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No agreement yet between oil cos & ethanol producers: Praj

According to reports, Pramod Chaudhari, executive chairman, Praj Industries believes that if ethanol blending in petroleum is raised to about 10 percent then it will result in higher capacity. Going forward, it will also help the Indian government as it plans to go to 20 percent by 2017. He says though a tender system is followed, there is no agreement for regular blending yet between oil companies and ethanol producers. Below is the verbatim transcript of Pramod Chaudhari’s interview on CNBC-TV18

Q: Can you just give us an initial assessment of how much this could impact a company like yours, the fact that ethanol blending in petroleum will be raised to about 10 percent?

A: Currently it is 5 percent. 5 percent capacity was already created but 10 percent blending will definitely result in higher capacity. It will pave the way for going forward because the government of India has declared the intent to go to 20 percent by 2017. So, it will be a move in the right direction if 10 percent really becomes a reality in implementation, which is most important. It should definitely give us a good traction on our business also.

Q: You said implementation is very important. What are the keys here? How much is the industry ready to absorb?

A: The point is that there is a tender system being followed by oil companies and it is between the oil companies and ethanol producers. They are still not able to come to an agreement for regular blending that is the problem.

Q: You said the existing ethanol production capacity is adequate to meet the currently mandated 5 percent. What is the existing capacity and how much can it go up by?

A: When I say existing capacity, it is for the capacity of converting alcohol to ethanol. That capacity is adequate currently from our side. As far as the overall production of ethanol is concerned I think even that is adequate from the quantity point of view 5 percent is no problem. 10 percent blending will give rise to what is called as second generation technology where a lot of ethanol can be produced from biomass like gas and other things. It will be also getting an impetus to that kind of development in time to come.

Q: How much will a one percent increase in blending lead to an increase in margins or profitability?

A: The quantity required is 1.3 billion litres, say about Rs 130 crore are required for 5 percent blending. If it becomes 10 percent we require 2.6 billion litres and ofcourse the consumption keeps on increasing day by day.

Q: If tomorrow government says 10 percent will be allowed give us a timeline on how it will start? How the benefit will start accruing to you?

A: Let 5 percent become the implementation reality. I am sure the industry will start really investing because it is definitely helping them to improve the bottomline. I am sure that will be very advantageous for producers and for a company like us. We are waiting for the implementation to start with 5 percent atleast.

Q: Within this fiscal itself, within FY14 do you expect to see any kind of incremental gains in your profits?

A: No, this will not affect us. Our lead time is about 6-8 months in this area.

Q: Both producer and you have to be really ready and both are not at the moment ready, is that right?

A: We are negotiating on pricing and supply conditions. We are ready from our side all the time.

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