Ministry opposes mandatory blending, price hike for ethanol

The Ministry of Petroleum and Natural Gas’ proposal to increase ethanol prices and blend ethanol with petrol has run into stiff resistance from the chemicals ministry.

According to sources, following the chemicals ministry’s opposition, the Union Cabinet has referred the proposal to the cabinet secretariat to re-examine it. In November 2009, the Cabinet had reiterated that an earlier decision (November 2007) to blend 5 per cent ethanol with petrol be made mandatory.

Both ethanol and alcohol are made from molasses. While oil companies have been procuring ethanol at Rs 21.50 a litre, the sugar industry had been demanding a price hike to Rs 27, citing higher production cost.

However, the chemical industry, a major consumer of industrial alcohol, argued that the proposed move would jeopardise its interests.

While the 2007 decision on mandatory blending of ethanol with petrol remained on paper following resistance from a few states, in others, taxation issues and irregular supplies sent it to the back burner.

The two primary consumers of molasses-based alcohol are the potable liquor sector and chemical producers. In 2008-09, the potable sector consumed 1,000 million litres of alcohol, while only 300 million litres was left for other to use. The demand from the chemical sector is estimated at 1,000 million litres, while 5 per cent ethanol-petrol blending would require 680 million litres of alcohol.

The alcohol-based chemical industry, representing companies such as Jubilant Organosys and India Glycols, say the proposal is not realistic. “The demand from the potable sector is increasing every year and state governments ensure that this demand is met. It is the largest revenue source for them. This, along with fluctuating sugar output, will not allow this proposal to materialise,” an industry insider said.

“We are against the arbitrary fixation of a higher price for ethanol when millers had agreed to supply at Rs 21.50. Moreover, the realisation to millers in the biggest ethanol producing country, Brazil, is Rs 13-14 a litre. The price in India should be fair and market-determined. If one imports ethanol, the cost would be Rs 20-21 a litre. So, why should oil companies pay Rs 27 a litre?,” asked Rakesh Bhartia, chief executive officer, India Glycols.

Domestic sugar output fell from 26.3 million tonnes in 2007-08 to 14.7 million tonnes in 2008-09. The dip has resulted in a significant decline in availability of molasses — the raw material for alcohol.

The availability of alcohol is estimated to have declined from 2,200 million litres to 1,300 million litres in the same period. The sugar output and alcohol availability in 2009-10 is expected to be in a similar range as last year. Approximately 350 million litres of alcohol were imported last year.

source: BS