* IOC, HPCL & BPCL buy 720 mln litres of ethanol from sugar mills
* Blending target of 5 pct to be hit for first time ever this yr
* Cash-strapped sugar mills see ethanol sales boosting revenues
By Rajendra Jadhav
MUMBAI, Feb 17 (Reuters) - 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.
Indian mills produce ethanol from molasses, a byproduct of sugar production.
Ethanol prices were varied in different regions, but roughly the OMCs paid around 35 to 37 Indian rupees ($0.56-$0.60) per litre ex-distillery price for the biofuel, said an official with the Maharashtra State Cooperative Sugar Factories Federation.
"Since all preparations are done for the ethanol blending programme, from next year execution would be much smoother," said a Mumbai-based official with a leading OMC, who declined to be named.
Sugar industry officials believe the blending can be raised to 10 percent as enough ethanol supplies are available due to a rise in sugar production.
"Achieving 10 percent blending is not a difficult task. The government needs to just tweak the policy. Industry can ensure implementation," said a sugar miller based in Maharashtra. ($1 = 62.0900 Indian rupees) (Editing by Muralikumar Anantharaman)