‘Ethanol projects held up as OMCs delay signing pacts’

A hold off in signing acquire agreements by oil marketing and advertising providers (OMCs) with potential ethanol producers is holding up the placing up of new standalone ethanol crops desired to make more ethanol demanded for gas blending programme, according to a the latest letter created by sugar providers to the govt.

A the latest letter to the Ministry of Petroleum and Natural Gasoline Secretary from Indian Sugar Mills Association (ISMA), the trade overall body that represents the sugar mills, a copy of which was noticed by BusinessLine, urged the minister to nudge the OMCs to indicator this kind of acquire agreements (PA) with undertaking proponents as some of the loans sanctioned by the banking institutions are on the verge of expiring.

An sector official reported OMCs were being reluctant considering the fact that any settlement signed with the producers would hold them responsible for depositing payments towards loans taken for placing up ethanol units in an escrow account. “No just one needs more duty thrust on them. This took place with the energy agreements also a decade back,” the official reported on affliction of anonymity. OMCs, when contacted, did not reply right up until this report went to print.

Whilst sugar mills and ethanol brands have contracted to offer 346 crore litres of ethanol in the present-day oil marketing and advertising 12 months (December 2020 to November 2021) till August sixteen, the focus on for the next season is 450 crore litres, adequate for 10 for each cent blending.

Banks’ norms

In January this 12 months, the Condition Bank of India (SBI), on being asked by the govt, came out with recommendations and conventional functioning strategies (SOPs) for offering expression loans to the standalone ethanol distilleries for generating ethanol for gas blending. A lot of other banking institutions, also, adopted the similar recommendations and SOPs. As for each these norms, banking institutions reported they are keen to give loans with a number of concessions this kind of as five for each cent collateral security as well as at a better personal debt-equity ratio (promoters’ contribution as lower as five for each cent) if there is a tripartite settlement among the bank (loan company), the undertaking developer (borrowers) and OMC (customer). The only affliction that the banking institutions place forward was that the undertaking developer should procure a PA from the OMCs. In accordance to an sector supply, the PA should vouch that the OMC would be acquiring at least that much quantity of ethanol that is demanded to cover the repayment instalment and the settlement should cover the complete period of the bank loan.

Get-Get for all

As labored out, the OMC will deposit the payment toward ethanol acquire in an escrow account from which the bank will recuperate the instalment just before the releasing the equilibrium to the agency. “This is a acquire-acquire circumstance for all. The govt, which is keen to have extra ethanol blending in gas, would have better offer of the alternate gas whilst several sugar mills whose account textbooks are not fantastic for a assortment of good reasons would have got less costly loans for placing up ethanol crops. Banking institutions, also, would benefit due to the fact their repayment is certain,” the supply reported.

The grouse of the mills, as expressed by ISMA in its letter, was that even even though the Ministry has permitted issuing of expression of interest (EoI) by the OMCs for these PAs, the oil companies were being still not coming forward to do it.