The state government has caved in to criticism of its decision to ban regular unleaded petrol from July 1, a week after a cabinet leak revealed it had planned to proceed with the ban despite advice it would drive up petrol prices.
The Premier, Barry O'Farrell, announced last night that cabinet had agreed to dump the ban, under which regular unleaded was to be replaced by a 10 per cent ethanol blend, E10.
''Motorists already pay enough for petrol and I am not going to force people into buying more expensive premium petrol to run their cars,'' Mr O'Farrell said.
However, he insisted that the state's 6 per cent ethanol mandate - which the ban was designed to enforce - would remain in place, prompting BP Australia to warn that little was likely to change for motorists.
BP's director of government affairs, Richard Wise, said enforcing the mandate - under which petrol companies must ensure that 6 per cent of all fuel sold is ethanol - meant virtually all unleaded petrol in NSW would have to be sold as E10 regardless.
''It's a good first step but it still ignores the fundamentals of ethanol supply and demand in NSW,'' he said.
Last Monday the Herald revealed that up to 750,000 motorists would pay more than $150 a year extra as they would be forced to use premium fuel because their cars were incompatible with E10.
And a cabinet leak showed Crown Solicitor's advice had warned the policy could be unconstitutional and that the Australian Competition and Consumer Commission believed it would increase petrol prices.
The government was further embarrassed by revelations that several ministers had privately met Dick Honan, the chairman of the monopoly ethanol producer Manildra.
The Nationals leader, Andrew Stoner, has met Mr Honan four times since the election last March. Mr Honan has met Mr O'Farrell twice and the Minister for Resources and Energy, Chris Hartcher, three times.
A spokesman for the Roads and Ports Minister, Duncan Gay, said yesterday that Mr Gay had met Mr Honan on November 10.
Election funding records show Manildra companies have been among the biggest donors to both sides of state politics, giving more than $600,000 each to the Coalition and Labor since 1999.
The proposal to ban unleaded in favour of E10 was first legislated by the former Labor government in 2009 in the Biofuels Act.
The initial deadline of mid-2011 was delayed by Labor before the election, after which the O'Farrell government agreed to go ahead with it on July 1 this year.
BP campaigned against the ban, while petrol station owners were gathering 10,000 signatures to trigger a debate in Parliament.
Mr O'Farrell said last night that the government would introduce legislation to overturn the need for a ban on standard unleaded fuel. However, the 6 per cent ethanol mandate would remain.
Mr O'Farrell accused the oil companies of a ''scare campaign'' about ethanol to push customers into more expensive petrol. ''Our message is that the oil companies need to start promoting ethanol so they can meet their targets and ensure we have a strong ethanol industry in NSW,'' he said.
The oil companies say there is not enough ethanol being produced to meet the mandate.
Mr O'Farrell said the Independent Pricing and Regulatory Tribunal would examine the situation.
The general manager of the Australasian Convenience and Petroleum Marketers Association, Nic Moulis, praised the government's decision. ''The devil's in the detail and I will look forward to seeing the legislation [and] working with the government to get the policy right,'' he said.
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