The government has decided to form an inter-ministerial panel to discuss issues related to inter-state movement of ethanol and its pricing, as the Centre seeks to aggressively push its eth­anol-blending policy.

“A committee of secretaries (CoS) will be set up shortly to discuss several problems related to ethanol supply, pricing and installations in refineries for a compulsory blending of ethanol with petrol,” said an official in petroleum ministry, who didn’t wish to be named.

Recently, the cabinet committee on economic affairs (CCEA) asked petroleum ministry to ensure that oil-marketing companies (OMCs) sell petrol mixed with five per cent ethanol.

Blending of ethanol in petrol was first introduced in India in 2003. But due to several constraints, the policy was not compulsorily implemented. In 2006, when tenders were floated for ethanol supply, only 40 per cent of the requirement was met, the official said.

At present, the total demand for ethanol is 680 million litres from October 2009 till September 2010. In India, ethanol is produced by sugar mills. In the process of producing crystallised sugar, a by-product (molasses) is produced, which become the feedstock to produce ethanol.

According to Indian Sugar Mills Association (ISMA), production and supply of ethanol is not a problem now. There are several other regulatory factors that hamper its release. Several states levy different taxes on inter-state movement of ethanol, M N Rao, acting secretary general of ISMA, said. “The movement from one state to another is a major hurdle in ethanol supply as most states charge different export and import duties. Moreover, oil marketing companies take longer time to reach a final agreement even after selection of the supplier is made through tender process,” Rao said.

On November 16, executives from oil industry and ethanol producers met in Mumbai to discuss a roadmap for streamlining supply of ethanol to oil marketing companies.

Last week ISMA wrote to petroleum ministry requesting to consider ethanol under the Central Sales Tax Act and prevent states from levying arbitrary duties on movement of ethanol, said Rao.

Five per cent of ethanol blending with petrol can lead to a reduction in India’s oil import bill. At present, the total domestic refined petroleum consumption in the country is 130-135 million tonnes per annum, of which 13-14 million tonnes is petrol.

“There are several issues such as taxation, supply-chain and storage among others, which need to be discussed before we reach a conclusion for mandatory implementation of blending of petrol with ethanol,” said Arvind Mahajan, executive director of KPMG.