NEW DELHI: The Centre is expected to introduce the highly anticipated viability gap funding (VGF) scheme for coal gasification within the next two to three months, according to Union Minister Pralhad Joshi, who oversees parliamentary affairs, coal, and mines. In an interview, Joshi confirmed that the expenditure finance committee (ECF) has approved a proposal for VGF support totaling INR 6,000 crore. The finance ministry has tentatively allocated this amount, and the plan for implementing the scheme has been finalized. Joshi stated that the proposal will need to undergo cabinet approval before being enacted.

Joshi noted that while coal gasification has been successful in countries with low ash content in their coal, India aims to make gasification viable despite the high ash content in domestic coal. The government seeks to support gasification projects on a large scale and create a success story through fiscal assistance. The VGF scheme will provide support to both public and private sector companies engaged in coal gasification, with a portion of the INR 6,000 crore earmarked for smaller players entering the sector. Joshi expects that this support will lead to the establishment of five to six large-scale gasification plants. Under the scheme, approximately 50% of the VGF support may be provided upfront, with the remaining funds disbursed upon project completion.

This move to provide VGF support aligns with the government's ambitious target of gasifying 100 million tonnes of coal by 2030 under the National Coal Gasification Plan. The high ash content of domestic coal and the capital-intensive nature of the gasification process have thus far made it economically unviable. In an effort to boost coal gasification, the government is also considering allowing GST refunds on coal used for this purpose. Additionally, companies interested in gasification will be provided with assured coal supplies, similar to the power sector.

State-run Coal India Ltd has signed memorandums of understanding with Bharat Heavy Electricals Ltd (BHEL), Indian Oil Corp. Ltd (IOCL), and GAIL (India) Ltd to establish joint ventures for coal gasification. The Coal India board has approved the formation of these joint ventures. Coal gasification, a process that converts coal into fuel gas, is considered a cleaner alternative to coal burning for energy production. The resulting gas can be utilized to produce gaseous fuels such as hydrogen, methane, methanol, and ethanol.

As India's power sector increasingly transitions to renewable sources, the demand for alternative uses of coal is expected to rise, as most of the coal produced in India currently goes towards thermal power generation. The National Coal Gasification Mission, launched in November 2021, aims to assess the gasification potential of coalfields and develop indigenous technologies suitable for different types of coal. The mission document suggests financial support in the form of VGF, along with tax incentives such as GST compensation cess waivers, reduced additional cess and duties, and tax holidays for 15 years for all coal gasification projects. The government has already provisioned for a 20% revenue-sharing rebate for coal used in gasification, provided that the quantity used for gasification constitutes at least 10% of total coal production.