‘Ethanol projects held up as OMCs delay signing pacts’

Lavern Vogel

A delay in signing purchase agreements by oil marketing and advertising firms (OMCs) with future ethanol producers is keeping up the setting up of new standalone ethanol crops needed to create added ethanol expected for gas mixing programme, in accordance to a the latest letter composed by sugar firms to […]

A delay in signing purchase agreements by oil marketing and advertising firms (OMCs) with future ethanol producers is keeping up the setting up of new standalone ethanol crops needed to create added ethanol expected for gas mixing programme, in accordance to a the latest letter composed by sugar firms to the federal government.

A the latest letter to the Ministry of Petroleum and Purely natural Gasoline Secretary from Indian Sugar Mills Association (ISMA), the trade entire body that represents the sugar mills, a copy of which was noticed by BusinessLine, urged the minister to nudge the OMCs to indication these purchase agreements (PA) with job proponents as some of the loans sanctioned by the banks are on the verge of expiring.

An industry official stated OMCs were unwilling because any arrangement signed with the producers would keep them responsible for depositing payments in direction of loans taken for setting up ethanol models in an escrow account. “No just one desires added accountability thrust on them. This happened with the electrical power agreements way too a ten years ago,” the official stated on ailment of anonymity. OMCs, when contacted, did not respond right until this report went to print.

Even though sugar mills and ethanol makers have contracted to supply 346 crore litres of ethanol in the recent oil marketing and advertising yr (December 2020 to November 2021) until August sixteen, the goal for the upcoming period is 450 crore litres, enough for ten for each cent mixing.

Banks’ norms

In January this yr, the Point out Lender of India (SBI), on being requested by the federal government, came out with guidelines and regular operating strategies (SOPs) for offering phrase loans to the standalone ethanol distilleries for generating ethanol for gas mixing. A lot of other banks, way too, adopted the exact same guidelines and SOPs. As for each these norms, banks stated they are prepared to give loans with numerous concessions these as 5 for each cent collateral security as well as at a improved financial debt-equity ratio (promoters’ contribution as small as 5 for each cent) if there is a tripartite arrangement concerning the financial institution (financial institution), the job developer (debtors) and OMC (buyer). The only ailment that the banks place ahead was that the job developer really should procure a PA from the OMCs. In accordance to an industry resource, the PA really should vouch that the OMC would be purchasing at least that significantly amount of ethanol that is expected to cover the compensation instalment and the arrangement really should cover the overall interval of the bank loan.

Acquire-Acquire for all

As labored out, the OMC will deposit the payment toward ethanol purchase in an escrow account from which the financial institution will recover the instalment right before the releasing the balance to the company. “This is a gain-gain problem for all. The federal government, which is eager to have additional ethanol mixing in gas, would have improved supply of the alternative gas when quite a few sugar mills whose account publications are not good for a range of good reasons would have obtained cheaper loans for setting up ethanol crops. Banking companies, way too, would gain for the reason that their compensation is assured,” the resource stated.

The grouse of the mills, as expressed by ISMA in its letter, was that even even though the Ministry has authorized issuing of expression of fascination (EoI) by the OMCs for these PAs, the oil firms were however not coming ahead to do it.

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