Clarity sought for budget levy on unblended fuel

by Shahkar Abidi 03 Feb 2022

The announcement came close to the end of the finance minister’s budget speech on February 1, and it now has stakeholders in the petroleum & gas industry seeking more clarity from the government on its decision to levy an additional excise duty of Rs 2 per litre on unblended fuel.

The minister said the levy would become effective from 1 October 2022. While the finance minister says the levy aims to make oil & gas companies to further push the levels of ethanol blending, it will enhance the retail price of most of petrol and diesel currently sold in India.

Reacting to the budget proposal, Dr Pramod Chaudhari, Founder-Chairman of Praj Industries, a biofuel technology company said, "Tax on unblended fuel is a great start to promote the transition to greener fuels which is in line with the global practice of differential pricing for ethanol-blended fuel.  The budget outlines concerted efforts to conserve the environment by sustainable climate action with a focus on carbon intensity reduction to achieve net zero targets.”

A senior executive at a PSU, requesting anonymity, said that while blended petrol is relatively easily  available in ethanol-producing states such as Maharashtra, Gujarat, Uttar Pradesh amongst others, it becomes difficult to source in certain other states including in Rajasthan, Bihar where sugarcane production is low or negligible. This also includes the south. Also, logistics-related issues play an important part in its availability at the retail stations.

" It will certainly push OMCs to work  harder towards achieving its blending goals" the executive added, emphasizing that the increase in excise duty will most likely get passed on to the consumers. 

The central government, through the National Policy on Biofuels, 2018, aims to increase usage of bio-fuels in the transportation sector towards energy security and climate change mitigation. During the period of  2020-2021 (December-November), 302 crore litres of ethanol was supplied to oil marketing companies by distillers thereby reaching a pan-India average blending level of nearly 8 percent. The government’s mandate is to increase the blending levels to 10 percent this year before doubling it by 2025. 

The development comes months after a cabinet committee of economic affairs increased the ex-mill price of ethanol  to incentivise the millers to divert higher cane towards ethanol and increase its production. Also, the government in December slashed the GST on ethanol meant for blending under the Ethanol Blended Petrol (EBP) programme to 5 per cent from 18 per cent.

Even as the ethanol blending program for petrol is on way up, a similar blending in diesel seems to be far behind in comparison. As per industry estimates, the biofuel blending of diesel currently stands at just about 0.1 percent.