The federal government has granted concessions to eight companies involved in the extraction of coal two weeks after the Council of Minister's gave the go-ahead amid concerns about environmental hazards.

With a combined registered capital of six billion Birr, the companies are expected to start operations by the end of this year, according to the agreement their representatives signed with the officials of the Ministry of Mines.

Once operational, the companies, spread across three regional states, will have an aggregate annual production capacity of 4.2 million tons of coal in a decade. The concessions have been granted for 10 years with the possibility of renewal for another decade.

“The government is working to replace imported coal with local production to save foreign currency,” said Takele Uma, minister of Mines, during an award event held last week. "Ethiopia will substitute imported coal by next year."

The bills for importing coal to power mainly cement factories have risen, reaching 275 million dollars last year. It is four times larger than the amount spent to import 650,000tn of coal in 2017 and double the volume shipped into the country five years ago. Market prices for a tonne of coal hover around 20,000 Br, while locally-mined coal can be bought for a third of this value, industry insiders estimate.

Ethiopia's coal exploration efforts go as far back as the 1940s, with an estimated deposit of 600 million tons. However, despite lukewarm efforts in the past, no industrial-scale investments in extracting coal were made. Issuing concession to industrial-scale coal mining is a mandate of the federal government; regional states have the right to permit small-scale coal extraction.

Regional states have issued permits to small-scale coal mining enterprises organised by unemployed youth through cooperatives. Close to 175 small-scale coal mining operations with a combined production capacity of half a million tonnes operate in four regional states, including Oromia and Benishangul-Gumuz, the two regional states where vast coal reserves are believed to be found.

These small-scale producers cover 55pc of the national coal demand. The rest is filled from imports. The primary coal consumers are cement manufacturers, and steel and metal companies that depend heavily on carbon-intensive fuels.

There are 19 cement factories in operation requiring 4,600tn of coal a day. Running at full capacity, they have a combined annual production of 18 million tons. The state-owned Muger Cement can churn out 2.3 million tons of cement a year, burning 700tns of coal daily.

Last year, Muger slaked 70pc of its coal demand from the local market, disclosed Gezahegn Dechasa, general manager.

"This year, the company plans to use local coal to cover 85pc of its needs," he told Fortune.

However, the subpar quality of locally-produced coal remains an issue with cement plants. Locally processed coal has an average energy production capacity of 4,000 kilo-calories a kilogramme, while coal imported mainly from South Africa contains 1.5 times more energy.

The main reason behind the low quality of locally-processed coal is the absence of coal washing and purifying plants. Federal authorities hope that the companies granted concession last week will fill this gap. They have agreed to install coal washing and purifying plants to improve the quality of coal they and small-scale miners produce.

Oromia Mining S.C. is one of the three companies licensed to extract and wash coal in Oromia Regional State. The company targets to process 352,800tns of coal annually with an investment outlay of 268.6 million Br.