The programme for the supply of petrol blended with five percent ethanol started two years ago with the aim of helping the sugar industry earn more revenues and aiding the country in reducing growing imports of crude oil.

However, the plans floundered in nine sugarcane-growing states, including Maharashtra and Karnataka and four union territories, due to disagreement on the price of ethanol.

The matter remained unresolved despite the high volatility of global crude prices. Some oil marketing companies had started importing ethanol from Brazil, the largest sugarcane producer, to meet their needs.

"There is a false impression that our government is less friendly to the ethanol programme," Aiyar said while declaring that a firm agreement for sustained supply of ethanol to the oil marketing companies would be concluded with the Indian Sugar Mills Association (ISMA) within a fortnight.

"We will be signing a memorandum of understanding with ISMA for sustained and not sporadic supplies," said Aiyar.

According to ISMA officials, an agreement has been reached for the supply of ethanol at import parity prices or a little below them.

"All the details have been worked out on the price and supply issues, including some problems with the state governments, which fear impact on industrial supplies of ethanol," said Rajshree Pathi, president of ISMA.

Indian sugar mills currently have a production capacity of 400 million kilo litres of industrial alcohol/ethanol.

"We estimate a demand of 360,000 kilo litres of ethanol for blending with petrol at the rate of five percent and supply in nine states initially and four union territories initially. For the whole country, the requirement would be 500,000 kilo litres," said Pathy.

Trials have been successfully conducted for blending up to 10 percent ethanol in petrol for use in automobiles.

"If sufficient quantities of ethanol are available, we plan to introduce 10 percent blend within six months," said M.S. Srinivasan, additional secretary in the petroleum ministry.

Having introduced ethanol blended petrol in 1931, Brazil is currently using blends of over 25 percent. The US and China are among the countries encouraging blended fuels to reduce dependence on hydrocarbon fuels.

"Once the agreement is finalised for sustained supplies, it would ensure additional revenue for the sugar mills, and in turn enable them to pay better price to farmers," said Pathy.