Coal-to-oil plan may lose ground to power projects

NEW DELHI: The government���s ambitious programme to convert coal into oil taking advantage of the surge in global crude prices seems to have hit a roadblock. Sharp differences have arisen in the inter-ministerial group (IMG) set up to draw the roadmap for initiating projects to commercialise coal-to-oil projects. This is likely to delay clearance of projects proposed by the Tatas, RIL, Essar, Jindal Steel & Power and Adani group, all of whom had shown interest in coal liquefaction projects that have become viable with higher global crude oil prices.

���The coal-to-oil project seems to have been put on the backburner by the government. Dissent notes have been circulated within the IMG opposing the liquefaction projects, particularly that of Tatas in collaboration with South African company, Sasol. There is a feeling that coal should be reserved for use by the power sector rather than being offered for projects that puts it to unproductive usage without aiding the country���s energy security,��� an official source said.

The liquefaction project ran into trouble when IMG met to consider the Tata-Sasol project. While IMG chairman Kirit Parikh is understood to have favoured the project, some members have issued a dissent note. With the country���s first liquefaction project in a limbo, it is unlikely that other applications would be considered by the government.

On its part, the coal ministry has asked Central Mine Planning & Design Institute (CMPDI), a subsidiary of Coal India (CIL), to identify coal blocks for allotment to companies interested in coal-to-oil projects. The organisation is believed to have identified a few sites but it has not been officially communicated. Permission has been granted to coal ministry for allocating blocks for liquefaction and coal gasification projects.

The proposed Tata-Sasol project aims to invest $6-8 billion in putting up coal mining and liquefaction facilities. It proposes to establish coal-to-liquid facility for 3.6 million tonnes per year of oil and oil products. By going standards, this would require 12-15 million tonnes of coal annually. Such quantity of coal could support a coal-based ultra mega power project (UMPP) of the size of 4,000 mw.

It is estimated the country has coal reserves of 250 billion tonnes and proven reserves of 93 billion tonnes. With the country���s 80-90% of future power projects coming up on coal, the fuel could hardly be spared for liquefaction projects that have yet to become popular even globally.

The coal-to-oil projects are resurfacing as high crude oil prices in the global market (over $100 a barrel) have made the capital- and technology-intensive operations feasible. The oil generated from the process could cost $50-55 a barrel, making it cheaper than imported oil.