Cabinet to decide on ethanol pricing formula next week

After the recent sugar price rally, sweet news is likely for the industry on the ethanol front. The Cabinet is expected to take up a proposal for approval of a new pricing formula for ethanol next week in line with the recommendations of the Saumitra Chaudhuri Committee.

A food ministry official said the Cabinet Committee on Economic Affairs would consider the proposal for approval of pricing formula for procurement of ethanol (to be blended with petrol), as suggested by the Chaudhuri committee, coupled with a floor price.

The committee had suggested linking ethanol to petrol prices of the previous quarter, after making adjustments for ethanol’s calorific value, mileage and tax incentives. However, it had also recommended a floor and ceiling price of Rs 23 and Rs 31 per litre, respectively. The committee had also recommended a quarterly price revision. Currently, supplies are being made at an ad-hoc price of Rs 27 a litre, as decided by a group of ministers in 2010.

According to the sugar industry, the timing is ideal to bring clarity on ethanol pricing formula. “The tenders for ethanol supplies to be made from the next sugar season beginning October is about to open later this month. Once there is finality on the pricing, the sugar industry will be keen to offer and commit large quantities. Many mills were shying from offering ethanol due to non-price revision at a time when alternative products like extra neutral alcohol are offering higher realisation of over Rs 34,” said Abinash Verma, director general, Indian Sugar Mills Association.

The formula suggested for ethanol will result in a price that will always be lower than the depot price of petrol. The current depot price is around Rs 41 per litre. This differential, coupled with the excise duty rebate of Rs 14.78 on ethanol, helps the oil companies save money on sale of ethanol-blended petrol. Oil companies, which currently lose Rs 1.37 on per litre of petrol, had saved over Rs 300 crore from blending between 2008-09 and 2010-11. 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 after sugarcane output fell. It was reintroduced in November 2010 and the sugar industry has been selling at Rs 27 per litre since then. Ethanol is considered a green fuel and its blending with petrol will help in reducing India’s heavy dependence on crude oil imports.