Oil marketing companies fail on ethanol lifting commitments, blending programme targets likely to fall short

While the central government has launched a range of policy initiatives to promote its ambitious ethanol blending programme (EBP) target of achieving 10% blending in petrol by 2022 and 20% blending by 2025, huge miscalculations by oil marketing companies (OMCs) are threatening to jeopardise the programme.

According to sugar industry sources, due to the encouragement and incentives provided by the government, the sugar mills and distilleries have achieved a record allocation of 310 crore litres of ethanol to be supplied to OMCs for the 2020-21 ESY, which runs from November to October, as against the previous record of 190 crore litres in 2018-19.

However, owing to slip-ups in creating adequate tankage, the OMCs have started reallocating contracted quantities from several depots, which the distilleries had competed to obtain, to faraway depots in other states, which take several days to reach, resulting in huge financial losses to the distilleries.

In a flurry of letters exchanged between ISMA, the department of food and public distribution and ministry of petroleum, concern has been raised about distilleries not being able to supply a significant quantity of ethanol as per the contracts that were signed with the OMCs for ethanol supply year (ESY) 2020-21.

In his letter to secretary Food and Public distribution, director-general of ISMA, Abinash Verma has red-flagged the issue and said that the OMCs have started directing the ethanol suppliers from Uttar Pradesh to relocate their supplies to other depots, which in some cases are in faraway states like Tamil Nadu and Orissa, instead of the contracted depots within the state, which not only take several days to reach but also entails an extra cost on the distilleries.

“What is not clear is how such mistakes in estimating the ethanol requirement for so many depots have been made and that too right at the beginning of the season,” he says, adding that not only is there a problem of reallocation of depots, the distilleries are also not receiving purchase orders from OMCs for the proportionate quantity as per contracts. “In several cases, distilleries are facing tremendous problem in the utilisation of their distillery capacities and facing problems of storage of the ethanol,” he said.

For example, BPCL’s Kanpur and Mathura depots have not issued indents as per the contracts and have asked the suppliers to shift the quantities to distant locations like Paradeep, while HPCL’s Meerut and Bahadurgarh depots, after taking 40% and 44% of the supplies respectively, have asked suppliers to shift the remaining quantity to Rajasthan, Chhattisgarh, Jharkhand, West Bengal and Orissa. IOCL’s Miraj depot, too, had placed its requirements on the higher side and is therefore not issuing purchase orders, asking suppliers to shift the quantity from Kolhapur to Rajasthan. “Due to this, several ethanol suppliers are now reluctant to relocate their supplies to such far-flung states”, Verma states.

Responding to the ISMA letter, food secretary Sudhanshu Pandey has written to the secretary, petroleum and natural gas, stating that given the stiff blending target, removal of these bottlenecks by the OMCs is essential and asked for necessary instructions to the concerned OMCs to address the problems being faced by ethanol suppliers.

“To achieve 10% blending target at pan India level, there is a need to ensure that enough tankage capacity is available with the OMCs,” he says and adds that priority of allocation of inter-state supplies should also be rationalized by OMCs.

Fearing that a significant quantity of contracted ethanol will not get supplied, Verma says that “we have invested heavily in augmenting ethanol production capacities and would soon be even crossing 10% blending on an average across the country. There is urgent need to augment tankage capacities in all the depots which they have shown interest in their EOIs so that they can lift the entire quantity that has been contracted for,” he writes.

Talking to FE on condition of anonymity, a distiller said that the present situation is a fallout of the high quantity of contracts for ethanol supplies for which the oil companies were probably not geared up. “But that should not be an excuse. Because on the one hand, suppliers are legally bound to supply the quantities. If we don’t, we get penalized for the same, but on the other hand, there is no such legal compulsion on the OMCs of any penalty if they do not take supply as per the contracts, which is unfair,” he says, adding that now that the ethanol manufacturing capacity is getting developed very quickly, supplies are also increasing. “The OMCs need to gear up the supply side by augmenting their tankage capacity, otherwise the whole programme will fall off,” he said.