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A cabinet panel on Thursday approved a new market-based mechanism for revising the price of ethanol used for blending in petrol, resulting in a fall in prices by Rs 3 to Rs 39 per litre for the fuel extracted from sugar.
Announcing the cabinet decision here, Union Petroleum Minister Dharmendra Pradhan said the price of ethanol will be determined on the basis of the prevalent price of sugar in the open market as also the demand-supply situation.
"Any pricing mechanism should be market driven and we are moving towards that in case of ethanol as well," he said.
"The rate paid to sugar mills was never Rs 48.50. It was Rs 42. That price (Rs 48.50) was after including excise duty, VAT and other levies and transportation cost," he said.
"The Cabinet Committee on Economic Affairs has approved the mechanism for revision of ethanol price for supply to public sector oil marketing companies (OMCs) to carry out the Ethanol Blended Petrol (EBP) Programme," an official statement said.
It said that for ethanol supply for the period from December 1, 2016 to November 30, 2017, the administered price of ethanol for the EBP programme will be Rs 39 per litre.
Besides, charges will be paid to the ethanol suppliers as per actuals in case of excise duty and VAT/GST and transportation charges as decided by OMCs.
"If the need arises to increase/reduce the retail selling price of petrol by public sector OMCs, then such increase/reduction would proportionately factor in the requirement of maintaining the fixed cost of purchase of ethanol during the ethanol supply year," the Petroleum Ministry statement said.
The prices of ethanol will be reviewed by the government at any time during the ethanol supply period -- December 1, 2016 to November 30, 2017 -- depending upon the prevailing economic situation and other relevant factors, it said.
"The revision in ethanol prices will facilitate the continued policy of the government in providing price stability and remunerative prices for ethanol suppliers," it added.
The government had in December 2014 fixed a price in the range of Rs 48.50-49.50 per litre for procurement of ethanol for blending with petrol.
"The objective to fix the delivered price of ethanol has been achieved to a large extent. In view of firming of sugar prices, falling crude prices and consequent under-recoveries of OMCs on this account, a need to re-examine the pricing of ethanol under EBP Programme has been felt," the Ministry said.
Industry body Indian Sugar Mills Association (ISMA) welcomed the cabinet decision to fix an ex-distillery price for ethanol.
"ISMA welcomes the decision of Government to fix an ex-distillery price for ethanol, and in the process the removal of the uncertainties of tax rates including the duties levied by some states," ISMA Director General Abinash Verma said in a statement here.
"By ensuring that GST (Goods and Services Tax) will be borne by OMCs, the uncertainty of GST rate has also been taken away. Incentives are essential over a longer period for a successful bio-fuel programme in the country," he added.
(This story has not been edited by Business Standard staff and is auto-generated from a syndicated feed.)