OMCs raise profit margin with ethanol-blended petrol

Sale of ethanol-blended petrol has turned more profitable for the oil marketing companies (OMCs) with the recent increase in petrol prices. Their margin on a litre of ethanol has moved up from Rs 7.90 per litre to Rs 12.43 since November when blending was reintroduced.

This also helps the OMCs — Indian Oil, Bharat Petroleum and Hindustan Petroleum — to partly reduce the current loss on petrol. The OMCs are currently incurring a loss of Rs 1.22 per litre of petrol. Take an OMC depot that sells 1,000 litre of petrol every day but also blends ethanol at the approved rate for 5 per cent. If we account the 5 per cent ethanol in 1,000 litres, their loss declines from Rs 1,220 to Rs 1,159.

 

They further reduce their loss by Rs 621.50 from the gains made on the 50 litres of ethanol that will be blended to 950 litres of petrol. Ultimately, this leaves the OMCs with a much lower loss of Rs 537.50 on sale of 1,000 litres ethanol-blended petrol.

The loss at a depot that blends ethanol is less than half compared to one that does not blend ethanol.

“In November, the depot price of petrol excluding dealer commission and state tax was Rs 40.08 per litre and the landed cost of ethanol was Rs 32.18 per litre. While the depot price of petrol has now increased to Rs 44.6 per litre, the landed ethanol price has remained same, thereby leaving the OMCs with better margins compared to November,” said Abinash Verma, Director General of the Indian Sugar Mills Association.

The sugar industry sells ethanol to OMCs at an ex-factory price of Rs 27 per litre.

Currently, ethanol blending is operational in Delhi, Uttar Pradesh, Punjab, Haryana, Maharashtra, Andhra Pradesh and Karnataka. Director (marketing), Indian Oil, G C Daga said blending helps though in a small manner since ethanol supply is low.

Ethanol blending with petrol at five per cent continued for about two years before coming to a halt in October 2009, due to low supply on account of a dip in sugarcane output and default in supplies by standalone ethanol manufacturers.

Ethanol is considered a green fuel and blending will also help in reducing India’s heavy dependence on crude oil imports.

Some oil companies also plan to start ethanol production.

Hindustan Petroleum, for instance, bought two sick sugar mills in Bihar in 2008 to produce ethanol. These mills are expected to start producing ethanol in the current quarter.