Gasohol purchases resume after 18 months

GAINING FROM GASOHOL PART-I

240-million-litre contracts finalised already.

After a gap of almost 18 months, the country's oil marketing companies (OMCs) have resumed purchases of ethanol from the sugar industry to mix (dope) it with petrol at a 5-per-cent level, in nine states and four union territories.

This year, the OMCs have already bought 30 million litres at a price of Rs 18.75 per litre, and finalised contracts for another 210 million "" they need to buy a total of 400 million litres in these areas based on the petrol sales of 8,000 million litres.

In 2003-04, the first year when the government mandated doping, the oil firms were able to buy only half of what they needed.

While the OMCs say this was owing to the lack of supplies and relatively poor quality of ethanol, the sugar industry alleges the OMCs are simply not interested and cite tenders for 650 million litres that did not get executed last year.

This happened, the industry alleges, because the government did away with mandatory doping and made it voluntary.

While the current contracts are being executed at Rs 18.75 per litre, the sugar industry is demanding a price of around Rs 25 per litre if the OMCs want an assured supply for a period of three years, with a penalty clause for non-delivery.

The industry argues that if the OMCs were willing to pay Rs 17 per litre in 2003 when crude oil prices were around $30 a barrel, then at $70 they should not grudge a mere Rs 25. The OMCs, on the other hand, are keen that prices be based on calorific value, which, in the case of ethanol, is around 60 per cent that of petrol.

Apart from supplies of ethanol (dealt with in part three of this series), a major constraint in the poor progress of ethanol doping is the policy of not allowing the OMCs to price their petrol freely.

The OMCs claim they lose 5-10 paise per litre while undertaking 5 per cent doping and selling at the government-determined price, and so cannot afford to pay sugar companies the Rs 25 a litre they want.

Globally, with more countries opting for ethanol usage (3 million cars use pure ethanol in Brazil), ethanol prices have begun moving up and even started tracking global crude oil prices closely.

While crude oil prices are currently around $70 a barrel, or $494 a tonne, raw sugar prices are $324 (ethanol prices, therefore, are currently at $519 a tonne).

Two-year futures of oil are currently at $502 a tonne, compared to $329 for sugar (and $526 for ethanol). A few years ago, in contrast, there was little correlation between the prices of crude oil and raw sugar/ethanol.