Indian sugar firms seek higher ethanol prices

NEW DELHI (Reuters) - Indian sugar firms are seeking a higher price for ethanol to ensure steady supplies to oil firms which blend the liquid with petrol, a senior industry official said on Friday.

Diminishing cane output and rising sugar prices had raised concerns that supplies may be inadequate for oil firms that are required to mix ethanol to the extent of 5 percent in petrol.

"We are going to meet oil companies in the near future, and see no difficulty in supplying ethanol for 5 percent blending if we get good prices," Samir Somaiya, president of the Indian Sugar Mills Association, told Reuters over phone from Pune.

Sugar mills say selling ethanol at 21.50 rupees ($0.46) per litre, a price agreed with oil firms about three years ago, is too low now.

"Isn't this too old? Any price below 27 rupees does not work out," Somaiya said.

India, which imports 70 percent of the oil it consumes and heavily subsidises fuel prices, plans to move towards 10 percent blending of ethanol with petrol only after 5 percent blending stabilises.

India last year set an ambitious target of reaching 20 percent biofuel use within a decade, but only about one-third of the country's 29 states have managed to mix 5 percent ethanol with petrol due to the differences over price.

Home Minister Palaniappan Chidambaram said the cabinet on Thursday had reiterated the decision to mix ethanol with petrol to 5 percent of volume.

Some state-run oil marketing companies, such as Indian Oil Corp and Bharat Petroleum Corp Ltd, are working with firms in Brazil, the world's top sugar producer, for investment in the south American country to produce ethanol.

(Reporting by Mayank Bhardwaj; Editing by John Mair)