Ministry wants market to decide ethanol price

The ministry of chemicals and fertilizers has recommended for free pricing of ethanol based on market demand and supply conditions.

According to official sources, the ministry has sent its recommendations to the committee set up under planning commission for determining the ethanol price. The ministry is also of the view that if it is made mandatory for mixing five per cent of ethanol in petrol, then the amount secured for mixing has to be sold at a loss if market prices move up under a fixed price regime. Moreover domestic industry for ethanol like any other chemicals is also affected by imports which are diluting the prices anyway, said an official source. 

Oil companies in the meantime have received expression of interest assuring an availability of 700 kilolitres of ethanol as against the annual estimated demand of 1,000 kilolitres from the sugarcane-based ethanol manufacturers. The rest has to be met by the direct ethanol manufacturers who produce it as a chemical. This attracts state excise duties which differ from state to state.

“In such a tight market conditions, fixing the price will be detrimental to the ethanol producers. While the food ministry is in favour of a mandatory rule for mixing of ethanol with petrol, it wants the price of ethanol to be pegged to international prices or some kind of spread over base price so that farmers get remunerative price for the produce”, said a source close to the development. Meanwhile, the committee set up by the planning commission is mandated to fix the ethanol price, which in the interim has been fixed at Rs 27 a litre.

Source added that this is quite lucrative for the ethanol producers since the current price is ruling below this. “We do not expect the price to be fixed any higher than Rs 27 a litre. Either it will be retained at that level or will be fixed lower at Rs 25-26 a litre”, said the official source.

In order to make it market determined, it is suggested that the committee should meet every quarter to fix the price so that market conditions are taken into account. Ethanol is regulated by six different ministries depending on the use.

Since it is a byproduct during sugar manufacturing by producers, lucrative pricing of ethanol compensates the sugarcane producers even when the sugar prices are ruling low.

“It acts as added incentive for the sugarcane farmers to increase acreage and production”, an analyst said. Even if the minimum support price is not remunerative for the sugarcane producers, better price of ethanol compensates for the loss. This indirectly can help in keeping market price of sugar low, he added.