Enablers of Scheme

Policies

National Policy On Biofuels – 2022 Amendment Click Here

The aforementioned actions helped increase ethanol procurement by PSU OMCs from 38 crore liters during ESY 2013-14 (December 2013 to November 2014) to 172.42 crore liters in ESY 2019-20, achieving an average blend percentage of 5.0%. The ethanol blending target for ESY 2021-22 is 10%, progressively increasing to 20% by ESY 2029-30.

India, as one of the fastest-growing economies globally, continues to experience high and increasing demand for crude oil and petroleum products. Traditionally, fossil fuels have been the primary energy source in the transportation sector. However, biofuels have gained significant attention in recent years as viable alternatives offering substantial economic and environmental benefits.

The Government of India (GoI) and the Oil Marketing Companies (OMCs) are actively promoting the blending of 10% ethanol in Motor Spirit (petrol) to reduce the carbon footprint and conserve foreign exchange by minimizing crude oil imports. In the Ethanol Supply Year (ESY) 2019-20, suppliers delivered 172.42 crore liters of ethanol to Public Sector OMCs, meeting the requirement for an average 5% ethanol blending in petrol. The government plans to gradually increase the blending percentage to 20% by 2028, which is expected to necessitate around 900 crore liters of ethanol. OMCs have invited Expressions of Interest (EoI) for procuring 457 crore liters of ethanol from various feedstocks sourced from Sugarcane (Sugarcane Juice, Sugar Syrup, Sugar, B-Heavy & C-Heavy Molasses) and from Grains (Rice procured from Food Corporation of India (FCI), Maize, and Damaged Food Grains) for ESY 2020-21, receiving offers for only 330 crore liters.

The government has emphasized achieving energy security with a target of reducing import dependence (fossil fuel usage) by 10% from 2014-15 levels by 2022. This goal is approached through a five-pronged strategy: Increasing Domestic Production, Adopting Biofuels & Renewables, Implementing Energy Efficiency Norms, Enhancing Refinery Processes, and Substituting Demand. Biofuels play a strategic role in India's energy basket, addressing concerns about import dependence and environmental pollution by offering superior environmental benefits while being economically competitive with fossil fuels.

To promote biofuels in the country, the first National Policy on Biofuels was established by the Ministry of New and Renewable Energy in 2009. Globally, biofuels have garnered attention in the past decade, and it's crucial to keep pace with developments in the field. The National Policy on Biofuels 2018 builds upon earlier achievements and aligns with emerging developments in the renewable sector, setting a new agenda that considers international perspectives and the national context.

Ethanol Procurement Policy Click Here

Background:

1. The Ethanol Blended Petrol (EBP) Programme aims to achieve multiple outcomes, including addressing environmental concerns, reducing import dependency, and boosting the agriculture sector.
2. To enhance indigenous ethanol production, the Government has taken several interventions since 2014. These include implementing an administered price mechanism, opening alternate routes for ethanol production, amending the Industries (Development & Regulation) Act, 1951, which grants exclusive control of denatured ethanol to the Central Government, reducing the Goods & Services Tax (GST) from 18% to 5%, issuing the Notification of the National Policy on Biofuels – 2018, expanding the scope of raw materials for ethanol procurement, introducing an interest subvention scheme to enhance ethanol production capacity, and extending the EBP Programme to the entirety of India, except the islands of Andaman Nicobar & Lakshadweep, effective from 1st April 2019.
3. The aforementioned actions have led to increased ethanol procurement by PSU OMCs, rising from 38 crore litres during ESY 2013-14 (December 2013 to November 2014) to 172.42 crore litres in ESY 2019-20, achieving an average blend percentage of 5.0%. The ethanol blending target for ESY 2021-22 is 10%, with a progressive increase to 20% by ESY 2029-30.
4. Numerous representations and suggestions have been received from stakeholders in the ethanol industry regarding the exploration of long-term procurement contracts between OMCs and ethanol suppliers. Accordingly, the Ministry of Petroleum & Natural Gas (MoP&NG) published the "Ethanol Procurement Policy on a Long-Term Basis under EBP Programme" on 11th October 2019.

Present Mechanism for Ethanol Procurement by Public Sector OMCs:

The National Policy on Biofuel (NPB) – 2018 sets an indicative target of achieving 20% ethanol blending in petrol by 2030. As a step towards this goal, Oil Marketing Companies (OMCs) are directed to procure ethanol sourced from various materials, including C heavy molasses, B heavy molasses, sugarcane juice, sugar, sugar syrup, damaged food grains unfit for human consumption, surplus food grains, and other sources identified by the National Biofuel Coordination Committee (NBCC) under the framework of NPB-2018. This also encompasses fruit and vegetable wastes. Under the Ethanol Blended Petrol (EBP) Programme, OMCs procure and blend up to 10% ethanol in petrol. The Government has been overseeing ethanol prices for the EBP Programme since 2014. While the procurement prices for ethanol from sugarcane-based raw materials like C heavy molasses, B heavy molasses, sugarcane juice, sugar, and sugar syrup are determined by the Government for an Ethanol Supply Year (ESY) spanning from December to November, the pricing of ethanol derived from damaged and surplus food grains is decided by OMCs.

OMCs estimate ethanol demand based on the projected petrol demand for their locations and ethanol prices set for an ESY. This estimation is then used to float tenders or Expressions of Interest (EoIs). The key points of these annual tenders/EoIs are as follows: The tender is released between August and September each year for the upcoming ESY. This is followed by three cycles of three rounds each, resulting in quarter-wise allocations of ethanol quantities. Bidders specify the quantity of ethanol they intend to supply, categorized by feedstock, quarter, and location. The allocation to successful bidders for a specific OMC location hinges on economic linkages calculated according to the distance between the distillery/sugar mill and the OMC location. Upon mapping ethanol supply offers from suppliers with the OMC location's procurement demand, ethanol quantity is assigned to eligible suppliers. A legally binding contract is then formalized between the ethanol supplier and OMCs, involving the collection of five percent of the purchase order amount as a Bank Guarantee (BG) deposit. For ethanol produced from any new category of product, the Department of Food and Public Distribution (DFPD) issues guidelines that serve as the foundation for the competent authority in a state to certify the ethanol manufactured from that specific category.

Following the main tender, two to three EoIs are issued every two to three months to secure additional ethanol volumes and provide opportunities for new entrants or capacity enhancements. A provision for imposing penalties under the Price Reduction Clause (PRC) of the tender document exists if supplies fall below 80% in a month or 95% in a quarter, whichever is higher. In summary, OMCs, in collaboration with ethanol procurement prices derived from damaged and surplus food grains (if applicable), calculate the annual ethanol procurement quantity (off-take assurance). Meanwhile, ethanol procurement prices from sugarcane-based raw materials are established by the Government, considering the prevailing scenario in the sugar sector. The Government guides OMCs in prioritizing raw material for ethanol procurement, providing guidance on transportation rates (set by OMCs), GST payment, and other administrative requirements to facilitate the progression of the EBP Programme.

Long Term Procurement:

OMCs have been entering into long term service contracts with Petroleum, Oil and Lubricants (POL) as well as LPG transporters, Private LPG Bottlers, Lube C&F, Warehousing, Drum supplies etc. Several suggestions / representations have been received from the ethanol industry members to explore the possibility of long-term procurement contracts between OMCs and ethanol suppliers. Long term contracts for ethanol supply for a period of five-years will have following advantages:

1. The vendors get an assured supply requirement in advance which would help them in investment decision.
2. Reduction in number of tenders and time in finalization of tenders

Proposed Mechanism for Long Term Procurement Contracts.:

Ethanol Procurement Quantity

1. The period of long-term ethanol procurement will begin as per Ethanol Supply Year (ESY) – i.e., period from 1stDecember to 30th November.
2. OMCs would estimate the location-wise, quarter-wise, annual ethanol procurement quantity for a period of five years, and this will form a part of the procurement tender/Expression of Interest (EoI).
3. The annual procurement quantity as estimated by OMCs in the EoI shall remain firm for an ESY.
4. The location-wise quantity for the subsequent ESYs can be amended in the annual EoI floated by OMCs before the start of next ESY and shall remain firm for that ESY.
5. OMCs to make provisions for long term supply of ethanol quantities from the likely ethanol suppliers along with mapping of the distilleries and OMC locations for allocation of quantities.
6. A mechanism to be made by OMCs to account for change in transportation rates with the change in fuel prices over this long-term contract period, such that, suppliers get realistic payment for transportation and are not disincentivized for supplying ethanol over long distances.
7. Any new category of raw material for ethanol procurement may be introduced by the Government during the block of five years. Quantities of ethanol from such new categories would be sought and allocation of quantities will be done by OMCs as per the order of priority declared by the Government from the following ESY.

Entry and Exit of New / Existing Supplier / Distillery during the Contract Period:

1. OMCs to develop a mechanism for induction of a new distillery /sugar mill or additional quantity offers by an existing ethanol supplier at the beginning of each ESY during the long-term contract period.
2. Similarly, OMCs to make provision for exit by an existing / participating distillery / sugar mill as per ESY in the tender.

Implementation of the policy:

OMCs shall devise appropriate mechanisms/issue detailed procedure/guidelines for procurement of ethanol on long term basis in accordance with the provisions of this policy.