Bio-diesel cos-OMC negotiations face price roadblock
Ajay Modi / New Delhi Jul 13, 2009, 00:49 IST
Bio-diesel companies are demanding a higher price than the government-mandated price for their product. Bio-diesel allows oil marketing companies (OMCs) to sell blended diesel. Cleancities Biodiesel, a Hyderabad-based company, with production capacity of 250,000 tonnes of bio-diesel at its Visakhapatnam plant, is in talks with a public sector OMC to supply 5 million litres of bio-diesel, but the deal is stuck on price.
Cleancities is seeking a significantly higher price than Rs 26.50 per litre fixed by the government in its biofuel policy. OMCs cannot enter a purchase agreement at higher than govt-mandated prices.
“At the current price of Rs 26.50 a litre, we are not even able to cover the raw material cost. We are not in a position to supply at an ex-factory price less than Rs 32 a litre,” said Srinivas Prasad Moturi, chairman and CEO. He said OMCs should buy at a price which is market-determined, the way they buy crude oil.
Blending of bio-diesel on commercial scale has not picked up. Indian Oil Corporation (director) marketing Daga said, “Blending can be done only if it is commercially feasible for us and at a higher price it is not viable for us.”
Moturi said his firm could supply biodiesel at Rs 1-2 a litre cheaper than diesel. “The average diesel price is Rs 36.15 and even if the OMCs buy at a landed cost of Rs 34-35, they would save money and promote green energy,” he added.
Some of the companies that have invested in setting up biodiesel facilities include Emami Group, Garware Chemicals, Naturol and Universal. Some like Emami has not begun commercial production due to lack of blending, while others like Cleancities and Naturol have ventured into the export market, where demand is high.
In the Buget, Finance Minister Pranab Mukherjee had announced reduction in Customs duty on bio-diesel from 7.5 to 2.5 per cent. The Budget also abolished dual taxation on bio-diesel.
The Union Cabinet approved the National Policy on Biofuel on September 12 last year. The policy aims to raise blending of biofuels with petrol and diesel to 20 per cent by 2017. Currently, only ethanol blending (at 5 per cent) with petrol is being implemented and there is no blending of bio-diesel. The use of biofuels, which is regarded as a green energy, in petrol/diesel, is aimed at reducing the country’s demand for fossil fuels.
If the government is serious about the Biodiesel usage, they should not set any pricing barriers, let the market determine if the Biodiesel industry is viable or not. Just don't put an arbitrary pricing on a product and an industry that is still in infancy. They don't help the industry and now by setting an arbitrarily low price, they are killing it.
If the government is serious about saving the environment and helping curb the foreign imports, they should come up with a well thought out policy before it's too late.
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