India doubles ethanol blending target to help sugar mills

India has doubled its target of blending ethanol with gasoline to 10%, as it aims to promote cleaner fuel to tackle pollution.

According to Reuters, oil companies have never met the current 5% blending target as ethanol derived from molasses - the thick syrup produced by boiling down sugarcane juice in sugar refining - costs more than gasoline without including taxes. India does not allow ethanol imports.

The media outlet said India's Food Minister, Ram Vilas Paswan, acknowledged the issue but told lawmakers that to improve supplies and keep prices down, the government has extended soft loans of up to 40% to encourage sugar mills to set up ethanol plants, fixed "remunerative ex-depot price of ethanol" and waived some taxes on its supplies to oil marketing companies.

He did not say by when the new target would be applicable and what action would be taken for non-compliance.

"(The) production of ethanol and its supplies under the ethanol blending programme at remunerative prices are likely to improve the liquidity position of sugar mills, enabling them to clear cane price dues of farmers," Paswan said.

According to the media outlet, debt-laden mills that owe billions of cane dues to farmers have been trying to generate revenue outside their core business as the price of the sweetener has dropped. The Indian Sugar Mills Association expects to double ethanol supply to as much as 1.3 billion litres in 2015/16.

India's government is also planning to soon allow automakers to manufacture vehicles that can run entirely on ethanol, though experts are sceptical it would work. A tender issued by refiners Bharat Petroleum Corp, Indian Oil Corp and Hindustan Petroleum Corp in August seeking 2.7bn litres of ethanol managed to secure only 1.03bn litres.

According to Reuters, one main reason oil companies find it hard to source ethanol cheaply is the high state duty it attracts because of its use in the heavily taxed liquor industry.