‘Coal gasification business to get VGF scheme in 3 months’

Minister of Parliamentary Affairs with Coal & Mines Pralhad Joshi. (Hindustan Times)
Minister of Parliamentary Affairs with Coal & Mines Pralhad Joshi. (Hindustan Times)


Union minister for parliamentary affairs, coal and mines Pralhad Joshi said the proposal for VGF support worth 6,000 crore has been approved by the expenditure finance committee (ECF).

NEW DELHI : The Centre is likely to roll out the much-anticipated viability gap funding (VGF) scheme for coal gasification in the next two to three months, said the union minister for parliamentary affairs, coal and mines Pralhad Joshi.

In an interview, the minister said the proposal for VGF support worth 6,000 crore has been approved by the expenditure finance committee (ECF).

“In principle, finance ministry has allocated around 6,000 crore. The plan for executing the scheme has been finalized. The expenditure finance committee has also approved the proposal," he said.

“This scheme may come up in another two to three months," he said, adding that the proposal would have to be sent for cabinet approval.

Noting that coal gasification has so far been successful in countries where coal has low ash content, Joshi said that given that the ash content in the domestic coal is high, the government aims to make gasification viable and “create a success story" with fiscal support.

India has been making efforts to gasify coal with high ash content and this scheme will give the government the opportunity to promote gasification in large scale commercial projects.

Along with providing support to both public and private sector companies for coal gasification, the minister said that a portion of the 6,000 crore would be earmarked for smaller players which plan to take up gasification.

“Our plan is to have at least five to six large (gasification) plants through this VGF support," he said.

Under the scheme, about 50% of the VGF support may be provided to a concerned project in the form of an upfront payment while the rest may be given on completion of the project.

The move to provide VGF support, which has been in the works for the past few months, comes as the government has set an ambitious target to gasify 100 million tonne of coal by 2030 under its National Coal Gasification Plan. The high ash content of domestic coal and the capital intensive process have so far made coal gasification unviable.

On March 27, Mint reported that among other efforts to boost coal gasification, the government is also making efforts to allow GST refunds on coal used for gasification. Companies showing an interest in gasification of the fossil fuel would also be provided assured coal supplies as with the power sector.

State-run Coal India Ltd signed memorandums of understanding (MoUs) in October with public sector undertakings Bharat Heavy Electricals Ltd (BHEL), Indian Oil Corp. Ltd (IOCL) and GAIL (India) Ltd to set up three separate joint ventures for coal gasification. The Coal India board has approved the formation of JVs.

Coal gasification, the process which turns coal into fuel gas, is considered a cleaner option than burning coal to produce energy. The gas produced through the process can be used to produce gaseous fuels such as hydrogen, methane, methanol and ethanol.

Most of the coal produced in India goes into feeding thermal power plants. With the power sector moving toward renewable sources, the use of coal for thermal power generation will come down in the long run, intensifying demand for alternative uses of coal.

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

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

The government has already made a provision for a 20% rebate in revenue-sharing for the coal used for gasification, provided the quantity used for gasification is at least 10% of the total coal production.

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