The government has finally launched a trial E10 gasoline pilot project in the form of petrol blended with 10 per cent ethanol.

The blended product has been introduced initially in Islamabad and Karachi, lower by Rs1.50 per litre than the prevailing rate of petrol. It will be launched in Lahore soon.

The move is a part of the official efforts to develop alternative energy resources and for limiting the rising oil import bill triggered by an unprecedented spike in crude oil prices during the last few years.

The government as well as the Pakistan State Oil (PSO) consider ethanol- a by product of molasses obtained through distillation- a comparatively cheaper fuel which, it is said, also enhances performance of the engine through lead removal. The product is also expected to benefit the farmers who would like to grow more sugar cane for getting a better return.

The E10 pilot project will be conducted for six months, with 25 pre-identified vehicles using ethanol-blended gasoline while the Hydrocarbon Development Institute of Pakistan (HDIP) and the PSO will evaluate its performance, customer response and feedback.

Based on these results, the blended fuel usage will be presented to customers with alternate fuel choices as in CNG and LPG. Other countries where ethanol is used as fuel are; USA, Denmark, Sweden, Brazil, and India, while Zambia has recently announced its plans to go for ethanol-blended gasoline.

Sugar mill owners claimed that they had invested over $1 billion on installing 17 ethanol producing units under the advice of the president. Prime Minister Shaukat Aziz finally approved the project in July 2006.

Millers appear to be quite happy over the move but refinery operators have some reservations. Oil Marketing Companies (OMCs), a strong arm of Oil Companies Advisory Committee (OCAC), must have some worries but they are not ready to comment because one of the OCAC members is state-owned PSO which has E10 project.

Sindh Zone Chairman Pakistan Sugar Mills Association (PSMA), Abdul Wajid Arain says that at least 28 distilleries are active in producing ethanol and the millers are capable of enhancing the capacity so that 40 per cent ethanol could made available for blending with petrol.

Being a trial project, he says, the government has not fixed the price of ethanol yet. However, the country’s export of molasses would be affected when ethanol blending, a bye product of molasses, will increase. Currently, three million litres per day of ethanol is being produced by utilising two million tons of molasses.

Under the pressure of increasing oil imports, it appears that the government is in a bit of hurry to promote the ethanol project. If ten per cent blending of ethanol gives a relief of Rs1.50 per litre on trial basis, it has to be seen how much relief is provided to consumers when the scheme is launched on commercial basis after six months.

The government currently eats up Rs23.13 per litre on petrol in shape of taxes and duties, Rs13.24 as petroleum development levy (PDL), Rs7.53 as general sales tax, 0.88 paisa as excise duty and Rs1.48 per litre on freight equivalent margin.

If government cane reduces these taxes, it will help curtail the domestic prices of petrol. Refinery operators argue that there is a misperception that the country will save millions of dollars by introducing ethanol in gasoline. Petrol is currently in surplus and its consumption has declined by 10 per cent in the last fiscal due to cheaper availability of CNG and LPG also because of rising prices of petrol.

Refinery operators say that gasoline is not a deficit product in Pakistan and there have been no imports for the last six years. Refineries may have to reduce their throughputs (since additional exports of any surplus petrol are limited due to logistics and quality of the products) in case ethanol is blended into gasoline to the extent of 10 per cent.

They hold the view that price cut in petrol can only be possible, either by cutting its taxes or duties or the procurement price of ethanol should be very low so that consumer could benefit.

Refineries create an exportable surplus, resulting in naphtha exports of over 700,000 tons every year. Blending ethanol with petrol would mean that refineries will have to export even more naphtha. Petrol is made up through naphtha.

Pakistan imports Light Arab Crude (LAC), of which 45 per cent furnace oil, 15-20 per cent naphtha, 22 per cent diesel and 18 per cent kerosene are refined at the local refineries. Since ethanol would be blended by the OMCs, they need to look at compatibility issues with those additives that they are using at present.

According to PSO observations, some of the advantages of ethanol as a fuel are: It is a renewable source of energy. It mixes easily with moisture and thus prevents ice formation in cold weather. It has high octane rating and can be used to octane booster. It contains oxygen and this oxygen helps complete combustion of fuel and reduces emission of carbon monoxide making it environmental friendly fuel.