Suppliers point out delays in tendering n Target of 20% blending by ’17 in danger
The government's plan to implement the blending of ethanol with petrol at a 5:95 ratio by June is likely to come a cropper, with oil marketing companies (OMCs) yet to finalise the list of suppliers of the cane by-product. The sugar industry that produces most of the ethanol has now expressed its inability to fully meet requirement of the OMCs, saying an unnecessary delay in finalising the tenders by the OMCs — especially when 70% of cane has been crushed so far this season — and stringent conditions incorporated in the supply agreement have forced it to divert supplies to avoid a storage disaster.
“We are very serious about implementing the ethanol blending programme, but we have to follow certain processes as well,” petroleum minister Veerappa Moily said at the Idea Exchange programme.
On November 22, the Cabinet Committee on Economic Affairs (CCEA) had decided to link the price of ethanol with the market rate to make it attractive for producers, and directed the petroleum ministry to “immediately issue a gazette notification” for OMCs to implement the programme from December 1. Prior to the decision, OMCs used to float tenders to buy ethanol at a provisional price of R27 per litre, which producers said was at least 25% lower than the market rate.
The blending programme was first approved by the CCEA way back in 2008 to reduce pollution but could not be implemented fully despite being mandatory, mainly due to the absence of a fixed pricing formula for ethanol. Significantly, the government's target of 20% mandatory ethanol blending with petrol by 2017 is all set to be missed, considering that only 13 states have so far implemented the programme since 2008, although blending is less than half the targeted level of 5%.
Despite the CCEA’s decision, the petroleum ministry issued the notification only in January and asked the OMCs to implement the 5% blending programme by June 30. Moreover, although the last date of submission of bids was fixed at January 28, the price bids were opened only on February 15, a delay of 18 days.
Meanwhile, molasses, from which ethanol is produced, have piled up with producers, as cane-crushing for the current season started in mid-November and peaked in December. Consequently, ethanol producers diverted supplies to other consuming industries, including portable alcohol makers and rectified spirit manufacturers, sugar industry executives said. So far, 70% of the season's cane has been crushed and 7.5 million tonne of molasses produced, but a supply contract with OMCs is still elusive, they added.
Compounding producers’ worries, tough conditions incorporated in the tenders resulted in the disqualification of some, while some others missed the bus due to confusion over the e-tendering process adopted for the first time, the executives said. Consequently, against the requirement of 105 crore litres of ethanol by the OMCs, producers have bid for around 55 crore litres. “The industry is willing to supply more, maybe 15-20 crore litres more, if a supplementary tender is floated. The delay in the finalisation of tenders has harmed us as we have limited storage capacity,” Indian Sugar Mills Association director general Abinash Verma said. OMCs shouldn't blame producers for lack of adequate ethanol availability in the current season, as the tendering process has been delayed beyond logic, Verma added.
Most ethanol producers have quoted prices of R35-36 a litre for supplies in the tenders floated by the OMCs, compared with the imported ethanol price of more than R50 a litre, sugar industry executives said. Therefore, any unreasonable delay in the finalisation of the supply agrrements with domestic ethanol sellers would only hurt the OMCs, they argued.
“Unlike previous tenders, the OMCs want that permits from state excise departments and other required formalities be complied with by the suppliers. This is despite the fact that excise permits can be issued only to the buyers and not to the suppliers. Experiences suggest a lot of difficulties, including delay in the issuance of excise permits and unnecessary burden on mills like penalties,” another industry executive said.
Unlike the previous tenders, only producers would be held responsible for any delay in supplies, while no penalty can be imposed on buyers for any delay, he said. The condition that the average annual turnover of the supplier in the last three years should be R2 crore ensured the disqualification of some new producers, including a big supplier like HPCL Biofuels.
Moreover, the tender specifies that supplies should be equal in each of the next 12 months starting March.