5% mandatory ethanol blending scheme in limbo

Owing to high quotes by distillers and supply delays by OMCs, June 30 deadline may be missed

Implementation of the mandatory programme to blend five per cent ethanol with petrol is stuck, again. In November 2012, the Cabinet Committee on Economic Affairs had approved five percent mandatory blending of ethanol with petrol and this was notified by the Centre under the Motor Spirits Act on January 2. According to the Act, oil marketing companies (OMCs) have to record five per cent ethanol content in petrol by June 30 this year. However, considering the supply orders cleared to sugar mills, the target seems unachievable.

In a letter to the petroleum ministry dated May 29, the Indian Sugar Mills Association (Isma) had said OMCs had cleared ethanol supply orders for merely 250 million litres, against the requirement of 1,050 million litres---about only 25 per cent of OMCs' five per cent ethanol blending requirements had been cleared.

Three to four rounds of negotiations have already been held to ensure greater supply. But due to the high prices quoted, the negotiations are still underway. While distilleries have sought high prices, OMCs want prices to be cut to less than Rs 40 a litre, the average offered by most small sugar mills. Considering domestic sugar mills offered only 550 million litres (only 52 per cent of OMCs' overall requirements), OMCs would have to negotiate prices with foreign suppliers, too. Most foreign suppliers have quoted ethanol prices at Rs 70-90 a litre, a premium to the prevailing prices of petrol.

As the four-month validity of the ethanol prices of Rs 36-37 a litre expired on May 27, OMCs have sought a two-month extension. This indicates these companies are in no hurry to place supply orders for ethanol to domestic or foreign suppliers.

Isma, meanwhile, has urged the government to issue a supplementary tender for existing players. It argued by the time the tender was floated and opened on January 28, sugarcane crushing for 2013-14 sugar season had reached its peak and the producers of molasses and alcohol had to commit supplies elsewhere, including for exports of molasses. Also, as this was the first time an e-tender was announced by OMCs, several ethanol manufacturers couldn't participate in the process, owing to lack of understanding on the process. The tender required the offers to be valid for four months up to May 27, because of which several ethanol manufacturers didn't offer full quantities for the ethanol blending programme, owing to lack of adequate storage and fear of cash flows being blocked.

Further, tender conditions such as "average annual turnover for last three years" excluded ethanol producers that started operations a year or two earlier. HPCL Biofuels, a Hindustan Petroleum subsidiary, which had reportedly offered 20 million litres, was also considered ineligible.

The tender for supplies from March 2013 to February 2014 overlaps two sugar seasons. Sugar mills that had already committed large quantities from the 2012-13 sugar season elsewhere, offered lower ethanol quantities for the 2012-13 season but substantially higher quantities from the 2013-14 season. However, the tender didn't allow such flexibility, Isma said.