Govt mulls allocation of coal mines for mega coal gasification projects

  • The government aims to achieve gasification of 100 Million Tonnes (MT) of coal by 2030 and this is the first time that a mission document has been released
  • The government has suggested a number of measures in the National Coal Gasification Mission document for making the process economically viable

New Delhi: In order to give a push to the National Coal Gasification Mission, the government is mulling allocation of coal blocks for mega coal gasification projects, a recently released mission document shows. “The identification of mines with better grade of Coal suitable for Surface Gasification will help the stakeholders to identify assets for future auctions. Keeping in the mind mega gasification projects, allocation of coal blocks will be better option than long-term coal linkages as far as the pricing of coal is concerned,” said the document.

Since the availability of coal having gasification potential is limited, allocation of suitable coal mines will ensure availability of consistent quality feedstock. A source who spoke to PSU Watch said that the proposal is one of the many measures that are being considered by the Ministry of Coal currently and their implementation will be subject to the feedback received from various stakeholders.

The government aims to achieve gasification of 100 Million Tonnes (MT) of coal by 2030 and this is the first time that a mission document has been released, elaborating on the pilot projects that are currently underway, the technologies that are available so far, India’s strategy for future coal gasification and the policy support that is being planned by the government to give an impetus to the mission. 

Waiver of GST Compensation Cess of Rs 400/tonne of coal

While pointing out that coal gasification provides a cleaner and alternative approach for utilisation of coal, the mission document has proposed that GST compensation cess of Rs 400 per tonne on the quantity of coal consumed and/or sold for coal gasification be waived. If GST compensation cess is removed on coal, then the tentative reduction in the cost of production of Methanol from coal is expected to be around Rs 800-900 per MT. “This will not entail any revenue loss as the waiver is proposed only on incremental coal use for gasification purpose,” said the document.

Since capital requirement for setting up coal gasification plants is high, methanol produced from coal may not be able to compete with methanol produced from natural gas. Further, due to uncertainty and dependence on foreign licensors for Syn Gas conversion, the cost of various products produced domestically may not be at par with imported products. Therefore, policy support by way of reduction in additional cess and duties, tax holidays for coal gasification projects, subsidies for purchase of capital equipment, interest rate subvention, hike in custom duty on Methanol and import duty exemption on capital goods required for setting up such projects are some of the measures that have been proposed by the government in the National Coal Gasification Mission document for making the process economically viable.

Methanol blending with auto fuel

In order to create a market for the consumption of methanol produced from coal, the mission document has also proposed bringing in a policy in line with the Ethanol blending programme to allow 15 percent blending of Methanol with petrol. It said that the NITI Aayog is expected to float a proposal in this regard suggesting specific responsibilities of Union Ministries, state governments, refineries and vehicle manufacturers for the production, supply and gradual rollout of methanol blending in petrol and provision of subsidies to incentivise methanol blending.

Coal gasification in India

India has the world’s second largest coal reserves. However, around 90 percent of the available coal is high ash coal, which can only be used for power generation in thermal power plants. The available technologies for gasification of high ash coal are too expensive to be deployed on commercial scale, which is why India’s coal gasification plan has never really taken off. However, there are several reasons for India to pursue indigenous development of cheaper technology for gasification of high ash coal. The steel industry in India, which is heavily dependent on imported coking coal, will be able to switch to CO and H2 of Syn gas produced via coal gasification as they are important reducing agent for steel making. This will also be a more environment-friendly method of steel-making. 

With the shift towards renewable energy underway, India has a limited window for using its coal reserves. The commercialisation of coal gasification technology will not only widen that window but will make way for cleaner utilisation of coal.

(PSU Watch– India's Business News center that places the spotlight on PSUs, Bureaucracy, Defence and Public Policy is now on Google News. Click here to follow. Also, join PSU Watch Channel in your Telegram. You may also follow us on Twitter here and stay updated.)