A profound crisis has engulfed Bihar's burgeoning ethanol sector, casting a long shadow over its industrial landscape. For over two-and-a-half months, all 14 grain-based ethanol production plants in the state have been grappling with an existential threat following a drastic 50% cut in ethanol procurement by oil marketing companies (OMCs). This severe contraction in demand has pushed these facilities to the precipice of permanent closure, with bankruptcy looming large on the horizon.
An Industry on the Verge of Shutdown
The mood within Bihar's ethanol manufacturing circles is one of deep despair and uncertainty. Kunal Kishore, Secretary General of the Bihar Ethanol Manufacturers' Association, painted a grim picture, stating, "A complete gloom prevails. All 14 grain-based plants face closure by the end of the next month. One plant will operate for 15 days, then shut down, and this pattern will continue until all are eventually closed." He emphasized that the impending collapse would have devastating ripple effects, adversely impacting engineers, workers, laborers, and the farmers who supply raw materials.
Currently, Bihar hosts eight operational ethanol plants based on sugarcane juice and 14 based on grains like maize and rice. The combined production capacity stands at approximately 84 crore litres per month. However, with purchases now limited to just about 44 crore litres, plants are forced to operate at a mere 50% capacity, running for only 15 days each month. Compounding the problem are existing regulations and contractual terms that prohibit the sale of ethanol in the open market, mandating supply exclusively to OMCs. This dire situation is not unique to Bihar; nationally, around 350 grain-based ethanol plants across various states are facing similar distress.
Root Causes of the Crisis
Shift in Procurement to 'Deficit Zones'
The crisis confronting Bihar's grain-based ethanol plants stems from four interconnected factors. Firstly, the rise of new ethanol production facilities in other states, which OMCs classify as "deficit zones." In a strategic shift, OMCs are increasingly prioritizing procurement from these newer areas to stimulate local production, often at the expense of established suppliers like those in Bihar. This has dealt a severe blow to Bihar's industry, which is barely four years old. The state's first grain-based ethanol plant was inaugurated by Chief Minister Nitish Kumar in Purnia district on April 30, 2022, followed by rapid expansion into districts including Muzaffarpur, Begusarai, Vaishali, Nalanda, and Buxar.
Overproduction and Stagnant Demand
Secondly, the industry is suffering from significant overproduction. Driven by the Central Government's ambitious 20% ethanol blending program with petrol, nationwide supply of grain-based ethanol—including from Bihar—has skyrocketed. Initial demand estimates of 1,050 crore litres have ballooned to around 1,700 crore litres, creating a massive supply glut while demand remains stagnant or capped.
Regulatory and Market Constraints
The third factor is the continued emphasis by OMCs on augmenting supply specifically from these deficit zones. Fourthly, the regulatory restriction that ethanol can only be sold to OMCs and not on the open market eliminates any alternative sales avenues for producers, trapping them in a dependent relationship with the procurement companies.
From Boom to Bust: Promoters' Plight
The current despair marks a dramatic reversal of fortune for ethanol promoters in Bihar. Initially, buoyed by the Centre's 2018 policy to increase ethanol blending to 20%, investors entered into tripartite agreements involving the promoter, the OMC, and financing banks. The Central Government facilitated policy, while the Bihar government offered land, subsidies, and incentives to attract investment. "From 2021, the Bihar ethanol industry and its promoters were bullish. They established plants one after the other. Now, five years later, they face closure and eventual bankruptcy due to policy changes made by the OMCs from November 1 last year," lamented a promoter who spoke on condition of anonymity.
He warned of "huge collateral damage" and the prospect of plants being "reduced to scraps." Despite delegations meeting Union Home Minister Amit Shah, Petroleum Minister Hardeep Puri, the Bihar Chief Minister, and senior officials, the situation remains unresolved and is deteriorating daily.
Political Promises Versus Harsh Reality
The crisis stands in stark contrast to the optimistic projections made during the 2020 Bihar assembly elections. Leaders across the NDA, including Prime Minister Narendra Modi and Chief Minister Nitish Kumar, repeatedly championed ethanol blending as a catalyst for industrial revival, portraying it as a golden opportunity for Bihar to emerge as a national ethanol hub. Industry Minister Dilip Kumar Jaiswal acknowledged the disconnect, noting, "Earlier, as per the central government policy, the OMCs were to buy the entire ethanol output from the state. We are in talks with the central government. If the ethanol blending percentage is increased, the problem will be solved." However, for the hundreds of workers, engineers, and farmers whose livelihoods are now imperiled, such assurances offer little immediate solace as the industry teeters on the edge of collapse.
