Policy draft: Petroleum Division proposes converting Thar coal to liquid fuels, gas

ISLAMABAD: The Petroleum Division has worked out a policy to convert the Thar Coal to Liquid (CTL) and Coal to Gas (CTG) with huge incentives in form of fiscal package for investors, including 10-year income tax waiver.

The policy draft identifies the commercial and regulatory framework in which coal can be converted into synthetic gas and synthetic diesel would help displace oil and gas imports to some extent.

Under the fiscal package, the policy proposed fiscal incentives to companies investing in converting Thar coal into liquid and coal into gas. They include waiver of customs duty on all plant and equipment not manufactured locally for coal to liquids (CTL) and coal to gas (CTG) technologies; items manufactured locally will be charged a duty of [5pc]; certification of local manufacture will be done by Engineering Development Board (EDB); waiver of withholding tax on all imported equipment for plants; waiver of sales tax on all imported equipment; waiver of income tax for 10 years if project commences operations before [June 30, 2025]. If operations start later, the final date for income tax exemption shall be fixed as June 30, 2035.

For a company to qualify for such concessions, it needs to apply to the Board of Investment (BOI) expressing intention of putting up a CTL or CTG plant, identifying the local coal reserves that it intends to utilize, and the off-take plan for the gas or liquids proposed to be produced. Allocation of any coal fields is in the provincial domain and shall be pursued by the applicant as per applicable rules. The CTG and CTL plants using imported coal are not eligible.

The draft document also mentions that small scale coal gasification units already in operation are not eligible for such fiscal concessions. The policy while highlighting the commercial framework proposes it to be fully deregulated.

Furthermore, as the gas from coal gasification shall not be standard pipeline gas (i.e. methane), the producer shall be free to sell it bilaterally on a commercial basis to any customer on mutually agreeable terms to fertilizer plants, or possibly chemical plants in the future.

This gas cannot be mixed with natural gas and will require an independent transportation system if needed. Any pipeline to be built for transporting such gas shall require the necessary regulatory approvals from OGRA.

Under the regulatory framework, the policy has proposed OGRA shall be advised by the federal government to develop rules for a simplified licensing process for CTL and CTG plants if no retail sale for diesel or injection of gas into the distribution system is planned. The Thar Coal Board shall notify rules of allocation of mining leases for installation of such plants.

In order to support development of these new technologies, new allocations of local natural gas to fertilizer shall not be made. Any continuation of local gas supply to an existing fertilizer plant, shall be subject to availability of local gas. Any supply of LNG to existing fertilizer plants, if supplied by the state-owned gas distribution companies, shall be based on full cost recovery through customer and budgeted subsidy, if any.

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