Facing criticism over rising fuel prices, the Narendra Modi Government on Wednesday announced that it will incentivise ethanol production in the country in a bid to reduce crude oil dependence.
The Union Cabinet on Wednesday approved the hike in ethanol price by 25 per cent. Now, the Oil Marketing Companies (OMCs) will buy ethanol from sugar mills for Rs 52.43 per litre, up from Rs 47.49 per litre, an increase of 25 percent.
After the Cabinet meeting, Petroleum Minister Dharmendra Pradhan said that the Cabinet approved the increase in the procurement price of ethanol produced from 100 percent sugarcane juice to Rs 59.19 per litre from the current Rs 47.13 per litre and that produced from B-Molasses (partial sugarcane juice) molasses to Rs 52.43 per litre from the existing 47.49 per litre. In June, the Union Cabinet —for the first time — fixed a separate price for ethanol produced from B-heavy molasses and C-heavy molasses.
Ethanol has long been approved as an alternate fuel that can be blended with petrol to bring down its cost along with reducing carbon emissions. The move is part of a bid to encourage sugar mills to divert production of sugar to ethanol. The Government also aims to cut down crude oil import by raising the blending of ethanol in petrol by 10 percent.
One of the primary reasons for the rising fuel prices is the fact that India imports more than 80 per cent of its oil needs. With the rupee depreciating and crude prices going up, India’s import bill has been on the rise as well.
Now, with domestic ethanol production taking shape, India will need lesser imported oil. The move is likely to attract many companies to divert sugar business to ethanol, which, in the long run, will bring down fuel costs. The higher consumption of ethanol through increasing blend with petrol would also result in a cut in crude oil import.
The government is looking at scaling up the blending to 10 per cent in the next couple of years from 4-5 per cent now. However, blending was 3.5 per cent in the 2016-17 sugar season and 4 per cent in the 2015-16 season. Data compiled by the Indian Sugar Manufacturers Association (ISMA) show that there is a requirement of 31.36 lakh kilolitres of ethanol in the 21 states where the Ethanol Blending Programme (EBP) is being implemented. But there has been a supply commitment of only 17.63 lakh kilolitres of the biofuel for the December 2017 to November 2018 period
The move would help sugar mills quickly release arrears of cane farmers, which stands at over Rs 13,000 crore. As much as 40 per cent of these dues are in Uttar Pradesh alone. Presently, the sugar cane arrears stand at Rs 17,000 crore, which is expected to shoot up to Rs30,000 crore in anticipation of another bumper crop year, as per the industry experts.
The government had launched the programme EBP in 2003 on pilot basis which was subsequently extended to 21 states and four Union Territories to promote the use of alternative and environment-friendly fuels. But the target of 10 per cent blending of ethanol in petrol was never met. Since 2014, the government notified an administered price for ethanol. The move significantly improved the supply of ethanol during the past four years.
The ethanol procured by public sector OMCs has increased from 38 crore litres in ethanol supply year 2013-14 to estimated 140 crore litres in 2017-18.