Hidden hand of Naik in high price of domestic ethanol

Vol 7, PW 7 (18 Jun 03) People & Policy

COULD THIS be another case of politicscoming before economics from oil minister Ram Naik We hear India's powerful sugar lobby, apparently with Naik's blessing, has succeeded in coercing state-owned Indian Oil, Bharat Petroleum and Hindustan Petroleum to pay Rs17, 000 ($354) per kilolitre of ethanol when they could have bought it from Brazil at Rs14, 000 ($292).

On 1st January this year the oil ministry made it mandatory for PSUs to add a 5% component of ethanol in petrol sold across several Indian states. When announced, the move was perceived to benefit sugar barons in Naik's home state of Maharashtra.

In May, BPCL, HPCL and IOC issued a tender to buy 147.7m kilolitres of ethanol. "We wanted to pay less than the import parity price (Rs14, 000)," a source tells this report.

"But the oil ministry stepped in and asked us to settle the deal at a 'mutually suitable price' to help the Indian sugar industry because it is in a difficult period." Earlier, IOC, BPCL and HPCL had a three-month trial of the ethanol-blending programme during which the sugar industry demanded Rs22, 000 per kilolitre. Shocked, the three refiners briefly considered canceling the tender.

The sugar industry eventually agreed to slash the price to Rs17, 000 but oil companies remain bitterbecause this is only the base price and doesn't include sales tax and other levies. S G Khedekar of the Ethanol Manufacturers Association of India denies extortion.

The shortfall in sugar cane supplies continues," he tells us. "We can't sustain ourselves at this rate.

We agreed to Rs17, 000 per kilolitre because we don't have a choice." Khedekar said oil companies would soon issue the sugar industry with production targets so they can lift product at regular monthly intervals.

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