INDIA: September 15, 2008


NEW DELHI - India's drive to ramp up biofuels use within a decade offers hope to a struggling biodiesel sector, but without a clear roadmap, commercial production will remain years away, a top trade official said.


India agreed on Thursday to lift biofuel blending to 20 percent by 2017, worrying some analysts who fear it may be at the expense of food output but who say it offers a way to trim the country's hefty fuel import bill.

But a simple target was no substitute for a detailed policy framework, Sandeep Chaturvedi, president of the Biodiesel Association of India, told Reuters in a telephone interview on Friday.

"There is at least a couple of years to go before we can produce biodiesel in a commercial way -- that, too, only if we have a clear mandate right now in the policy," Chaturvedi said.

India imports 70 percent of the oil it consumes and has already asked oil firms to mix ethanol with petrol to 5 percent of volume almost nationwide.

It aims to double that to 10 percent from October 2008, when the new cane-crushing season begins.

While the use of ethanol has been introduced successfully in India, the use of biodiesel has not taken off and many Indian companies have shelved plans to invest in related projects. Ministers also have differed over subsidies for biodiesel, obstructing progress on a new policy for the sector.

For biodiesel's promise to be fulfilled, Chaturvedi said, the government needs to spell out a pricing mechanism for the alternative fuel which would be profitable for producers, as well as allocate land.

He said the price needed to be fixed at the government-set and heavily discounted retail price of diesel -- about 38 to 39 rupees a litre -- for biodiesel production to become viable.

But he added the government had pegged biodiesel at 26.50 rupees, paid by state-run oil refineries to growers, which was about the same as their cost price.

"Why should anyone produce biodiesel for a refinery if he is booking a loss?" he said.


JATROPHA

Manufacturing biodiesel made from jatropha seeds is seen as particularly promising in India as the plant grows with little water and can be cultivated on the country's vast areas of wasteland where raising food crops is impossible.

Based on government figures, Chaturvedi estimates there may be 55 million hectares (135 million acres) of wasteland in India which could be used for oil-rich jatropha, but almost 70 percent is owned by federal or state governments.

Currently, cultivation of the plant took place on just 650,000 hectares.

Chaturvedi said Thurday's policy should have given incentives to attract farmers to grow jatropha. Private firms could then agree long-term purchase agreements for the crop.

He added jatropha cultivation over at least 2 million hectares of land was needed initially to produce about 2 million tonnes of biodiesel, but that would need clearly articulated incentives.

"The first thrust should have been given on cultivation and plantation (of jatropha) and a policy instrument or directive needs to be issued for ensuring sustainability," he added.

Some state governments, such as Chhattisgarh, Uttar Pradesh, Madhya Pradesh, Tamil Nadu, Uttarakhand and Andhra Pradesh, have taken initiatives to grow the crop but there has been no co-ordinated approach.

India was also yet to identify a single variety of jatropha which can be grown uniformly well across the country although research by some agricultural universities and a government department is ongoing.

Analysts say India consumes 40 million tonnes of diesel a year, way above annual petrol demand of 8-9 million tonnes, and in 2003 announced plans to replace around 5 percent of its diesel consumption with biodiesel made from jatropha.

Even at current levels of consumption, India needs to produce at least 8 million tonnes of biodiesel annually.

Chaturvedi said India already has 1.2 million tonnes biodiesel processing capacity, out of which only about five percent is being utilised. Small quantities of biodiesel are either exported or sold locally.

About 180 billion rupees (US$3.95 billion) needs to be invested in building new capacity by private producers to meet the government's ambitious 20 percent target, Chaturvedi said. (US$1=45.56 rupees) (Editing by Mark Williams and Ben Tan)


Story by Biman Mukherji


REUTERS NEWS SERVICE