India doubles ethanol blending target to help sugar mills

NEW DELHI (Reuters) - India has doubled its target of blending ethanol with gasoline to 10 percent, a minister said on Tuesday, as the government tries to promote the cleaner-burning fuel to check pollution and help money-losing sugar companies.

Oil companies have never met the current 5 percent blending target as ethanol derived from molasses - the thick syrup produced by boiling down sugarcane juice in sugar refining - costs more than gasoline without including taxes. India does not allow ethanol imports.

Food minister Ram Vilas Paswan acknowledged the issue but told lawmakers that to improve supplies and keep prices down, the government has extended soft loans of up to 40 percent to encourage sugar mills to set up ethanol plants, fixed "remunerative ex-depot price of ethanol" and waived some taxes on its supplies to oil marketing companies.

He did not say by when the new target would be applicable and what action would be taken for non-compliance.

"(The) production of ethanol and its supplies under the ethanol blending programme at remunerative prices are likely to improve the liquidity position of sugar mills, enabling them to clear cane price dues of farmers," Paswan said.

Debt-laden mills that owe billions of cane dues to farmers have been trying to generate revenue outside their core business as the price of the sweetener has dropped. The Indian Sugar Mills Association expects to double ethanol supply to as much as 1.3 billion litres in 2015/16.

India's government is also planning to soon allow automakers to manufacture vehicles that can run entirely on ethanol, though experts are sceptical it would work. A tender issued by refiners Bharat Petroleum Corp , Indian Oil Corp and Hindustan Petroleum Corp in August seeking 2.7 billion litres of ethanol managed to secure only 1.03 billion litres.

One main reason oil companies find it hard to source ethanol cheaply is the high state duty it attracts because of its use in the heavily taxed liquor industry.

(Reporting by Krishna N. Das, editing by David Evans)