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Uncertainty in ethanol blending as ministry delays notification

Over a month after the Cabinet committee on economic affairs decided to implement blending of ethanol with petrol in a ratio of 5:95 from December 1, the petroleum ministry is yet to notify the decision.

Over a month after the Cabinet committee on economic affairs (CCEA) decided to implement blending of ethanol with petrol in a ratio of 5:95 from December 1, the petroleum ministry is yet to notify the decision. Lack of an order has cast fresh uncertainty over the blending programme. The plan was first approved by CCEA in 2008 to reduce pollution, but could not be implemented due to absence of a fixed pricing formula for ethanol.

On November 22, CCEA had decided to link ethanol price with the market to make it attractive for producers of the cane byproduct, and directed the petroleum ministry to ?immediately issue a gazette notification? for oil marketing companies (OMCs) to implement the programme from December 1, according to an official statement released after the CCEA meeting. Prior to the decision, OMCs used to float tenders to buy ethanol at the provisional price of R27 per litre, which producers said was at least 25% lower than the market rate.

Some sugar industry executives expect the cash-starved sector to rake in around R1,500 crore more, or an additional 20%, from sales of the sugarcane byproduct if the latest decision is strictly implemented, as it would raise competitions among buyers, including rectified spirits and potable alcohol producers, and oil marketing firms. However, consuming industries ? mainly potable alcohol producers ? are opposing the move fearing a flare-up in their raw material cost.

The department of food and public distribution had also asked the petroleum ministry earlier this month to take ?quick decision regarding the notification of mandatory blending of ethanol with petrol?, food minister KV Thomas said. Still, there has been no notification.

?We have not received official communication to this effect yet,? said a senior official at Indian Oil Corporation. ?We are finalising the (usual) internal process for floating tenders…. although it’s difficult to give any time frame by when we will float them for ethanol purchases,? the official said. A senior sugar industry executive said no fresh contract has been entered into with OMCs since CCEA decision last month as ?everybody is waiting for that elusive notification?.

?The delay in notification without any reason shows the lack of seriousness by certain sections of the government in handling the issue despite CCEA assurance. The government’s target of 20% mandatory ethanol blending with petrol by 2017 is likely to be missed, considering that even the 5% blending programme is not fully realised,? said a senior executive at a Uttar Pradesh-based sugar mill. Only 13 states have so far implemented the programme since 2008, although the blending is less than half the targeted level of 5%.

?The ethanol blending programme not only provides opportunities to sugarcane farmers, but it also ensures the use of ethanol as bio-fuel in a big way which is environment friendly. Besides, to the extent of implementation, this reduces the dependence on imported crude and leads the nation ahead on fuel self sufficiency,” the official statement said last month, after the CCEA meeting.

Although ethanol supplies to the OMCs have been trailing demand for some time now, producers have long blamed it on the low provisional price set by the government.

“When rectified spirits, produced from molasses, with 94.5% purity fetch R34-36 a litre, producers were supposed to supply fuel ethanol with 99.5% purity at a provisional price of R27 a litre. Moreover, producers were suffering huge losses as the volume also drops by around 5% if you process the rectified spirit further to produce fuel ethanol. So it was a double whammy for the producers. But if OMCs buy at market prices and the blending plan is implemented strictly, the sugar industry will benefit greatly, as ethanol producers would have fixed buyers each year,” a senior industry executive had told FE after the CCEA decision last month.

The sugar industry has said if the OMCs pay the market price for ethanol, it will cater for their entire demand. OMCs don’t have any objection to the implementation of the programme either as ethanol is priced lower than petrol, according to a senior official with an OMC.

In 2011-12, producers offered to sell 60.8 crore litre of ethanol to OMCs, compared with their requirement of 82.5 crore litre. Worse, contracts were signed for the supply of 41.4 crore litre and final sale was only to the tune of 30.6 crore litre. Some producers backed out of the contract as they got better prices from other buyers. The country’s ethanol production rose 8% in 2011-12 from a year before at 283.8 crore litre, while demand stood at 279.6 crore litre, of which the requirement by the OMCs accounts for nearly 30%.

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First published on: 28-12-2012 at 00:17 IST
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