In a significant development to incentivise coal gasification in the country, the Union Cabinet on Wednesday approved a higher financial outlay of ₹8,500 crore to promote coal gasification.

Last year, Coal Ministry had planned a financial outlay of ₹6,000 crore for promoting gasification with a target to achieve coal gasification of 100 million tonnes (mt) coal by FY30.

Besides, the Cabinet Committee on Economic Affairs (CCEA) also approved a cumulative equity investment by mining behemoth Coal India (CIL) of up to ₹3,800 crore to set up a facility each of coal-to-synthetic natural gas (SNG) and coal-to-ammonium nitrate.

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Both the proposals will not only incentivise the coal sector by offering additional revenue streams, but also reduce import dependence on crude and natural gas-based products particularly methanol, ammonia, ammonium nitrate, olefins, etc.

At present, India imports more than 90 per cent of its methanol consumption and 13-15 per cent of its domestic ammonia requirement.

Three categories

The outlay of ₹8,500 crore for the scheme to promote coal and lignite gasification projects of PSUs and private sector have been divided under three categories.

In category-I, a financial outlay of ₹4,050 crore is provisioned for PSUs in which up to 3 projects will be supported by providing a lumpsum grant of ₹1,350 crore or 15 per cent of capex, whichever is lower.

In category II, an outlay of ₹3,850 crore is provisioned for the private sector and PSUs in which a lumpsum grant of ₹1,000 crore or 15 per cent of capex, whichever is lower is provided for each project. Here at least one project will be bid out in the tariff-based bidding process and its criteria will be designed in consultation with NITI Aayog.

In category III, ₹600 crore is provisioned for demonstration projects (indigenous technology) and/ or small-scale product-based gasification plants under which a lumpsum grant of ₹100 crore or 15 per cent of capex, whichever is lower, will be given to the selected entity who will have a minimum capex of ₹100 crore and minimum production of 1,500 normal cubic metres per hour (Nm3/h) of Syngas.

The selection of entities under category II and III shall be carried out through a competitive and transparent bidding process.

CIL’s equity investment

The CCEA approved an equity capital of ₹1,997.08 crore (around 25 per cent) by CIL considering a debt-equity ratio of 70:30 and 51 per cent equity investment in a joint venture company with an estimated project capex of ₹13,052.81 crore.

This is for the proposed coal-to-SNG plant in the Sonepur Bazari Area of CIL subsidiary Eastern Coalfields (ECL) in Burdwan district of West Bengal through a JV of CIL and gas utility major GAIL.

The Coal Ministry approached the Department of Fertilisers for assured offtake of SNG in fertilizer plants, substituting it with natural gas, and the department has agreed in principle.

Another equity capital of ₹1,802.56 crore (around 25 per cent) by CIL has been approved by the CCEA considering a Debt-Equity Ratio of 70:30 and 51 per cent equity investment in JV company with an estimated project capex of ₹11,782.05 crore.

This has been approved for the proposed coal-to-ammonium nitrate plant at Lakhanpur Area of another CIL subsidiary Mahanadi Coalfields (MCL) in Jharsuguda district of Odisha through a JV of CIL and heavy engineering giant BHEL.

CIL has already signed memorandum of understandings with GAIL and BHEL for the proposed plants. The projects are expected to be completed by FY29.

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