November 28, 2021

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Coal gasification: Ministry proposes tax sops for syngas tech; 15% methanol blending with petrol

Coal gasification: Ministry proposes tax sops for syngas tech; 15% methanol blending with petrol

The document stated that such waivers will not entail any revenue loss as it is proposed only on incremental coal use only for gasification.

A blueprint for the ‘National Coal Gasification Mission’ prepared by the Union coal ministry has proposed 15% methanol-blending target with petrol to encourage investments in the sector. It also proposes massive tax waivers to incentivise coal gasification, which can lead to eco-friendly alternate utility of the fuel abundantly available in the country.

Prime Minister Narendra Modi had said in June 2020 that Rs 20,000 crore will be invested in coal gasification projects by 2030 to utilise 100 million tonne of coal.

Most of India’s known coal deposits are non-recoverable. Underground coal gasification could help extract those plentiful reserves that are deep, scattered and covered by forests. Coal can be gasified to turn it into a cleaner syngas or synthesis gas—a mixture of hydrogen and carbon monoxide — which constitutes the basic building block of the chemical industry and can be converted into a wide range of downstream products such as methanol and olefins of which India is at present a net importer. The syngas technology allows conversion of non-mineable coal/lignite into combustible gases through in situ gasification of the material.

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The mission document, reviewed by FE, pointed out that if levies such as GST compensation cess and additional duties on coal are removed, the tentative reduction on aggregate price of methanol may be in the range of Rs 1,450-1,650 per MT.

Coal miners pay hefty taxes to the Central, state and local governments and levies including royalties, Rs 400/tonne GST compensation cess and contribution to district mineral funds, work out to more than 50% of the base price of the fuel. The document stated that such waivers will not entail any revenue loss as it is proposed only on incremental coal use only for gasification.

The government think tank will suggest specific responsibilities of Union ministries, state governments, refineries and vehicle manufacturers to achieve the methanol-petrol blending target. The policy can be in line with the ongoing ethanol blending road map for petrol which targets 20% ethanol blending in petrol by 2025.

A recent NITI Aayog study has found out that methanol is much more economically competitive than ethanol when it comes to blending with gasoline. Apart from reduction in crude oil imports, blending of 15% methanol in gasoline can bring down greenhouse gas emissions by 20%, thereby improving the urban air quality.

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Based on the internal research done by the Union coal ministry, the price of methanol from coal gasification is likely to hover around Rs 22-25/kg. The price of methanol has varied between Rs 24-36 per kg between 2018 and 2020.

Domestic production of methanol from coal is seen to help in import substitution and ensure steady supplies at a less volatile price range. Almost 90% of domestic methanol requirement is met through imports. Since the end-product prices are market-driven, it is essential for coal-based gasification products to be price-competitive with imported products, the report said.

Experts said that a typical gasification facility needs about $2 billion of investment and can produce between 1 and 2 MT of methanol a year and it is estimated that 5-6 MT of coal would be required to produce 2 MT of methanol. Currently Jindal Steel and Power uses coal gasification technology to produce steel in its Angul plant. As reported by FE earlier, US-based global industrial gases company Air Products is eyeing $10-billion investment opportunity in Indian coal gasification projects. BHEL has set up a pilot plant in Trichi which has faced many issues in handling high ash coal.

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Two gasification projects, Talcher Fertilizer and Coal India’s (CIL) Dankuni, are currently being set up on pilot basis — one on high ash coal and the other from low ash coal — for the purpose of establishing technology. Talcher Fertilizers —a joint venture between CIL, GAIL, Rashtriya Chemicals and Fertilizers and Fertilizer Corporation of India — is building a 2.5 MT coal gasification unit with an estimated investment of Rs 13,277 crore. CIL is setting up a 1.5 MT coal-based methanol plant in Dankuni, with an investment of about Rs 5,800 crore.

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