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Govt decision to blend ethanol with petrol at market price boon for sugar inds

Realisation to surge 22% to Rs 33 per litre from next mnth

Ajay Modi  |  New Delhi 

The government’s decision to implement mandatory blending of ethanol with petrol at a market price has come as a boon for the sugar industry as realisation may surge by up to 22% to Rs 33 per litre from next month. The current supplies are being at a provisional price of Rs 27.

Cabinet Committee of economic affairs yesterday approved the proposal that oil marketing companies can directly fix price of bio-ethanol with the producers. with the price now being made market determined, mandatory blending of ethanol with the petrol can be implemented from next month.

“A market driven price is welcome for ethanol as it will bring stability to the blending programme and benefit the industry and farmers. In the absence of a domestic benchmark price for ethanol, the landed import price of Rs 33-34 per litre can be considered as the new price,” said Vinay Kumar, managing director, National Federation of Cooperative Sugar Factories.

The blending programme is presently being implemented in a total of 13 states with blending level of about two% against a mandatory target of 5%.    

In the backdrop of reservations against the proposal that domestic suppliers would not be able to meet the supply requirements, the government has also allowed import of ethanol in case of shortfalls faced by both oil companies and the chemical industry. The chemical industry led by companies like Jubilant and India Glycols use ethanol as a raw material. 

Kishor Shah, director (Finance) at Balrampur Chini Mills said the decision is a win-win for the oil companies and the sugar industry. “While market forces of demand and supply will keep determining prices from time to time, the industry will be able to commit maximum quantities at a good price”. He added that given current market situation a price of around Rs 31 per litre is reasonable for ethanol.

Oil companies had saved over Rs 300 crore from blending between 2008-09 and 2010-11. The blending of ethanol at a proportion of five% with petrol began in 2007, but came to a halt in 2009 owing to low supply after sugarcane output fell. It was reintroduced in November 2010 and the sugar industry has been selling at Rs 27 per litre since then. Ethanol is considered a green fuel and its blending with petrol will help in reducing India’s heavy dependence on crude oil imports.

The Cabinet Committee on Economic Affairs in August 2010 had approved the ad-hoc price of Rs 27 per litre for ethanol for procurement by oil companies. This price was subject to adjustment on the basis of recommendation of an expert committee for pricing of ethanol. Later an expert committee headed by Planning Commission member Saumitra Chaudhury considered the issue of pricing of ethanol. In its report, submitted in March 2011, the expert committee recommended a formula which was derived broadly from the price of motor spirit. Subsequently, a report by the Economic Advisory Council to the Prime Minister, recommended the fixation of price of ethanol through the market mechanism.    

First Published: Fri, November 23 2012. 17:24 IST