MUMBAI: Public sector oil marketing firms are readying to jointly float a Rs 3,500-crore global tender to source ethanol, which will have to be mandatorily blended with petrol sold across the country following the government's directive.

Officials of Indian Oil BSE -0.95 %, BPCL BSE -1.35 % and HPCL, the three state-run oil marketing firms, and the oil ministry will be meeting over the next few days to finalize the details of the tender, a person familiar with the matter told ET, adding that the industry will need about 1,000-1,100 million liters of ethanol a year.

The success of the tender is expected to determine the feasibility of the pan-India roll-out of the 5% ethanol-blended petrol programme, which is already functional in 13 states. The government had postponed the deadline for the nationwide roll-out of the programme to June 1, 2013 from December 1, 2012.

Since the oil marketing companies are not in a position to take care of the infrastructure needed to import, store and transport the material, the tender will involve delivery at their depots numbering more than 350 across the country.

Hindustan Petroleum BSE -1.26 % had, through its wholly-owned subsidiary HPCL BSE -1.26 % Biofuels, acquired two sugar mills in Bihar that it revived in the previous fiscal. These units can supply nearly 32.5 million litres, about 10-12% of the company's annual ethanol requirement.

The three firms had attempted to source ethanol directly from the world's biggest producer, Brazil, in 2006, when the blending programme was introduced subject to commercial viability. Between 2006 and 2009, these companies floated tenders to procure the necessary quantities of ethanol. "Our experience during those three years was that the contracted volumes were always significantly lower than the requirement and the actual supplies would fall short of the contracted volumes," said an official, who did not wish to be named.

In 2009, the process changed with the government fixing the price at Rs 27 per litre. These companies had to float the EoI for the quantities needed, which led to an improvement in the contracted volumes and supplies.

Though sourcing process is back to the pre-2009 period in some respects, the government has now allowed import of the commodity. However, blending will prove costly unless the price of ethanol is lower than the petrol price paid by the oil marketing companies to the refineries - also known as the refinery transfer price (RTP). According to Indian Oil's website, the RTP for BS IV petrol was Rs 42.11 per litre in Delhi on December 1, 2012 based on the global gasoline prices and the exchange rate.

"However, this can't be taken as the maximum acceptable ethanol price straight away, since the ethanol price will have to be committed for the whole year whereas the petrol price can fall depending on international prices and rupee movement," said a senior official with an oil marketing company on the condition of anonymity.

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