Rakesh Kumar (name changed) owns a petrol pump in Delhi's busy Connaught Place area.

A week ago, water seeped into his underground petrol storage tank, which mixed with the ethanol blended in the petrol. Kumar then had two options: he could throw out the water-ethanol mix and suffer a loss or let it enter fuel tanks of cars.

While Kumar opted to suffer a loss of Rs 80,000 that day since he threw out 2,000 litres of the corrupted ethanol, another dealer facing the same problem -- Mohan Sharma (name changed) -- decided to pump water into fuel tanks, along with the petrol.

"I have no option. Who is going to bear my losses?" said Sharma.

Although all underground tanks are required to be water-proof by law, seepage is a common problem at petrol stations. However petrol, being lighter, tends to stay separate in an upper layer so that water can be drained out easily.

But ethanol, a by-product of sugarcane crushing, tends to mix with the water. When water seeps into an ethanol-petrol mix, three layers of fluid are formed -- clear water at the bottom, petrol at the top and a water-ethanol blend in the middle.

Pumping out the ethanol-mixed water will result in losses for dealers, which is why several are unwilling to do so.

But this problem is likely to prove a major setback for the government's pet ethanol blending programme that was supposed to provide an alternative fuel source and reduce crude oil imports, which account for 78 per cent of domestic demand.

"Water in your car means a time-bomb waiting to explode. It could ruin a car," said Ajay Bansal, secretary of the Federation of All India Petroleum Traders.

The ethanol blended with petrol needs to be of 99.99 per cent purity. "The main problem with the blending programme is infrastructure," added Bansal.

As a solution, Ashok Badhwar, president of the Federation of All India Petroleum Traders, suggests having one vend for pure petrol and another for the blended one in petrol pumps "for people willing to risk their cars".

An official with Indian Oil Corporation [Get Quote], the co-ordinator for the blending programme in north and east India, blames the petrol pump dealers for not taking steps to prevent water seepage. The seepage will only increase as the monsoon sets in.

With about 11 million tonnes of petrol sold across the country in a year, a 5 per cent ethanol-blending will mean a displacement of only about 0.6 million tonnes of the auto fuel per year.