New formula for ethanol pricing

The Cabinet Committee on Economic Affairs (CCEA) has approved a new mechanism for fixing the price of ethanol that oil marketing companies (OMCs) would procure from sugar companies, resulting in a Rs 1-1.50 a litre drop.

Oil companies have to necessarily blend up to 10 per cent of ethanol in petrol. The price OMCs would have to pay to sugar companies for the 2016-17 season that started from October 1 was fixed at Rs  39 a litre, excluding any taxes and duties. This price would be for ethanol supplied from December 1 till November 30, 2017.

OMCs would bear the expenditure on excise duty, value added tax/goods and services tax (VAT/GST), transportation charges, etc, as decided by the OMCs. Earlier, these expenditures were borne by the sugar companies or ethanol suppliers. The government in 2014 had fixed an ethanol price of Rs 48.5-49.5 for ethanol supplied to OMCs which included all the taxes and duties levied by states or Centre. This effectively meant the ex-factory realisation for sugar companies was Rs 40.5-41 a litre. Some states levied an extra tax on ethanol and actual realisation for some mills went up to Rs 42 a litre. For such companies, Thursday’s decision would mean a Rs 3 a litre drop.

Sugar industry sources said almost 70 per cent of the ethanol supplied in the 2015-16 sugar season was at Rs 40.5-41 a litre. “The price of ethanol has been determined on the basis of the prevalent price of sugar in the open market, as also the demand- supply situation,” Dharmendra Pradhan, petroleum minister, said after the CCEA meeting. “The rate paid to sugar mills was never Rs  48.50. It was Rs 42. That price (Rs 48.50) was after including excise duty, VAT and other levies and transportation cost.”

The price of ethanol will be reviewed at any time during the ethanol supply period — December 1, 2016 to November 30, 2017, it was stated after the meeting.

Welcoming the decision, Abinash Verma, director-general of the Indian Sugar Mills Association, said he welcomed the decision to fix an ex-distillery price, removing the uncertainties from tax rates and duties levied by some states.

“By ensuring GST will be borne by OMCs, the uncertainty of GST rate has also been taken away. However, the government should find ways to compensate or give back the benefit of excise duty waiver announced in June 2015 but withdrawn prematurely in Aug 2016 to ethanol suppliers, to ensure enough is contracted and supplied for the blending programme,” said Verma.

To cut import dependence, the government had in 2003 started the programme to blend five per cent of the petrol with ethanol. This was later raised to 10 per cent. However, since 2006, OMCs hadn't got offers for the required quantity of ethanol against the tenders floated by them. Accordingly, the government in December 2014 had decided the delivered price of ethanol at OMC depots would be fixed at Rs 48.5-49.5 a litre, including central/state taxes and transportation charges. This compared with about Rs 29 a litre that OMCs earlier paid for ethanol.

As a result, ethanol supply increased to 674 million litres in 2014- 15 and projected supply for 2015-16 is around 1,200 mn litres.

OMCs have already delayed in their invitation for producers to commit supply of ethanol for the period between December 2016 to November 2017.

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