Govt allows CIL to produce methane while mining coal

Will help Coal India unlock about 1 tn cubic feet of methane gas.

Written by ENS Economic Bureau | New Delhi | Published:December 20, 2013 3:25 am

Paving the way for Coal India Ltd (CIL) to debut as a player in the natural gas sector,the Union Cabinet on Thursday granted licence to CIL to trap and produce methane while mining coal from its existing leasehold blocks.

The Cabinet Committee on Economic Affairs (CCEA) headed by Prime Minister Manmohan Singh decided that the gas produced from coal bed methane (CBM) mines would be priced as per the petroleum ministry’s gas pricing and utilisation policy.

CIL has mines spanning across eight states,which are estimated to have CBM reserves of 3.5-4 trillion cubic feet. According to a senior coal ministry official,the miner holds at least 20 per cent of the estimated 60 billion tonne of coal resources in India. CBM exploration would help CIL unlock about 1 trillion cubic feet of methane gas by consuming nearly 100 million tons of coking coal.

However,the PSU is unlikely to get any tax holiday like their private counterparts in CBM exploration as the finance ministry has argued that it would explore CBM from its own mines granted to the company on a nomination basis. Besides,the firm may not qualify for getting infrastructure building funds from the banks and financial institutions as the coal sector does not enjoy the infrastructure status. Although CIL has not yet computed the quantum of investment needed for CBM blocks since money would vary from block to block,but the coal ministry believes that the investment required would be at least Rs 7,000 crore in the first phase for five mines.

The new rules allow single operator for methane extraction and coal production,and Coal India was identified as the operator due to problems in coordination of safety issues and compliance with the Mines Act if more than one firm was involved in the same block. CIL has identified five coal blocks holding about 30 bank cubic metres for offer to partners.

With the Cabinet supporting coal minister Sriprakash Jaiswal’s suggestion that CIL should not rope in private entity,the PSU is understood to have begun informal talks with a state-run oil and gas explorer. The oil ministry had suggested that CIL can rope in a private company.

Coal India Ltd will get two years from the grant of CBM mining lease to submit the field development plan and production would have to commence from the date projected in the plan. It would be liable to pay a penalty of Rs 2 lakh for every three-month delay in production.

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