Alcohol industry wants say on ethanol pricing

The domestic alcohol industry has raised concern over the fixed price of ethanol and demanded inclusion in the process of determining prices. So far, only the chemical industry, the second-biggest consumer, had been opposing the mandatory blending of ethanol with petrol, at a fixed price.

The Confederation of Indian Alcoholic Beverage Companies (CIABC), which includes leading liquor players like United Sprits and Radico Khaitan, has made a case for the industry’s inclusion in the price determination of ethanol. Earlier this month, CIABC director-general Pramod Krishna met cabinet secretary Ajit Kumar Seth to highlight the body’s apprehensions.

The alcohol industry, the biggest consumer of molasses, the primary raw material for ethanol, is seeing a 14 per cent rise in annual demand. The concern of the potable alcohol industry on the adverse effect of the ethanol blending programme (at five per cent with petrol) on ethanol availability at market-driven prices for raw material needs to the industry had not been considered, despite repeated representations to the Planning Commission and other government departments, Krishna had said. Any process of price fixation of ethanol which does not have representation of major consumers of ethanol or does not take their concern into consideration was arbitrary, he had said.

The implementation of ethanol blending and non-supply of the entire contracted quantity of ethanol by the sugar industry to oil companies had led to artificial scarcity and had increased the prices of ethanol/ethyl alcohol. According to Krishna, prices of extra neutral alcohol have risen from Rs 26 a litre in September 2010 to the current Rs 36-37.

The potable alcohol industry contributes Rs 48,000 crore annually to the state exchequer in form of taxes, duties and levies on products by the industry. Non-availability of the industry’s main raw material on account of a fixed price and supply contracts between ethanol producers and oil companies can affect alcohol production, and in turn, states’ revenues, Krishna said.

According to CIABC, the reduced availability and sharp increase in ethanol prices would lead to a rise in production costs. The prices of Indian-made foreign liquor is regulated in states like Andhra Pradesh, Tamil Nadu, Kerala, Delhi, Haryana, Rajasthan and Orissa, which together account for 60 per cent of sales. Therefore, any increase in raw material price cannot be passed on to end consumers in these states. Even in markets that have free pricing, the increase in the prices of the final products would have a cascading effect on taxes, making the products uncompetitive.

The blending of ethanol at a proportion of five per cent with petrol began in 2007, but came to a halt in 2009, owing to low supply due to a fall in sugarcane output and default in supplies. It was reintroduced in November 2010.

However, ethanol producers had defaulted on supply contracts and supplied only half the contracted quantity last year. Currently, supplies are being made at an ad-hoc price of Rs 27 a litre, as decided by a group of ministers. This price is due for revision, according to a quarterly petrol price linked formula suggested by the Saumitra Chaudhuri committee.