Document of

The World Bank

FOR OFFICIAL USE ONLY

Repot No. 5843-IN

STAFF APPRAISAL REPORT

INDIA

COAL MINING AND COAL QUALITY IMPROVEMENT PROJECT

March 25, 1987

Industry Department

This dwoment has a restricted distribution and may be used by recipients only in the performance oftheir official duties. Its eontents may not otberwise be disclosed without World Bank authorization.

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CURRENCY EQUIVALENTS

Rs 1.00 - Paise 100US$1.00 = Rs 13.0Rs 1.00 - US$0.08Rs 1 million - US$76,923

(Conversions in the Staff Appraisal Report were made at US$1.00 to Rs 13.0)

FISCAL YEAR

April 1 - March 31

WEIGHTS AND MEASURES

1 British thermal unit (Btu) - 0.252 kilocalories1 kilocalorie (kcal) m 3.97 British thermal units1 gigacalorie (gigacal) - 1,000,000 kcalI kilocalorie per kilogram - 1.805 British thermal uaits per

(kcal/kg) pound1 cubic meter (m3) = 1.308 cubic yards1 kilowatt (kW) - 1,000 watts1 megawatt (W) m 1,000 kilowatts1 gigawatt hour (GWh) J 1,000,000 kilowatt hours1 kilogram (kg) 2.205 poundsI ton of coal equivalent (tce) - 1 ton of coal containing

7,000,000 kcal1 ton (t) = 1,000 kilograms

PRINCIPAL ABBREVIATIONS AND ACRONYHS USED

BCCL - Bbarat Coking Coal Ltd. IISCO - Indian Iron and Steel CompanyBICP - Bureau of Industrial Costs and LCB - local Competitive Bidding

Prices LIB - Limited International BiddingCCL - Central Coalfields Ltd. NCL - Northern Coalfields Ltd.CHP - Coal Handling Plant NEC - North-Eastern Coalfields Ltd.CIL - Coal India Ltd. NTPC - National Thermal Power CorporationCMPDI - Central Mine Planning and Design CM - Output per Manshift

Institute SAIL - Steel Authority of India Ltd.CPRA - Coal Price Retention Account SCL - Singareni Collieries Ltd.DOC - Department of Coal SECL - South Eastern Coalfields Ltd.ECL - Eastern Coalfields Ltd. TISCO - Tata Iron and Steel CompanyGOI - Government of India WCL - Western Coalfields Ltd.ICB - International Competitive Bidding

FO OR 0CIAL USE ONLY

INDIA

COAL MINING AND COAL QUALITY IMPROVEMENT PROJECT

TABLE OF CONTENTS

Page

I. INTRODUCTION .......... I.............. ........... 1

II* THE SCTOR III.THESECO ................................................ 1

A. Energy Resources ...................................... 1B. The Coal Sub-sector ................................... 2C. Coal Development Prospects ............................

D. Coal Sector Productivity and Efficiency ............... 5

E. Coal Marketing and Distribution ....................... 7

F. Coal Quality Improvement Measures ..................... 7G. Coal Pricing .......................................... 10H. Role of the Bank ..................................... 11

TII. THE BENEFICIARIES ............... .......................... 13

A. The Coal India Group ........................ O.. 131. Organization and Management ....................... 132. Operations . *................* * ................. 153. Manpower and Training *.............. ........ 164. Financial Position ... ............................. 17

B. South Eastern Coalfields Ltd .......................... 19C. Eastern Coalfields Ltd ................ ........ 20

IV. THE PROJECT o............................................... 21

A. Project Objectives *................................... 21B. Project Description .u*................................. 22

1. Gevra Mining Complex ... . .......................... 222. Sonepur-Bazari Mining Complex ..................... 253. Environmental Protection, Safety and Resettlement.. 294. Coking Coal Imports o.................. ...........o 30

C. Project Execution and Implementation ...o ........... . 31

V. CAPITAL COSTS, FINANCING AND PROCUREMENT ... ............... 33

A. Capital Cost Estimates . ............ ................ 33B. Financing Plan . ....................................... 35C. Procurement and Disbursement . .......................... 37

This report has been prepared by Messrs. J. E. Strongman, L. Maraboli,A. Covindassamy, and Mmes. H. Wu and M. Kutcher of the Industry Department.Word processing services were provided by Mrs. N. Nguyen.

This document has a rstrcted distribution and may be used by recipients only in the performanceof their officid duties Its contents may not otherwise be disclosed without World Bank authorization.

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VI. FINANCIAL ANALYSIS ....................................... 40

A. Coal India Ltd ................... *.....*............ 40B. South Eastern Coalfields Ltd ........ ................... 44C. Eastern Coalfields Ltd ......... ......... **...... 45D. Gevra and Sonepur-Bazari Projects ...... ................ 46

VII. ECONOMIC ANALYSIS ................. ....................... 48

A. Economic Rates of Return ............................... 48B. Resource Mobilization ............ see ................... 49Co Otber Benefits ..................... 50D. Least Cost Development Program ......................... 51E. Project Risks .......................................... 52

VIII. AGREEMENT ...................... 52

1. Energy Sector Owerview2. Coal Demand and Supply 1984/85 - 1989/903. ECL and SECL Investment Portfolio4. Fazal Coumittee Report-Summary of Recommendations5. Measures to Lmprove Coal Quality6. Coal Price Schecdule7. Scope of Work for Assistance on Workshop Design8. Scope of Work for Assistance on Manpower Planning and Training9. CIL Financial Statements 1980/81-1985/8610. Scope of Work for Assistance on Training Institute Design and

Development11. Resettlement Arrangements12. Project Management Organization13. Implementation Schedules14. Equipment Cost Estimates15. Procurement Schedule and List of Bank Financed Goods16. Disbursement Schedule for Bank Loan17. Assumptions Usel in the Financial Projections18. Pro Forma Financial Statements for CIL 1986/87-1993/9419. Medium Term Efficiency Improvement Program and Performance Targets

(1986-1990)20. Pro Forma Income Statements for CIL Subsidiaries 1986/87 to 1993/9421. Financial and Economic Rates of Return - Assumptions and Calculations22. Documents Available in the Project File

CHARTS

I Gevra Mining Complex2 Sonepur-Bazari Mining Complex

MAP

IBIRD No. 19279R

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INDIA

COAL HINING AND COAL QUALITY IDPROVEMENT PROJECTLoan and Project Summary

Borrower: India, acting by its President

Beneficiary: Coal India Ltd. (CIL)

Amount: US$340 million equivalent

Terms: Payable in 20 years, including 5 years of grace atthe Bank 2tandard variable interest rate.

On-Lending Terms: US$180 million equivalent from GOI to CIL for aperiod of 15 years, including 5 years grace, at aneffective interest rate of not less than 13.75Z perannum. CIL to Eastern Coalfields Ltd. (ECL) and toSouth Eastern Coalfields Ltd. (SECL) for a period of15 years, including 5 years of grace, at an effectiveinterest rate of not less than 13.75% per annum.

Project Description: The main objectives of the project are to increasethe supply of thermal coal (to the power andindustrial sectors) and coking coal (to the steelsector) and to improve the quality of coal availableto consumers. The project is also designed tosupport CIL in its efforts to develop and implementefficiency improvements and, thereby, improve itsfinancial performance. The project will support theinstitutional development of CIL by strengthening itsmanpower planning and organization, by improvingtraining, and by improving the maintenance ofequipment through modernization of workshops. Theproject consists of the development of (i) the secondphase of the Gevra mining complex to reach an outputof 10 million tons per year (tpy) of low gradethermal coal to feed the Korba power plant; (ii) theconstruction of the Sonepur-Bazari mining complex toproduce 3 million tpy of intermediate and superiorgrade thermal coal; and (iii) the importation ofabout 3.0 million tons of coking coal. By developinglarge-scale open-pit mines, India is pursuing astrategy of increasing coal supplies at least-costwhile promoting diversification of miningtechnologies and improvements in productivity in thecoal sector. By importing coking coal India ismaking-up for a shortfall in domestic supplies aswell as improving the average quality of coking coalby blending low-ash imports with higher ash domestic

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coals. The project faces minimal technical andmarketing risks. Any possible financial risks aremitigated by (a) CIL's efforts to improve itsefficiency and financial performance, (b) GOI'scommitment to preparing a program that would assureCIL's future financial viability and (c) the highpriority GOI places on developing India's coalresources in a timely and efficient manner.

Project Cost Estimate:(US$ mllion) --

Local Foreign Total(a) Mining Component

Equipment & Spares 82.6 113.0 195.6Coal Handling Plant 34.8 3.7 38.5Land & Civil Works 63.3 - 63.3Engineering 1.7 - 1.7Pre-Operating Expenditure 10.1 0.9 11.0Technical Assistance - 3.0 3.0Duties and Taxes 65.6 - 65.6

Base Cost 258.1 120.6 378.7

Physical Contingencies 14.3 6.3 20.6Price Escalation 36.9 26.6 63.5Working Capital 14.0 0.7 14.7Total Project Cost 323.3 154.2 477.5

Interest During Construction 1.4 4.3 5.7

(b) Coking Coal Imports Component - 160.0 160.0

Total Financing Required 324.7 318.5 643.2

Financing Plan:(a) Mining Component

EquityGovernment of India 188.6 - 188.5CIL Cash Generation 53.1 - 53.1

Total Equity 241.6 - 241.6

Long-Term DebtGovernment of India 61.6 - 61.6IBRD 21.5 158.5 180.0

Total Debt 83.1 158.5 241.6

Sub-total 324.7 158.5 483.2

(b) Coking Coal Imports ComponentLong-Term DebtIBRD - 160.0 160.0

Total Financing Required 324.7 318.5 643.2__ _-_

Estiuated Disbursements:

-(US$ million)Bank FY 1988 1989 1990 1991 1992 1993 1994

Annual 91.8 110.8 36.6 37.2 32.2 26.8 4.6Cumulative 91.8 202.6 239.2 276.4 308.6 335.4 340.0

Economic Rate of Return:

Gevra 32ZSonepur-Bazari 19Z

Map: IBRD No. 19279R

I. INTRODUCTION

1.01 The Government of India (GOI) has requested a Bank loan ofUS$340 million to assist in the financing of a Coal Mining and Coal QualityImprovement Project. The project has three main components: (i) the Gevramining complex which comprises a 10 million tons per year (tpy) open-pitmine and associated infrastructure in the state of Madbya Pradesh, whichwill be constructed and operated by South Eastern Coalfields Ltd. (SECL);(ii) the Sonepur-Bazari mining complex, which consists of a 3.0 million tpyopen-pit mine and associated infrastructure in the state of West Bengal tobe operated by Eastern Coalfields Ltd (ECL); and (iii) the import of about3.0 millicon tons of coking coal. Both SECL and ECL are subsidiaries ofCoal India Ltd. (CIL), a GOI undertaking. The project fonss part of theGovernment strategy to ensure timely supplies of adequate quality coal forconsumers in India. In particular, the project will provide forimprovement in the quality of both thermal and coking coal supplies. Theproject will also support GOI's strategy to develop large-scaleeconomically efficient mining operations, as well as efficiencyimprovements in CIL and efforts by both CIL and GOI to reestablish CIL'sfinancial viability. The proposed project was submitted by GOI to the Bankin September 1984. It was appraised in March 1985 and post-appraised inJune 1985.

II. THE SECTOR

A. Energy Resources

2.01 India is well endowed with coal resources and has moderatehydropower potential; hydrocarbon reserves are only modest (Annex 1).Total coal resources (excluding lignite) are estimated at over 127 billiontons, of which 60 billion tons are considered technically and economicallyrecoverable at present. Coal production in 1985/86 was 153.0 milliontons. Exploitable hydropower potential is estimated at 89,930 MW, againsta 1985/86 generation from all sources of 166.6 TWh. Recoverable reservesof oil are estimated at 187 million tons on-shore and 324 million tonsoff-shore. Associated and non-associated gas reserves are estimated atabout 478 billion cubic meters (equivalent to 397 million tons of oil).Production in 1985/86 was about 29 million tons of oil and about 7.2million cubic meters of gas.

2.02 Energy use in India is among the lowest in the world. Per capitaconsumption of energy averages 210 kg (coal equivalent), compared with680 kg in China and about 7,500 kg in industrialized countries. Over thepast three decades, the composition of fuel consumption has increasinglyshifted from the use of non-commercial fuels, such as vegetable and animalwaste, to commercial energy resources. At present, non-commercial fuelaccounts for less than 40% of total energy consumption, while coal accountsfor 32Z, oil and gas about 20% and primary electricity for 8Z.

2.03 The increasing reliance on commercial fuels has stretched thecapability of the energy sector to meet the energy needs of the economy andhas placed a heavy burden on the balance of payment. Recognizing the

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importance of the energy sector to India's ongoing economic development,the Government has established three main objectives, namely: to fullydevelop indigenous energy resources, to improve the efficiency of energyutilization and to limit the use of oil products to end-uses in whicheconomic substitution by other forms of energy, particularly coal, is notpossible. In line with this policy the Government places particularemphasis on the development of the coal industry and the exploration foroil and gas. Through pricing policies and rationing, the Government hasreduced the use of oil products, where this has been technically andeconomically feasible, and has encouraged the use of coal. To reduce powershortages which have been prevalent for many years and to overcome, atleast in part, the transportation problem associated with the greater useof coal, the Government has also embarked upon a major construction programfor coal based thermal power plants located near the mines.

B. The Coal Sub-sector 1;

2.04 Coal is and will continue to be India's most abundant domesticenergy resource. In 1985/86 coal production reached 153 million tonsmaking India the 6th largest coal producer in the world. Coal presentlyaccounts for about 60Z of all commercial energy produced in India and evenallowing for good progress in new oil and gas discoveries, coal'scontribution is expected to remain at more than 50% over the next decade.India's vast coal reserves will be sufficient to meet the country's needsfor the next 100 to 150 years at least.

2.05 India is a low-cost coal producer. Operating costs averageUS$13 per ton, while capital costs for mine development are in the rangeUS$20 to $60 per ton of annual output for new open-pit coal mines(including mine-related infrastructure but excluding other infrastructure,such as rail trunk lines). There is considerable variation in miningconditions and costs among regions. The older coalfields in Bihar and WestBengal, which contribute 55% of coal production including all of the primecoking coal, have mostly deep underground mines in difficult geologicalconditions and high operating costs (in the order of US$18-20 per ton).Operating costs are generally lower for newer mines in other states such asMadhya Pradesh, Orissa and Maharashtra. where mining conditions tend to beeasier; operating costs are in the order of US$10-12 per ton forunderground mines and as low as US$6-8 per ton for large-scale open-pitmines. Overall, only China, South Africa and Western US mines arecompetitive with India regarding average minehead coal production costs.

2.06 Coal accounts for more than half of commercial energy consumptionin India. Roughly 70% of the annual coal production are consumed by powerstations, steel, cement and fertilizer plants and the Indian Railways. Thenumber of consuming units is small and the relationship between them and

1/ Fuller background details on the sector and on the CIL group ofcompanies is provided in India Coal Sector Report (3601-IN, September1982), Dudhichua Coal Project SAR (4714-IN, February 1984) and JhariaCoking Coal Project SAR (5336-IN, February 1985).

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the coal producers is close. The remaining 30Z of coal output are consumedby a large number of small industrial plants, such as jute mills, papermills, textile mills and chemical plants, and countless buyers of soft cokefor domestic use.

2.07 The northern, western and southern states of India account forsignificant share of coal consumption resulting in substantial coaltransportation from coalfields in West Bengal and Bihar to consumers inDelhi, Haryana, Uttar Pradesh and Punjab and from coalfields in MadhyaPradesh and Bihar to consumers in Gujarat, Maharashtra and Rajasthan. Thisregional imbalance in coal production and demand places great stress on therailways. Coal makes up more than 35% of the railway's total freighttraffic and more than 75Z of coal output is shipped to consumers by rail.Road transport and, to a very limited extent, coastal barges and ropewaysaccount for the remaining 25%. Given the projected growth in supply anddemand, the regional imbalance is expected to become more acute by the endof the Seventh Plan. Under the Dudhichua Coal Project (Loan 2393-IN,February 1984), a coal transportation study has been undertaken to addressthe capabilities of the rail system for meeting the growing transportationrequirements of coal. The study addresses the issue of how to introducestate of the art rail technology for coal movement and how to improve theoperational efficiency and capacity of the existing coal transportationsystem and the adequacy of present management and coordination policiesregarding coal movement. The results of the study include specificrecommendations regarding the improvement of (i) procedures and linesidefacilities for loading and unloading coal railway wagons, (ii) railwaymotive power and rolling stock for coal movement, (iii) certain sections ofrailway line and marshalling yards, and (iv) coal linkage and distributionarrangements. The recommendations are now being considered by the variousMinistries and organizations involved following which implementationdecisions will be taken.

2.08 The coal industry is intensifying its exploration efforts insouthern and western areas, where reserves are explored in response to therapid growth of demand by consumers in western India, particularly in theBombay area, and in Gujarat. To meet the need for new coal developments inadjacent locations, coal exploration priorities have been shifted to thestates of Maharashtra and western Madhya Pradesh. This is a sound approachbecause it is expected to make more readily available, in the comingdecade, coal supplies for western markets without the long transportationlinkages from the distant eastern coalfields. However, the quality of coalreserves varies widely and both reserves and supplies of high qualitythermal and coking coals are limited and tend to be concentrated in easternIndia. For the most part, therefore, new coalfields will tend to be oflower grade coal.

2.09 Over 90% of coal production in India is in the hands of CoalIndia Ltd. (CIL), which is wholly owned by GOI. CIL has sevensubsidiaries, of which six are producing companies, Eastern CoalfieldsLtd. (ECL), Bharat Coking Coal Ltd. (BCCL), Central Coalfields Ltd. (CCL),Western Coalfields Ltd. (WCL), Northern Coalfields Ltd. (NCL), SouthEastern Coalfields Ltd. (SECL), and one is a mine planning concern--CentralMine Planning and Design Institute (CMPDI). Four of these subsidiaries

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(namely ECL, BCCL, CCL and WCL) were established in 1975. The other two(SECL and NCL) were established in 1986 (see para. 3.05). Coal productionalso takes place at North Eastern Coalfields (NEC) in Assam which is anoperating division of the CIL holding company. In addition to CIL, thereare three other coal producers and one major lignite producer. The coalproducers are Singareni Collieries Company Ltd. (SCL) which is jointlyowned by the Central Government and the State Government of Andhra Pradesh,and captive coking coal mines of the privately-owned Tata Iron and SteelCompany (TISCO) and the Government-owned Indian Iron and Steel Company(IISCO). Lignite production in India is in the hands of theGovernment-owned Neyveli Lignite Corporation (which produced nearly 7million Lons in 1985/86), and lignite production has recently started by astate-owned company in Gujarat. The Department of Coal (DOC), Ministry ofEnergy, is in charge of policy making in the coal and lignite sector and ofmonitoring and coordinating production, distribution and prices of coal,including the production targets, annual investment and operating budgetsof the Government-owned coal companies. The Planning Commission reviewsthe various production and consumption targets and investment programs. Italso approves linkages between new mines and major consumers.

C. Coal Development Prospects

2.10 GOI's coal development strategy emphasizes the need to ensuretimely and adequate supply of satisfactory quality coal with economicallyefficient mining and transportation systems. Specifically, GOI is nowconcentrating on a multi-track coal development strategy:

(i) rapid expansion of lot-cost thermal coal production throughdeveloping large coal fields with shallow deposits, usingincreasingly efficient surface mining technologies and equipmentwhile paying due regard to coal quality, safety and environmentalprotection;

(ii) increasing the supply of coking coal (and thereby reducing theneed for imports) through rehabilitating and mechanizing deepunderground prime coking coal collieries and, where possible,developing mechanized, open-pit coking coal mines;

(ii-) lowering production cost and improving the productivity ofunderground mining operations by new initiatives to improve laborproductivity and reduce surplus employment in older, labor-intensive underground mines; by accelerating the introduction ofmechanized mining approaches, where appropriate; and bydebottlenecking efforts including improving mine transportsystems to match increased production capacities;

(iv) improving coal quality to consme-rs by establishing stricterquality controls, of more coal handling plants (for thermalcoals), improved washery operations (for coking coals), as wellae improved adherence to mine-consumer linkages;

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(v) improving the supply of coal from existing coalfields (as well asreducing its cost) to distant consumers through rationalizingmine-consumer linkages, streamlining coal transportation systemsand emphasizing coal exploration and development in western andsouthern India to reduce the average hauling distance andintroducing mechanization, where appropriate; and

(vi) refining the current methods used in assessing the coalrequirements of both major and minor coal users to reduce thecostly build-up of pithead stocks.

2.11 Coal supply and demand are projected to increase at an annualgrowth rate of about 9Z during the Seventh Plan (compared with 5.6Z peryear during the Sixth Plan2/) which will result in a total production andconsumption of about 225 million tons and 232 million tons respectively in1989/90 (Annex 2). The gap between supply and demand will be provided bycoking coal imports (3-4 million tons of imported coking coal with 10 ashbeing approximately equivalent to 5-7 million tons of domestic coking coalwith 21X ash). During the period of the Seventh Plan (1985/86 to 1989/90),CIL expects to implement an investment program of about Rs 53 billion(US$4.0 billion) in 1986/87 terms, of which about 20% would be foreignexchange requirements. This represents an expansion, in real terms, of 30%over investment expenditures in the Sixth Plan and is due to increases inthe numbers and scale of projects ana in their implementation costs. Theprogram is very ambitious but can be achieved provided CIL continuesimproving its project implementation procedures and, once improvements aredemonstrated, ensures their dissemination throughout the CIL Group. Theprogram consistent with GOI's budgetary allocations for the sector. Anearlier review of CIL's overall investment program revealed that with a fewexceptions, the investment program is following the least cost developmentpath. That finding has been verified by a detailed review of theinvestment portfolios of the project executing agencies, ECL and SECL(Annex 3).

D. Coal Sector Productivity and Efficiency

2.12 At the time of nationalization CIL inherited a very large laborforce, with low productivity. CIL's original strategy had been to improveits efficiency through (a) the extensive reconstruction of the oldunderground operations including the introduction of highly mechanizedmining techniques and (b) the selective development, wherever possible, oflarge-scale open-pit mines. CIL is presently undertaking a program torationalize its underground production through the reorganization of smallmines into larger units including the introduction of some degree ofmechanization for both coal extraction and transportation. This program isa sound strategy and is expected to contribute to reducing unit productioncosts, as well as providing increases in production. There are presently24 such reorganization/mechanization projects in different stages ofimplementation throughout the CIL Group. Underground production frommechanized mines is expected to increase to about 35% in the early 1990s

2/ By comparison GDP growth was almost 5% per year.

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from 5Z at present. A program to improve the design, management andoperating procedures of highly mechanized underground mines is beingundertaken by BCCL urder the Jharia Coking Coal project.

2.13 While the program to improve efficiency by mechanizingunderground operations offers much promise for the future, a more immediateproblem is that labor productivity as measured by output per manshift (OMS)in existing underground mines has been declining (from 0.57 in 1978/79 to0.5_ in 1985/86 for CIL) partly due to a lack of efforts to improveefficiency in the unmechanized underground mines. In order to rectify thissituation, CIL has implemented a number of initiatives including (i) ahiring freeze for existing underground operations, (ii) disciplinarymeasures (including firing workers) to reduce absenteeism among key workerssuch as loaders, (iii) no longer providing jobs to near relatives ofretirees, (iv) debottlenecking investments to increase production in aparticular colliery from the same workforce, (v) reduced hiring ofresettled land owners, (vi) transfer of underutilized labor from old minesto new projects, and (vii) training and upgrading of skills. A program ofmeasures to improve the performance of loss-making mines for ECL hE beenagreed with the Bank (para. 3.18) and a Medium Term Efficiency ImprovementProgram was prepared in December 1986 and is just starting to beimplemented by CIL (para. 6.10). In addition, new measures to improve workpractices and encourage voluntary retirement of workers are also underpreparation and other measures are recommended in a recent report by theCommittee on Eastern Coalfields (see para. 3.18).

2.14 CIL also has a number of initiatives to improve the efficiency ofit6 open-pit mining operations. CIL has progressively moved to largerequipment sizes and is now using 85-ton dump trucks and 10 yd3 shovels inmany operations and is introducing 120-ton and 170-ton dump trucks and 20yd3 shovels at selected projects. For large-scale open-pit mines, outputper manshift is not a meaningful measure of productivity because it canvary widely from mine to mine depending on many factors including,importantly, the stripping ratio (i.e. the amount of overburden to beremoved to produce one ton of coal) and the distance from the point ofexcavation to where the overburden is dumped or the coal unloaded.Instead, efficiency is generally measured in terms of the availability andutilization of equipment. Equipment availability reflects the amount ofout-of-service time due to repair and maintenance. Equipment utilizationreflects the amount of time that available equipment" is not in use due toshift changes, safety checks, queueing for fuel, tea-breaks etc. In thepast few years CIL has taken several steps to improve its open-pitefficiency. Even so, CIL's equipment availability and utilization arepresently still below international standards due to poor maintenanceprocedures, spare part shortages, inadequate workshop facilities andineffective work practices. CIL is giving high priority to improving itsopen-pit efficiency including using foreign technical assistance to improvemaintenance and operating procedures (which is financed under the Dudhichuaproject), introducing -hot seat' changes for major equipment and usingoverlapping shifts to improve utilization, and arranging for suppliers to

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open spare parts depots in major coalfields. In addition, new initiativesare being prepared to improve the availability of imported spare parts andto deal with the problem of equipuent which is out of commission due tothe backlog of repairs.

E. Coal Marketing and Distribution

2.15 The distribution of coal in India takes place within a set ofadministrati-on procedures which are set by the Government. Under theseprocedures, each major coal consumer (thermal power stations, cement,fertilizer and steel plants, as well as the railways) is linked to one ormore collieries. These linkages, as well as the allocation of coalsupplies, are then reviewed in quarterly meetings of the Special LinkageCommittee and in monthly operational meetings between consumers, therailways and the coal companies. While these linkages do attempt to matchnew coal consumers with new mines, steadily rising pithead stocks andpersistent complaints from major consumers about inadequate coal qualitiesor late shipments have led to growing concern within the Government aboutthe efficiency of this system. In its review of the Sixth Five Year Plan,the Planning Commission proposed the adoption of a systems approach' indetermining coal production, transport, consumption and stocks. Since theincrease in pithead stocks (which reached a peak of 30 million tons inMarch 1985), was to a large extent due to overly optimistic demandprojections for several large consuming sectors, the Planning Commissionemphasized the need for irnprovements in the demand forecasting technologythat is currently used. Under the Dudhichua Coal Project, the DOC hascommissioned a study to review the current practice of establishingconsumer-producer linkages, identify weaknesses in the current system andsuggest improvements with the help of a linear programming model that wouldcover the entire system of existing linkages. The linkage study will usedata and results from the coal transport study (para. 2.07). Datacollection is now complete and various moduiles are operational. Initialruns of the complete model are being made and the identification ofsub-optimal linkages and initial proposals to realign linkages are expectedby May 1987.

F. Coal Quality Improvement Measures

2.16 A major issue facing the coal industry is the unreliable anddeteriorating quality of its coal. This leads to major additionaloperational and maintenance expenditures by its major consumers (the steelindustry, the power sector, cement and fertilizer plants), due to increasedsystem inefficiencies and plant downtime as well as higher transport cost(since consumers need to ship greater quantities of coal to make up forlower coal quality). For coking coal supplies, CIL is implementing a setof short and medium term measures established under the Jharia Coking CoalProject to improve the quality of prime coking coal supplies and, inparticular, to lower the ash content. The short term initiatives include(i) testing of certain disputed coals by Central Fuel Research Institute;(ii) elimination of substandard coals and more intensive pickingarrangements; (iii) deployment of more experienced and qualified personnelfor washery operation; (iv) a technical assistance effort to improve the

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performance of the prime coking coal washeries; and (v) utilization ofpremium quality Assam coal for blending purposes. Medium term measuresinclude (i) increased capital expenditure for washery improvements, (ii)installation of rotary breakers at certain washeries; (iii) upgrading ofslurry by froth flotation at Dugda I and II; (iv) modification toPatheridih Washery; (v) trials with prescreening jigs at Barora Washery;and (vi) development of new areas of superior quality prime coking coals.

2.17 Projections prepared at the time of the Jharia Coking CoalProject indicated that coking coal imports of about 1.8 million tpy wouldbe required to make up an expected shortfall between the availability ofand requirement for prime coking coal between 1986/87 and 1989/90. As partof the efforts noted in para 2.16, certain seams of substandard coking coalhave been recently excluded from feed to the washeries with the result thatthe shortfall is now expected to be about 3 million tpy of prime cokingcoal. By comparison, actual imports averaged about 1.5 million tpy in 1984and 1985. The imported coal has an average ash content of about 10Zcompared with about 21% for domestic prime coking coal, thus the importsalso assist in improving the average quality of washed coal feed to thesteel plants. A monitoring program is being established at each of theblast furnaces using the imported coal to quantify the benefits in order tooptimize the blend.

2.18 With regard to thermal coals, the most frequent complaints referto (i) the supply of oversized coal, (ii) the presence of extraneousmaterial, such as shale and stone, and (iii) the increasing ash content _'both raw thermal coal and washed coking coal. While part of thedeterioration of thermal coal quality is due to the development of newcoalfields with low grade coal, it is also affected by (i) the shifttowards open cast mining, (ii) the increased mechanization of coal mining,Ciii) the lack of coal handling plants, (iv) the comparatively poorperformance of the two coal companies (ECL and BCCL)P *hich are the majorsuppliers of superior quality coking and non-coking coal, and (v) at timespoor coordination between the mining companies, the transport companies,mainly the Indian Railways, and the power sector which results in coalshipments being diverted to unlinked users. &

2.19 In July 1982, GOI set up a high level committee (the FazalCommittee), representing the mining, railways and power sectors, to studythese and related issues in the power sector. The committee submitted itsreport in late 1983 and its major recommendations which relate to therailway and power sectors, as well as the coal industry, have been acceptedby the Government (Annex 4). GOI has agreed to provide the Bank with adetailed implementation schedule for the Fazal Committee recommendations byMarch 31, 1988. In the meantime, a number of the recommendations, whichare directly under the control of CIL, have been implemented by CIL who ismaking a concerted effort to eliminate consumer dissatisfaction with thedispatch and quality of both thermal and coking coals (Annex 5). In linewith the recommendations of the Fazal Committee, CEL has developed a two

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track product improvement program concentrating on (i) increasing qualitycontrol through greater supervision of mining operations; and (ii)increasing the proportion of coal that passes through coal handlingplants 3 / (CHPs), where it is screened, crushed and sized and then issubject to weighing on dispatch (through weighbridges).4/ A criticalelement in the quality control program is the linkage of the performanceevaluation of each colliery manager to consumer complaints that areattributable to his colliery. The program also established a QualityControl Department in each subsidiary of CIL to coordinate the monitoringof coal quality of each mine under its jurisdiction, to advise minemanagement on how to respond to consumer complaints and to report weekly totop management on its actions. Under its CHP and weighbridge program, CILhas a staged plan and budget to eventually have all its product handled andweighed on site. Power stations complaints regarding unsatisfactory coalquality declined from an average of 50 per month in 1984/85 to 12 per monthin 1985/86 but increased to 28 per month in 1986/87 (of which three permonth are complaints at the loading point and 25 at the destination).

CIL - Complaints Recei'ed from Power Stations Regarding Coal Quality(Average l,imber of Complaints per Month)

1984/85 1985/86 1986/87

50 11 28

Source: CIL.

2.20 Traditionally, coal producers have supplied coal to consumerswithout specific supply contracts. In the first half of 1985 CIL concludedbulk supply contracts with almost all State Electricity Boards (SEB) andwith the National Thermal Power Corporation (NTPC). In the years ahead CILintends to conclude such contra.ts with major buyers in other sectors.These contracts provide for (i) payments to be based on the results ofjoint sampling, (ii) bonuses or penalties in case the quality of the coalshipment differs from the grade stipulated in the contract, and (iii)invoicing of customers on dispatch of each consignment (with the SEBs) oron a daily basis with NTPC. The contracts provide for joint sampling ofthe coal (by CIL and the concerned power house) and for penalty/bonuses toapply if the coal quality moves into a different grade than that specifiedin the linkage. Certain improvements to these contracts are beingcontemplated; the most important are (i) the use of automatic jointsampling at the delivery point, considering that coal shipments are

3/ In 1985/86, 58Z of India's total coal production was processed by 50major and 100 mini-coal handling plants operating in the subsidiariesof CIL. The Government plans to increase the share of coal beingprocessed in CHPs to 75% by 1986/87, 85% by 1987/88 and about 90% bythe end of the Seventh Plan period.

4/ CIL is currently carrying out a test program to determine the mostcost-effective technology for de-shaling raw coal.

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frequently diverted from their originally intended destinations; (ii) theuse of analytical procedures for the determination of the moisture contentof coal as delivered based on its -free moisture content' rather than onits 'equilibrium moisture content- 5 /; (iii) the introduction ofalternative formulations of the current bonus/penalty pricing structure,such as smaller quality ranges or bonuses/penalties using a sliding scale,and (iv) the provision of price incentives for beneficiation of non-cokingcoal. The joint sampling arrangements in the contracts have been animportant element in identifying unsatisfactory coal quality and inmonitoring CIL's progress in improvinig coal quality. CIL has confirmedthat it will review the usefulness of the coal contracts by October 1, 1987and will exchange views with the Bank shortly thereafter on possibleimprovement to the contracts.

G. Coal Pricing

2.21 Coal prices are set by the Government on a pithead basis. TheGovernment's basic pricing policy for public enterprises is to ensurefinancial viability and to provide for a reasonable rate of return oncapital employed under conditions of efficient operation. GOI has agreedto review coal pr-ces periodically in line with the above pricing approachand with agreements made under the Dudhichua and Jharia projects to ensurethe financial viability of CIL and provide increasing resource mobilizationin the sector. The present coal price schedule is for seven grades ofthermal coal based on useful heat value and eight grades of coking coalbased on coking qualities and ash content as shown in Annex 6. Consumersalso pay certain statutory levies and sales taxes, which :verage 12-30% ofthe pithead price (Annex 6) as well as transportation costs to the point ofconsumption. Coking coal prices receive a premium over thermal coal whichtakes account of the relative scarcity and higher costs of production forcoking coal as compared with thermal coal. The differentials for highergrades of both coking and thermal coal have been substantially increasedcompared with lowr- grades of coal in the recent price increases. This isan important imp. ;ement as it brings the relatively scarce better gradesof coal more in liae with their opportunity cost. A separate schedule isalso provided for high grade thermal coals from the coalfields of ECLreflecting its better quality.

2.22 Recognizing that mining costs are relatively higher in WestBengal and Bihar (where the coalfields operated by BCCL and ECL arelocated) than in other regions due to difficult mirlng conditions,infrastructure constraints and other factors beyond the producer's control,in March 1983 the Government introduced a retentioq pricing system for theCIL group.6/ Under this system, each CIL subsidiary is annually assignedan internal accounting price based on estimated production costs and

5/ The -equilibrium moisture content- refers to the intrinsic moisturecontained in coal and does not reflect increases in the moisturecontent due to careless use of water sprays to reduce coal dust orexposure to rain during stocking, loading or transport.

6/ This pricing change, which is implemented through the Coal PriceRetention Account (CPRA), was 'n line with the recommendation in theCoal Sector Report (3601-IN), September 1982.

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efficiency standards for that subsidiary. These production and costsstandards are revised each year assuming improvements in operatingperformance. They are, therefore, designed to induce more cost efficientoperations. So far, the retention pricing system has been partiallysuccessful in stimulating the management of ECL and BCCL to improveperformance and reduce losses. However, the year-to-year adjustments inretention prices appear to be made somewhat on an ad-hoc and arbitrarybasis. Further work presently being undertaken by the Bureau of IndustrialCosts and Prices (BICP) on the coal industry's cost structure (see para.2.23) should provide the basis for improving the retention pricing system.

2.23 Since nationalization of the coal industry in 1975, coal priceshave been revised on seven occasions including the most recent pricerevision, which took place in January 1986. As a result of theseincreases, average coal prices approach long-run marginal cost fornon-coking coals and import parity for coking coals (after allowing foradjustments for port handling, inland freight and quality differentials).Therefore they seem to be at an appropriate level in terms of economicefficiency. The last two increases (in January 1984 and January 1986) werebased on the recommendations of reviews carried out by the Bureau ofIndustrial Costs and Prices (BICP) and led to price levels broadly In linewith efficiency pricing criteria. More recently the Government has againrequested the BICP to undertake a detailed study of coal pricing. BICP'sbasic tasks included examining the efficiency of various coal miningoperations to derive production cost standards, and reviewing alternativeprinciples and procedures for setting minehead coal prices and producerretention prices. The results of this work are expected in mid 1987. Inaddition, the Department of Coal is considering possible improvements inthe approach to prices for washed coking coal which are presentlynegotiated between CIL and SAIL based on raw coal prices and normalizedwashing costs.

H. Role of the Bank

2.24 Since energy will continue to be a critical factor in India'seconomic development, and since coal will continue to provide about half ofIndia's incremental commercial energy products to the year 2000 and beyond,GOI has requested the Bank to include a series of coal projects in thelending program. The strategy so far has been to concentrate on the CILgroup of companies given their importance to the sector and to undertake atleast one lending operation to develop a new highly mechanized mine in amajor coalfield with each of CIL's coal producing subsidiaries. Suchprojects are considered to have high payoffs since they involve importantimprovements in efficiency through the transfer of state-of-the-art miningtechnology to CIL, as well as relatively large increases in production. Inthe context of these lending operations, the Bank group addressesinstitutional improvements in the coal industry, as well as sector-wideissues (such as coal pricing) and sector coordination issues regarding coaltransport and the quality of coal, which are closely linked to theperformance of other sectors (railways, power and industry) and the economyas a whole. More specifically, the Bank group's assistance in the coalsector is focused on:

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(a) operational efficiency-to improve the efficiency of coal miningoperations through the introduction of state-of-the arttechnology for the development of new large-scale open-nit andunderground mines, as well as upgrade existing labor-intensiveunderground mines through the introduction of efficient workpractices and appropriate intermediate technology;

(b) institution building-the aim is to strengthen the management andfinances of the coal industry and ensure the long-term financialviability of CIL by the introduction of improved management andcost control practices and by greater emphasis on internalresource mobilization, appropriate pricing policies andinvestment allocations based on the principle of least costdevelopment; and

(c) intersectoral coordination-to achieve greater efficiency in thedistribution and use of coal resources through the introductionof measures to (i) enhance coal quality, (ii) reduce the cost ofcoal transport, (iii) increase the reliability of coal shipmentsand (iv) ensure the availability of adequate coal transportcapacity.

2.25 The Bank group's involvement in the coal sector began with a loanfor a coking coal project to the Indian Iron and Steel Company (IISCO) forUS$35 million (Loan 290-P-IN, dated August 9, 1961). The Bank groupresi'ed its activity in 1980 with a review of India's coal sector (IndiaCoal Sector Report No. 3601 IN). This review addressed issues related tocoal marketing, pricing, investment and financing. It also facilitated thepolicy dialogue with GOI on coal pricing and resource mobilization issues,the results of which are detailed in the Country Economic Report (No.4395-IN, dated April 11, 1983). Specific measures affecting coal pricingand coal transportation were included in the Dudhichua Coal Project (Loan2393). This project also provides for the institutional support of CIL inthe operation of large scale open cast mines, project management andbudgeting and cost control. The project is being implemented on schedule.The Jharia Coking Coal Project (Loan 2498) supports a sectoral programa*med at improving the quality of domestic coking coal supplies to thesteel industry, as well as for further institutional strengthening of CILin the design, management and operating procedures of highly mechanizedunderground mines and in addressing specific issues in shaft sinking andstowing to prevent surface subsidences. Delays have occurred in projectimplementation due to slippage in land acquisition and in shaft sinking.The shaft sinking difficulties are largely resolved but land acquisitionprogress is slow. CIL is working with state and local officials to findways of expediting the land acquisition.

2.26 GOI has proposed further Bank group financing of projects toincrease the production of both thermal and coking coals over the nextseveral years. The Coal Mining and Coal Quality Improvement Project is thethird of these operations which are designed to support GOI's development

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strategy and CIL's efforts to increase production, improve efficiency andreestablish its financial viability. This project brings the Bank'sinvolvement to two more of CIL's operating subsidiaries (SECL and ECL) aswell as to two more major coalfields (Korba and Raniganj). The projectprovides for sector-wide improvements in thermal coal quality and forimprovement of coking coal supplies to the steel industry by blending highquality imported coking coal with lower quality domestic supplies. Theproject also provides for institutional development for the CIL group intraining and manpower planning and to ECL regarding the introduction ofhighly mechanized open-pit mining (ECL presently has little mechanizedopen-pit mining). The project supports efficiency improvements in CIL(including, in particular, ECL's old), underground mining operations wherelabor productivity is extremely low with a view to improving CIL'sfinancial performance. Future lending is expected to comprise furtherprojects to develop large highly mechanized mines in important newcoalfields (such as Talcher or Karanpura) as well as to help rehabilitateold, inefficient underground mining operations (especially in ECL and BCCL)to improve efficiency and reduce costs. It is also planned toprogressively update the earlier coal sector study which may lead tosector-related lending. Lending operations, together with sector work,will strengthen the policy dialogue that has been established regardingsectoral issues such as coal pricing, transportation, distribution, andcoal quality and will also support the implemen.ation of the results ofstudies undertaken under earlier projects to provide institutionalimprovements within CIL.

III. THE BENEFICIARIES

A. The Coal India Group

1. Organization and Management

3.01 The Coal India group was established in 1975, as a holdingcompany (CIL) with five subsidiaries. CIL operates -:emi-autonomously underthe direction of an 11-member Board of Directors which is headed by aChairman-Managing Director appointed by the President of India. CIL'ssenior management is appointed by GOI. In addition to setting generalpolicies for its subsidiaries and undertaking other managerial functionstypical of a holding company, CIL directly manages the financial resourcesof the Group overseeing the investment program and arranging for alllong-term financing. CIL handles procurement of major capital equipmentfor its subsidiaries as well as all foreign procurement. It is alsoresponsible for administering the coal retention price system for thepurpose of internal accounting. For these reasons, CIL was designated as aprimary beneficiary of the previous two Bank loans and the same arrangementis recommended for the proposed Project.

3.02 CIL subsidaries operate under the direction of a Board ofDirectors, headed by a Chairman-Managing Director, appointed by thePresident of India. The subsidiaries' senior management down to the

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Director level is appointed directly by 'OI. Within the subsidiaries,mining is organized into small regional areas, each one underthe supervision of an area manager. Presently the subsidiaries operatenearly 400 mines organized in about 50 areas with an average production ofnearly 3.0 million tons per year (mtpy) per area. A more detaileddescription of SECL and ECL is provided below (paras. 3.14 to 3.18).

3.03 CIL is the largest coal company in the world, and has a vast andcomplex organization. Nevertheless, the coal sector is still highlycentralized and highly controlled. The actual autonomy of CIL and thesubsidiaries is limited by price control, investment control and staffingpolicy control (wages, terms of employment, appointment of senior staff) bythe Government. The effect on the coal sector productivity has tended tobe adverse. Recently, the Government has embarked on a cautiousdecentralization, with the setting of operational objectives for each ofthe subsidiaries, and holding the management responsible for achievingthese objectives. The trend toward more managerial autonomy anddecentralization is expected to be strengthened by the establishment of anew budgetary system. As part of its efforts to improve managementperformance, and in particular financial discipline and control, CNPDI andthe Indian Institute of Management (Ahmedabad) have undertaken studies ofthe budgetary and cost control systems of CIL and its subsidiaries for thepurpose of strengthening the accountability of senior staff to the uppermanagement, and allowing more decentralization in decision making. Theresults of the studies, which address the definition of cost and profitcenters, basic procedures, reporting formats, budget formulation, controlmechanisms and corrective actions are now being implemented on a trialbasis at selective mines.

3.04 In order to improve the delivery of its large investment andexpansion program CIL has taken measures to strengthen its projectmanagement practices by upgrading the status of project managers and byestablishing a project function within each subsidiary reporting to aFroject Technical Director. Since its inception, CIL has made progress instrengthening its managerial capabilities. However, there has been acontinuous change in CIL senior management with a consequent effect ofchanging priorities and strategies. While some management changes are bothnecessary and desirable, there is a need to improve management continuityto ensure that past progress is maintained and that the potential benefitsof initiatives presently being undertaken are fully realized. The rapidexpansicei of the sector in the past decade has also stretched theavailability of qualified, experienced engineers and managers. CIL isconcerned that too many managers are concentrated in headquarter positionsto the detriment of field operation, and is reviewing its managementstructure with the aim of reducing the number of managers in headquartersof each subsidiary vis-a-is the number of management positions in thefield.

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2. Operations

3.05 In order to meet the demand for coal, CIL has succeeded inincreasing production from 101 million tons in 1980/81 to 134 million tonsin 1985/86. As part of its strategy CIL has emphasized the development ofnew open-pit mines and the proportion of open-pit coal production has risenfrom 37% to 55% in the same period. Until April 1986, CIL had four coalproducing subsidiaries-BCCL, ECL, CCL and WCL. Since CIL's creation in1975, production has increased strongly in WCL and CCL which jointlyaccou-ted for 66% of coal production in 1985/86 and also have apredL inance of open-pit production. By comparison production has scarcelyincreased at all in BCCL and ECL (21 million and 24 million tons productionrespectively in 1985/86), both of which are still predominantly undergroundmining companies. The rapid growth of CCL has resulted in part from thedevelopment of the Singrauli Coalfield which is located about threehundred km west from CCL's headquarters in Ranchi (Bihar). Similarly, therapid growth of WCL has been due in part to the development of the KorbaCoalfield in the region of Bilaspur (M.P.) which is located over 200 kmeast from WCL's headquarters in Nagpur (Maharashtra). For several years,the Singrauli coalfield has been a separate operating area of CCL with itsown Director-in-charge and Bilaspur has been a separate operating area ofWCL also with its own Director-i n-charge. Recognizing that the operationsat Singrauli and Bilaspur are becoming large enough for them to becomeindependent entities and that the relative geographical isolation fromtheir respective headquarters can be detrimental to effective management,CIL and GOI decided, effective April 1, 1986, to establish two separate newsubsidiaries: Northern Coalfields (NCL), consisting of the Singraulidivision of CCL, with an expected annual production of 13 million tonssaleable coal in 1986/87, and South Eastern Coalfield Ltd. (SECL),consisting mainly of the Korba, Sohagpur, Jamuna-Kotwa divisions of WCL,plus the Orissa area of CCL, with an expected annual production of 35million tons saleable coal in 1986/87. As such SECL will have the largestproduction of the individual CIL subsidiaries. Henceforth, CIL will havesix operating subsidiaries rather than four as previously. The Bank hassupported this reorganization.

3.06 Given the increasing importance of open-pit mining operations,CIL has contracted under the Dudhichua loan the services of Metchem(Canada) to provide technical assistance regarding operational efficiencyand operating practices in open-pit mines. Metchem completed its fieldassignment and submitted a final report to CIL in 1986. CIL is proposingto extend the Metchem contract to cover implementation of theirrecommendation for NCL and SECL. CIL has also commissioned a study of thedesign, construction, maintenance of haul roads in open-pit mines for whicha draft report has been submitted by the Central Road Research Instituteand is presently being reviewed. In order to introduce somestandardization into its open-pit operations, CIL has adopted a series of.standard' truck! shovel combinations. While most of the combinations seemsound, there may be scope for improvement and CIL is undertaking a reviewof the standard combinations to see if improvement is warranted.

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3.07 The rapid development of open-pit mining within CIL has placednew requirements on CIL's materials management system and workshops as wellas on the power system. In the past, CIL was able to establish its partsinventory requirements on the basis of experience with the equipment theywere generally using. However, as new larger and more complex pieces ofequipment are introduced at a rapid rate, CIL's materials management systemis faced with the twin problem of both a major expansion in the amount ofspare parts which must be carried plus difficulties of estimating whatwould be an appropriate level of spare parts for equipment with which theyhave relatively little experience. At present, CIL's material inventoryrecords are maintained in the form of a cardex system at central andregional depots. While the system is reasonably accurate, it is relativelyineffective for identifying a spare part which may be in shortage at onelocation but available at another; furthermore, with the proliferation ofspare parts, the maintenance of the recording system itself becomes anincreasingly difficult task. CIL recognizes that such an outmoded systemcan no longer support the needs of their rapidly expanding equipmentfleet. CIL has commissioned a study by consultants, for designing andimplementing a computerized materials management system. In addition,given the importance of reliable power supplies for the operation of itsequipment, CIL is preparing an overall plan of its power requirements on acoalfield-by-coalfield basis. This will be completed in mid-1987 and willprovide the basis for CIL to plan adequate power supplies for its needs inconjunction with the power utilities.

3.08 CIL also recognizes that their equipment fleet has outgrownworkshop capabilities. Presently even the most advanced workshop withinCIL is not fully capable of dealing with the latest equipment. Duringnegotiations, agreement was reached that CIL would retain technicalassistance, by December 31, 1987, to help design state-of-the-art workshopsto fully meet the requirements of their open-pit mining equipment. Theseconsultants would be selected in accordance with Bank procedures and wouldhave terms of reference, qualifications, and experience satisfactory to theBank. An outline of the scope of work for this assistance is provided inAnnex 7.

3. Manpower and Training

3.09 The efficient management and deployment of its labor force iscritical to CIL's performance. CIL is the second largest employer inIndia, after Indian Railways. At year-end 1986, CIL provided employment toabout 670,000 personnel of which nearly 2% were managers, about 16% weresupervisors and specialized staff, 15% were skilled workers and 67% wereunskilled/manual workers. Employment distribution among the six producingsubsidiaries was as follows: ECL (28%), CCL (15X), WCL (12%), SECL (15Z),NCL (2%) and BCCL (26%). The balance (2%) is in CMPDI, NEC and CILHeadquarters. Employment was proportionately higher than production in ECLand BCCL because of the predominance of labor intensive underground miningoperations. As a result, the output in tons per manshift was much lower inthese two companies (0.57 and 0.64, respectively) compared with the other

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subsidiaries (CCL - 1.06, 1CL - 1.10, SECL - 1.50 and NCL - 7.00). Asnoted in para. 2.13, CIL is addressing this problem and is taking measuresto control employment and increase labor productivity. With these measuresand better administration, CIL manpower is expected to increase to about690,000 personnel in 1989/90 (a 1.1% per annum increase), while productionis expected to increase by 11% per annum. While manpower inventories andrecords are available at each mining area, CIL does not have a consolidatedinventory of its manpower on an overall basis. Over the past two years,CIL has initiated a program at CIL headquarters in Calcutta of establishinga computerized manpower inventory base. While this represents a firststep, CIL recognizes the information is very rudimentary and that thepresent process is rather slow. At negotiations, CIL agreed to retaintechnical assistance by December 31, 1987, to help design and Implement amanpower inventory system suited to its needs, employing consultants underterms of reference and with qualifications, experience and selection methodsatisfactory to the Bank. A scope of work for the manpower assistance isattached as Annex 8.

3.10 The supply of suitably trained, skilled manpower will be one ofthe major constraints to CIL meeting its investment program's productiontargets over the next five years. CIL directly operates seven centraltraining centers specialized in management, open-pit and underground miningtechnologies and coal beneficiation. In addition, the subsidiary companiesoperate 16 regional training centers covering managerial, technical andvocational training activities plus about 50 area training centers forstatutory, vocational safety courses. During 1984/85, the trainingprograms in these centers comprised about 5,000 courses given to 110,000participants of which about 88Z were workers and the rest managerial andsupervisory staff. The rapid development of open-pit mining within CJL hasstretched the limits of CIL's training capabilities, and the availabilityof adequate training facilities for both operations and maintenance staffis becoming ax limiting factor on the on-going development of majo-coalfields, such as Singrauli, Korba and Raniganj. Furthermore, while CILhas endeavored to strengthen its training activities over the past yearsthrough a program of foreign collaboration, especially with the Britishcoal industry, training activities are largely undertaken on a piecetealbasis and there is no comprehensive overview of training needs or how theyshould be met. Further, the training function is badly understaffed andhas only rudimentary facilities. In order to strengthen the organizationof its training function and to develop a satisfactory training actionprogram, CIL will retain consultants under terms of reference and withqualifications, experience and selection procedures satisfactory to theBank. This program would complement the assistance for manpower planning(para. 3.09). The scope of work is outlined in Annex 8.

4. Financial Position

3.11 The financial performance of CIL over the last five-year periodis summarized below and given in fuller detail in Annex 9.

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CIL - Summary of Financial Performance 1980/81 to 1985/86(Rs million)

1980/81 1981/82 1982/83 1983/84 1984/85 1985/86

nm Sale (million tons) 94 102 109 116 126 129Net Revenues 11,3W 14,209 17,063 18,624 23,690 24,594Operaticg EermWs 10,273 12,138 14,240 18,480 20,668 23,540Dcepration 738 951 1,344 1,716 2,069 2,497interest 626 778 1,110 1,324 1,733 2,158

Net T.ncame (tos) (337) 342 369 (2,469) (780) (3,557)

Internal Cash Gemeratimn 401 1,276 1,713 (753) 1,289 (1,060)Capital zeminditus 3,412 5,809 7,142 8,390 7,877 8,427Log-Tem DEbt 12,557 13,196 17,461 19,273 21,737 25,284Acmulated Losses (8,461) (8,119) (7,370) (9,765) (10,533) (14,422)Net Equity 2,385 5,483 9,542 11,534 15,034 15,701

Net Tne (Ioss)/Revemaes % (3.0) 2.3 2.2 (13.3) (3.3) (15.1)Oraent Ratio 1.1 1.3 1.3 1.2 1.3 1.2LT Debt/Equity Ratio 84:16 71:29 65:35 63:37 59:41 62:38Debt Serice Couerage 0.9 1.4 1.4 0.3 1.04 0.5

Smrce: CT.

3.12 Up to 1980/81, CIL had been increasing losses constantly as aresult of a low level of coal prices and an emphasis on increasingproduction without due regard to cost effectiveness. This trend wasreversed in 1981/82 when CIL showed for the first time a positive netincome with an adequate level of internal cash generation, long-term debtservice coverage and current ratio. The financial position improvedfurther during 1982/83. However, during 1983/84 CIL showed a financialloss and a deterioration of the main financial indicators due to theback-dating of a national wage and salary settlement associated with a newfour year collective bargaining contract. The wage settlement wasback-dated to January 1983 and an offsetting price increase was only madein January 1984 causing a large loss for CIL which forced delaying debtrepayments to GOI. CIL was able to reduce its losses to Rs 780 million in1984/85 following the January 1984 coal price adjustment (which increasedCIL's sales realization per ton by 17%). However, CIL's financialperformance deteriorated again in 1985/86 and losses reached Rs 3,557million.

3.13 The accounts of CIL, as well as its subsidiaries, are auditedannually by statutory auditors (a partnership of independent charteredaccountants) appointed by the Government of India in consultation with theComptroller and Auditor General of India. These arrangements aresatisfactory. Statutory auditors are appointed for a period of three yearsat the end of which they must be changed. At the completion of theiraudit, the statutory auditors express their opinion on the fairness of thefinancial statements, which is included in the Company's annual report.

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Although the auditing standards and procedures followed are those laid downby the Indian Institute of Chartered Accountants, higher standardsregarding the audit of internal control procedures are advisable. Anadditional audit is conducted by the Audit Board of the Office of theComptroller and Auditor General of India. This is both a financial and amanagement audit and the comments of the Audit Board are also publishedwith the financial statements of CIL.

B. South Eastern Coalfields Ltd. (SECL)

3.14 SECL is the subsidiary of CIL responsible for the development andimplementation of the Gevra mine. As noted in para. 3.05, SECL was formedin April 1986 and is the outgrowtb of the old WCL. SECL's first year ofoperation will be completed on March 31, 1987. In 1985/86, WCL producedabout 49 million tons of saleable coal of which about 30 million tons werefrom the Bilaspur region (which was split off to become SECL) and about 19million tons from the Nagpur region (which remains under the control ofWCL). SECL, has its headquarters at Bilaspur, and operates coalfields inKorba, Sohagpur, Jamuna, Kotma, Chirimini Baikuntpur, Jhagrakhand plus theIb River coalfield in Orissa. All of SECL's production is thermal coal.

3.15 Open-pit mining comprises about 55Z of SECL's production, mainlyfrom large-scale highly mechanized operations centered on the Korbacoalfield. Underground mining accounts for 45% of SECL's production.SECL's underground mines are newer, shallower operations with much easiermining conditions than those of BCCL and ECL. The output per manshift ofSECL's underground mines is about 0.80 compared with 0.45 and 0.53 for theunderground mines of ECL and BCCL respectively.

3.16 SECL is in a relatively sound financial position. WCL, theforerunner of SECL, has been able to earn moderate profits since 1979/80.In 1985/86, WCL/SECL's total production costs (including depreciation andinterest charges) were is 171 per ton of saleable coal, which is about 78%of the average for the CIL group (Rs 219 per ton of saleable coal). Thefinancial position of WCL from 1982/83 to 1985/86, is summarized below:

SECL and WCL - Summary of Financial Performance(Rs million)

WCL WCL WCL WCL/SECLFiscal Year 1982/83 1983/84 1984/85 1985/86

Coal Sales (million tons) 32.6 38.3 44.1 46.7

Sales Revenues 4,632 5,591 7,659 8,017Operating Expenses 3,380 4,663 5,334 6,518Contribution to CPRA 524 11 1,137 1,009Net Income a/ 142 121 69 (991)Internal Cash Generation a/ 472 590 715 (20)

Investment 1,965 2,779 2,759 2,847

a! axter contribution to Coal Price Retention Account (CPRA).

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C. Eastern Coalfields Ltd. (ECL)

3.17 ECL will be undertaking the development and future operation ofthe Sonepur-Bazari mine. ECL has its headquarters at Sanctoria, WestBengal and operates about 100 mines in the Raniganj coalfields in WestBengal and Mugma Rajmahal coalfields in Bihar. These are older, deepminefields which are the main source of superior quality thermal (GradesA-C) coal in India. Superior quality thermal coal is in short supply inIndia and is sought after by industrial consumers. ECL is thereforeattempting, to the extent it can, to Increase the supply of such coal.However, the coal seams are found in very difficult, mining conditions.During 1985/86, ECL produced 24.0 million tons of saleable coal of which23.6 million tons were thermal coals (96Z) and the balance, 0.4 milliontons coking coals (2Z). Underground mining accounted for 68% of ECL'sproduction, which is substantially higher than the average for CIL overall(45Z).

3.18 ECL has much higher production costs than the average for CILmining operations and has incurred heavy losses in the past. Surplus laborand low labor rroductivity are the most critical elements in ECL's highproduction costs which derive from a number of factors some external toECL and others under ECL's control. The factors largely outside of ECL'scontrol include geological conditions which result in deep, difficultmining conditions; power outages which cause production interruption andcutbacks in pumping capabilities (necessary to keep the deeper minesoperating during the monsoon season); and a government-sanctioned nationalmine-workers agreement which constrains ECL's ability to layoff surpluslabor. Within ECL, however, attempts to increase production were made withlittle, if any, regard for cost control and for many years, there appearsto have been little concerted effort by either the management or the laborforce to improve ECL's performance. Some efforts have been made to improvethe labor situation in the past two years including severe restrictions onnew hiring and on overtime work. In 1985, the "Chari Committee' wasappointed to study ECL and make recommendation on measures to establishECL's viability within a given time period. The Committee's report whichis presently under consideration by the Government containe a wide rangingset of innovative measures to improve ECL performance, several of which arealready being implemented by ECL. Management has taken a number of stepsin an immediate effort to improve efficiency and cost consciousness in itsoperations. New hiring of skilled workers needed for new projects has beenstrictly limited to no more than 50% of retirees and ECL expects a netreduction of 1,700 workers in 1986/87. ECL is undertaking technical auditsof twenty underground mines which are incurring the largest losses whichare the basis for rehabilitation plans to improve the performance of thesemines. ECL will implement these rehabilitation measures under a timetablesatisfactory to the Bank and will submit progress reports on a regularbasis for the Bank to review. In addition, ECL will conduct technicalaudits of a further twenty mines with large losses. These wasures shouldhelp improve ECL's performance in future years. In 1985/86, ECL's totalproduction costs (including depreciation and interest charges) were Rs 307per ton of saleable coal, which is about 40% higher than the average forthe CIL group (Rs 219 per ton of saleable coal).

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ECL - Summary of Financial Performance(Rs million)

Fiscal Year 1982/83 1983/84 1984/85 1985186

Coal Sales (million tons) 21.3 21.5 21.8 22.7

Sales Revenues 3,589 4,142 5,305 5,719Operating Expenses 4,034 5,110 5,509 6,013Contribution from CPRA 419 334 803 553Net Income a/ (553) (1,279) (137) (700)Internal Cash Generation a/ (244) (902) 396 141

Investment 994 1,159 1,273 1,372

a/ After contribution from Coal Price Retention Account (CPRA).

IV. THE PROJECT

A. Project Objectives

4.01 The main objectives of the project are to improve the quality ofcoal available to consumers and to increase the supply of thermal coal (tothe power and industrial sectors) and coking coal (to the steel sector).The project will help meet the demand for thermal coal through thedevelopment of two large-scale open-pit mines in Gevra and Sonepur-Bazari-with an ultilmate combined capacity of 13 million tons per year. The

project will help improve the quality of coking coal supplies to the steelsector by supporting the importation of low ash-coking coal (average 10Oash). The imported coal will be blended with indigenous supplies (average21Z ash) thereby lowering the average ash of the blended mix which willcontribute to improving blast furnace productivity and efficiency in thesteel industry. The project is alac designed to improve sector managementthrough the implementation of a number of coal mining, handling andtransportation measures which should also contribute to improved coalquality. In addition, the project will improve the efficiency of existingcoal mining operations and strengthen the managerial, commercial andfinancial practices of both CIL and two of its four producing subsidiaries,ECL and SECL, through the implementation of a series of efficiencyimprovement and institutional development measures. By including trainingprograms and training institute design in the project and by introducingstate-of-the-art mining technology, the Bank will contribute to CIL'sefforts to improve the efficiency of its mining operations. The inclusionof various efficiency-related and institutional development measures areaimed particularly at containing production costs in existinglabor-intensive operations as well as strengthening the supply of skilledworkers and managers to meet the needs of the industry's developmentprogram. Through its involvement in the project, the Bank will supportGOI's objectives of maximizing the development of indigenous energyresources; of alleviating power shortages by expanding the country's

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thermal power generating capacity; and of providing power plants with therequired coal supplies through the accelerated development of large-scaleopen-pit mines.

B. Project Description

1. Gevra Mining Complex

a. Scope

4.02 The scope of the proposed Gevra mining component consists ofimplementing the second stage of development of the Gevra open-cast coalcomplex. This will complement components already included in the firststage: coal handling plant, train loading facilities, and a railway linkto the Korba power station. The second stage will increase output to 10mtpy of raw coal, from a designed capacity of 5 mtpy in the first stage,for which construction and actual coal production were started in 1980 and1981 respectively. The complex will include additional mining equipment,an in-pit conveyor for coal transport and crushing, a marginal expansion ofservice facilities, a training center and a township as its maincomponents.

b. Location, Geology and Reserves

4.03 The Gevra open-cast mine is located in the center of the Korbacoalfield, on the western bank of the Hasdeo river. This coalfield is inthe Madhya Pradesh state, about 90 km east-northeast of Bilaspur (Map19279R). The altitude of the area is about 300 m above the sea level, andthe topography is fairly flat. Drainage is towards the northeast-eastduring the rainy season, mainly by the Ahinar and Hasdeo rivers. Theinfrastructure provided during the first stage is well developed, and thecoalfield is situated at a distance of about 10 km from the mainBombay/Calcutta railway in a region only sparsely populated with Korbabeing the major town.

4.04 The climate of the Korba coalfield is tropical, with very hotsummer months (March-June) during which temperatures reach 46°C (115'F).The average annual precipitation is about 1,040 mm, which fall mostlyduring the monsoon season (June-September).

4.05 The Korba coalfield extends over an area of about 520 sq km, ofwhich Gevra and the project site cover 42 and 10.8 sq km, respectively.Coal bearing strata occur in the Permian stratigraphic formations, locallycalled Gondwama. Typically, they contain sub-bituminous and bituminouscoals, with low contents of sulphur (maximum 0.7%) and phosphorous (about0.01%), and high ash contents (20-35%). The strike of the formation isgenerally east-west and the dip about 5-10O towards the south.

4.06 Although the Korba region has been geologically examined sincethe late 1800s, systematic investigations were only initiated by the IndianBureau of Mines in 1955. These were followed by drilling campaigns under

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the supervision of the National Coal Development Corporation (NCDC) in1963-65 and 1972-74, and by CMPDI that completed over 140 holes with atotal length of about 16,000 m since 1977. Total mineable reserves areestimated at 589 million tons of coal broken down by main seam structuresin table below:

Gevra Project - Mineable Reserves

Mineable Reserves a/Seam (million tons)

Upper Kusmunda 59Lower Kusmunda (top split) 378Parting 50Lower Kusmunda (bottom split) 102Total 589

a/ In situ mineable reserves less mining losses.

The project areas are tectonically faulted. However, the availablegeological and hydrogeological information derived from geological mappingand drilling, and from operation of the adjacent Kusmunda mine isconsidered sufficient for the purpose of reserve calculation and minedesign. At the proposed mining rate of 10 million tpy, reserves alreadydelineated allow for about 60 years of mining.

c. Mining

4.07 The general characteristics of the area and of existing open-pitmine designs for the proposed project are very favorable. The first 30years of mining will have a very low stripping ratio of only 0.9 m3 per tonof coal, reaching a depth of 180 m with final pit slopes of about 450,which is satisfactory to deal with the hydrogeological conditions of thearea, assuming an adequate safety factor. The mine has been designed toproduce 10 million tpy of raw coal with ash content and heating valuesranging between 26.5-44.5% ash and 2,110-4,236 kcal/kg on a useful heatbasis, indicating coal grade ranges from D to G.

4.08 Waste strata and coal will be drilled, blasted, and subsequentlyremoved by different material handling systems. The overburden will beloaded and hauled with four 10 m3 electric rope-shovels and a fleet ofthirty- four 120/85-ton trucks. If suitable, 20 m3 shovels may also beused. The coal will be loaded with 2.3 m3 hydraulic shovels, and hauled by35 t trucks to two conveyors. These will be equipped with feeder breakers,and will transport crushed coal to a coal handling plant, which ispresently under construction, with a storage bunker of 30,000 t capacity,which will feed two train loading silos of 2,600 t capacity each. Coalrelease has already started under the first stage of the project with anoutput of 50,000 t in 1981/82. It has increased to a present level ofabout 3 million tons, and is planned to reach the designed capacity of 10million tpy during 1991/92. Mine planning has been done in sufficientdetail for feasibility purposes and equipment selection. The selection ofmain equipment for mining of coal and waste rock material is basically

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sound. Also, the selection of hydraulic shovels for coal is satisfactorygiven the presence of partings, shale bands and geological faulting.Adequate training and maintenance programs have been prepared to supportoperations of the mining equipment. On the other hand, further designrefinements will be undertaken to delineate a more detailed short- andlong-term sequence of plans, and to determine fluctuations in coal andwaste material release, as well as changes required by materials handlingsystems and equipment. further complementary work will also be executed inrespect of geotechnical aspects, for more detailed analysis of assumedslope stability and safety factors of strata and hydrogeologicalconditions. This work should be complete and ready for Bank review notlater than December 31, 1989, and will not affect activities concerningprocurement, mine development, and establishment of ancillaryinstallations.

4.09 Mine development work and in-pit road maintenance will beperformed by a fleet of dozers, wheel loaders and graders. A main sump andassociated installations will be established for adequate pit drainageduring the monsoon season. Pumping capacity appears adequately estimated,on the basis of information from the adjacent Kusmunda mine. A draglinewill be provided to clean the sump.

4.10 The mine and related facilities will work 300 days per year, 3shifts per day and 8 hours per shift. The total manpower requirements atfull production of 10 million tpy are summarized in the table below:

Gevra Mine-Manpower Requirements

Senior Management 68Junior Management/Supervisors 419Workers 3,453Total 3,940

A preliminary training program has been prepared for the Gevra complex.However, the training facilities at Gevra are presently inadequate tofulfill the training program. Furthermore, even the most advanced CILtraining facilities (at Singrauli) are insufficient for CIL's rapidlyadvancing needs. CIL will retain technical assistance under proceduressatisfactory to the Bank for the design and development of a trainingcenter for the Korba coalfield (Annex 10) by December 31, 1987. SECL haveconfirmed that they will provide the Bank with a training program for theGevra project by January 1, 1988 and with annual training reports for theGevra project on July 1 of each year, addressing the previous fiscal year'straining results compared with the program.

d. Infrastructure

4.11 Infrastructure facilities such as warehouse, unit maintenance andeervice installations of adequate size and capacity will be constructednorth of the open-pit, adjacent to the main road which connects Gevra withthe Kusmunda mine and the town of Korba. However, since workshop plans

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were considered insufficient, SECL will, provide adequate unit and centralworkshop facilities to meet requirements from the project based on thefindings of the workshop Technical Assistance (Annex '0). A new roadbridge will be built across the Hasdeo river to improve access during themonsoon season. Its completion is estimated for 1988/89. Waterrequirements, installed electrical load, annual power consumption andspecific power consumption are summarized in the table below:

Gevra Mine - Water and Power Requirements

Industrial Water (m3 per day) 1,735Potable Water (m3 per day) 2,240Installed Electrical Load (NW) 25.7Power Consumption per ton of Coal (kWh) 4.4

4.12 The Gevra complex will receive power from MPEB by means of twooverhead 33 KV transmission lines and four sub-stations. Industrial andpotable water requirements will be met from the Hasdeo river at about 10 kmfrom the project site. To the extent possible, additional water requiredfor dust suppressing in mine roads will be taken from the main in-pitsump. These arrangements are satisfactory. GOI will ensure adequateelectric power and SECL will ensure adequate potable water supply to theproject.

4.13 Provision of housing and service facilities for the work forcewill follow CIL's existing policies and guidelines. Accordingly, a newtownship will be constructed for the complex. It will consist of 2,674houses and apartments, and will include schools, shops, a 22-bed hospital,community center and clubs. These arrangements are consideredsatisfactory. SECL will provide the Bank with satisfactory schedules forthe construction of housing and service facilities for the Gevra project byJanuary 1, 1988 and imp]ement them as part of the project.

2. Sonepur-Bazari Mining Complex

a. Scope

4.14 The scope of the proposed Sonepur-Bazari mine component comprisesthe development of an open-pit mining complex with a designed capacity of 3million tpy, inciuding a coal handling plant and surface infrastructureconsisting of a railway spur, power lines, repair and maintenance shops,warehouses, training facilities, offices and a townsite.

b. Location, Geology and Reserves

4.15 The Sonepur-Bazari open-pit mine will be located in West Bengal,in the north-eastern part of the Ranigani c,alfield. The mine will have anultimate capacity of 3.0 million tpy saleabVe coal of which about 1.5million tpy will be Grade D coal to feed the Kologhat power station and thebalance (1.5 million tpy) will be Grade C coal for industrial users. Thiscoalfield is at about 35 km and 14 km from the townships of Durgapur andRanigani. The area is about 84-108 m above the sea level, and is mostlyflat. Drainage is from west to east dui ..ng the rainy season, mainly by the

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Bonbahal Jore and the Kumarkhala streams. The infrastructure is welldeveloped, and the coalfield is only sparsely populated with the village ofBazari located adjacent to the project site.

4.16 The area has a tropical climate with maximum temperaturesaveraging between 34-47 0 C (93°-117°F) during summer (March-June), and25-28-C (77-82°F) during winter (November-February). The differencebetween day and night temperatures during December is about 10-14°C(18-25°F). The annual average rainfall is about 1,180 mm, with about 90%falling during the monsoon season (June-September).

4.17 The Raniganj coalfield extends over an area of about 1,550 sq km,of which the project site covers 19 sq km. The rock types are in broadmanner classified in two main groups, i.e., the basement Archaeangranite/gneiss/schist complex, and the Quaternary and more recent sedimentswith coal bearing strata and waste rock, mainly consisting of sandstone,shale and conglomerates. The strata in the Sonepur-Bazari area dips only1-5° towards the south, but steeper dips are observed in the vicinity ofmajor faults and near the splits of thick seams. Typically, these seamscontour coal of C and D quality, with moisture, ash and calorific valuesranging between 6.2-8.7% H20, 17.0-26.9% ash, and 4,940-5,675 Kcal/kg on auseful heat basis, respectively. The Sonepur-Bazari deposit was discoveredon the basis of geological studies started in 1976 by CMPDI, which werefollowed by successful drilling of 10 exploration holes between 1977/78,under the supervision of the GSI. Subsequently, a total of 67 boreholeswith overall length of about 10,000 m were drilled, resulting in a densityof 7.2 boreholes per sq km, which is satisfactory. Total mineable reservesare estimated at 186 million tons of coal. The project area is disturbedby faults and split of seams. However, the available geological andhydrogeological information, derived from geological investigations andfrom operation of the adjacent Kumarkhela small open-pit, is sufficient forthe purpose of coal reserve calculations and preparation of mine designs.At the proposed mining rates the existing reserves could support operationsduring a period of over 60 years.

c. Mining

4.18 The Sonepur-Bazari open-pit will have an overall stripping ratioof 5.13 m3 of waste per ton of coal and a depth of 270 m after the first 25years of mining. Its final pit slopes are planned at 37e, which issatisfactory to deal with the hydrogeological conditions of the area,assuming an adequate safety factor. The mine has been designed to produce3 million tpy of raw coal of types C and D. ECL is planning to blend asmall amount of marginal quality Grade C coal with the Grade D coal.ECL will undertake certain tests when production is initiated to confirmthat such blending is an economic proposition.

4.19 Overburden will be drilled with seven 250 mm rotary drills, andblasted using aluminized slurry explosive. Removal of material will beexecuted with one 24 m3 dragline, six 10 m3 electric rope-shovels and aboutthirty-five 120-ton trucks as main handling equipment. Coal and thinnerwaste rock partings after drilling and blasting will be loaded with seven

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2.5-3.2 m3 hydraulic shovels operating with a fleet of about fifty50/35-ton rear dumpers and 32-ton bottom dumpers. Coal will be transportedto rotary breakers, from where the -200/ +50 mm portion of superior qualitymaterial will be sent to a 10,000 ton storage bunker of grade C steam coalfor supply to industrial consumers. On the other hand, due to expectedimpurities, the -50 mm portion of this same material will be sent to aseparate 10,000 ton storage bunker of grade D slack coal, where it willjoin inferior quality material, which will be sized under 200 mm forshipment to the linked power plant. The bunkers will feed two trainloading points using reclaim and wagon loading conveyors.

4.20 Coal release from the area already started with development in1982 of the Kumarkhela small open-pit, which is located in thenorth-western corner of the Sonepur-Bazari deposit. Its production reachedabout 0.3 million tons of coal during 1985/86. On the other hand, coalrelease from the Sonepur-Bazari project will not start until 1989/90,increasing slowly to reach the designed capacity of 3 million tpy onlyseven years later in 1996/97. Mine planning has been done in adequatemanner for feasibility purposes. Additional work will be done to furtheroptimize the mining sequence, to detail the fluctuations in the output ofcoal and waste material and the possible changes in the materials handlingsystem and equipment. Additional geotechnical testing will be executed formore detailed analysis of assumed slope stability parameters and safetyfactors. ECL will complete this testing and analysis, and provide the Bani.with its geotechnical reports not later than December 31, 1989.

4.21 The selection of main equipment for mining of coal and waste rockmaterial is satisfactory. Specific mairtenance and training programs tosupport this equipment will be prepared.

4.22 Mine preparatory works and in-pit road maintenance will beperformed by a fleet of dozers, wheel loaders and graders. For drainage, amain sump located in the bottom of the pit, and associated installations,will operate with a 2,600 m3/hr pumping system, consisting of nine units.In addition, slurry pumps will be used to deal with muddy water and cleanthe sump. This is satisfactory since estimated pumping requirement are for1,656 m 3/hr. The larger capacity has been selected because of insufficienthydrogeological data. However, assumptions made for calculating waterinflow are conservative and realistic.

4.23 The mine and coal handling facilities will work 300 days peryear, 3 shifts per day, and 8 hours per shift. Manpower requirements atfull production of 3 million tpy are summarized in the table below:

Sonepur-Bazari - Manpower Requirements

Senior Management 81Junior Management/Supervisors 314Workers 904

Total 1,299

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4.24 ECL has the intention of implementing a substantial trainingprogram for the project. Although specific plans have not yet beer.formulated, this effort will include establishment of training facilities,assistance from ECL's Central Training Centre, visits to other mines, andexecution management and operator training courses. CIL will retaintechnical assistance by January 1, 1988 for the design and development of atraining center for the Raniganj coalfield (Annex 10). ECL have confirmedthat they will provide the Bank with a satisfactory training program andtraining reports for the Sonepur-Bazari project. The training programshould be prepared and completed for Bank review not later than January 1,1988. In addition, ECL confirmed that it would submit annual trainingreports to the Bank on July 1 of each year comparing training results withthe program including respective targets for the previous fiscal year.

d. Infrastructure

4.2c Infrastructure facilities, such as warehouse and unit repair andmaintenance workshops will be established adjacent to the pit. ECL willprovide adequate unit and central workshop facilities, taking into accountthe results of the workshop Technical Assistance (Annex 8), to meetrequirements from the project. At present, power is received at the nearbyBankola sub-station, which has an installed transformer capacity of 3 MVA.Provision of additional power for the project is planned in two stages.First, further power supply will be increased progressively to meet ademand of 6 NVA by 1988/89. For this purpose, an additional transformerwill be installed at Bankola, and a new transmission line will connect thissub-station with the project site. In the second stage, additionalconnections will be provided to meet a demand of 17.2 NVA by 1999. Thedesign has been completed satisfactorily for the first stage, and is stillin progress for the second stage. GOI will ensure adequate electric powersupply to the project and ECL wlll ensure the timely development of the newtransmission lines and substations.

4.26 ECL plans to construct a new railway spur of approximately 11 km,to the northern part of the deposit, for the transport of coal fromSonepur-Bazari. Despite the existence of an old rail spur in the south ofthe proposed mine, this approach will permit transporting coal fromadjacent deposits and will eliminate a difficulty with adverse gradients inthe existing spur. Finally, potable and industrial requirements of waterfor the project are estimated at 0.63 and 0.67 million liters per day.Additional water for haulage ramps will be obtained from the nine sump.These arrangements are satisfactory. ECL will ensure adequate potablewater supply to the project.

4.27 Provision for housing and service facilities will be made for 784workers. The location for these residences coincide with the location foran integrated township being proposed for workers of ECL, adjacent tohousing for Kumarkhala. Other buildings included for the project areoffices, training center, and welfare and community services. Allbuildings have been located in barren areas to avoid blocking miningactivities. These arrangements are considered satisfactory. ECL will

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provide the Bank by January 1, 1988 with satisfactory schedules for theconstruction of housing and service facilities for the Sonepur-Bazariproject and implement them as part of the project.

3. Environmental Protection, Safety and Resettlement

4.28 The planning of environmental protection measures to beundertaken is vested in CMPDI and guided mainly by the Water (Preventionand Control of Pollution) Act of 1974 and the Air (Prevention and Controlof Pollution) Act of 1481. Both Acts prescribe measures and tolerancelimits that are in line with acceptable standards in the industry.Environmental management is the responsibility of CIL through itssubsidiaries. CIL, SECL (for Gevra) and ECL (for Sonepur-Bazari) willensure that design, construction and operation of their project componentsare carried out with due regard to ecological and environmental standards,as well as adequate safety standards (para. 4.30). Environmentalarrangements are considered satisfactory. In general, water and airpollution problems are not expected to be severe. Their quality will bemonitored regularly. Dust, which is considered the major pollution hazard,will be controlled by sprinkling haulage roads with water, and usingsuppression and extraction equipment at silos and railway loadingfacilities.

4.29 Both of the areas where the Gevra and Sonepur-Bazari mines arelocated have relatively gently undulating terrain with rather thinvegetation, and only small quantities of topsoil. Soil conservation willbe done whenever feasible. For this purpose, at Gevra a survey is beingexecuted by the Soil Survey Organization of India. Reforestationactivities were started in March 1985. About 110,000 trees have beenplanted to create 'green-belts- along main roads and between industrialfacilities and residential areas. Both mines will have equipment for landreclamation. While the general approach to reclamation is satisfactorydetailed plans are still being finalized. ECL and SECL have confirmed thatfinal plans will be submitted to the Bank by January 1, 1988. Erosioncontrol and prevention measures, such as placing of rip rap, turfing andre-vegetation will be undertaken on waste dumps and exposed slopes. Thiswill also assist in reducing surface water run-off. In addition, the dumpswill be set in benches to avoid spills. This is satisfactory.

4.30 Mine safety, operational practices, and design criteria are laiddown in the Mine Act of 1952 and the Coal Mines Regulations of 1956, andsupported by monthly circulars from the Director General of Mine Safety(Ministry of Energy) as well as by Acts regulating human health and minerescue work. They are considered adequate. The responsibility to followthe regulations is vested in the safety organization within each CILsubsidiary. On a corporate level, a "Safety Board- chaired by the Chairmanof CIL is meeting quarterly to review adequacy of current safety practicesand to introduce corrective actions, whenever necessary. Safety proceduresand practices proposed for Gevra and Sonepur-Bazari are already used by CILin other open-pit operations, where safety performance is adequate. Thisaspect has been extensively assessed and is being improved With input offoreign consultants during the execution of technical assistance programsfunded by the Bank.

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4.31 The overall accident rate in CIL has greatly improved since CILwas formed (fatality rate and serious injuries decreased 35% and 51Zrespectively between 1974/75 and 1985/86). However, the rates in CIL arestill relatively high when compared with other major international coalproducers. This is mainly attributable to most of its underground miningoperations being very labor intensive, and using multi seam mining methodswith a low degree of support from modern mechanical and electricalsystems. Further, the large number of mine working faces and of workersmakes proper safety supervision/management cumbersome, particularly duringperiods of rapid expansions. The accident rate is expected to decreasefurther over time, as CIL's production share from open-pit minesIncreases. In order to satisfy the Bank of the adequacy of safety measuresand the incidence of occupational disease, CIL will provide the Bank withstatistics on mine-related accidents and occupational diseases, every yearbeginning July 1, 1988.

4.32 The mining complexes are to be developed on land that isgenerally sparsely populated. About 1,370 families will need to beresettled at Gevra and 740 families at Sonepur Bazari as a result of themining operations. The resettlement is being undertaken in three phases atGevra, where it will be complete in 1991, and two phases in Sonepur Bazariwhere it will be complete in 1993. In addition to cash compensation, ECLand SECL are providing assistance to the resettled families in terms ofland, housing and shipment of household effects. Resettlement is mostadvanced at Gevra where up to now 500 families have already been settled ina new village with satisfactory facilities. CIL will undertakeresettlement of the people affected by the project in accordance withresettlement plans agreed with the Bank. SECL and ECL will each appoint acommunity development officer and will coordinate the resettlementactivities with the respective State Government officials. It is expectedthat jobs will be available to the resettled families associated with themining development. At Gevra (where there are large mining operationsalready in existence), employment has already been provided to over 800 ofthe people involved in resettlement. In addition, other employmentopportunities will be generated in mine construction, ancilliarysmall-scale industries and agriculture. Further details are provided inAnnex 11.

4. Coking Coal Imports

4.33 The loan will provide finantcing for importing about half ofIndia's coking coal requirements over the next two years. Procurement ofthe imported coking coal will be carried out by GOI. The importation ofcoking coal will: (i) fill the existing gap between the projected demandof the local steel industry and domestic supply of prime coking coal.(This gap, now estimated at about 3 million tpy between 1986/87 and1989/90, is about 100% higher than the previous two years due to improvedquality control of raw coking coal production including the exclusion ofsome substandard coals as feed for washeries); and (ii) support theefficient utilization of the steel industry's existing plant and equipment,by preventing shortages of coke, which would result in a reduced blastfurnace capacity utilization. In addition, the imported coal will improve

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the average quality of coking coal supplies because the imported coal has alower ash content (10Z average) than the local product (21% average). Thisimprovement in coking coal feed, and hence in coke production, will resultin increased blast furnace productivity and utilization.

C. Project Execution and Implementation

4.34 The Gevra project component will be implemented by SECL under thedirection of a Project General Manager reporting to the Project Director ofSECL. The Project Management Unit consists of staff from SECL and CMPDI,organized as shown in Annex 12. The Project General Manager is supportedby managers responsible for (i) general engineering and mining; (ii)scheduling and cost control; and (iii) administration. Responsibility forproject implementation is direclty under a Deputy Project General Manager.The total project organization comprises about 200 positions, alreadystaffed and mobilized. The Project General Manager has been appointed andis adequately qualified and experienced. SECL will establish a ProjectManagement Unit, and that it will ensure that organizational structure,staffing, powers and responsibilities of the Project Management Unit shallbe such as necessary for timely and efficient implementation of theproject. Moreover, in accordance with standard practice adopted within CILafter the first coal project with Bank financing, SECL is preparing aproject implementation manual following terms of reference already agreedwith the Bank. SECL will exchange views with the Bank on this manual, andwill adopt it by January 1, 1988.

4.35 Similar arrangements are being made for the execution of theSonepur-Bazari project component (Annex 11), which will be implemented byECL. While the project organization of this component has not yet beenofficially approved, several of its main officials are already assigned tothe project. Such is the case of its Project Officer who is expected to beappointed as Project General Manager, and principal staff concerningfinance, personnel, and mine operations and maintenance. A preliminaryproject manual for implementation of this project was prepared by CMPDI inJuly 1984. ECL will revise it. By January 1, 1988 ECL will establish aProject Management Unit similar to that for Gevra (para. 4.34), and it willfinalize, exchange views with the Bank and adopt a project implementationmanual.

4.36 Each Project Management Unit will be directly responsible for allactivities related to detailed engineering, procurement of local goods(excluding mining equipment) and services, equipment erection andcommissioning, and construction and mine development. Procurement ofmining equipment and other imported plant and equipment will be carried outby the CIL Central Procurement Organization, in direct. collaboration withthe respective Project General Managers, who will provide progress reportsto the Project Directors of the subsidiaries and to the CIL ProjectMonitoring Unit. A detailed and satisfactory schedule for procurementactions has been prepared, and procurement documents have been reviewed bythe Bank. To minimize the risk of delays the GOI will promptly grantauthorization to import foreign goods required for the project, and willpromptly make available the foreign exchange required.

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4.37 The implementation schedules for the Gevra and Sonepur-Bazaricomponents of the project are given in Annex 13. They are based ondetailed analysis of different critical activities, and on-goingconstruction work at Gevra. They are realistic. For the Gevra mine,procurement of main mine equipment for delivery in 1987/88 is on thecritical path. Status of main activities are summarized as follows: (a)all required land is presently in possession of SECL; (b) overburdenremoval started in 1981; (c) access roads and some residential andoffice/service buildings have been constructed; and (d) construction of thecoal handling plant is well advanced, and one of the two train loadingsystems is fully operational. Finally, during 1984/85 about 2.6 million m3

of overburden and 2.5 million tons of coal were mined. Project activitiesare at an earlier stage for the Sonepur-Bazari mine, where initiation ofprocurement of electric rope-shovels and 120-ton trucks are on the criticalpath. No implementation work has yet started. Arrangements for landacquisition for the project are well advanced. ECL has acquired 208hectares (ha) of land, required for the infrastructure and the first fiveyears of mining. However, ECL does not yet have possession of about 68 haof that land which remains in the hands of the local authorities awaitingfinal processing and handover to ECL. Handover of the remaining Land is acondition of disbursement for the Sonepur-Bazari component of the project.Disbursement for the Sonepur-Bazari component is limited to a maximum ofUS$8 million until ECL confirms that it has taken possession of the 68 haof land. Additionally, ECL gave assurances that it will ensure the timelyavailability of land for the railway siding by December 31, 1988, and landfor mining operations beyond 1995/96 by December 31, 1992.

4.38 Coal release and waste rock output are summarized in thefollowing tables.

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Production Schedule and StripPing Ratio

Coxd Waste Pb& Stc#*Euig htioProject Coui1et Year l(dJl M3) () v PE tu of coal)

* 1981/82 0.05 0.27 5.4* 1982/83 0.32 0.66 2.1* 1983/84 1.44 1.76 1.2* 1984/85 2.52 2.60 1.0* 1985/86 2.73 3.50 1.4

1986/87 3.10 5.00 1.61987/88 4.25 6.50 1.51988/89 5.50 7.20 1.31989/9D 7.20 8.50 1.21M0/91 8.50 9.00 1.11991/92 10.00 9.00 0.9onwrds 10.00 9.00 0.9

1986/87 1987/88 -1988/89 3.01989/90 0.4 4.02 10.01990/91 1.1 4.02 3.71991/92 1.5 6.27 4.21992/93 1.5 6.27 4.21993/94 1.5 6.27 4.21994/95 1.5 8.04 5.41995/96 2.5 13.73 5.4196/97 3.0 16.39 5.5& oammds

4.39 Productivity indicators for the mining complexes will include notonly total quantities of coal and waste material removed but alsoutilization and availability for all major pieces of equipment, consumptionof explosives, fuel, lubricants and other constmables.

V. CAPITAL COSTS, FINANCING AND PROCUREMENT

A. Capital Cost Estimates

5.01 The total financing requirements for the mining component (whichconsists of the Gevra and Sonepur-Bazari complexes) including physicalcontingencies, price escalation, working capital and interest duringconstruction are estimated at US$483.2 million (Rs 6,282.6 million), ofwhich about US$158.5 mill-ion is in foreign exchange. Detailed capital costbreakdown for major equipment and plant are given in Annex 14 andsummarized below.

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qm - z ma

____ ___ __ _ -- _ __---- tA fOJt---------

I" fordo Ta fb=ll.. lb 161k TBS 1 31.

Him s qmi a 8p _ 597.3 570.1 1,167A 31.5 753.5 1.145.0 938J 1,323.6 2,312A 76.1 101.9 1760Qil Mdlki plot 35.6 3.4 4.0 86.3 9.3 95.6 451.9 46.7 SMA 34.8 3.7 3LSLad & Cil1 P's 440.8 0 440.5 1M4.0 0 154.0 594. 0 MA 45.7 0 457

I'm P MP- aLdl lbt 61.0 0 61.0 1663 0 163 219.3 0 29.3 17.6 0 17.6l_Ip3 hd4w 14.7 60.0 74.7 2.9 67.5 94. 41.6 127.5 1".1 3. 9.6 13.0

_m1nt 11.9 - 11.9 10.2 - 10.2 2L.1 - 22.1 1.7 - 1.7ftrmla &1buu 31.3 1.7 33.0 10.0 10.0 110.0 131.3 11.7 143.0 10.1 0.9 11.01bduic.tidst - 19.3 19.5 - 19.5 19.5 - 39.0 39.0 - 3.0 3.01nkW E1dama 21.5 8.4 29.9 21.5 8.4 24.9 43.0 16.8 39. 3.3 1.3 4.6

1im & T_ 397.1 - 397.1 455.2 - 4SS.2 -523 - 85St3 65.6 - 65.6

arn Cr 1,941.2 699.1 2,640.3 1,413.9 5. 2,219 3,3551 1,7.3 4.922. 231t 1.6 378.7

FlyliMI 1 _pm 100.3 3S.7 137.0 O6.4 46.1 132.5 186.7 MA8 29.5 14.3 6.3 3.6PFIM bInlM 292A 143.2 345.1 276.8 2.4 4792 479.7 345.6 62.3 36.9 2.6 63.5

mtaui am 2,243.9 879.0 3,122.9 1,77.1 1116.7 293.6 4PIl5 195.7 6,017.2 309.3 153.5 462.8

I4xh CqitaL 105.5 5.5 111.9 76.0 4.0 80. 181.5 9.5 1.0 1.0 0.7 14.7

FWJat Cot 2.349.4 884.5 3,233. 1,953. 11.7 2,973.8 4,203.0 24105.2 6,2.2 323.3 154.2 477.5

-zo*t dat snW uctm bf lIVA - 18.4 - 56.0 56.0 1. 56.0 74.4 1.4 4.3 5.7F nt-d Fd ai limi - - - - -_ _

Tmtal FII idzwi 2,67.7 8M.5 3.2. 1,5. 1,176.7 3,03.8 4,.A 2,061.2 66A 32.7 15. 63.2

_Wr! TW32.8 mai- (UsM2A wU ) ad P 111.3 n111k (USss.6 ulil lumkgm mis md8 for (wm ad 9nw4mE11-laftlmly.

b For _ ohm. ira.w a n qi.1 p m ApwI 1. IM95 ad um lnl wr. up to tiut daf w in uomI auiay, t1itm.lmt &<q am_uttli aqiltdiad d t no cki fae .Ebp a r s5_pmwn ohm, _dla. _n rii.a lime t_t-- 1I dl _ta cma*y it for Sl d _mL _1- I tm ad of M9M90 _ tim de ng 1Ma 1wil m

wArblUdwd n II= idta SOC d ad sYX *dxty flimd* to, d im an pmdt,d to bh frm by qupty dllztacnt dmlzu ratk. rct1-a 1m t csLa,ntd anm 11 oly.

5.02 The Project's base capital cost estimates were prepared by CHPDIand are based on cost information related to recent orders for similarequipment and actual cost data for on-going projects and are satisfactory.The original estimates as of 1982 were updated subsequently in September1984 and most recently in December 1986. The cost for outside technicalassistance including fees, travel and subsistence expenses, has beenestimated on the basis of past experience for similar services in Bankfunded projects. The accuracy of the base cost estimates at this stage isrelatively high, particularly given the degree of design and specificationfor mining equipment. For this reason, physical contingencies wereestimated at 5X over the base costs for mining equipment and IOX for otnercost item . Price escalation has been based on the phasing of expenditureconsistent with the implementation schedule of the project and projectedlocal and foreign inflation. Local inflation rates are projected at 6% for1986/87 through 1993/94. International inflation rates are projected at1.1% for 1987, 6.9% for 1988, 3.4% for 1989, -2.5% for 1990, and 2.3Z for1991 and thereafter.

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5.03 Working capital requirements have been estimated at about US$14.7million (Rs 191 million), using realistic assumptions on the level ofcurrent assets and current liabilities required by the project until eachcomponent reaches its rated capacity (1991/92 and 1996/97 for Gevra andSonepur-Bazari, respectively). Interest during construction has beenestimated at US$ 5.7 million (Rs. 74.4 million). This allows forcapitalization of interest up to the end of 1982/83 for Gevra and 1989/90for Sonepur-Bazari on loans disbursed during that period in line with CIL'saccounting practices. 8 /

5.04 The capital cost for the Gevra mine (base cost plus physicalcontingency) is about US$21.3 per annual ton of run-of-mine coal and thecapital cost for Sonepur-Bazari is about US$61.8 per annual ton ofrun-of-mine coal with the difference mainly accounted for by the widedisparity in stripping ratio. The unit investment costs of both minescompare favorably with comparable figures of around US$50 per ton of rawcoal of annual capacity for low cost producers in Australia and SouthAfrica.

B. Financing Plan

5.05 The financing plan for the mining component of the project issummarized as follows:

Mining Component - Financing Plan

US$ million ZA. Equity

Government 188.5 39.0CIL Cash Generation 53.1 11.0

Total Equity 241.6 50.0

B. Long-Term DebtIRRD 180.0 37.3Government of India 61.6 12.7Total Debt 241.6 50.0

Total Financing 483.2 100.0

8/ According to CIL accounting practices, interest during construction iscapitalized up to the establishment of a revenue account for theproject, i.e., two years after touching the coal seam, or whenproduction reaching 40Z of designed capacity whichever comes first.Since the Gevra mine is already on revenue account, and sinceSonepur-Bazari will probably transfer to revenue account in 1990 (sincethe coal seam in Sonepur-Bazari will be touched in 1988), the interestduring construction is much lower than might have been anticipated fora project of this size.

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5.06 According to current Government policy, overall financing ofproject costs (including interest during construction, but excludingworking capital) is provided in the ratio of 5kZ dobt and 50Z equity.Under this formula, the proposed Bank financing ot "S$180.0 million wouldsupply about 37.3Z of the total financing provided tor the mining componentof the project, with another US$61.6 million coming in the form oflong-term debt from GOI, or from co-financing (if co-financing were to beused for this project). GOI's approach has been to link specific projectswith individual financing sources rather than have different sourcesparticipating in each of several projects. To this effect, GOI is makingconsiderable use of bilateral sources (from countries such as UK, FRGermany, France, Canada, Soviet Union and Poland) under governmentalcooperation agreements to finance imports of equipment and technicalassistance in areas of project preparation, training, etc. It is expectedthat CIL would be able to contribute about 11% of the funda required forits investment program from internal cash generation after debt repaymentand provision of increase in working capital for the period of 1987/88 to1993/94. This same proportion has been applied to the Project. Thus, CILwould provide about US$53.1 million equity out of its internally generatedfunds and the balance of about US$188.5 million would come from Governmentfunds.

5.07 The proposed Bank loan of US$340 million equivalent would be madeto GOI at the standard Bank interest rate for 20 years, including fiveyears of grace. The sum of US$1S0 million equivalent would be on-lent toCIL for the mining component of the project, the balance (US$160 millionequivalent) being used by GOI for coking coal importation. The amounton-lent to CIL would represent about 100% of the foreign exchange and 6% oflocal costs requirements of the mining component. GOI's practice is tomake loans to CIL for 15 years, at a nominal interest rate currently of 14%per year (resulting in an effective rate of 13.75% p.a.) and not to grantgrace periods. Considering the project's requirements in terms of its longimplementation period and associated cash flow, it is desirable that anormal grace period be applied in this case, as has been the practice inother loans to the energy and industrial sectors. GOI has agreed to onlendthe Bank funds to CIL with 5 years of grace and will assume the foreignexchange risk on the on-lent funds in line with present policy.

5.08 The balance of US$160 million which will be used by GOI forcoking coal importation, will be released in two tranches. The firsttranche (US$100 million) will be available for disbursement at loaneffectiveness. The second tranche (US$60 maillion) would be releasedfollowing receipt by the Bank of a satisfactory program of measuresdesigned to enable CIL to achieve certain financial performance targets in1990/91 (see para. 6.11). The conclusion of an acceptable subsidiary loanagreement between GOI and CIL, and satisfactory financial arrangementsbetween (i) CIL and SECL, and (ii) CIL and ECL, would be conditions ofeffectiveness. GOI has also agreed to provide, in a timely manner, thedebt and equity financing requirements indicated above and whateveradditional debt and equity funds which might be needed (in both local andforeign currpncy) to complete the Project promptly.

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C. Procurement and Disbursement

5.09 Procurement arrangements are summarized in the following table:

Procurement Arrangements(US$ millions)

Procurement MethodProject Element ICB LCB Other Total CostGevraMining & Training Equipment & Spares 69.1 64.5 - 133.6

(48.6) (0.6) - (49.2)Coal Handling Plant - 45,4 _ 45*4Land & Civil Works - 43.3 4.2 a/ 47,5

- (7.5) - (7.5)Workshop Equipment 7.0 - 1.7 8.7

(7.0) (7.0)Engineering - - 1.1 1.1Pre-operating Expenditure - - 2.5 2.5Technical Assistance - - 1.5 1.5

- - (1.5) (1.5)Sub-total 76.1 153.2 11.0 240.3

(55.6) (8.1) (1.5) (65.2)

Sonepur-BazariMining & Training Equipment & Spares 118.7 31.3 - 150.0

(79.9) (1.2) - (81.1)Coal Handling Plant 11.0 - - 11.0

(6.6) - - (6.6)Land & Civil Works - 36.4 3.2 a/ 39.6

- (16.5) - (16.5)Workshop Equipment 9.1 - 1.9 11.0

(9.1) - (9.1)Engineering - - 1.0 1.0Pre-operating Expenditure - - 8.4 8.4Technical Assistance - - 1.5 1.5

_ - (1.5) (1.5)Sub-total 138.8 67.7 16.0 222.5

(95.6) (17.7) (1.5) (114.8)

Coking Coal Imports 160.0 - - 160.0(160.0) (160.0)

Grand Total 374.9 220.9 27.0 622.8(311.2) (25.8) (3.0) (340.0)

a/ Payment for land acquisition.

Note: Figures in parentheses are the respective amounts financed by- theBaak.

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5.10 Out of a total of 62 packages to be financed by the Bank for themining component of the project listed in Annex 15, the Bank will reviewall packages exceeding an estimated value of US$3 million, which comprise17 packages that amount to about 74X of the Bank loan for the miningcomponent, the balance being subject to post review. Eight of thesepackages are estimated to exceed US$7.5 million each and will requirespecial review. Local manufacturers are expected to bid for Bank financeditems under the project and a domestic preference of 15X, or the importduty, whichever is less, would be applied in bid evaluation for eligibleequipment. Technical assistance services will be contracted in accordancewith Bank guidelines. Thirteen mining equipment packages are on thecritical path for mine implementation. Procurement of these packages,under intetnational competitive bidding procedures satisfactory to theBank, is well under way (Annex 16) and it is possible that CIL may be readyto sign contracts and make initial payments for some of these packagesbefore loan signing. With regard to coking coal imports GOI presently hascommitments through June 1987. The procurement process for subsequentcoking coal imports was initiated in March 1987. Provision for retroactivefinancing of up to US$20 million has been included in the loan forexpenditures after April 1, 1987 associated with the initial equipmentpackages and with coking coal imports which follow procurement proceduressatisfactory to the Bank. It is estimated that about US$5 million of theretroactive financing would be for equipment and about US$15 million wouldbe for coking coal imports. A procurement schedule is shown in Annex 15.

5.11 The Bank loan of US$340.0 million will finance goods and servicesas shown in the table overleaf. It is expected that for those items to befinanced by the Bank, about US$28.4 million (approximately 16% of the Bankloan allocation for the mining component) will be for contracts awarded tolocal suppliers following ICB, and about US$25.8 million (approximately 14%of the Bank loan allocation for the mining component) will be for contractsawarded following Local Competitive Bidding (LCB) procedures satisfactoryto the Bank.

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Allocation of the Bank Loan(US$ million)

Sonepur- % of ExpenditureGevra Bazari Total % to be inanced

CategoryI. Coking Coal - - 160.0 47.1 100% of foreign

expendituresII. Equipment a/ 46.7 77.0 123.7 36.4 100% of foreign

100% of localexpenditure (ex-factory cost)and 90% of localexpenditures forother itemsprocured locally

III. Coal Handling Plant, 13.8 30.6 44.4 13.0 100% of foreignTraining Centers expenditure andand Workshops 70% of local

expenditure

IV. Technical Assis;ance 1.5 1.5 3.0 0.9 100%

V. Unallocated 3.2 5.7 8.9 2.6

Total 65.2 114.8 340.0 100.0,- -_ _ _

a/ Including mining equipment, spare parts (estimated at 15% of CIF or 5%of ex-factory value of foreign and local supply respectively), andworkshop equipment.

5.12 The LCB will be mainly for ten contracts, (value about US$24million) to be executed in seven separate geographical locations forworkshop buildings and related civil works and service contracts includingpre-operating expenditures (for initial work in both project components).The value of these contracts i& expected to range between US$1-4 millioneach, which is insufficient to attract interest of experiencedinternational contractors, who typically require larger contracts tojustify their mobilization. The balance of the LCB (not to exceed US$1.8million) would include packages of miscellaneous small tools and componentsfor workshops and training centers (such as surface plates, electricalparts, heaters, repair stands, benches, racks). These have a maximum valueof US$20,000 per package and are not suitable for combining into packageslarge enough to be of interest for international suppliers. Additionally,items procured locally costing less than US$10,000 could be purchased offthe shelf. Disbursement shall be made using Statement of Expenditure (SOE)procedures for contracts of less than US$20,000. The Borrower shall havethe SOE audited every fiscal year by independent auditors acceptable to theBank, and in accordance with appropriate auditing principles consistentlyapplied. The resulting audit report will be furnished to the Bank as soonas available, but in any case not later than nine months after the end ofthe fiscal year.

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5.13 The disbursement profile for the mining component (Annex 16) issomewhat slower than the historical country industrial sector profilesbecause of the long gestation period, particularly for the Sonepur-Bazarimine as a result of overburden configuration and high stripping ratio. Thedisbursement for the coking coal imports is expected to be completed inFY89. The Bank loan is expected to be fully disbursed by December 31, 1993when all Bank financed items would have been commissioned.

VI. FINANCIAL ANALYSIS

A. Coal India Ltd.

6.01 The most critical factors affecting financial projections for CILare forecasts of production and the related Investment program, structureof production costs and coal prices. Specific assumptioas are discussed inAnnex 17.

6.02 The bulk of CIL's thermal coal project pipeline is to meet theincremental demand of the power sector. According to the 7th Five-YearPlan (1985/86-1989/90) the next several years will be a period of rapidgrowth for power generation and coal production. CIL will be required toincrease production from 142.6 million tons in 1986/87 to 196.0 milliontons in 1989/90. Thereafter, CIL's production is further expected toincrease to nearly 250 million tons by 1993/94. Overall CIL is projectedto achieve an increase of about 107 million tpy capacity in 7 yearrepresenting an average annual growth rate of 8.3Z. During this periodopen-pit coal production is expected to increase from 55% to 66% as shownin the table below:

CIL - Production Forecast(million tons)

Fiscal Year Open-Pit Underground Total1986/87 78.8 63.8 142.61987/88 90.1 67.9 158.01988/89 103.4 71.9 175.31989/90 120.8 75.2 196.01990/91 131.7 76.5 208.21991/92 140.7 79.1 219.81992/93 152.8 81.6 234.41993/94 164.8 84.6 249.4

6.03 To support the growth of coal production, total coal sectorinvestment requirements during the 7th Five-Year Plan (1985/86 to 1989/90)are projected at Rs 53 billion (US$4.0 billion) in 1986/87 terms.Financing to CIL has been provided entirely by GOI in the form of long-termdebt and equity from GOI's general budgetary allocations for capitalexpenditure, with each covering about 50% of the required investment. Itis expected that GOI will continue to finance 50% of the investment throughlong-term debt, and 50% from equity contributions.

6.04 CIL's average production costs per ton of raw coal are projectedto decrease in real terms from an estimated Rs 222 per ton in 1986/87 toRs 194 per ton in 1989/90 and to coutinue to decline slightly thereafter

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as shown in the table below. This improvement reflects the benefits ofmeasures included in a Medium Term Efficiency Improvement Program beingimplemented by CIL (para. 6.10). Compared with other major coal producingcountries, CIL's average operating costs ore competitive with low costproducers in Australia and the United Stateb, though somewhat higher thanthose in South Africa, after accounting for differences in coal qualities.

CIL-Production Costs Summary(Rs/ton 1986/87 terms)

1986/87 1989/90 1993/94Rs/ton Z Rs/ton % Rs/ton Z

Salaries & Wages 111.4 50.1 84.0 43.3 73.2 40.1Stores 30.4 13.7 30.3 15.6 30.5 16.7Power 14.8 6.7 14.7 7.6 14.4 7.9Other Expenses 26.5 11.9 26.1 13.4 25.1 13.8Operating Cost 183.1 82.4 155.1 79.9 143.2 78.5

Depreciation 21.1 9.5 21.4 11.0 21.9 12.0Interest 18.1 8.1 17.7 9.1 17.4 9.5

Total Production Cost 222.3 100.0 194.2 100.0 182.5 100.0- -__

6.05 Salaries and wages constitute the largest component in theproduction cost structure and their movement has significant bearing on theoverall production cost. In CIL, salaries and wages are fixed by theNational Coal Wages Agreement which is renegotiated every four yearsbetween the unions and CIL management. So far the unions have beensuccessful in securing wage increases in real terms but salaries and wageson a per ton basis have remained constant in real terms for the past 5years indicating that improvements in labor productivity have more or lessmatched the real increase in wages and salaries. Increases in laborproductivity and reductions in labor costs are now most important CILpriorities. CIL expect to be able to minimize future wage increases inreal terms and CIL's efforts to improve efficiency (paras. 2.12-2.14)should result in a steady decrease in unit labor costs in real terms duringthe Seventh Plan period. If CIL achieves the production and productivityincreases as projected, and if wage increases can be successfullycontrolled, labor costs will be reduced from 50% of production costs, atpresent, to 43% by 1989/90. CIL's efficiency efforts should also preventany increases in other costs in real terms for the next few years. Theshare of depreciation and interest charges will increase due to theemphasis on capital intensive mines in the investment program.

6.06 Based on the present coal price schedule effective as of January8, 1986, and grade-wise production mix of CIL, the average coal price forCIL in 1986/87 is about Rs 205/ton. Recent work by CIL on a detailed mineby mine production outlook has indicated that the grade mix for CIL will

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tend to decline sharply in the next few years because the bulk ofincremental production will be of lower grades of coal, especially grades Eand F (which are expected to account for about 85Z of CIL's incrementalproduction from 1986/87 to 1989/90). To offset the impact of expecteddeterioration of grade mix on CIL's average price realization and to enableCIL to achieve a debt service coverage of 1.3 in 1990/91 (para. 6.11), n4.5% coal price increase in real terms is projected in 1990. For yearspreceding and after 1990, it is assumed that coal prices would generallyfollow the local inflation rate. The average coal price in current termsfor CIL as a whole is projected below.

CIL - Projected Average Coal Price(Rs/ton current term)

Fiscal Year Average Price

1986/87 2051987/88 2121988/89 2211989/90 2281990/91 2491991/92 2641992/93 2801993/94 296

6.07 Based on the above main assumptions, CIL financial projectionshave been prepared and are shown in Annex 18. The key financial data aresummarized in the following table:

CIL - Sumury of Financial Projections(Rs million - current terms)

Fiscal Year 1986/87 1987/88 1988/89 1989/90 1993/94

Coal Sales (lzlion tons) 137 151 167 187 238Sales Revenues 27,953 32,077 36,813 42,737 70,172Operating Expenses 25,027 27,840 30,944 34,563 51,154Net Income (2,402) (2,025) (1,466) (474) 4,761Internal Cash Generation 498 1,400 2,625 4,340 12,633

Investment 9,690 10,335 13,466 15,233 17,070Net Fixed Assets 31,822 37,389 45,012 53,451 81,344Long-Term Debt 27,829 30,573 34,538 38,939 52,803Shareholders Equity 20,706 26,235 33,105 40,840 68,240

Ratios:Current Ratio 1.26 1.27 1.29 1.31 1.34LT Debt:Equity Ratio 57:43 54:46 51:49 49:51 44:56LT Debt Service Coverage 0.58 0.71 0.87 1.05 1.67

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6.08 CIL faces a difficult financial position for the next few years.An improvement over 1985/86 is expected in 1986/87, partly as a result ofthe January 1986 price increase and partly as the result of CIL's effortsto increase efficiency and, in particular, a cost cutting program adoptedby CIL in February 1986. Even so, a loss of Rs 2,402 million is projectedfor 1986/87 and this could be higher if production increases are restrainedby lower than anticipated off-take. Based on the coal price assumption asoutlined in para. 6.06, and assuming no adjustments to CIL's capitalstructure, CII. is unlikely to reach a profit making position until1990/91. For the next several years CIL will need additional equitycontributions (above 50% of the investment program) to assist with debtrepayments including arrears and will not be able to generate funds for itsinvestments program until 1990/91. With regard to CIL's balance sheet, thecurrent ratio is projected to increase slightly to 1.31 in 1989/90.Long-term debt to equity ratio is expected to improve to a moreconservative level of 49:51 in 1989/90 and further to 44:56 in 1993/94.Debt service coverage is expected steadily to progressively improve andreach 1.05 in 1989/90 and 1.30 in 1990/91. This allows for the repaymentof about Rs 3.9 billion in debt and interest arrears over a six yearperiod. Excluding payments on these arrears, the debt service coveragewould be 1.15 in 1989/90 and 1.39 in 1990/91.

6.09 Agreements have been reached with GOI and CIL on financialcovenants that will ensure that the financing for the project is adequateand that CIL will follow prudent financial practices. Agreements on theproject's financing plan are discussed in paras. 5.07-5.08. Regarding thefinancial position of CIL, it was agreed for the Dudhichua Project (Loan2393) and Jharia Project (Loan 2498) that CIL will on a consolidated basis:(i) maintain a long-term debt to equity ratio not greater than 60:40; (ii)maintain at all times a current ratio of at least 1.2; and (iii) take allactions necessary to ensure a debt service coverage of at least 1.3. Thefirst two above conditions were also agreed for this Project.

6.10 However, a modification has been made to the debt-servicecoverage provision in view of the present financial outlook for CIL. CILhas not been able to increase production (due to demand rising more slowlythan forecast) and contain unit costs as well as previously anticipated.Rather than compensate by simply raising prices in real terms to covercosts, GOI has encouraged CIL to make efficiency improvements in order toimprove its financial viability. CIL has put in place a short-term costreduction program for 1986/87 as a result of which cost savings of about Rs620 million have been achieved. CIL has also developed a Medium TermEfficiency Program which is being implemented by the subsidiaries. Thisprogram includes inter alia manpower control measures (to improve laborproductivity), computerized spare parts systems and improved operating andmaintenance capabilities (to increase availability and utilization of heavymining equipment) and stringent cost controls (to contain increases inadministrative, stores, power and transport costs). More details are givenin Annex 19 which also includes certain performance targets.

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6.11 The extent of CIL's financial difficulties in the next severalyears became apparent in late 1986 during the preparation of the MediumTerm Efficiency Improvement Program. While the emphasis on efficiencyimprovement is a sound approach, the present measures identified and beingimpleuented by CIL will not be sufficient to enable CIL to reach the 1.3debt service coverage without price adjustments and/or other measures. GOIand CIL are considering various options that will enable CIL to achieve a1.3 debt service coverage by 1990/91. While these could include anincrease in the present coal price schedule in real terms (as assumed inthe financial projections - para 6.06), other options als o exist includingidentification of further efficiency improvement measures, financialrestructuring steps (including capitalizing or writing c'f certain CILarrears in interest and debt repayment to GOI) and possible new approachesto coal pricing (such as coalfield pricing or even sliding scale pricing).Further time is needed to formulate these options and develop acomprehensive strategy. GOI will, therefore, prepare and submit to theBank by October 1, 1988 a program of specific measures which will enableCIL to achieve a debt service coverage of 1.3 by 1990/91. CIL hasestablished a set of annual operating performance targets for the next fouryears (Annex 1S) and will review its annual operating performance withregard to these targets annually with the Bank. Based on thesearrangements, it was agreed that CIL would take all actions to ensure adebt-service coverage of at least 1.3 in 1990/91 and thereafter. Thisagreement will subsequently be adopted for the Dudhichua and JhariaProjects also. Additionally, CIL will have its accounts audited byindependent auditors acceptable to the Bank, and will submit certifiedcopies of its consolidated financial statements (together with theauditor's report) as soon as available, but in any case not later than ninemonths after the end of each fiscal year.

B. South Eastern Coalfields Ltd.

6.12 SECL's projected financial position is summarized below.Detailed financial projections for SECL, given in Annex 20, are based onthe assumptions discussed in Annex 17.

9BM- &mmy of Projected Ffmel positi a/(Rs urfln)

1986/87 1987J88 1988/89 1989/90 1993/94

Gsol SR (nuUMIn tons) 52 60 68 77 99Sales Revemws 9,748 11,661 13,620 16,144 26,955Operating lEpues 7,222 8,217 9,87 10,808 16,714Net Inume before CPRA cmtr ibtimn 793 1,407 1,868 2,570 5,556Net Ixcae after CERA coltrbaimn (8D6) (689) (476) (75) 1,947teTumt CSash Glemation 174 468 875 1,490 4,467

Investmzrt 2,830 2,862 3,147 3,454 4,211

a/ The projcXke iT-uide the Nw'r operatiois and emclude the Orissa operatlons.' After eontibhutm to ML&.

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6.13 Due to locational advantages in relation to major coal consumersin western India, development of new coalfields in SECL has been givenpriority in CIL's investment program. SECL's production is expected toincrease from 54 million tpy in 1986/87 to 103 million tpy by 1993/94,representing an average annual growth of 9.6Z. The emphasis of SECL'sinvestment portfolio Is the development of new large-scale open-pit mineswhich would bring the share of open-pit production to 68 by 1993/94 fromthe current level of 51%.

6.1x. Mainly due to better mining conditions, less power shortages andless labor unrest, SECL is a low cost producer among all subsidiaries. In1986/87 average operating cost per ton of saleable coal in SECL areexpected to be Rs 138/ton, about 75Z of CIL's average of Rs 183/ton.Production cost in real terms is expected to decrease by about 17% by1993/94. SECL is in a sound financial position. Its forerunner (WCL) hasbeen able to earn moderate profits since 1979/80 and SECL is also expectedto be profitable before CPRA contributions. Although the Impact of theretention price system results in substantial transfer from SECL to ECL andBCCL and will cause a negative net income (after CPRA adjustment) forseveral years for SECL, the ratio of internal cash generation to investmentrewains positive and is projected to increase from the current level of 6Zto about 106% in 1993/94.

C. Eastern Coalfields Ltd.

6.15 ECL's projected financial position is summarized below. Detailedfinancial projections are given in Annex 20.

- SuurrY of Pzojected Finmial PbsiticxBs. mwlUon)

1986/87 1987/88 1988/89 1989/90 1993/94

Coal Sales (mmillon tons) 24 26 29 33 38Ss Reve_ues 6,335 7,155 8,408 9,798 14,697Operating costs 6,377 6,976 7,702 8,503 11,305Net lie before CERA justtent (1,185) (1,161) (871) (562) (340)Net I after CM Adjustiunt (455) (385) (294) (120) (754)Internal Cash Genration a/ 171 353 593 924 2,529

1nvesm.t 1,500 1,696 2,248 2,382 3,008

a/ hi g catributin frm CMM&

6.16 Due to difficult mining conditions, the labor-intensive nature ofexisting operations, and overstaffing, average cash operating cost of ECLis the highest among all subsidiaries (Rs 268/ton). ECL's investmentprogram amounts to nearly Rs 2.0 billion per annum over the 1986/87 to1989/90 time period. It consists of reconstructing its older, deepunderground mines and developing certain new open-pit mines including theRaimahal mine to feed the Farraka super-thermal power station in northernBiIiar as well as Sonepur-Bazari. Because of the geological conditions and

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the age of the workings, there is only limited opportunity for increasingproduction from the underground mines and the emphasis of thereconstruction program is therefore on efficiency improvements and costreduction, as well as increased production. Since there are fewerundeveloped coal deposits in the regions operated by ECL, its incrementalproduction program is such smaller than SECL. By 1993/94, ECL is expectedto increase production to 40 million tons, with an average annual growth of6.8% from 1986/87. Open-pit mining would only moderately increase itsshare from 33Z in 1986/87 to 45% in 1993/94.

6.17 As discussed earlier, given CIL's power and responsibility fordecision-making on financial and administrative matters, and because itborrows from GOI all long-term loans for the Group, CIL is considered theprimary beneficiary for the proposed loan. For these reasons, no specificfinancial covenants are considered for SECL and ECL with the exception thatSECL and ECL will have their accounts audited, by independent auditorsacceptable to the Bank and will submit certified copies of their financialstatements, together with the auditor's report as soon as available but inany case not later than nine months after the end of each fiscal year.

D. Gevra and Sonepur-Bazari Projects

6.18 The operating cost estimates for Gevra and Sonepur-Bazari weredeveloped by CMPDI in 1979 and updated subsequently in September 1984 andDecember 1986 based on actual and comparable cost data. Due to excellentgeological conditions, the operating costs of the Gevra mine comparesextremely favorably not only with the companywise averages but also withthe lowest cost coal producers in South Africa even after adjustment forcoal quality differences as shown in the table below. The operating costestimates of Sonepur-Bazari, while higher than Gevra due to a higherstripping ra-io, are also well below ECL average due to itscapital-intensive nature.

Inter-Company Comparison of Cash Operating Costs(Rs per ton of Saleable Coal, 1986/87 terms)

Sonepur-Gevra Bazari SECL ECL CIL

Salaries & Wages 10.0 18.4 78.5 186.3 111.4Stores 19.2 57.0 29.1 24.1 30.4Power 1.8 9.7 13.7 18.1 14.8Other Expenses 10.1 24.9 16.7 39.5 26.5

Total Operating Costs 41.1 110.0 138.0 268.0 183.1

International Comparison of Cash Operating Costs(US$ per ton of Coal Equivalent 1986/87 terms)

Sonepur-Gevra Bazari South Africa

Labor Cost 1.7 1.9 3-4Other Costs 5.3 9.5 5-8

Total Operating Costs 7.0 11.4 8-12

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6.19 The financial rate of return of Gevra mine is 22% and that ofSonepur-Bazari is 10%. The difference is due primarily to the higherstripping ratio for Sonepur-Bazari which is about five times that of Gevra,though coal from Sonepur-Bazari is of much better quality. However,considering the actual supply shortages of higher grades of thermal coalwhich is economic to transport over relatively long distance, thedevelopment of Sonepur-Bazari mine is of equal priority with Gevra.Detailed financial cost and benefit streams and the assumptions used,together with those of the economic analysis are given in Annex 21. Thefinancial rates of return and sensitivity tests are summarized below.Switching values of coal price, capital and operating costs wich wouldreduce the return of the Gevra project to 10% are also presented.

Gevra and Sonepur-Bazari Projects - Financial Rates of Return(M)

Gevra Sonepur-Bazari

Base Case 22.4 9.7Capital Cost Up 10% 20.0 8.4Operating Cost Up 10% 20.9 8.4Production Build-up Slippage 21.3 9.3Capital Cost Up 10% andProduction Build-up Slippage 16.7 6.1

Gevra - Switching Values Y'ieldi,g 10% Financial Rate of Return

Factor Percentage Change

Coal Price -31Operating Cost +79Capital Cost +78

6.20 Of the various factors used in the sensitivity test, the returnstays sensitive to variations of coal price which is the least controllableby CIL. Although GOI has expressed basic commitment to adopt a rationalcoal pricing policy, risks exist that price adjustments may not take placein a timely manner. In anticipation of this and to ensure the financialviability of the project and CIL, the Bank will continue its pricingdialogue with GOI in the context of GOI's preparation of further measuresto enable CIL to meet its financial targets (para. 6.11). Although ECL haslimited experience with mechanized open-pit operations, the possibility ofsignificant implementation delays causing slippage in the productionbuild-up is considered low given CIL's commitment to rationalize andstrengthen ECL's management as well as cross-fertilization of benefitsexpected from technical assistance on open-pit mining operations under theDudhichua project. In the case of Gevra, since the technology involved isalready adopted by SECL in other open-pit operations, time overruns areunlikely except that production build-up is conditioned by theimplementation progress of the Korba power plant being financed with Bankgroup assistance. Possibility of capital and operating cost overruns isrelatively low because estimates are based on actual data for on-goingprojects. Further, the impact on the rate of return is not critical ineither case.

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VII. ECONOMIC ANALYSIS

7.01 The Gevra mine is a captive supplier of the Korba power station,one of the four large central power stations planned by GOI for the currentdecade and being developed with Bank Group assistance. Upon completion,the Korba power station will have 2,100 MW generating capacity and willcontribute about 8% of total energy supply in the western region from 1991onwards. In this context, the Gevra mine plays an important role in theprovision of necessary incremental base load capacity of the required sizeand reliability. As for Sonepur-Bazari, 50% of coal production is linkedwith the Kolaghat power station which is at present under construction withultimate capacity of 6x210 MW. The project will help to alleviate theacute power shortages and associated losses in industrial output in WestBengal. The balance of Sonepur Bazari's production will help to alleviateshortages of higher grade coals for industrial consumers.

7.02 The importation of coking coal will assist GOI in filling the gapbetween the present availability of domestic prime coking coal and thesteel industry's requirement for prime coking coal. The loan would financeapproximately half of India's coking coal requirements during the next twoyears. Without the imports, the production of steel would be constrainedby raw materials shortages with a resultant decline in capacity utilizationand, hence, inefficient use of the steel industry's existing plant andequipment. Since the imported coal will have a lower ash content (average10% ash) than domestic supplies (average 21% ash) blast furnaceproductivity should be improved by a judicious blending of imported anddomestic coal. The results of the program to monitor the benefits of theimports (para. 2.17) will be useful not only for optimizing the blend ratioin the next several years but also for assessing the economics of usingimported coal on a permanent basis to sweeten the India coking coal, sinceeven under the best of conditions Indian prime coking coal will not belower than 17% ash.

A. Economic Rates of Return

7.03 The economic rates of return for the investments in the twomining complexes have been calculated based on the cost and benefit streamsused for the financial rates of return except for (i) exclusion of allidentifiable taxes and duties; (ii) application of standard conversionfactor of 0.8 to locally supplied inputs and labor to reflect theiropportunity costs to the economy; (iii) the use of projected domestic salesprices paid by consumers at mine-head (adjusted by the standard conversionfactor) as proxies for the economic values of the relevant grades of coalto calculate project revenues (para. 7.04).

7.04 In principle, coal is tradeable and should be priced atopportunity cost. However, the bulk of India's thermal coal production isnot expected to be economically tradeable because of both its low qualityand the heavy transportation costs involved. In these circumstances, the

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efficiency price is the long run marginal cost. Given that the projectedaverage thermal coal price for CIL is broadly in line with the long runmarginal cost estimate, the projected domestic prices paid by consumers atmine-head for each grade, adjusted by the overall conversion factor, havebeen used in calculatiag project benefits for the purpose of economicevaluation. ?2 The mine-head consumer price for each grade comprisesmine-head producer price plus various statutory levies and sales taxescollected by state and central governments. The prevailing rates of theselevies effective as of January 1, 1987 are much higher in Bihar and WestBengal than in other coal-producing states. Presently, the differentialsbetween producer and consumer prices at mine-head average about 30% ofproducer prices for ECL and BCCL, about 25% for CCL, and about 10 forSECL.

7.05 The economic rate of return thus calculated is 32Z for Gevra and19% for Sonepur-Bazari. Sensitivity tests of adverse scenarios aresummarized below and underlying assumptions and cost/benefit streams aredetailed in Annex 21. It can be noted that the economic rate of return isabout 10 points higher than the financial rate of return reflecting thatsubstantial portion of the economic rent accrues, partly, to the centraland state governments in the form of taxes and partly to the labor forcewhich is paid high wage rates relative to wages in other occupations.

Gevra and Sonepur-Bazari Projects - Economic Rates of Return(O)

Gevra Sonepur-Bazari

Base Case 32.0 19.3Capital Cost up 10% 29.0 16.2Operating Cost up 10% 30.4 16.7Production Build-up Slippage 27.9 13.9Capital Cost Up 10% and Production

Build-up Slippage 25.2 12.7

B. Resource Mobilization

7.06 Substantial amounts of resources are generated by the coal sectorin the forms of statutory leviee, sales tax, and custom duties on CIL'scoal sales and equipment purchases. During 1986/87 - 1989/90, CIL'scontribution to Government revenues is projected to average 70% of CIL'sinvestment requirements, whereas CIL's projected internal cash generationaverages 18% of CIL's investment before debt service and only becomes

9/ The question may arise whether consumers would be willing to pay higherprices, i.e., whether these prices clear the marilet and obviate anyneed for rationing. Although coal supply in India has been pressed attimes to satisfy domestic demand at prevailing level of prices due tothe structure of demand, it appears reasonable to assume that at theprojected prices no scarcity will develop.

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positive in the early 1990s, after debt service. Most part of thestatutory levies on coal sales go to State Governments, although 10X ofthese are given back to CIL as subsidies for stowing operations, housingand medical facilities, etc. Considering that the Central Governme tintends to continue to finance CIL's investment program on 50X debt and 50Xequity basis, this will impose a substantial burden on GOI's budget forcapital expenditure if present arrangements remain in force. It is,therefore. desirable that measures be taken so that CIL can soon move to aposition. where it is able to generate part of its investment requirementsitself. It should be noted that the customs duty on imported equipment forgovexmnment-sanctioned projects has been reduced from 65% to 45% of CIF coststaLting January 1, 1985, which is helping reduce CIL's investmentrequirements and is encouraging domestic suppliers to improve efficiency.

CIL - Projected Resource Mobilization(Rs million - current terms)

Fiscal Year 86/87 87/88 88/89 89/90 93/94

Internal Cash 498 1,400 2,625 4,340 12,633Generation (ICG) a/

Contribution toGovernment Revenues (CGR):Duty & Taxes on Equipment 830 890 1,150 1,310 1,470Levies on Coal Sales 5,990 6,800 7,780 8,970 14,560

Subtotal 6,820 7,690 8,930 10,280 16,030

CIL Investment 9,690 10,335 13,466 15,233 17,070Debt Repayment b/ 2,583 3,143 3,488 3,936 5,145

ICG/Investment (X):Before Debt Service 5.1 13.5 19.5 28.5 74.0After Debt Service neg. neg. neg. 2.7 43.9

CGR/Investment (X) 70.4 74.4 66.3 67.5 93.9

a/ Before servicing long-term debt to the Government.bJ Including arrears.

C. Other Benefits

7.07 ,the project should help to develop efficient operating practicesin ECL through the demonstration effect of a modern, high-productivity mineand provide stimulus towards the efforts of rationalization of existingoperations. Furt.iermore, the selection of 120 t dump trucks for both minesrepresents a major step forward in exploiting the potential of modernmining technology and will accelerate the collaboration between thedomestic manufacturing industry and foreign suppliers to upgrade domesticmanufacturing capabilities. The project will provide direct employment forabout 4,000 persons at the Gevra mine and will open an avenue to alleviatethe current over-staffing of ECL by providing required manpower for the

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Sonepur-Bazari mine (of about 1,200 persons) partly from within theexisting labor force. The project will also support CIL in its efforts toimprove its overall efficiency through short-term cost reduction andmedium-term efficiency measures. Finally, improvements in the quality ofcoal received by consumers should contribute to greater productivity inconsuming sectors, in particular, power, steel and general industrialconsumers.

D. Least Cost Development Program

7.08 The econou#ic rate of return calculations presented above evaluatethe marginal contribution that each mine is making to the economy, and thusenable a comparison with investments in other sectors. This is notsufficient, however, to rank projects within the coal industry, or asegment of it, according to their relative economic merits. Sincetransport costs are high compared to mining costs (and can even be higherthan mining costs for long distances), the merits of a project meetingdomestic demand in a particular location are of paramount importance,especially in the case of large scale thermal power plants.

7.09 In the case of the Gevra mine, it should be compared with otherprojects in the Korba field and with others in neighboring fields in MadhyaPradesh and Orissa. SECL and WCL have currently under implementation 15underground and 11 open-pit major mines with economic costs 10/ atmine-mouth averaging Rs 23 per Gigacal (ranging from Rs 13 to 36 perGigacal 11/). Apart from the expansion of Gevra, four other projects arepresently being considered for investments in Korba or relatively nearareas. Of these, the expansion of Gevra ranks second with an economic costper Gigacal of Rs 24.8, fairly close to the average of projects underimplementation. The only project with an economic cost lower than Gevra(Rs 20.9 per Gigacal) consists of the expansion of the existing open-pitmine Kurasia, which for technical reasons cannot be expanded by more than 1million tpy.

7.10 ECL's investment program is geographically concentrated in a muchsmaller area and given the relatively higher grades of coal produced, thedemand is considerably more dispersed throughout India. For these reasons,the analysis here has been focused on the overall investment program forECL. There are at present 12 major projects under implementation with anaverage economic cost of RS 28 per Gigacal (ranging from 17 to 35). Someother thirteen projects have been formulated and in all cases the economiccost has been estimated at above Rs 28 per Gigacal, which is a clearindication of the rising trend in long-run marginal costs. TheSonepur-Bazari project with a cost of Rs 33.7 per Gigacal, ranks third inthis program, satisfying the least-cost development criterion.

10/ The economic cost has been estimated as the ratio of the net presentvalue (NPV) of capital plus operating cost streams (in early 1985terms) to the NPV of the energy content of coal production (measuredin Gigacals) discounted at the opportunity cost of capital, estimatedat 12X. To express them in economic terms, the cost streams have beenadjusted using the same criteria described in para. 7.02.

11/ Except for one project with an economic cost of Rs 49.9 per GigacF_.

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E. Project Risks

7.11 The project faces minimal technical and marketing risks. Thereis a risk that the Sonepur-Bazari component may be delayed by landacquisition difficulties. The required land is in the hands of theGovernment of West Bengal and handover is expected within two to threemonths. If undue delays occur, disbursements will be limited to US$8million for the Sonepur-Bazari mining equipment until the land is handedover. Any possible financial risks are mitigated (a) by CIL's efforts toimprove its efficiency and financial performance; (b) by the Government'scommitment to preparing a program, including price increases ifappropriate, that would assure CIL's financial future viability; and (c)the high priority that GOI places on developing its critically needed coalresources in a timely and efficient manner.

VIII - AGREEMENTS REACHED AND RECOMMENDATIONS

8.01 The following agreements have been reached:

(a) With thc Government that it will:

(i) prepare a detailed implementation schedule for measures toimprove coal quality (para. 2.19);

(ii) maintain coal prices that will ensure the financialviability of CIL and provide increased resource mobilizationin the Sector (para. 2.21);

(iii) ensure adequate power supply to the project (paras. 4.12 and4.25);

(iv) on-lend Bank funds to CIL on terms and conditionssatisfactory to the Bank (para. 5.07);

(v) provide in a timely manner the financing necessary tocomplete the project promptly (para. 5.08); and

(vi) furnish the Bank with a program of measures that will enableCIL to achieve its agreed financial targets (para. 6.11).

(b) With CIL that it will:

(i) retain technical assistance by December 31, 1987, regardingthe design of workshop facilities (para. 3.08);

(ii) retain technical assistance by December 31, 1987, to improvemanpower planning within CIL and the planning andorganization of training activities (paras. 3.09 and 3.10);

(iii) retain technical assistance by December 31, 1987 for thedesign and development of training institutes (paras. 4.10and 4.24);

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(iv) undertake a resettlement program for people affected by theproject (para. 4.32);

(v) follow prudent financial practices; and maintain financialcovenants as describtd in paras. 6.09 and 6.11; and

(vi) review with the Bank its annual operating performance(para. 6.11).

(c) With CIL and SECL (for Gevra) and ECL (for Sonepur-Bazari) thatthey will:

(i) undeLtake additional geotechnical testing and prepare and submitto the Bank a repurt on detailed mine planning and slopestability for both components (para. 4.08 and 4.20);

(ii) ensure the design, construction and operation of the project arecarried out with die regard to ecological and environmentalstandards and ensure satisfactory arrangements for the supply ofelectric power and potable water to each component (paras. 4.12,4.25, 4.26 and 4..2); and

Ciii) prEpare and submit financial statements and audited financialreports to the Bank (par-. ' 11 and 6.17).

(d) With SECL and ECL (for Cevra and Sonepur-Bazari respectively)that they will:

(i) establish a satisfactory Project Management Unit for eachcompenent (para. 4.34 and 4.35).

(e) With ECL that it will

(i) implement a rehabilitation program for twenty loss-makingmines satisfactory to the Bank, submit progress reports forBank review, and extend the program to another twenty minesas agreed with the Bank (para. 3.18).

8.02 The following are conditions of effectiveness:

(i) the conclusion of a subsidiary loan agreement between GOIand CIL under terms and conditions satisfactory to the Bank'?ara. 5.07); and

(ii) financial arrangements between (a) CIL and ECL, and (b)CIL and SECL, all under terms and conditions satisfactory tothe Bank (para. 5.08).

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8.03 As a condition of disbursement, disbursements on the Sonepur-Bazari component will be limited to a maximum of US$8 million until ECL hasconfirmed possession of 68 ha of land (part of the land needed for thefirst five years of mining-para. 4.37). In addition, the second trancheof the coking coal component (US$60 million) will be released on receipt ofa satisfactory program of measures that will enable CIL to reach itsfinancial targets in 1990/91 (para. 5.08).

8.04 Given the preceding agreements and assurances, the project isrecommended as suitable for a Bank loan to GOI of US$340 million for aperiod of 20 years with 5 years of grace, at the standard interest rate.

Industry DepartmentMarch 1987

- 55 -ANNEX IPage 1 of 4

INDIA - COAL MINING AND COAL QUALITY IMPROVEMENT PROJECT

ENERGY SECTOR OVERVIEW

A. Energy Resources

1. Energy use in India is among the lowest in the world. In 1980per capita consumption of energy averaged 210 kg (coal equivalent),i/compared with 680 kg in China and 7500 kg in industrial countries. Overthe past three decades the composition of fuel consumption has increasinglyshifted from the use of non-commercial fuels, such as fuelwood, vegetablewastes and cow dung, to commercial energy resources. At present,non-commercial fuels account for less than 40% of total energy consumption,while coal accounts for 32%, oil and gas for about 20% and primaryelectricity for 8%. The bulk of the substitution of non-commercial fuelshas been in the form of coal and oil products reflecting India's large coalresources and the rapid growth of road transport, where energy use in theform of petroleum products has almost doubled over the past decade. Theincreasing reliance on commercial fuels has strained the capability of theenergy sector to meet the energy needs of the economy and has placed aheavy burden on the balance of payments.

2. Concerned about the adverse impact of energy shortages oneconomic growth, the government has continuously stepped up investments inthe energy sector. Since 1973/74 the share of total public investment inthe energy sector has nearly doubled. While this reflects to a largeextent the government's response to the increase in international oilprices, it is also in line with the traditional perception that the energysector must provide the Indian economy with the energy it requires tosustain growth. The relative shares of public investment in the majorenergy sub-sectors, coal, oil and gas, and electric power reflect thechanging structure of energy demand, in particular the rapid growth in thedemand for oil products, the need to minimize the burden energy importsplace on the balance of payments and India's relative endowment with energyresources.

3. Coal is and will continue to be, India's most abundant domesticenergy resource. Its contribution to the country's commercial energyrequirements is expected to remain more than 50% over the next decade.Total coal resources (excluding lignite) are estimated at over 127 billiontons, out of which 60 oillion tons are considered technically andeconomically recoverable under present conditions. Based on currentprojections of the growth of coal demand, these reserves would besufficient to meet India's coal needs over the next 130 years. In contrastto the experience of many other countries, the share of coal in commercialenergX production in India has declined only slightly over the years, andcoal still accounts for about 60% of all commercial energy produced. In1984/85 coal production reached 147.5 million tons, making India the sixthlargest coal producer in the world.

1/ Internationally, coal is rated at 7,000 kcal/kg while in India, due togenerally lower coal quality, coal is rated at 5,000 kcal/kg.

- 56 -ANNEX 1Page 2 of 4

4. Oil, because of its rapidly growing demand that absorbs a largeshare of India's export earnings, will remain critical to the management ofthe Indian economy2 /, in particular lts balance of payments. Whiledomestic oil output has increased from 0.5 million tons in 1961/62 to 29.0million tons in 1984/85, mainly as a result of the discovery of the BombayHigh off-shore field, it currently provides only two-thirds of domesticconsumption. Although the reliance on lmported oil ls projected to declineto about one-fourth towards the end of the 1980D, it is expected to riseagain to about one-third by the mid-19909 as domestic oil production (fromcurrently known fields) reaches a plateau of about 38-40 million tons. Toavoid a significant increase in oil imports by 1995, new reserves will haveto be discovered and brought into production within the next decade. Totalprognosticated resources of hydro-carbons have been estimated by ONGC in1982 at 15 billion tons of oil equivalent of which about 75% is natural gasand 251 is oil. Two-thirds of the resources are located off shore andone-third on shore. Of these resources, 511 million tons of oil and 478blllion cubic meters of gas have been estimated as proved reserves as ofJanuary 1984.

5. Current geological knowledge of the country indicates thatnatural gas is likely to be India's predominant hydrocarbon resource. Upto now however, the role of natural gas has been small and limited toassociated gas produced with crude oil. The situation will change,however, with the development of the large South Bassein gas field and theappraisal and proving of more recent discoveries in the western region.Current natural gas production has reached 7.2 billion cubic meters (bcm)per year, or about 6.0 million tons of oil equivalent, of which 3.8 milliontons of oil equivalent are used as fuel or feedstock, the remainder beingflared for lack of compression and dehydration facilities off-shore,transmission infrastructure or consuwmrs onshore.

6. India's economic growth depends to a large extent on theperformance and development of the power sector, since power shortages havean immediate impact on virtually all other sectors of the economy. Totalinstalled power generating capacity as of March 1985 was 46,680 MW(including non-utility plants), of which about 672 was conventionalthermal, 312 hydro, and 22 nuclear. The Central Electricity Authority(CEA) has recently completed a systesatic reassessment of India'shydroelectric resources, and placed the estimated potential at 89,830 MW.At a load factor of 60% this potential capacity would yield an annual poweroutput of 472.15 twh, almost three times the 1984/85 level of powergeneration from all sources (166.6 twh). Of this potential only 14,314 MWhave been developed and 5,100 MN are under construction. GOI has givenhigh priority to the development of India's hydro potential but theseprojects have very long gestation and implementation periods. Most of therecent additions to power generating capacity bas therefore been fromthermal power plants. The share of thermal power generation has increasedto about 67% of total capacity in 1984/85 from its lowest level of 54%during the second half of the 1960s. With the increase in the share of

4/ India's two major national oil companies, the Oil and Natural GasCommission (ONGC) and Oll India Ltd. (OIL) have emerged as the largestnet contributors of resources to the public sector.

- 57 -ANNEX IPage 3 of 4

thermal power in total electricity generation, there has also been anincrease in the share of coal used for power generation-from less than 20%in the early 1970s to a current share of about 44Z. During the same periodthe corresponding share of petroleum products has remained fairly constantat about 7% to 8%.

7. Over the years the Indian economy has been increasingly plaguedby power shortages. While power generation has kept pace with the demandfor power during the 1950s and 1960s, since 1970 supply has fallen short ofdemand, mainly because of delays in the commissioning of new powerprojects, operating and maintenance problems, and severe budget constraintswhich have limited investments in the power sector. The situation has beenaggravated by unreliable coal supplies caused by inadequate transport andthe declining quality of coal. In 1980 a high-level commission carried outan analysis of the situation and submitted its findings (Report of theCommittee on Power) to the Government. As a result of this report theGovernment has introduced several measures to improve the efficiency ofthermal power plants, including: (a) improved preventive and plannedmaintenance; (b) better availability of spare parts; (c) improved training;(d) adequate coal supplies of acceptable quality; and (e) more effectivemanagement of both State Electricity Boards and power plants. Despitethese measures the supply of power is expected to remain inadequate forsome years to come, particularly in areas where coal is not availablenearby.

B. Energy Consumption

8. While households account for a small share of commercial energy-about 7% of coal, 19% of petroleum and 10% of electricity-theircousumption of non-commercial energy is comparatively high, particularly inrural areas while the use of electricity and kerosene remains mostlylimited to lighting. Although commercial energy will continue to replacenon-commercial energy, the latter will remain a major source of energysupply for rural households. Energy needs in agriculture are still metmostly by animal power. Currently commercial energy consumption in thissector accounts for only about 7S and consists mainly of electricity anddiesel oil. However, the use of commercial energy in agriculture has beengrowing rapidly reflecting the efforts to modernize the sector.

9. The industrial sector, which consumes about 40% of commercialenergy resources is the largest user of coal and electricity. In 1984/85it accounted for 42Z of coal consumption and 71Z of electricityconsumption. The energy intensity of the industrial sector has remainedvirtually unchanged since the early 1970s, mainly because of the slow turndown of capital. 3/ It is largely the result of the relatively poorenergy efficiency of the technology that is still used in manymanufacturing processes. Thus the expected acceleration of industrialgrowth in India is likely to place a heavy strain on the energy sector.

3/ In terms of industrial energy Lntensity, India ranks near the top amongdeveloping countries and well above the average intensity in industrialcountries.

-58-ANNEX 1Page 4 of 4

10. The transport sector is the largest user of petroleum productsand the third largest user of coal, after power and industry. Over thepast twenty years the structure of demand has changed considerably as aresult of the rapid growth of road transport and the substitution of dieselelectric for steam locomotives. In 1984/85 oil products accounted for 66%of the commercial energy consumed in the sector compared to 47% in 1970/71,while the share of electricity remained at about 3%. Current projectionsin the transport sector indicated continuing decline in coal consumption asroad transport increases in importance and as railways continue to shift tomore efficient diesel electric locomotives, thereby contributing to agrowing demand for petroleum products.

C. Energy Policy

11. In its energy policy the Government pursues three objectives, tofully develop indigenous energy resources, to improve the efficiency ofenergy utilization and to limit the use of oil products to those end-usesin which economic substitution by other energy resources, particularlycoal, is not possible. In line with this policy the Government placesparticular emphasis on the development of the coal industry and theexploration for oil and gas. To this end the Government has increased theallocation of resources to these two sub-sectors in the forthcoming SeventhPlan. In addition, the Government is currently considering new initiativesto attract foreign oil companies to explore in India.

12. This policy, whose design reflects the Government's response tothe increases in international oil prices during the 1970s, places much ofthe burden of replacing oil products on the coal industry. Through pricingpolicies and rationing the Government curtailed the use of oil products,where this was technically and economically feasible, and encouraged theuse of coal. To overcome, at least in part, the distributional problemsassociated with the greater use of coal, the Government encouraged also theconstruction of coal-based thermal power plants.

-59-

ARM 2

MND - CXOL !UI AID a) gnr= W 3r W

COAL ED31 AND SJUX 1984/85 - 1989/90 a/

AMSA g

Gh RateCbal Deman 1984/85 1985/86 1986/87 1987/88 1988/89 1989/90 (Z per year)

Them.l CoilPaw 62 72 77 87 97 110 12.2

(3) (3) (4) (5) (7) (9) 2.6Railbys 9 9 8 8 8 8 (2.3)Ceent 7 8 8 9 11 12 11.4Fertize 4 4 4 5 5 6 8.5Othr 33 34 35 38 _ 42 48 7.8

Subtotal Thezmi 115 127 132 147 163 184 9.9

QdIxWcGal 33 33 35 38 42 48 4.4

(raum Total 148 160 167 185 205 232 9.4

-~~ m y

CIL 131 L34 143 158 175 1% 8.4(3) (3) (4) (5) (7) (9) 24.6

SaL 12 16 17 19 22 24 14.9TISM/IISCD 3 3 3 4 4 5 10.8

Total 146 153 163 181 201 225 9.0

Thermal COl 116 123 132 148 165 183 9.6

WddgCol 30 30 31 33 36 42 3.7

Total 146 153 163 181 201 225 9.0

a/ Figu In rkets are the qmttlies f iubexy mddlin uszed fer pa.

Soaces: CfMDI, flaik Staff.

- 60-

ANNEX 3Page 1 of 2

DhIA - AL Ml AND aOL (qJL Dnwiw PMc

EC AND )M 1EWN POD M M

lb asms the quality of invenctm poztfolls of FM and SE0. a revim hu been mdek ofprojects ir i-ammtaton and az itted for approval, with focum an tecllal vUability,capital and operatiri tixmtes, projec iqlemtstIn sdulble, and actual roges. S1zeprojects ffer in m1 qtality, pro&xctIon profle and servics 3ife, they bv beew brubht to acmn basis for the pupme of campa thir relativ ecouwc writs uuizg the concept ofecao c cost per Gallode, :dch Is defin M tm rtio of rat prent vlm (NPV) of capital

asd operstix cost stre In econic tex 0to the WV of enz content of coal prouctiOon(w sld in Gigaclories) disuited at the ppotunity cast of apital In Try"an emy estimatedat 12Z p.a. For thls pUrpose, cittal asd opemtki cast streem of each project hie been ajistedto ecll al Identifiable taf and dutis, wA a staulaz cnersion factor of 0.8 ha beenapplied to loclly s.ppiM irpx to reflect tkir apportlity cot to the . The renksthus dedi are gLven in te follwizr table.

Caloif ic C1pital OpetfRg EFnlcCapsdty Vale CaGt / Cat Ccst

Project (BiS t), (kcal/kg) (PA/tOn) (Rs/tm) (Rs/Gigcal)

ECL - I 1 =emAza

I. Bao.l aVG 1.1 4600 128 79 172. S Btg UG 1.2 4900 371 111 303. BaEilAUG 1.2 4900 145 88 194. JKt NgrWU 0.9 4200 38 89 265. Parbelia G 0.8 5700 264 78 186. Jhanjra UG 3.5 42)0 580 48 397. Chinawd UG 0.7 6500 667 47 348. Dtuimin UG 1.4 4900 561 88 309. I ottatUh UG 1.0 5500 583 102 3010. N. Sear Sole UG 1.2 5500 152 68 1511. SeealpUr U; 0.6 6600 1030 142 4312. Raj.Pu. OC 5.0 3400 435 57 36

- For A Wprva

1. C(Dra BlockUG 1.0 4200 589 93 412. Sarpd BlodcUG 0.9 4200 419 133 383. K1a5rdlhi U 1.2 400 565 93 354. Guuik UG 2.0 5300 784 76 485. BlhUatdukU; 1.7 5300 68D 89 376. Jaili U; 1.4 5900 766 108 387. alidaInpor UG 1.0 5U00 455 101 298. aIdaba UG 0.7 4300 607 80 419. Kttadih OC 3.0 4700 474 68 3210. GouraidihOC 1.0 3100 418 63 3511. Sonp i OC 3.0 5200 650 106 34.12. Omm n0C 1.5 32D0 344 56 2813. JanbmOC 2.3 5300 863 131 41

al Cpltal costs (iry1ilM muddzr capLtal) per mtof aEuzal cap ty in ealy 1985 tem.

; 61-ANNEX 3Page 2 of 2

Cmlod.ElC aCpita 0alratizb EonwlcC:aaty Valim Cmt 5/ Ctst cozt

Project (/tn t) (R/ton) P/G4pcaI)

SEMl - Uner iplsiatimi 1/

1. PaliUG 0.5 42W0 264 56 192. Ncph Ur 1.2 5300 138 66 143. ChidIa UG 0.5 5300 327 91 224. Slwra UG 1.0 3400 381 152 505. Snr UG 1.5 3400 332 73 366. Balgi UG 0.6 5600 495 100 267. Rajgaw Ur. 0.7 5300 509 98 288. Churds W. UG 0.6 5600 544 74 249. Ppr UC 0.7 6200 323 137 2510. I Rir wR. UC 0.6 5300 186 77 1611. Goisa UG 0.6 5300 238 80 1812. Svpuri UG 0.5 4200 369 I00 3013. Jamm UG 0.5 4900 225 91 2014. Ne Chadui UG 0.6 4600 219 87 2115. llWr UG 0.7 4200 387 104 3216. Kawnta OC 6.0 3800 284 61 2317. Ge aOC 5.0 3100 153 54 2118. uer OC 1.8 3830 138 46 3619. Sti OC 1.0 3500 284 39 2120. Bsuanpw OC 1.3 560D 197 52 1221. Becpahar OC 2.0 3700 316 59 2422. lajmra oc 1.0 2500 273 46 3023. G4gm OC 1.5 3900 458 71 3324. Padmpur Oc 1.3 38D0 418 73 3425. NewMajri OC 1.0 4000 232 61 1926. Rajapr OC 1.0 390O 258 50 22

(iEM - For a4Ep I 1/

1. Namian UG 0.6 6100 304 140 242. TazUisiU; 0.9 5000 585 98 373. Bh4gatn UG 0.6 5600 465 118 274. Shobhqxr UG 0.6 49q0 330 121 275. Katkona U 0.8 560D 421 104 256. Gevra Exp. OC 5.0 3100 224 43 257. KuraslaExp. OC 1.0 4900 296 83 218. Dlk*aOC 2.0 3100 283 50 269. Nljal OC 1.9 30 475 94 37

1/ Al9no li 0.. projects.

- 62 -

ANNEX 4Page 1 of 10

INDIA - COAL MINING AND COAL QUALITY IMPROVEMENT PROJECT

FAZAL COMMITTEE REPORT - SUMMARY OF RECOMMENDATIONS

Recommendation Government Decision

1. The long-term Standing Linkage Accepted.Committee should at suitableintervals of say every 5 yearsreview the entire pattern ofcoal linkage to thermal powerstations - whether existing,under construction or proposed- in order to eliminateirrationalities that mighthave crept in, though frequentshifting of coal linkagesshould be avoided.

2. Rajmahal, Talcher, Singrauli, Accepted, except that coalKorba Mand-Raigarh, Hasdeo- from Wardha has to be suppliedArand, North Karanpura, to consumers in South IndiaHanuguru, Wardha and some such as cement plants to makeportion of lb Valley up the shortfall fromcoalfields should be mainly Singarani, and these linkagesreserved for pithead will have to continue.generation.

3. Raniganj, Jharia, NorthKaranpura, some portion of Ib Accepted.Valley and Godavari Valleycoalfields should be the mainsources of coal supply topower stations located at loadcenters.

4. The power stations in NorthernIndia (Punjab, Haryana, Delhi Accepted.and U.P.) should be linkedmainly to Bihar/Bengalcoalfields only.

5. All power stations located inBihar, west Bengal and the Accepted.areas in Assam served by thebroadguage railway line shouldbe linked to Bihar/Bengalcoalfields.

- 63 -

ANNEX 4Page 2 of 10

Recommendation Government Decision

6. The existing linkages of old Accepted, however CEA shouldpower stations to superior examine each case of such oldgrade coals of Ranigani, South power stations using A & BKaranpura, Central India and Grades of coal, to see whetherPench-Kanhan Valley Coalfields it is economically viable toshould .tontinue till power continue the operation ofstations exist. these power stations and

indicate to the Department ofCoal when they are expected tobe closed down. This willalso help in the saving ofhigher grades of coal whichcan be supplied to industrialconsumers who need such coal.

7. Power stations in Rajasthan Railways have not acceptedshould be linked to Singrauli, this. They have stated thatand in case of need for power stations in Rajasthanalternative source from North should be linked to SingrauliKaranpura Coalfields. and CIC (WCL). Hence this

recommendation is notaccepted.

8. New Power Stations in Gujrat The recommendation in respectshould be l'nked to Korba and of South Guiarat PowerIb Valley, Hasdeo-Arand and Stations is accepted. It hasMand-Raigarh coalfields. been decided that Railways

should examine the extent ofinvestmint required and takeappropriate action forbuilding up the capacity.Regarding power stations forNorth Gujarat, Railways havesuggested that the linkagesshould be to CIC fields.This may not be feasible sincethe potential for growth InCIC is limited. To meet therequirements of power stationsadequately, it would benecessary to link powerstations in North Gujarat alsoto Korba. Railways may beasked to examine the matteragain.

- 64 -

ANNEX 4Page 3 of 10

Recommendation Government Decision

9. Power Stations In Maharashtra Accepted. However Wardha,should be linked to Wardha Umrar and Kamptea will not beValley, Umrar and Kamptea able to meet the requirementsCoalfields. of MSEB Power Stations. At

present 60Z of the linkages ofKoradi TPS are met from Gevra-Kusounda. This needs to beexamined further.

10. Power Stations in Southern Accepted. However, due toMaharashtra should, however, inadequate availability ofbe linked to Godavari Valley coal from SCCL, the flfth unitCoalfields. of Parli has been linked to lb

Valley.

11. Existing linkages from Existing linkage to WanakboriSingrauli Coalfields to from Singrauli may continue.Wanakbori and Trombay power Trombay may be linked eitherstations should, however, to CIC or NPKW.continue.

12. Power Stations in Southern Accepted.India should be linked toGodavari Valley Coalfields.Existing linkage of Tutico-rinthermal power station toRaniganj Coalfield should,however, continue.

13. The number of mines supplying Accepted to the extentoal to a particular power feasible considering thestation should not exceed ten availability of coal, loadingin any case and be preferably capacity, etc.three or four in case ofbigger mines.

14. The Planning Commission should Accepted.attempt to give to the coaldepartment periodically aforecast of the region-wisepower-generation program, andthe consequential coalrequirement.

15. It is desirable to have cushion Accepted.in terms of the linkage againstactual consumption so that overa period of time, with theactual supply being in excessof consumption requirements,some ground stocks could bebuilt up.

- 65 -

ANNEX 4Page 4 of 10

Recommendation Government Decision

16. Annual reviews of requirement Accepted.of coal for power stations aresuggested to be done at thetime of formation of theannual plans and made known toall agencies concerned so thatthe program for generation ofpower, the production of coaland its transportation can beplanned accordingly. The CoalProjects linked to aparticular power stationshould be approvtd at leastthree years in advance of theapproval of the power stationto which they are linked inview of the longer gestationperiod of the coal projects.

17. All collieries linked for coal Accepted.supply to thermal powerstations should havemechanized facilities to loada full large rake of minimum44 box wagons.

18. In case of collieries where Accepted.setting up of facilities forfull rake loading is notpossible because of lowproduction or non-availabilityof land, a centralized loadingpoint for a group of suchcollieries should beestablished.

19. Box 'N' wagons should be Accepted. However, railwaysintroduced in existing should take early decisions oncollieries/power stations for the free-time allowed formovement of power coal in loading and unloading of Boxconsultations with the 'N' rakes. Also, since Boxcollieries/power stations. 'N' cannot be weighed on the

existing weighbridges thecarrying capacity of thewagons and the mode of loadingshould be decided by therailways after proper trialsin association with the coalcompanies and consumers.

- 66 -

ANNEX 4Page 5 of 1o

Recommendation Government Decision

20. Box 'N' wagons should be Accepted subject to theintroduced as per program condition as pointed outsuggested by the Railways to against recommendation No. 19.the coal mine.

21. The issue of granting free Accepted.loading/unloading time morethan 5 hours for manualloading/unloading may belooked into by Railways.

22. Open wagons should be Accepted.supplied to collieries havingmechanical loading facilitiesand to power stations havingmechanical unloadingfacilities. Railways shouldtry to supply covered wagonsonly to manually loadingpoints and manually unloadingends.

23. Where only manual loading Accepted.facilities are available, thewagons should be suppliedbarring exceptionalcircumstances at specifiedpilot time.

24. The supply of wagons by the Accepted.railways should be accordingto the offer of slack or steammade by the colliery for thatparticular day. The collieryshould indent according tostandard rake size and sidingcapacity and should not indentfor undersize rakes. Railwayswill supply accordingly.

25. The Committee recommends Accepted. However, Railwaysreconciliation by railways for should take an early decisionrestoration or tolerance for for restoration of theoverloading and underloading tolerance fc- underloading/of wagons. overloading of wagons.

- 67 -

ANNEX 4Page 6 of 10

Recomendation Government Decision

26. Arrangements provided for Accepted.mechanical unloading at powerstations should be kept inabsolutely good workingorder.

27. The minimum coal stock at the Accepted.power stations should beequivalent to 4-5 weeks'consumption, and that atloading points should beequivalent to 2-3 weeks'dispatches.

28. Railways should ensure The actual movement duringmovement of coal for power 1983-84 for power stations wasplants at an average of 5,470 at the rate of 4,891 wagonswagons per day during 198,-84. per day. Railways should move

at the rate of 6,235 wagonsper day.

29. Coal weighing facilities Accepted.should be provided at allmajor loading points, and atall power stations.

30. The weighbridges provided, Accepted.both at loading points andpower stations, should beregularly recalibrated.

31. Gradually, electronic weigh- Accepted. However, beforebridges should be installed in installing the weighbridges,place of the existing all relevant factors includingmechanical weighbridges and the possibility of underload-all future installations ing and overloading should beshould be electronic weigh- examined. In electronicbridges, which would provide weighbridges, once weight isrecording of tear of wagons. recorded automatically while

the rake is in motion, noadjustment is possible ifthere is underloading/overloading. In such casesrailways should allowreasonable tolerances so thatpayment of penal freight isavoided.

- 68 -

ANNEX 4Page 7 of 10

Recomuendation Government Decision

32. Bottom discharge wagons for Accepted. However, railwaystransport of coal from should consult the power sta-collieries to power stations tions and the Coal Companiesshould be introduced as soon before deciding on any changeas possible to facilitate in the design of wagons.convenient and quick unloading Otherwise, problems will ariseat power plants. later on, as has happened in

the case of Box 'N'.

33. Government should examine the Accepted with the conditionfeasibility of utilizing that no subsidy would be pay-coastal shipping for transport able in respect of suchof coal to power stations. If movement.necessary, Government mayconsider extension of asubsidy for such movement.

34. Railways should take suitable Accepted.steps to increase linecapacity to enable evacuationof coal from North Karanpuracoalfields to power stationsin Northern India.

35. Railways should increase the Accepted.line capacity in Gevra RoadChampa Section.

36. The program of installation of Accepted.coal handling plants and minicoal handling plants is to beimplemented on schedule andthe coal companies should givepriority and monitor itsimplementation vigorously.Whenever coal handling plantsare installed, the entire coalof the mine must pass throughcoal handling plants and bypass is avoided.

37. Pneumatic/hydraulic hammers Accepted.and grabs should be providednear the grizzley at theloading end of the mine andunloading end of the powerhouses.

- 69 -

ANNEX 4Page 8 of 10

Recommendation Government Decision

38. In small and medium mines Accepted.which are supplying coal topower stations either singlyor jointly with others shouldbe provided with crushers ofpermanent/semi-permanent/portable in conjunctioa. withmini coal handling plants forenabling these collieries toload coal of proper sizes.

39. The shale stone picking area Accepted.should be well lighted toensure that dirt and stone arecompletely removed before coalis loaded into rakes.

40. The joint sampling arrangement Accepted.at each coal mine as decidedby the Ministry of Energyshould be put into effect atonce and should from basis ofagreement between coalproducer and thermal powerstations.

41. Electronic sorters for dirt Accepted.separation should beintroduced as soon as possibleat coal mines.

42. Coal should be tested for Accepted.arriving at the designdimension of mechanicalcleaning equipment.

43. The stacking ground at coal Accepted as far as stackingmines and power stations areas at loading points and atshould be made of properly the power houses arecompacted formation to prevent concerned.contamination.

44. Simple beneficiation circuit Accepted.should be designed for Indiancoals which are difficult towash and which cannot be usedin boilers in ROM condition.

- 70 -

ANNEX 4Page 9 of 10

Recommendation Government Decision

45. Railways should take care, Accepted.while diverting rakes meantfor one consumer to another,to ensure the proper qualityand size as needed by consumer.

46. Automatic Ash Indicator (coal Accepted.analyzer) should be installedin coal handling plants.

47. The coal mine supplying coal Accepted.to power plants should supply,at the time of drawing ofagreements of coal supply,authenticated quality certifi-cates relating to ash andmoisture content, with copy toCentral Electricity Authority,and there should not be avariation of more than 5% inquality, in any consignmentactually supplied during thecurrency of coal supply con-tract between the colliery and

- 71 -

ANNEX 4Page 10 of 10

Recommendation Governuent Decision

49. The Committee recommended that Accepted.even for power stationslocated in load centers,linkage should be made tospecific mines.

- 72 -

ANNEX 5Page 1 of 9

INDIA - COAL MINING AND COAL QUALITY IMPROVEMENT PROJECT

MEJASURES TO DMPROVE COAL QUALITY 1/

A. Thermal Coal

With the enormous increases in the demand of coal, psrticularlyin the power sector, there has been definite spurt in coal productionduring recent years. From a meager 15.4 million tonnes of coal demand frompower houses during 1970-71, it now stands at a level of 63.5 milliontonnes in 1985-86. Against this, the actual take-off was 65.2 milliontonnes which reflects a demand materialization of 102.7Z. In fact dispatchto power sector works out to about 50% of total CIL dispatch. Nationalizedcoal sector has not only been meeting this increased demand but is alsogeared up to meet the future growth in the demand of the power sector. Infact, the year 1989-90 will likely see nearly 64% of total CIL dispatch tovarious power stations, with the supplying pattern effectively streamlined,keeping in view their qualitative and quantitative requirement.

1. Fluctuations in Coal Quality and Efforts to Reduce the Same:

Occasionally there has been fluctuations in the qual$ty of coalbeing supplied to the power stations when compared to the design parametersof their boilers. Some of the old power stations are continuing with theirold boilers designed for consumption of higher grade coal with low ashcontent. However, with the depletion of higher grades of coal, the ashcontent of coal supplies is on the rise with the result that despiteefforts made by CIL, complaints on quality have at times been received frompower stations. Modern and new thermal power stations, however, have beendesigned for consumption of coal with high ash and therefore complaints onquality from such power stations are seldom received.

The main complaint in respect of coal supplied to such powerstations are receipt of lumpy coal and shale etc. Different power stationshave different sizes of opening in their grizzlies (metal gratings) at thecoal receiving point. Any piece bigger than the size of such opening istermed as oversized and complaints are then made. However, the same coalwould be quite acceptable at other power stations with larger openings intheir grizzlies.

Linkage of coal is normally provided in such a way that low ashcoal is supplied to those power stations that essentially need it. Whilemaking supplies to such power stations, collieries are also taking recourseto extensive shale picking etc. so that the ash content in coal remainswithin the stipulated limit. However, for a permanent solution it isdesirable that all power stations should phase out old boilers and replacethem with units that can consume high ash coal which is available in plentytoday. It is a matter of regret that none of the older power stations haveso far given a thought to bringing in new technology for consumption ofthis high ash coal.

1/ Provided by CIL.

- 73 -

ANNEX 5Page 2 of 9

Presently about 44% of the total coal supplied to the powerstations is loaded manually. There is no chance of any complaint ofoversized coal in the supplies made through CHPs but the possibility ofpassage of oversizes in the manual loading collieries cannot altogether beeliminated. The reason for such may be due to loading of wagons bypayloaders when the supplies are made in the night time or odd hours andenough payloaders are not available. The oversized problem is likely to beeliminated altogether when the entire coal passes through the CHPs. It isplanned that by 1988-89 about 90% of our total power coal could be routedthrough CHPs.

The above, coupled with occasional diversion of rakes by therailways also cause problems in matter of both size and quality as coalearmarked for a particular consumer may not be suitable for another to whomthe rake has been diverted.

It is thus suggested that while power stations gradually phaseout their old boiler and bring in new technology to accommodate high ashcoal, railways on their part should also make placement of rakes at a fixedtime at every siding and provide adequate loading time for loading ofrakes. Thus, a concerted effort of the three agencies namely the CIL, therailways and the power houses can only bring forth a solution to theproblem.

2. Investment Program in Commissioning of Coal Handling Plants:

At present around 56% of the total dispatches are routed throughCoal Handling Plants (CHPs). In 1984-85 alone, 13 major and 19 mini-CHPswith an aggregate annual capacity of 24 million tonnes have beencommissioned. Coal India is expected to construct another 23 major CHPswith an aggregate capacity of almost 29 million tonnes during 1986-87. Itis expected that 90% of the dispatches would be make through CHPs at theend of the 7th Plan period. Built in capacity of CHPs are as below:

million tonnes

(i) Existing CHPs as on 1/7/85 76.78(ii) CHPs under construction 51.54

(iii) CHPs proposed during the 7th Plan period 51.44

It has been decided to provide all future CHPs with suchfacilities as screening/crushing and/or feeder breaker wherever necessary.

Cost of commissioning of CHPs under construction as also those inthe Project would be around Rs 181.66 crores. Company-wise break up ofcost would be as below:

- 74 -

ANNEX 5Page 3 of 9

No. of Capacity Cost InvolvedCompany CHPs (tonnes) (lakh Rupees)

ECL 9 8.74 4699.36BCCL 9 4.96 1052.58CCL 5 15.60 8339.00WCL 11 19.02 4075.45

34 48.32 18166.39

A time bound schedule has been drawn up and close monitoring ofprogress of construction of CHPs has been resorted too, so that nounneces;sary delay takes place at any point of time to retard progress ofwork.

3. Other Infrastructural Facilities:

Similarly other infrastructural facilities such as provision ofweighbridges at all major loading points have been made to ensure loadingof desired quantity, so that consumers do not suffer on account of eitherloss or excess supply. While there is a program for installation of newweighbridges (ECL - 4, CCL - 4, BCCL - 1 and SECL - 1), another 12 existingweighbridges would be modified as per requirement.

Well equipped laboratories have been provided at all areas forquick assessment of quality and necessary feedback for assuring betterfuture supplies. It has also been decided to build some expresslaboratories at some of the major loading collieries for quick analysis ofsamples.

4. Improvement in Quality of ROM Coal from Open Cast Mines:

The deterioration in quality takes place due to admixture ofextraneous materials along with coal during extraction specially in OCPmines where overburden stones often gets mixed up and create qualityproblems. Thus need for planned extraction of coal specially in OCP mineshave been felt. Annual plans of each mine has been drawn to identify benchformation and maintaining them always sufficiently in advance duringextraction to prevent any contamination. In case of bands of over onemeter thickness, these will be separately mined. The deployment of smallcapacity hydraulic shovels in conjunction with 160 mm drills will enablebands to be removed separately.

5. Dry beneficiation of coal after crushing and screening is underconsideration and will be introddced in a phased manner, for +10 mm sizefraction.

6. Washing of poor grade coal for large consumers has beenconsidered. It has been decided that coal that will be supplied to powerplants of the National Capital region from North Karanpura as also Southernregion power plants from the new mines at Kolinga will be crushed.

- 75 -

ANNEX 5Page 4 of 9

7. Other Remedial Steps:

Other remedial steps taken to ensure proper quality and size ofcoal dispatches to power stations are:

(i) Joint Sampling Agreements:

Contractual agreement of Joint sampling for bulk coal supplies hasbeen reached with various State Electricity Boards (vide Annexure I)which provides for necessary adjustment of bonus or penalty as thecase may be from subsequent bills. As per agreement, joint samplingshall initially be done at the loading and based on which coalcompanies will raise bills. Joint sampling will be done at thepower houses and at fixed block period of four to six hours perday. Destination-end sampling will however be the deciding factorfor final payment. In fact, with the signing of the agreement andintroduction of joint sampling number of complaints have come downsharply. Company-wise comparative position for the years 1984-85and 1985-86 are given below:

Company 1984-85 1985-86

ECL 28 55BCCL 89 20CCL 318 30WCL 163 31CIL (Total) 598 136

Percentage of supplies involved under complaint is only 0.23X ofoverall dispatch to power stations. Month-wise complaint positionin respect of subsidiary companies for the year 1985-86 is given inAnnexure II.

(ii) Grade Control:

Reassessment of coal seams of every working mine is done seam-wisefor reidentification (regradation) of coal quality and declare thegrade in the beginning of each financial year. Periodic checksamples are also drawn to verify the quality of coal beingdispatched.

(iii) Inspection Facilities to Consumers During Loading:

The facility of joint inspection of coal being loaded has beenprovided at each loading po'.nt and any consumer can avail himself ofthe same for instant rectification of wagons in case that isnecessary. Inspection registers are also provided where consumercan put on record his observation about standard of loading and/orhis reaction to the facilities provided.

- 76 -

ANNEX 5Page 5 of 9

(iv) Feedback on Supply:

Regular feedback on quality is followed up as below:

(a) In order to get proper feedback mainly on quality,representatives of the supplying companies are stationed atmajor power stations for round the clock monitoring of qualityand size of coal being supplied.

(b) Review of quality performance In respect of each subsidiarycompany is made every week and suggestions put forward forfuture guidance.

(c) Regular quality audit inspections are carried out at producingend and at destination end and monthly reports a._e preparedincorporating monthly weight average ash p.c. in supplies toPEs as determined by joint sampling and is at Annexure III.Results are not at all unsatisfactory as barring a few cases,majority of cases ash p.c. supplies are within norm of powerhouse boilers.

Cd) For achieving quality control, the existing managementstructure of quality control department at different levels isbeing made uniform in each subsidiary. The Quality ControlDepartment will have three tiers and will be responsible forquality of coal being loaded, implementation of remedialmeasures to improve quality, etc.

6. Implementation of the Recommendation of the Fazal Committee andGovernment' s Acceptance Thereof:

Statement showing various recommendations of the Fazal Committeeon coal supplies to TPSs and Government's decision thereof is enclosed atAnnexure IV. As will be seen from the statevent, most of therecomiendations have been accepted by the Government, many of which arealready in operation as decided time to time under the SLC Meeting. Thoseyet to le operated are being sorted out by the Government or by directdialogue between CIL/coal companies and the railways/PSs.

While in a number of cases, implementations of Governientdecisions depend upon the railways acceptance of the issues, CIL's shaxeprimarily rests in implementation of the decisions at paras. 29-31, 36-48which mainly deals in building up infrastructural facilities and protocolof joint sampling agreement with power stations. As already enumerated inearlier paragraphs above, building of infrastructural facilities in theform of CHPs/weighbridges at all the major loading points have already beentaken at hand. As regards installation of electronic weightbridges, it hasbeen decided to provide the same at ten load centers of CCL and WCLinitially. All future CHPs will be provided with crushers and slow movingpicking belts, latter to enable shale pickers to work effectively. Advicehas already been issued to all loading personnel to onsure that dirt andstone are completely removed from the siding and this is being monitored.

W....~.

- 77 -

ANNEX 5Page 6 of 9

As regards payment of bonus/penalty on the basis of analysis of jointsampling with PRs, this has already been taikn care of in joint samplingagreement reached with various power stations.

7. Conclusion:

Concerted efforts from all concerned have resulted in reductionof the number of complaints from power stations which are negligible interms of percentage of total supplies. This will be apparent from D.O.letter from Minister of State for Power to the Union Minister of Steel,Mines and Coal who expressed his appreciation as below:

'As a result of the steps taken by the Department of Coal there isan improvement in the quality of coal and the plant load factorof the thermal stations in March 1985 was 55.5Z which is thehighest during the last two years."

In fact, the PLF (overall) of thermal power plants during April-December 1985 was 50.8 against 48.0 during the corresponding period theprevious year. There has also been an increase in generation of 15.7Zduring this period. -

B. Coking Coal

As part of the Jharia Coal Project, 'CIL are preparing an annualprogress report on actions to improve prime coking coal quality includinginter alia statistics on the ash content of raw coking coal production bymine, and washed coking coal by washery plus a text discussing progressregarding the following matters and its impact on coal quality. CIL haveinitiated the following measures which are already providing improvementsin washed coal production:

(i) elimination of substandard coals and more intensive pickingarrangements;

(ii) deployment of more experienced a d qualified personnel forwashery operation;

(iii) closer monitoring of washery operations;(iv) increased capital expenditure for washery improvement;

(v) installation of rotary breakers at certain washeries; and(vi) utilization of premium quality Assam coal for blending purposes.

In addition, CIL is preparing the following measures which shouldprovide benefits in the longer term:

(i) upgrading of slurry by froth flotation at Dugda I and II;modification to Patheridih Washery;

(ii) trials with prescreening jigs at Barora Washery;(iii) development of new areas of superior quality prime coking coal;(iv) installation of new coal handling plants;(v) testing of certain disputed coals by Central Fuel Research

Institute; and(vi) possible establishment of a Washery Institute.

Source: CIL.

- 78 -

ANNEX 5Page 7 of 9

ANNEXURE I

Name of Power Stations with Whom Agreement Reached for Joint Sampling:

Si. Electricity Power Si Electricity PowerNo. Board Station No. Board Station

1. W B S E B Bandel-TPS 11. 0 S e B TalcherSantaldihGouripur. 12. A S E B Bangaigaon

2. D V C Durgapur 13. H S E B (FaridabadChandrapura. (Panipath

3. B S E B Barauni 14. OTHERS DPLPatratu (WB Gvt.)Muzaffarpur.

Pvt.(AEC4. U P S E B KESA (Renusagar

PankiHarduagani 15. D E S U IndraprasthaOBRA. Rajghat.

5. P S E B GNDTPBhatindaRupar.

6. N T P C SingrauliBadarpurFarakkaKorba

7. R S E B K O T A.

8. G E B Gandhinagar

9. M P E B KORBAAmarkantakSarni.

10. M S E B KoradihKhaparkhedaNask.iBhuswalChandrapurBallars-hah.

- 79 -

ANNEX 5Page 8 of 9

ANNEXURE II

Month-Wise Complaint Receivedfrom Power Stations

(1985-1986)

CCL WCLMonths ECL BCCL (Including NCL) (Including SECL)

April '85 2 4 1 5May '85 5 3 6 2June '85 5 7 2 14July '85 5 5 1 4August '85 7 1 2 6Septerber '85 5 - 2 6October '85 5 - 2 1November '85 4 - 3 4December '85 9 - 6 1January '86 4 - 1 1February '86 4 - 1 1March '86 5 - I I

Total 85-86 55 20 30 31

Total 84-85 28 89 318 163

- 80-

ANNE 5Page 9 of 9

ANNW M

Wothy gb1gt AwEr AMh P.C. In Bpmes to Thuruml Por StatLam-A dI-Dsi*ii2r 1985)

Nam of Noz of AshPowr Stati Atw NW Jum Juy Avg Sep Oct Now DIC

BuRel 35 24.5 24.6 26.2 '4.5 22.9 22.3 22.8 23.2 24.6Santaldih 28-35 24.7 25.9 24.4 23.8 24.6 23.5 23.5 23.3 22.403kA 25-33 30.0 31.7 32.1 32.1 29.6 31.3 30.5 - -OESLJ (BCL 32-45 . 32.0 30.9 33.0 31.1 40.8 30.9 36.3 -

CIPS (BOCL) 40 29.2 31.7 33.7 33.7 32.2 35.0 31.6 30.3 -BIPS (L) 24-33 35.4 35.8 33.9 35.0 32.9 34.7 36.1 35.9 -TIPS (CCL) 37-44 33.5 37.2 36.5 31.5 36.8 35.9 36.3 36.3 -Lhiapeda 28 29.0 30.5 26.9 29.4 30.4 24.0 25.0 30.5 24.7Balluzalh 24-26 18.7 18.3 18.1 19.1 18.0 19.0 18.7 18.6 18.9Paras 25-35 28.4 27.3 NS 32.6 NS N 27.2 26.5 30.3Nasid 25-30 28.0 28.0 28.5 28.4 27.8 27.7 27.9 27.1 27.5Ganxihinagar - 30.3 27.9 30.0 24.5 21.0 23.5 22.2 22.0 21.4Ukai 28 28.8 24.5 28.7 23.5 24.7 24.2 24.7 22.2 25.5

.~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

- 82. -

ANNEM 6Page 1 of 3

INDIA - ODAL MINING AND COAL QUALITY IMPROVEMENT PROJECT

COAL PRICE SCHEDULE a/(Effective January 8, 1986)

Grade Specification Price (Rs/ton)

A. Non-Coking b/Grade A UHV exceeding 6200 kcal/kg cJ 296Grade 8 WV 5600-6199 kcallkg 269Grade C UHV 4940-5599 kcal/kg 235Grade D UHV 4200-4939 kcal/kg 205Grade E UWV 3360-4199 kcal/kg 138.5Grade F UHV 2400-3359 kcal/kg 108.5Grade G UHV 1300-2399 kcal/kg 74.5Singareni CoalfieldsGrade C 332.5Grade D 292.5Grade E 252.5Grade F 183.5Grade G 143.5

Assam Ungraded 342

B. CokingSteel Grade 1 Ash not exceeding 15% 480Steel Grade 2 Ash not exceeding 18% 402Washery Grade I Ash not exceeding 21% 347Washery Grade II Ash not exceeding 24% 289Washery Grade III Ash not exceeding 28% 222washery Grade IV Ash not exceeding 352 207

C. Semi-CokingGrade I Ash plus moisture not exceeding 192 347Grade II Ash plus moisture not exceeding 24% 289

D. Hard CokeBy-product Hard Coke Premium Ash Not Exceeding 25% 1,110

- " ~- Ordinary - - 25-30% 1,000Beehive - Premium - 27Z 880

- - - Superior - - - 27-31% 730- - - Ordinary - 31-362 500

E. Soft CokeFor Industrials 300For Domestic use 175

a/ This schedule refers to ex-pithead prices of run-of-mine coal excludingall statutory levies and sales tax which are chargeable extra as perthe prevailing rates.

b/ Long flame coals (grades A-D) have a surcharge of Rs 25 per ton.ci Useful Heat Value (UWV) is defined by the following formula:

UHV - 8,900 - 138 (A+M) where UHV - Useful Heat Value in Kcal/kg,A - Ash eontent in 2 M, - moisture content in Z.

- 82 -

ANNEX 6Page 2 of 3

STATUTORY LEVIES AND SALES TAX(As of January 1, 1987)

1. Statu.ory Levies

A. Co_mmn for All States

1. Royalty

Coking Non-CokingGrade Re/ton Grade Rs/ton

Steel I 7.00 A 6.50Steel II 7.00 B 6.50Washery I 7.00 C 5.50Washery II 6.50 D 4.30Washery III 6.50 E 4.30Washery IV 5.50 F 2.50Semi-Coking I 6.50 G 2.50Semi-Coking II 6.50Assam Coal 6.50

2. Stowing excise duty - Non-Coking Rs 3.50/ton- Coking Rs 4.25/ton

3. Coal mines labor welfare cess Rs 0.75/bon

B. other Levies

West Bengal

1. Rural employment and production cess 20% on coal value2. Primary education cess 5% on coal value3. Public Works and Road cess Rs 1.00/ton4. Asansol Mines Board Health cess Rs 0.40/ton

Bihar 06/21/85

1. Cess on Coal 30% on coal price2. Royalty cess 5% on Royalty3. Jharia Mines Board Health cess (BCCL only) Rs 3.50/ton

Orissa -

1. Mineral Area Development cess 200% on Royalty

- 83 -

ANNEX 6Page 3 of 3

Madhya Pradesh

1. Mineral Area Development cess 125Z on Royalty2. Storage cess Rs 2.00/ton

Maharastra

1. Cess on Royalty 10Z on Royalty

II. Sales Tax

4Z sales tax is charged on coal values plus all statutory levies.

- 84 -

ANNEX 7

INDIA - COAL MINING AND COAL QUALITY IMPROVEMENT PROJECT

SCOPE OF WORK FOR ASSISTANCE ON WORKSHOP DESIGN

A. OBJECTIVE

To assist the CIL Group to design modern workshops to fully meetCIL's requirements to service mechanized open-pit mining equipment.

B. SCOPE OF WORK

The consultant should assess th! present (Singrauli) andprojected (Korba and Raniganj) requirements of workshop services withinCIL, in close consultation with its counterpart, and should assist in thelocation and design of state-of-the-art factilities to meet CIL's needs.The assistance will cover in particular the following areas:

(1) Repair and Maintenance Facilitiv.=. Review the adequacy andcapacity of existing repair and maiatenance facilities,tooling, procedures and skills of peisonnel in light ofexisting fleet of equipment and its actual servicerequirements.

(2) Additional Workshops. Size, location and design ofstate-of-the-art workshops for open cast and undergroundcoal mining equipment, on basis of projected increase ofquantity and capacity of equipment as reviewed inconsultancy with counterpart staff. Detailed considerationshould be given in designs to permit future expansions, andwhenever possible to design these expansions.

(3) Fabrication of Spares. Associated with the workshops, theconsultants should also design foundry and machine/toolfacilities, in consultancy with counterpart staff, tofabricate spares required within CIL.

C. DURATION AND REPORTS

The work, which should be initiated by December 31, 1987 andcompleted by December 31, 1988, will require about 36 man-months of effortby consultants with sound background in the design of workshops for largemining operations. The consultants should issue an interim reportregarding location, size and service options of the proposed workshops. Oncompletion, workshop designs and a final report would be issued concerningthe implementation of the facilities.

- 85 -ANNEX 8Page 1 of 3

INDIA - COAL MINING AND COAL QUALITY IMPROVEMENT PROJECT

SCOPE OF WORK FOR ASSISTANCE ON MANPOWER PLANNING AND TRAINING

A. OBJECTIVES

To assist the CIL Group in improving its training and manpowerplanning sys8tems for the entire organization.

B. SCOPE OF WORK

The consultants should provide assistance regarding (i) improvingthe training setup of the CIL Group, (ii) developing a computerizedmanpower planning system, and (iii) establishing the requirements for andundertaking detailed design work to assist the development of twoexcevation training centers. Based on their conclusions, they shouldpresent detailed and specific recommendations. Their work should focus onthe following aspects:

(a) Training

Assistance for training should be mainly oriented to:

I, Organization and policies. Review cof present trainingstructure, policies, norms, controls, communicateons and relationships,both between CIL and subsidiaries, and among the latter. Particularemphasis should be given to implementation of training policies andrelationships between training and production activities.

2. Training capabilities. Review and assess existing trainingactivities (on-the-job and off-the-job, and outside CIL), programs andfacilities (Centers and Institutes), in terms of their qualitative andquantitative ability to satisfy present and projected trainingrequirements. This review should include the following areas, presentingspecific recommendations for improvement:

(i) the competence and skills of training officers andinstructors (sample);

(ii) the curriculum and course content for different trades(including supervisory and management training);

(iii) the capability of outside institutions at present trainingCIL Group personnel;

(iv) adequacy of facilities, equipment, training aids,audio-visual aids, and written teaching materials; and

(v) review of present evaluation (if existent) of trainingactivities.

3. Training needs and training program. Assess presentmethodology for determination of training needs both at CIL andsubsidiaries level. The consultants should present a very detailedproposal for determining training needs because this is one of the weakestpoints at the CiL Group. Based on identified needs, the consultants should

- 86 -ANNEX 8Page 2 of 3

prepare a detailed training program for the next five years, which theconsultants will implement in a specific subsidiary (SECL), where they vLlltrain a number of training officers on this task. This exercise wouldinclude a preliminary estimate of additional facilities to be establishedand programs to be developed.

4. Evaluation of results. After reviewing existing practices,the consultants will present a proposal for periodic evaluation of trainingactivities and the follow-up of the implementation of training programs.

5. Unskilled personnel. A review will be undertaken of thishighly populated category to derive conditions suitable for establishingpolicies and procedures regarding their possible utilization/training/education and changes in recruitment policies.

(b) Manpower Planning

1. System Development

xi) Manpower Data Base. The consultants should study andanalyze in close consultation with its counterpart theexisting manpower planning system (MPS) within CIL. Theyshould also review the present data base of the MPS and thereliability of its source data. The consultant shouldassess the acceptability of present practices includinglevel of detail and recommend detailed procedures forreaching more disaggregated data in the system that mayallow a sound MPS.

(ii) Manpower Needs. The consultants should evaluate the presentmethods for deducing manpower needs from corporate workplans, expansions, projects, levels of activity, manninglevels per type of operations and skills inventory. Inconsultations with the counterpart and managers, theconsultant will recommend specific modifications so thatneeds can be directly related to availability with adequatelevel of detail.

(iii) Manpower Supply. The consultants should also review andevaluate present methods for analyzing current manpowerresources, changes in manpower resources, turnover analysisand replacement, changes in work conditions, and externalsupply factors.

- should relate these elements to the potential impact ofchanges of technology and labor productivity for thefuture years on the manpower structure (occupational mix)and propose adequate models.

- another aspect will be analysis of the composition ofoverstaffing at all unskilled and semiskilled level andthe clarification of recruitment and training policiesregarding this level of staff.

- 87 - ANNEX 8Page 3 of 3

(iv) Manpower Forecasting. The consultants should review (a) thestatistical methods presently used for forecasting, (b) theappropriate level of details in skill mix and organizationallevel, analyze them and make recommendatons for improvement.

(v) Computerization. The consultants should review the currentlimited use of the computer in CIL's MPS and recommendprocedures of more effective use, including personnelinformation systems, coding and data collection analysis.Also assess needs for (1) CIL HQ' and (2) subsidiarycompanies.

2. System Implementation. After agreeing on the new MPS, forwhich hardware and software would be provided as part of the project, therecommendations would be implemented by CIL with the help of theconsultants. Once the system is operatonal, follow-up assistance will berequired to monitor its performance and rectify any problem.

C. DURATION AND REPORTS

The work, which should be initiated by December 31, 1987 andcompleted by December 31, 1989, will require about 66 man-onths byconsultants with solid experience in training and manpower planning systemsfor mining companies and/or other organizations with very largeworkforces. The first stage, which should last twelve months (and willentail 48 man-months effort), will consist of (i) the review of andrecommendations for improving CIL's training set-up, including a proposedfive year training program for SECL (18 months); and (ii) the detaileddevelopment of a manpower planning system suitable for implementationwithin the CIL Group (18 man-months). An interim report will be issuedconcerning the present training organization, policies capabilities andneeds. It will also cover the manpower data base, needs, supply andforecasting, as well as computerization. The second stage, which willfollow on from the first, should also last about twelve months and willconsist of (i) implementation of SECL training program (12 man-months) and(ii) implementation of computerized manpower planning system for CIL (18man-months). The final report will address the full scope of the workaccomplished.

- 88 -

ANNE 9Pasp 1 of 2

INDL- _ & iw MI NID 0A3L (WIflY DIFIW PMM

CIL FEINAAL SEAMDO

DNCME SMEM1TMS - ODAL INDIA II 1980/81-1985/86(Rs miLhtoEI)

1980/81 1981/82 1982/83 1983/84 1984/85 1985/86

Coal PTotal Col Produoud (nllUion tons) 100.6 109.1 114.7 121.4 13U.8 134.1

Coal Produe&d by Revenm 97.2 105.3 113.5 119.2 127.7 130.8Mines (UDL1n tMns)

Net Saleable Coal fron Reuenue 93.7 101.7 109.5 116.4 125.6 128.7Mines (aili MM )

RnsAverage Sale Price (Rs per ton) 120.6 139.8 155.8 160.0 188.2 191.1

Net Reerumes 11,300 14,209 17,063 18,624 23,690 24,594

Salaries andWages 6,849 7,758 8,42 11,70B 12,620 13,321Ovrhebls 537 597 753 940 887 1,083Stores 1,508 1,996 2,603 3,015 3,336 3,8EIPower 534 745 964 1,187 1,437 1,706Transportionlm of Coal and Sand 296 420 462 452 503 542Other Costs less Misc. peceipts al 549 622 917 1,178 1,8B5 2,853

Total Operating Expenses 7-0Z73 12,138 14,240 18,480 20,668 23,306

Depreciation ,a6 951 1,344 1,716 2,069 2,497

Interest 626 778 1,110 1,324 1,733 2,158

Total Productiom Costs 11,637 13,867 16,694 21,520 24,770 27,961

Profit/Loss (337) 342 369 (2,896) (780) (3,367)

a,' Tnels PFi/Aoss o Soft arx Hard Coke and Washed Coml opealoio ard also adjusbt foroverburden Peamwal Coat.

- 89 -

ANa 9Pasp 2 of 2

SlIAM EAlANCE MFEMS - 0WAL INDIA JID. 1980/81 - 1985/86(Rs Millon, aoE Mard 31)

1980/81 1981/82 1982/83 1983/84 1984/85 1985/86Assts

Current Assets 6,430 8,292 10,383 14,52 15,205 15,254TomIw and AMvamn 4,272 4,641 5,431 7,147 7,913 7,363Net Fi2ed Aseta 10,665 14,177 18,984 24,139 28,693 34,633

Total Assets 21,367 27,11.0 34,798 45,788 51,811 57,250

T4Ablitifi

Crnent Liabities 5,871 6,072 6,862 11,8S4 11,611 12,382

(a) Debts to GDeVnenMc 12,577 14,836 17,462 19,273 21,737 25,2B4(b) Otber LiailLities to Gbvernmet b/ 518 717 _931 3,137 3,430 3,883

Total LLng TenA Liabi1tites 13,095 15,553 18,393 22,410 25.167 41,549

(a) Share Capital 9,862 12,869 16,913 21,299 25,567 30,123(b) Rserue 385 733 1,049 - 1,625 519(e) Aowulated Profit/Loss (7,846) (8,117) (8,419) (9,765) (12,159) (14,941)

Total Equity 2,401 5,485 9,543 11,534 15,034 15,701

Total EqUity anid Liabilities 21,367 27,110 34,798 45,788 51,811 57,250- - -m

a/' Including cagital wcd1rpQrsobI Overdue oipital Iepay.nt and interest cn Government ioans

Source: CIL.

- 90 -

ANNEX 10

I}DIA - COAL MINING AND COAL QUALITY IMPROVEMENT PROJECT

SCOPE OF WORK FOR ASSISTANCE ON TRAINING INSTITUTE DESIGN AND DEVELOPMENT

A. OBJECTIVE

To assist the CIL Group in finalizing -be design and implementingexcavation training centres at Korba and Raniganj.

B. SCOPE OF WORK

(c) Excavation Training Centers

Aasistance in this aspect will include assessment ofjustification for the establishment of the three proposed centers in(Korba and Raniganj) consultation with the relevant CIL Group personnel(training, planning, production, and maintenance). Based on thisassessment, the consultants should design in detail the centers, givingparticular attention to:

1. The projected capacity of the center for each specialty to beimparted. This comprise classrooms, workshops, laboratories andyards, including size and number of working places, schedule ofaccommodation, and number of instructors needed. A detailedlayout of the center will be prepared and will be the base forthe architectural and civil engineering design.

2. A detailed list of equipment with its specifications will beprepared including estimated cost per item (including thesupplementary equipment to be provided to the BETI-Korba). Thelist would also include teaching materials and visual aids.

3. The above-mentioned aspects will be based on a thorough jobanalysis of the various kinds of jobs being performed in opencast coal mines in India, leading to detailed job descriptionsfor the different kinds of operators and maintenance personnel.Based on this draft, course contents will be produced by theconsultant in collaboration with local instructors.

C. DURATION AND REPORTS

The work, which should be initiated by December 31, 1987 andcompleted by December 31, 1990 will require about 18 man-months work byconsultants with experience of developing and running mining trainingcentres. The first stage, which will involve 6 man-month effort, will be areview to recommend improvements in the design of the training institutesas presently envisaged. The second phase will involve assistance in theimplementation and organization of the centres. An interim report will beprepared at the end of the first phase and a final report will be preparedon completion of the asfAgnment.

-91- ANNEXI IPage I of 3

INDIA - COAL MINING AND COAL QUALITY IMPROVEMENT PROJECT

RVSETTLEMgNT ARRANGEMENTS

A. Gevra

The project at Gevra involves the expansion of an existing mineand land acquisition is well advanced with about 85Z (2,956 ha lan-'^ havingbeen acquired so far out of a total of 3,500 ha. Compensation has beenagreed with the families according to Government norms and Rs 31.7 millionhad been paid as of March 1986. More than half of the families involved(500 out of 995) have already been resettled. Each household receives 150m2 as per GOI norms. Basic amenities being provided include approach roadand drainage system, school building, drinking water sources, shoppingcenter, health center, street lighting and power supply (the latter twofacilities through the local Electricity Board).

To the extent that the project needs to employ local people,preference is given to members of resettled families. So far at least onejob has been provided to over 80% of the families being resettled (818 jobsfor 995 families). Wages with the coal industry are over Rs 80 per day,three to four times earnings in agricultural or other unskilledemployment. Indirect employment is also being generated Luy the large scaledevelopment and construction work associated wi.Lh the Gevra project. Themining activities are also generating other small scale ancilliaryindustries in the coalfield area which also offer employment potential forthe reaettled families. SECL is encouraging local self employed cottageindustries and farming and has established market complexes in tne coloniesso that sellers can directly sell their products which will enable them torealize higher prices than if they sell them to traders which is the usualpractice.

The remaining 495 families at Gevra will be resettled by March1991. At the same time, 375 families will be resettled from the Dipka minewhich is being developed adjacent to the Gevra mine. The families will beresettled in two phases according to the following schedule:- first phaseof 364 families to be completed by March 1988 and second phase of 506families to be completed by March 1991.

B. Sonepur-Bazari

Land acquisition is at an early stage at Sonepur-Bazari withabout 13% (157 ha/1205 ha) having been acquired so far and no resettlementhaving taken place. During the life of the project about 740 families willneed to be resettled. About one third of the land to be acquired iscultivable, much of the rest being so-called -danga land which is barrenand uncultivable. For the remainder it is estimated by ECL that the annualearnings per hectare of cultivable land is about Rs 2,000 about one tenthof the annual earnings of a coal miner (about Rs. 20,000 per year). It isestimated that 40-50% of the families involved in resettlement presentlyare directly or indirectly dependent on coal mining activities in theregion.

- 92 -

ANNEX 11Page 2 of 3

During the first phase of land acquisition about 270 familieswill need to be resettled. As with Gevra, compensation is based ongovernment norms and the villages will be given the similar basic amenities(approach road, drainage system, school building, drinking water sources,shopping center, health center, community center and playground) most ofwhich are not available in the villages where the people presently live.

ECL will help the state government in providing suitable trainingfacilities for the affected population, in consultation with and as per theguidelines of the state government, so as to make them suitable forpossible future employment in the project or elsewhere if oppirtunitiesarise. ECL will also help in developing small scale industry ancilliary tothe mining project. These include enterprises to make the followingsupplies needed by ECL's operations (a) coal tub wheels and axles; (b)brattice cloth (fireproof); (c) water bottles; (d) dognails and fishplates; (e) bolts and nuts of various sizes; (f) safety boots and shoes and(g) building brick-. A report prepared by outside consultants hasindicated that such activities could provide employment for up to 300persons in the areas around the Sonepur-Bazari project--although the majorshare would be brick making which is a seasonal industry. In addition, ECLhas other mines and new projects in the surrounding area which might be asource of employment for resettled persons.

Other employment opportunities for resettled people includeconstruction activities at the project which are likely to require 350-400persons per day for the next seven to eight years and cottage industriesspawned by the project. The latter include poultry farming, animalhu;bandry and dairy, piggery, pisciculture, shops in the shopping centerand farming in reclaimed/undistributed land owned by ECL. ECL estimatethat about 195,000 man-days of self employment could be available annuallyfrom such activities (including project construction 75,000, brick making30,000, township 30,000, ancilliary industries 30,000, forestry related20,000 and small contracts 10,000). ECL estimate the earnings from suchemployment would more than compensate for the foregone annual earnings fromthe land lost from cultivation (which would be about Re 900,000 per yeari.e. 450 ha times Rs 2,000 per ha per year). ECL are aware that smallunits will require assistance in raising initial capital investments andworking capital. ECL propose to work with the appropriate authorities ofthe state government to establish sources of finance for small unitspossibly including state government guarantees to commercial institutions.ECL also recognize that such small units, especially engineering andmanufacturing units, will require necessary technical capabilities and areprepared to consider providing suitable training for such entrepreneurs ona limited scale.

- 93 -

ANNEX 11Page 3 of 3

The timetable for resettlement at Sonepur-Bazari is as follows:

So epur-Uszari-Land Acquisition and Resettlement

Land acquisition for resettlement - complete by December 1988Land development - complete by March 1989Construct basic facilities - complete by March 1990

Phase I resettlement - 430 families by December 1990Phase II resettlement - 310 families by December 1993

Total 740 famdlies

Conduct training program - December 1987 - December 1990

--.. 94 - ANNE 12

IA -CAL KM= A. COAL QaLlPl DW UO W n Cr

PROJUC KNONCO OWGAPZZAntIO

.Z M-o

Project Qm"a MInage

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- 96 -

AM=nE 14

INDIA - COAL MININC ND COAL QUALITY DIPROVEMENT PROJECT

EQUIJMENT COST ESTDI&TES(Rs million)

Itm Quantity Unit Price a/ Base Cost

Gevra

Electric Rope Shovel 10.3 4 30.9 123.6Electric Rope Shovel 4.60 8 7.5 60.0Hydraullc Shovel 2.5-3.2R3 3 7.0 21.0Hydraulic Shovel 2.5-3.203

with Backhoe 2 7.0 14.0Dozer 400 HP 10 5.2 52.^Dozer 300 HP 21 3.1 65.1IBH Drill 250 - 8 9.3 74.4RBR Drill 150-160 an 8 3.3 26.4Dumper 85t 12 5.1 61.2Dumper 120t 22 13.3 292.6Coalhauler/Duapers 35t 75 2.5 187.5Scraper 11.5.3 5 3.1 15.5Grader 200-250 HP 6 1.3 18.0Water Sprinkler 5 3.0 15.0Training Center 1 37.5 37.5Workshop 1 116.6 116.6CHP 1 466.0 466.0Other Local Equipment Lot 226.3

Subtotal 1,872.7Spares 187.0

Total 2,059.7

Sonepur-Bazari

Dragline 24/88 1 234.0 234.0Electric Rope Shovel 10m3 7 30.9 216.3Hydraulic Shovel 2.5-3.203 5 7.0 35.0Dozer 400 HP 10 5.2 52.0Dozer 300 HP 2 3.1 6.2RRR Drill 250 om 6 9.3 55.8Dumper 120t 35 13.3 465.5Dumper 35t 13 2.6 33.8Coalhauler 32-40t 20 2.5 50.0Scraper 11.5.3 1 3.1 3.1Grader 200-250 4 3.0 12.0Hater Sprinkler 4 3.0 12.0Workshop 1 324.6 324.6Training Center 1 37.5 37.5CHP 1 109.5 109.5Other Local Equlpnt Lot 176.5

SubtotalSpares 182.0

Total 2,005.8

a/ For foreign equipment, unit price - CIF + Duties + Inland Freightand Erection; for local equipmnt, unit price - Ex-Works + Taxes +Inland Freight and Erection.

- 97 -

L5

MU - aLM aND ML Q umr PIM

_Tnseer SNE AM tusr WO k FDO anm

BId am i Tder Tar Ed E,ulmtlcmlidUg to au for lde Clmlsx w But Gmtruet

B Si!sty 1 Reie bDe DbW for 1eis Wffctim .

0-1 3 20w! 1043 lbk 15. 1986 be 35. 198 Fb 15. va Am 15. 1987 Sept 15. 987G-2 1 9 l 163 tbyr3 1.991 hJuly 1. 1991 (lt 1191 rIt 1. 1992 Hy 1, 1992t-3 3 womee 4.frP Jul 1 198 Sep 1, 199f be 1c 1988 hly 1. Mg9 Jo 1. I9890-4 12 Thck SIt Apr 6, 198 Dee 15, I981 Feb 15. 1q87 Ji 15. 1987 Sp 15. 1987cIs 11 t Tac 1f kb[ 35. 196 bS e 15, 1988 Feb 15, 1987 JD 25. 1987 Sept 15 3987r-6 11 nxk Ilt rHy 1. 1989 Ad 1. 1989 Oa I. 1399 1w 1, 399D May 1. 1990

-7 b killt 25tk Apr 16, 1986 ee 35. 39 b e 1b 2987 I Jm 15. 197 Sept 35. 1987G-B3 5 Ibm 4(H Apr 16, 1986 bee 15 19386 Feb 15, 197 Jun 15 1987 Sept 1 1987Gt9 1 ear 4(ow hy 1.1990 ,Jl 1. 699) cIt 1. Ifli 1mI, 1993 tHy 1. 1991C-lu 5 bea 3)09 Ar 16, 1988be 25, 2 Feb 15, 1987 J 15. 1967 Sept 15, 1987Gil I bainhe Oscw .5 1. 1987 Ag 1, 39H7 lw 1, 1987 Apr 1. 19B Jun 1. 396612 1 ldwxp FPa. Jun I. 19 u7 A 1, 1917 Nbv 1, 197 Apr 1. 195 Jm 1. 15111£13 I QauIbdp CiV.

IWok un 1,1987 I A 1. 19* Nos. 1987 Ar1r 1. 1968 J 1, 198WC1G I set chwtg WEqp Jul 1, 39117 Sep 1. 1987 Db 1, 3967 my 1. 9W8 1.b 1. 39WC35 I1t lty Repair Eq. .5l 1. 1987 Sep 1. 1987 bte 1 19817 1hy 1. 1968 Jul 1. lFCib I Et Fr4he - - .hl 1, 19B7 Sep 1, 1987 bee 1, 1987 hy 1. 19RB .5l 1, I8

l7 1poet Electrle - Ju,l 1, 1987 Sep 1. I9dm be 3, 3907 thy13 15 ,i 1, 1988Gin Elecnutdo Ptu. Ad 1, Wtl7 Sep 1. 1987 be 3, 1967 thy 1. 19H8 A. 1, 198WG19 I1t Hydrsalic Equip Ju1 , 397 Sr I 1917 ec 1, 1967 thy 1 1998 Jul 1, 19W(3) 4 Hwel flue n Ar 1, 987 INy 1, 19R7 Aug 1 19H7 .o 1 1932 Par 1 19WI;11 6 CGrd 21O-2PW Apr 1, 1917 Hay 1. 1987 A 1. 1987 J1. 1, 19W N 1. 198.(22 5 %ftr Splrber Apr 1. I397 thy 1. 1*1?7 A 1, 987 Ja n 1988 nor 1. 1968

S-I 3 9Inl 1IkP I bv 15. 19B6 bEe 35, 1988 Feb 35, 1987 un 15, I987 t5, 19875-2 3 S% ,i IOA3 Jun 1, 1989 Ag 1. 1989 lfl 3, 1989 Apr 1, 199D JLm 1. 1991)S-3 1 tlize 24/8B Ibv 15, 18 bDee 35, 198b Apr IS, 1907 Spt 15. D67 Nov 15. 1987S-4 2 lhel Hyd1 Nlv 35, 198Rb be 15. 191b Feb 15. 19B7 Jum 15. 1987 Sept 15, 1937

2.3-3.2 .S-5 18 Tnd k 1 kS 15, 986 De 15, 198b Feh IS. 1985 Am 15, 1987 Sep 15. 1987S-0 17 Thitk3Mk JuZt 1, 99 Ag L, 1989 Nlb 1. 39619 Apr 1. 199t) Jn 1. IMs5-7 4 talr 350M I Apr 16, 19b Dbe 15, 1986 Feb 35, 1987 Jun 15, 1987 Sept .5. 19R7S=- 4 fer 350M W Jul 1. 19B9 Sep 1. 3199 beX1 1 199 thy 1. 1990 Jul 1. 19911S-9 2 l tifel n,w 1.Apr ,1987 tky 1 1987 Ag 1, 1987 I 1. I19P0 nw 1. 190S-1u 5 Tttdc 3-4Gt lbv 15, 196 bec I5, 1966 Feb 35, 19B6 Jun 15, 1987 Sepc 15. 19875-11 14 Thdc 32-4lt .m 1, MT Ag 3, 199r) Nws 1, 1990 Apr t1 991 JLr 1, 1991S-12 3 Drill 75 Apr 16, 1966 be 15, 1906 Feb 15, 1907 J. 15. 1967 SePt 15, 19875-13 I DrilU 25 6m Ad 1. 1991 Sep 1, IY91 br 13, 1993 ty 1. 1992 .5d 1, 1992S-14 & Cluder 2--253W Apr 1, 1987 thy 1. 197 Aug 1. I987 . 1. 198 lrtt 1 9 I8S-15 4 -rw Sprinkler Ar 1. 19R7 thy 1 I37 AM 1, 19B7 .1s 1, 190R vr 1. 198WS-b6 1 0m1 HIdllhg Am 1, 1390 Ag 1. 1968 lbv 1, 1989 Apr 1, 1989 Jl 1, 1939

P-S-17 unlb 6saer t uD 1, 1987 Ag 1, 1987 NoV 1. 1987 Ar 1, 19B Jn 1. 1930S-Ie I Ulcitq..ut

Ildetial Ju 1, 197 Aw 1, I7 kw 13, 197 4r 1. 198 Jul 1. 19SS-Itb I tdadiwL tral

RleidmntLal un 13, 1987 A 1. 1987 It, 1, IP37 Apr 1, 198B Jun 1, 196

5-19 1 Iltt AxkducS-19 Filitis Jum 13 191H Ag 1 1?87 bm 1, 187 Apr 1, 19B .Jun 1, 19B8sY-19b Cvitl 1 .5. 1. 3987 Ag 1, 1987 Nlv 1. 197 Apr 1, I .f 1. 190S-19 Ihddnirg qup .51 3, 1987 Sep, 3 1987 be 1. 1987 l'q 1 19 I Jul 1 19B85-19d tw0ne 1p lip jai 1, 1987 Sep 1. 197 be 1, 1987 NWy 1 19S 3 Jul 1, 1968S-19e Iydt tru Fq Jul 1. 1987 Sep, IY 1987 bee 1, 397 Hy 1, 198 Jal 1. 19B0-19f Body Pop 1 1. 1987 Sep 1. 1987 Dee 1. 987 May 1. 19BS ,1 1.S9S-19 Ibbile Rep Equ .ul 1. 1987 Sep 3. 1987 ee 1, 1987 1.1 , 1968 Jul 1, 19PBS-19h lilt EtTdl Equ Jul 1, 1987 Sqt 1. 1987 e, 1 9 VW7 thy 1. 198 Jul 1 988S-191 Else Equp JUtI 1. 196 set 1. 1987 be 1, 3987 Hay 11 19W .5e 1. 1I9

S-20 I tl Ib*p5-20. Swvite bAId J 1. 1987 Ag 1. 1987 Nbs 1. 1987 Apr 3 19WB a Jt 1 19B8S-2b Civil wars J3 1, 1927 Ag 1. 1987 lbN 1. 1987 Apr 1. 19W Jun 1, 19W0S-201 ladddrg Ey. Ju 1. 1987 Sep 1. 1987 ic 1. 1987 Pay 1. 16 Jt5l 1. 1968S-2W1 Eigh Rep Fq Jul 1. 1987 Sep 1. 1987 n!e 1. 1987 th 1. 1988 Jul 1. 19SBS-le Hay Rep Fa .Jul I 3987 Sep 3. 3987 Dir 1. 1917 rhy 1, 3191 Jul 1. 3938S-20f Trum Rip Eip Jul 1. 3987 Sep 1. 1987 re 1, 1987 tW I, 1ISB Jul 1. 395R5-It Dear Pqtpr Ep Jai 1. 1987 Sep 1, 1987 Ilew 1, 1987 thy 1. I9 Jl 3. 1998S-20h Bdya[id

Stn e lip. J 1, 1987 Sep 1. I7 Dbe 1, 1987 thfy 1. 19W8 Jul 1, 1S05-201 Elecla Equ .d 1. 1987 Sep 1 1987

De 1 1987 flh 1 ISB Jl 1 1989S-Afl Fesy Eqdp id 13W87 Sep 1 1987 bee 1, 1987 ty 1. 19B Jul 1 19WS-& thoIle Rep Eqp Jrl 1. 191 Sep L. 198 Da 1, 1987 NlW 1, hyl Jul t, 1909-2M u lsm 15, 186 De I, 1966 hFb 15, 1967 Jun 15, 1987 Sept 15. 1987

- 98 -

ANNEX 16

INDIA - COAL MINING AND COAL QUALITY IMPROVEMENT PROJECT

DISBURSEMENT SCHEDULE FOR BANK LOAN(million US$)

(a) Mining Component

Bank Quarterly CmulativeFiscal Year Quarter Disbursement Disbursement

1988 I 5.0 5.0II 0.8 5.8

III 1.0 6.8IV 5.0 11.8

1989 I 5.5 17.3II 7.9 25.2

III 7.8 33.0IV 9.6 42.6

1990 I 7.9 50.5II 9.9 60.4

III 9.4 69.8IV 9.4 79.2

1991 I 9.8 89.0II 8.6 97.6

III 10.7 108.3IV 8.1 116.4

1992 I 9.4 125.8II 7.8 133.6

III 8.2 141.8IV 6.8 148.6

1993 I 7.8 156.4II 7.2 163.6

III 6.6 170.2IV 5.2 175.4

1994 I 3.2 178.6II 1.4 180.0

(b) Coking Coal

Disbursements will be at a rate approximately of about US$20million per quarter, starting in the I quarter of Bank FY1988 tbrouigh theIV quarter of Bank FY1989.

- 99 -

ANNEX 17Page 1 of 4

INDIA - COAL MINING AND COAL QUALITY IMPROVEMENT PROJECT

ASSUMPTIONS USED IN THE FINANCIAL PROJECTIONS

A. Projection Period

1. The financial projections have been prepared for 1986/87 through1993/94.

B. Escalation

2. All projections have been prepared in current terms assuming thefollowing local inflation rates:

1986/87-1993/94 - 6.0% per year

C. Production Plan

3. Production plan for the CIL group is in line with the SeventhFive Year Plan from 1985/86 to 1989/90 and shows steady thereafter:

CIL - Projected Production(million tons)

l986;s7 1987188 1988/89 1989/90 1990191 1991/92 1992/93 1993/94

kdergruxlnd 63.8 67.9 71.9 75.2 76.5 79.1 81.6 84.6Open-Pit 78.8 90.1 103.4 120.8 131.7 140.7 152.8 164.8

Total 142.6 158.0 175.3 196.0 208.2 219.8 234.4 249.4

D. Investment Program

4. The investment program to support the above production plan isprojected on the basis of average unit investment costs for open-pit andunderground operations in CIL and investment requirements of existing minesto sustain current level of production. The investment profile ispresented in the following table:

- 100 -

ANNEX 17Page 2 of 4

CIL - Annual Investment Program(Rs million, 1986/87 terms)

1986/87 1987/88 1988/89 1989/90 1990/91 1991/92 1992/93 1M93949,690 9,750 11,320 12,550 11,850 11,350 11,50 11,3O

E. Coal Prices

5. Until GOI and CIL complete the preparation of new measures toimprove CIL's financial performance. Since coal prices are presently ateconomic efficiency levels, average coal prices have been assumed to remainconstant in real terms and follow the local inflation rate in currentterms.

CIL - Average Coal Price(Rs/ton - 1986/87 terms)

Fiscal Year 1986/87 1987/88 1988/89 1989/90 1990/91 1991/92 1992/93 L993/94With 1986/87 grade mix 235 2D5 205 2D5 205 2D5 205 205With adjustBd grade mix 205 201 197 191 189 187 185 184

F. Production Costs

Salaries and Wages

6. Salaries and wages are dependent on production level, output permanshift (OHS) and earnings per manshift (EMS).

EMS

7. In CIL, salaries and wages are fixed by the National Coal WagesAgreement which is renegotiated every four years between the unions and CILmanagement. It is assumed that earnings per manshift will remain unchangedin real terms during the forecast period.

OMS

8. OMS projections for each subsidiary are based on CIL'sestimates. The projections are shown below.

- 101 -

ANNEX 17Page 3 of 4

OMS Projections (tons/manshift)

ECL BCCL CCL SECL NEC

1986/87 0.57 0.64 1.50 1.33 0.861987/88 0.64 0.71 1.60 1.50 0.941988/89 0.70 0.76 1.72 1.62 0.941989/90 0.80 0.82 1.96 1.77 1.021990/91 0.85 0.82 2.10 1.80 1.021991/92 0.85 0.85 2.15 1.85 1.021992/93 0.90 0.90 2.20 1.90 1.021993/94 0.90 0.90 2.25 1.95 1.02

9. Administrative overhead, a major portion of which isadministrative salaries, is assumed to increase at the sane rate as thesalaries and wages.

10. Stores, power, transportation and other costs are calculated on avariable cost basis. For each subsidiary, the unit cost for stores, whichincludes spares, explosives, timber, diesel fuel, lubricants and othergeneral consumables, has been slightly increased in real terms and unitcost of power has been marginally downward adjusted to reflect theincreasing share of open-pit production characterized by higher thanaverage usage of etores and lower power consumption. All other unit costshave been assumed to remain constant throughout the projection period.

11. Depreciation has been calculated using subsidiary-specificdepreciation factor which is derived from data of historical depreciationas percentage of gross fixed assets to reflect the difference in the natureof investment in each subsidiary, i.e., underground vs. open-pit project,greenfield vs. rehabilitation.

12. Interest expense has been calculated based on the followingaverage annual interest rates:

Existing long-term loans a/- planned portion 10.6% p.a.- non-planned portion b/ 0.0% p.a.

New long-term 1== c 13.75Z p.a.Short-term loans 18.0% p.a.

a/ Loans taken before April 1, 1984.b/ A subsidy equal to the interest payable is received from the

Government. Hence, neither interest nor subsidy are included in thefinancial projections.

c/ Loans taken in 1986/87 and thereafter, which is about 48Z of annualinvestment, repaid in 15 years.

- 102 -ANNEX 17Page 4 or 4

G. Income Taxes

13. Accumulated losses from previous years have been carriedforward. In addition, an investment allowance, up to 40% of the annualinvestment, has been assumed in calculating the annual taxable income. A50Z income tax rate has been applied to the taxable income (if any).

H. Balance Sheet

14. Current assets have been increased from the base at the same rateas the growth in total operating expenditures.

15. Current liabilities have been assumed to follow generally thesame pattern as current assets with exception of the item of 'other currentliabilities" which consists mainly of wages and bonuses payable at the endof the fiscal year and is assumed to increase at the same rate as salariesand wages.

16. Fixed assets have been increased by adding 80Z of the annualinvestment to the previous year's balance. This addition is assumed toinclude both the direct addition from the annual investment and a transferfrom previous year's capital work-in-progress. Seventeen percent of theinvestment has been asslmed to equal the net increase in capital work-in-progress and 3% of the investment, the net increase in loan & advances.

17. Long-term debt outstanding March 31, 1986 for CIL overallconsists of the following loans:

Planned Rs 20,958 millionNon-planned Rs 4,326 million

Total Rs 25,284 million

- 103 -ANNEX 18Page 1 of 3

INDIA - COAL MINING AND COAL QUALITY IMPROVEMENT PROJECT

PRO FORML FINANCIAL STATEMENTS FOR COAL INDIA LTD

INCOME STATEMENT 1986/87 TO 1993/94(in Rs million)

86/87 87/88 88/89 89/90 90/91 91/92 92,':3 93/94

COAL PRODUCTION (MILLION TONS)

UG PRODUCTION 63.8 67.9 71.9 75.2 ?6.5 79.1 81.6 84.6OP PRODUCTION 78.8 90.1 103.4 120.8 131.7 140.7 152.8 164.8

TOTAL PROD-UCTION 142.6 158.0 175.3 196.0 208.2 219.8 234.4 249.4

SALEABLE PRODUCTION 136.7 151.2 166.8 187.1 198.2 209.3 223.2 237.5

-EVENUES

AVERAGE PRICE, RS/TON 205 212 221 228 249 264 280 296SALES REVENUES 27953 32077 36813 42737 49428 55284 62382 70172OTHER REVENUES 41 44 47 50 53 56 59 62

TOTAL REVENUES 27994 32121 36860 42787 49481 55340 62441 70234

PRODUCTION COSTS

SALARIES & WAGES 14103 15056 16191 17338 18740 20181 22000 24171OVERHEAD 1128 1205 1298 1389 1501 1620 1778 1964STORES 4158 4865 5678 6746 7592 8500 9638 10891POWER 2020 2373 2778 3272 3651 4083 4592 5151TRANSPORTATION 797 927 1084 1280 1427 1593 1796 2020OTHER COSTS 2822 3413 3915 4538 5043 5576 6238 6956

TOTAL OPERATING COSTS 25027 27840 30944 34563 37954 41553 46041 51154

DEPRECIATION 2890 3414 4054 4764 5466 6210 6999 7835INTEREST 2479 2892 3329 3935 4600 5144 5686 6222

TOTAL PRODUCTION COSTS 30396 34146 38327 43262 48020 52907 58726 65211

PROFIT BEFORE TAX -2402 -2025 -1466 -474 1462 2433 3716 5023NET INCOME -2402 -2025 -1466 -474 1462 2433 3716 4761

-- _ -_ -_ -__ _ _ _ __

- 104 -

ANNEX 18Page 2 of 3

BALANCE SHEET 1986/87 TO 1993/94"in Rs million)

(As of Narch 31)

1987 1988 1989 1990 1991 1992 1993 1994

ASSETS

CURRENT ASbZTSCASH & BANK BALANCES 1300 1463 1644 1858 2065 2277 2529 2811COAL STOCK 4950 5569 6260 7076 7862 8669 9631 10702STORES & SPARES 4450 5207 6078 7220 8126 9098 10316 11658SUNDRY DEBTORS 4200 4726 5312 6004 6671 7356 8171 9081OTHER 1470 1654 1859 2101 2335 2575 2860 3178

TOTAL CURRENT ASSETS 16370 18619 21153 24259 27058 29974 33507 37429

GROSS FIXED ASSETS 48809 57800 69515 82768 95229 108441 12,-53 137304less ACCUMULATED DEPREC 16987 20411 24503 29317 34813 41056 48089 55961

NET FIXED ASSETS 31822 37389 45012 53451 60416 67386 74364 81344

CAPITAL WORK-IN-PROGRES 9310 10343 11690 13213 14646 16164 17775 19482

LOANS & ADVANCES 7653 796' 8367 8824 9254 9710 10193 10705

TOTAL ASSETS 65155 74315 86222 99747 111374 123234 135839 148959

LIABILITIES

CURRENT LIABILITIESSUNDRY CREDITORS 3900 4388 4932 5575 6194 6830 7588 8432ROYALTIES, CESS, ETC. 1020 1148 1290 1458 1620 1786 1984 2205OTHER CURRENT LIAB. 7200 8101 9106 10292 11435 12610 1400. 15567SHORT TERM DEBT 900 989 1091 1205 1305 1419 1559 1712

TOTAL CURRENT LIAB. 13020 14626 16419 18529 20554 22645 25139 27916

LONG TERM DEBT 27829 30573 34538 38939 42476 45968 49413 52803OTHER LIABILITIES 3600 2880 2160 1440 720 0 0 0

TOTAL LIABILITIES 44449 48079 53118 58908 63751 68613 74552 80720

SHAREHOLDERS' EQUITY

PAID-IN-CAPITAL 37531 45085 53421 61630 66951 71516 74466 76658RETAINED EARNINGS -16825 -18850 -20316 -20790 -19328 -16895 -13179 -8418

SHAREHOLDERS' EQUITY 20706 26235 33105 40840 47623 54621 61287 68240

TOTAL LIAB. & EQUITY 65155 74315 86222 99747 111374 123234 135839 148959-_ -_ -

- 105 -

ANNEX 18Page 3 of 3

SOURCES AND APPLICATION OF FUNDS 1986/87 TO 1993/94(in Rs million)

86/87 87/88 88/89 89/90 90/91 91/92 92/93 93/94

SOURCES

NET INCOME -2402 -2025 -1466 -474 1462 2433 3716 4761DEPRECIATION 2900 3425 4092 4814 5496 6242 7u33 7872

TOTAL INTERNAL CASH 498 1400 2625 4340 6958 8676 10749 12633

NEW EQUITY CAPITAL 7408 7554 8336 8209 5321 4565 2951 2192

LONG TERM LOANS 4845 5168 6733 7616 7162 7593 8053 8535

TOTAJ. SOURCES 12751 14121 17694 20165 19441 20833 21752 23360

APPLICATIONS

INVESTMENT 9690 10335 13466 15233 14324 15186 16106 17070DEBT REPAYMENT 2300 2423 2768 3216 3624 4102 4608 5145INCREASE IN WORKING CAP. 478 643 741 996 774 826 1039 1145DECREASE IN OTHER LIABL 283 720 720 720 720 720 0 0

TOTAL APPLICATIONS 12751 14121 17694 20165 19441 20833 21752 23360

RATIOS

CURRENT RATIO 1.26 1.27 1.29 1.31 1.22 1.32 1.33 1.34LONG TERN DEBT/ 0.57 0.54 0.51 0.49 0.47 0.46 0.45 0.44

EqUITY L 0.43 0.46 0.49 0.51 0.53 0.54 0.55 0.56LONG TERN DEBT SERVICE 0.58 0.71 0.87 1.05 1.30 1.39 1.61 1.67

-106- ANNEX 19Page 1 of 5

INDIA - COAL MINING AND COAL QUALITY IMPROVEMENT PROJECT

MEDIUM TERM EFFICIENCY IMPROVEMENT PROGRAM (1986-1990)

AND PERFORMANCE TARGETS

In December 1986 CIL issued a Medium Term Coal EfficiencyImprovement Program (the Efficiency Program) to cover the period 1985/86 to1989/90. The contents of the Efficiency Program include (i) enumeration ofspecific priority actions to be implemented in the subsidiary companies toincrease coal production, reduce costs and improve productivity; (ii)evaluation of the effects of such measures in terms of their physicalimpact on production terms; and (iii) assessment of the impact of theEfficiency Program on CIL's financial viability.

The Efficiency Program draws upon CIL's Action Plan for 1986/87as well as a draft CIL Five Year Corporate Plan covering the period 1985-90which CIL had previously prepared. The Efficiency Program is based on amine by mine production analysis which targets an increase from 134 millionin 1985/86 to 196 million tons in 1989/90 as shown below:

CIL - Production Target 1985/86 - 1987/Sq

(Million tons, raw coal)

1985/86 1986/87 1987/88 1988/89 1989/90(Actual)

Existing mines 77.43 74.00 76.64 62.37 58.74Sanctioned mines 56.68 68.60 89.32 104.33 119.66New mines to besanctioned - - 1.04 8.80 17.60

134.11 142.60 158.00 175.50 196.00

Production

Of the present production of 143 million tonnes (1986-87), theunderground mines account for 45% and the rest comes from opencastprojects. In the increased production of 53 million tonnes envisaged by1989-90, 75% would be contributed by opencast mines. By 1989-90 the shareof opencast mines to total production would be 61%. The predominance offixed cost element over the variable costs in capital intensive projects(fixed 80%, variable 20Z) has necessitated CIL to pursue economies of scalethrough planning and implementation high capacity mining projects. The

- 107 -

ANNEX 19Page 2 of 5

common size of a mechanized opencast m3lxe which used to be 1-2 m.tonnes perannum is being progressively increased to 10-14 m.tonnes per annum.Examples of such big projects are Mukunda (12 m.tonnes), Jayant (10m.tonnes), Rajmahal (10 m.tonnes), Nigahi (14 m.t.) Dudichua (10 m.t.).Planning of high capacity projects is not confined to opencast miningalone. Underground mines like Jhanjra (3.5 m.tonnes) and Pootkee Ballihari(3 m.tonnes) are also under implementation. In planning and implementinghigh capacity projects the induction of technological expertise andequipment and machinery from a number of foreign countries is being pursuedactively. Some of the countries from whom such assistance is beingobtained are USSR, West Germany, UK, France, Poland and Canada. Many ofthese projects are being entrusted on a turnkey basis with adequateperformance guarantees.

Productivity

Productivity improvements are designed to increase the output permanshift (OHS) of both underground and open-pit mines. In the area ofmechanization in existing underground mines, the technology ofpowered-support longwall mining would be extended. As against six longwallfaces working in 1985-86, 23 would be working by 1989-90. Medium levelmechanization has been introduced with side discharge loaders and loadcontrol dumpers in bord and pillar mines. The possibility of introductionof continuous mining and shuttle cars in bord and pillars mines with roofbolting is being investigated. The need for mechanizing transport of menand material in underground mines has been recognized and would findintroduction during the Seventh Plan period. Other special methods ofmining like Blasting Gallery method and Hydraulic Mining and DescendingShield method are also being adonted. Besides mechanization, a number ofsystem improvement and managerial measures are being adopted. Theseinclude "all men all iob systems- in mechanized mines, better amenities(such as housing, recreational, water supply facilities) to reduceabsenteism and a system approach in mechanizing coal evacuation, faceventilation etc. Based on these measures CIL is targetting the followingprogressive increase in OMS for each subsidiary:

CIL - Output Per Manshift Target 1987/88 - 1989/90

(tons per manshift)

Company OMS1987-88 1988-89 1989-90

Eastern Coalfields Ltd. 0.64 0.70 0.80Bharat Coking Coal Ltd. 0.71 0.76 0.82Central Coalfields Ltd. 1.16 1.16 1.26Northern Coalfields Ltd. 8.02 8.50 8.60Western Coalfields Ltd. 1.17 1.30 1.43South Eastern Coalfields Ltd. 1.63 1.83 1.94North Eastern Coalfields 0.94 0.94 1.02

Coal India Ltd. 1.07 1.17 1.28

- 108 -

ANNEX 19Page 3 of 5

Manpower Planning

The existence of a substantial surplus labour force in some ofthe coal mines has been well recognized. Concerted efforts are afoot tocontain and reduce the labour force through a package of measures. Thebroad contours of the strategy are as follows: (a) control over freshrecruitment; (b) preparation of manpower budgets; (c) introduction ofmulti-scale workforce; td) training and re-orientation of workforce; (e)reorganization of uneconomic mines; (f) re-deployment of surplus workforce;and (g) voluntary retirement scheme. One of the important steps taken tocontrol fresh recruitment has beel. the abolition of the system of providingjobs to land losers in the coal projects. Following the recommendations ofthe Chari Committee on Eastern Coalfields Ltd., measures are afoot torationalize the labour force in the identified uneconomic mines and deploythe surplus labour force elsewhere. A voluntary retirement scheme is alsounder formulation. As a result of the various measures enumerated above itis expected that the net addition to the labour force would be about 21000only by 1989/90 as shown in the following table:

CIL - Manpower Targets 1987-1990

Company Manpower as on 1st April1987 1988 1989 1990

Eastern Coalfields Ltd. 1,88,500 1,88,500 1,88,500 1,88,500Bhrat Coking Coal Ltd. 1,71,000 1,71,000 1,71,000 1,71,000Central Coalfields Ltd. 1,05,000 1,03,300 1,02,400 1,00,400Western Coalfields Ltd. 80,249 82,000 82,600 82,600South Eastzern Coalfields Ltd. 1,05,200 1,07,700 1,14,000 1,20,500Northern Coalfields Ltd. 11,000 14,000 17,000 19,100North Eastern Coalfields 5,426 5,400 5,500 5,600Central Mine P1- ing &Design Institute.'Coal 5,096 5,200 5,500 5,900India Ltd. Office/Dankuni Coal Complex

Total: 6,71,471 6,76,400 6,86,500 6,93,600

Equipment Availability and Utilization

Increasing introduction of machine' y and equipment in undergroundmining and the key role which equipment and machinery play in opencastmining call for strict adherance to international standards in theiravailability and utilization. It has been estimated that in thedevelopment of a large sized opencast project, plant and machinery accountfor 64-78% of the project cost. A multi-pronged strategy covering thewhole gamut of activitiea from equipment selection to their efficientoperation on field has been drawn up by Coal India. The strategy consists

- 109 -

ANNEX 19Page 4 of 5

of (a) equipment selection; (b) equipment standardization; (c) equipmentoperation and training; (d) equipment maintenance (including spare partsmanagement, spares depots, service centres, rehabilitation of idleequipment, high technology electrical inspection and workshop facilities);(e) computerized information system; and (f) other measures (includingoperating procedures, pit lighting, optimal drilling and blasting and_mplementing the results of the METCHEM study).

Material Management

The objectives of CIL in the area of materials management couldbe broadly classified as follows: (a) material demand and compatibility inkeeping with end-user work stations; (b) integration of quality, quantityand price of materials to meet the projected demand efficiently with dueregard to inventory holding norms and availability fluctuations; (c)minimization of down time of production equipment and projectimplementation delays by obviating stock outs; and Cd) ensure optimuminventory levels. To achieve the above objectives a series of steps havebeen taken. These include streamlining the purchase, procedures, vendorrating, computerization, opening of spare parts depots, training ofexecutives, increasing the number of warehousing stations at carefullyidentified locations, disposal of obsolete items and evolution of optimuminventory levels.

Communication and Comouterized Management Information System

One of the felt requirements for efficient management of the coalsector is the availability of a speedy and reliable communication networklinking the mines, the areas, the headquarters of the companies and CoalIndia Office in Calcutta. Towards this end a communication facility calledCoalnet is under implementation. This network would be based on

satellite communication. Under phase I of this satellite communicationprogram 10 stations would be linked with each other and would have speechand data communication facilities. Under phase II, 9 more stations wouldbe linked. Both these phases are expected to be completed by 1989-90.

Managerial Climate

Several steps have been taken to improve the managerial climatein the coal industry. Some of these steps are: (a) drawing uporganization charts identifying responsibility and accountability;(b) adequate delegation of financial and administative powers; (c) masterplan for reorientation training utilizing institutions in the country andbilaterial assistance for training in new technologies being imported;(d) more stress on participative management to improve industrial climate;and (f) introducing systems for recognition of good work and penalties forfailures.

Labour Participation

The Joint Bipartite Committee of the Coal Industry has been fullyactivised and regular consultations are taking place between the management

- no -ANNEX 19Page 5 of 5

of the coal companies and representative of the labour. Production,productivity, absenteeism, rationalization and redeployment of manpower,cost consciousness and welfare measures form the subject matters of thesedeliberations. To secure active labour participation in achieving thecorporate goals, six committees have been constituted with representativesof labour. These committees cover subject areas like planning andtraining, safety and environment, investments and costs, and welfare. Inaddition, coal companies have revived the three-tier forums for workers'participation in management. These tiers are the colliery, the area andthe corporate office.

Studies

A number of studies have been commissioned by CIL to go intodiverse aspects of coal production. These studies range from technicalaspects of coal mining to optimization of transportation, managerialinnovations and overall improvement of the working of specific subsidiarycompanies. The following studies have thus been commissioned:

- Management practices in Moonidih mine and Planning, design andmanagement of the fully designed Pootkee-Bulliary underground mine.

- Transportation of sand to Jharia coalfield from Maithon andDurgapur.

- Study on operational Budgetary control systems in Coal India Ltd.

- Study on Equipment Efficiency and Equipment Maintenance.

- Study on Haulroad Construction and Maintenance.

- Study on Blasting design and Practice.

- Study on Project Implementation Manual.

- RITES Study on Coal Transportation.

- Chari Committee to examine the working of ECL.

- Banerjee Committee to examine the working of BCCL.

- Study of CIL and its subsidiaries.

Industry DepartmentMarch 1987

- iii -

ANNEX 20Page 1 of 5

INDIA - COAL MINING AND COAL QUALITY IMPROVEMENT PROJECT

PRO FORMA INCOME STATEMENTS FOR CIL SUBSITIARIES 1986/87 TO 1993/94

EASTERN COALFIELDS LIMITED - INCOME STATEMENT(in m8 illion)

86/87 87/88 88/89 89/90 90/91 91/92 92/93 93/94

COAL PRODUCTION (MILLION TONS)

UC PRODUCTION 17.0 18.0 19.0 20.0 20.5 21.0 21.5 22.0OP PRODUCTION 8.2 9.4 12.0 14.8 15.0 16.0 17.0 18.0

TOTAL PRODUCTION 25.2 27.4 31.0 34.8 35.5 37.0 38.5 40.0

SALEABLE PRODUCTION 23.8 25.9 29.3 32.9 33.5 35.0 36.4 37.8

REVENUES

AVERAGE PRICE, RS/TON 266 276 287 298 326 346 367 389SALES REVENUES 6335 7155 8408 9798 10945 12094 13346 14697CONTRIBUTIONS TO CPRA -730 -776 -577 -442 -493 -482 -471 -414TOTAL REVENUES 7065 7930 8985 10240 11438 12576 13817 15111

PRODUCTION COSTS

SALARIES & WAGES 4199 4451 4720 5001 5299 5618 5958 6315OVERHEAD 235 249 264 280 297 314 333 353STORES & SPARES 573 660 792 942 1019 1126 1242 1368POWER 430 496 595 707 764 845 932 1027TRANSPORTATION 232 267 321 382 412 45L 503 554OTHER COSTS 708 853 1011 119^ 1280 1405 1541 1688

TOTAL OPERATING COSTS 6377 6976 7702 8503 9072 9764 10511 11305

DEPRECIATION 626 738 887 1044 1211 1388 1576 1775INTEREST 516 600 690 814 948 1059 1168 1277

TOTAL PRODUCTION COSTS 7519 8315 9279 10360 11231 12211 13255 14357

PROFIT BEFORE TAX -455 -385 -294 -120 207 365 562 754NET INCOME -455 -385 -294 -120 207 365 562 754

-_ -_ - - - -_ -_

- 112 -

ANNEX 20Page 2 of 5

SOUTH EASTERN COALFIELDS LIMITED - INCOME STATEMENT(in Rs million)

86/87 87/88 88/89 89/90 90/91 91/92 92/93 93/94

COAL PRODUCTION (MILLION TONS)

UC PRODUCTION 26.6 28.7 30.0 31.0 31.0 31.5 32.0 33.0OP PRODUCTION 27.9 34.0 40.5 49.0 55.0 60.0 65.0 70.0

--_ _ _ _ _ ------

TOTAL PRODUCTION 54.5 62.7 70.5 80.0 86.0 91.5 97.0 103.0

SALEABLE PRODUCTION 52.3 60.2 67.7 77.3 82.6 87.8 93.1 98.9

REVENUES

AVERAGE PRICE, RS/TON 187 194 201 209 229 243 257 273SALES REVENUES 9748 11661 13620 16144 18885 21302 23950 26955CONTRIBUTIONS TO CPRA 1599 2096 2344 2645 2753 3050 3392 3609TOTAL REVENUES 8148 9565 11276 13498 16132 18253 20558 23346

PRODUCTION COSTS

SALARIES & WAGES 3817 4127 4548 5001 5636 6129 6608 7406OVERHEAD 291 315 347 381 430 467 504 565STORES & SPARES 1524 1860 2218 2684 3038 3427 3853 4336POWER 717 875 1044 1263 1429 1612 1813 2040TRANSPORTATION 183 223 266 322 365 412 463 521OTHER COSTS 690 817 964 1157 1316 1476 1651 1847

--_ _ _ _ _TOTAL OPERATING COSTS 7222 8217 9387 10808 12214 13523 14891 16714

DEPRECIATION 980 1157 1351 1565 1783 2014 2260 2520INTEREST 753 880 1014 1200 1406 1573 1739 1903

… … _ _ _ _ _ _- -TOTAL PRODUCTION COSTS 8954 10254 11752 13573 15402 17110 18889 21137

PROFIT BEFORE TAX -806 -689 -476 -75 730 1142 1669 2209NET INCOME -806 -689 -476 -75 730 1142 1669 1947

- 113 -ANNEX 20Page 3 of 5

BHARAT COKING COAL LIMITED - INCOME STkTENENT(in Rs million)

86/87 87/88 88/89 89/90 90/91 91/92 92/93 93/94

COAL PRODUCTION (MILLION TONS)

UC PRODUCTION 14.9 15.4 16.0 16.5 17.0 17.5 18.0 17.0OP PRODUCTION 8.6 10.1 11.3 13.0 14.0 15.0 16.0 14.0

TOTAL PRODUCTION 23.5 25.5 27.3 28.5 29.5 31.0 32.5 34.0

SALEABLE PRODUCTION 21.8 24.0 25.7 26.8 27.7 29.1 30.6 32.0

REVENUES

AVERAGE PRICE, RS/TON 220 229 237 246 270 286 303 322SALES REVENUES 4793 5478 6092 6602 7482 8336 9269 10277CONTRIBUTIONS TO CPRA -1646 -1635 -1858 -2281 -2463 -2652 -3023 -3347TOTAL REVENUES 6438 7113 7950 8883 9945 10988 12292 13625

PRODUCTION COSTS

SALARIES & WAGES 3552 3765 3992 4230 4483 4800 5292 5770OVERHEAD 297 315 334 354 375 401 443 482STORES & SPARES 673 785 891 986 1081 1205 1339 1485POWER 520 606 689 762 835 931 1035 1147TRANSPORTATION 166 194 220 243 267 297 330 366OTHER COSTS 634 626 690 744 804 879 961 1064

TOTAL OPERATING COSTS 5842 6291 6816 7319 7845 8513 9401 10315

DEPRECIATION 452 513 623 748 847 952 1063 1181INTEREST 627 731 840 991 1157 1294 1431 1565

TOTAL PRODUCTION COSTS 6921 7534 8278 9059 985) 10760 11894 13061

PROFIT BEFORE TAX -483 -422 -329 -176 95 229 397 563NET INCOME -483 -422 -329 -176 95 229 397 563

-- -- _- -__ ___

- 114 -ANNEX 20Page 4 of 5

CENTRAL COALFIELDS LIMITED - INCONE STATEMENT(in Rs million)

86/87 87/88 88/89 89/90 90/91 91/92 92/93 93/94

COAL PRODUCTION (MILLION TONS)

UC PRODUCTION 4.9 5.4 6.4 7.2 8.0 9.0 10.0 11.0OP PRODUCTION 33.5 36.0 39.0 44.4 48.0 50.0 55.0 60.0

… … _ _ _ _ _ ------TOTAL PRODUCTION 38.4 41.4 45.4 51.6 56.0 59.0 65.0 71.0

SALEABLE PRODUCTION 37.8 40.2 43.1 49.0 53.2 56.1 61.8 67.5

REVENUES

AVERAGE PRICE, RS/TON 177 184 191 199 218 231 245 259SALES REVENUES 6710 7400 8256 9740 11575 12930 15107 17490CONTRIBUTIONS TO CPRA 745 309 91 114 233 127 158 231TOTAL REVENUES 5965 7091 8165 9627 11342 12802 14948 17259

PRODUCTION COSTS

SALARIES & WAGES 2416 2587 2797 2964 3171 3459 3943 4469OVERHEAD 299 320 346 367 392 428 488 553STORES & SPARES 1354 1524 1735 2090 2403 2685 3137 3631POWER 338 380 433 522 600 670 783 907TRANSPORTATION 216 243 277 333 383 428 500 579OTHER COSTS 667 976 1086 1272 1441 1584 1821 2078

…----_ __ ____ ------ _ _TOTAL OPERATING COSTS 5290 6030 6674 7547 8391 9254 10671 12218

DEPRECIATION 801 970 1145 1341 1542 1756 1983 2223INTEREST 560 654 753 892 1044 1168 1292 1415

…----- … ____ __ _TOTAL PRODUCTION COSTS 665; 7655 8573 9780 10977 12178 13946 15855

PROFIT BEFORE TAX -685 -563 -408 -153 366 624 1003 1403NET INCOME -685 -563 -408 -153 366 624 1003 1403

- - -_ - - -_ -__

- 115 -

ANNEX 20Page 5 of 5

NORTHEASTERN COALFIELDS LIMITED - INCOME STATEMENT(in Re million)

86/87 87/88 88/89 89/90 90/91 91/92 92/93 93/94

COAL PRODUCTION (MILLION TONS)UC___ PRODUCTION 0.4_0._0.5_.5

UC PRODUCTION 0.4 0.4 0.5 0.5 0.5 0.6 0.6 0.6OP PRODUCTION 0.6 0.6 0.6 0.6 0.7 0.7 0.8 0.8

TAP UI. 1.0__ _____ --. 1-- 1.2--- 1.3_ 1.4__ 1.4__TOTAL PRODUCTION 1.0 1.0 1.1 1.1 1.2 1.3 1.4 1.4

SALEABLE PRODUCTION 1.0 1.0 1.1 1.1 1.2 1.3 1.4 1.4

REVENUES

AVERAGE PRICE, RS/TON 376 390 405 421 461 489 518 549SALES REVENUES 368 382 437 454 542 622 711 753CONTRIBUTIONS TO CPRA 32 5 -1 -36 -30 -43 -56 -78TOTAL REVENUES 336 378 438 490 571 665 767 831

PRODUCTION COSTS_________ ______

SALARIES & WAGES 119 126 134 142 152 175 199 211OVERHEAD 6 6 7 7 8 9 10 11STORES & SPARES 34 36 41 44 51 58 67 71POWER 15 15 18 19 22 25 29 31TRANSPORTATION 0 0 0 0 0 0 0 0OTHER COSTS 123 141 164 174 201 231 264 279

TOTAL OPERATING COSTS 296 325 364 386 433 498 568 602

DEPRECIATION 30 36 48 66 82 99 118 137INTEREST 24 28 32 38 45 50 56 61

TOTAL PRODUCTION COSTS 351 388 445 490 560 648 742 800

PROFIT BEFORE TAX -14 -11 -7 -1 11 17 25 31NET INCOME -14 -11 -7 -1 11 17 25 31

- ll6 -

ANNEX 21Page 1 of 4

INDIA - COAL MINING AND COAL QUALITY IMPROVEMENT PROJECT

FINANCIAL AND ECONOMIC RATES OF RETURNASSUMPTIONS AND CALCULATIONS

Introduction

1. The financial rate of return (FRR) and economic rate of return(ERR) for Gevra and Sonepur-Bazari have been calculated in real terms on anannual basis. According to mineable reserves and production profile, 20years of full production plus implementation period are taken as the lifeof each mine. Cost and benefit streams of each component are shown intables attached.

Cost Streams

2. Capital Costs are based on project implementation schedule andequipment deployment plan. Replacement investments are estimated accordingto useful life of major equipment deployed.

3. Operating Costs are derived from production and overburdenstripping schedules, together with fixed and variable cost components ofunit operating cost estimates.

4. Working Capital requirement is derived taking into considerationthe level of minimum cash, inventory of consumables, coal stock,receivables and payables. This is equivalent to 3 months of operatingexpenditure.

Conversion Factors

5. For the calculation of EIRR, all identifiable duties and taxes areexcluded. In addition, the followirng conversion factors are applied toeach category of inputs to reflect their opportunity costs to the economy:

Conversion Factor Category of Costs

1.0 Imported Equipment0.8 Inland Freight & Erection of

Imported Equipment0.8 Local Equipment0.8 Land, Civil Works & Infrastructure

- 1.0 Engineering & Technical Assistance0.8 Pre-operating & Operating Costs

Revenue Stream

6. For the financial rate of return, the revenue stream is derivedbased on coal sales volume and the net pit-head coal price specific to coalfrom each mine which is projected to remain constant in real terms. These

- 117 -

ANNEX 21Page 2 of 4

amount to Rs 124.6 and Rs 245.0 per ton for Gevra and Sonepur-Bazari,respectively. For the calculation of the economic rate of return,projected domestic prices paid by consumers at pit-head adjusted for theaverage conversion factor are used as approximation of efficiency prices,which are Rs 114.6 and Rs 245 per ton for Gevra and Sonepur-Bazari,respectively. The financial and economic cost and benefit streams for bothmines are shown below:

Gevra MineFinancial Cost/Benefit Streams(Rs million - 1986/87 terms)

Capital Operating Working NetFiscal Year Costs Costs Capital Revenues

1981/82 121 2 41982/83 224 - 4 301983/84 273 64 10 1301984/85 260 82 4 2851985/86 265 130 13 3401986/87 363 170 10 3861987/88 379 240 17 5301988/89 266 290 13 6851989/90 340 360 17 8971990/91 195 411 15 1,0591991/92 271 411 6 1,2461992/93 323 411 0 1,246

1993/94-1996/97 160 411 0 1,2461997/98-2009/10 200 411 0 1,246

2010/2011 (495) 411 (111) 1,246

- u18 -

ANNEX 21Page 3 of 4

Sonepur-Bazari MineFinancial Cost/Benefit Streams(Rs million - 1985/86 terms)

Capital Operating Working NetFiscal Year Costs Costa Capital Revenues

1986/87 361987/88 491 -1988/89 458 - 4 -1989/90 262 60 16 981990/91 282 150 15 2701991/92 124 190 3 3681992/93 153 190 - 3681993/94 167 190 7 3681994195 1 141 190 25 3681995/96 109 300 10 6131996/97 150 330 - 7351997/98 113 330 - 7351998/99 110 330 - 7351999/2000 116 330 - 7352000/01 110 330 - 735

2001/02-2005/06 140 330 - 7352006/07-2013/14 150 330 - 735

2014/15 (220) 330 (80) 735

Gevra NineEconomic Cost/Benefit Streams

(Rs million - 1985/86 terms)

Capital Operating Working NetFiscal Year Costs Costs Capital Revenues

1981/82 87 1 41982/83 162 - 3 281983/84 195 51 7 1191984/85 187 66 3 2621985/86 193 104 9 3131986/87 262 136 7 3551987/88 271 192 12 4871988/89 189 232 9 6301989/90 241 288 12 8251990/91 136 328 10 9741991/92 190 328 4 1,1461992/93 226 328 0 1,146

1993/94-1996/97 112 328 0 1,1461997/98-2009/10 140 328 0 1,146

2010/11 (353) 328 (77) 1,146

- 119 -

ANNEX 21Page 4 of 4

sonepur-Bazari mineEconomic Cost/Benefit Streams

(Rs million - 1985/86 terms)

Capital Operating Working NetFiscal Year Costs Costs Capital Revenues

1986/87 301987/88 350 1988/89 333 - 31989/90 187 48 11 981990/91 199 120 10 2701991/92 88 152 2 3681992/93 107 152 - 3681993/94 117 152 5 3681994/95 98 152 17 3681995/96 76 240 7 6131996/97 105 264 - 7351907/98 80 264 - 7351998/99 77 264 - 735

1999/2000 81 264 - 7352000/01 77 264 - 735

.2001/02-2005/06 98 264 - 7352006/07-2013/14 105 264 - 735

2014/15 (156) 264 (55) 735

-120- ANNEX 22

INDIA - COAL MINING AND COAL QUALITY IMPROVEMENT PROJECT

DOCUMENTS AVAILABLE IN THE PROJECT FILE

A. THE COAL SECTOR

1. Report of the Committee on the Problem of Coal Supply to ThermalPower Stations (the Fazal Committee Report), October 1983.

2. Report of the Committee on Eastern Coalfields (the Chari CommitteeReport), October 1985.

3. A Report on Eastern Coalfields, A.N. Banerjee, September 1985.

4. A Report on Coal Aspects of the Seventh Plan, A.N. Barnerjee,February 1986.

5. The Seventh Plan Coal Working Document, Department of Coal, January1985.

6. Annual Report 1985/86, Department of Coal, Ministry of Energy.

B. THE COMPANY

1. Coal India Ltd. Annual Report and Accounts 1984/85.

2. Measures for Improvement in Efficiency and Control of Costs, April1986, CIL.

3. Medium-Term Coal Efficiency Improvement Program 1986-1990, December1986, CIL.

C. THE PROJECT

1. Feasibility 'Report for Gevra Project, CMPDI, March 1982.

2. Feasibility Report for Sonepur-Bazari Mine, CMPDI, September 1982.

3. Report on Coal Quality Aspects of Ge%ra Mine, Norton HambletonLtd., April 1985.

4. Land Acquisition and Rehabilitation Arrangements at Gevra, SECL,January 1987.

5. Rehabilitation of Villages, Sonepur-Bazari Project, ECL, January1987.

PROPOStO AREA FORI OFFICE WORKSHOP , ,'.... '.R. -RESIDINTIALCOLONY I- -:.

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Inckustrv Depirtment Wodd Bank 3111I1:1Mseh 1987.

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GUJAQATr 5epur - BazariMADHrA PRADE - *E-T \-Coal Mine

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20'O A harat Ccking Coal

MAHARASHTRA Ltd BCL 203

,~"~ \ >Sout Eastern Coalfields

.5,W-' Western Co.tlfieldsANDHRA PRA Ltd. (WCL)

- J S;naren; CollieriesCo. Ltd. (SCL)

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.7r"!cn 5C t COAL MINING AND COAL QUALITY,A. r-/:('!C/? .cC .fM'lta \ IMPROVEMENT PROJECT

i ,r 'Th -- °tWodfeSCoal Mines Under the Project

\j < JJtCoal Fields

(.eyveli Lignite Major Coal Field Areas7 AfM IVA D -rP- LtdN L Operated by Various Mining Companies

T .A_ U (NL) AL Coal India Ltd Headquarters

rMbht_*8f~~~-E~ I0 A3rr iwaealw.d.bi' .-t J National Capital .0

(_dT>d _ t f0 Selected Cities

a,,s ,_ k.3in 5 t \Due to seconsiderationssSame areas could not be inludedld he e I W e| )~j sIn2h4map: North Easrn Coalfields Ltd. Which is locaed in

_td8w JSRI e\ t (? ( ' Anm notincluded in the map._#_>_ \, X ~~~~~~~~~SRI

of_N_mmy o NW X KILOMEERS 0 200 400_r r LANKA4, ._._._ ._ .__ffw low amw MILES 0 100 200 300

i _ 701 9cN 1.86JUNE 1986