Oil marketing companies would have blended ethanol in close to five per cent of the petrol sold in India by March-end, according to estimates made in a report by financial services firm IIFL. This is ahead of the October 2016 deadline that Union Petroleum and Natural Gas Minister Dharmendra Pradhan had recently set for OMCs to meet the blending target, besides being the first time the industry is achieving this after the ethanol blending programme was introduced more than a decade ago.

The ethanol blending programme is supposed to make fuel cleaner, reduce the crude oil import bill and create a new domestic market for sugar manufacturers. (Ethanol is made from molasses, a thick syrupy by-product of the sugar refining process.) For several years, however, oil marketing companies only managed to blend about 1-2 per cent of petrol with ethanol because of a continued disagreement on a procurement price between OMCs and sugar mills, even as the government doubled the blending target to 10 per cent.

The IIFL report says, “India’s ethanol blending fell well short of the target in the past as the price paid by OMCs was lower than the prevailing market price. The government’s move to increase the regulated price of ethanol in Q3FY15 to ₹49/litre and scrap excise duty on ethanol in Q2FY16 made it lucrative for ethanol producers.” OMCs have been able to contract adequate volume for five per cent blend rate in FY16 (estimated at over 136 crore litres for the year), the first time ever since this policy was created.

While historically ethanol has been cheaper than petrol, the government’s new mandated price for ethanol of ₹49/litre is now higher than the petrol price of ₹42/litre (refinery transfer price plus excise duty), as global crude oil prices have crashed over the past 12 months.

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