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Fuel doping: Govt to rework pricing formula for ethanol 23 Dec 2009, 0126 hrs IS T, Prabha Jagannathan, ET Bureau NEW DELHI : In an urgent bid to revive the mandatory b lending 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 (I SMA) 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

s oon and pave the way f or 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 f or sugar may

b e 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 p enalise 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 IS MA president spoke of a 190 lakh tonnes of sugar in 2008

- 09 this time last ye ar...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 beca use 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 acutesugarcane 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

b e 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.