Policies of oil marketing firms hampering ethanol output, ISMA tells MPs

‘India has enough raw material to help achieve goal of 20% ethanol blending with petrol, but needs higher production capacity with mills, and better infra, storage at OMCs’

March 31, 2022 08:44 pm | Updated 10:36 pm IST - New Delhi

To achieve the 20% blending target, the ISMA DG says about 1,016 crore litres of ethanol was required.

To achieve the 20% blending target, the ISMA DG says about 1,016 crore litres of ethanol was required. | Photo Credit: The Hindu

The country has enough raw material to produce 1,016 crore litres of ethanol by 2025 for blending with petrol, but policies of oil marketing companies and other factors are restricting the output of the fuel additive, according to industry body ISMA.

In a presentation before Members of Parliament (MPs), Indian Sugar Mills Association Director General Abinash Verma on Thursday said that about 10% ethanol blending with petrol was expected in the current (2022) year. A target had been set for 20% ethanol blending by 2025.

To achieve the 20% blending target, the ISMA DG said about 1,016 crore litres of ethanol was required, and for which the raw material is available, but there was a need to augment production capacity with mills as well as necessary infrastructure and storage with oil marketing companies (OMCs).

The government had put in place ‘encouraging’ policies for capacity creation, but delay in bank loans is creating hurdles. That apart, OMCs’ policies remain “restrictive”, it said.

The Union Food Ministry has given in-principle approvals to 983 projects since 2018 under interest subvention schemes which have been extended time and again for new investors.

On the other hand, OMCs - which invited bids in August 2021 for additional capacity creation of 648 litres - have approved 131 project proponents for about 400 crore litres in annual capacity.

The ISMA DG said, however, banks were not willing to sanction loans if two conditions were not met: one was the in-principle approval of the Food Ministry; the other was long-term bipartite purchase agreements (BPAs) between OMCs and project proponents.

Thus, only 67 projects were eligible as per the banks' guidelines, he said, adding that some may not be found credit-worthy by banks.

Further, there are problems in the Expression of Interest (EoI) of OMCs for BPAs as errors are found in shortlisting projects.

OMCs have ignored sugarcane producing States and given large allocations to non-cane producing States such as Kerala and Jammu & Kashmir.

"OMCs are not signing the long-term purchase agreements with existing ethanol producers and new ethanol plants which are not interested in the concessional loans," the DG said.

To overcome the problem of finances for capacity creation, the ISMA said necessary approvals for bank loans should be given within seven days from the date of application by the companies.

"Otherwise, the pace of capacity creation will see a major fall, and achieving 20% ethanol production by 2025 will become extremely difficult," it said.

The industry body also said that storage capacities at depots of OMCs across the country needed to be augmented. Even the Indian railway network and laying of pipelines would be crucial.

"For dispensing higher ethanol blended petrol as also pure ethanol, there is a need for OMCs to make necessary changes at retail pumps/stations," it said.

ISMA further said it was crucial to augment demand and use of more ethanol. Therefore, there was a need to introduce flexi-fuel vehicles as early as possible to achieve 20% ethanol blending by 2025, it said.

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