OilMin may block CIL's coal bed methane tie-up plan

Miner will float tender for exploration in four months

State-owned Coal India Ltd (CIL) might not get a free hand in selecting a private partner to tap into the newly-opened coal bed methane (CBM) opportunity. Reason: The petroleum ministry may impose restrictions on private partnership for development of four trillion cubic feet (tcf) CBM reserves in CIL’s blocks allocated on a nomination basis.

Such restrictions could lend uncertainty to the models being worked out for joint development of the reserves. “The oil ministry has been mulling these restrictions. So, there is no clarity on the models of partnership until we receive a final communication from the government on the matter,” a senior CIL executive told Business Standard.

He added that by restricting joint ventures with private companies, the ministry wants to discourage back-door entry by private entities in CBM exploration as the blocks have been allocated on nomination basis and not through competitive bidding.

Earlier, the petroleum ministry was in favour of providing CBM rights for captive coal producers too, which is also shelved now.

Earlier this month, the Cabinet Committee on Economic Affairs headed by Prime Minister Manmohan Singh had allowed the world’s largest coal miner to explore and produce CBM in its mines. The government plans to extract CBM lying buried in blocks and use the compressed gas to fire power plants stranded for want of fuel.

The possibility of restrictions comes close on the heels of speculations on various options for exploiting CBM reserves — public-private partnership (PPP) route similar to the mine development and operator model used in conventional coal mining; floating a special purpose vehicle or even through creation of a separate subsidiary.

Coal India has identified five coal blocks in Jharkhand with combined CBM reserves of an estimated 1 tcf for exploration in the first stage. In addition to methane, exploration and extraction from CBM coal seams would expose huge coking coal reserves for CIL. “As far as exploration is concerned, we have decided not to go through the PPP route and work it out alone. We can take that risk in the exploration stage,” said the CIL executive.

The uncertainty over the CBM venture is owed also to the lack of credible data on the estimate of reserves lying untapped in the blocks, apart from the government’s final decision on the issue of conditions for partnership.

According to the CIL executive, the company would float a global tender within four months of receiving the government’s final communication on the issue of partnership.

“The tender would invite companies for exploration in all the five blocks together. The partner would bring in technology and be responsible for routine work while we will spend the money,” said the executive. The blocks would require an investment of Rs 25-30 crore for the first round of initial exploration.

The government has awarded 33 CBM blocks in four auction rounds over the past 13 years. In addition, two CBM blocks to state-owned explorer Oil and Natural Gas Corp and one to Great Eastern Energy Co. have been awarded on nomination basis.

According to the Directorate General of Hydrocarbons, India has 4.6 trillion cubic meters of CBM reserves. Currently, three CBM blocks are producing around 0.15 million standard cubic metres per day (mscmd). This is likely to touch 7.4 mscmd by the end of the next financial year.