Ethanol pricing: Deora calls for open tender

New Delhi, Aug 30 | Updated: Aug 31 2006, 05:30am hrs
In an effort to infuse new life into the programme to blend ethanol in petrol, oil minister Murli Deora has scrapped the process of buying sugarcane extract at a negotiated price and instead asked the public sector oil marketing companies to call for open tenders.

Ethanol manufacturers, who got Rs 18.75 a litre last year on a negotiated basis, were seeking Rs 27 per litre this year. This was opposed by oil firms who feared cartelisation and instead wanted pricing based on the calorific value of ethanol, an official said.

One of the major suppliers of ethanol recently made a unilateral offer to supply 10 crore litres of ethanol at Rs 21.50 per litre for five years. While the direct offer found favours with oil marketing companies (OMCs), the agriculture ministry also advocated direct negotiations with suppliers.

Deora, however, rejected the suggestions of both the agriculture ministry and of the OMCs to pursue a direct purchase route. He has directed that open bidding process should be commenced forthwith by the OMCs in which all suppliers can participate and the price discovery is achieved in an open and fair manner, he said. Oil firms need 58 crore litre of ethanol annually for selling 5% ethanol-blended petrol in nine states.

OMCs have been directed to put out a clear tender in the market and have been given the complete commercial freedom to protect their commercial interests in arriving at workable ethanol pricing, the official said.

The official said the Rs 21 per litre price for ethanol was about 35% more than the price for equivalent calorific value fuel. Ethanol gives 44% lower energy than petrol and as per international practices, like the one followed in the worlds largest ethanol-petrol blender Brazil, it should have been priced at roughly 60% of the manufacturing cost.

The energy equivalent price of ethanol works out to Rs 15.60 a litre taking one-year peak petrol cost of Rs 26 per litre but Indian Sugar Manufacturers Association (ISMA) wanted ethanol price to be linked to international oil prices.

OMCs and Indian Chemical Manufacturers Association had argued against the ISMA demand saying the pricing should be based on the calorific value of ethanol, the commercial viability of the product for the OMCs and the need to avoid caterlisation and compulsory purchase policy to the exclusion of other users, he said.