Council also says blending ethanol with petrol should not be mandatory.
The Prime Minister’s Economic Advisory Council, or PMEAC, has suggested the price of ethanol be marketlinked and not fixed to benefit the sugar mills. It has also said that blending ethanol with petrol should not be mandatory.
The council has recommended that "end use of ethanol price should be market-determined and not on the basis of helping out an individual sector". It has said that since there is a reasonably well-established market for alcohol-based ethanol, both in liquor and chemical industries, pricing of ethanol for blending should be left to the normal commercial process, like tendering.
Blending of ethanol at a proportion of five per cent with petrol began in 2007 but came to a halt in 2009 due to low supply on account of a dip in sugarcane output and default in supplies by standalone ethanol manufacturers. It was reintroduced in November last year.
The C Rangarajan-headed panel noted that in view of the tremendous annual fluctuations in the supply and demand for ethanol, it is difficult to mandate a compulsory blending programme.
"The oil companies should have the freedom to manage blending with the existing availability," it said. Rangarajan also said the decision of 2007 to allow sugar mills to produce ethanol directly from sugarcane juice to augment ethanol supply and reduce the oversupply of sugar may be reviewed in the context of high food inflation.
The issue of ethanol blending with petrol was referred to PMEAC after agriculture minister Sharad Pawar opposed the findings of the Saumitra Chaudhuri committee.
The committee, meant to recommend ethanol pricing, had also suggested in its draft report that the priority for ethanol allocation should be given to the potable sector, followed by the chemical sector and then blending.
Chaudhuri also said ethanol price should be linked to petrol price. Currently, supplies are being made at an ad hoc price of Rs 27 per litre, as decided by a group of ministers.
According to Rangarajan, blending should either be based on the need to reduce consumption of fossil fuels to reduce import bill or/and the need to improve the economics of the sugar industry by mandating remunerative use of the industry’s by-product. However, the present programme appears to be based entirely on the latter.
Evaluating the data available from various government departments and industry associations, PMEAC has said that "in a scenario of inadequate availability of ethanol for various competing uses mandating 600 million litres plus for new use and starving industrial capacity built up over years, jeopardising future expansion of an industry does not appear appropriate".
It has further argued that if the intent is to give additional protection to the sugar industry, is fixing price the best route and if it should come at the expense of another well-established national industry.
In November 2009, the Cabinet Committee on Economic Affairs had decided that five per cent ethanol blending be implemented mandatorily, though the petroleum ministry was pushing for making it optional.
