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Fuel doping: Govt to rework pricing formula for ethanol

23 Dec 2009, 0126 hrs IST, Prabha Jagannathan, ET Bureau

NEW DELHI: In an urgent bid to revive the mandatory blending of 5% ethanol with 

petrol, the Centre is gearing up to rework the formula for pricing 

ethanol in order to activate the ethanol supply tenders from sugar factories to OMCs 

(Oil Marketing Companies. The new formula is likely to include a “Take or Pay” 

clause which amounts to 10% to the total supply value. 

Food minister Sharad Pawar indicated on Tuesday at the 75th annual AGM of the Indian 

Sugar Mills Association (ISMA) that he planned to put the new formula—this is being 

worked out in consultation with the sugar companies—before the Cabinet soon to ensure 

that 5% mandatory ethanol doping of petrol was started imminently. 

“We (industry and government) have reached a broad agreement on the matter which will 

be announced very soon and pave the way for the success of the 5% blending 

programme. Only after this can the government have the confidence to embark on higher 

percentage of ethanol blending,” he told industry honchos today. 

Also, a new export policy for sugar may be on the anvil which ensures that the world’s 

largest consumer of sugar—India is currently the toast of the global sugar market for its 

desperate and high priced sugar buys against an acute cane shortage at home—has a 

“continuous presence in the international market” A sustained market presence is 

expected to allow the country to gain through timely and reasonably priced exports and 

imports. 

The carrots, though, ended there. Indicating that the Centre would take hard penal action 

against the industry on mis-reporting or under-reporting the cane acreage in their area. 

“We have decided to strictly penalise factories for late and incorrect reporting of figures 

to the Directorate of Sugar,” Mr Pawar held. 

Turning the tables on the industry over highly incorrect sugar production figures for 

2008-09, which resulted in acute sugar shortage, high domestic prices and expensive 

imports, Mr Pawar stressed “...industry itself was way off in production estimates and the 

ISMA president spoke of a 190 lakh tonnes of sugar in 2008-09 this time last year...such 

incorrect estimation often leads to delayed and incorrect policy decisions.” 

The government’s urgency to kickstart the 5% ethanol blending programme (EBP) is also 

because the requirement of ethanol has shot up from around 800 million litres annually to 

over 850 m litres in the course of the delay (since 2006) in implementation. 

Tenders from OMCs for ethanol buys have been kept in abeyance thus far after a 

difference in the price of the commodity, ranging between Rs 27/litre and Rs 21.50/litre. 

Most sugarcos are reluctant to supply at this rate to OMCs against a background of acute 
sugarcane supply shortage and higher processing costs per unit to factories. 

“The cost of petrol is Rs 23 a litre and the blending of ethanol obtained at a price any 

higher may be uneconomical for OMCs,” an industry monitor acknowledged. But 

sugarcos maintain that a steady government policy ensures normal sugarcane output 

annually and that ethanol should be priced in the context of high fuel efficiency, lower 

exchequer spends on oil imports, especially given crude price volatility. 

There have, meanwhile, also been reports of some Maharashtra based non-sugar 

companies defaulting on their obligations to OMCs. Defaults, however, have reportedly 

been on account of these companies being unable to enter into sustained supply contracts 

for a year or more as demanded by OMCs. “Mr Pawar held “Defaulting creates doubts in 

the minds of ethanol users...look, instead, at the long term picture of continuous demand 

at a fixed price even inyears fo surplus sugarcane and sugar production.” 

The minister said that the governmetn could consider relaxing the SCO to allow direct 

coversion of sugarcane juice to ethanol in cane an sugar supply surplus years “as a 

possible solution” to resolve problems of cyclicality in the sector. “This is of special 

concern to us,” he said.