The Hindu Business Line : Ethanol: Time to blend policy with reality

Chennai: Nearly a decade after the Centre decided on an ethanol-blended petrol programme, it is yet to expand the supply countrywide despite a law that makes it mandatory. Lack of priorities, conflict of interest between the States and the Centre and pricing issues have stymied the programme, say the stakeholders.

In September 2008, the Government adopted a National Policy on Biofuels which targets 20 per cent blending by 2017. Meanwhile, it said 10 per cent blended fuel would be supplied from October 2009. This is at a time when the 5 per cent blending is itself yet to come into vogue. Except for some intermittent attempts in the southern States, the programme is being followed only in Uttar Pradesh and Maharashtra, say industry sources.

States’ reluctance

The reluctance of the State governments to promote this programme is that they see fuel ethanol eating into the availability of potable alcohol which is a major source of revenue; and the inability of the industry and the oil marketing companies to arrive at a viable pricing for ethanol.

In an e-mail response, Mr Pramod Chaudhari, Chairman, Praj Industries, a leading distillery equipment manufacturer, said a clear policy that will help build fuel ethanol production capacity is an imperative. In other countries, renewable energy is promoted through tax incentives and a clear mandate that applies across the country. In India, fuel ethanol production is largely governed by the same regulations as other alcohol production policies.

Mr Chaudhari, who also heads the Confederation of Indian Industries’ Biofuels Committee, points out that when Brazil started its programme at the height of the 1972 oil crisis, it had a clear vision for developing ethanol as an alternative fuel. It promoted ethanol, not just at the processing end, but also at the farm level by promoting high yielding varieties of cane and creating an entire industry around it. It is now the lowest cost producer of ethanol. But India has a different dynamics as far as ethanol is concerned. Oil companies too should have the incentive to mainstream ethanol.

According to sugar industry sources who did not want to be quoted, among the primary reasons for the programme not taking off are the multiplicity of controls — the State governments control movement and use of molasses and rectified spirit while the Centre dictates its use as auto fuel. To the State governments potable alcohol is a major source of revenue but fuel ethanol generates income only for the Centre. State governments are concerned that fuel ethanol would cut into the availability of raw material for potable alcohol.

On pricing, the sources concerned, say both the sugar industry and the oil companies remember ethanol only when the market conditions are adverse. During the upswing in production in 2004, 2005 and 2006, the industry had been anxious to get into ethanol supply as they anticipated a drop in prices of rectified spirit and extra neutral alcohol — the raw material for liquor. The price of a litre of ethanol was then priced at Rs 18.75. Today, they do not find ethanol attractive at Rs 21.50 as the downswing in production is expected to buoy up prices and the cost of production has also been hit by the rising pricing of sugarcane. Similarly, to the oil marketing companies ethanol is attractive only when crude oil prices spiral. Sugar industry representatives say that except for piecemeal negotiations between the sugar industry and oil marketing companies no serious dialogue has taken place between the buyers and sellers on the price structure.

classification

Mr Chaudhari says the classification of ethanol as a renewable energy would encourage suppliers to continue to supply ethanol even when prices are not very conducive. A viable pricing formula is also vital but as of now the fixed price formula has no relation either to the economics of fuel ethanol production or to the oil prices. Countries like Thailand have reaped the benefit of price formula which takes both into account.

For now the national biofuel policy sets out the intention to address some of these issues. On pricing it states that the minimum purchase price of ethanol would be based on the actual cost of production and import price. Also, the ethanol may be brought under the ambit of “Declared Goods” by the Centre to ensure unrestricted movement of biofuels within and outside the States. Industry experts say this will have to be implemented in letter and spirit.

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