'Fuel Ethanol Policy' ready: failed petrol blending project to be revived

The government has prepared a new 'Fuel Ethanol Policy', according to which the Oil and Gas Regulatory Authority (Ogra) will be assigned the task of regulating market-based pricing mechanism, in consultation with all stakeholders, for blending ethanol with motor gasoline, sources in Planning Division told Business Recorder.
This project is being revived after Pakistan Sugar mills Association (PSMA) was reported to have convinced President Asif Ali Zardari that the use of the by-product of sugar fermentation, ethanol, with petrol would help the government reduce its oil import bill, besides benefiting sugar industry.
The Shaukat Aziz government had launched a pilot project of mixing ethanol with petrol. However, the price of petrol at the time was lower than ethanol, and the pilot project failed after six months. The PSMA is now reportedly working closely with the Presidency to revive the project.
Sources said that the Planning Division has prepared a summary for approval by the Cabinet, likely to be considered in the next meeting.
There were reports that Petroleum Ministry and one of PSMA's representative, Haroon Akhtar, had developed serious differences over the fixation of compressed natural gas (CNG) price after initiation of ethanol blending with petrol, said an official who witnessed this development at a meeting in the ZTBL headquarters.
The Planning Division has proposed (a) retail price of E-10 at 15-20 percent less than motor gasoline consumer price, (b) provide for calorific value of fuel ethanol (motor gasoline 1100 mmbtu and E-10 700 MMBTU); (c) fuel ethanol purchase price for oil marketing companies (OMCs) to be determined to prevent windfall profits due to international market price volatility; (d) the price for fuel ethanol will be indexed to free on board (fob) price of molasses, where the floor and ceiling may be determined; (e) producers of fuel ethanol dedicating their production to enable E-I0 will be guaranteed 15 percent rate of return on investment in case of additional investment on distilleries for production of fuel ethanol; and (f) indexation mechanism will involve allocating weights to the parameters for which a specific economic formula willbe structured by Ogra, in consultation with the Planning Commission, Ministries of Finance, Petroleum , Industries and Federal Board of Revenue (FBR).
Sources said that Ogra will be directed to develop a mechanism to ensure quality, standard, and safety measures, and initiate action to obtain advantages of carbon credits and shall ensure to pass on these advantages to the retailers and consumers.
According to the summary, initially, the Pakistan State Oil (PSO) will be given the task to act as the lead player to develop blending facilities at its depots located in proximity of fuel ethanol distilleries to achieve fast track outcome.
This facility will be provided to the consumers within three months, without any additional investment by the government. PSO will meet the cost of ethanol blending out of its existing distribution margin of 4 percent allowed to OMCs for the purpose.
They said that PS0 will launch a sustained media campaign to create public awareness of E-10, and communication in national and regional languages will be ensured.
OMCs will be encouraged to participate in the initiative led by PS0. However, after one year of implementation of the scheme by PSO, it will be mandatory, under the policy, for OMCs to market E-10 at their outlets as well, sources added.
They said that a five-year duty exemption will be allowed on import of machinery and equipment for ethanol production dedicated for fuel and will be exempted for local manufacturing of equipments which will be reviewed after five years.
Sources said that the Ministry of Industries, in collaboration with Alternative Energy Development Board (AEDB) and Ministry of Petroleum, will make best efforts to develop a strategic plan for fuel ethanol whereby E-l00 (100°6 fuel as ethanol) is introduced during the MTDF plan period 2010-15. This would entail encouraging automotive manufacturers (cars and buses) to match the enhanced market demand of production to ethanol-fired engines by 2030.
The facilitation package for automotive manufacturer ie exemptions from import duties on dedicated engines and ancillary automotive components and income/corporate tax relief will also be considered.
Sources said that fuel grade ethanol will be declared as blending component with petroleum products. Ogra will amend necessary rules at federal and provincial levels by taking into confidence all stakeholders for the ethanol component only, which is used in blending as fuel.
Distilleries will transport de-natured ethanol to the designated depots of OMCs transportation cost of which will be payable to distilleries out of OMCs' existing distribution margin (4 percent).
Experts, however, are of the view that the economics of ethanol blending would have a negative impact at this time, when Pakistan is shifting from costly petrol to cheaper alternative motor fuels, such as CNG, LPG and LNG. Petroleum Ministry, which is now being run by Dr Asim and HDIP, had earlier contested sugar industry's arguments during Cabinet meetings, saying that PSMA's idea was not workable.