Centre allows imported coal in Rs 37,500-crore gasification scheme

New Delhi: The government is said to have permitted using imported coal in projects under the ₹37,500-crore scheme to gasify approximately 75 million tonnes of coal and lignite, said people familiar with the matter.

The Ministry of Coal clarified this in its consolidated responses to queries raised by prospective applicants ahead of the September 7 deadline for bids under the Scheme for Promotion of Surface Coal/Lignite Gasification Projects, they said. Indo Rama, one of the companies preparing a bid, had specifically asked whether there were restrictions on using imported coal, noting that the request for proposal (RFP) places responsibility for arranging coal or lignite entirely on the project developer, with no explicit requirement for domestic certification. "India's foreign trade policy regarding coal allows free imports under the open general licence (OGL)," the ministry said in its response.

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No guarantee on domestic coal

At the same time, the ministry has declined to provide a guarantee on domestic coal linkage for projects under the scheme.

The scheme was aimed at cutting India's import dependence for urea, ammonia, methanol and LNG. Indo Rama and other applicants had sought details on the quantum, quality, supply timeline and procedure for domestic coal promised to gasification projects under the non-regulated sector linkage policy. The ministry said "every effort would be made" to ensure coal linkage so that the "appropriate quantum and quality" of coal is available to such projects.

For developers and lenders, while imported coal is clearly permitted, bidders do not have a binding commitment on domestic coal availability. Long-term and predictable fuel supply is generally a key consideration in assessing the bankability of large capital-intensive projects, people cited above said. The ministry has also clarified several structural issues raised by prospective applicants.

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A foreign company can bid in its own name without first incorporating an Indian subsidiary. If selected, however, it will have to establish a domestic special-purpose vehicle. The Union Cabinet approved the scheme in May with an objective of gasifying 100 million tonnes of coal by 2030.

The gasification process transforms coal into synthetic gas, or syngas, which can be used to produce synthetic natural gas, a direct substitute for liquefied natural gas, chemicals and fertilisers such as urea, ammonia and methanol, clean hydrogen and synthetic diesel and petrol.

India depends on imports for many of these products. Imports account for nearly the entire domestic requirement of ammonia while methanol imports meet about 80-90% of demand. More than half of LNG consumption is met through imports while around 20% of urea is imported.

The scheme provides financial support of up to 20% of the cost of plant and machinery for coal gasification, with the incentive released in four instalments linked to project milestones.