The food ministry, for instance, is not in agreement with the MNRE and says the current provisional price be the floor rate and the upper limit of the band should be 30% higher, or R36 a litre, a source said. The agriculture ministry, on its part, is not in favour of capping the price, and wants implementation of the Saumitra Chaudhuri panel report, which proposed linking ethanol price with the rate of petrol at the depot, with a discount of 20%.
Sources said the chemicals ministry is opposed to any rise in the provisional rate of ethanol, fearing an upward spiral of the cost of raw material used in various industries, including potable alcohol, rectified spirit and pharmaceuticals.
The government first made it mandatory for oil marketing companies (OMCs) to blend 5% of ethanol with petrol in 2008, and the current provisional price of ethanol was fixed way back in August 2010. The latest move came amid criticism that the government has not yet firmed up a pricing policy on ethanol despite the Saumitra Chaudhuri committee — set up to suggest a formula to fix the rate — submitting its report more than a year ago.
If the panel recommendations are accepted, at the current petrol price, ethanol will cost roughly R36 a litre.
OMCs say so long as ethanol is priced lower than petrol, they don't have any problem implementing the blending programme. “Ethanol, when added to petrol, adds to its octane number and hence improves auto-fuel quality. So, blending will benefit both oil companies and consumers,” said a senior executive at a leading OMC. “Although petrol has been deregulated, we do not have real autonomy in increasing its price. Even if full autonomy in petrol pricing is there, ethanol blending is still beneficial,” he added.
However, with conflicting views of key ministries, ethanol-makers fear they would have to continue to supply at the provisional rate when other by-products of molasses are fetching up to 30% higher returns. “Poor realisation” from ethanol would disincentivise producers and make it difficult for the country to achieve its target of 20% mandatory ethanol blending with petrol by 2017 from the current 5% to reduce pollution, they added.
Bharatiya Janata Party president Nitin Gadkari has sought Prime Minister Manmohan Singh's intervention in finalising the ethanol pricing policy. In a letter to Singh on July 12, Gadkari said: “If ethanol price falls to Rs 23 per litre, supplying ethanol to oil marketing companies for blending will be unviable. This may jeopardise ethanol supply for the blending programme.”
OMCs have finalised contracts with manufacturers to supply 47 crore litres of ethanol in the current sugar year through September. Up to June 30, only 23 crore litres could be supplied as OMCs took time to complete formalities and delivery started only from December, said a senior sugar industry executive.
“Once the final pricing formula is approved by the government linking it to petrol price, it will encourage ethanol supplies. We have the ability to meet requirements of all stakeholders, as we can produce 250 crore litres of ethanol a year out of molasses. OMCs need 100 crore litres for the mandatory blending programme and other consuming industries need another 100 crore litres, which would still leave us with 50 crore litres,” said Indian Sugar Mills Association director general Abinash Verma.