Petro ministry offers Rs 21 a ltr for ethanol

The petroleum ministry offered a price of Rs 21 a litre for ethanol, about 35 per cent more than the price for equivalent calorific value fuel that the government wants to use for doping petrol.

Ethanol gives 44 per cent lower energy than petrol and as per international practices, like the one followed in the world's largest ethanol-petrol blender country Brazil, it should have been priced at roughly 60 per cent of the manufacturing cost.

The energy equivalent price of ethanol works out to Rs 15.60 a litre taking one-year peak petrol cost of Rs 26 a litre, but the ministry at a meeting with Indian Sugar Manufacturers' Association (ISMA) last week, offered a price of Rs 21 a litre, industry sources said.

ISMA, however, is not satisfied with the price and wants Rs 28-29 a litre, which is even higher than the cost of importing petrol.

In 2005-06, ethanol manufacturers were paid a price of Rs 18.75 a litre.

The sources said Indian Oil Corporation, representing industry, at the last meeting called by petroleum secretary on July 25, strongly advocated pricing ethanol according to its calorific value (energy equivalent price).

In Brazil, ethanol is priced 50-60 per cent of petrol price due to its lower energy content.

They said the government wants to make 5 per cent of ethanol blending in petrol mandatory and a Cabinet note circulated recently for the purpose even suggested importing ethanol from Brazil (only).

The sources further said the industry, however, wants the present system of voluntary ethanol blending to continue till adequate ethanol availability on a long-term basis is assured.

The previous government, led by NDA, had introduced compulsory blending of ethanol in petrol, but the scheme had to be scrapped in 2004 following lower availability owing to drought.

Unlike Brazil and the USA, land for sugarcane cultivation has remained stagnant over the last decade and droughts have often affected corp.

In India, where water, power and fuel are very expensive, more energy goes into producing ethanol than energy produced by using alcohol, as fuel in petrol gives negative energy balance.

The industry sources said the government's objective of reducing imports is defeated as even 10 per cent ethanol blending in petrol gives energy security of only 1 per cent of oil import bill of the country.

Ethanol blending as fuel will substitute crude oil imports of $500 a tonne (at $70 a barrel), while its use as chemical can add two-three times value (end products $800-2,000 a tonne).