India Set To Resume Sales Of Green Fuel After Two Years - Industry Officials

India is set to resume sales of gasoline blended with ethanol after a two-year gap, with sugar mills offering supplies after a sharp rise in state-fixed prices of the biofuel, industry officials said.

State-run oil companies recently accepted about 710 million liters of ethanol from local companies after inviting supplies of 1.05 billion liters, a senior official with the Indian Sugar Mills Association said.

"The supplies will probably start from the middle of next month," said the official, who didn't want to be identified.

State-run oil companies have been deluged with offers of ethanol from local sugar mills after the government revised the state-fixed price of the green fuel to INR27 per liter (0.26 gallons) from INR19.50 following a decision by India's Cabinet Committee on Economic Affairs in August.

There has been almost no ethanol blending for nearly two years, despite government orders for a mandatory 5% ethanol blending with gasoline, due to a lack of availability and the low state-fixed ethanol price.

Unlike in many other countries, ethanol is produced in India from molasses, a byproduct of sugar, rather than sugarcane juice or other food crops such as corn. Over the past two years, however, many manufacturers preferred to use molasses to produce rectified spirit and industrial chemicals due to the low price of ethanol.

Cane output also fell in the world's second-largest producer due to adverse weather, which also contributed to the drop in supply. India's sugarcane output is expected to rise about 17% to 324.91 million tons in the marketing year that started Oct. 1, which will help supplies of the fuel.

"We are ready and only nitty gritties are being sorted out. Price is no more an issue," said Prakash Naiknavare, managing director of the Maharashtra Federation of Cooperative Sugar Factories Association. "The program (for the sale of blended fuels) is now very much on."

India's largest sugarcane-producing state, Uttar Pradesh, will supply about 310 million liters of ethanol out of the total quantity asked for by state-run oil companies. Maharashtra, the country's second-largest sugarcane-producing, state, will supply 186 million liters, sugar industry officials said.

The country launched blending of ethanol with gasoline in 2006 with the aim of cutting fuel import bills as well as increasing fuel efficiency and improving the environment, but supplies under the program remained erratic