The Centre on Friday asked states to relax restrictions on the supply of ethanol for blending with petrol at a 5:95 ratio, so that the ability of the bio-fuel’s producers — sugar mills and co-operatives — to clear cane arrears improves.

In a letter to CMs of key cane-producing states, Union food minister Ram Vilas Paswan said: “It has been observed that the expected response to the new ethanol blending programme (EBP) has not been forthcoming. There are significant transaction barriers which impede smooth supplies of ethanol for blending.” cane arrears across states hit Rs 12,300 crore this week.

Despite the Centre’s push for mandatory blending of ethanol with petrol, various state-level levies on the bio-fuel and the requirement of obtaining permits from various authorities have made the matter worse for sugar mills.

While Uttar Pradesh imposes a levy of Re 1 per litre for ethanol supplies outside the state, Maharashtra charges Rs 1.50 per litre. Also, as many as nine states, including Gujarat, Maharashtra and Delhi, impose levies up to Rs 3 per litre on ethanol that comes from other states. Even some instances suggest Octroi is also levied on ethanol for entry into municipal limits.

Some states are not only imposing levy on molasses but also regulating the movement of non levy molasses, Paswan said. Moreover, for the inter-state movement of ethanol, ‘no objection certificates’ from state excise authorities are required along with permits from dispatching and receiving states, the minister said.

Paswan said the blending programme would help the sugar industry attain viability, pointing out that the Centre has taken several steps, including subsidised loans to mills, to help them clear dues to farmers. “The states would agree that transaction barriers are impeding the successful implementation of EBP and adversely affecting the financial health of the sugar industry and cane farmers,” a food ministry statement quoted Paswan as saying.

The government last year made it clear that it wanted to even double the current ethanol blending limit to 10% at the earliest. India could achieve only 2% ethanol blending in the last fiscal, even over a decade after the government first mooted the idea and endorsed it at various stages. Worse, the blending limit achieved so far this fiscal has been a meagre 1.37%.