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When Shakti BioFuels Pvt. Ltd., a fast-growing grain-based ethanol unit in Karnataka, finally reached commercial scale, the founders believed the hardest part was over. They had secured raw material supply, stabilized fermentation, and even achieved consistent recovery.
But when the first OMC tender opened, they realized the biggest challenge wasn’t technical. It was paperwork.
What exactly were they going to sign?
What does “ESY obligation” or “short-supply penalty” really mean?
What if their plant faced downtime?
Would OMC payments come on time?
Like many first-time suppliers, they discovered that the OMC ethanol agreement—the foundation of India’s entire blending programme—is rarely explained in simple business language.
This blog exists to solve that.
By the end, you’ll understand exactly how OMC agreements work, what to expect, what to avoid, and how to protect your business.
The OMC ethanol agreement is a formal purchase contract between ethanol suppliers and India’s public sector Oil Marketing Companies—Indian Oil Corporation (IOC), Bharat Petroleum (BPCL), and Hindustan Petroleum (HPCL).
Although the price is government-determined, the agreement contains important commercial, operational, and legal responsibilities. Missing any of these can directly impact payments, penalties, and future allocations.
Think of it as the central document that links your plant’s production to the national fuel supply chain.
While the government publishes policies, the actual agreement determines how your business interacts with OMCs on a day-to-day basis. Below is a supplier-friendly breakdown.
To be eligible to contract with OMCs, your ethanol plant must meet certain regulatory and operational standards.
Your eligibility check is the very first filter in the OMC system—make it flawless.
OMCs allocate ethanol across their depots based on nationwide blending targets and supplier availability.
The Ethanol Supply Year runs from 1 November to 31 October.
Your entire contractual obligation, penalties, and performance tracking occur strictly within this cycle.
Good ESY planning protects your margins.
Unlike most commodities, you do not negotiate ethanol price with OMCs. The government sets the price for each feedstock type.
This structure ensures stable revenue—but only if your feedstock is consistently available.
This is where most operational friction occurs. The agreement places primary responsibility of delivery on the supplier.
Your logistics planning directly affects your cashflow.
OMCs are known for timely payments—but only when documentation, quantity, and quality match exactly.
A strong internal documentation system prevents unnecessary delays.
This is the part that can hurt suppliers the most. OMC agreements contain strict penalty clauses to ensure reliability.
If you commit 10,000 KL and supply only 9,000 KL, penalties apply on the short 1,000 KL. The exact percentage varies but is substantial.
Poor performance affects next year’s allocation.
Suppliers with consistent compliance get priority in future tenders.
Once your quantity is allocated, you must submit a bank guarantee (BG) before signing the agreement.
Many suppliers underestimate the cashflow pressure created by a large BG. Planning ahead avoids stress.
This section simplifies the entire supplier journey.
You gather all regulatory approvals and upload details to the OMC portal.
Ensure everything matches—OMCs reject mismatched plant details.
Select depots close to your plant to reduce freight and rejection risk.
Choose realistic quantities based on feedstock reliability, not wishful thinking.
OMCs issue allocation letters depot-wise.
Read them carefully—this is your binding obligation.
Allocation becomes official only after BG submission.
Make sure the bank follows OMC’s exact BG format.
Follow depot instructions, QC requirements, and dispatch schedules.
Keep communication open with depot managers.
Once QC approves, invoicing becomes smooth.
Monitor payments in the portal dashboard.
The ESY structure is unique. It doesn’t follow:
Suppliers who ignore ESY planning usually end up with short-supply penalties.
| Feedstock Type | Price (₹/Litre) | Supplier Insights |
|---|---|---|
| C-Heavy Molasses | 57.97 | Best for large mills focusing on ethanol over sugar |
| B-Heavy Molasses | 69.06 | Higher return but depends on cane diversion strategy |
| Sugarcane Juice/Syrup | 71.86 | Highest revenue but needs consistent cane supply |
| Maize | 66.07 | Emerging preferred route due to supply consistency |
| Damaged Food Grains | 56.18 | Lower-cost feedstock but availability fluctuates |
| Year | Policy Milestone | Meaning for Suppliers |
|---|---|---|
| ESY 2021-22 | 10% blending achieved | Strong offtake opportunity began |
| ESY 2023-24 | Major tenders & feedstock expansion | More suppliers entered the ecosystem |
| ESY 2024-25 | 916 crore litre tender | Continued market stability |
| ESY 2025-26 | E20 transition begins | Long-term certainty for distilleries |
Compliance is the backbone of a successful OMC relationship.
A single compliance mistake can jeopardize the whole ESY.
A distillery in Madhya Pradesh committed to supplying 10,000 KL.
Mid-season, their maize procurement dropped due to market shortages.
They supplied only 9,000 KL.
Result:
This happened not because of bad production—but because they misunderstood the OMC agreement and planned poorly for ESY.
When understood properly, the OMC ethanol agreement is one of the most secure, stable, and profitable supply contracts in India. It ensures long-term demand, predictable pricing, and a reliable buyer.
But when misunderstood, it can create penalties, payment delays, financial strain, and loss of future business.
A little clarity today can prevent major losses tomorrow.
And that clarity is exactly what this guide—and Green Permits—is here to offer.
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An OMC ethanol agreement is a formal contract between ethanol suppliers and public sector oil companies that defines pricing, delivery, ESY timelines, penalties, and payment terms.
Ethanol prices are fixed by the government for each feedstock category, so suppliers receive a standard administered rate throughout the Ethanol Supply Year (ESY).
The ESY runs from 1 November to 31 October and controls all supply obligations, pricing validity, allocation timelines, and performance tracking for ethanol suppliers.
Yes. Suppliers must submit a bank guarantee based on their allocated quantity before the agreement becomes valid for the ESY.
Short-supply leads to penalties, lower performance ratings, and reduced allocation in future tenders. Severe default may result in temporary disqualification.