Federal cabinet tomorrow is expected to concede a major package of industry assistance to the ethanol industry - dominated by the Manildra Group - after a bloody lobbying fight in which Manildra threatened its own extinction.
While sections of the government are appalled at what is seen as the blackmailing, in effect, of the government by Manildra - which accounts for about 90 per cent of Australia's ethanol production - cabinet is expected to offer a number of concessions to further subsidise the ethanol industry after it considers the issue.
This is despite the fact cabinet has before it a paper commissioned by the Department of Industry, Tourism and Resources from consultants KPMG, which has found that ethanol producers are actually quite profitable.
Assistance for the ethanol industry is expected to include the provision of $50 million of capital subsidies to build biofuel plants, including new ethanol plants, and the formalisation of considerable pressure on oil companies to increase their use of ethanol in petrol sold at the pump. It appears this pressure will fall short of a mandated requirement to include ethanol in petrol sold at the pump.
But sources believe major oil companies have been reminded of a number of recent budget initiatives - including cleaner fuel incentives - that assist their industry, but which have yet to be passed into law.
They will be expected to voluntarily agree to put about 2 per cent ethanol in their petrol over time.
The government went to the last election promising to pursue an increase in ethanol consumption to 350 million litres a year by 2010.
So while cabinet will not impose a mandatory requirement on the oil companies to include ethanol in their fuel, it will probably set benchmarks to assess progress in coming years towards the 350 million litre target.
However, the petrol companies are expected in turn to insist that the owner of the Manildra Group, Dick Honan, will have to lower his price.
And while some ministers have reservations about spending more money supporting this industry, proponents of the capital subsidies say it will encourage investment in new technology and more efficient plants.
The push for more support for the ethanol industry is being led, once again, by the National Party and particularly by its leader, deputy Prime Minister John Anderson.
There is a new ethanol plant on the drawing board for the northern NSW town of Gunnedah, in his electorate of Gwydir.
The campaign to gain the ethanol subsidies by Manildra has been long and sustained and last week shifted to lobbying local councils and groups with interests in vulnerable regional communities, urging them to put pressure on cabinet ministers.
In a letter written last week, Mr Honan tells people in NSW that the inability of Manildra to sell its ethanol means it "will be unable to meet NSW Environment Protection Agency regulations associated with the operation of its Nowra plant.
"This would force the closure of the site, with loss of jobs and economic activity in the Shoalhaven region, and cut off supply of major products to the paper, brewing, confectionary, and pharmaceutical industries in Australia.
"The operation of Manildra's industrial operations in Manildra (near Orange), Gunnedah, Narrandera, Leeton and Altona would also be impacted."
Mr Honan says a range of other proposed ethanol and biodiesel plants would also not proceed.
Manildra claims it has been subjected to a dirty campaign by the major oil companies on the ethanol issue - which has led to a major consumer backlash.
When federal cabinet was last considering assistance to the local ethanol industry last year - resulting in a production subsidy being introduced - ethanol hit the headlines.
Among those arguing against its inclusion in petrol were the motoring organisations, specifically because some retail outlets were including ethanol levels of up to 20 per cent in their fuel.
The motoring bodies argued that this could damage car engines and void warranties.
Most groups agree levels of ethanol of less than 10 per cent are not harmful to engines.
But the publicity about the 20 per cent levels spooked motorists and service stations, particularly the independent discounters, who often sold fuel with higher levels of ethanol.
They started to put up signs promising no ethanol at all in their fuel, and the movement spread.
It was a disaster for Manildra and the ethanol cause.
As always, the exact shape of the assistance package will depend on the Prime Minister.
The indications are that he is sympathetic to Mr Anderson's push to support an industry that the National Party argues could be a major growth driver for rural Australia.
After all, the government promised at the 2001 election to support a local biofuels industry. Mr Howard is said to regard the debate as being about how to honour these election commitments rather than whether to honour them.
