The complex issue of ethanol blending in petrol is still hanging fire despite repeated attempts by the government and other stakeholders to arrive at a conclusion. The main bone of contention is the price at which oil companies will purchase ethanol from sugar firms. After much hand-wringing, the government agreed to raise the price to Rs 27 per litre as against the earlier fixed price of Rs 21.50 per litre. This decision, though ratified by an EGoM, has yet to be cleared by the Cabinet, as oil companies are opposed to this. They argue that the cost of making petrol is roughly Rs 23 per litre (excluding duties and taxes) and paying more than this for ethanol will make blending unviable.

The history of India?s ethanol blending programme (EBP) dates back to 2006, when the government first mandated that ethanol be blended in a 5% ratio with petrol. The aim was to cut down on the country?s crude oil import bill and also to provide a ready market for sugarcane, which would have saved the government from bailing out the sugar industry in times of a glut.

The quantum of ethanol to be blended with petrol was raised to 10% from October 2007, which was made compulsory from October 2008. Although the government made 10% ethanol blending mandatory almost two years ago, even 5% blending could not take off in the right earnest because of disagreement over price and shortage of ethanol. The sugar companies claim that they have enough ethanol blending capacity to meet the oil industry?s demand, but the OMCs think otherwise. In other words, one of the most ambitious programmes in the Indian energy sector is yet to see the light of the day. Of late, there has been some forward movement with the EGoM managing a sort of consensus, but it is still not clear when blending will actually start. Remember, this fight is over just the interim price for ethanol and only after the interim price is officially notified, then work on the long-term price of ethanol will start. With the sugar sector once again staring at a likely oversupply situation in 2010-11, it is imperative that a consensus is reached on at least 5% mandatory ethanol blending.

?sanjeeb.mukherjee@expressindia.com