Our Bureau

New Delhi, May 13

, AN assurance of long-term demand for ethanol from the buyers in lieu of long-term supply commitment from sugar manufacturers and ironing out pricing method of ethanol appear to be the bone of contention between the Indian Sugar Mills Association (ISMA) and the Petroleum Ministry.

In a letter sent to the Ministry of Petroleum, ISMA has said at the production level of 2004-05, 550 million litres of ethanol is available as surplus for the ethanol-blended petrol (EBP) programme sufficient to meet it at five per cent blend.

"Also, it is important that while ethanol suppliers maintain uninterrupted supplies, correspondingly, the oil companies be placed under an obligation to make regular continuous purchases and maintain adequate storage facilities at all blend stations to ensure uninterrupted supply," the sugar body has pointed out in its reply suggesting changes in the MoU for long-term supply of ethanol. A copy of the reply is with Business Line.

However, ISMA has also said it can assure supply at an all-India basis rather than at a regional basis since regional availability could be subject to few uncertain factors.

As for pricing, the sugar industry has expressed reservations on "the delivery price of ethanol" being "comparable to the import parity price at that location".

Comparing import parity price of petrol at blend station would prove difficult, since the sellers cannot access this relative data.

"If there has to be a linkage, let the link be with that of international crude prices, which are much more transparent," said an official.

Similarly, as for the commitment to keep the price of ethanol for EBP programme "comparable" to the price of ethanol supplied for alternative uses, ISMA has said it can only be compared to the prevailing price of rectified spirit since it does not have any worthwhile demand in the country.

For ethanol, rectified spirit needs to be dehydrated five per cent. The sugar body puts the cost of the exercise at Rs 3 a litre.

Additionally, ISMA also calls for factoring in another clause while determining the price.

Ethanol acts as an oxygenate/octane booster, whereas MTBE (methyl tertiary-butyl ether) that is currently used as an octane booster of fuel has recently been banned in the US, as it was found be a ground water pollutant and was carcinogenic.

An issue where the sugar body has refused to take responsibility is a clause that calls for oil marketing companies and sellers entering into separate agreements with the State Governments to assure ethanol supply for EBP programme.

(This article was published in the Business Line print edition dated May 14, 2005)
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