Union Cabinet Approves ₹8,500 Crore VGF for Coal Gasification

January 25, 2024

The Union Cabinet has approved a viability gap funding (VGF) scheme worth ₹8,500 crore to promote coal gasification projects in India. This move aims to encourage adoption of cleaner coal technologies for power generation and production of chemicals.

Three Categories of VGF Support

The VGF scheme has been divided into three segments. ₹4,050 crore grant will be provided for projects by 3 central PSUs. ₹3,850 crore has been allotted for inviting bids from public and private players. ₹600 crore is earmarked for small gasification plants and demonstration projects.

Incentivizing New Projects

Under this scheme, projects will receive Viability Gap Funding up to 15% of the total capital cost. This support will incentivize companies to set up coal gasification plants, which require large investments initially.

Coal Gasification Process

In coal gasification, coal is chemically transformed into syngas using steam and controlled oxygen. The syngas can then be converted into chemicals like ammonia, fertilizers, methanol, DME, and synthetic natural gas.

Coal gasification process is considered cleaner than directly burning coal in thermal power plants. Usage of syngas can reduce India’s imports of petroleum products and is aligned to the country’s net-zero emission goals.

Potential Applications

The chemicals produced via gasification have wide industrial applications. For instance, ammonia is used in fertilizers, methanol in fuels, and synthetic natural gas can substitute LPG.

Previous National Missions

The government has been actively promoting coal gasification under National Coal Gasification Mission. The national mission focuses on creating awareness, developing an implementation roadmap and achieving the target to gasify 100 million tonnes of coal by 2030

New JV Projects Approved

The Cabinet approved equity participation by Coal India in two joint ventures for setting up coal-to-chemical projects:

The joint venture is between Coal India and GAIL India Ltd aims to establish a coal-to-synthetic natural gas plant with an estimated project cost of ₹13,052 crore.
The joint venture is between Coal India and BHEL Ltd will implement a coal-to-ammonium nitrate project with an anticipated expenditure of ₹11,782 crore.

The final project costs for both these ventures can vary by plus or minus 25% as per the sanctioned scope. Through equity investment in these projects, Coal India aims to foster adoption of coal gasification technologies and contribute towards building domestic capacity for manufacturing value-added coal derivatives.

Assured Offtake for Viability

The synthetic natural gas produced by the Coal India-GAIL JV will be offloaded by fertilizer plants ensuring consistent demand. Ammonium nitrate from the Coal India-BHEL project will be used for mining explosives.

Strategy to Reduce Coal Imports

Increased adoption of coal gasification will enable reduction of India’s dependence on energy imports and transition towards self-reliance, in line with government’s Atmanirbhar Bharat vision.

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