State levies, red tape hamper ethanol blending programme

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New Delhi | Updated: Apr 10, 2015 5:17 AM

Oil-marketing companies (OMCs) have contracted to buy only 80 crore litres of ethanol through various tenders floated since July last year, around half...

Oil-marketing companies (OMCs) have contracted to buy only 80 crore litres of ethanol through various tenders floated since July last year, around half of their demand of 156 crore litres to meet the official blending targets.

Blaming inadequate supplies for the country’s inability to meet the target of blending 5% ethanol with petrol in almost all states and 10%
in six bio-fuel producing states even over a decade after the government first mooted the blending programme to cut down on vehicular pollution would be to miss the point, as the devil lies in the details.

While the producers and OMCs have been locked in a constant blame game over the delay in finalisation of tenders, several other barriers in the implementation of the blending programme have come to the fore: levies imposed by various states on the inter-state movement of ethanol despite it being a central subject, mandatory requirement of various excise permits, often to be submitted manually, and fixed prices of ethanol for supplies even beyond 500 kilometre that adds to transportation costs. No wonder, the country could achieve only 1.4% ethanol blending with petrol in the last fiscal, even lower than the 2013-14 level of 2%.

Oil marketing companies, ethanol, petrol, vehicular pollution

Levies on inter-state supplies by states ‘illegal’
Any ethanol producer supplying from Uttar Pradesh to Delhi has to cough up Rs 4.1 per litre, factoring in levies of a total of Rs 2.1 per litre imposed by UP and another Rs 2 per litre slapped by Delhi on inbound supplies.

Since the Centre has fixed the supply price of ethanol at the depot of an OMC, many times the producers don’t want to supply outside their respective states, fearing a drop in realisation due to such levies.

This is ironical. According to the entry 8 of the state list, states can legislate on “intoxicating liquors”, that is on production, possession, transport, purchase and sale of such alcohol. Bringing clarity to the issue, the Supreme Court, in a judgment in the Synthetics & Chemicals vs the state of Uttar Pradesh case, has ruled that once the denaturant has been added to alcohol, it becomes unfit for human consumption and hence “the state legislature has no authority to levy duty or tax on alcohol which isn’t fit for human consumption, as that could only be levied by the centre”.

Making a case for the levies, some states argue that producers may divert alcohol in the garb of ethanol, to which suppliers say the inspector deputed by the state at every distillery may check the substance and clear it.

Moreover, it’s the duty of the states to ensure compliance with the Supreme Court verdict and not to contravene law citing difficulty in compliance.

Recently, Union food minister had written a letter to states, asking them to scrap the levies.

Red tape in excise permits hampers supplies
In the age of digitisation, the refusal of the excise departments across various states to communicate electronically even for routine stuff makes the matter worse for ethanol suppliers.

A producer wishing to supply ethanol to Punjab from Uttar Pradesh has to first approach the excise department of the Punjab government for a permit. He then has to submit it with the UP government, and, curiously, the state government would again cross-check with the Punjab government about the no-objection certificate obtained by the supplier.

If satisfied with the reply of the Punjab government, the producer will be allowed to transport ethanol out of Uttar Pradesh.

Since all these communications take a long time to happen, and leaves enough scope for bribery and high-handedness by excise officials, producers are often reluctant to supply outside their respective states.

And when they are willing to do it, they find its difficult to deliver on time.

Sugar mills, which produce ethanol, argue that since ethanol is unfit for human consumption after mixing it with de-naturant, inter-state transportation of the bio-fuel should be allowed without the no-objection certificates, just like any other goods, including sugar.

Fixed prices for long-distance suppliers a barrier
The centre has stipulated that mills have to sell ethanol at Rs 49.50 per litre at the depot of OMCs locating beyond 300 kilometres. This is a loss-making proposition for mills that have to supply at depots locating far away from the distilleries, say over 500 kilometres, thanks to high transportation charges. Producers feel if the government decides to reimburse for extra distance beyond 400-450 kilometres, they will be encouraged to supply even to far-away states.

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