Ministry of Petroleum and Natural Gas

Government of India

Bio-diesel Purchase Policy

1.Background:

1.1 The Ministry of Petroleum & Natural Gas is committed to taking forward the National Common Minimum Programme (NCMP) of the Government of India, stretching across the various focus areas identified therein, while ensuring the basic principle for governance of economic reforms with a human face. The Ministry is inter aliacommitted to meeting the social objectives of NCMP and enhancing energy security. One of the critical elements for achieving the objective of energy security is the development of alternative sources of energy including bio-fuels. The Ministry of Petroleum and Natural Gas is already implementing a five per cent ethanol-blended petrol programme, which is designed to support the agriculture and the rural sector. There is now an increased awareness about bio-diesel, a diesel fuel substitute, which can be made from virgin or used vegetable oils and animal fats.

1.2 Bio-diesel is an environment friendly fuel, which has almost no sulphur, no aromatics, and has about 10% built-in oxygen. Bio-diesel needs no separate infrastructure for storage and dispensing and the existing tankage and dispensing stations of conventional diesel can be used. Bio-diesel is safe to handle and the flash points of bio-diesel are higher than conventional diesel. Blending of bio-diesel with diesel would result in the reduction of un-burnt hydrocarbons, Carbon Monoxide and particulate matter in auto emissions, and will be in line with the objectives of the Auto Fuel Policy of the Government. 

1.3 Bio-diesel can be made from any feedstock oil or fat, and the cost of the feedstock is the most important constituent in the economics of bio-diesel production. Independent Research and Development (R&D) efforts are being undertaken in R&D and academic institutions and in the oil companies on bio-diesel, both for establishing the properties of different feed-stock based bio-diesel production, and for the use of different blends of bio-diesel in diesel in the transportation sector.

1.4. In the USA and the European Union, where bio-diesel is commercially being made from edible oil like soybean or rapeseed oil, the cost of production is one and a half times to twice the cost of producing diesel. India however is deficient in edible oils. In Selecting possible feedstock for the indigenous production of bio-diesel, care should therefore be taken that only non-edible oil is used for the purpose. In the above background, the groundwork for launching a proposed National Mission on bio-diesei, (which is based on a Report of the Planning Commission) is in progress with the Ministry of Rural Development as the nodal Ministry. The Mission, if approved, would inter-alia involve:

i) Large scale plantation of Jatropha Curcus,

ii) Setting up of expeller units for extracting oil from Jatropha seeds,

iii) Setting up of bio-diesel plants for making bio-diesel from Jatropha oil, and 

iv) Blending of bio-diesel in diesel, and marketing of such blended fuel.

The Ministry of Petroleum and Natural Gas is committed to lend support to the proposed Mission activities for blending of bio-diesel in diesel and marketing of such blended fuel.

^{_{2. Need For a Bio-diesel Purchase Policy}}

2.1 Much of the oil from the tree-borne non-edible oilseeds like jatropha today are consumed in disjointed local markets, inter alia as oil used for lighting lamps and running pump-sets etc. With increased awareness about possibility of Jatropha, Pongamia etc tree borne non-edible oil as being feedstock for production of bio-diesel, there is a lot of excitement among the rural populace, including farmers, about possible higher economic returns from systematic growing of these trees, and also among potential bio-diesel manufacturers about the future market of this very new energy product in India. Simultaneously, there is a legitimate expectation about some positive signal from the potential purchasers of bio-diesel.

2.2 The marketing companies in the oil sector have the largest network for selling of liquid fuels, and they would be the natural choice for providing the marketing support for bio-diesel The Bureau of Industrial Standards (BIS) specification BIS 1460 for High Speed Diesel (HSD) covers specifications relevant for five per cent bio-diesel blended diesel (85) also. BIS has already come out with the specification for pure bio-diesel (BIOO), vide PCD3 (2242)C-dated 26.7.2004, which is an Indian adaptation of the American standard ASTM D 6751. Independent R&D efforts carried out in the transportation sector have already established that bio-diesel blended in diesel up to a blend of 20% requires no modification in engine specifications when used as transportation fuel. Therefore, on part of oil marketing companies, there is no technical difficulty in blending bio-diesel in diesel and marketing such fuel immediately, provided sufficient quantities of bio-diesel become available at a price so that the oil marketing companies do not incur loss in diversifying into marketing of the bio-diesel blended fuel.

2.3 Further, any bio-diesel purchase policy declared by the Government needs to be oriented towards providing additional and supplementary income to the rural economy, and not disturbing the cropping pattern to the detriment of self-reliance in food grains and cash crops that India has so painstakingly achieved over years. Also, while a certain element of fiscal relief could be necessary to promote a nascent bio-diesel industry, for which the Central Government and the State Governments would be required to take a holistic view keeping in mind overall priorities, there should be minimal cross-subsidisation for the promotion of the product in the foreseeable future.

3.Role of Panchayati Rai Institutions

3.1       As noted in the Report of the Planning Commission, Jatropha can be planted on degraded forest land, farmers' field boundaries to provide protective hedge, fallow land, on farmers' holdings as agro-forestry along with agricultural crops, public lands along railway tracks, highways, canals, community and Government land in villages. Such plantation can also be done under the poverty alleviation programmes of the Government. There is also a strong sense of identity with land ownership etc. which have to be taken into account before implementing any large scale project of the nature involved, where plantation on land.is a key factor. In many places, Panchayats own the community land which can be used for plantations. The land ceiling laws vary from State to State, for which resources need to be mobilized as per different kinds of farming. Putting in place the back-to-back arrangements from farmer to expeller to bio-diesel manufacturer to final consumers is necessary for the successful implementation of any bio-diesel policy.

3.2       The total involvement of Panchayati Raj Institutions (PRI) as the pivot of the programme needs to be recognised to ensure its success. Since the community land are used for community purposes under the supervision of the Panchayati Raj Institutions, notably the Gram Sabha (Village Assembly), identification of beneficiaries for taking up Jatropha cultivation by the identified poor under the poverty alleviation programmes can be done by the Panchayati Raj Institutions. Further Jatropha seeds are minor forest produce and therefore the usufruct rights for collecting Jatropha seeds in Scheduled Areas shall also be governed under Panchayats ( Extension to Scheduled Areas) Act, (PESA), 1996. It is felt that only through mass mobilization that adequate output and collection of Jatropha/Pongamia can be assured for industrial processing of bio-fuels. The Panchayati Raj Institutions would be able to mobilize mass participation at the village community level in association with the Gram Sabha. Moreover, industrial processing at the village/block level either by the Panchayats themselves or through joint ventures promoted by the Panchayats in association with the private sector would be the most effective way of establishing Rural Business Hubs (RBH) that would eliminate rural poverty and promote rural prosperity.

3.3       Assured lifting of bio-diesel by the oil marketing companies could give the necessary push to the Panchayati Raj Institutions and motivate the different economic strata in the rural areas to take up suitable activities like setting up of expeller units and taking up Jatropha etc. cultivation and related downstream activities. Such a policy directive would give an immediate boost to bio-diesel blending, prior to its large scale commercial application through the National Mission on bio-diesel, which would be environment friendly and conserve fossii fuel.

_{^{4. Bio-diesel Purchase Policy}}

4.1 It is imperative that the bio-diesel offered for blending in diesel is of standard quality. Therefore, it would be necessary that only those bio-diesel manufacturers who get their samples approved and certified by the oil companies and get registered as authorised suppliers would be eligible for assured purchase of the product. Also, the bio-diesel purchase centres should be equipped with minimum testing facilities for ensuring purchase of bio-diesel of requisite specification.

4.2 Subject to the above requirement, in recognition of the synergy and spin-off effect that announcing a bio-diesel purchase policy will have on the rural economy, the Ministry of Petroleum and Natural Gas hereby resolves to introduce a bio-diesel purchase policy as follows:

(i ) With effect from 1.1.2006, the public sector oil marketing companies shall purchase, through its select purchase centres, bio-diesel (Bl 00), which meet the füel quality standard prescribed in the Bureau of Industrial Standards (BIS) specification formulated vide PCD3(2242)C-dated 26.7.2004, and as may be notified and modified from time to time. The oil marketing companies shall make available the comprehensive industry guideline "Operations, Quality and Safety Manual on Bio-diesel- HSD BIOO and HSD B05max" for information and guidance of the biodiesel industry.

(ii) The purchase centres have been identified in consultation with the oil marketing companies, viz the Indian Oil Corporation (IOC), Hindustan Petroleum Corporation (HPC) and Bharat Petroleum Corporation (BPC), on the basis of availability of minimum testing facilities for BIOO and for blending in HSD to the extent of five per cent. Depending on response, felt need, and preparedness in testing and accepting bio-diesel, more purchase centres would be identified subsequently.

The purchase centres shall be in the following locations:

* To be upgraded for carrying out full specification tests for BIS standard.

(iii) Bio-diesel manufacturers interested in supplying bio-diesel to public sector oil marketing companies should approach the state level co-ordinator (SLC) pertaining to the state, and after assessment of production capacity and credibility of the prospective supplier by joint evaluation / certification by the industry team, samples would be tested and if these meet the prescribed BIS specifications, the supplier shall be registered as an authorized supplier.

iv) In normal course, the registration Shali be re-validated after a year. However if either the feedstock used or the process of manufacturing bio-diesel is altered, re-validation of registration shall be necessary immediately.

(v) In registering authorised suppliers of bio-diesel, priority Shali be given to such bio-diesel producers who propose to use non-edible tree borne oils as feedstock for producing bio-diesel, and have undettaken or have committed themse}ves to support farrning of oil bearing plants with a view to using only tree-borne non-edible oil for manufacture of bio-diesel in future.

(vi) The oil marketing companies shaft buy bio-diesel (B 100) which meets the prescribed BIS standard, at a uniform price, as may be decided by the oil marketing companies from time to time, depending on market conditions. Such a uniform price sha\i be inclusive of any taxes and duties and transportation cost for delivery of bio-diesel at the purchase centre. The uniform price once fixed shall be in operation for six months, at the end of which it would be reviewed.

The initial purchase price of bio-diesel by the oil marketing companies will be Rs 25 per litre. The registered authorised bio-diesel manufacturers shall be required to deliver BIOO at the notified purchase centres in calibrated tank trucks of capacity not less than 10 KL. In case the suppliers envisage any deviation, they should inform the concerned oil company and supply as per mutual convenience.

(vii) The supplier should give schedule of supplies that can be made during the ensuing month to SLC of the state by 1 5^th of the previous month.

(viii) All expenses related to testing of the bio-diesel for acceptance of the consignment shall be borne by the oil marketing companies. Every consignment shall be tested for the following specifications:

    Density@15 degree C,

    Kinematic Viscosity@40 degree C

    Flash Point

    Water Content

    Copper corrosion, and

    Acid value

(ix) In accordance with the provisions of Article 243G of the Constitution, read with Article 243 ZD, Panchayati Raj Institutions may, in consultation with the National Oilseeds and Vegetable Oils Development Board, the Ministry of Bio-technology and the National Botanical Research Institute, who are working on a net-work programme for making available good quality seed and tissue culture for oil bearing trees including Jatropha, prepare and consolidate pians for the cultivation of oil bearing trees. Such Panchayati Raj Institutions may also consolidate plans for collection of seeds and transporting them to oil extraction units, and pose such plans at village, intermediate, and district level to entrepreneurs in the private sector who, either on their own or through joint ventures including such joint ventures with the Panchayati Raj Institutions themselves wou!d undertake production of bio-diesel as Rural Business Hub (RBH) activity.

(x) The Petroleum Conservation and Research Association (PCRA), in association with the Ministry of Panchayati Raj and State Governments will conduct mass awareness programmes on plantation of Jatropha etc, collection of seeds and extraction of oil for the production of biodiesel. Such awareness programmes shall be conducted through and in association with Panchayati Raj Institutions at appropriate levels through such means as workshops, seminars, kisan melas, and electronic and print media in local languages.

(xi) R&D studies and field trials shall continue to be conducted for developing data on increasing bio-diesel content in a systematic manner and be coordinated by the Research and Development Division of Indian Oil Corporation Limited, with the aim of achieving maximum biending of bio-diesel up to 20% in diesel. For this purpose, experience of other countries would be studied both at the commercial level and through diplomatic channels, under various bilateral and multi-lateral initiatives as welt as Government understandings/agreements.

(xii) Progress of the implementation of the bio-diesel purchase policy by the oil marketing companies will be monitored by the Petroleum Policy and Analysis Cell (PPAC) and PPAC will report the prdgress to the Ministry of Petroleum and Natural GüS on a regular basis.

Ministry of Petroleum and Natural Gas

Government of India Dated the 9th October, 2005