India to raise ethanol procurement price for petrol blending

16 June 2014 09:31 Source:ICIS News

KOLKATA (ICIS)--India will effectively set a higher ethanol procurement price for use in mandatory blending of petrol, to ensure healthy returns to sugar mills during the harvesting season starting September to October, an official from the country’s Ministry for Petroleum and Natural Gas said on Monday.

The ministry will tweak the formula in determining the benchmark procurement price for ethanol, the official said.

Ethanol procurement price will now be based on the average refinery transfer price (RTP), which refers to the cost of petrol of oil marketing companies (OMCs), instead of basing it on the lowest RTP in the precending year.

The change will translate to an increase of about rupees (Rs) 2/litre in net realizations for the sugar mills, from Rs38/litre, which is based on the lowest RTP in the fiscal year ending 31 March 2014, the government official said.

The increase, however, is lower than the Rs5/litre increase being sought by the Indian Sugar Mills Association (ISMA) when the next sugar cane crushing season starts in October, an association official said.

The net realizations from sale of rectified spirit and alcohol, the other by-products of sugarcane crushing were higher at Rs42/liter compared with ethanol’s Rs38/litre.

There was no economic incentive for the sugar mills to produce ethanol to meet the government's demand for its program that requires motor fuel to have a 5% ethanol blend.

India’s government-owned OMCs have sought bids from sugar mills to procure 1.4bn litre of ethanol during the calendar year 2014, but received offers for less than half the required volume, according to government data.

($1 = Rs59.71)

By Ajoy K Das