India sets new price for ethanol to promote biofuel.

India's cabinet on Monday raised the price at which oil firms buy ethanol from sugar mills as part of efforts to promote mixing of the biofuel with petrol, a government statement said.

The cabinet asked oil firms to pay 27 rupees ($0.576) per litre for ethanol, 25.6 percent more than the earlier price of 21.50 rupees, which was considered too low by sugar mills.

The country, which imports 70 percent of the oil it consumes and heavily subsidies fuel prices, plans to move towards 10 percent blending of ethanol with petrol. But only about a third of the country's 29 states have managed to mix 5 percent ethanol with petrol due to the differences over price among sugar mills and oil firms.

Despite the slow progress, in 2008 India set an ambitious target of reaching 20 percent biofuel use within a decade. In India, ethanol is made from cane, unlike in the United States, where corn is the main source for the alternative fuel.

The government statement said a panel of officials and representatives of oil and sugar firms would suggest other ways to help facilitate the mixing of ethanol with petrol.

The price of 27 rupees per litre would be revised once the panel suggests a new price, it said.

"Government intends to implement the programme early and this will be possible with a fixed price initially and thereafter dynamic formula-based pricing recommended by the expert committee," the statement said.

While the use of ethanol has been introduced in India, bio-diesel has not taken off and many Indian companies have shelved plans to invest in related projects.

Analysts say India consumes 40 million tonnes of diesel a year, way above annual petrol demand of 8-9 million tonnes, and in 2003 announced plans to replace around five percent of its diesel consumption with biodiesel made from jatropha.

But some ministers have differed over subsidies for biodiesel, obstructing progress on a new policy for the sector. ($1 = 46.84 Indian rupees)

Source : af.reuters.com