NEW DELHI: The government's move to enforce 5% blending of ethanol with petrol at market price from this December is likely to boost profits of sugar companies, which are major producers of ethanol - a byproduct for the industry. According to industry, the revenue from ethanol blending for the Rs 80,000-crore sugar industry will go up more than three times from Rs 1,200 crore to around Rs 4,000 crore.

"Currently, oil companies are contracting ethanol from sugar companies at a provisional price of Rs 27 a litre. Now that the government has asked oil companies to procure it at market price, the cost of ethanol for them would be around Rs 36 a litre, giving an increased margin of Rs 7 a litre to sugar companies," said Avinash Verma, director general, Indian Sugar Mills Association, an industry body. Apart from used as a biofuel, ethanol is widely used in alcoholic beverages, fertilisers and other chemicals. In the sugar season from October 2011 to September 2012, oil companies had contracted 44 crore litre ethanol as against the total requirement of 105 crore litre for ethanol blending.

"Sugar companies suffered a loss of around Rs 500 crore while supplying ethanol to oil companies at Rs 27 alitre as against market price of Rs 36 a litre. Now, with the government approving market-based pricing of the biofuel, sugar companies are poised to gain," said a sugar mill owner.

Oil companies have been blending ethanol with petrol for the last two years in 13 states with a blending level of about 2% against the mandatory target of 5%.

They saved over Rs 500 crore through blending due to the difference in ethanol and petrol prices. The proposal was first floated by petroleum ministry in 2007, which was approved by the Cabinet Committee on Economic Affairs (CCEA) in October 2007.

But since then, the programme has been struggling to take off despite the fact that the CCEA in November 2009 warned oil companies of a financial penalty if they fail to reach the blending targets.

In August 2010, the CCEA set up the Saumitra Chaudhuri panel for determining the ethanol pricing after a committee of secretaries failed to reach a consensus.

The committee had suggested linking ethanol to petrol prices of the previous quarter, after making adjustments for ethanol's calorific value, mileage and tax incentives.

Later, the PM's Economic Advisory Council recommended the fixation of price of ethanol through the market mechanism, which has now been accepted by the government.

source: ET

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