GREEN FUEL MANUFACTURERS IN DOLDRUMS: A CASE STUDY ON EMAMI BIO-TECH by Debasish Sarkar Senior Research Fellow of UGC Faculty of Management Sciences Siksha O Anusandhan University 2dev.sarkar@gmail.com INTRODUCTION Indian government has started the National Mission on Bio-fuels in 2003. The Mission provides governmental suggestion on developing the bio-fuel industry. Lack of governmental support in infrastructure has restricted this industry in a few geographical locations. There are a significant number of sugar manufacturing plants which can process bio-ethanol, but there is very few manufacturing plant available for producing biodiesel. Diesel consumption in India is five times higher than petrol. Thus, if India is serious about biodiesel production from jatropha or other oil seed plants like (Palm, Coconut, Maize, Sugar Beet, and Soyabean), need to invest significantly in acquiring advanced technologies in oil extraction, transesterification, and storage for biodiesel oil. The Government of India has approved the National Bio-fuels Policy on December 24, 2009. The policy encourages use of renewable energy resources as alternate fuel to supplement transport fuels and had proposed an indicative target to replace 20 percent of petroleum fuel consumption with bio-fuels (bio-ethanol and biodiesel) by end of 12th Five- Year Plan (2012-2017). In a bid to renew its focus and strongly implement the Ethanol Blending Program (EBP), the Cabinet Committee of Economic Affairs (CCEA) on November 22, 2012, recommended 5 percent mandatory blending of ethanol with gasoline fuels. The Govt. of India has targeted 10 percent bio-fuel blends with normal gasoline during 2007 to 2012 five year plan period. Oil Marketing Companies has achieved only 2 percent of proposed blending of bio-fuel with gasoline during 2007-2012 plan periods. Due to some lack of clarity on policy and supportive infrastructure they were unable to achieve that target. Again govt. had set up higher target from previous to 20 percent. Sandeep Chaturvedi, Bio-diesel Association of India said that with the doldrums situation of green fuel manufacturers, India can t achieve targeted 20 percent blend by 2017. Current bio-fuel production can only be meet 2.9 percent blend with normal gasoline. PURPOSE OF CASE STUDY Emami Biotech, a Rs 3500 crore arm of kolkata based Rs. 7000 cr. FMCG major, was setup in April 2007 by Rs. 150 cr. exclusively for bio-fuel production at Haldia of West Bengal. It is currently recording zero sales of biodiesel, following a circular issued by the Ministry of Petroleum, specially banning on the sale of bio-diesel. In previous days Emami bio-tech was not being able to sell even one per cent of its production due to pricing differences and unfriendly regulations by the government on bio-diesel selling companies. Worldwide biodiesel is considered as the much-touted alternative to fossil fuels, but due to absence of right Page 10
policies in India, like too many restrictions on companies selling it and because regulations are not well-defined either. CURRENT SCENARIO OF GREEN FUELS IN INDIA Green fuels are those fuel which creates zero pollution when its burn in (IC) engine and ecofriendly. The Compressed Natural Gas (CNG), Liquefied Petroleum Gas (LPG), Electricity, Hydrogen, Ethanol, Biodiesel, HCNG, Solar, Coal Bed Methane (CBM) etc. all are green fuels recognized by across the globe. In India bio-ethanol produced from sugar cane molasses and biodiesel produced from jatropha and palm oil seeds. Bio-fuels seek to supplement conventional energy resources for meeting rapidly increasing requirement of transportation fuels and meeting energy needs of India s vast rural population by use of non-food feed stocks and as a result to reduce dependence on import of fossil fuels. The intent is to provide a higher degree of national energy security in an environmentally friendly, cost-effective and sustainable manner. Believing India to be endowed with significant potential for generating energy through renewable resources, the GOI is promoting and encouraging production and use of a) ethanol derived from sugar molasses/juice for blending with gasoline and b) biodiesel derived from inedible oil seeds and oil waste for blending with diesel. State wise number of Ethanol manufacturers in India Sl no. No. of Manufacturers Installed Capacity KPLD* KLPA** 1 In Andhra Pradesh (15) 555 166500 2 In Bihar (5) 275 74250 3 In Gujrat (10) 340 101100 4 In Karnataka (16) 1000 300000 5 In Maharastra (63) 2455 736500 6 In Punjab (1) 40 12000 7 In Tamil Nadu (8) 320 96000 8 In Uttar Pradesh (33) 2321 699900 Grand Total = 7306 2186250 *KLPD- Kilo liter per day Sources: ISMA, data as on 31 st March. 2014 **KLPA- Kilo liter per annum Page 11
1. Ethanol International Journal of Research & Development in Ethanol can be produced from various feedstock available in many countries. In Brazil ethanol is produced from corn and sugarcane, wheat, corn and soybeans are the main feedstock in the USA, in China wheat and corn are used for ethanol production. But in India, sugarcane molasses is the mail sources of ethanol production for blending with gasoline. Since January 2003, Indian govt. mandated the use of 5-percent ethanol blend with gasoline through its ambitious Ethanol Blending Program (EBP). Ethanol and alcohol production in India depends largely on availability of sugar molasses (a byproduct of sugar production). Currently 3,500 liters of irrigation water need to produce one liter of ethanol from sugarcane. At times, lower availability of sugar molasses and resultant higher molasses prices affect the cost of production of ethanol, thereby disrupting supply of ethanol for the blending program at pre-negotiated fixed ethanol prices. 2. Biodiesel Biodiesel is an alternative fuel, which can be used directly or blended with petroleum diesel for use in internal combustion engines. Bio diesel is a diesel-equivalent, processed fuel derived from biological sources (such as vegetable oils), which can be used in unmodified dieselengine vehicles. Diesel engines require no modification to have a 20 per cent bio-diesel blend with normal diesel just like water blends with water. According to Bio-diesel Association of India, currently India has more than 20 biodiesel producers with a combined capacity of 1 million tones in a year. Page 12
Current production of biodiesel from jatropha seeds is commercially negligible. Slow progress made towards jatropha planting has resulted in lower availability of Jatropha seeds to be used as feed-stock for biodiesel production and hence most of the biodiesel units operating in India have shifted to alternative feed-stocks such as edible oil waste (unusable oil fractions), animal fat and inedible oils, utilizing almost 40 percent of their existing capacity to continue year round operations. ABOUT EMAMI BIOTECH With a turnover of Rs 3500 cr. Emami Biotech is the edible oil and biodiesel arm of the Rs7000 cr. Kolkata based business conglomerate. Edible oil-the maker of the popular edible oil brand Healthy & Tasty, Emami Biotech is the 3rd largest edible oil refineries in India with a capacity of producing 3600 tones per day edible oil in their plants located at West Bengal and Krishnapatnam. Launched in 2010 in West Bengal, Healthy and Tasty is the second largest brand in the State with strong presence in Odisha, Jharkhand, Bihar and Karnataka. The Company, under the Healthy and Tasty brand, manufactures & markets edible oil varieties like Mustard oil, Sunflower Oil, Rice Bran Oil, Palm Oil, Soyabean Oil, beside other blended oils. Page 13
With an investment of Rs.340 cr. Emami Biotech expanded its refining capacity at its Haldia Plant to 2200 tones per day in August 2012 to manufacture Refined Palm Oil, Soyabean Oil, Refined Sunflower Oil, and Refined Rice Bran Oil. The company envisaged and successfully commissioned a green-field project in Krishnapatnam (Andhra Pradesh) in February 2012 at a cost of Rs.240 cr. with a capacity of 1400 tones per day to produce Refined Palm Oil, Refined Sunflower Oil and Vanaspati. Emami Biotech plans to set up its third refining facility in Western India, with a capacity of 1,500 tones per day to expand its presence another parts of the country. 3. Biodiesel Besides edible oil, Emami Biotech Limited is also one of the frontrunners in the biodiesel industry in India and is the largest exporter of biodiesel to Europe from India. Pledged towards a better environment, the Company had set up its bio-diesel arm in Haldia, West Bengal way back in 2006. Picture of Palm oil seed The state-of-the-art 300 tones per day multi-feed stock bio-diesel plant at Haldia is the largest and the first of its kind in eastern India, set up at a cost of Rs. 150 crore, in technical collaboration with Desmet Ballestra of Italy. The plant has received the International Sustainability and Carbon Certification from Germany in May 2014 which enables it to export Sustainable Biodiesel to European Union at a premium. Conforming to stringent European Union Standard (EN14214) norms as well as the benchmark standards set by BIS (Bureau of Indian Standards), Emami Biotech Limited is determined to give greener substitutes for petroleum derivatives to fulfill the energy needs of the country and protect the environment. Emami Biotech Ltd, a unit of Emami Group, is planning to invest Rs400 crore to develop bio-fuel plantation in Ethiopia, according to company sources. The Ethiopian government has already allotted the land and the first phase of commercial plantation has begun in 2009. Commercial production has begun on 30,000 acres of land. The project, with an annual capacity to produce 100,000 tones of crude bio-fuel and edible oil, would be fully operational in 4-6 years. Bio-fuel would be exported to India for production of bio-diesel and the edible oil produced in Ethiopia will be used for captive consumption. Page 14
The company already has a bio-fuel plant at Haldia, West Bengal, with a daily capacity of 300 tones and 1,000 tones of edible oil. Emami Biotech is planning to develop two edible oil plants in Gujarat and Tamil Nadu at a total investment of Rs300 cr. Emami Biotech have already signed a memorandum of understanding with the Gujarat government for the developing the plant with the capacity of 1000 tones of edible oil per day. PROBLEMS Emami Biotech first invested Rs 150 crore exclusively for the bio-fuel project in April 2007. The plan was to produce bio-fuel from imported palm oil seeds. But the world food prices suddenly sky-rocketed and importing palm oil became very expensive and unviable for the project. So, Mr. S. K Mondal, director of Emami Biotech, decided to use jatropha oil seeds instead of for this purposes and set up one edible oil production unit altogether. They have invested another 100 crore for only edible oil purpose. The petroleum ministry has recommended a mixture of 20% bio-fuel with 80% diesel, minimizing sulphur and particulate emissions. Emami however has run vehicles on B40 (40% bio fuel and 60% diesel) without any modification of the engine mechanism. Experimental testing of B100 has been done with 100 per cent bio-fuel to run diesel generators. At present more than 22000 telecom towers of different telecom operators are available in West Bengal. The secretary of West Bengal Pollution Control Board (WBPCB) had asked to use biodiesel in place of diesel to reduce emission for their generator set of tower owners. The daily consumption of these diesel generator set is 3 to 4 liters. The managing committee of Emami Biotech has offered all private buses free supply of biofuel for three days so that people can experience the change it brings to the city's environment. Emami s bio-diesel was priced at Re 1-1.50 more than diesel. So one liter of biodiesel used to cost close to Rs 31.50. The price varied depending on increase in fuel price hike. Emami Biotech was already selling bio-diesel at a lower price. This is contrary to international practice where consumers buy bio-diesel at a premium to use it in their vehicles. According to expert committee, unless the government modified its price mechanism on selling bio-diesel, its production would become unviable. Emami s bio-diesel got impetus from test reports from internationally known emission certifying agencies SGS Singapore and SGS India. Both of them certified that the plant's biodiesel sample as the finest of its kind," said executive director of Emami Biotech S K Mondal. Emami was planning to set up bio-diesel dispensing units for individual customers and had identified locations in Balasore in Orissa and at Haldia in West Bengal. The cost of setting up each dispensing unit had worked out to close to Rs 3 lakhs, plus the land cost. They had plans to set up at least six bio-fuel dispensing stations. But the Fire Brigade just could not issue us the clearance certificates as bio-diesel finds no mention in their manual. The Fire Brigade's clearance is mandatory to set up such stations. The production capacity is 300 tones (305497 liters) of bio-fuel per day from the residue of edible oil produced at Haldia plant. But government policy prohibits green fuel manufacturers from selling the fuel in the open market. The management has decided to sell it to one of the three oil PSUs. But the Oil PSUs had offered prices below production cost. So, these price Page 15
differences made huge losses for green fuel manufacturers and most of them had bound to stopped their production due to piles unsold stocks. The state transport department has shown interest in using bio-fuel for state buses. According to the Ministry of Petroleum and Natural Gas (MoPNG) regulation, non-edible oil can not be purchase or sale for the use as a transport fuel without prior permission from oil marketing companies (OMC s). All the petroleum products come under declared goods category as per the act 1956. Bio-fuels come under transport fuel which is highly sensitive so, its trading is strictly restricted by any companies or individuals other than OMC s. The Emami Biotech had started supplying 90 tones (91649 liters) per month to the Calcutta Tramways Corporation (CTC) of West Bengal without prior permission from OMC s. The Oil Marketing Companies (OMC s) filed a case in the Calcutta High Court against Emami Biotech, CTC and Govt. of West Bengal in 2009. The circular (No. P-45011/17/2009) issued by the Petroleum Ministry, requested the state governments to ensure that unauthorized sale and possession of bio-diesel in the market is checked and eliminated. Since then the CTC has stopped purchase of biodiesel from Emami biotech. Now Mr. S.K Mondal, executive director of Emami Biotech, is in big trouble. He is unable to decide which crop (sugar cane, jatropha or any other oil seeds) need to grow for uninterrupted feedstock supply for bio-fuel production. He doesn t know how to motivate farmers for oil crop production without any assurance from govt. and insurance companies. Give him some suggestion that how he can turn this business in a profitable manner. QUESTIONS What are the other alternative sources of raw materials that the company can use for fuel production? What would be the strategy to solve these problems? Page 16