A GROUP of ministers endorsed a proposal by food and agriculture minister Sharad Pawar to raise the price of ethanol supplied to oil marketing companies to Rs 27 a litre, while asking sugar companies to pay a 10% penalty for not meeting their contracted supply.
The GoM meeting also decided that compliance to the ethanol blending programme will not be made mandatory, said a government official familiar with the development.
The sugar companies will also have to complete the supply the quantity under the previous 5% contract at the earlier price of Rs 21.50 per litre.
The new price set by the GoM is an interim one. A committee chaired by Planning Commission member Saumitra Chauduri will fix a â€œfair and remunerativeâ€ long-term price for ethanol.
Even if the committee fixes ethanol price at around Rs 25 per litre, it would mean a supply crunch to users across the board and a higher price for supplies.
The oil marketing companies had not been able to implement the governmentâ€™s decision to mix 5% ethanol in petrol due to non-availability of the product. The sugar producers have been lobbying hard with the Centre for fixing a stable, long-term price for ethanol to boost their bottomlines, as they faced plummeting prices and cheaper imports. Sugarcos were only able to supply about 40% of the contracted quantity of ethanol in the previous contract. In the year ending October 2009, they supplied only 15% of the contracted quantity to OMCs.
The petroleum ministry has been mounting pressure on GoM not to make ethanol blending mandatory. It is expected to increase to 10% and 15% in a phased manner. It has also been seeking the penalty clause on defaulting sugar companies.
Quotes for ethanol supply currently are in the Rs 19-20 per litre range. But the developments will also mean higher ethanol price for the chemical industry in the future. Oil marketing companies have yet to spell out a term for the fresh contracts compared to the three year contract fixed earlier.
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