The Cabinet, on 13 October, approved a new mechanism for revising the price of sugarcane-extracted ethanol used for blending in petrol. Following this development, petrol prices dropped by Rs 3 per litre.
The price of ethanol will be determined on the basis of prevalent price of sugar in the open market as also demand-supply situation, Oil Minister Dharmendra Pradhan said.
"Any pricing mechanism should be market driven and we are moving towards that in case of ethanol as well," he said.
The NDA-government had in December 2014 fixed a price of Rs 48.50-49.50 per litre for procurement of ethanol for blending with petrol.
"The rate paid to sugar mills was never Rs 48.50. It was Rs 42. That price (Rs 48.50) was after including excise duty, VAT and other levies and transportation cost," he said.
Oil companies have to necessarily blend up to 10% of ethanol in petrol.
The Cabinet Committee on Economic Affairs, chaired by Prime Minister Narendra Modi, today "approved the mechanism for revision of ethanol price for supply to public sector Oil Marketing Companies (OMCs) to carry out the Ethanol Blended Petrol (EBP) Programme," an official statement said.