Ethanol blending with petrol yet to gather steam

Some seven years have passed since the government launched the programme to blend 5 per cent ethanol with petrol. However, the desired blending has not yet been achieved because of problems over pricing and procurement.  

Ethanol is considered a green fuel and its blending with petrol will help reduce India's heavy dependence on crude oil imports. But ethanol is also used by the chemical and alcohol industries and the prices of the fuel in these two sectors determines its cost to the oil marketing companies (OMCs).

Blending at the rate of 5 per cent will require 1,050 million litres ethanol annually. But the OMCs (Indian Oil, Bharat Petroleum and Hindustan Petroleum) have procured only 400 million litres since January 2013. Blending in states like Uttar Pradesh, Haryana, Punjab, Delhi and Karnataka has been taking place at 10 per cent but in several other states like Tamil Nadu, Andhra Pradesh, Maharashtra and Gujarat only 5 per cent has been achieved. At the national level, only 2 to 2.5 per cent blending is happening against a target of 5 per cent.

In January 2013, the OMCs had floated tenders to purchase 1,400 million litres of ethanol. It took seven months to finalise the offers in this tender. The sugar industry, the producers of ethanol, had offered 550 million litres but only a quantity of 400 million litres was contracted by the oil companies.

"Since there was a time lag of seven months between the tender date and date of finalisation, many producers had committed sales to buyers in the chemical and alcohol industries", said an official at the Indian Sugar Mills Association.

Ethanol got procured at an average basic price of Rs 38 per litre and the delivered price at the oil companies' depot was around Rs 46.

The OMCs floated another tender in July 2013 to procure 1,335 million litres ethanol. They received offers of 618 million litres but bought only 248 million litres. "In the second round, prices were higher and the average basic price was Rs 41 per litre while price at depot was Rs 50", he said.

The government has also allowed import of ethanol to overcome shortfalls faced by both oil companies and the chemical industries. But a global tender floated by the OMCs in January 2013 had to be scrapped since the offers tendered by international suppliers ranged from Rs 69 to Rs 92 per litre, much higher than the prices prevailing in the domestic market.

Sugar industry officials say the OMCs are not willing to pay a basic price more than Rs 44 per litre even though at the current petrol price of Rs 72.43 per litre (in Delhi), the companies can pay Rs 47 without making any profit or loss.