Oil cos not buying ethanol

Oil refinery

The implementation of the biofuel policy by October will be anything but sweet for the government, with the sugar industry claiming that oil marketing companies are unwilling to buy ethanol at the floor price of Rs 21.50 a litre.

The government had asked oil companies to start with 5% optional blending. This, however, hasn't taken off yet and analysts find the goal of 10% blending far-fetched.

An analyst from a leading brokerage house said that India couldn't reach the 5% blending mark in two years. "It was stuck at around 3% aggregate. Even today oil marketing companies aren't proactive in blending ethanol with fuel. Therefore, meeting the target of 10% blending seems unlikely," said the analyst.

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A Bharat Petroleum Corporation Ltd (BPCL) official said the company couldn't achieve 5% ethanol blending as the product wasn't available with the manufacturers. "Sugar manufacturers couldn't produce the amount needed and that's why we couldn't meet the target," he said. The official added that the company managed to achieve 5% ethanol blending in 14 states but couldn't cover six states due to certain issues involving the governments of those states.

However, Vinay Kumar, the managing director of National Federation of Cooperative Sugar Factories, claimed that oil companies haven't been asking for ethanol.

"We have spent Rs 600 crore in installing ethanol production facilities. We are waiting for oil companies to take the initiative and ask for the product, which we can supply in any quantity," he added.

According to Prakash Naiknavare, the managing director of Maharashtra State Co-operative Sugar Factories Federation Ltd, the government had fixed 11 crore litres of ethanol for the state but oil companies bought just 4.5 crore litres. "We need an assurance from the government and from oil companies that they will buy the ethanol we produce," he said.

Naiknavare said that despite the government fixing a floor price for ethanol, oil companies are calling for tenders priced lower. "This is not acceptable to us and we want them to accept the floor price decided upon," he said.

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The price was fixed when crude prices were at $65-70. Due to the steep hike in crude prices and inflation, the cost of everything has gone up, making ethanol production a costlier affair.

Naiknavare said that today, it takes Rs 31 to produce one litre of rectified spirit as against Rs 18 per litre in 2005. Therefore, the price of Rs 21.50 per litre for ethanol is not sustainable. "Ethanol is made from molasses and rectified spirit and we want ethanol prices to be linked to their prices. But oil companies want fixed rates for a longer period of time. We disagree with this because farmers deserve the best price for their produce," he said.

An Indian Oil Corporation official, however, said that the price has to be viable to begin with. "We don't think that buying ethanol at Rs 21.50 per litre is viable and so we are asking for lower priced tenders," he said.

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The BPCL official added that Rs 21.50 was not an official price and so, oil companies could ask for tenders at lower prices. "We don't go above this price but we can ask for a lower price tenders. There are so many ethanol suppliers and we have to float tenders for our requirements," he said.

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