- After India pushed for 20% ethanol blending in petrol, Bihar introduced an ethanol policy that spurred 19 plants dedicated to manufacturing ethanol mostly from grains.
- The plants had assured orders from oil companies. However, a change in priorities was observed in tenders in 2025, favouring cooperative sugar mills as the primary suppliers.
- Ethanol producers warn of potential shutdowns if oil companies lower their demand suddenly. Meanwhile some experts say this is episodic and grain-based ethanol plants will likely remain important to meet ethanol blending targets.
Santosh Kumar has spent more than a decade moving from state to state in search of a livelihood. The last time he migrated from his home in Bihar was more than two years ago, when he went to Delhi. There, he worked as a boiler operator in a factory. “I would earn ₹20,000 a month, but a large part of it was spent on food and lodging,” he said.
Two years ago, Kumar learned from a friend that a new ethanol plant was being set up in Nawanagar, about 20 kilometres from his village in Bihar’s Buxar district. “I immediately returned and joined the plant,” said the father of three.
Kumar has been working at the Nawanagar ethanol plant since then. However, the situation changed towards the end of last year when India’s Oil Marketing Companies (OMCs) — Indian Oil Corporation Limited, Hindustan Petroleum Corporation Limited, and Bharat Petroleum Corporation Limited — reduced ethanol procurement quotas for Bihar. The decision led to a 10-day shutdown of the Nawanagar plant in December 2025, where Kumar is employed as a boiler operator.
“I am afraid that if this continues (reduced procurement causing shutdowns), I will have to migrate again to Delhi, Gujarat, or Maharashtra,” Kumar said.
Murari Chaudhary, another boiler operator at the same plant, shares similar concerns. “If the situation remains the same, the plant will close, and we will become unemployed,” said Chaudhary, who is from Jharkhand. “There are no other employment options nearby. If I have to work, I will have to go to another state,” he added.
The fear of losing jobs is high among the people working in almost all 19 dedicated ethanol plants across Bihar. OMCs have reduced Bihar’s ethanol procurement quota by 50%, restricting operations and leading to temporary shutdowns in most plants which were set up only in the last three to four years.
Ethanol investment rush in Bihar
In India, blending ethanol with petrol for transport fuel began over two decades ago. After achieving a blend with 5% and then 10% ethanol, the central government, in 2020, targeted 20% ethanol blending by 2025.
The policy was aimed at reducing fuel import dependence, saving an estimated ₹300 billion, and lower emissions, as ethanol is considered a less-polluting fuel produced from grains and molasses, a by-product of the sugar industry.
At the time though, India’s ethanol production capacity stood at about 6.84 billion litres, of which 4.26 billion litres came from molasses and 2.58 billion litres from grains. However, 10.16 billion litres of ethanol were needed annually, to meet the 2025 target, estimated a NITI Aayog report.
The demand for ethanol led to a rapid expansion of dedicated ethanol distillation plants across the country.
Additionally, public sector OMCs were to sign long-term offtake agreements (LTOAs), committed to purchase a fixed quantity of ethanol from the upcoming dedicated ethanol plants. This assured producers of guaranteed buyers and fixed offtake volumes, reducing market risk for investors.
For Bihar, a largely deindustrialised state with a population of nearly 135 million, the policy shift came as an opportunity.
In 2021, the state government introduced the Ethanol Production Promotion Policy to encourage private investment in grain-based ethanol production. The policy offered incentives such as full exemptions from stamp duty, land conversion fees, State Goods and Services Tax, electricity duty, and many others.
The state’s first ethanol plant, with a capacity of 65 kilolitres per day, was commissioned in Purnia district in 2022. Over the next three years, 19 ethanol plants were established, with a combined production capacity of about 3,100 kilolitres per day. All of them signed LTOAs with OMCs under the ethanol blending programme, securing assured buyers.
The tender that changed the rules
The plants faced a major setback in October last year, when OMCs floated a tender, inviting bids to supply 10.5 billion litres of denatured anhydrous ethanol for 2025-2026. Of these 10.5 billion litres, around three percent, which is about 315.6 million litres of ethanol were to be procured from Bihar. This was less than the 346.2 million litres annual offtake quantity assured in the LTOA signed in 2022 for procurement from Bihar.
Aside from reduction in volumes, a bigger concern for the plants was that priority had been given to cooperative sugar mills over standalone ethanol plants. This tender, for the first time, brought cooperative sugar mills, associated with the National Federation Cooperative Sugar Mills, into the ethanol procurement process, a move that ethanol producers consider unfair.
Bharat Plus Ethanol Pvt Ltd, in a letter to the Indian Oil Corporation chairman, raised concerns about the revised priority in the October tender. It said that in previous ethanol supply years, procurement prioritised dedicated ethanol plants with LTOAs, followed by other dedicated ethanol plants, and then the remaining suppliers. However, in the 2025-26 tender, the priorities changed and cooperative sugar mills moved up to first priority, while plants with LTOAs were moved down to second priority. Other plants, including some dedicated units, were then placed lower in the order.
Kunal Kishore, secretary general of the Bihar Ethanol Association, said, “Ethanol was procured in 2022-23, 2023-24, and 2024-25 under long-term offtake agreements. But we do not know how cooperative sugar mills suddenly became a priority in this tender, to the extent that OMCs announced they would procure 100% of the ethanol bid by cooperative sugar mills, even though they have no prior agreements with them.”
Kishore said this development would severely impact Bihar’s industrial prospects. “In Bihar, we wanted an industrial revolution. Ethanol blending gave it a major boost. Since the state has low labour costs and abundant grain, many investors flocked in. If their motivation remains high, they will invest more. But if their experience turns negative, it will affect investor sentiment and hurt Bihar’s investment prospects,” he said.
Ajit Kumar Sahi, CMD and General Manager of Bharat Plus Ethanol Private Limited, said that OMCs are taking only around 50% of the total production from Bihar, which was not the case earlier.
“For financial viability, production needs to be at 90-95%. If production drops to 50%, companies will incur losses,” Kishore said. “If this continues, the plant may manage to operate for five to six months, but after that it will shut down permanently,” he added.
Industry representatives speculate that OMCs may be shifting towards molasses-based ethanol as it is cheaper than grain-based ethanol.
According to the tender document from October last year, ethanol produced from maize is more expensive than ethanol from other grain- and sugar-based sources. Maize-based ethanol costs ₹71,860 per kilolitre while ethanol from sugar-based sources (sugarcane juice, sugar, sugar syrup, and different types of molasses) is priced lower between ₹57,970 and ₹65,610 per kilolitre. Ethanol from damaged food grains costs ₹64,000 per kilolitre, while ethanol produced from rice supplied by the Food Corporation of India costs ₹60,320 per kilolitre.
The Central Government’s reply to a question in Lok Sabha on April 1, 2025, indicates that ethanol procurement from cooperative sugar mills was placed on par with that from private companies to revive the sector. Cooperative minister Amit Shah told in Lok Sabha, “Cooperative Sugar Mills have now been put at par with private companies for ethanol procurement by the Government of India under Ethanol Blending Programme.”
Mongabay-India has sent detailed queries to the OMCs, and their response is awaited.
Impact on ethanol plants
The impact of changing ethanol procurement priorities is visible in dedicated ethanol plants. Many plants were forced to shut for 10 to 15 days as demand and therefore operations reduced. “We had to stop production for 10 days in December, and now we are again going to stop operation in a couple of days as our storage tanks are full,” said Sahi of Bharat Plus Ethanol.
According to the company officials, OMCs have agreed to procure less than half of the plant’s production capacity, committing to 16,299 kilolitres of ethanol from the unit, against its production capacity of 36,500 kilolitres.
Sahi said, “Due to the reduced quota, we are unable to operate the plant continuously. With the current allocation, the plant will run for only about 13 days each month and remain shut for the rest. This will lead to financial losses.”
Rakesh Gupta, CEO of Micromax Biofuels Pvt. Ltd, which operates a 100 kilolitre-per-day grain-based ethanol plant in Muzaffarpur, echoed similar concerns. “The way offtake has been reduced; we fear it could decline further in the coming years. If that happens, we will either have to absorb losses or shut the plant,” he said. “We want ethanol to be purchased under the conditions stipulated in the agreements signed with OMCs,” Gupta said.
Industry representatives said that the while the new tender’s requirements are affecting ethanol producers in multiple states, the impact is severe in Bihar. Unlike producers elsewhere, Bihar’s dedicated ethanol plants have no alternative market if demand from OMCs declines.
“In other states, plants can convert ethanol into extra neutral alcohol (ENA) and supply it to liquor manufacturers,” said Kunal Kishore. “Because Bihar has a liquor ban, that option does not exist here. We are left with no alternatives,” he added.
A transition, not a collapse
However, energy policy experts said there is no reason for panic and argue that demand for grain-based ethanol is likely to remain strong in the coming years.
“I don’t think grain-based distilleries will shut down because ethanol demand is not going to decline,” said Shweta Saini, founder and CEO of Arcus Policy Research, an independent policy research organisation. She termed the current situation as episodic.
She said rising petrol consumption would push up ethanol demand to maintain the 20% blending target. “Sugar-based ethanol supply will remain limited and seasonal. Only grain-based ethanol plants can supply ethanol year-round,” she said.
Saini added that Bihar is likely to remain important in the national ethanol supply chain. “Rice cannot be used at scale due to food security concerns. Maize will have to fill the gap, and Bihar grows maize in both rabi and kharif seasons, which may not be the case everywhere,” she said.
Mani Bhushan Jha, a clean energy expert and lead at the Centre for Sustainable Transition and Resilience, an independent research organisation, said the concerns raised by dedicated ethanol producers are valid but manageable. “This is not a crisis but a transition phase. The ethanol blending programme will remain central to India’s energy security strategy,” he said.
Jha said ethanol demand would increase further if India moved beyond the current 20% blending target. At a 25–30% blending level, total ethanol demand could rise from about 10.5 billion litres to more than 14 billion litres, accommodating the expanded production capacity, he said.
However, he cautioned against long-term reliance on food grains. “To address food–fuel concerns, the government must accelerate second-generation ethanol from agricultural residues such as rice straw, wheat straw, and bagasse,” Jha said.
Read more: From policy to pushback, India’s ‘greenlash’ over ethanol-blended petrol
Banner image: A technician at work at a factory that produces ethanol in Meerut, Uttar Pradesh. (AP Photo/Altaf Qadri)
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