"We are working on it and very shortly we will be coming forward with a policy on underground coal gasification," the official said.
"There have been so many things which have been happening that somehow we could not carry this policy forward. Underground coal gasification is definitely an area we need to work upon specially when it is becoming more and more difficult to do open cast mining," he added.
Underground coal gasification is a method of converting coal still in the ground to combustible gas that can be used for various things, including power generation.
The Coal Ministry had in February moved a Cabinet note on the policy and had received comments from various ministries on the same.
After the policy is finalised, the blocks for coal gasification would be identified and expression of interest for allocating the blocks to the companies would be invited, according to an official.
Only those companies having a net worth of at least Rs 200 crore would qualify to apply for those blocks, the official added.
Coal Minister Sriprakash Jaiswal had earlier sought cooperation of countries like South Africa for underground coal gasification technologies.
The gap in the demand and supply of coal which widened to 135 million tonnes (MT) in the last fiscal, is likely to touch 140 million tonnes in 2013-14.