Ethanol-blended gasoline: govt may give additional margin of Rs 1.5 per liter to PSO

[Naveed Yaseen]

(Naveed adds: I suspects corruption motives in unnatural push in this subsidy dependent counter-productive business. Foods are more valuable to humans than engines.)

ZAFAR BHUTTA
ISLAMABAD (December 30 2008): Government is likely to give additional margin of Rs 1.5 per litre to Pakistan State Oil (PSO) on the ethanol-blended motor gasoline to enable the state-run marketing entity to recover the cost of Rs 6.5 billion required for development of infrastructure for blending facility.

Sources in Petroleum Ministry said that it is being considered to task PSO to develop blending facility at depots without any financial support from the government. PSO will require Rs 6.5bn to develop the blending facility at the depots. Petroleum Ministry is working to submit a proposal to the Economic Coordination Committee of the Cabinet to approve the additional margin of Rs 1.5 per litre on the ethanol blended motor gasoline to recover the investment of Rs 6.5 billion for developing the infrastructure.

Earlier, government had asked the oil refineries to initiate the ethanol blended motor gasoline project but they refused and after their refusal government had tasked the Oil Marketing Companies (OMCs) to initiate this project. Sources said that after the strong resistance from the multinational OMCs, it is being proposed to task PSO to initiate the project.

Sources feared that the huge investment would be fruitless if the project failed and ethanol blended motor gasoline should be treated as mono grade petrol that would enable all OMCs to supply it through out the Pakistan instead of only PSO. Other OMCs could cause failure of the project if only PSO was tasked. It is being proposed that PSO would bear transportation cost of the blended fuel from its margin.

Sources said that it could incur loss on sale of E-10 and would make the project financially unviable. The other proposal is that transportation cost should be made part of the Inland Freight Equalisation Margin (IFEM).

The current price of gasoline is Rs 18.81 per litre as compared to price of ethanol at Rs 33.63 per liter. The other proposal is being considered to keep the price of ethanol lower than ex-refinery price of gasoline at least by Rs 10 per litre to make the project financially viable. Sources said that PSO would require an investment of Rs 3 billion to start the project and this would be an additional burden on PSO making the entity uncompetitive in the industry.

Sources apprehended that if blended fuel was not treated as mono grade petrol, it would be a burden on the PSO and other OMCs could create problems for the state run entity. They said that all other marketing companies had the infrastructure and blended fuel should be given the status of the mono grade petrol to supply it across the country.

According to the working, petroleum development levy (PDL) would only be applicable on 90 per cent component of E-10 ethanol blended motor gasoline and E-10 price would be around Rs 55.96 per litre. If additional margin on investment is taken into account, the price of E-10 would be Rs 57.70 per litre.

Sources noted that ethanol blending should be done at refinery instead of depots because blending at depot would require more capital investment as compared to blending at refinery level. Sources said that ethanol blending project requires sophisticated storage and blending equipment and investment should be made in planned manner to ensure reasonable return on investment.

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