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Informist, Monday, Jun. 15, 2026

 

By Afra Abubacker

 

NEW DELHI – India's ethanol manufacturers do not expect biofuel demand to increase in the ongoing ethanol year 2025-26 (Nov-Oct) due to the launch of E85 fuel, or 85% ethanol blended petrol. They hope oil marketing companies will gradually raise ethanol procurement to supply E85 in the coming years, subject to consumer adoption of flex-fuel vehicles. For the current year, distilleries expect ethanol demand to be limited to meeting just E20 requirements.

 

"There will be hardly any new additions on account of E85 this year. Maybe it will be taken into account next year. But that too will be a marginal rise," Deepak Ballani, director general, Indian Sugar & Bio-Energy Manufacturers Association, said. He added that the penetration of flex-fuel vehicles is expected to be slow in the initial years. 

 

Maruti Suzuki and Hero MotoCorp recently launched the country's first flex-fuel car – Wagon R Flex Fuel – and motorcycles – Hero Splendor Flex Fuel and HF Deluxe Flex Fuel - that can run on petrol blends ranging from E20 to E100. Meanwhile, the government began dispensing E85 fuel at nearly 50 retail outlets, priced INR 20 lower than E20 to attract consumers. The commonly available petrol from state-owned oil marketing companies has about 20% ethanol.

 

The push for higher ethanol blending comes as rising crude oil prices, amid the war in West Asia, have increased India's import bill and put pressure on foreign exchange reserves. However, the market remains uncertain about the pace at which consumers will shift to flex-fuel vehicles, which are relatively costlier and less fuel-efficient. Blended fuels have lower calorific values than pure petrol.

 

Although Indian automakers have possessed flex-fuel engine technology and prototypes for some years now, they have remained hesitant to launch them commercially due to a lack of supportive policies, such as fiscal incentives for manufacturers and tax benefits for consumers.

 

"Will flex-fuel vehicles receive meaningful fiscal incentives? Will consumers accept E85, given fuel efficiency trade-offs? Will OEMs (Original Equipment Manufacturers) aggressively push flex-fuel platforms or treat them as compliance products? Most importantly, does E85 remain a niche technology or become a mainstream transition fuel?" InCred Research's Nitin Awasthi asked in a report.

 

According to InCred Research, ethanol demand is expected to rise only gradually as flex-fuel vehicles gain market share. Assuming 5% annual growth in petrol demand, Awasthi estimates total ethanol demand would be 16.04 billion litres by 2030 under an E85 sales scenario, with 240 million litres of ethanol needed to produce E85.

 

InCred assumes flex-fuel vehicle adoption to remain insignificant in the initial years. They see flex-fuel vehicle penetration to increase from 1% in FY27 to 6% in FY30, and eventually reach 50% from FY36 onwards. "Our scenario analysis assumes 50% penetration of flex-fuel vehicles in new petrol demand by FY36F-40F, resulting in incremental ethanol demand of nearly 3.89 bln litres vs. a pure E20 pathway."

 

TENDER HURDLES

While the government has facilitated the next phase of the ethanol blending program, oil marketing companies and ethanol manufacturers are in the midst of a legal battle.

 

So far, oil marketing companies have floated only one ethanol procurement tender for 10.5 billion litres for the 2025-26 ethanol supply year (Nov-Oct). Industry officials said additional tenders are expected only after the ongoing legal dispute between a Karnataka-based distillery and oil marketing companies is resolved. VINP Distilleries and Sugars Pvt. Ltd., a dedicated ethanol plant, has alleged that oil marketing companies such as Bharat Petroleum Corp. Ltd., Indian Oil Corp. Ltd., and Hindustan Petroleum Corp. Ltd. have violated terms under the Long-Term Offtake Agreement. 

 

The second tender is expected next month when the Supreme Court resumes work in mid-July after its annual summer vacation, Informist reported earlier, quoting a senior government official. 

 

Many distilleries have raised concerns about the oil marketing companies' ethanol procurement policy, under which priority in allocation is given to cooperative sugar mills with distillation capacity, then to dedicated ethanol plants, and finally to other distilleries. The new criterion was introduced by oil companies to categorise and optimise distilleries based on feedstock and location.

 

However, industry bodies say the policy violates long-term offtake agreements and has created sectoral distortions and imbalances in ethanol allocation.

 

The dissatisfaction over oil companies' order allocation methodology has come amid capacity expansions by existing units and new units entering the market. India's ethanol supply market has become crowded, while the demand front has been largely limited to oil companies producing E20 until recently. As a result, oil marketing companies introduced a new prioritisation methodology based on location and feedstock to allocate ethanol supply orders to distilleries.

 

A preliminary reading of the ethanol allocation results showed that oil companies have issued many supply orders eastward, especially to relatively newly commissioned grain-based distilleries in Bihar and elsewhere. While this promotes decentralised ethanol sourcing, traditional ethanol hubs like Maharashtra and Karnataka have expressed dissatisfaction.  

 

In short, many sections of the distillery industry are unhappy with the current ethanol procurement policy. Dedicated ethanol plants have disputed the priority given to cooperative sugar mills, while large distillery units, irrespective of feedstock, contend that they have lost some of their supply share to newly established units in other states. 

 

In March, the Supreme Court set aside the Karnataka High Court's interim order of January directing the revision of ethanol allocation in favour of VINP Distilleries and Sugars. The apex court observed that oil companies have only implemented the ethanol procurement policy framed in the national interest and asked the high court to decide the pending writ petition expeditiously on merits.

 

"OMCs are companies, and agreements are commercial. One (Supreme Court) cannot say it is in the national interest when agreements are violated," a senior industry official said, requesting anonymity. 

 

However, industry bodies have largely welcomed the Supreme Court's decision, saying that if other dedicated ethanol plants also sought higher allocation through the court, it could disrupt the entire tender allocations and procurement process. End

 

 

Edited by Saji George Titus

 

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