OMCs' ethanol purchase: CCI refuses to stop project

Says chemical & alcohol industry's arguments of likely short supply and higher prices for them are not reason enough

The Competition Commission of India (CCI) has dismissed a complaint which asked for staying the ongoing process for procuring ethanol from sugar companies for the petrol blending programme.

It had been filed against Bharat Petroleum Corporation Ltd (BPCL) and Indian Sugar Mills Association (Isma), among others. It had been made by Jubilant Life Sciences (JLSL) and Wave Distilleries and Breweries (part of the Ponty Chaddha group).

The complaint sought to restrain oil marketing companies (OMCs) and ethanol manufacturers from implementing the contracts issued in pursuance of the tender opened in January 2013 or of any fresh tender.

JLSL argued that ethanol procurement by OMCs would restrict its availability (as rectified spirit) for the liquor and chemical industry. Also, the price of ethanol would increase, on intensifying competition.

“The apprehension of the informants (JLSL and WDBL) that increase in demand for ethanol would affect the competition in ethanol market is (not) a correct apprehension. CCI cannot restrain supply of a product to new consumers on the ground that existing consumers would face a price rise. Hence, the applications in this regard are dismissed,” said the CCI order.

K K Gupta, director (marketing) of BPCL, which floated a tender on behalf of all OMCs, said: “It is good that CCI did not stay ethanol procurement. The blending programme is decided by the cabinet in the national interest. We will continue procuring ethanol for blending.”

The complaint also alleged that sugar mills had formed a cartel to fix ethanol prices at a higher level. To which, CCI said it had formed no definite definite conclusion in this regard. Isma officials preferred not to comment.

The OMCs had issued a joint tender to procure 550 million litres of ethanol for the current season, of which orders were placed for 400 mn litres. They’d also floated a joint tender to procure 1,330 million litres for the next season beginning December 2013, in which sugar mills participated aggressively. Currently, evaluation of technical bids is underway and supply orders are set to be passed on soon.

Many companies such as JLSL feared the alcohol and chemical industry would have to compete with OMCs for purchasing ethanol. Since ethanol can be blended directly with petrol at fuel pumps, the OMCs can afford to paying up to five per cent less than the price of petrol, which could have costly implications for the alcohol and chemical industry.

The petitioners said of the total available ethanol, 45 per cent was used by the potable liquor industry and about 40 per cent by the alcohol-based chemical industry. The rest goes for ethanol blending and other purposes.

“It seems the applicants are under a misconceived idea that the job of CCI is to ensure adequate and regular supply of a product to different consumers and if there was an additional demand from a set of new consumers, the Commission could restrain or stop the supply of this product to the new set of consumers, so that the old consumers do not suffer from the supply constraint,” the CCI order reads.

“With a huge demand and supply gap looming in the industry, an expected shortfall of about 1 billion litres of alcohol and to the five per cent ethanol blending norm in place, it's bound to create a scarcity of alcohol/ethanol in the country, allowing alcohol/ethanol suppliers to take it to an uncompetitive price level, leading to the collapse of the domestic industry using ethanol. We wanted to protect the feedstock of ethanol used for industrial application and use the rest for blending, as the current situation is leading to a shortage and, therefore, a price increase,” said a Jubilant spokesperson.