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Ethanol blending falters on pricing issue

Kalpana Pathak  |  Mumbai 

Almost four years after the government had mandated that ethanol should be blended in a 5 per cent proportion with petrol to be sold in the country, the programme has met with only 58 per cent success so far mainly due to pricing issue.

Consider this: The three oil marketing companies (OMCs) — Indian Oil Corporation (IOC), Bharat Petroleum Corporation (BPCL) and Hindustan Petroleum Corporation (HPCL) — have, till April 2009, procured 5,39,352 kilo litres (kl) of ethanol against orders for delivery of 1,286,477 kl. These companies had signed contracts to procure a total quantum of 1,496,275 kl of ethanol during this period, according to Ethanol India Research, an independent research organisation.

The government had in November 2006 mandated that ethanol-blended petrol should be sold throughout India, except in North-Eastern states and Jammu and Kashmir, to reduce emission.

Subsequently, it stipulated that the amount of ethanol in petrol might be optionally ramped up to 10 per cent from October 2007 and made compulsory with effect from October 2008.

Ethanol-blended fuels were to reduce emissions and cut down India’s oil bill. Ethanol blends dramatically reduce hydrocarbons emissions — a major ozone layer depletor.

“Over the past three years, several states have failed to implement the original plan. States like West Bengal, Tamil Nadu, Kerala, Madhya Pradesh, Jharkhand, Orissa and Bihar took time to actively support the movement and are still not taking it seriously,” said Deepak Desai, chief consultant of Business Brains, a division of

Desai also attributes the imbalance in procurement to uneven pricing of ethanol.

“Prices of molasses have risen above Rs 5,000 per tonne, making ethanol manufacturing not feasible and the supply was directed to potable and industrial alcohol. Some suppliers, specifically in Maharashtra and Gujarat, were contracted below the base price of Rs 21.50 a litre (Rs 19.50 a litre), where even Rs 21.50 was not feasible,” says Desai.

The price to buy ethanol for blending was set by the government at Rs 21.5 per litre in the tenders floated in 2006. However, the price declared by the agriculture ministry was Rs 27 per litre. The market price of ethanol currently is Rs 50-55 per litre (it was Rs 40-45 per litre in 2006).

During the year 2008-09, ethanol supply was short in the states of Maharashtra (77 per cent), Gujarat (59 per cent), Rajasthan (62 per cent), Bihar (47 per cent), Madhya Pradesh (94 per cent) and Andhra Pradesh (60 per cent).

“The had made arrangements for the delivery of 474,075 kl of ethanol during 2008-09, through contracts they signed between November 2006 and January 2009. However, the actual supplies during the year only totaled 241,498 kl, indicating slippage of 49 per cent,” added Desai.

In 2009-10, no supplies were made in the states of Uttarakhand, Goa, Madhya Pradesh and Andhra Pradesh. Supply shortfall in other states stood at 71 per cent in Uttar Pradesh, Delhi (65 per cent) Haryana (95 per cent), Punjab (87 per cent) Rajasthan (90 per cent), Bihar (97 per cent), Gujarat (86 per cent) and Maharashtra (96 per cent). Procurement of ethanol up to April 2009, was just 6,365 kl, indicating a massive shortfall of 35,199 kl of ethanol.

“Oil companies have floated tenders from November 1, 2009 to October 31, 2010 for supply of ethanol in the west zone (Maharashtra, Gujarat, Madhya Pradesh and Goa) and south zone (Andhra Pradesh, Karnataka and Kerala). But no procurement has happened since October 2009,” said an official.

“Sugar cultivation will be bumper this year if the price of sugar remains low. Price of ethanol at Rs 27 per litre will be vital to support the minimum price of cane,” adds

First Published: Sat, July 17 2010. 01:13 IST