Zero excise duty for bio-fuels on cards

The government is likely to change the excise duty structure for biofuels in the next Budget to make their use attractive.

Petroleum ministry officials said the excise duty on biodiesel and ethanol is likely to be made nil and states would be asked to have a favourable sales tax regime.

"The support industry for biofuels is not very developed in the country. So, the finance ministry has been requested to grant duty concessions," an official said.

The government's excise notification does not specify any rate for biodiesel (oil extract from jatropha seeds). So, the applicable duty is 16 per cent, which is also prescribed for "others" category. The end product of blended fuel attracts duties similar to those for normal petrol and diesel.

If the current cost of seeds for biodiesel manufacturers is assumed to be Rs 5 per litre (as is the stated desired cost), then without taxes, the cost of biodiesel amounts to Rs 17 a litre. If the current sales tax and excise duty structure for petro-diesel is applied to biodiesel, the cost will be between Rs 25-29 per litre.

With the current market price of jatropha seeds at Rs 12 a kg, the resultant cost of biodiesel works out to Rs 36 per litre without taxes, and Rs 47-57 with taxes.

With petrol costing over Rs 43 a litre, a minimal 5 per cent ethanol blending (that is priced at Rs 18.75 a litre) would not only help bring down the consumer's oil spending, but also reduce air pollution, a biofuel expert said. Whatever limited blended petrol is being sold by the oil companies is sold at the price of petrol due to high duty.

Going by the current scenario, it will take a minimum of 5-7 years for biodiesel projects to take off. But, the government is seen pushing it because biofuels may cut down India's huge oils import bill.

However, not much seems to be happening on ethanol blending of petrol, despite abundance of ethanol supply in the current sugar season (October-September). Sugar industry sources said ethanol blending with petrol was not being received with much enthusiasm by the oil companies.

"As per the 5 per cent ethanol blending with petrol norm, the sugar industry is working for an annual supply of 435 million litres. But, we did not get much encouragement from the oil industry," said Shanti Lal Jain, director-general of Indian Sugar Mills Association.

Isma has entered into an agreement with oil companies to supply ethanol at Rs 18.75 a litre. "This is pretty low, but we wanted to make a beginning. Though offtake has begun in North India, it is quite slow. The South India bids are yet to be finalised," Jain said.

For biodiesel using jatropha extract, oil marketing companies have agreed on Rs 25 a litre as an initial purchase price.