₹37,500-cr coal-gasification scheme links incentives to competitive bids

Scheme links incentives to competitive bids and project milestones, with subsidy caps and penalties to accelerate coal gasification and reduce import dependence

The Centre on Friday operationalised its ₹37,500 crore scheme of giving coal-gasification incentives by notifying a competitive-bidding framework, under which bidders seeking lower financial incentives will receive higher evaluation scores.

 

Under the notification, issued by the Ministry of Coal, the scheme has subsidy caps, milestone-linked payouts, and penalties for project delays.

 

It gives financial assistance of up to 20 per cent of the cost of an eligible plant and machinery.

 

Financial assistance has been capped at ₹5,000 crore for any single project and ₹12,000 crore for any corporate group, including its holding, subsidiary and associate companies.

 

The government has also introduced safeguards to prevent the concentration of incentives.

 

In addition, incentives for any individual downstream product have been capped at ₹9,000 crore, except for urea and synthetic natural gas projects.

 

The scheme, approved last month, is about promoting coal- and lignite-gasification projects that convert domestic coal into syngas for producing methanol, ammonia, synthetic natural gas (SNG), hydrogen, fertilisers and other chemicals.

 

The scheme aims to support projects capable of gasifying around 75 million tonnes (MT) of coal and lignite, contributing to India’s target of 100 MT of coal gasification by 2030.

 

The initiative seeks to reduce dependence on imported fuels and industrial feedstock amid geopolitical uncertainties and supply-chain disruptions.

 

The Centre estimates that products that could be substituted through coal gasification accounted for an import bill of about ₹2.77 trillion in FY25.

 

It expects the scheme to attract investment of ₹2.5 trillion-3 trillion across nearly 25 projects.

 

The notification prescribes strict implementation milestones, linking the release of incentives in four instalments to project progress.

 

The first instalment (25 per cent) will be released only after developers secure land, environmental clearance, coal linkage, and technology tieups. Also, an EPC (engineering, procurement and construction) contractor has to be appointed and developers have to get financial closure from banks.

 

Subsequent payments will be linked to capital expenditure, commissioning, and the achievement of targets on production capacity.

 

Projects missing commissioning deadlines will face financial penalties. Developers who take five-six years to commission projects after signing the agreement with the ministry will receive half the remaining incentive, while those who take six-seven years will receive one-fourth.

 

Projects delayed beyond seven years will forfeit all pending incentives unless the delay is due to force majeure.

 

The notification also stipulates that only new plant and machinery will be eligible for incentives, ruling out the use of refurbished or second-hand equipment.

 

It further clarifies that government assistance cannot be treated as equity contribution by the project developer for financial structuring, debt financing, or financial closure.

 

The ministry has clarified that the responsibility for securing the offtake of products will rest with project developers.

 

The scheme adopts a technology-neutral approach, allowing developers to choose any commercially viable gasification technology suitable for Indian coal while encouraging indigenous technologies. It also permits flexibility in choosing downstream products for manufacturing, covering a wide range of syngas derivatives, instead of limiting support to a predefined list. 

To oversee implementation, the Centre has constituted an empowered group of secretaries chaired by the expenditure secretary, along with a special task force under the Ministry of Coal and a project management agency to monitor project execution and verify expenditure claims. 

Stricter mechanism

• Lower subsidy bids to score higher in the evaluation 
• Delayed commissioning to attract lower incentive payouts 
• Four-stage, milestone-linked incentive disbursement 
• Developers responsible for securing product offtake
• Only new & unused plant and machinery installed exclusively for the project eligible for the scheme
• Empowered group of secretaries to oversee implementation