Blended fuel likely to miss Oct deadline

Oil marketing companies waiting for ministry's go-ahead on tenders.

The government is not likely to be able to meet the October deadline for supply of 5 per cent ethanol-blended fuel.

With the oil marketing companies, Indian Oil, Bharat Petroleum and Hindustan Petroleum, still waiting for the oil ministry's final nod before issuing tenders to procure enthanol from sugar manufacturers, the blended fuel may not hit the market before November.

With the negotiations with the sugar manufacturers failing on the price of ethanol, the ministry last week had issued direction to the OMCs to tender for ethanol procurement.

However, unlike last year when the price was fixed, this year the tender will specify a cap on the price at which the OMcs may buy ethanol, oil industry sources indicated.

The sources said discussions are on with the ministry regarding the maximum price at which ethanol may be procured. The ministry's final order in this respect is expected within a week.

Said a senior BPCL official, "As soon as we get the ministry's nod, we will issue the tender for procuring ethanol. All the work at our end has been completed."

The other two oil marketers also said that once the ministry's final assent comes tenders will be issued and all efforts will be made to meet the October deadline for ethanol blending.

At 5 per cent blending, the requirement for ethanol will be to the tune of 587 million litres, while the sugar industry has an installed ethanol capacity of 1,300 million litres.

Once the tender is issued, there will be be a three week period during which sugar producers can put in their bids, a after the OMCs will negotiate on the final price. The process altogether may extend up to November.

However, sugar industry sources said that they would be in a position to supply ethanol immediately after the tender comes out. With the sugar season commencing from October, the sugar companies will be sitting on stock piles of alcohol which is dehydrated to manufacture ethanol.

The sugar producers are against the tendering system for ethanol procurement, preferring a fixed price for ethanol. In the last round of talks, the sugar producers associations had offered to sell ethanol to the OMCs at Rs 26.50 per litre but the oil marketers had insisted on a price of Rs 21.50.

However, several sugar manufacturers had indicated their willingness to sell at Rs 22.50 per litre, convincing the government that the required amount of ethanol can indeed be procured through a procurement tender. In August 2005 too, the government had entered into a contract with sugar companies to supply ethanol at Rs 18.75 a litre.

This year the sugar companies had also argued for a long term contract with the OMCs with a price esclation clause.

However, in the absence of an agreement on ethanol price, the ministry decided to follow last years' model to meet the October deadline for mandatory bledning. Five per cent blending has been made mandatory in all states except the North-East.