The ministry of oil and natural gas’s ambitious programme of ethanol-blended petrol (EBP) is facing problems because state governments are restricting the supply of ethanol and prioritising its use in potable alcohol, says a ministry of petroleum and natural gas document.

The ministry had directed oil companies to sell 5 per cent EBP. However, a ministry document says that “although oil companies have issued work orders to various ethanol suppliers, supply of ethanol for EBP programme is being restricted by state governments, since they are prioritising its use for potable purposes”.

According to the ministry, major difficulties faced by oil marketing firms in procurement of ethanol are delay in issuance of notifications by state governments, state excise taking time for issuance of permits, states imposing import taxes which result in increase in cost of ethanol, especially in non-producing states.

High cost of ethanol does not make it cost-effective for oil firms. Landed cost of ethanol is compared with benchmark price of landed cost of petrol at a particular location, including transportation costs and all taxes and duties. If the landed cost of ethanol is more than landed cost of petrol, oil firms do not use ethanol. In May last year, petroleum minister Murli Deora had written to the chief ministers of all states, saying that ethanol falls within the jurisdiction of states, and the levy of taxes and export/import fees by states is without jurisdiction.

“Despite the clear legal position that ethanol falls within the domain of the central government, some states have imposed restrictions on its supply and have levied various taxes, thereby hampering implementation of this critically needed programme,” the letter had said.

... contd.