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Mandatory blending of ethanol on cards, in a move to cut fuel import bill

According to reports, the government will soon move for mandatory blending of petrol with ethanol (EBP), pegging the target at 5 per cent, in what could be a first step towards reducing the escalating fuel import bill.

The move for mandatory EBP would overrule the recommendation of PM’s economic advisory council (PMEAC) that blending be kept optional to deal with fickle supply of the bio-fuel.

Such a decision would put India in the select band of countries with mandatory bio-petrol. India has struggled to get petrol blending off the ground, despite a Union Cabinet decision in 2010.

Seeking to kick-start the frozen policy objective, the PMEAC had recommended that uncertainty over availability of ethanol could be dealt by making EBP optional — the oil marketing companies could be given the choice to have higher targets when ethanol supply is bountiful and lower in an adverse year.

However, the new and renewable energy ministry has moved a Cabinet note recommending that EBP should be mandatory with 5 per cent target for oil companies. It said PMEAC’s optional EBP should not be considered.

Fuel blending has been suggested as silver bullet to India’s elusive search for a sort of antidote to huge oil imports, which render economy hostage to price volatility in international markets. It is also seen as a long-term solution to reducing dependence on fossil fuel while increasing the energy efficiency of the fuel.

The crux of the fresh start over EBP — in the form of Cabinet proposal — is the intractable issue of pricing of ethanol.

Now, the renewable ministry has left it to the Union Cabinet to pick between the formula proposed by theSaumitra Chaudhuri committee and PMEAC’s recommendation that price be left to market forces.

Chaudhuri panel’s suggestions peg ethanol at Rs 27 per litre with a floor price of Rs 23 and a ceiling price of Rs 31.

The renewed push to EBP has already hit a rough patch, with chemicals and fertilizers ministry flagging its concern that mandatory EBP would hit the chemicals industry hard.

In a dissent note, the Union chemicals ministry has argued that 5 per cent EBP would require 105 crore litres of ethanol annually, even though oil companies could procure only 36 crore litres last year. It has argued that mandatory EBP would hurt chemicals industry by diverting its share of ethanol to oil companies. Even the PMEAC said that India cannot depend on ethanol’s largest producers like Brazil and the US.

The Cabinet proposal, instead, has recommended that chemical industries ink long-term contracts with ethanol producers for upto 50 crore litre annually.

The pricing of ethanol has been a politically sensitive issue. While key UPA ministers were seen to push for higher administered price for ethanol so that it improved the earnings of sugar industry, there have been suggestions that the sugar lobby should not be allowed to exploit EBP.

PMEAC also recommended that ethanol price be determined by commercial processes, and not be aimed at helping out an individual sector (read sugar).

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