OMCs have cancelled tenders to procure ethanol from sugar millers over price differences.
The food ministry had assured sugar mills that OMCs will pay an enhanced price for procurement of ethanol. But according to sources, while sugar mills have demanded a price of Rs 40 per litre, the oil marketing companies are not willing to raise it much over the Rs 30-32 per litre they had paid last year.
Sugar mills, in turn, have said that they won't be able to supply ethanol if they are not offered atleast Rs 35-37 per litre this year.
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As per the Ethanol Blending Programme (EBP) launched to promote green fuel, OMCs need to mix 5% ethanol with every litre of petrol sold.
According to an earlier estimate, the sugar industry had estimated that oil companies could have easily saved Rs 370 crore on their oil import bill if they had blended the 62 crore litre supplied by sugar mills in the past year.
The Cabinet Committee on Economic Affairs in November last year mandated 5% ethanol blending in petrol sold after June 30, 2013. It also allowed oil companies to negotiate the price with domestic and overseas suppliers of the bio-fuel. Given the import cost, imported ethanol is steeply priced compared to domestic ethanol.
For the year 2013-14, oil marketing companies (OMCs) bought a record 720 million litre of ethanol from the sugar mills for blending. Oil Corp Ltd, Hindustan Petroleum Corp and Bharat Petroleum Corp together have lifted 230 million litre ethanol out of the contracted 720 million litre.