In a bid to ensure strict adherence to fuel blending norms, the Union Budget has proposed to levy an additional excise duty on unblended auto fuel which will come into effect from October 1. 

In her Budget speech, Finance Minister Nirmala Sitharaman said, “Blending of fuel is a priority of this government. To encourage the efforts for blending of fuel, un-blended fuel shall attract an additional differential excise duty of ₹2 a litre from October 1, 2022..” Thus, the industry has been given time to meet the target of 10 per cent for the current ethanol supply year (ESY) December 2021-November 2022. 

Pressure on OMCs

But, this comes with a catch. According to the oil industry officials, the government has recently said blending lower than 9 per cent will not be considered in the category of blended fuel. With the proposal in her speech, the Finance Minister has now made it amply clear that anyone selling unblended fuel will attract this additional excise duty.

While the public sector oil marketing companies are selling 10 per cent ethanol blended fuel in most parts of the country, there are a few places where this is not happening. This move from the government will put added pressure on the OMCs, both in the public and private sector.

Besides this, the Finance Bill, 2022, has proposed Clause 98 which seeks to amend the Fourth Schedule to the Central Excise Act to insert two new tariff items in Chapter 27 relating to E12 and E15 fuel blends, as new BIS specification has been issued for Ethanol Blended Petrol with percentage of ethanol up to 12 (E12) and 15 (E15) per cent. This amendment will take effect from the date on which the Finance Bill, 2022, receives the assent of the President, it said. 

This has put the industry in a fix, which till now was enjoying excise duty tax exemptions for current prescribed blending specifications. The industry is not sure whether this exemption will be available for this proposed specification, too. The categories are treated as manufactured products and thus attract a levy. 

Gradual rollout

The government’s roadmap proposes a gradual rollout of ethanol-blended fuel to achieve E10 fuel supply by April 2022 and phased rollout of E20 from April 2023 to April 2025. Currently, 8.5 per cent of ethanol is blended with petrol in India. The Economic Survey on Monday said the government, which is targeting a 20 per cent blending by 2025, was expecting investment up to $5.5 billion in ethanol sector over the next three years.

The government has lowered Goods and Services Tax rate to 5 per cent from 18 per cent on ethanol meant for blending under the EBP Programme. Recently, the Minister of State for Petroleum and Natural Gas, Rameswar Teli, in a written reply to a question in the Lok Sabha had said the measures taken by the government to reduce dependence on imported gasoline include a number of policy initiatives for increase in domestic crude oil production by generating quality geo-scientific data and its easy access, awarding new exploration acreage, expediting production from new development acreages and focus on production maximisation from existing production acreages. 

The procurement price of ethanol produced from sugarcane-based feed stocks like C & B heavy molasses, sugarcane juice, sugar, sugar syrup is fixed by the Government and from food grain-based feed stocks by PSU OMCs on an annual basis, he had said. 

It has promoted usage of biofuel in the country by notification of the National Policy on Biofuels (NPB) - 2018 which allows use of multiple feedstocks for producing bio-ethanol for increased supply of ethanol for blending with petrol. The encouraging initiatives on supply side of ethanol has prompted the government to advance the target of 20 per cent ethanol blending in petrol in the country from 2030 to 2025-26, the Minister had said adding the government has also notified Pradhan Mantri JI-VAN Yojna for promoting Second Generation (2G) ethanol production from cellulosic and lignocellulosic including petrochemical routine the country by providing financial support. 

As of end January 2022, the OMCs have issued Letter of Intents (LOIs) for 385.49 crore litre of ethanol across all sources including sugarcane juice, B Heavy and C Heavy Molasses, damaged food grains and surplus rice among others. Of the total LOIs issued, the total contracted quantity stood at 362.02 crore litre, while the ethanol quantity received by OMCs stood at 58.62 crore litre. Indian Oil Company, the largest fuel retailer, has issued LOIs of 171.53 crore liter, followed by Bharat Petroleum Company at 112.31 crore litre and Hindustan Petroleum Corporation Ltd at 101.65 crore litre.

(With inputs from Vishwanath Kulkarni)

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