The Union government looks all set to make the ethanol blended petroleum (EBP) programme a success despite the many problems it is facing. It is now contemplating a reduction in excise duty on ethanol for the EBP.

“The Central government may reduce the excise duty on ethanol for EBP from 16 per cent to 8 per cent,” says a ministry document. However, no proposal has been sent to the Finance Ministry yet.

The excise cut will be directed towards encouraging the use of ethanol blended petroleum. The Ministry of Petroleum and Natural Gas has directed oil companies to sell 5 per cent EBP (EBP is a blend of 95 per cent petrol and five percent ethanol).

However, the supply of ethanol has been restricted by state governments, which have been imposing high duties on ethanol that lead to an increase in its cost. The high cost of ethanol does not make its use cost-effective for oil companies.

The landed cost of ethanol is compared with the benchmark price of landed cost of petrol at a particular location, including all taxes and duties. If the landed cost of ethanol is more than that of petrol, oil companies do not use ethanol.

The oil marketing companies (OMCs) are now finding it difficult to procure the required quantity of ethanol. The programe is significant since ethanol is an environmentally-friendly fuel, which also reduces the country’s dependence on oil imports.

Since there is no subsidy on ethanol, an excise cut may just bring down costs enough to give the programme the fillip that it needs.