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Indian oil marketing companies (OMCs) have bought a record 720 million litres of ethanol from the country's cash-strapped sugar mills for blending, in an attempt to curb fossil fuel imports, industry officials said. The purchases would help the OMCs hit a government-mandated goal of 5 percent blending of ethanol in gasoline for the first time in 2013/14 since its introduction seven years ago and lift earnings at indebted mills in the world's No.2 sugar producer.

With the 5 percent blending, New Delhi could save around $1 billion on annual imports of crude, the Indian Sugar Mills Association estimates. "OMCs have bought in total 720 million litres of ethanol," Ravi Gupta, president at Shree Renuka Sugars Ltd, the country's top sugar refiner, told Reuters. "Their requirement is 1.05 billion litres per year and we hope they shall continue to come out with new tenders."

Disagreements between sugar mills and oil companies over pricing stymied progress after India launched its ambitious ethanol blending programme in 2006, trying to emulate the success of Brazil's booming biofuel industry. New Delhi is scrambling for ways to cut nearly $20 billion off its oil costs as it battles a high current account deficit.

Three state-run oil marketing companies - Indian Oil Corp Ltd, Hindustan Petroleum Corp and Bharat Petroleum Corp - have lifted 230 million litres ethanol out of the contracted 720 million litres, Gupta said. That is good news for mills that have been struggling with low sugar prices due to a surplus in production of the sweetener for the fourth straight year. "Ethanol generates an additional source of revenue for cash- starved sugar mills. It helps everyone in the industry - farmers, producers, consumers," Gupta said.

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