Oil marketing companies could face additional procurement costs of ₹813 crore for every 100 crore litres of cheaper B-heavy molasses ethanol replaced by maize, following government restrictions on sugar-based supplies for 2026-27.
The switch would raise costs from ₹60.73 to ₹68.86 per litre, a 13.4 per cent increase that could squeeze fuel marketing margins.
The calculation is illustrative. The actual impact on the 1,100-crore litre procurement tender will depend on the mix of maize, rice and other eligible feedstocks. “The recent restriction on sugar diversion towards ethanol is expected to ease supply pressures amid lower sugar availability,” said Ankit Jain, Vice-President and Co-Group Head, ICRA.
The October 16 tender, floated by Bharat Petroleum Corporation for public sector oil companies, excludes ethanol from sugarcane juice, syrup and B-heavy molasses for November 2026-October 2027. Maize, damaged foodgrains, surplus Food Corporation of India (FCI) rice and C-heavy molasses remain eligible.
For Indian Oil, Bharat Petroleum and Hindustan Petroleum, the financial impact will depend on procurement allocations and deliveries.
The tender reduces maize ethanol prices from ₹71.86 to ₹68.86 a litre, down 4.2 per cent. However, maize remains costlier than B-heavy ethanol, while FCI-rice ethanol costs ₹60.32 a litre. These comparisons exclude freight and taxes. Any increase in petrol prices would depend on oil companies’ pricing decisions.
ICRA projects sugar production of 27-28 million tonnes in the 2027 sugar year, against consumption of 28.3 million tonne. Closing inventories could decline to 3.5-4.5 million tonnes, below two months’ consumption.
While the restrictions protect sugar availability, they could affect earnings for sugar mills that depend on cane-based distilleries. The Indian Sugar & Bio-Energy Manufacturers Association (ISMA) has welcomed the safeguard but questioned preferential allocations to dedicated ethanol plants.
“The preferential allocation framework must accordingly be revisited for subsequent ethanol supply years to ensure that sugar mills are not disadvantaged,” said Deepak Ballani, Director-General, ISMA. The body also seeks to raise C-heavy ethanol prices from ₹57.97 to ₹62.23 a litre, a 7.3 per cent increase.
For automakers invested in vehicles compatible with 20 per cent ethanol-blended petrol, dependable supplies remain crucial. Higher ethanol costs would not automatically increase petroleum imports. However, feedstock shortages could reduce blending, increase petrol requirements and weaken import savings.
The immediate challenge is whether eligible ethanol supplies can sustain E20 blending without materially increasing fuel costs.
Published on October 21, 2026
