Ethanol Blending may be Easier said than Done

Issues like availability, quality & prices may affect not just oil cos, but chemical firms as well

The chemical industry is miffed about the government’s decision to make 5% ethanol blending mandatory for petrol sold across the country, fearing that it could raise prices of the industry’s basic building block too high. However, people from both petroleum and chemical industries are awaiting further clarity on implementation of the policy to assess its exact impact. Ethanol or ethyl alcohol is a basic raw material for the chemical industry. Ethanol derivatives find use in various industries from agrochemicals, dyes, pigments, paints and additives to pharmaceuticals.
The ethanol-blended-petrol programme, introduced in 2006, has covered 13 states so far and has met with moderate success. In FY12, oil companies used 44 crore litres of ethanol for blending. “The Indian chemical industry was already suffering from rising alcohol prices due to the weak monsoon in Maharashtra and the rupee’s depreciation. The government’s decision (on ethanol blending) would further raise alcohol prices. India’s ethanol production in FY12 was around 230 crore litres, which is expected to come down to 200-220 crore litres in FY13. Of this, around 110-130 crore liters are used by the potable alcohol industry, while the chemical industry will need around 85 crore litres. This means the country will have to resort to imports to meet petrol blending requirements,” said Yogesh Kothari, president of Indian Chemical Council.
“With a compulsory blending programme, ethanol availability to the industrial sector and the potable alcohol industry is likely to get affected unless the supply is increased. Higher demand for ethanol will also result in increased price of molasses,” says Debasish Mishra, senior director, Deloitte in India 
The potable alcohol industry, which enjoys the protection of heavy customs duty on imported spirits, finds it easier to pass on the hike in input costs to the consumer, but it will not be so easy for the chemical industry that competes on a global level.
Not every person in the chemical industry is worried, though. “We are already buying industrial alcohol at . 32 per litre with 95% purity, as against the 99% purity needed for petrol blending. If the prices rise to . 35-36 levels imports will start. This 10-15% cost hike should be manageable for us, since our products are primarily used in life saving drugs,” said Ram Reddy, whole-time director with Balaji Amines, for which ethanol is a key raw material. The government is marketing the ethanol-blended-petrol programme on the grounds that it will help bring down costs and make the fuel greener.
However, the petroleum industry itself is not so enthused with the idea, citing operational challenges. “In spite of the industry’s keenness to implement it (ethanol blending), the progress was limited because of certain ground realities like, for example, unavailability of ethanol in various parts of the country. There has hardly been any change in this,” an official said on condition of anonymity. Even chemical industry sources acknowledge that the petroleum industry has been facing challenges, particularly on 
    consistent quality and taxation. Industry leader Indian Oil had mentioned in its annual report for 2009-10 that lack of availability of ethanol was the main reason for the ethanol-blended-petrol programme not stabilising. “Further, oil marketing companies have been facing certain constraints with respect to free inter-state movement of ethanol and the levy of duties by state governments,” it added. Although the government’s intent is right, how the policy gets implemented would determine its impact on both petroleum and chemical industries. A hasty implementation, without addressing the concerns of both the industries, could end up just disturbing the domestic equilibrium.