When Kamal Distilleries Pvt. Ltd., a mid-sized agro-processing company in Karnataka, first approached Green Permits, their team had already invested crores into a 60 KLPD grain-based ethanol plant. Their assumption was simple: “OMCs will buy everything we produce.” But within just two months of supplying, they realised the real challenges weren’t inside their distillery — they were inside their OMC contract, the delivery score, and the payment timeline.
This is where most new ethanol producers struggle. Ethanol is profitable, but only for those who understand the deeper mechanics — penalties, payment cycles, quality obligations, feedstock planning, and supply discipline.
This guide distills the entire ecosystem so that entrepreneurs, compliance heads, and investors can make informed decisions and avoid the mistakes Kamal Distilleries made in their first ESY.
India’s transition towards cleaner fuels and reduced crude imports has placed ethanol at the centre of national energy policy. But beyond policy objectives, ethanol is now an industry with commercial certainty and stable offtake — rare qualities in the energy sector.
India consumes more than 4,500 crore litres of petrol annually. Blending ethanol into this volume creates a consistent, predictable demand that private industry can tap into. Ethanol is not a niche green product anymore; it is a mainstream fuel component.
Multiple ESYs have shown the same pattern — India’s fuel blending demand exceeds available ethanol supply. Even though new plants are coming up across states like UP, Maharashtra, Telangana, Karnataka, and Gujarat, the gap is still large. This ensures multi-year demand visibility.
Unlike many other industries, ethanol enjoys continuity across policy cycles. Whether it is interest subvention for new plants, feedstock flexibility, or procurement price stability — the entire ecosystem is aligned to create long-term viability for producers.
The ecosystem is designed to create a mutually reinforcing loop.
This alignment is why ethanol has become one of India’s strongest green-growth sectors.
Every discussion about ethanol starts with “assured offtake by OMCs.” But what most new investors do not understand is how OMC procurement actually works — and how this affects contracts, penalties, and payments.
The ESY structure (1 November to 31 October) creates a predictable annual cycle for prices, allocations, and delivery performance. Your business success depends on how well you perform within this cycle.
Important ESY impacts:
ESY discipline is one of the most important yet least understood aspects of the business.
OMCs float a combined tender. Distilleries submit plant details, production capacity, and feedstock-wise quantity availability. Allocation is not random — it follows:
Once you receive your allocation, it becomes your contractual obligation for the year.
OMC prices are notified annually. You cannot negotiate them. These prices are based on:
This ensures stability. But it also means plants must control internal costs, as selling price is fixed.
Profitability in ethanol is not merely about selling price. It is an interplay of feedstock cost, plant efficiency, penalties, delivery performance, and cashflow discipline.
Entrepreneurs often focus only on the main ethanol revenue line. But profitability is shaped by:
Successful plants are those that combine operational and contractual discipline.
A realistic assessment based on operational benchmarking:
Profitability depends on your ability to run at high utilisation and meet delivery commitments.
An ethanol plant in Telangana projected a 16% IRR. But during ESY, maize prices rose sharply, reducing margins. The plant ended the year at an actual IRR closer to 11.5%.
This demonstrates an essential rule: ethanol price remains fixed, but feedstock price does not, making procurement strategy critical.
The ethanol contract with OMCs is a performance contract — not a simple purchase order. Understanding it is the difference between smooth operations and operational chaos.
Your allocated quantity is divided into monthly or quarterly commitments. If you fail to deliver consistently, your next ESY allocation is reassessed. Even minor shortfalls, if repeated, lead to reduced future business.
BIS IS:15464 is not a guideline — it is a strict requirement. Every tanker undergoes quality checks. A single off-spec delivery affects your scorecard. Plants must maintain:
The cost of a rejected tanker includes transport losses, delay in payment, and contract score reduction.
OMCs typically require a bank guarantee. This protects them against:
Many new distilleries underestimate the seriousness of these clauses.
Penalties are not always monetary — the real cost often appears in reduced allocations, delayed payments, and loss of reputation with OMCs.
Short-supply is the biggest compliance issue. If you commit 100 lakh litres but deliver only 85 lakh, the immediate impact seems small.
But the long-term consequence is significant:
If your tanker does not arrive within the scheduled time window:
This affects cashflow more than entrepreneurs realise.
The entire tanker is rejected if ethanol is off-spec. Costs include:
A 45 KLPD plant in MP delivered 78% of its contracted quantity due to monsoon-related downtime. They didn’t receive a large financial penalty, but their next ESY allocation was cut by more than 20%. Their annual revenue dropped significantly, despite high plant efficiency after repairs.
This illustrates that non-monetary penalties are often more damaging.
Many plants collapse not because they lack production, but because they cannot manage cashflow.
OMC payments generally arrive within 21–30 days of each delivery. But delays commonly occur due to:
These delays compound, affecting working capital and interest costs.
Under the tripartite escrow system:
This makes financing easier and reduces NPA risk, but also means entrepreneurs must tightly plan their cashflow to cover:
Even small delays create large financial pressure.
| Scenario | Payment Timeline | Additional Working Capital Required | IRR Impact |
|---|---|---|---|
| Perfect delivery & QA | 21 days | None | IRR stable |
| Minor QA hold | 30–35 days | ₹30–50 lakh | IRR drops 1% |
| Tanker rejection | 45–60 days | ₹1–2 crore | IRR drops 2–3% |
| Multiple issues | 60+ days | ₹3+ crore | Significant IRR erosion |
Compliance is not paperwork — it is revenue protection. OMCs are strict about documentation because ethanol blends directly into fuel supply chains.
A distillery in Chhattisgarh faced a 17-day payment freeze because its hazardous waste disposal manifests did not match its SPCB entries. The issue was procedural, not operational, yet it affected revenue.
This is why ethanol businesses must treat compliance as a core function, not an administrative task.
Not every entrepreneur should enter ethanol. It requires an unusual combination of operational discipline and contract management.
Ethanol rewards consistency, not shortcuts.
India’s ethanol industry is a major growth opportunity. But the winners are not only those with large plants — they are those who understand contracts, penalties, payments, feedstock planning, and compliance.
If you master these aspects, ethanol becomes one of the most secure and profitable green businesses in India.
For end-to-end support — feasibility, compliance, OMC contract advisory, and project planning:
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Yes. Ethanol plants in India can deliver 12–20% IRR depending on feedstock cost, plant uptime, compliance discipline, and OMC payment timelines.
OMCs procure ethanol through annual ESY tenders, allocate depot-wise quantities, and sign offtake agreements with distilleries for fixed-price supply.
Penalties apply for short-supply, delayed delivery, and off-spec quality. These can reduce next-year allocation and affect the distillery’s performance score.
OMCs typically clear payments within 21–30 days after delivery and QA clearance. Delays due to documentation or QC hold can extend this cycle.
A 60 KLPD ethanol plant requires ₹100–200 crore depending on whether it is molasses-, grain-, or multi-feedstock-based.
