Levies killing gasohol

GAINING FROM GASOHOL PART-II

The central and the state governments, between the two of them, impose levies of around 45 per cent on the price of ethanol.

So, ethanol that is sold at Rs 18.75 a litre by sugar factories reaches the storage depots of oil companies at Rs 27-29 a litre, depending on which state the cane is being procured from and the state the ethanol is being delivered to.

Apart from the central excise duty of 16 per cent, the education cess, and the central sales tax, the states charge different levies.

While Uttar Pradesh and Maharashtra levy an export fee of Rs 1.5 a litre, Haryana charges an import levy of Rs 5, Gujarat of Rs 3 and Punjab Re 1. None of the taxes, the oil marketing companies point out, can be set off against the final levies, and so get added to the final consumer price of doped petrol.

While sugar companies have been demanding the oil companies pay as much as Rs 25 a litre for a three-year guaranteed supply contract, various state governments are also exerting pressure on the grounds the industry will then earn Rs 12,500 crore and the farmers will also benefit.

Under the Sugar Control Order, once sugar mills are able to increase recoveries beyond a limit, they have to split the earnings with the cane farmers.

Based on the current pricing structure where petrol still remains under-priced by around Rs 6.5 a litre, however, the oil marketing companies can ill-afford to pay much more than the Rs 18.75 they are currently paying the sugar companies.

Back-of-the-envelope calculations show that if the oil firms get ethanol at Rs 27 a litre at their storage godowns, they still save between 30 and 40 paise per litre at 5-per-cent doping levels "� oil firms, however, claim they lose about 4-5 paise per litre of doped petrol.

Even if you accept the 30-40 paise figure, the oil firms cannot afford to pay the sugar firms the extra Rs 6-7 per litre they are demanding unless the Centre or the states lower levies and/or allow them to be set off against other levies paid by the oil marketing companies.

Globally, as opposed to taxing the sector, countries provide tax breaks to ethanol doping. While Brazil has lower taxes for ethanol-powered vehicles, the US and the EU give tax breaks to blended petrol.