New Delhi: Transport minister Nitin Gadkari on Tuesday said Volkswagen AG and Sweden’s Volvo AB have shown interest in supplying vehicles that can run on alternative fuels such as methanol and ethanol.

“We had a talk with Volvo...they are ready to supply 50 buses on methanol in Pune and Mumbai," Gadkari said, adding that the project will be on a pilot basis initially, and could be replicated as there is immense potential for running vehicles on alternative fuels.

The transport minister also said that talks were on with online taxi firm Ola (ANI Technologies Ltd) for running taxis on ethanol.

“Volkswagen is ready to supply flex engine for 100 vehicles if ethanol supply is ensured," Gadkari said. Like flex engine in the US, Brazil or Canada, which can run either on 100% petrol or fuel blended with 22% ethanol, taxis in India too can be operated on a pilot basis, he said.

The development comes a month after 200 electric vehicles, including taxis, buses and e-rickshaws were introduced in Nagpur for public transport. Gadkari, who is Member of Parliament from Nagpur, had launched the pilot project for 200 electric vehicles, including 100 Mahindra e20 plus to be run by Ola.

Gadkari said that alternative fuel has huge potential and can cut India’s Rs7 trillion oil import bill. He said ethanol could be produced in large quantities in Uttar Pradesh and Bihar, and taxis running on it could save Rs4.5 per km on fuel charges.

The Gujarat State Fertiliser Corporation could produce methanol, which is produced from coal gasification. “In fact, we are thinking to promote alternative fuel in shipping sector as well and vessels could be run on methanol which is cheaper than LNG," Gadkari said, adding that 500 barges were brought for Ganga which could be run on these if all goes well.

Gadkari had in May said he will urge finance minister Arun Jaitley to bring down GST rate on hybrid vehicles and other automobiles that run on alternative fuels. Hybrid cars, which are considered ecofriendly, are slated to attract a 15% cess over and above the peak GST rate of 28%, same as those of large luxury cars and SUVs.

The automobile industry has expressed concern on the high GST rate on hybrid cars stating it would hamper the government’s plans to promote ecofriendly vehicles. At present, hybrid vehicles attracts excise duty of 12.5% with an effective overall tax rate of 30.3%.