The introduction of 10 per cent mandatory blending of ethanol with petrol is unlikely to happen from this October, as decided by the Cabinet Committee on Economic Affairs in October 2007.

The government has not notified the decision and the oil marketing companies are yet to float tenders for procuring the additional quantities of ethanol.

"The process of tendering and purchase of ethanol requires three-four months. Since no tender has been floated to procure the additional quantity, 10 per cent mandatory blending is unlikely from October," said a source.

Moreover, with a significant decline in sugarcane acreage, sugar mills would prefer to sell alcohol or rectified spirit whose prices are about 10 per cent higher than ethanol's Rs 21.50 a litre and are set to move further. The CCEA had fixed the price of ethanol at Rs 21.50 a litre.

The Committee, in a meeting last October, had approved 10 per cent ethanol blending on a mandatory basis from October 2008 in most parts of the country.

The five per cent blending, introduced in November 2006 and made mandatory a year later, is being implemented in most states expect West Bengal, Orissa, Chhattisgarh, Kerala and Tamil Nadu. "There are issues related to availability and state-level taxation in these states," the source added.

While in the same meeting the CCEA had allowed sugar mills to produce ethanol directly from sugarcane and reduce the oversupply of sugar, the situation has completely changed now.

"Mills would go for direct usage of sugarcane juice when sugarcane is in surplus. However, no surplus is expected for the next two years and, therefore, it does not make sense to produce ethanol directly," said Sanjay Tapriya, director (finance) at Simbhaoli Sugars [Get Quote].

Unhappy with delayed payments, farmers in Uttar Pradesh and Maharashtra have reduced the acreage under sugarcane and shifted to remunerative crops like soybean, maize and paddy. According to the agriculture ministry, sugarcane has been sown on 4.37 million hectares as on July 25, down over 17 per cent from the corresponding period last year.

While sugar mills are certain to face a shortage in sugarcane supplies, sugar output is also expected to fall from a record 28.4 million tonnes (mt) in 2006-07 to 22 mt in 2008-09.