Prices of anhydrous ethanol in India should be linked to domestic gasoline prices as its purpose is for blending with the oil product, Saumitra Chaudhuri, member of India's Planning Commission and head of the ethanol pricing committee said, according to the Business Standard report Friday.
In the committee's quarterly review, Chaudhuri recommended that the fixed ex-factory price for sugar companies in the first quarter of 2011 be Rupees 26.76/liter ($0.59/liter), based on the previous quarter's gasoline price -- which was slightly higher at Rupees 27/liter.
This new pricing formula differs greatly from the committee's earlier methods of price derivation through a tender process, the report said.
In the previous review, the committee took into account the difference between the excise duty on gasoline of Rupees 14.35/liter and ethanol at Rupees 2.78/liter, and made adjustments for operating and transportation costs, and a reduction in mileage to arrive at a price of Rupees 26.76 for ethanol.
After studying the regulated pricing and cost-based pricing, the committee has noted in its interim report that the "preferred approach seems to be that which takes a derived approach from the domestic price of gasoline, considering the fact that the use in mind is the blending of anhydrous ethanol with it."
Chaudhuri further recommended that adjustments be made for ethanol's calorific value, mileage and tax incentives applicable to the product.
The committee was formed last year to review and recommend a uniform ex-factory price for ethanol for oil marketing companies after the government announced a modified, nationwide Ethanol-Blended Petrol program in August last year.
The program is, however, not applicable to the northeastern states of Jammu & Kashmir, Andaman & Nicobar islands and Lakshadweep. At that time, the government announced a provisional price of Rupees 27/liter.
Ethanol blending in India was reintroduced in October-November last year, after around a year of standstill from October 2009, due to a lack of supply on the back of a fall in sugarcane output levels. However, due to an anticipated bumper sugarcane crop season in 2011, prospects of higher supplies and increased blending are much improved.
India enforced a 5% mandate for ethanol blending in Ocotber 2006, and had fixed a procurement ex-factory price of Rupees 21.5/liter for oil marketing companies for three years.
The government hopes that with the development of a dynamic pricing formula, the EBP program can become sustainable, with no adverse impact on oil or the sugar industry. The proposal relating to the variable percentage of ethanol blending would also ensure that surplus of ethanol available in different states is adequately absorbed in the EBP program while managing deficits in supply in other parts of the country.
