill in Maharashtra, the change could result in a loss of several hundred million rupees in annual revenue. “Our production of sugar syrup and B‑heavy molasses is integral to our operations,” the executive said..

“When we cannot sell the ethanol we produce, we have to resort to burning the excess, which is both costly and environmentally unfavourable.” The mill’s management also highlighted that the sugar industry has been a key supplier for the ethanol market, especially during periods of high global oil prices when demand for fuel additives rises.The debate is also reflecting a broader tension between the government’s drive for energy security and the agricultural sector’s need for stable markets. The Ministry’s policy is part of a wider strategy to curb the diversion of food‑grade sugar for biofuel production, a move that has been criticised for potentially undermining food security. In recent years, the government has implemented a sugar export ban to stabilise domestic prices, and this latest tender is seen as another step in tightening controls over the sector’s downstream uses.Opponents of the ban argue that the exclusion is short‑sighted..

They point out that ethanol from sugar syrup and B‑heavy molasses has a lower carbon footprint than fossil fuels, and that its use could help the country meet its climate commitments. The Union Environment Ministry has previously highlighted the potential of sugar‑based bioethanol in reducing greenhouse gas emissions in the transport sector. By cutting off these feedstocks from procurement, critics say the government risks undermining progress on decarbonisation.On the other side of the equation, the oil marketing companies claim that the tender’s stricter specifications are in line with international fuel quality standards..

They say that the current blending guidelines for petrol in India are based on the specifications set by the Indian Oil Corporation and the Petroleum and Chemicals Processing Standards Authority. Any deviation could affect the performance and longevity of vehicle engines, leading to higher maintenance costs for consumers. In an industry that has seen a surge in high‑octane blends, quality control is seen as paramount.The timing of the tender has also been a point of contention..

The 2026‑27 supply year is anticipated to be a surplus period for the domestic sugar market, with the government forecasting higher production levels due to favourable monsoon conditions. Mills expect an increase in sugar output, but the exclusion of key ethanol feedstocks could mean that the surplus sugar and molasses will need to be stored or sold at lower prices. The impact on the supply chain is not limited to the mills; it could also affect the farmers who rely on sugarcane sales for a significant portion of their income.In response to the government’s decision, a coalition of mill owners has called for a dialogue with the Ministry of Petroleum and Natural Gas..

They are proposing a compromise that would allow the purchase of ethanol from sugar syrup and B‑heavy molasses under strict quality testing and certification protocols. The coalition says that such a framework would ensure that the fuel supply chain remains safe while still giving the sugar sector a chance to maintain its role as a bioethanol provider.The National Renewable Energy Laboratory of the Indian Institute of Science has conducted a study on the purity levels of ethanol from different sugarcane by‑products. The findings indicate that with proper distillation and filtration, the impurities in ethanol from B‑heavy molasses can be reduced to levels comparable to that of ethanol from B‑light molasses..

The study has been cited by the NSMA to support their stance that the exclusion is unnecessary from a technical perspective. However, the Ministry has yet to adopt the findings, citing a lack of industry‑wide standardisation of the testing process.The policy also about the future of the sugar industry in the context of the national biofuel strategy. The Indian government’s National Biofuel Policy, announced last year, envisages a 10 per cent blending target for ethanol in the next decade..

The policy identifies sugarcane and corn as primary feedstocks. With the recent tender, the sugar sector’s contribution to this target may be limited. Critics argue that this could create a dependency on imported biofuels or other feedstocks, such as wheat or jatropha, which would have higher environmental impacts and lower yields.Meanwhile, the Ministry of Agriculture has signalled that it will review its sugar export policy to ensure that domestic supply remains stable..

The government has historically used export bans to influence domestic prices, but the current debate suggests that such measures need to be coupled with incentives for downstream processing. Some experts propose that the government could subsidise the conversion of sugar syrup and B‑heavy molasses into ethanol, thereby aligning agricultural output with energy needs. They also suggest a phased approach that would allow the industry to adapt to stricter quality demands over time.The industry’s concerns are not limited to economics alone..

The environmental impact of burning excess molasses and sugar syrup has been noted by several environmental NGOs. These NGOs argue that the burning releases significant amounts of particulate matter and carbon dioxide, counteracting the environmental benefits that ethanol can provide when used as a fuel additive. They also highlight that alternative uses for sugar by.