Era of cheap petrol on the way: Top PSUs sign pact for ethanol blending

In what could herald an era of cheaper transport fuel in India, three state-owned oil marketing companies and three public sector banks, including State Bank of India (SBI) Wednesday entered into a long-term purchase agreement for the upcoming five dedicated ethanol plants across India.

Indian Oil Corporation, Bharat Petroleum Corporation and Hindustan Petroleum Corporation have entered into an agreement with SBI, Indian Overseas Bank and Indian Bank for payment towards supply of ethanol.

Ethanol produced by the dedicated plants will be sold to OMCs to blend with petrol. Indian pumps are likely to start selling petrol blended with 20 per cent ethanol by 2025. This may bring down the cost per litre by nearly Rs 10 and also help reduce inflation significantly.

A $10 per barrel increase in crude oil prices raises the wholesale price inflation by an estimated 1.7 percentage points.

Ethanol will be blended with petrol to reduce the quantity of petrol that a vehicle uses. Hence it will reduce import dependence on the country, which ships more than 85 per cent of its oil requirement from overseas. Besides, it is a less polluting fuel and equally efficient as a petrol vehicle. India has so far achieved 9.90 per cent ethanol blending in petrol and hopes to reach the target of 20 per cent by 2025-26. This has saved over Rs 9,000 crore in foreign exchange, an official said.

However, the major challenge is the deficit of ethanol to achieve this target. India requires 1,016 crore litre of ethanol to achieve the 20 per cent target in 2025-26. But, there is a deficit of approximately 650 crore litre of ethanol, according to official estimates.

The sugar industry is likely to divert 60 lakh tonnes of surplus sugar to produce an estimated 700 crore litres of the ethanol needed. Plans are also afoot to produce approximately 500 crore litres of ethanol from excess grain. Last year, the government had also allowed the mixing of ethanol extracted from surplus grains.

The plan to divert to E20 fuel has met with mixed reactions. While some vehicle manufacturers like the country's largest carmaker Maruti Suzuki have embraced it well, others have expressed concerns. But two-wheeler manufacturers like Bajaj Auto, TVS and Toyota had recently agreed to come up with engines that can help the vehicle to adapt to a higher percentage of blended ethanol.

Initially, the government plans to mix 20 per cent of petrol sold in the country. Experts say car engines need to be recalibrated for a switch to E20 fuel in order to avoid rusting and improve mileage.