The coal ministry plans to auction isolated coal and lignite blocks to companies for producing gas under a proposed policy for underground coal gasification.
The ministry will soon seek the Cabinet’s approval to offer relinquished coal blocks for coal gasification, a method of converting coal to gas for various uses, including as fuel in power plants and as feedstock in fertiliser and chemical industries, a government official told ET.
“The policy aims at optimum utilisation of the scarce natural resource. Coal mining in India is done only up to 600 feet beneath the surface while coal trapped below that goes untapped,” said the official, requesting not to be named.
The ministry plans to offer coal and linkage acreages where conventional mining is not feasible, isolated coal and lignite blocks, and relinquished coal bed methane blocks, he said. The government has identified Yellendu Dip Side in Telangana and Bandha-Singrauli Main Basin in Madhya Pradesh, along with five lignite blocks, for developing them for underground coal gasification.
As per the proposal, there will be a two-part bidding process. Bidders who qualify in the first technical round and offer the largest share of revenue to the government will win 30-year contracts to develop the mines, the official said.
The contract period will be divided into three phases, this official said. The first two will comprise evaluating the blocks and preparing feasibility reports while the actual exploration will begin in the third phase. Companies will be allowed to exit the projects before the third phase. Under the plan under consideration, developers will pay a lump sum amount and royalty to authorities but will be offered incentives such as duty exemption on equipment imports and a minimum seven-year tax break. The government sees vast potential for underground coal gasification projects since just 41% of India’s 301 billion tonnes of coal reserves is recoverable. Underground coal gasification is a costly affair.
But it requires less surface area and is cleaner than traditional coal mining. Companies including Oil & gas Corp, GAIL India, Reliance Industries and Essar Oil have shown interest in underground coal gasification after the government allowed private investment in the segment in July 2007. Australia’s Linc Energy, California-based Lemar, Malaysia’s Essem Group, Reliance Power and Jindal Steel & Power had responded to a tender floated earlier by state-run monopoly miner Coal India to undertake underground coal gasification in two blocks.