Price isn't right

IOC and sugar factories disagree on ethanol pricing

Published: Wednesday 15 March 2006

On January 12, 2006, Indian Oil Corporation (ioc) and the National Federation of Cooperative Sugar Factories signed a mou that fixed the price of ethanol at Rs 18.75 per litre. The agreement was reached after the Union government's intervention. But, the two parties aren't happy with the deal. ioc wants the rate to be lowered, while the cooperative federation wants it hiked

The latter has a point. Says commodity analyst Sanjay Agarwal, "Sugar mills spend about Rs 21 to extract a litre of ethanol." Sankar Rao Kale, president of the All India Distilleries Association, also has complaints against the current price: "Lack of a proper pricing policy has meant that huge stocks lie unused and buyers exploit us." Kale insists the price should not be less than Rs 22.50.

But the international crude oil price upheaval has put ioc in a tough spot. "If the crude oil price falls below us $ 50 per barrel, a ethanol rate that is higher than Rs 18.75 will not attract the petroleum companies," says a senior ioc official.

Public sector oil marketing companies have already contracted 210,000 kilolitres of ethanol out of their approximate annual requirement of 435, 000 kilolitres. Tenders have been invited from Maharashtra, Goa, Gujarat and Haryana and are being finalised, says ioc director (marketing) N G Kannan.

Countries such as Brazil already make substantial use of ethanol, blending it with petrol, to tide over soaring oil prices. With a good sugarcane production in India, oil companies are optimistic about the blend. Feasibility of this blend is already under examination at three pilot projects in the country.

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