The Cabinet Committee on Economic Affairs has approved an interim price of ethanol to Rs 27 per litre from existing price of Rs 21.50 per litre for five per cent mandatory blending with petrol.
"Government intends to implement the programme early and this will be possible with a fixed price initially and thereafter dynamic formula based pricing recommended by the Expert Committee," a government release said.
A committee, headed by Planning Commission member Saumitra Chaudhuri, would determine the formula for deciding the future pricing of ethanol.
The Ethanol Blending Programme (EBP) "would become sustainable with the dynamic pricing formula which will ensure that there is no adverse impact on oil or the sugar industry," the statement said.
Following the announcement, shares of sugar companies rallied over six per cent on the stock exchanges. On the Bombay Stock Exchange, Bajaj Hindusthan gained 6.11 per cent, Simbhaoli Sugars was up 5 per cent and Shree Renuka moved up 3.4 per cent.
Last month a Group of Ministers (GoM) had reaffirmed Rs 27 per litre price for ethanol to be paid by the oil marketing companies to the sugar companies.
The chemical industry and oil marketing companies had demanded a much lower price in line with prevailing domestic price of around Rs 18 per litre.
In October 2007, the Cabinet had made mandatory five per cent ethanol blending across the country sans Jammu & Kashmir, North East and island territories. However, the Petroleum Ministry had not been able to implement the decision of mandatory doping of 5 per cent ethanol in petrol due to non-availability of the product from producers.
In March, the government had constituted the GoM to resolve differences over mixing of ethanol in petrol. The Chemical Ministry was objecting to the use of ethanol for petrol-blending, saying the price of molasses they use for manufacturing liqour had gone up.
Both ethanol and alcohol are made from molasses and the sugar industry has estimated a production of 160 crore litres in 2009-10.
A price increase was supposed to lure the producers into selling ethanol to oil firms, but the Chemical and Fertiliser Ministry protested saying petrol-doping programme will impinge upon the demand of potable liquor sector and chemical makers.
Potable liquor sector and chemical producers are two primary consumers of molasses-based alcohol.
