State-owned coal miner Solid Energy has signed a multi-million dollar deal for technology to turn lignite into more valuable coal and oil.
Under the deal, worth up to $A15m, Solid Energy has bought the rights to a new process being developed by Australian company, Ignite Energy Resources (IER).
The South Island is estimated to have more than six billion tonnes of recoverable low grade coal, or lignite.
IER chief executive Len Humphreys says its process uses heated and pressurised "super critical" water to turn the lignite into a quality burning coal and a synthetic crude oil.
Dr Humphreys expects the first production plants to be built in Australia and New Zealand at about the same time.