Is Sharad Pawar minister for agriculture or ethanol lobby?

NEW DELHI: Is food and civil supplies minister Sharad Pawar holding the Ethanol Blending Programme (EBP) to ransom — at a time when increased fuel prices have already impacted further on high food inflation — in order to serve the sugar sector interests? It would appear so, with the NCP supremo persistently locking horns with another key UPA ally, DMK, on the question over the last several weeks over the supply and price of ethanol to be paid by consumers to sugar companies.

Crucially, the EBP hold-up is despite sections of the industry itself eager to re-start the programme urgently. A recent (July 22) letter from the UP-based Bajaj Hindusthan Ltd to the petroleum secretary, has urged that the EBP re-started “at the earliest” and “at a benchmark price which is inflation-adjusted over and above the last contracted price.” That is quite in contradiction to what Mr Pawar, along with a good chunk of the sugar industry, has led the public to believe while pitching for a much higher price for ethanol. Ethanol supply was priced at Rs 21/lt from sugar mills to OMCs in the last contract, which had also kept the option of extending the same terms open for another three years.

The last GoM on ethanol, last week, reiterated the price of Rs 27/lt despite this and in the absence of chemicals minister M K Azhagiri. The clout that DMK, as one of the UPA’s oldest allies, pulls in the coalition, however managed to ensure that remains an “interim” price until the Saumitra Chaudhury panel comes up with a “fair and remunerative price.” “The minister approached the prime minister directly on the contentious issue, pointing out that the GoM’s brief was to reconcile differences among stakeholding ministries and not to fix ethanol price,” sources said. Earlier, DMK had forced a change in the GoM, choosing to include non conventional energy ministry Farooq Abdullah to counter balance the interests of three ministers from Maharashtra, the country’s topmost sugar producer state, in the panel: Mr Pawar himself, heavy industry ministry Vilasrao Deshmukh and petroleum minister Murli Deora.

An earlier GoM in April had also affirmed a price of Rs 27/lt. Infact, the GoM had toed the Maharashtra lobby line and said that if the chemicals industry found itself short of the commodity, it should import the same. And, were prices higher than home prices, the industry should approach the commerce ministry at a priority level for reduction of import duty. Interestingly, that was in violation of the national biofuel programme which has strong indicators against molasses use on priority for the EBP, impacting both supply and price adversely to other consuming sectors including alcohol and chemicals. The bulk of the licensed capacity of alcoholic beverages production is concentrated mainly in three states in a country.

With Tamil Nadu set to go to the polls next year, Mr Azhagiri is keen that the ruling party in the state is perceived as having taken a pro-consumer stand even while saving excise from other consumer industry from being diverted to the EBP or even curbing production and eating into state revenue. Molasses (raw material for ethanol) supply to the liquor industry is a big revenue earner. UP, for instance, had increased the reservation of molasses for country liquor in 2007-08 and 2008-09, further reducing ethanol availability for the EBP in both years and curtailing supply to OMCs.

The forced freeze that the EBP has been pushed into for several months has threatened sugarcane payment to farmers besides worsening losses to sugar mills.

The agriculture ministry has been aggressively pushing to clinch a price of Rs 27/lt for ethanol (much higher than the prevailing home price) despite strong protests from the chemicals industry. The national private sugar mills platform, Indian Sugar Mills Association (ISMA) has also been pushing for the much higher price of Rs 27/lt on the contention that this alone would ensure a steady supply of ethanol to the nationally important EBP from mills besides incentivising cane farmers to grow more cane. Yet, interestingly, the industry’s proposal of a new formula for fixing the floor support price for cane from mills to farmers does not include profits accrued from ethanol sale, only from molasses. The latter, in either case, is already prescribed under the SCO but was not subscribed to strictly thus far.

The apparently environment-friendly EBP programme is expected to lower the perceived losses of OMCs and the gains are expected to be passed on to the consumer by the OMCs. In Brazil, where the EBP has been developed to the optimum, the competition among companies is intense enough to ensure that the price line for gas to consumers is held even in years when ethanol production dropped, boosting costs to both the sugar industry and fuel companies.

source: ET