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Fuel doping: Govt to rework pricing formula for ethanol

23 Dec 2009, 0126 hrs IST, Prabha Jagannathan, ET Bureau

NEW DELHI: In an urgent bid to revive the mandatory blending 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 (ISMA) 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 soon and pave the way for 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 for sugar may be 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 penalise 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 ISMA
president spoke of a 190 lakh tonnes of sugar in 2008-09 this time last
year...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 because 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 acute sugarcane 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 be 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. 



