FCC

Centre to launch coal gasification viability gap funding scheme soon

2023-07-11

According to Pralhad Joshi, the Union Minister for Parliamentary Affairs, Coal, and Mines, the much-anticipated viability gap funding (VGF) scheme for coal gasification is expected to be implemented by the Centre within the next two to three months. In an interview, the minister disclosed that the proposal for VGF support amounting to Rs 60 billion has received approval from the Expenditure Finance Committee (ECF).

The finance ministry has allocated approximately Rs 60 billion for the scheme, and the plan for its execution has been finalised. The proposal has also been approved by the Expenditure Finance Committee. However, the scheme still requires the cabinet's approval before it can be implemented.

Highlighting the success of coal gasification in countries where coal has low ash content, Joshi noted that the Indian government aims to make gasification viable by providing fiscal support and creating a success story, despite the high ash content in domestic coal. This initiative will give the government an opportunity to promote gasification in large-scale commercial projects.

The minister stated that the Rs 60 billion VGF support will be provided to both public and private sector companies engaged in coal gasification. Additionally, a portion of the funding will be reserved for smaller players planning to adopt gasification. Joshi expressed the intention to establish at least five to six large gasification plants through this VGF support.

Under the scheme, approximately 50 per cent of the VGF support may be disbursed upfront for the concerned project, while the remaining amount will be provided upon project completion.

The decision to provide VGF support has been under consideration for several months as the government has set an ambitious target of gasifying 100 million tonnes of coal by 2030 through its National Coal Gasification Plan. The high ash content of domestic coal and the capital-intensive process have hindered the viability of coal gasification thus far.

In addition to VGF support, the government is also exploring other measures to boost coal gasification, such as allowing GST refunds on coal used for gasification. Furthermore, companies interested in gasification will be assured of coal supplies, similar to the power sector.

State-run Coal India has signed memorandums of understanding with Bharat Heavy Electricals (BHEL), Indian Oil Corp. (IOCL), and GAIL (India) to establish three separate joint ventures for coal gasification. The formation of these joint ventures has been approved by the Coal India board.

Coal gasification, a process that converts coal into fuel gas, is considered a cleaner alternative to burning coal for energy production. The resulting gas can be used to generate gaseous fuels like hydrogen, methane, methanol, and ethanol.

With the power sector transitioning towards renewable sources, the demand for alternative uses of coal is expected to increase as the use of coal for thermal power generation declines in the long run.

The National Coal Gasification Mission, launched in November 2021, aims to assess the gasification potential of coalfields and develop indigenous technologies suitable for various types of coal, ranging from low-ash to high-ash coal.

The mission document proposes financial support in the form of VGF, along with tax incentives such as the waiver of GST compensation cess, reduction in additional cess and duties, and tax holidays for 15 years for all coal gasification projects.

Furthermore, the government has already introduced a provision for a 20 per cent rebate in revenue-sharing for coal used in gasification, provided that the quantity used for gasification is at least 10 per cent of the total coal production.