Oilmin slams Pawar push for ethanol mix
New Delhi   05-Aug-2010

The Petroleum ministry will be approaching the government to defer the move, spearheaded by food and agriculture minister Sharad Pawar, to force the oil firms to blend ethanol, priced at 27 per litre, with petrol.

Pawar has used his formidable clout to push through the bonanza for the sugar lobby, which stands to benefit as ethanol is produced by sugar mills from molasses as a by- product of sugar. The current market price of ethanol is only 18- 19 per litre.

According to official sources, the petroleum ministry has made out a strong case on the ground that there is not enough ethanol in India to implement the petrol- blending scheme on a nationwide scale. This has been proved by the experience of the oil firms in the last four years.

The blending of petrol with five per cent ethanol was made mandatory in October, 2007 before which the oil companies were implementing the scheme on an optional basis and keeping commercial viability in mind.

The oil companies were then expected to move up to 10 per cent blending with ethanol.

Figures made available by the public sector oil firms reveal that they could get only 40 per cent of the ethanol required for implementing the blending programme during 2006- 09.

The situation took a turn for the worse in 2009- 10 when the oil firms could not get even 20 per cent of the ethanol required due to very poor response to the tenders floated by them.

The oil companies, which are already bearing a heavy subsidy burden on the sale of diesel, LPG and kerosene, stand to lose another ' 600 crore if they are forced to implement the ethanol blending scheme. The 27 per litre price of ethanol, fixed by the government at Pawar's behest, is 6 per litre higher than the current base price of petrol.

Any large scale diversion of ethanol to the oil companies will also hit the chemicals industry and the potable alcohol makers. Since the cash strapped states are dependent on potable alcohol for excise collections they do not permit the diversion of ethanol to the oil companies.

"This has been the reason why, the petrol blending programme could not be implemented in Tamil Nadu," a senior IndianOil ( IOC) official said.

The truth of the matter is that based on the current sugarcane acreage, the annual production of ethanol in the country is around 160 crore litres.

The 4,000- crore alcohol- based chemicals industry, which uses ethanol as an input to make medicines and other products, requires about 100 crore litres a year. Similarly, the potable alcohol industry needs around 110 crore litres while the petrol blending plan will require 90 crore litres. This will leave a deficit of 140 crore litres.

Petroleum ministry officials say that while on the one hand the government has taken a decision to decontrol the price of petrol, on the other it is forcing the oil firms to buy ethanol at a fixed price to blend with petrol. This is a contradiction that needs to be looked into.

The petroleum ministry is in favour of a more practical approach. It is of the view that the implementation should not be forced on the oil companies until a stable supply of ethanol is forthcoming at a commercially viable price.

An over- ambitious programme, such as the 10 per cent ethanol blending, which would need a high acreage of sugarcane, could also trigger the food versus- fuel debate in a country where a large number of people gets hit by soaring prices of essential food items.