Govt launches ethanol blending on pilot basis

The government has initiated ten per cent ethanol-blending programme on a pilot basis in two districts - Belgaum in Karnataka and Bareilly in Uttar Pradesh - despite a sharp decline in crude oil prices.

The programme, initiated about a month ago, will continue till June 2009, said informed sources. The purpose behind this pilot initiative is to study the impact of ten per cent blending on two-wheelers before introducing it commercially. Domestic oil marketing companies (OMCs) are keen to continue biofuel blending programmes even after the recent crash in crude oil prices. Blending of ethanol, they say, is necessary from the viewpoint of import substitution in crude oil.

“Blending of ethanol is important to reduce the extent of dependence on imported crude. Since we are dependent on import to the tune of 75 per cent, any substitution is welcome”, said S V Narasimhan, director (Finance) at Indian Oil Corporation, the country’s largest oil marketing company.

The Indian basket of crude has crashed from a high of $142 a barrel in July 2008 to $43.13 (as on February 4), a decline of over 69 per cent. “In the last two-three months, we have seen a phenomenon of declining crude oil prices but that should not deter us from blending of biofuels. Even at $40 a barrel, mixing of ethanol is going to be economically feasible”, Petroleum Secretary R S Pandey said last month.

The OMCs are procuring ethanol at a price of Rs 21.50 a litre from the sugar mills. While a number of purchase contracts are scheduled to end in October this year, the OMCs are learnt to have asked the mills to renew contracts at the existing rate. Some mills have accepted the proposal.

In October 2007, the Cabinet Committee on Economic Affairs had approved ten per cent ethanol blending on a mandatory basis from October 2008 across the country excluding J&K and the North-Eastern states.

The deadline, however, has lapsed and as of now only five per cent blending is under implementation. The five per cent blending was introduced in November 2007.

The 20-25 per cent decline in sugarcane acreage across major producing states has impacted the production of molasses, the raw material for ethanol.

This could impact ethanol availability and delay the launch of ten per cent blending on a national scale.