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| May 22, 2006 | Monday | Rabi-us-Sani 23, 1427 |
India maximising use of local fuels
WITH oil prices flaring to record highs, India’s import bills are also soaring. The country has to import almost 70 per cent of its oil requirements, and with a rapidly expanding automobile sector, its dependence on imported oil is growing.
Unfortunately, domestic politics does not allow the oil and petroleum companies – mostly state-controlled giants – to change the pricing of their products according to international variations. When oil prices flare, the marketing companies have to sustain huge losses, as they cannot pass off the increase to consumers.
The government has in the past resorted to desperate measures, including slashing import duties on oil and petroleum products. But despite pressures from the oil giants, it has refused to raise the price of petrol, diesel, kerosene or liquefied petroleum gas.
But worries about a snowballing crisis – with some of the oil companies likely to face hefty losses – has forced the government to come out with a more creative alternative. A cleaner and greener solution to the oil problem is soon going to be tried out by the Indian government.
Beginning October, the government plans to make it mandatory for all oil and petroleum companies to blend five per cent ethanol with their products. This will be doubled to 10 per cent by October 2007.
Petroleum Minister Murli Deora last week directed petroleum marketing firms, including Indian Oil Corporation, Hindustan Petroleum and Bharat Petroleum to start acquiring ethanol and begin the blending process by October. Private refiners, including Reliance and Essar, are also expected to fall in line.
Bio-fuels, in which by-products like ethanol are blended with regular fuel, is emerging as a major solution the world over, as a consequence of the sharp escalation in the price of oil. In the US, ethanol is distilled from corn, whereas in Brazil, sugar is used for the product. Many European nations blend rapeseed oil for bio-diesel, while in the US, vegetable oil is mixed with diesel.
In India and a few other Asian countries, Jatropha, dubbed a wonder shrub, is being used to mix with diesel.
Ethanol is also becoming increasingly popular in India, with sugar producers finding it a lucrative alternative. There are about 125 ethanol producers in the country, with a total capacity of 1.25 billion litres of ethanol.
Most of them are concentrated in sugar cane growing states like Maharashtra and Uttar Pradesh, but many of them also operate in states like Tamil Nadu, Andhra Pradesh, Karnataka and Gujarat.
Deora also discussed the proposal with federal agriculture minister Sharad Pawar, who controls the powerful sugar cane lobby in western Maharashtra. Ethanol producers are demanding Rs27 a litre, and talks are on between the oil companies and the producers to sort out the price issue.
The Ethanol Manufacturers’ Association of India – headed by Vijaysinh Mohite-Patil, a powerful baron from Maharashtra, and also the state’s rural development minister – claims that the drought in many parts of western India has affected supplies of raw materials.
THE organised sector, however, is bullish on the prospects for ethanol, especially after last week’s announcement about the compulsory blending of petroleum products. Investors have been pouring money into companies that produce ethanol, and many of the firms have also become active suddenly.
Praj Industries, a leading ethanol industry player – it provides solutions for the ethanol industry, including distilleries and brewery wastewater treatment – announced it has won orders worth Rs750 million for four ethanol projects.
US-based venture capitalist, Vinod Khosla, recently took a 10 per cent stake in the Pune-based firm, which has seen its price skyrocket on the Bombay Stock Exchange. Praj won the orders for installation of distilleries following the government’s move to implement 10 per cent ethanol blending over the next 18 months.
The ethanol industry in India is expected to see revenues shoot up to $12 billion, once the 10 per cent blending rule comes into force. India is expected to save about 200,000 barrels of oil daily, once ethanol is used in bio-fuels.
The huge potential in India has attracted other international players. A group of Brazilian ethanol industry representatives visited Mumbai recently, and announced a tie-up with a local firm. According to Marco Fattore, a spokesman of the Brazilian group, India has huge potential for ethanol production, next only to that of the South American country.
The Brazilian firms, who are tying up with Gill & Co, plan to set up 15 ethanol plants in India over the next two years. Kantilal Shah, managing director, Gill & Co, points out that the Brazilian technology is suitable not just for sugar produce, but even for wheat corn and other agricultural produce.
Globally, venture capital firms and even the likes of Bill Gates of Microsoft, and Steve Case, the founder of AOL, are investing in bio-fuels. John Doerr, a leading venture capitalist, is investing $100 million in green technology, while the International Finance Corporation is also investing in bio-fuel firms.
Many of them are seriously considering investing in India, especially with the government committed to the introduction of ethanol-blended fuel.
And domestic Indian giants like Bajaj Hindustan Ltd (BHL) – a leading sugar and ethanol producer – are also unveiling aggressive plans. The company announced earlier this month that it plans setting up a subsidiary in Brazil. It will be investing a whopping $500 million in the new venture, and is also toying with the idea of acquiring some Brazilian firms.
Kushagra Bajaj, chief executive, BHL, points out that the half a billion dollars that it is investing over the next six months, would be used to acquire assets both in the sugar and ethanol business in Brazil. The company plans to raise $380 million through a global depository receipts issue and a foreign currency convertible bond issue.
THE most promising ingredient for bio-fuels in India is an ordinary shrub, the Jatropha, which was brought to the country many centuries ago by the Portuguese. Known locally as Ratanjot, Jatropha curcus resembles castors. There are nine species of Jatropha in India. The shrub produces a seed that contains oil, which can be used to blend with diesel.
The Indian government has identified 100 million acres of land across the country for growing Jatropha. The natural, biodegradable supplement for diesel does not require much water, and can be raised in arid, semi-desert areas as well. Experts estimate that the bio-diesel produced from Jatropha raised on 100 million acres of land can easily save 20 per cent of diesel consumption in India.
The wonder shrub has naturally attracted a lot of fan following. Indian Railways, the largest owner of land in the country, is growing Jatropha on thousands of acres of land along both sides of the railway tracks. It hopes to cut a significant part of its fuel bill, by blending Jatropha oil with diesel.
Reliance Industries Ltd, controlled by Mukesh Ambani, plans to invest about $500 million in a bio-diesel refinery near Jamnagar in Gujarat. The company is putting up one of the largest Greenfield refineries in the world in Jamnagar. It has also acquired 200 acres of land for growing Jatropha.
British Petroleum is also investing about $10 million in a bio-diesel facility in India, and plans to grow Jatropha in over 8,000 hectares of wasteland. Daimler Chrysler India has completed road trials for its Mecedes Benz, using bio-diesel.
Last week, the Indian Council of Agricultural Research (ICAR) identified a new Jatropha variety, SDAUJI (Chatrapati), which has a higher oil content and yield for commercial cultivation. Farmers can get an average yield of over 1,000 kg per hectare under rain-fed conditions, said ICAR. Jatropha is drought-resistant and can be raised successfully even in areas where the annual rainfall is between 300 and 500 mm.
Several states in India, from Gujarat in the west to Mizoram in the east, are also concentrating on Jatropha. Gujarat’s forest and agriculture departments are planning to grow the shrub in the state’s forests. The government has also decided to distribute over 200,000 Jatropha plants and over 35,000 seeds to farmers.
The government has identified arid regions including Saurashtra and Kutch for raising Jatropha plants. Mizoram’s agriculture minister H. Rammawi, notes that Jatropha is useful not just in bio-fuels, but even in the cosmetic industry. Private sector giant Godrej and a UK-based multinational recently signed separate agreements with the Mizoram government for sourcing Jatropha from the state forests.
Godrej has a Rs2.5 billion agreement with the state government to promote cultivation and processing of the versatile plant in several districts of the state.
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