Inadequate supply likely to hit ethanol blending programme

NEW DELHI: The government's plan to raise the level of ethanol blending in petrol to 10% from the current 5% may fail to take off because of poor supplies from sugar companies. The government had decided two years ago to implement the ethanol blending programme (EBP) up to a limit of 10%. But only 5% of ethanol is being blended in the EBP currently under implementation in 13 states and three Union territories out of the notified 20 states and four UTs.

Ethanol supplies have been insufficient even for the current 5% level. In fact, only half the total contracted quantity could be procured up to July. "OMCs are unable to raise the implementation level... due to non-supply of ethanol in requisite quantity even for 5% blending level," minister for state for petroleum and natural gas, RPN Singh, told Parliament recently. This fact was also mentioned by the minister of state for chemicals, petrochemicals and fertilisers , Srikant Jena in the Lok Sabha.

Earlier this year, a report of the Prime Minister's Economic Advisory Council endorsed the Saumitra Chaudhuri expert panel suggestion that the 5% ethanol blending programme (EBP) be diluted to meet the ethanol needs of different sectors. It said the programme appeared to primarily benefit the sugar industry, and suggested that the ethanol price should be market determined and not fixed by the government. Against an annual requirement of 105 crore litres of ethanol for the current 5% blending programme, only 55.87 crore litres could be contracted, according to the petroleum ministry.

And, of the contracted amount, sugar companies could supply only 28.79 crore litres up to July 31. Despite this shortfall, the government has been receiving requests, particularly from the sugar industry, to increase the percentage of ethanol blending in petrol up to 10%. Domestic ethanol production is insufficient to meet the requirement of different sectors, Jena told the the Lok Sabha on August 26. For 2010-11 , ethanol production is estimated at 204.6 crore litres.

Production of ethanol for the current year is yet to be estimated since the season is still in progress. Interestingly , a final price for ethanol supplied to the EBP has yet to be decided for the coming year. An interim price for ethanol was fixed for 2010-11 and the supply contracts had stiff penalty clauses attached. In India, ethanol is almost entirely produced from cane molasses.

Hence, ethanol production in India is heavily dependent on the production of sugar and sugarcane, which fluctuates due to the cyclic nature of the crop, Jena said. The government , under the Sugar Development Fund Rules 1983, provides soft loans, up to 40% of the project cost, to sugar mills for setting up ethanol projects to improve their viability via value addition to their by-product , namely, molasses .

source: ET