Oil PSUs sign agreement for upcoming  ethanol plants

The three PSU oil marketing companies  Bharat Petroleum Corporation (BPCL), Indian Oil Corporation (IOCL) and Hindustan Petroleum Corporation (HPCL)  have announced that they will be entering into a long-term purchase agreement (LTPA) for upcoming ethanol plants across India.

The first set of Tripartite-cum-Escrow Agreement (TPA) was signed among OMCs, project proponents and banks of the respective ethanol plant projects.  The State Bank of India, Indian Overseas Bank and Indian Bank are three banks who are involved in this tripartite agreement with OMCs and project proponents. The agreement is designed to ensure that payment received by ethanol plants is utilised for servicing the finance extended by these banks.

As per the agreement, ethanol produced by these dedicated ethanol plants shall be sold to OMCs for blending with petrol as per the government’s ethanol Blended Petrol (EBP) Program. Payment towards supply of ethanol shall be credited to an escrow account maintained with the financing bank to ensure servicing of loan as per schedule. TPAs have been signed with Micromax Biofuels  (Bihar), Eastern India Biofuels (Bihar), Muzaffarpur Biofuels (Bihar), K P Biofuels ( Madhya Pradesh)  and Visag Biofuels (Madhya Pradesh). 

India’s net import of petroleum was 185 million metric tons (MMT) in the last fiscal and cost the exchequer $551 billion. Most of the petroleum products are used in transportation. A successful E20 program can save the country $4 billion per annum. In 2021-22, India achieved 9.90 percent  ethanol blending, consuming 186 crore liter of ethanol, thereby leading to saving of over Rs 9,000 crores in foreign exchange. However, the government has advanced the target of achieving 20 percent blended ethanol by 2025. The major challenge is the deficit of ethanol to achieve this target as ethanol which requires molasses as a key input is not available all over the country particularly in the southern states.

Since the Ukraine war, traditional fuel prices have gone through the roof putting a strain on the transportation and logistics industries. In order to handle its energy security requirements, India has also bought Russian crude which is being offered at a discount. From a socio-economic perspective, blending locally produced ethanol with petrol also helps though experts have cautioned that moving land under crop cultivation to sugarcane will lower the acreage under crops, and even lead to food inflation.

To achieve the E20 target, India requires 1,016 crore litres of ethanol by 2025-26. But, there is a deficit of approximately 650 crore liters of ethanol as per the current availability. These five projects are likely to contribute to around 23 crore litres of ethanol per annum, the government said.