NEW DELHI: The Cabinet Committee on Economic Affairs (CCEA) has made it mandatory for oil marketing companies (OMCs) - Bharat Petroleum, Hindustan Petroleum and Indian Oil CorporationBSE 0.35 % - to blend 5% ethanol with petrol. This is likely to reduce the fuel import bill and lower India's dependence on fossil fuel as the ethanol prices are lower than petrol.

OMCs have been blending ethanol with petrol for the past two years but the policy was partially implemented in absence of any clear directive.

The committee, headed by Prime Minister Manmohan Singh, has also approved market-based pricing of the biofuel, opening the market for ethanol producers - mostly sugar companies. So far, the OMCs have been contracting ethanol at the provisional procurement price of Rs 27 per litre, fixed by the Cabinet Committee on Economic Affairs (CCEA) in August 2010.

The petroleum ministry is now likely to come up with a gazette notification and float tenders for price discovery and procurement of ethanol.

The CCEA has also allowed import of ethanol if OMCs face any shortage of the biofuel in the domestic market for blending purpose. "There is no shortage of ethanol in the country as it had produced 220 crore litres of ethanol in 2010-11. However, if need be, the OMCs may be allowed to imported for blending purpose," said a minister, who had attended the meeting.

The ethanol-blended petrol is in effect in 13 states out of 19 states mandated for EBP programme. In these 13 states also, the implementation was partial with lifting of only 44 crore litres of ethanol. The department of chemicals, which is a major user of ethanol, had been opposing the EBP programme arguing that it would hurt the chemicals industry by diverting its share of ethanol to the OMCs.

The EBP programme will require 105 crore litres of ethanol annually and will help OMCs to save cost by way of difference in the prices of ethanol and petrol. "While a litre of petrol costs around 70, ethanol costs 40 a litre. Besides, ethanol gives better mileage to the consumer. A study by Indian Oil Corporation says that it also lowers emissions cutting down pollution levels," said a ministry official.

The committee has asked the petroleum ministry to ensure that oil companies compulsorily sell petrol doped with 5% ethanol. In fact, the proposal of making ethanol blending mandatory was first floated by the petroleum ministry, which was approved by the CCEA in October 2007.

But since then the programme has been struggling to take off despite the fact that the CCEA in November 2009 directed that a financial penalty be imposed on OMCs for their failure to reach targets.

Finally in August 2010, the CCEA set up the Saumitra Chaudhuri committee for determining the ethanol pricing after a Committee of Secretaries (CoS) failed to reach at a consensus.

"After a long wait, finally there is a firm decision on ethanol blending. It will boost the ethanol industry and we expect petroleum ministry to come up with gazette notification soon to start this programme as early as January next year," said Abinash Verma, director general, Indian Sugar Mills Association (ISMA), an industry body.

source: ET

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