Indian Government Seeks Profit Share from Coal Blocks in Coal Liquefaction Project

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Researched by Industrial Info Resources (Sugar Land, Texas)--In a recent announcement by the Indian coal ministry, companies interested in India's coal-to-liquid (CTL) fuel project will have to share their profits with the government. The CTL project, which as an estimated investment value of $6 billion to $8 billion, has been allocated three coal blocks. The Indian government also plans to receive royalty for usage of these blocks.

The three coal blocks at Radhikapur, Srirampur and Ramchandi in Orissa have combined coal reserves of around 6 billion tons. The government plans to open one block initially and the other two later, based on demand. The companies chosen for the project can pick the block of their choice. The coal ministry estimates that a coal block of 1.5 billion tons will be sufficient to run coal mining operations of 28 million to 31 million tons per year for 30 years. This will enable production of 3.5 million tons per year of oil products.

India has been studying the feasibility of including CTL in its oil policy and strategy. In 2007, the government set up the Inter-Ministerial Group (IMG) to carry out this task. The amendment of the Coal Mines Act in the same year to provide coal for production of synthetic gas accelerated the pace of CTL projects in India. Many Indian and international conglomerates are now vying for CTL projects in the country. The IMG has shortlisted 22 companies from India's private and public sector to make presentations for this project.

Some of the applicants include Steel Authority of India Limited (BSE:500113) (SAIL) (New Delhi), Indian Oil Corporation Limited (BSE:530965) (IOC) (New Delhi), Tata Sons (Mumbai), Reliance Infrastructure Limited (BSE:500390) (Mumbai), Essar Oil Limited (BSE:500134) (Jamnagar, Gujarat), Reliance Power Limited (BSE:532939) (Mumbai), Vedanta Resources plc (LSE:VED) (London), Essar Shipping Ports & Logistics Limited (BSE:500630) (Mumbai) and GAIL (India) Limited (BSE:532155) (New Delhi).

The CTL project in India is expected to see eight foreign collaborators. Tata Sons has entered into a joint venture with Sasol Limited (NYSE:SSL) (Johannesburg), the world's largest CTL producer. Vedanta Resources will work with German company Uhde GmbH (Dortmund). Syntroleum Corporation (NASDAQ:SYNM) (Tulsa, Oklahoma) will partner Reliance Power, while Reliance Infrastructure Limited will seek technology assistance from Rentech Incorporated (AMEX:RTK) (Los Angeles, California). Baard Energy LLC (Vancouver, Washington) and German companies Choren Industries GmbH (Frieberg) and Lurgi Gmbh (Frankfurt) are also likely to join with Indian companies. Syntroleum Corporation and Rentech may partner with more than one company in this project. Headwaters Incorporated (NYSE:HW) (South Jordan, Utah) will tie up with Reliance Industries. Headwaters has been operating in India with Oil India Limited for the last four to five years producing liquid fuel from low ash in the state of Assam.

The industry presentations that have recently concluded covered the recommended technologies to be used in the project, their commercial viability in the Indian scenario and details of projects where they have been used. It also included details on the nature of CTL projects, their capacity, years of operation, and nature of raw materials and end products. While technology is critical for the success of CTL projects in India, the IMG is also delving into other aspects such as carbon emissions, effluent management and carbon credit.

There is concentrated effort to develop CTL projects globally because of increasing crude oil prices and growing demand for fuel in developing countries. Presently, only South Africa and China have operational CTL plants, but the United States has fifteen projects in the design stage. China has plans to commission ten new projects. Australia, India, Philippines, New Zealand and Indonesia have also begun focusing on coal liquefaction.

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