The Government of India has launched a new financial assistance scheme aimed at improving the ethanol production capacity of Cooperative Sugar Mills (CSMs). The scheme, titled “Scheme for extending financial assistance to Co-operative Sugar Mills (CSMs) for conversion of their existing sugarcane based feedstock ethanol plants into multi-feedstock based plants to use grains like Maize and Damaged Food Grains (DFG) for enhancement and augmentation of ethanol production capacity”, will help CSMs convert their existing ethanol production facilities into multi-feedstock plants. This will permit it to use a wider range of feedstocks, such as corn and damaged food grains (DFG), to increase ethanol production. This initiative is part of the Government's broader effort to increase ethanol production and its supply under the Ethanol Blending with Petrol (EBP) programme, which will support the sugar industry and improve its liquidity.

Background of the Scheme

The Indian government has been focusing on promoting the ethanol blending program for many years. Through the EBP program, the government aims to reduce India's dependence on crude oil imports and promote clean fuel options. The Ministry of Consumer Affairs, Food and Public Distribution (Department of Food and Public Distribution or DFPD) has been involved in the implementation of various schemes to promote ethanol production. In line with this objective, several schemes have been launched in the past, such as providing financial assistance to sugar mills and molasses-based single distilleries for enhancing ethanol production capacity.

This new initiative will focus on Cooperative Sugar Mills (CSMs) across India and provide a more specific avenue for financial assistance. The inclusion of a range of financial institutions, including those with NBFC registration, provides a more comprehensive and flexible framework for financial assistance. The focus on converting sugarcane-based ethanol plants to multi-feedstock plants marks a significant shift in how ethanol production is delivered. It reflects the growing importance of diversifying feedstocks to ensure a more sustainable and scalable ethanol production model.

Eligibility for Financial Assistance

The financial assistance under this scheme is specifically targeted at the cooperative sugar mills (CSMs) in India. These mills have to fulfil some key eligibility criteria to avail the benefits of this scheme:

Existing ethanol plant: Only CSMs with operational ethanol plants are eligible for this scheme. The mill must have a valid Consent to Operate (CTO) and required licenses from Petroleum and Explosives Safety Organisation (PESO).
Plant conversion: The objective of this assistance is to convert existing sugarcane-based ethanol plants into multi-feedstock plants. This means that mills will be able to use not only sugarcane but also other grains such as maize and damaged food grains (DFG) as feedstock for ethanol production.

Assistance under the Scheme

Interest subvention: The government will provide interest subvention on loans taken by eligible CSMs for conversion projects. The subvention will be 6% per annum or 50% of the rate of interest charged by lending institutions such as banks, the National Cooperative Development Corporation (NCDC), the Indian Renewable Energy Development Agency Limited (IREDA), or Non-Banking Financial Companies (NBFCs), whichever is lower. This subvention is provided for a period of five years, including a one-year moratorium on loan repayment.
Loan sanction: The loans sanctioned to CSMs will be based on the proposed capacity conversion into multi-feedstock plants. However, the loans will only be sanctioned once the Department of Food and Public Distribution (DFPD) gives in-principle approval to the project.
Ethanol supply commitment: To qualify for this scheme, CSMs must agree to supply at least 75% of the ethanol produced from their multi-feedstock plant to Oil Marketing Companies (OMCs) for blending with petrol. This commitment is central to the government’s goal of boosting ethanol blending rates across the country.
Non-duplication of benefits: If the Co-operative Sugar Mill has already availed benefits under any other central government scheme for the same project, it will not be eligible for financial assistance under this scheme.

Submission of Application

To avail assistance under this scheme, the Cooperative Sugar Mills are required to submit an application-cum-proposal within 6 months from the date of notification of the scheme. This submission should be done online through the National Single Window System (NSWS) portal.

Also Read: How to Start Ethanol Production Plant in India

Appraisal and Approval of Applications

The Department of Food and Public Distribution (DFPD) will constitute a Screening Committee to scrutinize the applications submitted under the Scheme for Cooperative Sugar Mills. This Committee will evaluate the proposals on the basis of essential criteria. If a sugar mill has any outstanding government dues, the approval will be given only after the clearance of these dues. Once the screening committee recommends the proposals, they will be forwarded to the Secretary Food and Public Distribution (F&PD) for final approval.

Modalities of the Scheme

After scrutinizing the applications-cum-proposals, DFPD will accord in-principle approval and recommend such approved proposals to the lending banks/financing institutions for considering sanction of loan. Banks/NCDC/IREDA/NBFCs/any other Financial Institutions which are eligible for re-finance from NABARD would be at liberty to sanction/release the loan as per their commercial norms/policies and in compliance with regulatory guidelines, including the restructuring guidelines, as notified by RBI from time to time.
The Applicant should get the loan disbursed from the Banks/NCDC/IREDA/ NBFCs/any other Financial Institutions which are eligible for re-finance from NABARD, within one year from the date of in-principle approval of DFPD, failing which the in-principle approval for the project shall stand cancelled. Further, the project should be completed within 2 years from the date of disbursement of 1st instalment of loan from Banks/NCDC/IREDA/NBFCs/any other Financial Institutions which are eligible for re-finance from NABARD.
The applicant should adhere to the time line as specified by DFPD and update progress every month, failing which the in-principle approval for the project may be cancelled by DFPD.
The disbursement of loan under the Scheme shall be in a separate account so that the utilization of the money for the said purpose is easily monitored.

Modalities of Payment of Interest Subvention

Interest subsidy period: Payment of interest subsidy (subsidized interest) will be available for a maximum period of 5 years, including a moratorium (delay in payment) of one year. After the moratorium period, the loan repayment requirement will start.
Conditions for interest subvention: Interest subvention will be available only if the loan account of the cooperative sugar mill is “standard”, i.e. the mill has not defaulted on any payment. If the account becomes a non-performing asset (NPA) or if there are defaults, the cooperative will no longer be eligible for interest subvention. The mill will also be liable for payment of interest, including any penalty interest that may be levied on account of default, along with the principal amount of the loan. Banks will be allowed to take necessary action against defaulting borrowers as per banking regulations.
Surplus cash flow: If cooperative sugar mills are facing surplus cash flow, they can opt for accelerated payments. This will reduce the DFPD’s interest concessional liability, which means the government’s financial liability for the loan will be reduced.
Release of interest subsidy: The Department of Food and Public Distribution (DFPD) will release interest subvention payments in advance to the nodal bank, which is NABARD, on a quarterly basis. Any interest earned on advance interest payments will be adjusted in the next quarterly installment.

Also Read: How to Start a Sugar Mill in India

Project Completion Certificate

After the project is completed, the Cooperative Sugar Mill will have to submit a consent to operate certificate issued by the Central Pollution Control Board (CPCB), State Pollution Control Board, or the competent authority of the State Government. If the project involves conversion of a single feedstock ethanol plant to a multi-feedstock plant, the mill must also submit a certificate issued by the relevant state government authority or a chartered engineer. This certificate must confirm that the conversion has been completed, and ethanol production has commenced, or the production capacity has been increased. Additionally, the mill will have to prove that it has achieved Zero Liquid Discharge (ZLD) as per the method specified while applying for the scheme. If this certificate is not submitted, the interest subsidy will not be refunded by the Central Government.

Utilization Certificate

The Cooperative Sugar Mill shall submit a utilization certificate within 6 months of completion of the project. This certificate should be attested by a Chartered Accountant, confirming that the loan amount has been utilized for the intended purpose as mentioned in the scheme. If the certificate is submitted after 6 months, DFPD will consider the reasons for the delay and may grant an extension or relaxation based on the merits of the case. If the utilization certificate is not submitted at all, the mill will lose eligibility for interest relief.

Amendment of the Scheme

In such cases where the Central Government considers it necessary or expedient, it shall have power to amend any of the provisions of this Scheme. Such amendment shall be made by an official order, and the reasons for the changes shall be recorded in writing.

Conclusion

The Government of India's new scheme is a major step towards increasing ethanol production by cooperative sugar mills. By offering financial assistance for converting sugarcane-based ethanol plants into multi-feedstock plants, it encourages the use of surplus feedstocks such as maize and spoiled food grains. This initiative will help increase ethanol production, support the sugar industry, and contribute to the ethanol-petrol blending program. The scheme provides interest subsidy, loan assistance, and a clear process for eligibility and approval, ensuring that cooperative sugar mills can play a key role in achieving India's energy goals. This initiative reflects the government's commitment to sustainable and diversified fuel production.

India's New Scheme to Boost Co-operative Sugar Mills with Financial Aid for Multi-Feedstock Ethanol Production

Schedule a call back

Mahek Sancheti