Dynamic Pricing Mechanism h l1G Ethanol

00

Ethanol Blended Petrol (EBP) Programme

• At 10% blending with petrol, 280 crore litres of Ethanol required.

L t i t 266 lit• Last year requirement was 266 crore litres

o Supplies were 111 crore litres @4.3% blending

A i t 280 lit i t 2 d f EOI h i 78 lit• Against 280 crore litres requirement, 2 rounds of EOI has given 78 crore litresof contracts for 2016-17 (Dec-Nov)

11

EBP Programme – Supplies History

2015-16 (Dec’15 to Nov’16)• EOI with an intent to achieve 10%

blending across India E cise d t on

2016-17 (Dec’16 to Nov’17)• Tender for 10% blending across India.

E cise d t e emption is ithdra n blending across India. Excise duty on ethanol has been exempted along with ease in finalisation of tender.

• Required Qty- 266 Crore litres, Supply

Excise duty exemption is withdrawn. Ethanol price is changed to ex-factory realisation of Rs 39/litre. Net realisation is further reduced due to freight, taxes q Q y , pp y

Qty - 111 Crore litresg ,

and duties impact.• Required Qty - 280 Crore litres,

contracted quantity – 78 Crore litres

With the increase in realisation to

4.3%40

4539

40

50

4.0%

5.0%

litre

)

Targetted 5% blending

distilleries, about 4.3% of Ethanol was blended against

2.2%

4.3%

2.8%

10

20

30

1 0%

2.0%

3.0%

naol

Pri

ce (

Rs/

Blen

ding

(%)

2014-15 (Dec’14 to Nov’15)

blended against target of 5%

0

10

0.0%

1.0%

2014-15 2015-16 2016-17

Ehtn

Ethanol Blending Percentage Ex distillery Price (Rs/litre)

22

Nov 15)Ethanol Blending Percentage Ex-distillery Price (Rs/litre)

EBP Programme – Recent Developments

Ex-distillery realisation is Rs 45/litre Ex-distillery realisation is Rs 36-37/litre

Fixed pricing policy – Jan’15 to Nov’16•Ethanol being pursued as a

renewable, environment friendly fuel and with objective to improve returns to

Fixed pricing policy –Dec’16 to Nov’17•Ethanol being pursued as a

renewable, environment friendly fuel•Price fixed at Ex-supplier’s factory price.

farmers•Price fixed as delivered at oil depots. 3

price slabs, based on distance between distillery and oil depotEthanol exempted from excise duty of

•Freight to be decided by OMCs. Decidedfreight by OMCs are non-practical rangingfrom Rs 0.10/litre to Rs 1000/litredepending upon location of distillery.

•Ethanol excise exemption withdrawn•Ethanol exempted from excise duty of 12.5% for 15-16 SS

•Ethanol excise exemption withdrawn.•State excise duties are to be borne by

suppliers.

Above steps have increased ethanol Withdrawal of excise duty offers in 14-15 & 15-16 sugar season, when we have achieved highest ever blending 4.3% with petrol

exemption, reduction in prices and non-payment of state govt. levies has lead to reduction in ethanol quantity offers by distilleries (2.8% blending with

33

petrol)

EBP Programme – Pricing Dynamics

• The Cabinet Committee on Economic Affairs had approved the mechanism for revision of ethanolprice for supply to Public Sector Oil Marketing Companies (OMCs) to carry out the EthanolBlended Petrol (EBP) Programme. Government had also announced that they will move towards'market dynamic' pricing system to align Ethanol price with global market.

o For the next sugar season 2016-17 during Ethanol supply period from 1st December, 2016 tog g pp y p ,30th November, 2017, the administered price of Ethanol for the EBP Programme will beRs.39/- per litre.

o Additionally, charges will be paid to the Ethanol suppliers as per actuals in case ofo dd t o a y, c a ges w be pa d to t e t a o supp e s as pe actua s case ofExcise Duty and VAT/GST and transportation charges as decided by OMCs.

o If the need arises to increase/reduce the retail selling price of Petrol by Public SectorOMCs, then such increase/reduction would proportionately factor in the requirementOMCs, then such increase/reduction would proportionately factor in the requirementof maintaining the fixed cost of purchase of Ethanol during the Ethanol supply year.

o The prices of Ethanol will be reviewed and suitably revised by Government at anytime during the Ethanol supply period that is from 1st December 2016 to 30thtime during the Ethanol supply period that is from 1st December, 2016 to 30thNovember, 2017 depending upon the prevailing economic situation and other relevantfactors.

44

EBP Programme – Pricing DynamicsSN Description Unit Value

As on 13th Oct 161

1 Retail sale price of petrol in Delhi Rs/litre 64.66• At the time of fixation of ethanol

price at Rs 39/litre in November p p

2 Declared basic administered ethanol price Rs/BL 39.00

On 13th Feb 173 Retail sale price of petrol in Delhi Rs/litre 71.33

p2016, the retail selling price of petrol in Delhi was Rs 64.66/litre.

• Presently, Petrol is being sold by OMCs at Rs 71 33/litre i e retail p p

4 Increase in Retail sale price of petrol from PIB release Rs 6.67

5 Increase in petrol price excluding sales tax Rs 5.25

OMCs at Rs 71.33/litre i.e. retail selling price of petrol is increased by about 10% in 3 months. The parity price of ethanol at current retail tax

6 Increase after impact of sales tax on delivered ethanol Rs 5.15

7 Increase after impact of excise duty on delivered ethanol RS 4.58

pselling price of petrol comes out Rs43.58/litre.

delivered ethanol8 Parity basic price of ethanol Rs/litre 43.58

Note: 1. The date of PIB release on Ethanol price fixation & its mechanismmechanism

Government should consider a Mechanism for periodic revision of ethanol price linked withretail sales price of petrol. This may be formulated similar to mechanism already in place forprice fixation of Petrol and Diesel every fortnight based on India crude import basket. The

55

p f f y f g psame formula may be extended to fix price of Ethanol for EBP program linked to retail priceof Petrol.

EBP Programme – Barriers in Supplies

Inter-State movement & State Government permissions: State

Export Duty Import Duty

(R /li )

Other State Excise duties/ VAT/CST

(I )p

• Inter-State NOCs from importing State• States are imposing import/export duties on

State Duty (Rs/litre) (Rs/litre) duties/

Taxes (Rs/litre)

(Interstate)

Andhra Pradesh 5.5%

Bih 5 0%inter-State movement of ethanol and thereby reduction in realisation to distilleries.

• Restrictions/controls by States on inter

Bihar 5.0%Delhi 2.0Goa 0.35Gujarat 3.0Haryana 2.0• Restrictions/controls by States on inter-

State movement of ethanol• Tedious procedures for inter-state sale and

movement

Haryana 2.0Karnataka 5.5%Kerala 0.56Madhya Pradesh 1.5 2.0 0.3

• Monthly permissions issued by state authorities. Issuance of these permissions take 30-45 days in inter-state supplies. D l i bt i i th i i lt

Maharashtra 1.5 1.5 6.0%Odisha 0.35Punjab 0.25 2.0 2.0%Rajasthan 1.0 2.0%Tamil Nadu 0 5Delay in obtaining these permissions result

in penalties to the suppliers.

Tamil Nadu 0.5Uttar Pradesh 1.0 0.15 2.0%Uttarakhand 1.1 2.0%West Bengal 0.25

66

EBP Programme – Barriers in Supplies

• Vide PIB release dated 13th Oct 16, The Cabinet Committee on Economic Affairs, Chaired by The Hon’blePrime Minister, has already announced ex-factory ethanol price for the suppliers at Rs 39/litre. It was also

d th t ll th t d d ti h ll b id t t l ( f i t ii f PIB l dtd 13thannounced that all other taxes and duties shall be paid extra on actuals (refer point ii of PIB release dtd 13thOct’16) Net realisation to ethanol suppliers is less by Rs 2–3 /litre from the announced price due to thetender terms on non-payment of state excise duties (export/import/license fee etc.)

Government PositionGovernment Position

• Extraordinary Notification No. 31 dated May 14, 2016 issued by Ministry of Law and Justice, Govt. ofIndia, wherein item 26 under the first schedule of Industries (Development and Regulation) Act 1951, whereinthe Industries Under the control of Central Govt. have been spelt-out, has been amended from “26p ,Fermentation Industries” to “26 Fermentation Industries (other than Potable Alcohol) is under sole control ofCentral Govt.

• Letter No. 20 (45)/2014-SP-I (Pt.) dated December 21, 2016 issued by Joint Secretary to the Govt. of India tothe Chief Secretaries of all States specifying that “now, all issues pertaining to fermentation industries (otherthan potable alcohol) such as control over its licensing and regulation of themanufacture, storage, acquisition, possession, use, consumption, transportation, trade andcommerce, supply, distribution and its movement including intra state and inter-State movement thereof, andthe grant or issue of such licenses, permits or other documents and charging/levying of fees, if any, etc. shallbe under the exclusive control of the Government of India. Further, any such control by State Government (s)over the field(s) indicated above, including on intra state or inter-State movement of industrial alcohol (i.e., other than portable alcohol), or alcohol for EBP Programme, stand repugnant to the amendment, issued

77

i.e., other than portable alcohol), or alcohol for EBP Programme, stand repugnant to the amendment, issuedby the Central Govt. vide amendment dated 14.05.2016 ( No. 27 of 2016) to the I ( D&R) Act, 1951

Payment of state excise duties (export/import/license fee etc.) on actuals.

Policy Recommendations for Ethanol• Government should consider a Mechanism for periodic revision of ethanol

price linked with retail sales price of petrol. This may be formulated similarto mechanism already in place for price fixation of Petrol and Diesel everyfortnight based on India crude import basket. The same formula may beextended to fix price of Ethanol for EBP program linked to retail price ofextended to fix price of Ethanol for EBP program linked to retail price ofPetrol.

• Payment of state excise duties (export/import/license fee etc.) on actuals byOMCs or to be waived off by state authorities.

• Restore excise duty waiver on Ethanol and pass on benefit to Ethanolf tmanufacturers.

Ethanol price should be fixed not only to cover its producing cost, butshould also give credit toshould also give credit to

o Ethanol’s property to control pollution and improve air quality

o Improves returns of farmers

88

o Improves returns of farmers

o Reduces net oil import bill

Thank You!Thank You!

99