Even as the government is strongly backing coal gasification, with a ₹37,500-crore incentive programme addressing upfront capital-cost, analysts and market players emphasise on a dedicated financing and risk-sharing architecture to make it market ready.
Coal gasification converts coal into downstream products such as methanol, ammonium nitrate, Synthetic Natural Gas (SNG) and fertilisers etc, which can help reduce imports of natural gas, methanol and fertilisers.
Industry sources said that coal gasification projects have large upfront capital requirements, long gestation periods and multiple layers of risk such as technology performance with Indian high-ash coal, project execution, downstream product pricing and offtake, ramp-up risk, carbon management and the cost and tenure of debt.
“Government is addressing the capital-cost gap. However, next challenge is cost and availability of capital itself. If coal gasification is to become an industry rather than a collection of a few large projects, financing structures have to make a technically and economically sound project bankable irrespective of the size of the promoter’s balance sheet,” said one of the sources.
Another industry source said that when large cap companies are feeling “jittery” entering coal gasification, the opportunity does not seem financially viable for mid-sized firms and startups. First-generation projects inevitably carry technology, execution, integration and scale-up risks.
To make this a success more participation is needed, and to achieve that the government will have to handhold the players, at least in the beginning. This is being done for the first time and as expected the investor community is cautious in lending, which needs to be addressed at the government level, the same source added.
A senior government official said that the Coal Ministry has been very proactive on gasification and has been constantly meeting with the industry to help them move ahead.
“In our formal and in-formal interaction with interested companies, a few have suggested having a partial credit guarantee facility. This will help address debt financing constraints that projects may encounter as they move from subsidy allocation to financial closure and execution,” the official added.
Atanu Mukherjee, CEO of Dastur Energy, who has been closely involved in the coal-gasification policy and technology discussions, said that the next challenge for the sector is to move from capital incentives to financial closure.
Mukherjee has been involved in the National Coal Gasification Mission discussions and with NITI Aayog’s work on gasification technologies suited to Indian high-ash coal.
“The incentive framework is an important first step, but coal gasification projects will ultimately need access to long-tenor, competitively priced debt if the sector is to scale. A partial credit-guarantee mechanism, backed by an appropriate sovereign support structure, can help reduce lenders’ perceived risk while still keeping adequate responsibility with the project sponsors and financial institutions,” Mukherjee told businessline.
The objective should not be permanent government support. It should be to help commercially viable projects reach financial closure during the early stages of the industry, he emphasised.
As more projects establish operating track records and lenders become better able to assess and price the risks, the need for such support should progressively reduce. That would also help widen participation beyond a few large balance-sheet players and deepen the financing ecosystem for coal gasification, Mukherjee explained.
One solution can be an external credit insurer or guarantor, supported by a defined sovereign backstop, could cover an agreed portion of lenders’ repayment exposure. This would help break the financing gridlock while retaining meaningful risk with lenders, insurers and project sponsors, suggested one of the industry sources.