The Hindu Business Line : Biofuel policy: Lukewarm response from industry

THE biofuel policy announced recently by the Union Petroleum Ministry has received a lukewarm response from the industry. The industry is worried that the policy has fixed a price for biofuel without any reference to the raw material price.

However, traditional oil mills that have been catering to other industrial users have welcomed the announcement. This will stabilise prices in the long run and give the mills a new market, they say.

Industry source say some of the "welcome" features of the programme are that it is to be launched from January 2006; the oil companies are expected to buy biofuels and purchase points have been designated. But of concern is the announcement of a fixed price of Rs 25 a litre, even if it is subject to review, as the seed cost has not been addressed. Also, with State governments actively encouraging farmers to go for cultivation of biofuel yielding plants, the seed price is still an open question that could skew the equation, they say.

According to Mr N. Satish Kumar, Managing Director, Southern Online Biotechnologies Ltd, a major investor in biofuels, prices of seeds like pongamia are now more than Rs 6 a kg compared to about Rs 3-4 a kg last year. At this level, taking into account that 4 kg seeds are needed for extracting a litre of fuel oil, the transport charge of seed to the factory and oil to the purchase point and seed crushing cost totalling about Rs 10, the cost of production works out to about Rs 28 a litre, including local taxes. Ideally, biodiesel prices should have been fixed at about Rs 30 a litre, he said.

According to another major buyer of oils, the decision to initially peg prices at about Rs 25 a litre is good. But he is sceptical if they would find any seller at this level. Even the raw oil is now costlier. The announcement by the Centre could at best be considered a firm expression of interest but does not address the finer details.

Investors are also hopeful that a firm commitment towards a market would encourage banks to assist the projects. Though they have evinced interest, there has been delay in funds being sanctioned.

Mr A.A. Venugopal Chettiar of Bhuvaneshwari Oil Mills, Gudiyattam, Tamil Nadu, said the price would stabilise with the announcement of the policy. Now prices of oils such as Pongamia range around Rs 30-32 a litre when sold to tanneries.

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