April 20, 2024

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‘Ethanol projects held up as OMCs delay signing pacts’

A delay in signing acquire agreements by oil marketing and advertising businesses (OMCs) with potential ethanol producers is keeping up the environment up of new standalone ethanol vegetation needed to make additional ethanol essential for fuel blending programme, in accordance to a current letter published by sugar businesses to the federal government.

A current letter to the Ministry of Petroleum and Pure Fuel Secretary from Indian Sugar Mills Affiliation (ISMA), the trade system that represents the sugar mills, a copy of which was viewed by BusinessLine, urged the minister to nudge the OMCs to signal these kinds of acquire agreements (PA) with challenge proponents as some of the loans sanctioned by the banking companies are on the verge of expiring.

An business official stated OMCs had been hesitant given that any agreement signed with the producers would maintain them accountable for depositing payments in the direction of loans taken for environment up ethanol units in an escrow account. “No just one would like additional obligation thrust on them. This transpired with the electric power agreements too a ten years in the past,” the official stated on condition of anonymity. OMCs, when contacted, did not reply right until this report went to print.

While sugar mills and ethanol brands have contracted to offer 346 crore litres of ethanol in the present oil marketing and advertising calendar year (December 2020 to November 2021) till August 16, the focus on for the next time is 450 crore litres, sufficient for 10 for each cent blending.

Banks’ norms

In January this calendar year, the Point out Bank of India (SBI), on currently being questioned by the federal government, came out with suggestions and regular running strategies (SOPs) for featuring time period loans to the standalone ethanol distilleries for making ethanol for fuel blending. Quite a few other banking companies, too, adopted the identical suggestions and SOPs. As for each these norms, banking companies stated they are eager to give loans with various concessions these kinds of as five for each cent collateral protection as effectively as at a improved personal debt-equity ratio (promoters’ contribution as very low as five for each cent) if there is a tripartite agreement involving the bank (lender), the challenge developer (borrowers) and OMC (consumer). The only condition that the banking companies set forward was that the challenge developer should procure a PA from the OMCs. In accordance to an business resource, the PA should vouch that the OMC would be purchasing at least that a great deal quantity of ethanol that is essential to deal with the reimbursement instalment and the agreement should deal with the whole period of time of the loan.

Gain-Gain for all

As labored out, the OMC will deposit the payment toward ethanol acquire in an escrow account from which the bank will get better the instalment prior to the releasing the harmony to the business. “This is a win-win scenario for all. The federal government, which is eager to have a lot more ethanol blending in fuel, would have improved offer of the alternate fuel even though a lot of sugar mills whose account guides are not excellent for a wide range of explanations would have acquired cheaper loans for environment up ethanol vegetation. Banking companies, too, would reward due to the fact their reimbursement is confident,” the resource stated.

The grouse of the mills, as expressed by ISMA in its letter, was that even while the Ministry has accepted issuing of expression of desire (EoI) by the OMCs for these PAs, the oil firms had been however not coming forward to do it.