FocusIndia biodiesel blending mandate not before 2010

30 November 2007 18:57  [Source: ICIS news]

By Divya Chowdhury

MUMBAI (ICIS news)--The Indian government is unlikely to implement a mandate on biodiesel blending till 2010-2011 primarily due to lack of locally produced and cheap feedstock, producers and analysts said on Friday.

"A mandate seems unlikely in the next three to four years as producers are currently manufacturing [biodiesel] from imported edible oil, mainly palm oil," said Frost & Sullivan research analyst for chemicals, materials and foods practice, Hari Krishnan.

Plantations for alternate feedstock like jatropha takes at least three to four years to yield seeds. Only when feedstock will be locally produced and available can the government implement a blending mandate, he told ICIS news.

"As there is no sustainable supply source for locally-produced biodiesel feedstock, it would not be possible for the government to put a mandate in place," said Sumit Sarkar, regional manager for D1 BP Fuel Crops in India.

"Farmers and feed collectors alike are demotivated because they have been unable to sell their entire produce in the past, and have also not been getting the right price for their crop," said N Satish Kumar, managing director, Southern Online Bio Technologies Limited.

It would take at least two-three years to fix these issues as well as other logistical problems, and only then can the government put a mandate on biodiesel in place, he added.

Diesel consumption in India was estimated at 52.3m tonnes/year in the fiscal ended March 2007, and is expected to grow to 67m tonnes/year by 2011-2012.

At a 5% blending mandate, biodiesel demand would have been 2.6m tonnes/year in 2006-2007, which is expected to grow to 3.35m tonnes/year by 2011-2012. At a 10% blending mandate, India would require around 6.7m tonnes/year of biodiesel by 2011-2012.

"Although there is sufficient potential for biodiesel demand in the country, it has not yet materialised due to lack of raw material availability and the absence of a blending mandate by the government," another analyst, who did not want to be named, said.

Large-scale manufacture of biodiesel began this year, but manufactures are looking only to set up export oriented units, as they primarily use palm oil imported from South East Asia as feedstock, Krishnan said.

"Biodiesel manufactured in this manner cannot cater to local demand due to high prices of palm oil, coupled with high import duties," he added.

Imported feedstock can currently be used only for export-oriented units, which are exempt from excise duty in India, another analyst added.

India’s Emami Biotech, part of the Emami Group expects to commission its 100,000 tonne/year biodiesel plant at Haldia in West Bengal state by January-February 2008, a source close to developments told ICIS news.

The project, which would use imported palm oil as feedstock due to the unavailability of locally-produced raw materials, would be shifted to jatropha eventually, he added.

Emami is mulling in-house cultivation and contract farming for jatropha, as well as buying from the open market once it is available, he said.

The company plans to export most of its product.

However, Indian manufacturers face tough competition from other regional players in the overseas markets, and are at a disadvantage due to the lack of locally-produced feedstock in the country, analysts said.

On the domestic front, the government has set a price of Indian rupees (Rs) 26.50 ($0.67) for oil marketing companies such as Hindustan Petroleum, Bharat Petroleum and Indian Oil to buy biodiesel, which would then be blended with mineral diesel.

"With or without duties, it is not possible for Indian manufacturers to sell biodiesel at the price fixed by the government, unless alternate, cheap feedstock is available locally," Krishnan said.

Although the government had brought out a 5% minimum blending directive in 2005, manufacturers are not willing to sell at the fixed price, Kumar added.

"The cost of production for biodiesel from locally produced feedstock in India ranges between Rs26-Rs29/litre, and it is not possible for producers to sell at Rs26.50," he added.

Non-edible oil Pongamia Pinnata, which is a popular feedstock for biodiesel in southern India, is readily available locally, Kumar said, adding that the northern parts of the country are more suitable for cultivating jatropha.

While jatropha seeds seem to be the most feasible feedstock alternative for biodiesel in India, its spot price is currently at around Rs15-Rs20/kilogram, making it commercially unviable, Krishnan said.

Spot pongamia prices are also trading at around Rs10-Rs15/kilogram, Kumar added.

"Even before implementing a mandate, the government can allow manufacturers to import feedstock at discounted customs duty in order to sell biodiesel in the domestic market. It should also fix a minimum support price for locally produced jatropha and pongamia at Rs6/kilogram," Kumar said.

This would provide the necessary boost to the sector and act as incentive for hesitant farmers, showing them that there would be definite buyers for their produce, he added.

"As another incentive for the industry, the government could also implement a mandate of 5% [biodiesel] blending in the transportation sector, and 10% in the stationery segment," Kumar said.

India is also a key location for D1 BP Fuel Crops Limited. The Indian government has one of the most developed biodiesel promotion programmes in the world, and is encouraging the planting of jatropha as a biodiesel feedstock, it said.

"The objectives of the programme include increasing fuel security, reclaiming waste and marginal land, and raising the living standards of rural communities," it added.

D1’s acreage for cultivating jatropha plantations in India is expected to rise to 83,000 ha this fiscal year from 46,000 ha last year, Sarkar said.

"We would like the government to promote jatropha plantations and encourage the biodiesel industry by providing excise exemptions and other tax incentives," he added.

D1 is also planning to set a number of biodiesel units in India, but it would concretise plans only after it gets a forecast on crop yields in India from its sustainable oil supply programme (SOSP), Sarkar said.

According to government estimates, around 400,000 ha of jatropha plantations are currently under cultivation.

"While this figure is still to low to cater to a national blending mandate, the gestation period implies that availability of feedstock is still three to four years away," Krishnan said.

"The draft national biofuels policy, which is currently under formulation and is likely to be announced in early 2008, indicates 5% blending by 2012 and 10% by 2017," he added.

The country is currently not equipped to handle demand if a biodiesel blending mandate is put in place, analysts and producers said.

Bookmark Simon Robinson's Big Biofuels Blog for some independent thinking on biofuels.

($1 = Rs39.65)

By: Divya Chowdhury
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