India: Oil ministry for ethanol, biofuel imports

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Oil ministry for ethanol, biofuel imports

Rakteem Katakey / New Delhi March 22, 2007

In a bid to arm-twist the suppliers of ethanol, the petroleum ministry
is pushing for allowing import of ethanol for blending with petrol,
reversing the earlier policy of relying on local production. It is also
in favour of allowing import of bio-diesel.

"Imports may be allowed in the consumer interest to ensure that
sufficient quantities are procured at economic rates, and prices of
petrol and diesel do not become captive to domestic price spikes in
respect of ethanol and bio-diesel," the petroleum ministry has said in a
Cabinet note.

The ethanol-blending programme, which was to be rolled out in the
country from November 2006, has been a non-starter, with just about 10
states freezing contracts with ethanol suppliers.

The main issue of contention is the price. This is despite the fact that
at a time consensus on the price of ethanol seemed to be emerging
between oil firms and the Indian Sugar Mills Association.

The ethanol suppliers now are asking for Rs 26-27 per litre of ethanol,
while the oil companies are working on an all-India reference price of
Rs 21.50 a litre.

Imports of bio-fuels would dilute the bargaining power of the local
units, besides ensuring supply. "There have been instances in the past
when domestic ethanol suppliers have diverted supply to other users when
prices of ethanol had increased. The did this in spite of a penalty that
they have to pay if they breach supply commitments. We do not want such
situations," a petroleum ministry official said.

The sugar industry says at 5 per cent blending, the country would
require 682 million litres of ethanol in 2006-07, and the demand could
rise to 1.3 billion litres with 10 per cent blending.

According to industry estimates, India currently has about 120
ethanol-producing distilleries, which can manufacture 1.2 billion litres
of ethanol every year.

Interestingly, the Ministry of New and Renewable Energy, which has
drafted the bio-fuel policy, has said in the same note that the primary
thrust of the bio-fuel policy is on indigenous production.

IOC, petrobras tie-up likely

The Indian Oil Corporation (IOC) —the largest marketer of petroleum
products in the country — may tie up with Brazilian oil major Petrobras
to collaborate on ethanol projects, including ethanol import.

Sources said another government-owned refiner and marketer — Bharat
Petroleum Corporation Ltd — had also been asked to explore opportunities
in Brazil for setting up distilleries.
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