1. States get targets for ethanol production

States get targets for ethanol production

Food department asks major producers to ramp up ethanol supply in a bid to promote its blending with petrol

By: | New Delhi | Published: September 22, 2015 12:11 AM

Close on the heels of Prime Minister Narendra Modi directing various ministries to try and make ethanol blending with petrol in the proposed 10:90 ratio a reality, the food department has set targets for major producing states for supplies of this bio-fuel.

In a recent meeting with senior government officials of producing states, food secretary Vrinda Sarup asked the states to ramp up supplies of ethanol and submit their views on the targets proposed by the Centre soon, sources told FE.

However, the sugar industry that produces ethanol, meanwhile, is finding itself unable to commit entire supplies for the proposed 10% blending with petrol unless supplies are reasonably incentivised, administrative reforms are implemented and further capacity created.

According the sources, the food department has asked Uttar Pradesh, the country’s biggest producer of cane and ethanol, to supply  56 crore litres of ethanol a year.  UP, however, has the capacity to produce only 35 crore litres of ethanol annually, said senior industry executives. Similarly, Maharashtra has been asked to supply 53 crore litres and Karnataka 25 crore litres of ethanol a year, whereas their capacities to produce this bio-fuel stand at 20 crore litres and 23 crore litres, respectively.

Currently, while the country has the capacity to produce 224 crore litres of ethanol a year, oil-marketing companies (OMCs) have floated expression of interests seeking supplies of 266 crore litres for implementing the 10% blending plan across the country, barring a few regions which were outside the ambit of the programme. Although OMCs will announce later this month the quantity for which bids are placed, supplies against the tender are expected to be far less than the amount sought, industry executives said.

Given the absence of any worthwhile incentive to supply ethanol, especially to far-away states, and the fact that the balance sheets of sugar mills are already stressed so much that banks are unwilling to provide even working capital loans to them, adding fresh capacity to produce more ethanol is out of the question at this hour, they added.  The finance ministry’s unwillingness to change the central value-added tax (CENVAT) rules and allow the excise duty paid on molasses to be Cenvatable is the latest in a series of nagging issues haunting the ethanol producers.

In April, when the Cabinet Committee On Economic Affairs (CCEA) had decided to scrap a 12.5% excise duty on ethanol from October 1, the industry assumed it would gain R5 per litre from such a move. However, now that the department of revenue is reluctant to make the duty paid on molasses cenvatable, the effective gains to producers  would be just around Rs 2 per litre. This is because earlier producers were given Cenvat credits (effectively to the tune of Rs 3 per litre) on the excise duty paid on ethanol.


Since ethanol producers are already struggling to supply due to states’ unwillingness to abolish levies on the inter-state movement of the bio-fuel and also effect administrative reforms, including digitising the excise permit processes, the latest move to set targets for states may not yield the desired results unless states willingly reform themselves.

As many as nine states, including Gujarat, Maharashtra, Uttar Pradesh and Delhi, impose levies up to Rs 3 per litre on intra-state movement of ethanol. The centre has also stipulated that mills have to sell ethanol at Rs 49.50 per litre at the depot of OMCs locating beyond 300 km. This is a loss-making proposition for mills that have to supply at depots in far-away places. Moreover, states like UP refuse to digitise its excise permit processes and cause huge delay in granting the no-objection certificates for the supply of ethanol outside the state.

These reasons explain why the country could achieve only 1.4% ethanol blending with petrol in the last fiscal, even lower than the 2013-14 level of 2%, more than a decade after the government first mooted sales of 5% ethanol blended petrol and made it mandatory later. In December 2013, the Sharad Pawar panel mulled doubling the blending limit to 10%, which was re-iterated by the CCEA in April 2015.

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