Mumbai: Nirav Miyani, a 26-year-old trader here, will have no choice but to modify his 10-year-old Premier Padmini car if it has to run on clean ethanol-blended fuel from next October—the official deadline set by the government for oil firms to sell 10% blended fuel—known as E10.

While the sugar industry is readying itself for expanding ethanol production, India’s automotive industry has expressed reservations about the viability of the proposal. Oil companies, too, are not ready as yet. In fact, they have not even completed the blending requirement for 5% ethanol. In October this year, the oil marketing firms were directed by the government to sell petrol blended with 5% ethanol in most of the states.

To top it all, the auto industry is concerned about the effect this mandate will have on owners of older vehicles. According to K.K. Gandhi, executive director (technical), Society of Indian Automobile Manufacturers (Siam) an industry lobby, the engines of older vehicles will not be compatible with a higher percentage of ethanol in petrol. The blended fuel is more corrosive and would affect the life of several rubber and plastic components as well as certain metal parts in the engine, he says.

Right blend?: A sugar cane field in Uttar Pradesh. Many say a possible solution to India’s growing energy demand lies in sugar by-products, namely, molasses and sugar cane juice. (Ramesh Pathania/Mint)

Car makers Honda Siel Cars India Ltd, Ford Motor India Ltd and General Motors India Ltd already sell models that can withstand a higher content of ethanol in the fuel but, others such as Maruti Suzuki India Ltd and Hyundai Motors India Ltd, who sell a majority of new Indian cars today, will have to modify engines. Still, “we will be ready with vehicles that can comply with E10 when the mandate comes into effect," says a spokesperson for Maruti Suzuki India.

Though oil firms floated tenders for 560 million litres of ethanol for blending in fiscal 2008, they have managed to procure 140 million litres so far. This even as oil firms are typically losing Rs4.50 per litre on petrol and with 5% ethanol blending, the saving for the oil firms could be as much as Rs13 per litre, claims Narendra Murkumbi, managing director, Shree Renuka Sugars Ltd.

Sugar companies, in fact, have started expanding their capacities to meet the demand. India is the world’s second largest producer of sugar, after Brazil, and the largest grower of sugar cane. Ethanol is made from rectified spirit that comes from molasses, a by-product in sugar manufacturing. Molasses accounts for around 45-50% of the total sugar production.

“We are doubling our ethanol capacity from 450kl/day to 900kl/day and have an investment plan of Rs440 crore. But we have no assurance from the oil firms on the roadmap for the 10% blending," says Murkumbi. Shree Renuka has acquired a Pune-based distillery, KBK Chem Ltd, for Rs40 crore to get over the bottleneck in equipment supply. “Our full capacity will be in place by October, when the blending becomes mandatory," says Murkumbi. Other sugar companies, such as Bajaj Hindusthan Ltd, the country’s largest sugar manufacturer, are also adding ethanol capacity. Bajaj is hiking its capacity from 640kl/day to 800kl/day by next fiscal.

Since October, when the government announced its E10 policy, there have been discussions among officials from the ministry of petroleum, heavy industry and agriculture, the Bureau of Indian Standards (BIS) and representatives from oil and automotive firms, but little progress seems to have been made. “It is going to be difficult to gauge when these discussions at various levels will be completed," said Dilip Chenoy, director general, Siam. The industry body has tried to conduct its own testing of E10 on older vehicles, but has not succeeded. This is because oil firms are not supplying the higher blended fuel as yet, while buying ethanol from the market is a long-drawn process, requiring several permits and approvals.

“It’s no secret that there is not enough ethanol available in the country and the government, along with the sugar and fuel firms, must ensure that ethanol is provided at a consistent level if E10 is to be implemented," says Chenoy.

Oil firms have not gone ahead to implement the government policy on a technical ground that the cabinet directive on E10 has not yet been gazetted. “We are awaiting government orders on the E10. The ministry of petroleum has called for a meeting later this month to discuss the feasibility of the suggestion. The ministry wants to examine the effect of E10 on the existing car engines," says a senior official of Bharat Petroleum Corp. Ltd, on condition of anonymity, as he is not authorized to speak to the media.

Indian Oil Corp. Ltd, Hindustan Petroleum Corp. Ltd and Bharat Petroleum Corp. Ltd, the three state oil refining and marketing firms, buy around 540 million litres of ethanol for blending up to 5%. Murkumbi of Shree Renuka Sugars says that oil firms need to get started soon to meet the deadline. “Their procurement process takes about eight to nine months and we will take another month to deliver the product," he says.

India imports 70% of its crude oil supply. With power and energy consumption rising steadily, analysts say one possible solution to India’s growing demand for energy—both environmentally sound and linked to the development of the rural economy—lies in sugar by-products, namely, molasses and sugar cane juice. Oil firms will need 1,130 million litres of ethanol in October to go for E10.

“The concern over shortage of distillation capacity is unfounded. Bajaj Hindusthan alone, with a distillery capacity of 22 crore litres per annum can supply up to 25% of today’s ethanol requirement for 5% blending," says R.K. Panpalia of Bajaj Hindusthan. Sugar mill owners across India have already invested Rs2,000 crore in doubling capacity since 2006 and lined up another Rs2,500 crore investments to meet E10 requirement over the next one year.