NEW DELHI, Aug 27 (Reuters) - India's state oil retailers have issued a local tender to buy 2.7 billion litres of ethanol to be blended with gasoline, weeks after Prime Minister Narendra Modi called for higher use of the sugarcane by-product to help over-supplied sugar mills.
The world's third largest oil consumer wants every litre of gasoline sold to be mixed with 5 percent of cleaner-burning ethanol, though only about 3 percent blending is done now as sugar mills prefer to sell to higher-paying spirit distilleries.
China's recent big imports of ethanol amid a commodity rout had traders hoping for demand from India too, but Oil Minister Dharmendra Pradhan has ruled out imports of ethanol and palm styrene for blending with gasoline and diesel.
The was confirmed by the local tender by Bharat Petroleum Corp, Indian Oil Corp and Hindustan Petroleum Corp.
The amount sought by the three companies is about 10 percent of India's estimated gasoline demand for this fiscal year. They want supplies from December this year to November next year, tender documents showed on Thursday.
A similar tender last fiscal year drew a lukewarm response from mills despite their difficulties in paying sugarcane dues to farmers because of excess sugar supply in the world.
Another reason oil companies find it hard to source ethanol cheaply is the high state duty it attracts because of its use in the heavily taxed liquor industry.
India plans to eventually double the blending level to 10 percent but does not want to set a timeframe, an oil ministry offical told Reuters. (Reporting by Nidhi Verma, editing by David Evans)