India’s ambitious ethanol blending drive is facing criticism from within the industry, with the Grain Ethanol Manufacturers Association (GEMA) warning that the latest procurement tender has left hundreds of operational distilleries without orders, even as Oil Marketing Companies (OMCs) extend preference to new players in so-called deficit zones.
GEMA President Dr. C. K. Jain said the imbalance threatens the viability of established units that were encouraged to invest under previous government programs. “A more holistic procurement model is needed — one that considers surplus availability across states, pre-existing capacities, and commitments made with distilleries,” Jain told reporters.
The controversy stems from the Ethanol Supply Year (ESY) 2025–26 tender (#1000442332), which sets the rules for ethanol sourcing by OMCs such as Indian Oil, Bharat Petroleum, and Hindustan Petroleum.
According to the tender’s “Allocation Methodology & Criteria” section, OMCs are instructed to allocate orders in full to distilleries located within deficit zones—regions where local offers fall short of ethanol requirements. The policy aims to promote local sourcing and cut transport costs but has, industry players say, resulted in unintended consequences.
While deficit zones receive full allocation, surplus states — which host large ethanol production capacity built over recent years with official encouragement — are now left with idle plants and stranded investments.
350 Units Left Without Orders
GEMA estimates that at least 350 operational distilleries have been deprived of orders under the latest round of allocations. Many of these units were developed under long-term offtake agreements (LTOAs) or the government’s earlier Expressions of Interest (EOI) initiatives.
“These companies invested based on clear policy signals from the government and OMCs. Now, they are being sidelined as OMCs chase new capacity in deficit zones,” a senior industry executive said.
The association argues that the current approach creates an artificial surplus in some states, undermining the original objective of balanced regional development.
Policy Drift From Original Intent
India’s ethanol blending program, which aims to achieve 20% ethanol blending in petrol by 2025-26, was designed to encourage decentralized ethanol production, reduce logistics costs, and improve farmer incomes through sugarcane and grain procurement.
However, the implementation of the new allocation methodology, industry officials say, distorts this intent. Instead of optimizing existing capacity, it encourages redundant investments in new plants — many of which will take years to stabilize operations — while fully functional units in neighbouring states are forced to cut production.
“The idea was to minimize transport and promote regional self-sufficiency. But what we’re seeing now is counterproductive — ethanol is being moved longer distances while existing plants lie underutilized,” another industry representative said.
Call for Course Correction
GEMA has urged OMCs and the Ministry of Petroleum and Natural Gas to review the tender conditions and adopt a more equitable allocation mechanism. It wants the procurement process to factor in available surplus, infrastructure investments, and prior agreements made with distilleries.
The association warned that unless corrective action is taken soon, many existing units could face financial distress, putting at risk both production stability and investor confidence in the government’s ethanol roadmap.
Market Distortion Risks
Experts caution that the skewed allocation policy could disrupt India’s ethanol supply chain at a critical juncture. With ethanol blending emerging as a cornerstone of India’s energy diversification and carbon reduction strategy, inefficiencies in procurement could slow down progress toward the 20% blending target.
“Equity and efficiency must go hand in hand,” said an analyst tracking the biofuel sector. “The government cannot afford to have operational plants sitting idle while new ones are still under construction. That’s a misuse of both capital and policy intent.”
A Test for the Ethanol Mission
India’s ethanol blending mission has been one of the success stories of recent years, with the blending rate climbing from under 2% a decade ago to over 12% today. But the latest allocation controversy underscores the challenges of managing a rapidly expanding industry with diverse regional dynamics.
For the ethanol program to sustain its momentum, experts say, the government will need to recalibrate policy — ensuring fair participation, rational utilization of capacity, and transparent decision-making by OMCs.
“Ethanol blending is not just about numbers,” Dr. Jain said. “It’s about building a resilient ecosystem where every investment counts, and every litre produced is efficiently used.”