Wither Indian Investment in Biofuel Capacity?
Posted by Nick Henriksen on June 5, 2007
This Monday, Brazilian President Luiz Inacio Lula da Silva and Indian Prime Minister Manmohan Singh vowed to increase bilateral trade to $10 billion by 2010, up from $2.4 billion in 2006. Although bilateral trade flows between India and Brazil have been growing steadily, they remain “modest”. Illustrating this, according to the Global Policy Forum, 2004 flows between India and Brazil reached $1.04 billion, representing only 1% of all Brazilian foreign trade flows.
Many have predicted that a major impact of these closer trade links will be greater trade in biologically derived sources of energy, ethanol in particular. At a most basic level, Brazil’s highly developed ethanol industry has much to offer in the way of addressing India’s growing energy demand. The Indian transportation sector is already familiar with alcohol-gasoline fuel mixes (in 2003 New Delhi mandated fuel in 9 states contain 5% ethanol) and increased supplies of ethanol from Brazil could have an important role in decreasing India’s reliance on the Middle East for its oil needs.
Although India and Brazil are leading producers of sugarcane, one potential source of ethanol feedstock, India has yet to develop its domestic ethanol production capacity. To India’s credit however, Brazil has had a significant head start: government-led investment in ethanol has been ongoing since the launch of the 1975 Programa Nacional do Álcool (National Alcohol Program). Following this, Brazil has effectively achieved the energy “independence” often cited as (the eventual) goal of industrialized nations’ energy policies. Through this program, Brazilian ethanol is now more economically attractive than traditional transportation fuel. In January 2006, the Wall Street Journal reported that Brazilian ethanol cost $1.00/gallon at the pump, compared to an average price of $1.50 for gasoline.
While a homegrown ethanol industry will take time and significant investment to develop, India has been given the opportunity to “piggyback” on Brazil’s expertise through investment in the Brazilian ethanol industry. Unfortunately, Indian firms have been slow to take advantage of this important opportunity. On 6/5/2007, DNA reported that although Brazilia offered Indian firms a “piece of its ethanol pie” during a visit by PM Singh, only Mumbai-based sugar and ethanol manufacturer Bajaj Hindustan (BHL) has committed to actual investment. Already committed to building four new ethanol production mills in eastern Uttar Pradesh (one in Barabanki, one in Gonda and two in Basti district), BHL is reportedly looking to acquire a sugar factory in Brazil and has designated $500 million towards “inorganic growth” in the country.
Growing Indian energy demand necessitates that more than one Indian firm engage in ethanol production investment. Government support for India’s nascent ethanol industry is (without question) desirable, but firms should also take advantage of the greater degree of openness that recently characterizes Indo-Brazilian trade relations. In order to ensure its future energy security, Delhi should ensure that Indian companies are able to compete with the firms from Western Europe currently scrambling to invest in Brazilian ethanol. Lula da Silva himself has noted, “The governments of Brazil, India and some other countries have come together to create a world market for renewable energy but this can happen only if companies collaborate”.
India already imports significant amount of ethanol from Brazil (414 million liters in 2005) and produces 2 billion liters on its own. Additionally, Indian surplus sugarcane production, currently 9 million tons, represents another 4 billion liters of potential domestic ethanol production.
In order to maximize India’s energy security, efforts should be made to increase domestic ethanol utilization as well as further the expansion of India’s ethanol refineries. The recent trade accord should help accomplish the first of these goals. In order to address the other goal, New Delhi should encourage FDI in the Brazilian ethanol industry as well as efforts to construct more ethanol production facilities within India itself.
India should also be careful to remember the demand side of the equation: government-directed mandates for ethanol utilization in the the (growing) transportation sector should also be a part of greater Indian energy policy.
Jatropha Plant to Address India’s Energy Needs? « The SubContinental Wire said
[...] Although some worry the flow of money into jatropha could suddenly dry up if the plant doesn’t live up to the hype and horticulturists caution that little is known about the plant due to its only new-found notoriety , some feel that jatropha oil could play a significant role in growing India’s biofuel capacity, something the Wire first profiled here. [...]