Document of The World Bank FOR OFFICLAL USE ONLY Report No: 23743 IMPLEMENTATION COMPLETION REPORT (IDA-29860; SCL42260; COFN-04090; PPFB-P2260) ONA LOAN/CREDIT IN THE AMOUNT OF US$532 MILLION TO INDIA FOR A COAL SECTOR REHABILITATION PROJECT May 28, 2002 SASEI South Asia Region This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. CURRENCY EQUIVALENTS (Exchange Rate Effective July 31, 2000) Currency Unit = Rupees (Rs) Rs. I = US$ 0.022 US$ I = Rs.44.86 FISCAL YEAR April 1 March31 ABBREVIATIONS AND ACRONYMS APL Adjustable Program Loan BCCL Bharat Coking Coal Limited BIFR Bureau of Industrial and Financial restructuring CAS Country Assistance Strategy CSRP Coal Sector Rehabilitation Project CHP Coal Handling Plants CIL Coal India Limited CMNA Coal Mines Nationalization Act CMPDI Central Mine Planning and Design Institute CPRA Coal Price Regulation Account CRISIL Credit Rating Information Services of India Limited EAP Environrnental Action Plans ECL Eastern Coalfields Limited FRR Financial Rate of Return GOI Government of India HEMM Heavy Earth Moving Equipment IICM Indian Institute of Coal Management JBIC Japan Bank for International Cooperation JBICC Joint Bi-partite Committee for Coal Industry JEXIM Export-Import Bank of Japan NPV Net Present Value OGL Open General License LMC Loss Making Companies MOC Ministry of Coal PAP Project-Affected Persons RAP Rehabilitation Action Plans R&R Resettlement and Rehabilitation SAR Staff Appraisal Report SEBs State Electricity Boards TA Technical Assistance VRS Voluntary Retirement Schemes WBPD World Bank Projects Division Vice President: Mieko Nishimizu Country Manager/Director: Edwin R. Lim Sector Manager/Director: Penelope Brook Task Team Leader/Task Manager: Charles Husband FOR OFFICIAL USE ONLY INDIA COAL SECTOR REHABILITATION PROJECT CONTENTS Page No. 1. Project Data 1 2. Principal Performance Ratings I 3. Assessment of Development Objective and Design, and of Quality at Entry 1 4. Achievement of Objective and Outputs 6 5. Major Factors Affecting Implementation and Outcome 12 6. Sustainability 14 7. Bank and Borrower Performance 14 8. Lessons Learned 17 9. Partner Comments 17 10. Additional Information 21 Annex 1. Key Performance Indicators/Log Frame Matrix 23 Annex 2. Project Costs and Financing 26 Annex 3. Economic Costs and Benefits 28 Annex 4. Bank Inputs 30 Annex 5. Ratings for Achievement of Objectives/Outputs of Components 31 Annex 6. Ratings of Bank and Borrower Performance 32 Annex 7. List of Supporting Documents 33 This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. Project ID: P009979 Project Name: Coal Sector Rehabilitation Project Team Leader: Charles A. Husband TL Unit: CMNPO ICR Type: Core ICR Report Date: May 28, 2002 1. Project Data Name: Coal Sector Rehabilitation Project L/C/TF Number: IDA-29860; SCL-42260; COFN-04090; PPFB-P2260 Country/Department: INDIA Region: South Asia Regional Office Sector/subsector: NN - Mining & Other Extractive KEY DATES Original Revised/Actual PCD: 04/30/1993 Effective: 06/17/1998 Appraisal: 07/14/1997 MTR: 01/01/2000 02/01/1999 Approval: 09/09/1997 Closing: 06/30/2003 07/25/2000 Borrower/lImplementing Agency: CIL/CIL Other Partners: Japan Bank for International Cooperation (JBIC) STAFF Current At Appraisal Vice President: Mieko Nishimizu Mieko Nishimizu Country Manager: Edwin Lim Edwin Lim Sector Manager: Penelope J. Brook Alastair McKechnie Team Leader at ICR: Charles A. Husband Hiroaki Suzuki ICR Primary Author: Charles Husband; Sati Achath 2. Principal Performance Ratings (HS=Highly Satisfactory, S=Satisfactory, U=Unsatisfactory, HL=Highly Likely, L=Likely, UN=Unlikely, HUN=Highly Unlikely, HU=Highly Unsatisfactory, H=High, SU=Substantial, M=Modest, N-=Negligible) Outcome: U Sustainability: UN Institutional Development Impact: M Bank Performance: S Borrower Performance: U QAG (if available) ICR Quality at Entry: S U Project at Risk at Any Time: Yes 3. Assessment of Development Objective and Design, and of Quality at Entry 3.1 Original Objective: The main objectives of the Coal Sector Rehabilitation Project (CSRP) were to support the market-oriented reforms India was undertaking in the coal sector, and specifically to provide financial and technical support to Coal India Limited's (CIL) efforts to make itself commercially viable and self-sustaining. The project also aimed to increase productivity and domestic supplies of coal, by financing investment in 24 of the most profitable opencast mines of CIL until imports and production from private sector investments could fill the emerging supply gap. The first main objective of supporting market-oriented reforms in India, although explicitly defined during project preparation, was not adequately reflected in the legal agreements, especially in terms of coal sector policy reforms. The project overestimated the Government of India's (GOI) ability to undertake major sectoral reform, corporate restructuring and significant labor reductions in the context of the prevailing political instability, trade union resistance, and potential social unrest in the coalfields in the wake of such a reform. The second objective of increasing domestic supplies of coal was, however, clear, realistic, and achievable. Both objectives were consistent with the Bank's Country Assistance Strategy (CAS), discussed by the Board on June 20, 1995 which emphasized continued Bank support to India on: (i) the reform of key sectors of its economy; (ii) the rationalization of energy policy; (iii) the reform of public sector enterprises; (iv) the enhancement of the social and environmental sustainability of the government's investment program; and (v) the improvement of environmental protection. The project was important for the sector and the country because India needed additional energy in order to power its economic growth and coal was the least-cost option for base-load power generation in India. The Bank's involvement in this project was relevant, particularly since the project was large and complex and included sector reforms, corporate restructuring, and environmental and social mitigation activities. The sector knowledge and experience that the Bank had acquired through five previous lending operations with CIL', as well as extensive policy dialogue on sector reforms was expected to enable the Bank to effectively assist the government and CIL in implementing a comprehensive strategic approach which the project required. Given the large financing requirement and the fact that the CIL's productive capacity and financial health depended upon the expeditious implementation of the proposed reforms, restructuring and investment, only the Bank, in partnership with its co-financier, the Japan Bank for International Cooperation (JBIC), formerly Export-Import Bank of Japan (JEXIM), had the resources to finance the project. The project envisioned several benefits to India, which included: (a) further promotion of deregulation of price and coal distribution, and opening of the sector to private investors; (b) transformation of CIL into a commercially oriented, viable and financially self-sustaining coal company; (c) safeguarding the government's broader economic reforms by underpinning India's capacity to supply the coal needs of the power sector and other industries until imports and production from private investments could fill the emerging supply gap; (d) supporting coal industry reforms by helping, inter alia, to attract financing from bilateral donors; and (e) contributing to the improvement of coal quality by assisting CIL to introduce selective mining methods and to develop coal supply contracts with the incentives to produce better quality coals. The project was responsive to the needs of the Borrower. It was designed to meet their need to selectively upgrade their technology, respond to the rising demand for coal in India, and stem the operating losses of a number of subsidiary companies of CIL. The project was demanding and complex for both GOI and CIL because of the sector reforms; magnitude of investment; extent of corporate restructuring including labor rationalization; and interaction with the requirements of environmental and social mitigation programs arising from the cross-conditionalities between this project and Coal Sector Environmental and Social Mitigation Project (CSESMP). I The,five previous projects were Dudhichua Coal Project (Loan 2393-IN); Jharia Coalfleld Project (Loan 2498-IN); Coal Mining Coal Quality Improvement Project (Loan 2796-IN); iharia Coalfield Technical Assistance Project (Loan 2450-IN); and Coal Sector Environmental and Social Mitigation Project (Loan 2862-IN) -2 - It was demanding and complex to the GOI because the reforms involved amendment of the Coal Mines Nationalization Act (CMNA) of 1973 by the Parliament, primarily to attract private sector investment in the face of extensive resistance and potential political cost to the government; a revision of the coal sector's legal and regulatory environment; and changes to the government/CIL's environmental, resettlement and rehabilitation (R&R) policies, and involuntary resettlement of more than 10,000 Project-Affected Persons (PAPs) arising from the project's cross-conditionality with CSESMP. For CIL, the project was demanding and complex because it involved major investment programs extending over 24 individual projects, six subsidiary companies, and five States (now six States). It was also demanding because the restructuring and corporatization of CIL and its subsidiaries required extensive staff redundancies and voluntary retirement schemes (VRS) in the face of resistance from employees and regional trade unions. The project, however, was able to take into account the lessons learned from previous loans to CIL and other coal projects in India and to incorporate them into the project design. The project also recognized and took into account the following three major risk factors which could affect the implementation of the investment and TA components of the project, viz.: * potential delays in implementing sector reforms arising from central-state government issues; resistance from various political groups and labor unions to opening the sector to private investors; and absence of clear transparent procedures to provide access to mineral resources and selection of licensees. During appraisal it was assumed that these obstacles would not in the short- to medium-term affect the financial and economic viability of the project nor the financial performance or viability of CIL. Even though sector reform and amendment of CMNA were not realized, liberalization of distribution and sale of coal was implemented which enhanced the economic viability of CIL: * delays in implementing CSESMP because of the refusal of PAP to relocate to resettlement sites, and lack of adequate experience on the part of CIL and its subsidiaries in the implementation of Rehabilitation Action Plans (RAPs). In order to address this issue, beyond agreements under CSESMP, CIL had agreed to reinforce its capacity to deal with the social issues by engaging facilitating NGOs to assist with RAP and IPDP implementation, appointing additional R&R and community development staff and reinforcing their training. After a delay of 18 months from the date of effectiveness, the Borrower began the implementation towards the end of 1997. Progress during 1998 and 1999 was however both slow and uneven across the 25 mine sites. Significant implementation progress began only in the first half of 2000. But economic rehabilitation and income restoration was still unsatisfactory. * delays in restructuring Bharat Coking Coal Limited (BCCL) and Eastern Coafields Limited (ECL), was addressed by the government agreeing to provide Voluntary Retirement Scheme (VRS) grants, and using dividend revenues from CIL to cover BCCL and ECL's financial losses, limited capital expenditure requirements or closure costs according to the Bureau of Industrial and Financial Restructuring (BIFR) rules. Despite better than expected reductions in surplus labor, bold and decisive actions were not implemented and both BCCL and ECL together with CCL continued to decline and undermine the viability of CIL. At the time of appraisal the Bank's Operation Committee and the South Asia Region debated in depth the issues on the amendment to CMNA and the completion of the regulatory study by the GOI and finally approved the project in light of the following favorable key factors: (i) GOI had demonstrated its commitment to coal sector reforms and implicitly indicated its policy on sector development by adopting in February 1997 the Chari Committee Report which recommended amongst other things opening up a number of undeveloped blocks to competitive bidding by both national and private companies; immediately liberalizing coal prices of new mines and phasing in price liberalization for existing mines; and setting up an appropriate regulatory framework; (ii) Coal was the least-cost option available for base-load power generation, thereby addressing India's increasing energy shortage; and (iii) CIL was financially weak and faced huge investment requirements in the absence of GOI budgetary support that had been phased out and discontinued in the early 1990s. - 3 - 3.2 Revised Objective: Not applicable 3.3 Original Components: The project comprised two components that were balanced and geared to achieving project objectives. The Investment Component was aimed at increasing domestic supplies of coal. The TA and Training Component involved revising legal and regulatory environment of the coal sector; relaxing import restrictions; abolishing supply linkages; and making mines more profitable by addressing systemic revenue arrears, restructuring CIL and supporting turn-around plans for both ECL and BCCL. The institutional capacity of MOC and CIL as the implementing agencies was reasonably strong. For the Investment Component, CIL set up a dedicated World Bank Projects Division (WBPD) within CIL with competent and technically qualified staff supported by an international consulting firm for the duration of the project. The project consisted of the following components: (A) Investment Component. This component involved high-return and quick-disbursing investments to maintain or improve the profitability of the 24 existing project mines in the east and central India. The Bank financed the cost of a large fleet of heavy earth-moving equipment (HEMM) for replacement at 15 mines, for expansion at six mines, and for completion of construction-in-progress at three mines. Because of the emphasis on quick investment returns, no greenfield projects were included; it was estimated that by 2001/02, the project mines would produce about 106 million tons of coal per year including added production of 13.4 million tons. The projects were selected on the following criteria: sufficient reserves; high productivity; short implementation period; limited environmental impacts; minimal resettlement requirements; and a minimum financial rate of return of 16% per annum. (B) Technical Assistance and Training Component. This component included technical assistance (TA) and training to support the sector reform program and to strengthen CIL's institutional capacity for the project implementation, mine management operations, as well as its major restructuring and corporatization programs. These comprised: * Policy Support Rationalization of rules and regulations of the coal industry. The project provided TA to review the coal industry's regulatory system and recommend a more suitable regulatory framework based on international best practice. * Institution Building Commercialization of coal sales to provide assistance to CIL in commercializing its coal sales, particularly in improving their tender method and developing coal supply contracts. Improvement of Central Mine Planning and Design Institute's (CMPDI) design to review existing mine design and practices within CIL and recommend a time-bound program to improve them. Improvement of corporatefinancial planning and implementation of the restructuring process was aimed at enhancing CIL's capability in implementing its restructuring program and preparing financial models as part of its ongoing commercialization process and to enable the company to access and borrow from international financial markets. -4 - Trainingfor CIL's middle and senior level managers, at different national management institutes in order to familiarize them with the principles and techniques of managing commercial operations. Improvement in equipment utilization sub-component consisted of a review by a panel of mining and other engineers and management experts of CIL's operations to identify activities that could be contracted out to realize efficiency and cost saving. * Proiect Implementation Procurement assistance to assist CIL in the preparation of bid documents and technical review. Coal quality improvement included a feasibility study to pilot selective mining techniques at four sites under different geological and mining conditions and identifying the required equipment. Assistance in project supervision. The project financed a team of local consultants with requisite experience in opencast mining operations to visit all the mines at least once in every quarter and submit an independent report on project programs to the Bank and CIL. Coal Sector Environmental and Social Mitigation Project (Project ID: P0433 10) The two projects, CSRP and CSESMP, were initially conceived as one to include both investment in coal mine reform and expansion, and the mitigation of the resulting environmental and social impacts. However, given the environmental and social impact of the project, and the scale and complexity of the mitigation measures, CIL and the Bank decided in November 1995 to address these, in advance, in a free-standing project. In May 1996 the Bank approved an IDA Credit of US$63 million to finance CSESMP, which became effective in July 1996, over two years earlier than the CSRP. CSESMP was launched earlier with the goal of providing time for CIL to establish the required capacity for environmental and social mitigation, and also to enable the Bank to assess the project's implementation progress prior to the negotiations for the CSRP. (Refer Section 10 for additional information on details of CSESMP) 3.4 Revised Components: Not applicable 3.5 Quality at Entry: Unsatisfactory. The project was awarded the Bank Managing Director's Quality at Entry Award in 1997 in recognition of its detailed and comprehensive approach towards policy reforms, coal sector investment, environmental and social issues, and unique concept of cross-conditionalities with CSESMP. The project objectives were consistent with the CAS and the government's priorities, it took appropriate account of the Bank's Safeguard Policies, and met the critical needs of the coal sector. Lessons learned from earlier coal sector projects in India as well as the major risk factors, which could affect project implementation were considered and incorporated into the project design. The project design separated the environmental and social aspects from the main project, created a separate free-standing investment project, and linked both projects together through effective cross-conditionalities. Consequently, the approval of the CSRP project was subject to satisfactory implementation of the CSESMP. The Borrower had to be in compliance with all obligations under the CSESMP legal agreements and the additional obligations relating to environment and social mitigation that were set out in the Loan Agreement of the CSRP. Nonetheless, it is apparent that insufficient attention was given to securing, prior to loan approval, the legislative changes to the Coal Mines Nationalization Act and regulatory amendments that underpinned critical sector reforms of the project. The Bank did not properly assess or grossly under estimated the degree of political and - 5- social resistance to the reforms and relied more on government assurances and dated covenants which ultimately proved to be inadequate and no substitute for upfront action. At the very least the policy reforms should have been more clearly defined in the SAR, articulated in a formal Letter of Development Policy recording government's sector policy, and explicitly reflected in the legal agreements. These institutional failures resulted in implementation difficulties almost from the start and led directly to the ongoing delays in opening of the sector to private investment (beyond captive mining), evolution of a competitive environment and achievement of the developmental objective of the project. The ICR therefore finds the quality of entry to be unsatisfactory. 4. Achievement of Objective and Outputs 4.1 Outcome/achievement of objective: The project's physical (investment) objective of increasing CIL coal production through rehabilitation and/or expansion of 24 mine sub-projects was, in aggregate, achieved ahead of schedule. The physical targets for individual sub-projects varied, some well exceeding planned levels of coal production, while others are still building up to full output. Nonetheless, all individual sub-project are expected to meet or exceed planned coal production levels within the next 18 months. Another outcome of the project was the liberalization of pricing and distribution for all categories of coal in January 2000. Accordingly, CIL has been free to set prices of deregulated coal according to the market forces, and the prices of washed coal (both Coking and Non Coking) are being fixed by the subsidiary companies. Coal is also presently freely imported by anyone under open general license (OGL). The project facilitated CIL reforming and restructuring its operations to the extent that its subsidiaries became largely financially independent and autonomous companies, improving their productivity; competing with each other; and fixing their own prices according to market demands. The project also supported CIL's decision to do away with the existing systems of linkage/sponsorship and take a new policy initiative for non-core sector. Subsidiary companies are also authorized to sell their entire quantity of coal and coal products after meeting the requirements of the core sector, to the non-core sector customers. In addition, the project eliminated the automatic cross-subsidization of loss-making activities through Coal Price Regulation Account (CPRA) pricing mechanism between subsidiaries and even collieries as a natural consequence of coal price liberalization. Owing to unsatisfactory performance on coal sector reform; a reversal of the policy of reducing import duties on coal; the financial deterioration beyond covenanted limits under the CSRP; and difficulties with economic rehabilitation and income restoration under the CSESMP, the Bank advised the Ministry of Coal (MOC) and CIL in January 2000 that it was considering applying legal remedies and moving towards suspension in the event that these issues were not addressed. As the issues remained unresolved after extensive discussion, the Bank proposed two options to the government comprising: (i) if GOI could achieve compliance within a reasonable period of time with the covenanted actions under the two projects in the near term, the Bank would suspend the CSRP Loan, reinstating it when compliance was achieved; or (ii) if GOI assessed that compliance could not be achieved, they should request cancellation of the balance of the CSRP Loan. In July 2000, GOI and CIL requested cancellation of the un-disbursed balance of the Loan and Credit. The reasons and the background for such an outcome are described below: Sector Reform. The amendment of the CMNA was an essential legislative measure to enable the participation of the private sector in the development of new non-captive coal mines and also in any divestment that CIL would undertake as part of the restructuring of its loss-making subsidiaries. GOI in its Supplemental Letter to the CSRP Loan Agreement had committed itself to submit the draft amendment to the CMNA to Parliament by December 31, 1997. Despite the Bank's repeated attempts to emphasize the importance of this amendment, there was inordinate delay on the part of the GOI to submit it to the Parliament. The draft was finally submitted to the Parliament in April 2000, and was subsequently referred to the Standing Committee on Industry of Parliament and thereafter to the Standing Committee on Energy. After project closure, the GOI however did continue its efforts to submit the bill to Parliament and was prepared to withstand intense trade union pressure to withdraw the bill and endured a three day general strike in December 2001. Nonetheless, the difficulties in securing these reforms are apparent and further delays can be - 6 - anticipated. Regulatory Framework. This important policy TA was designed to provide the critical foundation for coal sector reform to encourage the introduction of private sector interests in the coal sector and create enhanced competition between coal producers within India. Although the detailed TOR and its underlying fundamental philosophies were agreed at loan negotiations and reflected in loan and credit agreements as a precursor to continuing Bank support to CIL, GOI showed limited interest in engaging with international/local consultants and played a minor role in the development of its findings and recommendations. The study was completed well behind schedule due to procurement misunderstandings, delays and general lack of cooperation. Even though DOC had agreed to submit a time-bound action plan for the implementation of a new regulatory framework by June 30, 2000, it was never submitted by DOC to the Bank. A paper on national coal policy was however prepared by DOC but remains under consideration by GOI. Restructuring of BCCL and ECL. Despite the initial capital restructuring, CIL failed to take the bold measures needed to restore the financial viability of its loss making subsidiaries, BCCL and ECL in spite of repeated representations by the Bank. These together with CCL have now completely eroded their equity base and have all been referred to the BIFR for restructuring or closure under the Sick Companies Act of 1985. Despite various plans which remain under consideration by GOI/CIL and a 17% reduction in excess labor since 1998, these companies continue to drain scarce resources from other parts of the group and undermine CIL's ability to sustain its operations. Lower than expected demandfor coal. Most of the expected additions to power generation capacity did not materialize due to the slow pace of the power sector reforms, and as a result, demand for coal began to decline. In addition, a slow down in industrial demand combined with the availability of imported Indonesian coal at comparable or cheaper prices than domestic coal, especially in the coastal areas, affected the demand for coal from cement plants and other industrial users. Consequently, the actual demand was only 311.0 million tons in 1996/97 and 354.3 million tons in 2001/02 compared with 332.7 million tons and 513 million tons respectively in the SAR. Likewise, while the SAR estimated the gap in coal supply would be 44.0 million tons in 1996/97 and 128.0 million tons in 2001/02, the actual gap for these years were only 15.9 and 25.46 million tons respectively. In light of these developments, a downward revision of capital requirements due to outsourcing, better maintenance and operating performance, and savings realized on phase A procurements, CIL no longer needed external finance to support the procurement of equipment scheduled for the Phase B of the project. In July 2000, the Bank cancelled the un-disbursed balance the CSRP Loan and in January 2001 the un-disbursed balance of the CSRP Credit was cancelled. While the loan account remains technically open to allow for the disbursements under the special commitments given by the Bank (about US$37 million), the project has been "de-activated" and is no longer listed as an active project. 4.2 Outputs by components: (A) Investment Component. (Satisfactory). The objective of increasing coal production at the sub-projects by 13.4 million tones per year to a level of 105.95 in 2002 was achieved by end 2001 with an increased output of 17.85 million tones and a total sub-project production of 112.83 million tones coal. The output of individual CIL subsidiary sub-projects was generally satisfactory (exceeding plan) although the 3 sub-projects at CCL are not expected to meet planned production targets until 2002/3. It is evident from the table below that from 1996 - 2001 Coal India (CIL) successfully * increased production (by 31 million tons per year - 13%); * reduced employment (by 87,000 workers -14%) and * increased labor productivity (by 0.5 tons per man shift - 28%). - 7 - These are substantial accomplishments and, despite more modest gains in the financial performance, the objectives of the investment component were realized by CIL. Key consolidated statistics of CIL for the period 1996-2001 are given below: ___| __|Actual Actual Actual Actual Actual Actual SAR 1996 1997 1998 1999 2000 2001 2001 Production Mill tons 237.3 250.6 260.6 256.5 260.6 268.1 289.9 Coal Prices Rs/ton 441 530 588 600 629 652 739 Production Cost Rs/ton 442 497 545 573 617 726 504 Labor Cost Rs/ton 211 215 230 239 266 380 245 Profit/(loss) Rs billion (14.1) 6.9 14.5 18.0 11.4 6.1 25.2 Employment # 000's 639 632 620 599 574 552 594 Productivity OMS 1.8 1.9 1.9 2.0 2.1 2.3 n/a Capacity % n/a 91.9 88.3 87.5 85.7 88.3 Utilization n/a Capital Rs billion 15.5 13.3 16.3 15.9 28.8 7.6 35.7 Expenditure Debt Rs billion 61.6 61.4 55.9 63.6 70.5 63.2 61.1 Equity Rs billion 49.9 54.2 59.2 64.3 61.4 39.4 117.6 Receivables months 2.4 2.3 2.6 3.1 3.0 3.3 1.4 Source: CIL Annual Reports wB Staff Appraisal Report. For practical purposes, procurement for the project was split into two phases to ensure that equipment manufacturers could handle the very large equipment orders in a phased and timely manner. At the time of loan cancellation, Phase A equipment contracts had been awarded. Phase B requirements were revised downwards and rescheduled somewhat to reflect lower equipment capacity utilization (and hence longer life of existing equipment due to reduced coal demand), better than expected operating performance of the HEMM, outsourcing of overburden removal and other operational activities, and greater use of hired HEMM. Capital equipment requirements have been reassessed and are being sourced from domestic suppliers under CIL procurement procedures. The second procurement phase will be important at many sub-projects to ensure that coal production levels attained can be maintained and that the sustainability of the sub-projects and their cumulative coal production is secured. Works of some US$160 million, comprising mainly four coal handling plants (CHPs), were not initated under the project. Of the four CHPs, two (Hesalong and Parej East) were no longer required and were dropped from the project prior to closure. Planned procurement of the remaining two coal handling plants at NCL's Dudhichua and Nigahi mines was under preparation for ICB at the time of loan cancellation. These are now being procured from internal resources according to CIL procurement procedures and are in an advanced stage of preparation. In a similar manner, outstanding procurement packages relating to truck dispatch systems and telecommunications packages were revised subsequent to loan cancellation and are being financed by CIL and procured under in-house procurement procedures. (B). Technical Assistance and Training Component. (Unsatisfactory). The project design provided for nine technical assistance/training sub-components (estimated cost US$14 million) covering policy, institutional development and project implementation. The level and extent of TA/training was substantial by any project standards. Generally speaking, the TOR for individual study programs was developed as a cooperative effort between Bank staff and GOI/CIL and the TA design was to a large - 8- extent appropriate. With the loan cancellation coinciding approximately with the conclusion of the TA programs, Bank staff were unable, with the exception of the policy (legal/regulatory) study, to review the implementation of domestic/international consultant findings and recommendations. Consequently, achievements realized by the TA cannot be specified with any degree of certainty. Performance indicators related primarily to the conclusion of the consultant TA work programs, however, were largely achieved. Regulatory Framework Study. The final report of the Study was completed and submitted by the consultants in April, 2000. GOI has not formulated a time bound action plan nor taken any follow-up action on these recommendations and in this sense, the policy TA has been unsatisfactory, a key factor leading to loan cancellation. Improvement of CMPDI Design Practices. Much of the historical design practices of CMPDI was rooted in Soviet mining practices and centered on CIL operations and planning requirements. The program, completed by international consultants, exposed CMPDI to best practice through international visits, modernized CIL's' mine planning concepts and explored ways in which CMPDI could better position itself for international consulting assignments. Although the TA design was most appropriate, CIL did not accept all the consultant findings and recommendations and formed a committee to selectively implement the recommendations. Institutional Development. Bank staff prepared TOR for this important institutional development during the early stages of project implementation but the scope of work was never fully agreed, nor finalized by CIL and the study was not launched. CIL felt that the TOR did not adequately address the need for evolving a commercially oriented Corporate Plan based on realistic demand and economic price projections. Consequently CIL decided to substitute this component with two separate studies covering strategic planning and demand/pricing aspects for which two consulting firms were engaged by CIL out of its own resources. As a result of these changes and delays in implementation, CIL has not yet transformed itself into a fully commercialized, cost-driven enterprise capable of operating successfully in a liberalized and competitive environment. Training of CIL Managers. The Bank staff prepared TOR for this program and after reaching agreement on the scope with CIL staff, RFPs were issued, proposals received and evaluated, and a preferred international/domestic consultant consortium was identified. However, in final discussion with CIL management, there remained issues regarding the role of CIL's Human Resources Department, and the definition of "managers". The contract was not signed and after loan cancellation, the component was revised and implemented by the Indian Institute of Coal Management (IICM), an in-house training unit located at Ranchi. The institute imparts training on modules evolved by them to various participants selected from the managerial ranks across CIL subsidiaries. Coal Sales Agreements. This component aimed to assist CIL to develop commercial coal sales agreements with its customers based on international best practices and standards. By the time of loan signing, CIL had solicited the inputs of a reputable international consultant, who assisted the company to draft sales contracts with all key customers. These arrangements were reviewed by the Bank staff and found to be satisfactory. The commercial arrangements between CIL and its customers are now much more closely aligned with international best practices and are considered acceptable. In relation to project implementation, there were four TA components: Procurement and Mine Design Optimization. During project preparation, CIL, under a Bank-funded PPF, signed a contract in 1993 with international consultants to review equipment packages required for the rehabilitation/expansion/development of the 24 sub-projects and at Loan signing, this TA was subsequently incorporated into the CSRP project. The scope of work was well designed and provided excellent assistance over a number of years and ensured that equipment packages were individually optimized for each sub-project and that bid documents were prepared, reviewed and evaluated and contracts awarded according to guidelines. -9- Although procurement processing was streamlined, there were periodic delays, mainly of a bureaucratic nature. Nevertheless, it is considered that procurement was handled in a very well organized and effective manner, with few major disputes between the Bank and GOI/CIL. The consultant completed the procurement for phase A and all equipment specifications for phase B and the contract was terminated in July 2000, even though further procurement was to be undertaken. Local Supervision. At the outset it was recognized that with 24 geographically spread mine sub-projects, the Bank staff could not effectively monitor project implementation at all mines. Consequently local consultants were hired (under an extension to an existing CSESMP supervision contract) to prepare quarterly supervision reports to assist Bank supervision. The design for this purpose was most appropriate and the local consultant reports proved invaluable to the Bank supervision mission in quickly grasping project implementation-related issues that required attention. After loan cancellation this local supervision was discontinued and is now being undertaken by CIL at the risk of a potential lack of independence. CIL Operations. This TA involved international consultants reviewing all CIL mine operations and maintenance procedures to bring them to a level of international best practices and standards. The study was completed but the findings/conclusions were not reviewed by the Bank staff due to limited technical supervision resources in 2000/2001 prior to Loan cancellation. It is understood that some agreements were reached in terms of upgrading operations and maintenance practices in order to increase efficiency and reduce costs but others were more contentious and appeared to conflict with the certain mining regulations and CIL's operational practice. As a result, although the design was appropriate, its achievements were more limited. Selective Mining. In light of the high ash content of Indian coal and the frequent presence of shale bands within certain coal seams, the development/design of TOR to consider the options for selective mining to improve the coal quality is considered to be very appropriate. The study program was designed in phases to identify mines where selective mining could be employed, determine and procure appropriate equipment to carry out selective mining, and implement a series of four pilot projects to undertake, monitor and test the benefits of selective mining. International consultants were contracted and they completed the first phase effectively. Loan cancellation occurred shortly thereafter and selective mining equipment was not procured nor was there any specific plan to complete the consultant work program or to introduce selective mining into CIL operations on a phased or organized basis. Nevertheless CIL's subsidiaries were requested to consider implementing at their own cost any and all identified opportunities for selective mining. MCL has taken the lead and undertaken selective mining at two projects with encouraging results that could be replicated elsewhere. 4.3 Net Present Value/Economic rate of return: For economic evaluation purposes the expected net present value (NPV) was used as a criteria for acceptability. The NPVs have been calculated on the basis of the incremental cost and benefit streams associated with each of the 24 project mines. In addition to the variable costs and capital costs, project specific environmental and social mitigation costs have been taken into account in the economic evaluation of the project and were derived from the CSESMP Project. Costs were adjusted for taxes and duties, and standard conversion factors applied to convert financial cost into economic cost. Economic benefits are based on incremental coal production valued at either the imported price of Australian coal for tradable coal or long-run marginal cost for non tradable coal, appropriately adjusted for quality, to reflect consumer's willingness to pay. In aggregate, the project yielded a positive expected economic NPV of US$593 million, at 16% discount rate. With the exception of CCL's K.D. Hesalong mine for which benefits could not be quantified, the investments in all the remaining 23 mines included in the project yielded economic rates of return in excess of 16% per year. Investments in K.D. Hesalong mainly supported equipment such as cranes, and motor grader for which no assessment of incremental production could be made. At appraisal, it was envisaged that in addition to supporting equipment, investments would also be made in productive equipment such as shovels and dumpers, which did not materialize. 4.4 Financial rate of return: - 10 - The overall financial rate of return (FRR) is estimated to be 55% p.a. The project as a whole yielded positive expected financial NPV of US$397 million, at 16% discount rate. As in the case of economic analysis, the financial analysis of K.D. Hesalong was not carried out because incremental output associated with the investment could not be quantified. The financial analysis was carried out on the basis of incremental costs and benefits. The major variables affecting the cash flows included the capital cost, operating cost, annual production and the selling price of coal. Four observations are noted: * The economic and financial NPVs are estimated to be lower than the expected values estimated at appraisal. The main reasons are: less than anticipated increase in output and lower investments as a result of the cancellation of the uncommitted portion of the loan; higher then expected operating costs; and lower than anticipated grade of coal extracted in the case of a few mines e.g. Paraj East. * Even though, the economic and financial NPVs are lower than those estimated at appraisal, NPVs are still positive. The reasons relate to the nature of the investment project. A large number of the mine sub-projects are characterized by investments with short gestation periods in profitable mines involving one or a combination of the following efforts: the removal of bottlenecks to efficient and profitable operation and replacement of worn equipment. In addition, expansion of mining operations in well performing mines, and opening of new mines are also included. * The difference between the economic and financial NPVs has decreased. This is mainly due to the narrowing of the differential between the economic and the financial prices. At appraisal, financial benefits were evaluated on the basis of administrative prices of coals of different grade, which were significantly lower than economic prices. Since then, coal prices have been deregulated, narrowing the gap between the economic and financial prices. * While investments in the specific coal mines supported under CSRP are financially and economically viable, the long-term sustainability of the Coal sector depends on factors well beyond output increases. Policy, regulatory and institutional reforn aimed at improving efficiency, promoting competition by opening up imports and private sector participation, and a continued growth in the demand for coal in India are critical for long-term sustainability. The results of the financial and economic analysis of each of the 24 mine projects; and the underlying assumptions are presented in Annex 3. 4.5 Institutional development impact: (Modest). CIL has reformed and restructured itself to the extent that each subsidiary: became a financially independent and autonomous company; now regulate, control and account for all inter-company transfers and, together, have maintained the ihtegrity of CIL's corporatization program; have improved productivity; and to a large extent are competing with each other and setting their own prices, in consultation with CIL, in line with market demands. Nonetheless, these companies remain in the public sector and are owned and controlled by the central government. CIL has been unsuccessful in restoring ECL, BCCL and more latterly CCL, to profitability and in reducing the influence and impact of the holding company. At the time the project was de-activated, CIL still retained its status as a monopolistic enterprise. There was negligible institutional development impact at the MOC since there was never any intention to make changes in the way the sector was administered. 5. Major Factors Affecting Implementation and Outcome S.l Factors outside the control ofgovernment or implementing agency: -1 1- The lack of political continuity and instability at the central government level made it difficult for GOI to move ahead with sector reforms. Since the coalition government consisted of about ten parties with only a small majority, the government's commitment to these reforms was undermined and it became extremely difficult to get the CMNA Amendment passed by the Parliament. Administration of central and state governments aligned to different parties and the resulting disputes between them also had adverse impact on project implementation. For instance, without the active support of the state administration, it was difficult to formulate, agree and implement the tum-around plans for ECL, BCCL and CCL. Pressure from trade unions opposed to staff adjustments had a severe effect on project implementation. Closing of loss-making mines was difficult without the support of workers and trade unions. Specifically, since CIL had traditionally entered into successive Joint Bi-partite Committee for Coal Industry (JBICC) labor agreements with the coal sector unions which covered all mines in all the districts and states, any labor problem and/or management action in one mine had a direct and imrnmediate impact on all other group mines. In addition, since public sector enterprises in India do not have the tradition of retrenching their employees, it was difficult for CIL to eliminate loss making activities and implement its staff reductions to the extent that proved necessary. 5.2 Factors generally subject to government control: For the reasons mentioned earlier there was a general lack of responsiveness on the part of GOI to actively push for sector reforms. Coal sector reform continued to suffer from delays, in particular regarding the submission of legislation to facilitate private sector participation in India's coal sector. Even though the Ministry of Coal (MOC) had reiterated with force and clarity that the government was committed to continue the implementation of the coal sector reforrn, GOI never succeeded in implementing these sector reforms. This was reflected in the commissioning of the regulatory study which was inordinately delayed and implementation of its recommendations which were indefinitely deferred. 5.3 Factors generally subject to implementing agency control: (i) Financial aspects. Delays on the part of CIL in addressing financial problems of its loss-making subsidiaries, ECL, BCCL, and CCL, has undermined the viability of CIL. CIL continues to use the dividend income from group companies to pay their debt service obligations, subsidize their losses and finance part of their investment requirements. In 2000-2001 this amounted to Rs5.7 billion, draining CIL of liquidity, diverting resources from productive investment, reducing its capacity to obtain commercial credits and limiting its flexibility to sustain its operations. In 2000-2001, CIL's aggregate debt to capitalization ratio deteriorated to 60% against the SAR estimate of 37%. (ii) Accounts Receivable of cIL. Despite CIL's efforts in supplying coal only against prepaymnents or letters of credit, securitization of coal dues and long-term supply agreements, Account Receivables were 2.63 months in 1998, 3.12 months 1999, 3.04 months in 2000, and 3.29 months in 2001, compared to a performance indicator of 1.4 months for all these years. Despite ongoing consultations with all levels of government, CIL has yet to reach a meaningful agreement with any of the State Electricity Boards (SEBs) on a progressive reduction in outstanding arrears. (iii) Corporatization Program. The corporatization program as conceived at appraisal has been successfully maintained by CIL to restrict and regulate the financial flows between CIL and its subsidiaries. Support provided to the Loss Making Companies (LMCs) is declining and is within the dividend receipts of CIL from its more profitable subsidiaries. These dividends payments are consistent with the original dividend policy adopted by the Board and agreed with the Bank i.e. 40% of profit after tax. Support to LMCs remains restricted to: i) the servicing of loans contracted by CIL and assigned to the LMCs; ii) support for VRS gratuity payments that are in addition to the severance pay being met through Government grants; and iii) minimum investment on replacement of productive assets. - 12 - It is noted that the support for these issues was, and continues to be necessary for CIL to: i) preserve its financial standing and credit rating; ii) limit its responsibility for, and its exposure to the LMCs; and iii) ensure that LMCs respond effectively to the revival packages as and when these are agreed upon and taken up for implementation. (iv) Performance Indicators and Compliance with Covenants. While labor reduction targets were generally exceeded due to an extension of GOI's VRS program, most of the financial performance indicators of CIL and its subsidiaries were adversely affected by various factors such as increased competition form imports and lower growth rate in demand for coal. (v) Impact of CSESMP on the project. The CSESMP started two years before the project, and consequently the project mines had already successfully adapted their R&R policies and adopted a new modus operandi in relation to environment and social mitigation, which kept improving with time; and CIL's other subsidiaries became more responsive to these issues. 5.4 Costs andfinancing: The total cost of the project was about US$649.80 million, compared with the SAR estimate of US$1.7 billion. Of the Bank Loan amount of US$530 million, US$224.40 million was disbursed and an amount of US$268.70 million was cancelled on July 31, 2000. About US$37 million remained open for disbursement under special commitments. Out of the Credit amount of US$2.0 million, US$1.42 million was disbursed and the remaining US$0.58 million cancelled on January 25, 2001. JBIC provided co-financing of US$261.30 million, and CIL contributed US$125.78 million. This is proportionately less than that planned due to the higher level of local procurement and savings in excise duties, reduced custom tariffs and CIL's disproportionate share of works which were either dropped or deferred. 6. Sustainability 6.1 Rationalefor sustainability rating: Investment and TA Components. (Likely). On the investment side, CIL has achieved positive results, albeit at lower levels of investment and returns. Its sustainability, however, depends very much on CIL's ability to restore its financial position as coal demand improves and its capacity to finance the implementation of Phase B of the project. Reform Component and Corporate Restructuring. (Unlikely). Parliament has not yet considered the draft amendment of CMNA and nor has GOI formulated an action plan or implemented the recommendations of the consultant report for the regulatory framework and consequently sustainability is unlikely. Without a viable turn-around plan for the LMCs and CIL's continuing subsidization of these subsidiaries, sustainability of the corporatization program remains in jeopardy. Overall Project Sustainability. (Unlikely). Despite significant progress within CIL, the sustainability of the overall project objective is on balance, unlikely in the absence of adequate competition, an enabling legal and regulatory environment, and a rapid turn-around of the LMCs. 6.2 Transition arrangement to regular operations: Technically, the project will remain open since the Bank has given special commitments which are not affected by the cancellation. Disbursements under these special commitments, which cover the final payment on the third dragline and supply of spare parts associated with large contracts, amounts to US$37 million, and are expected to - 13 - be disbursed over the period to mid-CY 2003. 7. Bank and Borrower Performance Bank 7.1 Lending: (Satisfactory). The Bank was proactive in initiating the dialogue with the government and MOC for the sector reform. The Bank spent substantial amount of time and resources for preparing the project. The deferment in project preparation was caused mainly for addressing the concerns of the Bank and the government on policy reforms, environmental, and resettlement issues. The Bank, which introduced the state of the art expertise into project design, had a harmonious team with a good skill mix which included mining experts and specialists in financial analysis, corporate restructuring, economics, sociology, resettlement and environment. The Bank had a consistently good working relationship with the Borrower during preparation and appraisal. During the appraisal, the Bank assessed the project's risks and benefits but, in hindsight, underestimated the magnitude of political and social resistance to sector reform. The project team could therefore have focused more on these reforms and ensured that the necessary amendment of the CMNA was done prior to project effectiveness and thus avoided the implementation difficulties that were experienced almost from the start. A formal financial management assessment was not undertaken at appraisal since the project was appraised prior to the introduction of LACI and the Bank's focus on these issues. 7.2 Supervision: (Satisfactory). Over the two and half years of project implementation, there were six supervision missions, with an average of more than two missions per year. The Bank's client relationship was very cordial and productive. Supervision teams included mining experts and specialists in finance, corporate strategy, economics, sociology, resettlement and environment. The country and sector management and project team were engaged in extensive dialogues with GOI and CIL and thoroughly discussed all the issues affecting project implementation. The Bank also provided assistance, in terms of suggestions for drafting the laws and regulations, reviewing legal drafts, and giving technical comments. Aides-Memoire were regularly prepared and transmitted, which alerted the government to problems with project execution and suggested remedies in a timely manner, and in conformity with Bank procedures. 7.3 Overall Bank performance: (Satisfactory). The overall performance of the Bank was satisfactory during project preparation, appraisal and implementation. Borrower 7.4 Preparation: (Satisfactory). During the preparation stage, the Borrower displayed an adequate level of commitment to the objectives of the project and dedicated sufficient resources to address the problems. The government officials and staff of the implementing agency worked closely with the Bank's project team on a continual basis with full cooperation. 7.5 Government implementation performance: (Unsatisfactory). The approval of the project by the Bank's Board of Directors was premised on the commitment that important policy measures such as promoting a greater role for private investors and trade liberalization, and facilitating the development of a competitive structure for India's coal industry, would be implemented as agreed during negotiations of the project. GOI had agreed to take necessary legal steps such as the amendment of the - 14 - CMNA and to review, develop, and implement an appropriate regulatory framnework. Even though the government had agreed to submit proposed amendment to the Parliament in December 1997, it was finally submitted only in April 2000, with a delay of more than two years. Similarly there was an inordinate delay by the GOI in commissioning of, and on-going support for the regulatory framework study, which was to be originally completed by October 1999. Although review was completed and submitted to the government, no apparent steps were taken to implement the recommendations of the study. GOI's handling of the procurement of international legal/regulatory technical assistance specialists incurred continuous delays, some associated with misunderstandings regarding IDA procurement guidelines. However, the major delays occurred because of a lack of DOC appreciation of the importance of the TA program to the coal sector reforms underlying and underpinning the CSRP project justification and negotiation. The government has also reversed key policy measures such as reducing import duty on coal. The import tariff for steam coal for example, which had been progressively reduced since 1993/4 to 10% by February 1997, was increased up to 25% in the 2001 budget largely to compensate for the local duties imposed on domestic coals by state governments. These actions on the part of the government perpetuate market distortions and raised concerns about the GOI's commitment to achieve the project's developmental objectives. On the other hand, GOI fully met Voluntary Retirement Scheme obligations and provided funds for meeting the agreements and labor reduction targets. The project did not suffer from any counterpart funding problems. The government officials were always available and cooperative. 7.6 Implementing Agency: (Satisfactory). Led by a competent and committed Chairman, CIL provided sufficient resources, set up WBPD, engaged a consulting firm and project monitoring teams, and as a result, the day to day implementation and supervision of the project was smooth. WBPD was very well organized and had the right kind of staff dedicated and committed to the task. It was effective in dealing with procurement, disbursement, progress reports, and in maintaining proper records of the project. Recognizing the almost unprecedented size and scope of mining and auxiliary mining equipment packages under CSRP, CIL undertook procurement preparation and processing in a satisfactory manner. With the extensive experience of procurement under IDA guidelines in 5 previous investment projects, CIL prepared itself very well, establishing a Procurement Cell under the WBPD and retaining international procurement specialists on a multi-year contract basis to assist with procurement processes. CIL's procurement processing generally was handled in an expeditious manner. The first phase consisted of 21 ICBs, the bidding documents of which were compiled based on Bank's Standard bidding documents and were finalized after two to three rounds of discussion between Bank, CIL and the international consultant. The processing of procurement proceeded smoothly although the multi level approval process in CIL resulted in occasional delays. In only one case out of the 21 ICB packages was there disagreement with Bank's view and CIL opted to award the contract to a public sector firm which had been referred to the BFIR under the sick company's act. Bank accordingly declared misprocurement for that case. Procurement was otherwise satisfactory. Local political and trade union pressures did, however, limit CIL's success in addressing company restructuring and staff reductions to the extent that later proved necessary. CIL was also unable to comply with any of the three financial covenants related to the performance of the LMCs, and take the bold measures needed to deal with unviable activities, reduce sales arrears and restore the creditworthiness of these companies. 7.7 Overall Borrower performance: - 15 - (Unsatisfactory). The overall performance of the Borrower was on balance unsatisfactory owing to insufficient progress in opening the sector to private investment, reducing the role of the holding structure, creation of adequate competition and generally to the constraints and rigidities of the socio-political system. Although the borrower's performance is assessed as unsatisfactory in the context of the project design and the ex-ante commitments by the GOI, it is nonetheless important to put this in the larger context of worldwide experience of coal sector reform. Many industrialized and developing countries have undertaken coal sector reform in the past two decades, and one lesson is clear - it is an exceedingly difficult and complex task that is very difficult to do to a pre determined timetable because it involves deeply embedded political and social forces as well as technical and financial issues. As noted previously, the Bank's Operation Committee and the Regional Management at the time of appraisal debated the regulatory study and sector reform and decided to proceed on the basis that the sector was critical to the development of the country and that the GOI had shown strong indications of its readiness and willingness to reform the sector. It is now apparent that the Government was unable to develop the degree of consensus that was required to take on board and implement the proposed reforms within the agreed time frame. For its part, the Government comments in section 9 (b) that "in a major democracy like India implementing radical reforms without a major social upheaval is a delicate task. ...Though it is conceded that there have been delays in meeting milestones, but, the direction has been right and irrespective of the foreclosure of the loan, the Government is committed to usher in reform in the coal sector. The fact that the government chose to face the 3 days nation wide strike in the coal mines during December 2001 rather than give in to the demands of the Trade Unions and withdraw the Amendment Bill in the Parliament bears testimony to its commitment and resolve to move ahead with coal sector reforms". These comments by Government and international experience provide a strong indication that the project has supported considerable progress in Government thinking and commitment to move along a coal reform pathway - even though progress has been much slower than anticipated at the time when the project was approved and progress has not been sufficient for this project to remain in implementation. 8. Lessons Learned * It is important to complete legislative actions upfront and ahead of loan effectiveness. Failure to do so reduces the project's leverage, undermines its objectives and limits its success. The Bank should also ensure that all sector policy and reform objectives are clearly articulated and recorded in a formal Letter of Development Policy, even though the government had demonstrated an apparent commitment for sector reforms. * An investment Loan is a mismatch when the project includes sector reforms. Mega investment loans are poorly suited to support long-term sectoral reforms; particularly, when the policy framework is not clearly defined by the government. Had it been available while designing the project, an adjustable program loan (APL) would have been much more effective in supporting gradual sectoral policy changes, minimizing risks and costs, securing incremental commercialization and restructuring of CIL, and the progressive closure of loss making activities. * The Bank should not underestimate the magnitude of difficulties and resistance from-trade unions, staff, corporate management, and the govemment itself, nor the time required to develop sufficient consensus that is generally needed to address structural changes in large organizations that require major staff reduction. * The Bank should not rely on studies and expected implementation of their recommendations as part of conditionality, as happened in the case of the study on regulatory framework financed under the project. This approach is by its nature too vague, difficult to manage or measure and almost impossible to enforce. * Also to ensure commitment to, and full implementation of all TA components of the project, the Bank should ensure that all TORs are fully defined, finalized and agreed during appraisal and proposals invited prior to negotiations. - 16 - 9. Partner Comments (a) Borrower/implementing agency: (A) Coal India Comments (i) Project objective as per 4.1 SAR "To support the market oriented reforms being undertaken in coal sector and to provide financial and technical support to CIL's effort to make itself commercially viable and self sustaining." Indian coal sector and CIL in particular during the time of loan negotiation felt very strongly the need of above objective which were most appropriate at that relevant point of time. To meet the above objectives, loan had two components i.e. investment component and TA/Training components covering policy support and institutional strengthening. Investment component covered procurement of large fleet of Heavy Earth Moving Equipment and CHPs. At the time of formulation of project , it was thought prudent to make these investment in two phases, i.e. Stage 'A' and Stage 'B". Under the first Stage i.e. Stage A, equipment were procured in the first 13 month of loan sanctioning. All the equipments save two draglines have already been commissioned. As a result, the projected production of these sub projects were achieved ahead of time in most of the sub projects. Sub projects which slightly lagged behind, will also achieve production within next 9 to 12 months time. The increase in production from the 24 sub projects has been better than projections in the SAR and accounts for the production increase in Coal India as a whole. The rise in production slowly from these projects have enabled the concerned subsidiary coal companies to consolidate their financial position since all these projects are yielding high returns. From this point of view one of the major objectives of the project has been fulfilled, even though, the part of the loan linked to Stage B procurement has been cancelled. The procurement has commenced and is continuing on a modest pace. These procurements are mainly towards replacement of existing HEMM in the sub projects. Efforts are being made to use existing HEMM beyond their normal life by improving preventive maintenance and also by rehabilitating some of them. These factors have enabled the projects to achieve production levels as per SAR with lower compliment of additional equipment. Under the Technical Assistance component, studies by most experienced expatriates consultants were carried out and their recommendations were reviewed by the management and are being gradually implemented. However, Technical Assistance programs for training and financial forecasting, were dropped from CSRP due to further review by the borrower. Borrower proposed to undertake training through its in-house facilities. TOR of T.A. program for Financial Forecast was split into two TA programs (i) Corporate Plan formulation with market orientation which has been undertaken by M/s. KPMG and (ii) Coal Demand Forecast and imported coal price that can be released, which has been undertaken by TERI. These two were undertaken by Borrower from its own resources. Short synopsis of the same has been provided during the mission visit. Under sector reform, study was carried out through reputed firm to study rules and regulations to upgrade them to world norms and to remove some of the constraints felt by the coal sector. Study was undertaken late and report was available only in June 2000. The same is under review by the Government at the highest level. However, in the mean time, Government has already introduced legislation amnending Coal Mines Nationalization Act partially opening the sector to private captive users. The Government has also moved amendment for opening up the sector to private entrepreneurs for coal production and marketing. This has been referred to Standing Committee of Parliament. The matter has been delayed due to various socio political reasons. In the meantime, several steps has already been taken for deregulation of coal price and opening import barrier for coal. Import duty on Coal reduced from 35% to 25% and coal has been kept on OGL. Action has already been taken for corporatization and making all subsidiaries independent competing with each other for which - 17 - various experts were engaged and their reports were implemented. For turning around of ECL and BCCL and to some extent CCL, various experts in the field were engaged. Their reports have been submitted and reviewed by all stake holders, i.e. subsidiary companies, State Government, Unions and the Government of India. Due to various socio political reasons, full implementation could not be completed and there were several modifications to them. However, awareness and urgency of serious steps to be taken is now fully appreciated by all stake holders. Gradually, action has been taken in all these 3 subsidiaries and working results are improving by interim steps taken. Under VRS Schemes manpower of ECL and BCCL have been reduced from 1,53,154 and 1,35,535 in 1998 to 1,27,452 and 1,13,73 8 in 2001 respectively Assessment of the Borrower. CIL is now commercially viable and self sustaining organization in the market. It does not depend on the subsidy of Gol at all. Due to significant enhancement in its capability to enforce the commercial right of regulating coal supplies to receipt of payments from the SEBs and also due to execution of Fuel Supply Agreement, its current sale realization has improved and disputes on account of quality of coal has reduced. (ii) Project design as per 4.05 of SAR. "Bank's involvement would be limited to investments in highly profitable and economically viable opencast mines that have no major environmental or social problems" Assessment of the Borrower Only 24 most viable existing mines and projects under implementation were undertaken to get the assistance of CSRP loans. (ill) Project Implementation as per 5.4 of SAR. For implementation of the project, CIL established a strong team at its Headquarters with senior executives having following cells: * Project implementation and monitoring cell * Procurement cell * Economic and financial cell * Engineering cell Almost similar structures at subsidiary levels was also established. At the subsidiary, one senior executive was in charge of WBP Division who drew support from Engineering & Finance Divisions too. Besides this, one intemationally reputed firm was associated in the procurement right from formulation of bid to the finalization of bid. As the number of sub projects were large spread over in 5 subsidiaries and in 5 states, one local Indian consultancy firm was deputed to supeTvise various activities at each sub projects by visiting once in a quarter and submitting its quarterly report. Bank Supervision Mission with adequate numbers of experts of different disciplines assisted CIL in implementation of the project. As the project including its 24 sub projects was having social and environmental issues of various degrees, another project Coal Sector Environmental and Social Mitigation project was in operation 2 years ahead of initiation of CSRP. There were cross conditionalities to keep a check on the implementation of CSRP. The CSESMP was headed by a Chief General Manager (ESMP) assisted by various executives experienced and trained in the field of Social & Environmental Sciences. - 18 - Implementation plan of sub-projects as shown in Annex 5.1 slipped due to: (i) Delay of nearly nine months due to delay in signing of loan agreements i.e. instead of July 1997 to March, 1998. (ii) Severe Change in coal demand scenario projected at the time of formulation of the Project. The second point made it clear that procurement of equipment has to be deferred or slowed down suiting realizable low demand. This resulted in cancellation of uncommitted portion of the loan on 24 July, 2000. Monitoring and evaluation of project was carried out as designed. This helped in involving grass root employees at the project level and also improved awareness and quality of work of the sub projects. First phase procurement of 20 packages involving US $ 508. Million was completed in 20 months including supply and commissioning of equipment except for two draglines, which are also being supplied as per time frame of the contract. Operation Experience. * Corporatisation of subsidiaries achieved. Through a major restructuring exercise, the financial flows between subsidiary coal companies and CIL were corporatised. As opposed to free flow of cash from the profit making companies to the loss making companies under the retention price scheme, CIL access to the surplus generated by the profit making companies was restricted to receipt of dividends declared by the profit making companies. The retention price scheme was discontinued. A transparent dividend policy was laid down and strictly enforced. The rate of dividend was set at 40% of post tax profit subject to availability of resources. This enabled CIL to access limited resources of the order of rupees 6 to 7 billion only as against a significantly higher amount realized in earlier years. Correspondingly, the support to the loss making companies, despite these companies incurring substantial cash loss is being limited to the following: a) Discharging debt services obligations of the loss making companies on loans contracted by CIL and assigned to these companies. This is imperative to preserve the credit rating for CIL as a whole. b) Disbursement of complimentary funds for payment of gratuity to VRS optees in these companies, the component of Severance pay being met from Government grant. c) Minimum cash for replacement of worn out asset so that the productive capacity was maintained. Support on account of (b) & (c) was considered imperative to enable the company respond in a befitting manner to the revival plan as and when the same is finally implemented. These measures have led to consistent improvement in the formal credit rating carried out by Credit Rating Information Services of India Limited (CRISIL) an associate of Standard and Poor - the international credit rating Agency. CIL's current Long Term Credit Rating is that "High Investment Credit" (AA-). CSRP was a complex project, not only due to their location in various states under variable socio political situations, but also for social and environmental issues of varying magnitude. With the well thought out organizational set up from Headquarters to Project level, operations were managed, assistance given as required and implementation shared. This has helped in developing well tested management structure and well trained executives and other personnel with updated skill. * Revival plans of ECL, BCCL and CCL were prepared by thorough studies and debated through all stake holders specially Government and Trade Unions. This exercise though helped in taking out interim steps (due to complex socio-political dimensions in a democratic country) has prepared ground to loosen the shackles of the sector, - 19 - * Development of management skills of large cross section of executives in the areas of financial analysis, equipment assessment, procurement process right from preparation of bid document and scientific marketing of activities. (iv) Project sustainability Though the project was closed only after 2 years, the Borrower has taken action to procure balance equipment on need-based basis for which exercise is being done periodically. The sustainability of the project and eventual emergence of the company as a financially viable enterprise in the long term is being secured through a number of measures. Outsourcing of a number of productive and non productive activities both. Common among these are transportation of coal and sand, upkeep and maintenance of township, hospitals, and office vehicles for transport of officials etc. In a few cases, such as, WCL significant production activity like removal of OB is being done by engagement of hired HEMM. Payment for such engagement are made on a per cubic meter basis. This enables the coal company not only to reduce cost but also to enhance the component of variable cost and correspondingly reduce fixed cost in the cost structure which eventually imparts better flexibility to the companies to deal with demand sluggishness under recessionary conditions. Management structure will be retained so that procedure developed will be followed for full implementation of the project. (v) Evaluation of the Bank and the Financier. Highly professional Supervision Mission consisting of Bank and the Financier has made the project implementation very satisfactory. Assistance of World Bank in developing large scale highly mechanized OC mines and meeting the deficiency of operation by prodding and training of personnel in the state of art of technology and mining, planning techniques along with better utilization of equipment is highly appreciated. Although, reactions were positive but at times the approach of the Bank was bureaucratic in nature without appreciating the ground reality. Unfortunately, demand did not pick up as per the original projections. As a result, the procurement of second phase equipment was decided to be delayed and the project was pre closed on 24.7.2000 (i.e. only after 2 years from the project being operative). Many of the conditionalities, particularly, Financial Covenant could not be fulfilled within the limited time as compared to originally perceived five year duration. (B) GOI Comments The Covenant with the bank provides only for introduction in Parliament of the Bill to amend the Coal Mines (Nationalization)Act and this has been fulfilled. The component of stepping up of production in selected mines of CIL has also been successfully implemented. It may kindly be appreciated that in a major democracy like India implementing radical reforms without a major social upheaval is a delicate task. The Government's recent efforts to privatize PSUs in a different department under the same Ministry also reflect their commitment towards progress in this direction. As the coal sector employs nearly half a million workmen in CIL alone and millions of others who are depending on this industry, hasty actions could lead to disastrous consequences. Though it is conceded that there have been delays in meeting milestones, but, the direction has been right and irrespective of the foreclosure of the loan the Government is committed to usher in reform in the coal sector. The fact that the Government chose to face the 3 days nation wide strike in the coal mines during December 2001 rather than give in to the demands of the Trade Unions and withdraw the Amendment Bill in the Parliament bears testimony to its commitment and resolve to move ahead with coal sector reforms. - 20 - (b) Cofinanciers: JBIC believes that the improvement of CIL's interim productivity which is a success indicator of CSRP used in compiling this ICR should be sustainable. In light of this, GOI is expected to continue to carry out market-oriented reforms that will not hinder such a positive momentum. In addition, learning from this project, JBIC hopes that the World Bank will draft future CAS programs that incorporate the appropriate mechanisms that would strengthen sector reforms in India. (c) Other partners (NGOs/private sector): n/a 10. Additional Information Coal Sector Environmental and Social Mitigation Project (Project ID: P043310): The CSRP and CSEMP projects were originally conceived as one to include both investment in coal sector reform and coal mine rehabilitation and expansion, and mitigation of the social and environmental impacts. Because of the scale and complexity, CIL and the Bank decided in 1995 to split them and begin addressing the mitigation measures in advance in a free-standing project. An IDA Credit of US$63 million was approved to finance this project, which became effective two years prior to the CSRP. CSESMP aimed to assist CIL in making coal production more environmentally and socially sustainable through technical assistance; enhance the company's capacity to deal with environmental and social issues; and support CIL in the implementation of the Environmental Action Plans (EAP), Rehabilitation Action Plans (RAP), and Indigenous Peoples Development Plans (IPDP) in the 25 coal mines that were slated to receive financial assistance under the then proposed CSRP. RAPs were developed for 14 mines with land acquisition, and the total number of Project Affected Families (PAFs) to be resettled are 2,584 and the number of PAPs entitled to assistance for income restoration is 10,003. IPDPs involving community dev assistance are being undertaken in 24 mines, and comprise villages not affected by land acquisition and located within a one kilometer radius around the mines and comprise around 186,000 people belonging to 186 villages. CSESMP was classified as a Category A project and accordingly an Environmental Impact Assessment (EIA) was prepared by CIL which identified adverse impacts and the measures to mitigate these through Environmental Management Plan for the 25 mines under the project. To reinforce CIL's commitment and performance on environmental and social mitigation, the progress on mitigation activities was linked explicitly to the CSRP through a series of covenants in the CSRP Loan Agreement. Overall implementation progress was initially slow and uneven and CIL's commitment remained problematic especially with regard to two key areas of economic rehabilitation of PAPs, and institutional reform to enhance CIL's environmental and social management capabilities. Significant progress throughout all 25 project mines began only in the first half of 2000. Since then CIL has demonstrated increasing commitment regarding both environmental and social mitigation and there has lately been noticeable implementation progress. Although CSRP was 'de-activated' on July 24, 2000, the Bank did not consider suspension or cancellation of the CSESMP to be a constructive option as the purpose of the CSESMP was to mitigate impacts deriving from the CSESMP and to strengthen CIL's capacity to manage such mitigation issues. This improvement in overall performance and commitment by CIL is indicated by * The Institutional Strengthening Action Plan is currently under implementation, and CIL has formed high level strategy groups both at headquarters and in all subsidiaries, drafted subsidiary action plans, and authorized staff as responsible for the handling of environmental and social mitigation throughout the company. Although significantly delayed, CIL is now recruiting a consultant to provide the necessary TA for implementation of the action plan. Implementation of the action plan will extend beyond the project closing - 21 - date of June 30, 2002, and CIL has committed itself to fund the technical assistance activities beyond the project period. * Although uneven across mines, economic rehabilitation measures involving self-employment assistance have been strengthened through the provision of assistance regarding investments or market linkages required to enable PAPs entitled to economic rehabilitation assistance (EPAPs) to earn an income on the basis of the training received. * As most of the displaced persons are villagers familiar with agriculture, CIL has for the first time introduced, on a pilot basis, land-based income generation on unused or reclaimed mine land as a means of economic rehabilitation. * Lessons learned from the CSESMP regarding resettlement and rehabilitation, the participatory aspects of community development, and environmental mitigation are now being applied in non-project mines. Following CIL's request for extension, the Bank extended the CSESMP closing date by one year until end June 2002. The extension is expected to enable CIL to better achieve the project objectives. - 22 - Annex 1. Key Performance Indicators/Log Frame Matrix Outcome I Impact Indicators: r M'1L~Indlcato,rIM.atlx; l. I . j rjU lmtoiraectOdlnhiaarRPSR~ w ,l 'AptuI,tqt Etlat!J A. Corporate Financial Indicators (i) System Capacity Utilzation (%) BCCL CCL ECL MCL BCCL CCL ECL MCL 1998 78.4 72.4 82.1 93.8 81.85 78.5 71.76 106.41 1999 83.3 75.9 84.6 93.4 70.21 77.64 74.43 106.25 2000 85.6 80.7 86.7 91.3 69.84 80.50 70.98 88.56 2001 87.1 82.1 88.7 91.8 67.24 77.00 83.77 84.74 2002 88.4 82.9 90.2 91.1 NCL SECL WCL CIL NCL SECL WCL CIL 1998 83.5 94.2 88.3 85.2 102.01 98.81 105.45 91.97 1999 83.8 94.5 90.3 87.0 98.76 93.00 96.39 88.34 2000 85.2 93.7 88.7 87.9 108.28 93.42 100.29 87.52 2001 85.2 93.7 90.2 88.9 93.34 89.88 101.18 85.66 2002 86.5 92.2 89.7 89.1 (ii) Coal Produrion (Million tons) BCCL CCL ECL MCL BCCL CCL ECL MCL 1998 30.7 34.0 31.0 39.0 30.92 33.07 27.44 42.17 1999 32.3 36.0 31.5 41.0 27.17 32.17 27.16 43.51 2000 33.0 38.0 32.0 42.0 27.90 32.40 2 5.12 43.55 2001 34.0 39.4 32.5 45.0 25.97 31.75 28.03 44.80 2002 36.0 41.3 33.0 47.3 NCL SECL WCL CIL NCL SECL WCL CIL 37.12 56.63 32.51 260.55 1998 37.5 55.5 30.5 259.2' 36.52 57.56 3`1.75 256.48 1999 39.0 58.7 30.5 270.0 38.43 58.75 33.86 260.58 2000 41.5 61.0 30.6 279.1 4.0 6.3 3.0 281 2001 43.3 64.0 30.7 289.9 4.0 6.3 3.0 281 2002 45.9 65.9 31.8 302.1 (iii) Accounts Receivable (months of tumover) BCCL CCL ECL MCL BCCL CCL ECL MCL 1998 1.5 2.0 1.8 1.3 1.79 4.65 2.28 1.52 1999 1.5 2.0 1.8 1.3 2.93 4.36 2.73 2.48 2000 1.5 2.0 1.8 1.3 2.57 4.15 3.62 2.15 2001 1.5 2.Q 1.8 1.3 2.61 3.04 4.60 2.42 2002 1.5 2.0 1.8 1.3 NCL SECL WCL CIL NCL SECL WCL CIL 1998 1999 1.0 1.3 1.3 1.4 1.14 2.18 1.44 2.63 2000 1.0 1.3 1.3 1.4 1.02 2.80 1.73 3.12 2001 1.0 1.3 1.3 1.4 0.52 2.89 1.98 3.04 2002 1.0 1.3 1.3 1.4 0.32 3.37 2.47 3.29 1.0 1.3 1.3 1.4 (v) Mine Site Coal Stocks (months of producton) BCCL CCL ECL MCL BCCL CCL ECL MCL 1998 1.7 0.8 1.0 0.7 2.24 2.02 1.64 0.64 1999 1.7 0.8 1.0 0.7 1.94 1.98 1.79 1.06 2000 1.7 0.8 1.0 0.7 1.14 1.91 1.32 1.64 2001 1.7 0.8 1.0 0.7 1.08 1.39 1.05 0.76 2002 1.7 0.8 1.0 0.7 NCL SECL WCL CIL NCL SECL WCL CIL 0.40 1.25 0.86 1.24 1998 0.4 1.5 0.5 1.0 0.84 1.35 1.25 1.44 2000 0.4 1.3 0.5 1.0 0.41 1.56 0.83 1.31 - 23 - 2001 0.4 1.3 0.5 1.0 0.21 1.41 0.77 0.95 2002 0.4 1.3 0.5 1.0 (vi) Current ratio (current assest/current liabilitIes) BCCL CCL ECL MCL BCCL CCL ECL MCL 0.95 1.62 0.45 0.79 1998 0.6 1.6 0.5 1.1 0.91 1.54 0.45 0.98 1999 0.6 1.4 0.5 1.1 0.71 1.53 0.45 1.05 2000 0.6 1.4 0.5 1.1 0.43 0.97 0.42 0.99 2001 0.6 1.4 0.5 1.1 2002 0.6 1.4 0.5 1.1 NCL SECL WCL CIL NCL SECL WCL CIL 1998 1.11 1.00 0.78 0.91 1999 1.2 1.3 1.3 1.1 1.27 1.28 0.86 1.02 2000 1.8 1.4 1.4 1.2 1.20 1.19 0.91 0.97 2001 1.8 1.4 1.4 1.2 1.14 1.16 0.93 0.76 2002 1.8 1.4 1.4 1.2 1.8 1.4 1.4 1.2 B. Technical Assistance Indicators Disbursement % 1998 1999 2000 2001 2002 1998 1999 2000 2001 2002 Regulatory Reforms 20 100 Commercialization of coal sales 20 100 Strengthening design capability 20 100 40 100 Financial planning 40 100 Dealt by CIL internally Training of executives 20 50 80 100 Dropped by CIL Repair and maintenance services, etc. 20 80 100 10 100 Mine design optimzatlon Completed Completed Equipment design optimizaton 40 75 85 100 75.31 89.61 93.43 and procurement Local supervision 20 400 60 80 100 14.78 28.17 43.68 67.19 82.11 Coal quality improvement through selecive 30 60 80 90 100 40 100 mining C. Production Indicators Mineable Design 1997 1998 1999 2000 2001 2002 1997 1998 1999 2000 2001 2002 CCL 1.50 1.80 3.0 4.5 4.5 4.5 1.4 1.78 2.3 2.96 3.5 4.5 KD HEsalong 50 4.50 0.80 0.80 1.0 1.75 1.75 1.75 0.8 0.7 0.54 0.89 1.38 1.75 Parej East 41 1.75 2.60 3.00 3.00 3.00 3.00 3.00 2.65 2.6 2.3 2.31 1.71 2.80 RaJrappa 97 3.00 MCL 4.9 5.5 5.5 5.5 5.5 5.5 5.3 6.3 6.6 7.3 7.6 6.0 Ananta 120 5.50 2.8 2.0 2.0 2.0 2.0 2.0 3.0 4.3 4.0 2.8 2.2 2.3 Belpahar 35 2.00 3.3 4.7 5.0 5.0 5.0 5.0 3.7 4.0 5.3 5.1 5.2 5.0 Bharatpur 120 5.00 5.0 4.0 4.0 4.0 4.0 4.0 5.5 5.4 5.4 5.0 5.4 4.0 Jagannath 100 4.00 2.6 3.5 5.0 5.0 5.0 5.0 2.8 2.5 3.0 4.1 4.4 4.7 Lakhanpur 107 5.00 3.05 3.0 3.00 3.00 3.00 3.00 3.3 4.0 3.8 3.49 3.5 4.0 Samaleswari 55 3.00 NCL 5.6 4.5 4.5 4.5 4.5 4.5 5.5 5.5 5.5 5.2 4.9 5.0 Bina 105 4.50 4.2 5.8 5.8 7.0 8.5 9.25 4.3 5.8 4.7 5.2 7.9 8.0 Dudhichua 345 10.00 9.1 9.0 9.0 9.5 9.7 10.0 9.4 9.4 8.5 9.1 9.3 9.5 - 24 - Jayant 322 10.00 3.6 2.7 2.0 3.0 3.0 3.0 3.5 3.6 3.7 4.7 4.1 3.8 Jhingurdah 58 3.00 4.2 4.2 5.0 5.0 6.0 7.0 4.2 4.0 4.1 4.5 5.4 6.0 Nigahi 492 10.00 SECL 0.8 1.0 1.2 1.2 1.2 1.2 0.7 1.0 1.0 1.1 1.1 1.1 Dhanpuri 45 1.25 5.0 3.5 5.0 8.0 9.0 10.0 5.0 5.4 6.9 8.2 9.1 10.0 Dlpka 200 10.00 16.8 16.0 16.0 15.0 14.4 12.00 16.8 17.8 17.2 18.0 18.8 17.9 Gevra 487 12.00 5.15 5.10 5.10 5.10 5.10 5.10 4.8 4.4 5.1 5.5 9.6 6.5 Kusmunda 311 6.00 2.2 2.0 2.0 2.0 2.0 2.0 2.1 1.9 1.4 2.5 1.8 2.0 Manikpur 30 2.00 WCL 1.7 1.8 1.8 1.8. 1.8 1.8 1.7 1.7 1.3 1.7 1.8 1.7 Durgapur 44 1.8 1.9 1.9 1.9 1.9 1.9 1.9 1.9 2.0 2.0 1.8 2.1 1.9 Niljai 65 1.90 1.2 1.1 1.1 1.1 1.1 1.1 1.2 1.2 1.2 1.2 1.3 1.2 Padmapur 20 1.20 1.2 1.2 1.2 1.2 1.2 1.2 1.9 1.8 1.2 1.4 1.4 1.3 Sasda 23 1.25 2.5 2.0 2.0 2.0 2.0 2.0 2.5 2.5 2.5 2.5 2.6 2.5 Umrer 37 1.84 92.6 90.2 102.2 105.4 105.9 94.9 99.1 100.3 105.9 112.8 113.7 Grand Total 3309 110.49 D. Reform Indicators Invitation for proposals for the study of the December 31, 1997 n/a rules and regulations goveming the coal industry Submission of the draft amendment to December 31, 1997 April 24, 2000 CMNA to the Parliament April 30,1998 December 17,1998 Signing of the contract of the rules and regulaftons goveming the coal Industry July 31, 1999 March 2000 Completon of the study of the rules and regulations To be determined after the completion of the Not done Completon of the implementaton of the study results of the study of the rules and regulations goveming the coal industry January 1, 2000 January 1, 2000 Announcement of the full deregulation of price and distribution of the remaining regulated low grade steam coal S. Procurement Indicators 1998 1999 2000 2001 2002 1998 1999 2000 2001 Item Quantity A. Dragline 3 45 63 80 97 100 45 50 50 70 5m3ropeshovel 30 45 80 100 100 45 70 100 100 10m3 ropeshovel 22 45 79 100 100 45 70 100 100 50 ton dump truck 259 45 81 100 100 45 80 100 100 85 ton dump truck 63 45 76 100 100 45 75 100 100 120 ton dump truck 160 45 76 100 100 45 75 100 100 240-60 kW dozer 185 25 88 100 100 25 80 100 100 -25- Output Indicators: ,X, 1h? sIdicatoW/Makitx, A^ . ,|[:. mead InlAmitPSR;*.i'k>lk, iiM ,§v tUisis End of project - 26 - Annex 2. Project Costs and Financing Pect Cost by Component (in US$ million equivalent) Civil Works and Coal Handling Plant 162.10 O Equipment and Vehicles 1202.20 638.91 53.15 Technical Assistance 14.00 9.74 69.57 Miscellaneous 5.00 1.15 23 Total Baseline Cost 1383.30 649.80 Physical Contingencles 138.50 Price Contingencies 175.80 Total Project Costs 1697.60 649.80 _ Total Financing Required 1697.60 649.80 Note on Equipment & Vehicles: Taking into account that an amount to the tune of US$30.0 million was dropped out from the total loan facility under the head "goods", percentage estimate is 54.15% (i.e. 638.91/1172.2). Subsequently, during July 2000 an amount of US$507.40 million was cancelled from the original loan facility of US$ 1030 million. $9.74 million under Technical Assistance includes $1.42 million given to MOC as IDA credit for regulatory framework. Proect Costs by Procurement A(n6ements (Appraisal Estimat (US$ million e uivalen2) 1. Workis 65.60 125.20 190.80 (56.60) 0 (0.00) (56.60) 2. Goods 1128.50 353.80 1482.30 (992.60) 0 0 (0.00) (992.60) 3. Services 0.00 15.60 3.00 18.60 (0.00) 0 (12.80) (0.00) (12.80) 4. Miscellaneous 0.00 5.90 5.90 (0.00) 0 0 (0.00) (0.00) S. Miscellaneous 0.00 0.00 0.00 (0.00) 0 0 (0.00) (0.00) 6. Miscellaneous 0.00' 0.00 0.00 (0.00) OO(0.00) (0.00) Total 1194.10 0.00 15.60 487.90 1697.60 (1049.20) (0.00) (12.80) (0.00) (1062.00) ProJect Costs by Procurement Arrangements (Actual/Latest Estimate) (US$ million e uivalent) 1. Worits l 2 l0.00 1 -27 - o o 0 0 (0.00) 2. Goods 515.46 123.45 638.91 (257.73) 0 0 0 (257.73) 3. Services 8.56 1.18 9.74 0 0 (4.99) 0 (4.99) 4. Miscellaneous 1.15 1.15 O 0 0 (0.00) 5. Miscellaneous 0.00 O 0 0 0 (0.00) 6. Miscellaneous 0.00 O 0 0 (0.00) (0.00) Total 515.46 0.00 8.56 125.78 649.80 (257.73) (0.00) (4.99) (0.00) (262.72) Note: Goods: Figure includes suppliers credit to the tune of US$ 54.00 million Service: Figure includes US$ 1.42 million disbursed to MOC as IDA credit for regulatory framework. Amount of US$1.18 million against TA;under NBF indicates taxes and cess paid by CIL on qonsultancy charges. Miscellaneous: Figure indicates LC charges of US$1.15 million "Figures in parenthesis are the amounts to be financed by the Bank Loan. All costs include contingencies. vIncludes civil works and goods to be procured through national shopping, consulting services, services of contracted staff of the project management office, training, technical assistance services, and incremental operating costs related to (i) managing the project, and (ii) re-lending project funds to local govemment units. Project Financing by Component (In US$ million equivalent) Civil works and Coal 27.25 107.60 27.25 0.0 0.0 0.0 Handling Plant Equipment and Vehicles 411.60 379.00 411.61 257.73 123.45 257.73 62.6 32.6 62.6 Technical Assistance 6.70 4.60 4.70 4.99 1.18 3.57 74.5 25.7 76.0 Miscellaneous 5.00 1.15 23.0 Physical Contingencies 43.70 51.10 43.70 0.0 0.0 0.0 Price Contingencies 42.75 90.30 42.75 0.0 0.0 0.0 TOTAL FINANCING 532.00 637.60 530.00 262.72 125.78 261.30 49.4 19.7 49.3 Appraisal estimate under CIL includes supplier's credit of US$54.0 million. Appraisal estimate and the Actual under Bank for TA includes US$2.00 million and US$1.42 million respectively of IDA credit for technical assistance to MOC. -28 - Annex 3. Economic Costs and Benefits Economic and Financial Analysis of CSRP Present value of flows (USD mllilon) Economic Analysis Financial Analysis Appraisal Latest Appraisal Latest Total (For 23 Estimates Estimates projects) Cost (PV) 1,129.97 658.2 1351.57 712.19 Benefit (PV) 2,692.18 1,252.73 2,260.54 1,109.48 Net Benefit (NVP) 1,562.21 593.46 908.97 397.28 Intemal Rate of 57.61% 55.57% Return (IRR) Source: Coal India Limited - 29 - Economic and Financial Analysis of Coal Sector Rehabilitation Project ( 24 Sub Projects) (US$ million) Company/mine Economic Analysis Financial Analysis Appraisal Latest Estimates Appraisal Latest Estimates NPVat 16% NPVat 16% NPVat 16% NPVat 16% CCL KD Hesalong 87.7 n/a 36.2 n/a Parej East 65.58 19.10 32.6 6.24 Rajrappa 116.05 6.72 81.2 1.26 MCL . Ananta 64.2 36.82 49.63 31.72 Belpahar 9.9 3.66 6.94 2.40 Bharatpur 104.6 63.6 80.65 57.65 Jagannath 31.8 10.85 27.05 9.64 Lakhanpur 81.8 23.36 52.04 19.16 Samleswari 41.5 11.45 28.90 8.31 NCL Bina 28.1 4.91 7.60 2.35 Dudhichua 166.8 50.41 65.90 7.67 Jayant 102.6 57.41 41.20 22.86 Jhingurda 470. 16.22 23.20 10.77 Nigahi 122.1 25.31 43.40 3.91 SECL Dhanpuri 5.70 1.07 2.10 1.31 Dipka 204.70 120.58 107.10 103.21 Gevra 51.70 31.33 34.50 26.16 Kusmunda 70.05 41.72 45.50 31.48 Manikpur 13.80 9.67 8.30 8.06 WCL Durgapur 50.20 26.26 44.00 22.22 Niljai 51.20 8.44 34.10 4.36 Padmapur 38.10 8.55 33.60 6.46 Sasti 28.60 9.33 17.10 5.27 Umrer 65.90 6.70 41.80 4.81 Total 1,649.95 593.47 944.97 397.28 Source: Coal India Ltd. - 30 - Table: Assumptions underlying thefinancial and economic analysis Financial analysis Economic analysis Capital cost SAR SAR The capital cost is based on Coal India's and the mission's The financial costs were converted to economic costs by netting out estimates of cost components in sub-projects. The capital costs duties and taxes, expressing the input content at c.i.f. prices and include the investments envisaged in Coal Sector Environmental adjusting local cost components by applying the standard conversion And Social Mitigation Projects. The cost estimates of equipment factor of 0.8. are based on the standard price list published by CMPDI every year. This list is a compilation of information based on the latest purchases by Coal India. However, in cases where no such purchases were made, budgeted prices from the suppliers formed ICR the basis of estimates. The base month for the estimate is July The financial costs were converted to economic costs by netting out 1996. The capital cost of individual sub-projects includes duties and taxes, expressing the input content at c.i.f. prices and applicable taxes and duties and 100/o physical contingency. All adjusting local cost components by applying the standard conversion costs have been converted to their equivalent in 1996 US dollars. factor of 0.9. ICR The capital costs from the beginning of the project in 1998 till March 2001 are based on actual expenditure incurred. The investment beyond March 2001 is estimated either on the basis of actual contract prices or the current standard price list published by CMPDI. The capital costs also include the investments envisaged in Coal Sector Environmental And Social Mitigation Projects. The estimates of capital cost for individual subproject include applicable taxes and duties. All costs have been converted to their equivalent in 2002 US Dollars. Operating cost SAR SAR The operating costs are based on Coal India's estimates of the The cost was derived from the financial cost by excluding all taxes and operating costs for each subproject. These have been derived from duties and a standard conversion factor of 0.8 was applied to the local the schedule of additional coal production, overburden removal, cost component. and deployment of the machines and take into account fixed and variable components of unit operating cost. The unit operating cost estimates, i.e. cost/m3 are comparable with mines of similar nature currently in production in Coal India. For replacement projects, however, the variable cost/incremental operating cost is company specific and are based on actual results of 1995-96. These costs reflect the variable costs per m3 in opencast mines of Coal India. Interest on working capital is based on historical levels of working capital requirements equivalent to 4 months operating cash expenses. ICR The operating costs till 2001 are actual and the unit cost estimates for future years are based on the actual cost prevailing in 2001. Coal production SAR SAR For mines under construction and expansion mines, the expected For mines under construction and expansion mines, the expected increase of coal output was taken as the major benefit from the increase of coal output was taken as the major benefit from the subprojects. For projects where replacement equipment is subprojects. For projects where replacement equipment is proposed to proposed to be financed, the likely shortfall in coal output that be financed, the likely shortfall in coal output that would occur if would occur if equipment were not replaced was taken as the equipment were not replaced was taken as the major benefit The major benefit. The assessment of the shortfall in production was assessment of the shortfall in production was based on the recent based on the prevailing average annual productivity of each type average annual productivity of each type of equipment in Coal India. of equipment in Coal India. ICR ICR The coal production till 2001 is actual. The estimates of incremental The coal production till 2001 is actual. The estimates of production beyond 2001 are based on the technical assessment of the incremental production beyond 2001 are based on the technical planned deployment of equipment and the geo-mining characteristics assessment of the planned deployment of equipment and the of the mines. The methodology adopted for the assessment of geo-mining characteristics of the mines. The methodology adopted incremental production is the same as the SAR. for the assessment of incremental production is the same as the SAR. Coal price SAR SAR Expected revenues are based on ex-mine selling prices authorized Benefits were calculated on the basis of additional coal production, as of March 1997 and additional coal production attributable to valued in two ways. First, at c.i.f. import prices of coal at selected the investment in the project Revenues for Nigahi are based on the Indian ports plus inland freight costs to consumers and adjusted for price negotiated with NTPC. equivalent heat values, less freight charges for delivery of coal from mine mouth to the same consumers. Second, on the basis of long-nn marginal cost, appropriately adjusted for quality, to reflect consumer's - 31 - willingness to pay. With the exception of two coking coal mines (Parej ICR East and Rajrappa) and one non-coking coal mine (Umrer) producing Actual selling prices till 2001 have been adopted. The present coal high grade coal, incremental output of all other mines was valued at prices have been used in the estimates of cash inflow for each sub prices based on the long run marginal cost (LRMC). The methodology project adapted is consistent with the one applied at appraisal. ICR Same as above Source: Coal India Ltd. - 32 - Annex 4. Bank Inputs ) Missions: Stage of Project Cycle No. of Persons and Specialty Performance Rating (e.g. 2 Economists, I FMS, etc.) Implementation Development Month/Year Count Specialty Progress Objective Identlflcation/Preparation November/96 2 1 Financial Analyst, 1 Operations Officer Appraisal/Negotiadon March/97 7 1 Financial Analyst, 1 Operations Officer, 2 Mining Engineers, I Procurement Specialist, I Economist, I Legal Counsel Supervision October/97 I I Operations Officer S S October/97 1 I Operations Officer S S December/97 6 2 Financial Analysts, I S S Operations Officer, 1 Mining Engineer, I Procurement Specialist, I Consultant May/98 4 1 Financial Analyst, I S U Operations Officer, I Mining Engineer, I Procurement Specialist September/1998 2 1 Operations Officer, I Mining S S Engineer October/98 I I Financial Analyst S S March/99 5 Sector Manager, 2 Financial S U Analysts, I Operations Officer, I Mining Engineer April/99 3 2 Financial Analysts, I S U Consultant November/99 7 2 Mining Specialists, 2 Financial U U Analysts, 1 Operations Officer, I Procurement Specialist, I Consultant March/2000 5 Sector Manager, 2 Financial U U Analysts, I Operations Officer, I Consultant ICR January/02 3 1 Financial Analyst, I Economist, I Consultant - 33 - (b) Staff Stage of Project Cycle Actual/Latest Estimaite No. Staff weeks US$ cooO) Identification/Preparation 405.4 1352.2 Appraisal/Negotiation 65.8 248.4 Supervision 189.4 710.2 ICR 6.87 45.5 Total 667.5 2356.3 - 34 - Annex 5. Ratings for Achievement of Objectives/Outputs of Components (H=High, SU=Substantial, M=Modest, N=Negligible, NA=Not Applicable) Rating El Macro policies O H OSUOM O N * NA El Sector Policies OH OSUOM * N O NA El Physical O H *SUOM O N O NA E Financial OH OSUOM ON ONA O Institutional Development 0 H O SUO M 0 N 0 NA OjEnvironmental OH OSUOM O N * NA Social rO Poverty Reduction O H OSU*M O N O NA O Gender O H OSUOM O N * NA El Other (Please specify) O H OSUOM O N * NA Ol Private sector development 0 H O SU OM * N 0 NA O Public sector management 0 H O SU *M O N 0 NA O Other (Please specify) O H OSUOM O N * NA - 35 - Annex 6. Ratings of Bank and Borrower Performance (HS=Highly Satisfactory, S=Satisfactory, U=Unsatisfactory, HU=Highly Unsatisfactory) 6.1 Bank performance Rating OL Lending OHS*S OU OHU O Supervision OHS OS O U O HU El Overall OHS OS 0 u O HU 6.2 Borrowerperformance Rating LII Preparation OHS OS OU O HU O Government implementation performance O HS O 5 * U 0 HU OI Implementation agency performance OHS OS O U O HU I Overall OHS OS U O HU - 36 - Annex 7. List of Supporting Documents 1. Aide Memoires, Back-to-Office Reports, and Project Status Reports; 2. Project Progress Reports; 3. Consultant Study Reports financed under the Project; 4. Borrower's Evaluation Report dated February 15, 2002; and 5. Staff Appraisal Report for India: Coal Sector Rehabilitation Project dated July 31, 1997 (Report No. 16473-IN - 37 - ~~ _ ~~~. .X . : -1,.1 <~~~~~~ 1, jrb t HS4 *Ei , , -,er_ F;~~~~~~~~~~~~~~~. 1 n,o' * 4 _ ~~~~~~~~~a~' ._I * ,_#s > - - - R ' G; , ,,. ss b~~~~~~~~~~~~~~~-- 4 ;~~~~~~~~~~~~~~~~~~~~~~~~~ . * J a :~~~~~~~~~~~~~~~~~~~~- '- V a - ~ ~~~~ ~ ~~~~~~~~ ~~~ ~~~~~~~~ ~ I VN>r~ qWJWrMeUJw aipm /r -- -' ' -o F~~~~~ ~ ~ ~ ~~~~~~~~~~~~~~~~~~~~~~~~ a-,,d n~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~a~ *--I 4R v f~~~~~~~ ~ ~~~~~~~~~~~~~~~~~~~~~~ a * a - lev ffi . , ,.* s t 4 o- - u $wi (l~~~~~~~~~~~~~~~~~~~~~VKIS%'VW ,, ,,sni ('sy '1'flp PIfU- W3~ ;~~~~~~~~~~~~~~~~~~~~alf o C4° #- (s3} 'WA e D*8 - wamIC lyoNse -E a --. fl us / Rr ff ~ ~~ HSt &VIWMll a *< * 8\~~~~~~Q~ HS*HOVWJ VAHOY IMAGING Report No.: 23743 Type: ICR