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Document of

The World Bank

FOR OMCIAL USE ONLY

Report No. 13920-IN

IMPLEMENTATION COMPLETION REPORT

INDIA

CEMENT INDUSTRY PROJECT(Loan 2660/2661-IN)

JANUARY 23, 1995

Industry, Trade & Finance DivisionCountry Operations Department IISouth Asia Region

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

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CURRENCY EOUIVALENTS(in 1985)

US$1 = Rs 13.0Rs 1 = US$0.077

(in 1994)US$1 = Rs 31.0Rs 1 = US$0.032

FISCAL YEAR OF BORROWERApril 1 to March 31

WEIGHT AND MEASURES1 metric ton (ton) 1,000 kilograms (kg) = 2,204 pounds1 milligram (mg) 0.001 gram (gm) = 0.015 grain1 liter (1) 61.02 cubic inches = 1,057 quarts1 kilometer (kim) = 1,000 meters = 0.621 mile1 meter = 1.0936 yards = 39.371 cubic meter (m3 ) = 35.31 cubic feet = 264 US gallons1 square meter (in2 ) = 1.196 square yards = 10.76 square feet1 hectare (ha) = 10,000 square meters = 11.960 square yards1 MVA = 1,000 KVA1 MW 1,000 kW1 kcal = 1,000 Cal = 0.2519 BTUs

ABBREVIATIONS AND ACRONYMSACC - Associated Cement CompaniesBirla - Birla Jute and Industries Ltd.CCI - Cement Corporation of IndiaCMA - Cement Manufacturers' AssociationCRI - Cement Research Institute of IndiaDEA - Department of Economic Affairs, Ministry of FinanceGDP - Gross Domestic ProductGNP - Gross National ProductGovernment (GOI) - Government of IndiaICB - International Competitive BiddingICICI - Industrial Credit and Investment Corporation of IndiaICL - India Cements Ltd.IDBI - Industrial Development Bank of IndiaKCL - Kalyanpur Cements Ltd.KCP - KCP Marcherla CementMOI - Ministry of IndustryMP - Madhya PradeshNPC - National Productivity CouncilOPC - Ordinary Portland CementPPC - Pozzolana Portland CementPSC - Portland Slag CementSDC - Shree Digvijay Cement Co. Ltd.STC - State Trading CorporationTPD - Tonnes per DayTPY - Tonnes per Year

FOR OFFICIAL USE ONLY


INDIA

CEMENT INDUSTRY PORJECT(Loan 2660/2661-IN)

TABLE OF CONTENTS

Preface . ...................................................... iEvaluation summary ................................................... - vi

Part I - PROJECT IMPLEMENTATION ASSESSMENT

A. Background ................................................. 1B. Statement/Evaluation of Objectives . ...................................... 1C. Achievement of Objectives ............................................. 2D. Implementation Record and Major Factors Affecting the Project ..................... 4E. Project Sustainability ................................................ 5F. Bank Performance ................................................. 5G. Borrower Performance. 6H. Assessment of Outcome ............................................ 6I. Future Operations ............................................. 7J. Key Lessons Learned ............................................ 7

Part II - STATISTICAL TABLES

Table 1 - Summary of Assessments ......................................... 8Table 2 - Related Bank Loans. ........................................... 9Table 3 - Project Timetable ............................................ 10Table 4 - Loan Disbursements ........................................... 11Table 5 - Key Indicators for Project Implementation. ............................ 12Table 6 - Key Indicators for Project Operations. ......... ...................... 13Table 7 - Studies Included in Project ....................................... 14Table 8A - Project Costs. ............................................ 15Table 8B - Project Financing ............................................ 15Table 9 - Economic Costs and Benefits . ................................... 16-25Table 10 - Status of Legal Covenants ....................................... 26Table 11 - Compliance with Operational Manual Statements ......................... 27Table 12 - Bank Resources: Staff Inputs . ................................... 28Table 13 - Bank Resources: Missions . ..................................... 29

Appendixes:

A. Mission's Aide-Memoire .......................................... 30-43B. Borrower's Contribution to ICR . ..................................... 44-56C. Map ..................... ....................... 57

This document has a restricted distribution and may be used by recipients only in the performance of theirofficial duties. Its contents may not otherwise be disclosed without World Bank authorization.


INDIA


Preface

This is the Implementation Completion Report (ICR) for the Cement Industry Project in India, forwhich Loans 2660/2661-IN in the amount of US$200 million equivalent (US$165 million equivalentunder Ln. 2660-IN to Republic of India, as borrower, and US$35 million under Ln. 2661-IN, to theIndustrial Credit and Investment Corporation of India, Ltd. (ICICI) as borrower), were approved onMarch 20, 1986 and made effective on November 10, 1986.

The loans were closed June 30, 1994, compared with the original closing date of June 30, 1992.Final disbursement took place on November 16, 1994, at which time a balance of US$3.6 million wascancelled.

The ICR was prepared by a mission' which visited India in June/July 1994, reviewed by LuisDerbez, Chief, Country Operations, Industry, Trade and Finance Division, and Kazuki Uchimura, ProjectAdviser, Country Department II, South Asia Region. The borrowers provided comments that areincluded as appendixes to the ICR. Preparation of this ICR began during the Bank's final supervisionmission (June 22-July 24, 1994). It is based on material in the project files. The borrowers assisted onthe preparation of the ICR by contributing views reflected in the mission's aide-memoire, preparing theirown evaluation of the project's execution and initial preparation, and commenting on the draft ICR.

i/ Consisting of Messrs. Uruj Kirmani (Mission Leader, Task Manager), Mogens Fog (Cement Engineer), P. Venugopal(Consultant).

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INDIA


EVALUATION SUMMARY

Introduction

1. The Bank's involvement in the cement sub-sector of India began in 1979/80 with the issue of areport on the sub-sector. A heavy regulatory regime was prevailing, inhibiting private sector investmentsand causing cement shortages. The Bank first appraised an expansion project in the public sector, butlack of agreement on the policy issues resulted in the project being dropped. In 1982, the Governmentannounced partial deregulation measures. The consensus in the industry was that decontrol should bedone in a gradual manner, and in recognition of the new policy initiatives of the Government, the Projectunder review was appraised in late 1983, reappraised in May 1985 and approved by the Board in March1986. The project was designed to benefit primarily the private sector cement plants.

Project Objectives

2. The proposed project was to build on the successful dialogue between GOI and the Bank oncement subsector strategy and policy and support broadly the GOI thrust of liberalization of keyproductive subsectors. It was also to enable the cement industry to modernize its facilities, reduceoperating costs, meet acceptable environmental standards, train operating personnel and generally improveits competitiveness in preparation for the intended policy of decontrol of pricing and output by the end of1989/90. These objectives were well conceived and successfully achieved, ushering in a competitivemarket economy.

Implementation Experience and Results

3. The cement industry was decontrolled from March 1989. As a result, cement capacity increasedfrom 29 million tons in 1981-82 to 69 million tons in 1993-94.

4. Under the project, one component covered six specified private sector and one public sectorcement plant for conversion from the inefficient wet process technology to the modern dry process,precalcinator technology. With later substitutions for three of the originally selected plants,2 withdrawnby their project sponsors, finally, six dry process plants have been commissioned. In one public sectorplant (different from the originally selected plant), the dry process unit is expected to be commissioned byMarch 1995. These conversions have led to cost savings in coal and electricity beyond appraisalestimates, production of increased quantity and better quality cement and limiting of particulate emissionswell below the maximum prescribed under Government's environmental regulations.

2/ ACC Shahabad, Shree Digjave Cement and CCI Mandhar were withdrawan.

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5. Amendments to Loan Agreement No. 2660-IN facilitated the substitutions as mentioned above,and inclusion of three subprojects for rehabilitation and improvement of energy efficiency in existingplants. Loan Agreement No. 2661-IN had provided a credit line to ICICI for small-scale rehabilitationand modernization investments for improving energy efficiency, productivity and meeting environmentalstandards. Twenty subprojects were successfully implemented under this line, and their stated objectiveswere achieved.

6. The training component under Ln. 2660-IN was directly implemented by GOI effectively. Underthis component a comprehensive manpower development study was made by an international consultant.The recommendations made in the study led to the setting up of four regional training centers, speciallytailored to the requirements of individual plants within the region; and, they provided effective trainingand earned deep appreciation of the industry.

Project Sustainability

7. Prospects for project sustainability are very favorable. Substantial reduction in operating costshas been achieved in the subprojects as commissioned. Cement productivity and production have alsogone up with quality improvements. On the demand side, India's per capita consumption of cement islow and is expected to double within a decade. With the increased capacity and improvement in cementquality, India has started exporting cement mainly to neighboring countries and expects to increase itfurther.

Project Cost. Financing. Time Schedules

8. Project Costs under Loan 2660-IN (US$165 million) were estimated at US$365 million duringappraisal, and the actual costs are at US$350 million. The savings in costs are primarily due to change inIndian Rupee/US$ Dollar parity as well as due to restructured portfolio under this line of credit.Implementation delays of about two years behind original estimates occurred, partly due to somesubprojects having had to be substituted as explained in para 4 and partly because of the slower learningcurve of the private sector entities of ICB procurement procedures, delayed delivery of equipment andconstraints from governmental regulations while they lasted.

9. Loan 2661-IN (US$ 35 million) was provided to ICICI as a credit line to support operationalimprovement of small subprojects. ICICI provided subloans, which were substantially utilized to improvethe efficiency of twenty subprojects. The closing date for both loans was extended from June 30, 1992 toJune 30, 1994 to enable effective project implementation. Under Ln. 2660-IN, out of US$165 millionloan, US$161.4 million were disbursed and balance of US$3.6 million were cancelled. lInder Ln. 2661-IN, out of US$35 million, US$34.5 million were disbursed and US$0.5 million cancelled).

Major Factors Affecting Achievement

10. Two of the participating companies, IDCOL Cement Ltd., in the public sector and KalyanpurCement Ltd., in the private sector, have faced capital structure problems. The equity base of IDCOLCement has been strengthened as an outcome of a dialogue between the Orissa State Government andBank staff and strong support of the Ministry of Industry (MOI). The problems of Kalyanpur CementLtd. have been highlighted to GOI and a resolution thereof through the good offices of GOI is awaited.IDCOL, which is the only company which has not yet commissioned its conversion project, has also hadsome institutional problems, particularly, due to not taking timely action for training of personnel in the

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skills needed for the dry process technology. With Bank staff's intervention, necessary arrangements fortraining have since been made.

11. Inspite of the fact that a most modern plant has been installed at Kalyanpur, the financialsituation of this company is highly unsatisfactory. It has been highlighted by the Bank to GOI.IDBI/ICICI are currently working on proposals for financial restructuring of this company in order tostrengthen its performance.

Bank and Borrower Performance

12. The performance of the Bank and the Borrower is considered "highly satisfactory" in view of thecomplete fulfillment of the several objectives. The cooperation among the multiple agencies involved,namely the Bank, GOI and the concerned State Governments, IDBI/ICICI and several beneficiary cementcompanies (mostly wholly in the private sector) was exemplary. The encouraging experience with thisproject, even in the early stages, led to a follow-on project , "Cement Industry Restructuring Project",approved by the Board on May 15, 1990 which is currently being implemented.

Findings, Future Operations and Key Lessons

(i) Commitment to a project by the Government and its continuing support in theimplementation has proven to be an essential factor contributing to the success of theproject.

(ii) A well-designed program for policy reforms and incentives for investment led to majorcapacity increases by the private sector, and the establishment of a freely functioningmarket.

(iii) Regular supervision by Bank staff contributed towards timely resolution of the problems.

(iv) Finally, in a project with broad objectives for developing an industry, the participation offinancial intermediaries, like IDBI/ICICI, has been of crucial importance. Theirinteraction with the Bank has been helpful in developing a better perspective forIDBI/ICICI staff on modern technology, environmental and other issues addressed in thebeneficiary sub-projects.

(v) The project has demonstrated that, if one or two subprojects are appraised by Bank staff,these can serve as a model for the financial intermediaries to appraise other subprojectsthus achieving the institution-building objectives of the Bank. The private sector, whichinitially was skeptical of the Bank's participation, has acknowledged that it has learntsignificantly in technical, financial, procurement, institutional and environmental aspects;and it would appreciate catalytic role of the Bank in future projects.

(vi) During the ICR mission, future operating plans were prepared by the participating projectsponsors and agreed with IDBI/ICICI and the Bank. These plans highlight the futureperformance of these companies. Financial restructuring plans for IDCOL and Kalyanpurcement are currently under review by IDBI/ICICI.


INDIA


PART I. PROJECT IMPLEMENTATION ASSESSMENT

A. Background

1. The Bank became interested in the cement subsector in India in 1979. It issued a Cement Sub-sector Report in 1980. This report highlighted that a heavy regulatory regime (comprising licensing ofplant capacities, price control, freight equalization, distribution quotas etc.), had discouraged the privatesector from investing in the sub-sector and the country had suffered through years of cement shortages.GOI accepted the findings of the subsector report. It was agreed that the Bank would consider a capacityexpansion project of the Cement Corporation of India (CCI) in the public sector with the objective ofachieving possible liberalization of the controls. However, following appraisal of the proposed project, thedialogue with the Government of India (GOI), did not progress to the satisfaction of the Bank and thepursuit of the project was given up just prior to negotiations. In early 1982, GOI announced partialdecontrol measures, and subsequently the Cement Industry Project, which was to assist the private sectorprimarily, was conceived so as to provide much needed foreign exchange to the industry and to substitutepolluting and energy-wasting wet-process units by efficient dry-process units. This project was firstappraised in late 1983, but a reappraisal for various reasons (explained in para 4) had to be done in May1985. The Project has been implemented successfully. It has been followed by the Cement IndustryRestructuring Project (Ln. 3196-IN), approved by the Bank in May 1990, and is currently underimplementation.

2. Indian cement industry capacity increased from 29 million tonnes per annum (MTPA) in 1981-82to 69 MTPA by the end of 1993. The concept of modernization by process conversion and adoption ofthe state of the art technology as applied under this loan, resulted in significant increases in productivity,and profitability, and acted as a catalyst for the private sector for further investments in the industry. Atthe same time, the Indian cement industry has established international contacts, and has become fullyaware of new developments in cement manufacturing technology. With the liberalized economic policiesand financial reforms, many of the Indian cement companies who have benefited from the Bank loans,have accessed international capital markets and raised funds by Euro equity issues/bonds forexpanding/modernizing their plants.

B. Statement/Evaluation of Obiectives

3. The main objective of the project was rapid development and improving operational efficiency ofthe cement industry with a view to support GOI policy of liberalization and decontrol. The secondobjective was to convert to modern dry process technology in seven identified cement plants andselectively upgrade a number of other units to attain of higher energy efficiency and improved pollutioncontrol. In 1985, only 42% of the industry was based on outdated inefficient wet process characterizedby heavy consumption of coal. The high consumption rate of Indian coal with its high ash contentseriously affected the kiln capacity utilization and cement quality. A third objective was to upgrade skillsof cement plant personnel through training to enable them to run modern plants efficiently.

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4. Looking back, it is clear that these were the right objectives and that the problems of the industryhad been well understood when the project was identified and prepared. According to Bank procedures,the major beneficiary units - (seven projects were chosen at that time under Loan 2660-IN) - wereindividually appraised, and much time was required. Later three of the seven units dropped out after theloan became effective, two decided to defer conversion to the dry process and the third unit dropped outbecause of change in ownership. Amendment to the Loan Agreement became necessary and the scope ofthe Project had to be broadened in August 1988 (24 months after Board approval) with consequent delayin the loan closing date, to provide for inclusion of "such other companies as shall be agreed uponbetween the Bank and ICICI or IDBI to be participating entities" that could acquire "equipment andspares for conversion of their plants with a view to improving operating efficiency, environmentalcontrols, product quality, labor productivity and marketing and distribution systems". Five subprojectswere substituted for the three subprojects which were withdrawan by project sponsors. These eventssuggest that, with well defined project criteria, one or two units only need to be appraised in depth (toserve as models) and latitude then left for other units to be subsequently added. If financial intermediariesand cofinanciers are involved, such as IDBI and ICICI in this project, they may be encouraged tocarryout appraisals of other units later under the Bank's supervision, do the ground work and provide alldata and other information to the Bank for review of the appraisals.

C. Achievement of Objectives

Macroeconomic and Sector Policies

5. The rapid development of the Indian cement industry during the nine years since the projectappraisal has proven that the chosen strategy and objectives have produced the desired results.Deregulation was carried out in phases and completed by GOI by March 1989. The annual cementcapacity has increased from 29 million tons in 1981-82 to 69 million tons in 1992-93. The dry-processoperation as a percentage of the total capacity has increased from 42% in 1985 to 84% in 1992-93. Themarket has become competitive, supply exceeds demand slightly, and India has commenced to exportsome cement.

Physical Obiectives and Attainment in the Sub-Projects

6. The implementation completion mission's aide-memoire dated July 22, 1994, attached as Annex 1together with the "Operating Plan" attached to it, gives details of the status of the nine major sub-projectsand the operating targets achieved and to be achieved. As of October 1994, only one of the nine majorsub-projects, i.e. IDCOL Cement Ltd., remains to be physically completed and commissioned (expectedin March 1995). In all cases, the targets of savings in coal and power consumption and increases inclinker/cement production have been achieved or would be achieved in the projects under completion.Atmospheric emissions have been or would be reduced well below the norms prescribed by thegovernment. In respect of the twenty small sub-projects under Loan 2661 IN, the set objectives havesimilarly been achieved. Objectives to be attained had been well defined in the SAR, and later applied inthe appraisals carried out by IDBI/ICICI (and reviewed by the Bank) in sub-projects selected subsequentto Board approval. Timely action by GOI, IDBI, ICICI and the Bank in modifying the project scope inthe substituted projects (para 4) contributed in achieving the project objectives over a broadened horizonthan anticipated in the SAR.

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Financial Objectives

7. The Project had the specified targets for the original seven sub-projects selected for Bank supportunder Ln. 2660-IN in the areas of: reduction in cost of productionlton of cement, and acceptable financialand economic rates of return on an incremental basis. Individual financial objectives were not prescribedfor the small sub-projects under Ln. 2661-IN, and had also not been identified at appraisal.

8. For the four large plants which were appraised in the SAR and were converted to the dry process,about 23 percent reduction in manufacturing cost per ton of cement on average was achieved. Thesavings in "Cost of Sales" (See Section II1, Table 9A) indicated that in all cases, the savings haveexceeded SAR estimates. The FRRs and ERRs, as estimated for the nine subprojects under Ln. 2660-IN,range from 16% to 28% and hence are satisfactory. (See Section III - Tables 9B & 9C). In some cases,e.g. the current FRR and ERR estimates, although satisfactory, are lower than appraisal estimates (Table9B and C, Section III), e.g. for KCP, FRR is estimated at 20.9% compared with SAR estimate of 37.3%.It is explained by the fact that appraisal estimates were made on the assumption of constant exchange rateof US$1 =Rs. 13.0 during the period 1986-94. However, the exchange rate increased to US$1 =Rs 31 ina series of uneven steps which affected the costs of sub-projects unevenly, depending upon the respectiveimplementation schedules of the sub-projects. It is to be added that the rates of return for the IDCOLsubproject which is to be commissioned in March 1995 only, and for the Kalyanpur cement project mayrequire revisions since the former is not completed and the latter has financial problems to be resolved.

Social Obiectives

9. The Project was prepared in 1985 at which time poverty alleviation and gender concerns were notexplicitly addressed. Nevertheless, since cement plants are situated in remote areas of the country inproximity to deposits of limestone, the growth of the industry has triggered improvement in the economyin those areas. The owners have provided for the welfare of the employees and their families byproviding health care facilities, educational institutions and supporting women's welfare associations,setting up of family camps and promoting educational and employment opportunities for women.

Environment

10. Pollution Control Boards in India have specified a maximum of 150 mg/NM3 for atmosphericemissions in protected areas and 250 mg/NM3 in non-protected areas. Bank financed subprojects requiredall beneficiary plants to control pollution in the stacks and material transfer points through use ofelectrostatic precipitators, high efficiency separators, cassette filters, bag filters and bag dust collectors, asnecessary. The plants regularly monitor stack gases and ambient air quality. Actual emission levelsachieved are better than the regulations (all less than 150mg/NM3, some in the 75-100 mg/NM3 range).

11. All participating cement plants have developed green belts by planting trees. One company, forexample, is in the process of planting over 240,000 trees in an area of 600 acres. Tree planting is alsopart of the governrnent's scheme for replacing trees equivalent to those lost in mining lease granted inforest areas.

12. Most State Governments have introduced regulations for cement plants to submit annualenvironmental impact statements, reporting on levels of pollutants discharged in water and air, also ondisposal of hazardous and solid wastes. The SAR for Ln. 3196-IN took note of these regulations andincorporated standards acceptable to the Bank.

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Institutional Development

13. An aspect of development which has been of commnon benefit to the industry has been theestablishment of four regional training centers (RTCs) for providing pre-entry, entry and refreshercourses, as well as special courses tailored to the needs of individual plants from time to time. Acomponent of Loan 2660-IN was a study on training needs which was undertaken by a well knownconsultant. The study correctly identified the unique structure of the Indian Cement Industry and itsparticular needs for training, including both skills and manpower requirements. The study outlinedrecommendations for a comprehensive training program based on the creation of 4-6 regional, demanddriven training centers, with emphasis on 'training of trainers'. The study met with good response fromthe industry. The recommendations of the consultant were discussed and developed further between theBank supervision missions and the Development Commissioner of the Cement Industry and implementedwith the latter's enthusiastic support.

D. Implementation Record and Major Factors Affecting the Project

14. Appraisal reports by the Bank of the original sub-projects for conversion, as well as appraisalreports by IDBI/ICICI of the major sub-projects selected later had assessed project implementation timeranging from 24 to 39 months. But the actual project implementation time ranged between 41 and 51months. Excluding two of the major sub-projects involved (IDCOL and Kalyanpur which are discussed inthe succeeding paragraphs), the most common reasons for the delays were: (i) Private Sector sub-borrowers took more time than anticipated to become familiar with ICB procedures; (ii) GOI regulations(since abolished) for issuing licenses for capacity increases and approvals to import and engageconsultants took unduly long time; and (iii) unexpected delays occurred in many cases of foreign suppliersdelivering equipment and materials. In regard to project costs, the total costs for the nine major sub-projects (the appraised estimate versus the actual) show decrease in US$ terms, from $365 million to$350 million. This is a result of the exchange rate changes from $1 =Rs. 13 in 1985/86 to the currentlyprevailing $1 =Rs .31.

15. Two project sponsors (IDCOL and Kalyanpur) which are converting to the dry process underLoan 2660-IN needed financial restructuring. Originally, Hira Cement Works was a division of IndustrialDevelopment Corporation of Orissa (IDCOL), a Government of Orissa Company. IDCOL had financialproblems which until early 1993 affected implementation of HIRA Cement project. Bank missionsreconmmended to the Government of Orissa to establish Hira Cement Works as an autonomous subsidiarycompany, with infusion of sufficient new equity. It was accepted by the State Government. IDCOLCement Ltd., was accordingly formed on March 31, 1993, and the Unit Trust of India subscribed to 40%of its equity (Rs.350 million) in January 1994. IDCOL Cement Ltd has now overcome the financialproblems. However, its management has to adjust to its new status as an independent company to be runpurely on commercial lines. The company has urgent training needs to equip itself for running the newdry-process plant. After extensive dialogues with Bank supervision missions, IDCOL has recentlyfinalized training arrangements including on-the-job training by experts during the commissioning of theplant, expected in March 1995.

16. Kalyanpur Cement Ltd., was a 'sick' unit when the Bank approved ICICI/IDBI'srecommendations in April 1990 to make it a beneficiary under Loan 2660 IN and allocated $27 million ofthe loan proceeds. At that time, the company's share capital of Rs. 18.75 million had been wiped out bycarry-forward losses of Rs.52.4 million.The term debt amounted to Rs.400 millions. It was anticipatedthat the conversion to dry-process with an increase in capacity from 0.4 million TPY to one million TPY

would significantly improve its financial performance while meeting a substantial share of the demand incement deficit areas of Bihar, Bengal and Nepal. GOI had also supported this project through grantsfrom a Cement Development Fund which was to be created for the cement industry, and the Governmentof Bihar had proposed certain sales tax benefits. However, these measures did not materialize. IDBIand ICICI recommnended assisting the company and provided Rs.321 million (equivalent to $20 million atthe time). The Bank agreed with IDBI/ICICI and approved the sub-loan. In doing so, the Bank implicitlyaccorded exemptions with respect to these sub-projects to the financial covenants with IDBIIICICIregarding current ratio (1.2:1), debt/equity ratio (67:33) and debt service coverage (1.2).

17. Kalyanpur continued to be beset with financial problems, mainly due to implementation delaysand the adverse impact of Rupee/US$Dollar parity. IDBI/ICICI are working out financial restructuringplans with Kalyanpur management. The converted plant was commissioned in August 1994, about ninemonths behind the original schedule. A logistical problem which also requires urgent resolution is theimprovement of the 25 km road which leads to the rail head and highways. This road is a bottleneckwhich impedes truck movement and affects cement production. GOI's pointed attention has been drawn tothis problem.

18. On hind-sight, the Bank should have insisted upon financial restructuring as a precondition forapproving these subloans for Kalyanpur and IDCOL projects.

E. Proiect Sustainabilit

19. Technically, renovation and modernization have bestowed a new life on every plant covered by asub-project. While the project focussed on replacement of the kiln and upgrading of the other plantprocess areas to assure sustained plant operation at new rated capacities, many of the participatingcompanies have since carried the renovation and modernization further by replacing/ adding cement millsand other auxiliaries. Table 6 (Part II) shows that targets for reduction in coal and power consumptionand costs of production have already been achieved by some of the plants in their first years of operationafter conversion; the others would achieve these economies soon. The commercial outlook, however, ina free market is not entirely predictable on a year to year basis, though the long term promises to befavorable. The industry, based on historic increases in demand, had expected 1992-93 to be a boom yearfor demand, but demand stagnated; however, 1993-94 recorded a 6% growth, with exports of 2.8 milliontons inclusive of clinker. Capacity utilization for this year was 86%.

F. Bank Performance

20. The Bank performance was very satisfactory in identification, preparation, appraisal andsupervision. At the identification stage, the Bank correctly diagnosed what was ailing the industry andidentified the need to import the latest technology, the need to dismantle government controls etc.. Withthe Government willing to provide industry incentives on a phased basis, the Bank organized thepreparation of a large number of sub-projects. The appraisal dealt with technical, financial, economic,environmental and training aspects. Concurrently, the Bank maintained a lively dialogue with theGovernmnent on policy strategies. An important aspect of the appraisal exercise was participation byIDBI/ICICI representatives, giving them exposure to the Bank's appraisal procedures. When some of theoriginal sub-projects had to be dropped later, the appraisal of substitute sub-projects was carried outeffectively by IDBI/ICICI. The IDBI/ICICI appraisal reports were reviewed and cleared by the Bank, andthe funds were reallocated for these sub-projects. All supervision missions included representatives fromIDBI/ICICI. During these missions, Bank staff tended to concentrate on ICB procurement (financed by

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the Bank) and technical and physical progress, with IDBI/ICICI staff furnishing the supplementary inputs.

21. The Bank mounted supervision missions twice a year, during the early years (a task manager cumfinancial analyst, a cement expert and a procurement specialist) and two members in the years since 1991(a task manager cum procurement specialist and a cement expert). The cement expertise has come fromthe same individual in all the years, from identification to ICR; the present procurement specialist wasassociated with the project for four years continuously. Their contribution was appreciated by theborrower and the cement companies as reflected in the views expressed in the aide-memoire (paras 7.3 &7.4 at Annex 1).

G. Borrower Performance

22. Various agencies, i.e. GOI, IDBI, ICICI and the subproject sponsors were fully committed tosuccessful implementation of all the sub-projects and, their performance was highly satisfactory.IDBI/ICICI, along with the Bank, instituted monitoring and reporting procedures by sub-borrowers.However, later on, GOI gradually removed all controls and regulations on the cement industry but itsofficers in the Ministries of Finance and Industry were always keen to exchange views and commentswith Bank supervision mission and to remove obstacles. IDBI/ICICI maintained a cordial workingrelationship with all the cement companies and assisted them in processing their disbursement requestsexpeditiously. In the initial years (1980-89), project progress was slow due to delay in processing of ICBprocurement documents and obtaining clearances/licenses from the government agencies. The participatingcement companies, by and large, managed the implementation with due speed and efficiency, except whenfaced with local problems (e.g. IDCOL's problem of finding local cost financing). Consultants andcontractors were generally competent. The study and training aspects, as discussed in para 13, wereimplemented under the direction of the Ministry of Industry (MOI).

H. Assessment of Outcome

23. In the sub-projects covered by Loan 2660 IN, the main performance indicators, are coalconsumption, power consumption, clinker and cement output (capacity utilization) and pollution control.Agreements were reached with the beneficiary cement companies on the performance parameters to bemaintained. These parameters were met and in some cases exceeded. (The details are given in Annex 2of the mission aide memoire under "Operating Plan").

24. The project outcome is rated as 'highly satisfactory'. The objectives of modernization, costreduction, energy saving, environmental improvements and increases in output of clinker and cement havelargely been fulfilled. The implied objective of a free market for cement has also been achieved. Financialand economic rates of return, on present estimates, are seen to be about 20% for the project as a whole.

25. The Bank loan acted as a catalyst for industry-wide investment in modern technology, and thecapacity which was 29 MTPA in 1981-82 increased to 69 MTPA in 1992-93. It was also instrumental inturning the county from a cement shortage to cement surplus status by 1992-93, when it exported nearlythree million tonnes of cement/clinker. Some companies have obtained ISO-900 certification for qualityassurance and are setting up export oriented units. The Indian cement industry has become internationallycompetitive.

- 7 -

I. Future Operations

26. The Bank has an ongoing role in the Indian cement industry through Loan 3196-IN, in which theobjective is cement capacity expansion in the deficit regions and the strengthening of four regionaltraining centers and introduction of bulk cement transport technology through a pilot project. Bankmissions which supervise that project would continue to monitor performance of the two cement plantsinvolved under Loan 2660-IN; Kalyanpur Cement, and IDCOL Cement (which remained to becommissioned during the visit of the Bank's ICR mission in July 1994). Future investments in the cementsubsector are planned to be met entirely by the private sector. However, GOI initiatives and supportwould be required by investors in the areas of innovative technology, infrastructure improvements andenergy conservation.

J. Key Lessons Learned

27. This project has demonstrated that:

(a) commitment to a project by the Governrment and its continuing engagement in theimplementation is an essential requirement for success.

(b) policy reforms to free the market for production and trading are highly rewarding.

(c) IBRD could assist in developing the private sector using the right instruments.

(d) In a project with broad objectives to develop an industry as such, all sub-projects do nothave to be appraised in depth at the SAR stage. Detailed criteria should, however, beformulated and only selected sub-projects need initially be appraised. Appraisal of othersub-projects should be undertaken as they are identified, within a stated period of timeafter loan approval. Where financial intermediaries are participating, subsequent appraisalscould be done by them with the Bank reviewing the reports and ensuring that theappraisals conform to the Bank standards.

(e) Financial restructuring of the beneficiary entities should be taken up-front prior toapproving the financing of their investments.

(f) Supervision by Bank missions must be regular and comprehensive. Trouble shooting, asin the case of IDCOL Cement, naturally falls in the domain of the Bank; traditionallyBank missions have focussed on identifying problems and proposing remedies, whichunderlines the importance of regular supervision. It is important to includerepresentatives of cofinanciers/financial intermediaries at appraisal and supervision of theprojects.

mAindia\icr.uk


INDIA


-. PART I - STATISTICAL TABLES

- 8 -

Table 1: Summary of Assessments

A. Acbievement of obNecoivest ic,ble

Mlcro policies 5 r LISector policies 5 00

Fin=cial objectives '

iostitutional developmt E llPhysical objectives 5 5 5poverty reduction 5 5 5Gender isu 5 GI

- Other ocial objscdves 5 5Euvirnmentl objectives 5 0

PubLic sector anagent 5 5Private ctor develop t E l ElOther (specifY) 5 5 5 E

D. Profect awuainkilitY Liki ulzlnkS Z

C. Bfimdslctorr Defient

Ideztifcaios 5 ElPrepsazonaWsist [ElO

Apprnisal2sE

Supervion s El

D. 14orrowezr nerf torv Izisests DSaiit(1) () (V)

Prepanrdon E l

Impla a ad °(U ~~ 5 El } Coveasant co El ElE

Operatio (if appliesMe) 5E

E() (V) (V)

[; S O El

- 9 -

Table 2: Related Bank Loans/Credits

Loan/credit title Purpose Year of approval Status

Preceding operationsNone

Following operationsIndia Cement Industry To support cement industry 1990 UnderRestructuring Project restructuring and implementation.(Ln. 3196-IN) modernization, capacity

expansion in deficit regions.

mA:\india\icritbis

- 10 -

Table 3: Project Timetable

Steps in Project Cycle Date Planned Date Actual/Latest Estimate

Identification December 5-11, 1982 December 5-11, 1982

Preparation April 3-30, 1983 April 3-30, 1983

Appraisal I September 20-October 20, 1983 November 13-December 10, 1983

Post Appraisal: March 1-12, 1984

Post Appraisal ' January 28-February 10, 1985

Reappraisal 2 May 6-June 30, 1985

Post Appraisal 3 September 1-15, 1985 September 1-15, 1985

Post Appraisal 4 November 1-15, 1985 3

Negotiations November 15, 1985 December 10, 1985

Board Presentation December 15, 1985 March 20, 1986

Signing July 7, 1986

Effectiveness October 11, 1986

Project Completion June 30, 1992 March 31, 1995

Loan Closing June 30, 1992 June 30, 1994

m:\india\icrtbl3

1/ After the first appraisal mission, the ICB procurement issue could not be resolved with GOI during theperiod January 11, 1984-January 15, 1985.

2/ Reappraisal--After GOI agreed to gradual decontrol of cement prices and revised tariff on importedequipment making ICB procurement acceptable to sub-project entities, project scope was modified and theproject was reappraised in May/June 1985.

3/ Post appraisal was made to clarify outstanding issues with GOI.

4/ Post appraisal mission consisting of 2 Training Specialists was made to finalize training component.

- 11 -

Table 4: Loan Disbursemefiis. Cumulative Estimated and Actual(US$ millions)

FY86 FY87 FY88 FY89 FY90 FY91 FY92 FY93 FY94 FY95

Appraisal 6.5 53.2 127.8 175.6 193.1 198.8 200.0 200.0 200.0 200.0Estimate

Actual 0 2.6 22.1 71.5 81.5 90.5 112.5 157.9 183.6 196.5*

Actual as % 0 4.9 17.3 40.7 42.2 45.5 56.3 79.0 91.8 98.2of estimate

Date of finaldisbursement 11/16/94

m:\india\icrnbI4

- 12 -

Table 5: Key Indicators for Project Implementation

1. kc implementations indicalors in SAR Enrtm:tcd Actual

I adukkara- last contract No,ember 1985 October 1987

receipt equipment June 1987 Fcbruary 1989- cnd civil works Decembcr 1987 January 1989- commissioning March 1988 May 19S9

i implementation months .9 44* commercial operation May 1988 May 1989

2. Satna- last conmract July 1986 December 1988- receipt equipment December 1988 July 1989- end civil works January 1988 December 1988- commissioning January 1989 July 1989

implementation months 40 57commercial operauon June 1989 February 1990

3. Sankarnagar- last contract Deccmber 1986 July 1989* receipt equipment May 1988 July 1993- end civil works December 1987 April 1990- commissioning October 1988 July 1990* implementation months 37 5S* commercial operation June 1990 August 1990

4. KCP- last contract March 1986 March 1989

receipt equipment January 1988 March 1991* end civil works January 1988 March 1990i commissioning January 1988 December 1989

tmplementation months 28 52- commercial operation January 1988 December 1989

11. Modtlfed indicators

1. IDCOL- last contract February 1992 Sept 1993* receipt equipment May 1992 May 1994* end civil works December 1991 N/A* commissioning June 1993 N/A

implementation months 24 N/A- commercial operation June 1993 NIA

2. Kalyanpur- last contract August 1992 N/A*receipt equipment November 1991 February 1994- end civil works June 1991 March 1994- commissioning August 1992 N/A- implementation months 39 N/A- commercial operation December 1992 N/A

3. Gagal BFMR- last contract April 1992 Aprl 1992- receipt equipment April 1992 Jauary 1993- end civil works May 1992 February 1993*commissioning June 1992 October 1993- implementasion months 24 27* commercial operation October 1992 March 1992

4 Chantrl last contract March 1991 August 1993

* receipt equipmcnt May 1992 May 1994- end civi works February 1992 August 1992* commissioning June 1992 Sept. 1994* implementation months 22 2S* commercial opertion Sept. 1992 March 1993

III Other Indicators

N/A

- 13 -

Table 6: Key Indicators for Project Operations

1. Ke! Opcrating indicaors in SAR Esstimated AcnualW

kIladukkarai* fuel eticiencv 1040 995

KC36Lkg.- power efficiency 120 103

K'AUL cemL* prod. cem. 520 721

1000 tpy

2. Satna- fuel eMciency 830 783

Kcab/kg.. power eltiency 119 107

KWIVL CenML. prod. cerm. 750 800

I 000 tpy

3. Sankarnagrf uel efficiency 850 826KcaVkg.

. power efficiency 120 119KwSt cemL

* prod. cem. 1042 1030I 000 rpy

4. KCPI fuel efficiency S00 727

Kcal/Ag.* power efficiency 120 124

KWS'L CemL. prod. cen. 375 375

1000 rpy

IL. Modified indicaowrs

1. IDCOLfuel efficieney S10 N/AK;aVkg.

* power efficiency 105 V/AKwhIL cemL

. prod. cem. 1000 N/AI000 tpy

2. Kaiyanpurfuel effieieney t20 ?VAKcaVkg.

* power efficiency 98 N/AKwWL cemL

* prod. cem. 105 N/AI 000 Lpy

3. Gags] BMR* fuel emcierncy 903 859

Kcal/kg.- power efficiency 95 95

Kwh/L cemL. prod. cem. 1020 1060

1000 rpy

4. Chinor* ruel efficiency 775 737

Kcal/kg..power efciency 112 107

Kwh/L cemL- prod. cem. 1400 1470

1000 tpy

ll. Other Indicron

N/A

- 14 -

Table 7: Studies Included in Project

Purpose as definedStudy at appraisal/redefined Status Impact of study

Indian Cement Industry: To establish basis for training Completed RecommendationsStudy of Manpower & strategy. implemented.Skills Requirements

mA\india\icnbls

- 15 -

India Cement Industry Project

i_____________________ Appraisal Estimates (SMM Actual/Latest Estimates ($MM

Local Foreign Local Foreign'Item Costs Costs Total Costs Costs Total

Original1 ACC Madukkarai 21.00 13.00 34.00 21.99 12.57 34.572 Birla Jutel Satna 23.90 24.70 48.60 19.31 20.06 39.373 India Cement 34.30 38.60 72.90 35.29 35.29 70.574 KCP Cement 13.80 4.70 18.50 19.50 6.30 25.80

Later Substitutions5 IOCOL Cement 37.12 26.00 63.13 26.23 27.00 53.23e Kalyanpur Cement 36.28 27.00 63.28 43.31 26.01 69.327 Birla Chittorgarh 14.27 19.85 34.12 10.41 19.43 29.848 Gagal Modernizing 8.14 7.92 16.06 5.66 7.48 13.149 Mines Modernizg } 6.16 7.78 13.94 6.98 7.24 14.22

& Energy Saving

Total 194.97 169.55 364.52 188.67 161.39 350.06

Various Improve- J 52.3 36.5 88.81 40.00 35.00 75.00ments to 20 plants IFrom Loan 2660-IN, GOI retained $1.5 million for training for the industry.

Foreign Costs strictly represent financing required for purchases under ICB purchases.

Appraisal Estimates ($MM Actual/Latest Estimates ISMM

Local Foreign' Local Foreign IItem Costs Costs Total Costs Costs Total

1 IBRD 165.00 165.00 161.39 161.392 IDBI/ICICI 122.40 122.40 93.25 93.253 Equity/Internal Cas 77.12 77.12 95.42 95.42

Total 199.52 165.00 364.52 188.67 161.39 350.06____ ___ ___ ___ ___ ___ ___._. . . .. .

1 IBRD 35.00 35.00 34.50 34.502 ICICI 18.30 18.30 20.64 20.643 Equity/Internal Cas 35.50 35.50 19.86 19.86

Total 53.80 35.00 88.80 40.50 34.50 75.00Foreign Costs strictly represent financing required for purchases under ICB purchases.


Table 9(i): ACC-MADUKKARAI ERR(1994 RS Const) Rs. Million

1986 195.73 -195.73 -195.731987 434.73 -434.73 -434.731988 191.30 -191.30 -191.301989 380 422 490.04 418.01 574.20 637.66 84.16 219.66 135.501990 380 551 490.04 545.79 574.20 832.59 84.16 286.80 202.641991 380 536 490.04 530.93 574.20 809.92 84.16 278.99 194.831992 380 617 490.04 611.16 574.20 932.32 84.16 321.15 237.001993 380 624 490.04 618.10 574.20 942.90 84.16 324.80 240.641994 380 624 490.04 618.10 574.20 942.90 84.16 324.80 240.641995 380 624 490.04 618.10 574.20 942.90 84.16 324.80 240.641996 380 624 490.04 618.10 574.20 942.90 84.16 324.80 240.641997 380 624 490.04 618.10 574.20 942.90 84.16 324.80 240.641998 380 624 490.04 618.10 574.20 942.90 84.16 324.80 240.64 5N1999 380 624 490.04 618.10 574.20 942.90 84.16 324.80 240.642000 380 624 490.04 618.10 574.20 942.90 84.16 324.80 240.642001 380 624 490.04 618.10 574.20 942.90 84.16 324.80 240.642002 380 624 490.04 618.10 57420 942.90 84.16 324.80 240.642003 380 624 490.04 618.10 574.20 942.90 84.16 324.80 240.642004 380 624 490.04 618.10 57420 942.90 84.16 324.80 240.642006 380 624 490.04 618.10 574.20 942.90 84.16 324.80 240.64

ERR 20.2%Souce: Al date fron ACC. Al dubes and taxes exwnpted and IDC excuded.


Table 9 Pi): India Cement Ltd. ERR(1994 RS Const)

Uyl~Q eWw. Pp. ~$Q.-OyM ~ W,atPro. INR

FY

1987 27.4 -27.38 0.00 -27.381988 197.6 -197.60 000 -197.601989 760.4 -760.39 0.00 -760.391990 495.4 -495.36 0.00 -495.361991 81.5 726 562 883 1000 1252 969 287.85 -30.47 318.311992 17.5 824 550 1002 978 1421 948 401.74 -29.82 431.551993 4.7 1010 546 1228 971 1742 942 509.22 -29.60 538.811994 30.1 1028 543 1250 966 1773 936 492.93 -29.44 522.361995 5.0 984 543 1196 966 1697 936 495.64 -29.44 525.081996 1030 543 1252 966 1776 936 524.04 29.44 553.48 -1997 1030 543 1252 966 1776 936 524.04 -29.44 553.481998 1030 543 1252 966 1776 936 524.04 -29.44 553.481999 1030 543 1252 966 1776 936 524.04 -29.44 553.482000 1030 543 1252 966 1776 936 524.04 -29.44 553.482001 1030 543 1252 966 1776 936 524.04 -29.44 553.482002 1030 543 1252 966 1776 936 524.04 -29.44 553.482003 1030 543 1252 966 1776 936 524.04 -29.44 553.482004 1030 543 1252 966 1776 936 524.04 -29.44 553.482005 1030 543 1252 966 1776 936 524.04 -29.44 553.48

ERR _-__ ___ ____ _ 26.0%Source: Al data from India Cement. Dubes and taxes exempted and IDC excluded.


Table 9 (id) BIrla Satna- ERR(1994 Rs. Const.) Rs. Million

1988 173.41 -173.41 -173.411989 624.92 -624.92 -624.921990 175.91 -175.91 -175.911991 580 840 589.98 641.26 580.00 840.00 -9.98 198.74 208.721992 580 780 589.98 595.45 580.00 780.00 -9.98 184.55 194.521993 580 850 589.98 648.89 580.00 850.00 -9.98 201.11 211.091994 580 870 589.98 664.16 580.00 870.00 -998 205.84 215.821995 580 870 589.98 664.16 580.00 870.00 -9.98 205.84 215.821996 580 870 589.98 664.16 580.00 870.00 -9.98 205.84 215.821997 580 870 589.98 664.16 580.00 870.00 -9.98 205.84 215.821998 580 870 589.98 664.16 580.00 870.00 -9.98 205.84 215.821999 580 870 589.98 664.16 580.00 870.00 -9.98 205.84 215.822000 580 870 589.98 664.16 580.00 870.00 -9.98 205.84 215.822001 580 870 589.98 664.16 580.00 870.00 -9.98 205.84 215.822002 580 870 589.98 664.16 580.00 870.00 -9.98 205.84 215.822003 580 870 589.98 664.16 580.00 870.00 -9.98 205.84 215.822004 580 870 589.98 664.16 580.00 870.00 -9.98 205.84 215.822005 580 870 589.98 664.16 580.00 870.00 -9.98 205.84 215.82

ERR 16.7%Source: &fa Jute & Indusftes Ltd. except lfr revenue. Revenue pr ton taken at FOB exportprice of $50 ($1=Rs.31)ess ral fIit of Rs.539ton to Krdl (in wagon lods). Taxes, excise dutes and IDC excluded.Note: Cbhtrgai subprojctis Identical except tltitis later in lme. No varance in FRERR expected.


Table 9(iv) KCP LUd. ERR(1994 Rs.ConsL) Rs. Miion

1987 85.95 -85.95 -85.951988 344.04 -344.04 -344.041989 137.77 138 138 242.63 177.50 168.09 189.51 -74.54 -125.75 -51.211990 63.95 144 144 242.63 185.21 168.09 197.75 -74.54 -51.42 23.121991 15.05 144 210 242.63 270.10 168.09 288.39 -74.54 3.23 77.771992 144 324 242.63 416.73 168.09 444.95 -74.54 28.21 102.751993 144 330 242.63 424.45 168.09 453.19 -74.54 28.73 103.271994 144 375 242.63 482.33 168.09 514.98 -74.54 32.65 107.191995 144 400 242.63 531.12 177.94 581.50 -64.69 50.38 115.071996 144 400 242.63 529.53 177.94 581.50 -64.69 51.97 116.661997 144 400 242.63 529.60 177.94 581.50 -64.69 51.90 116.591998 144 400 242.63 529.60 177.94 581.50 -64.69 51.90 116.591999 144 400 242.63 507.00 177.94 581.50 -64.69 74.50 139.192000 144 400 242.63 507.00 177.94 581.50 -64.69 74.50 139.192001 144 400 242.63 507.00 177.94 581.50 -64.69 74.50 139.192002 144 400 242.63 507.00 177.94 581.50 -64.69 74.50 139.192003 144 400 242.63 507.00 177.94 581.50 -64.69 74.50 139.192004 144 400 242.63 507.00 177.94 581.50 -64.69 74.50 139.192005 144 400 242.63 507.00 177.94 581.50 -64.69 74.50 139.19

ERR 15.7%Sowue: KCPLtd. Dty Cost data used. Wetprocess costs taken at 20% hgherperton, based on savings indicated.Sdes r,enue from wet process decieased bv 15% a set off frcaptal mantenance in continuing wet process


Tabb 9(v) IDCOL Cement LlDJERR Rs. Millon(1994 Rs.ConsL)

~~- t~~Q0j,.wwns eOOftws

1992 94.101 -94.10 -94.101993 522.14 -522.14 -522.141994 654.87 -654.87 -654.871995 49.43 -49.43 -49.431996 188.62 720 565 607.98 615.19 956.47 637.72 159.88 22.52 137.361997 816 565 684.94 611.79 1072.22 631.05 387.28 19.26 368.021998 816 565 762.26 680.85 1198.37 705.29 436.11 24.44 411.671999 816 565 764.79 683.11 1198.37 705.29 433.58 22.18 411.402000 816 565 767.46 685.49 1198.37 705.29 430.91 19.80 411.112001 816 565 770.25 687.99 1198.37 705.29 428.12 17.30 410.812002 816 565 773.19 690.61 1198.37 705.29 425.18 14.68 410.502003 816 565 776.27 693.36 1198.37 705.29 422.10 11.93 410.172004 816 565 779.51 696.25 1198.37 705.29 418.86 9.04 409.832005 816 565 782.90 699.29 1198.37 705.29 415.47 6.00 409.46

ERR 16.6%Source: IDCOL Id.. Dry process cost as estmated. Wet process costs taken 29% higher per ton.Dutes, mxes end IDC excluded.Sales revenue from wet process decreased by 15% as set off for capidranmntenancein coninuLng wet process


Table 9(vI): ACC4W-DUKKARAI FRR

.~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~6 h..".-....

1988 90.00 -90.00 -90 001987 227.00 -227.00 -227.001988 138.00 -138.00 -138.001989 380 422 288.80 293.56 318.96 354.21 30.16 60.65 30.491990 380 551 329.23 395.79 349.59 506.91 20.36 111.12 90.761991 380 536 375.32 428.88 448.32 632.37 73.00 203.49 130.491992 380 617 427.87 530.20 490.53 796.46 62.66 266.26 203.601993 380 624 487.77 615.69 540.79 888.04 53.02 272 35 219.331994 380 624 556.06 618.10 574.36 943.16 18.30 325.07 306.761995 380 624 556.06 618.10 574.36 943.16 18.30 325.07 306.761996 380 624 556.06 618.10 574.36 943.16 18.30 325.07 306.761997 380 624 556.06 61810 574.36 943.16 18.30 325.07 306.761998 380 624 556.06 618.10 574.36 943.16 18.30 325.07 306.761999 380 624 556.06 618.10 574.36 943.16 18.30 325.07 306.762000 380 624 556.06 618.10 574.36 943.16 18.30 325.07 306.762001 380 624 556.06 618.10 574.36 943.16 18.30 325.07 306.762002 380 624 556.06 618.10 574.36 943.16 18.30 325.07 306.762003 380 624 556.06 618.10 574.36 943.16 18.30 325.07 306.762004 380 624 556.06 618.10 574.36 943.16 18.30 325.07 306.762005 380 624 556.06 618.10 574.36 943.16 18.30 325.07 306.76

FRR 28.2%Souw: Al dab hAn ACC. Al dtw aw fte exempted.


Table 9 (vii): India Cement Ltd. FRR

FY1987 13.7 -13.7 0 -13.71988 109.6 -109.6 0 -109.61989 454.9 -454.9 0 -454.91990 374.4 -374.4 0 -374.41991 58.8 726 562 707 594 975 782 208.8 188.2 20.61992 14.1 824 550 831 721 1221 809 376.3 87.8 288.51993 42 1010 546 1057 846 1552 869 490.9 23.1 467.81994 30.1 1028 543 1257 971 1690 942 402.9 -29.6 432.51995 5.0 984 543 1342 997 1723 951 375.8 -46.8 422.61996 1030 543 1399 1005 1802 951 403.2 -54.5 457.71997 1030 543 1399 1005 1802 951 403.2 -54.5 457.71998 1030 543 1399 1005 1802 951 403.2 -54.5 457.71999 1030 543 1399 1005 1802 951 403.2 -54.5 457.72000 1030 543 1399 1005 1802 951 403.2 -54.5 457.72001 1030 543 1399 1005 1802 951 403.2 -54.5 457.72002 1030 543 1399 1005 1802 951 403.2 -54.5 457.72003 1030 543 1399 1005 1802 951 403.2 -54.5 457.72004 1030 543 1399 1005 1802 951 403.2 -54.5 457.72005 1030 543 1399 1005 1802 951 403.2 -54.5 457.7

FRR 28.0%Souse: Al dsta from India Cement Duties and taxes exempted.


Table 9(vliQ Bida-Satna FRR

Rs. Millione- . i'E. .;> - .iZ ..............- ----- ---.. -*--* *---. -.--. ..- 'A --

:~~ ~~~~~~~~~~~~~~~~~~~ I

1988 108.38 -108.38 -108.381989 433.26 -433.26 -433.261990 180.53 -180.53 -180.531991 580 840 589.98 641.26 563.18 815.64 -26.80 174.38 201.181992 580 780 589.98 595.45 563.18 757.38 -26.80 161.93 188.721993 580 850 589.98 648.89 563.18 825.35 -26,80 176.46 203.261994 580 870 589.98 664.16 563.18 844.77 -26.80 180.61 207.411995 580 870 589.98 664.16 563.18 844.77 -26.80 180.61 207.411996 580 870 589.98 664.16 563.18 844.77 -26.80 180.61 207.411997 580 870 589.98 664.16 563.18 844.77 -26.80 180.61 207.411998 580 870 589.98 664.16 563.18 844.77 -26.80 180.61 207.411999 580 870 589.98 664.16 563.18 844.77 -26.80 180.61 207.412000 580 870 589.98 664.16 563.18 844.77 -26.80 180.61 207.412001 580 870 589.98 664.16 563.18 844.77 -26.80 180.61 207.412002 580 870 589.98 664.16 563.18 844.77 -26.80 180.61 207.412003 580 870 589.98 664.16 563.18 844.77 -26.80 180.61 207.412004 580 870 589.98 664.16 563.18 844.77 -26.80 180.61 207.412005 580 870 589.98 664.16 563.18 844.77 -26.80 180.61 207.41

FRR 22.1%Sourue: Data from Hirl Jute & Industies Ltd.. Exise duty on cement excluded in revenue & costs, being a pass through item.


Table 9(x) KCP Ltd. FRR

Rs. Million- yew : Cap1%a1 p. ~ pfodh Not pres DryprooesNotprow Dry proes .Vet prooes Dry proces D#kn*e

g-t . - . - . -.:X: ousnd.- ToW1d . .b~ ... . nIue ReveNq :NetCa*h 'Net Ch Nit Take(Dyry.Wot)

1987 43.01 -43.01 -43.011988 192.84 -192.84 -192.841989 94.71 138 138 115.75 115.75 118.62 118.62 2.86 -91.85 -94.711990 40.50 144 144 163.17 163.17 147.92 147.92 -15.24 -55.74 -40.501991 10.86 144 210 196.94 212.09 142.46 244.41 -54.48 21.46 75.941992 144 324 219.85 350.31 159.03 420.95 -60.82 70.64 131.471993 144 330 242.63 432.27 175.50 473.17 -67.12 40.91 108.031994 144 375 232.38 482.33 168.09 514.98 -64.29 32.65 96.941995 144 400 245.99 531.12 177.94 581.50 -68.06 50.38 118.431996 144 400 245.99 529.53 177.94 581.50 -68.06 51.97 120.031997 144 400 245.99 529.60 177.94 581.50 -68.06 51.90 119.961998 144 400 245.99 529.60 177.94 581.50 -68.06 51.90 119.961999 144 400 245.99 507.00 177.94 581.50 -68.06 74.50 142.562000 144 400 245.99 507.00 177.94 581.50 -68.06 74.50 142.562001 144 400 245.99 507.00 177.94 581.50 -68.06 74.50 142.562002 144 400 245.99 507.00 177.94 581.50 -68.06 74.50 142.562003 144 400 245.99 507.00 177.94 581.50 -68.06 74.50 142.562004 144 400 245.99 507.00 177.94 581.50 -68.06 74.50 142.562005 144 400 245.99 507.00 177.94 581.50 -6.06 74.50 142.56

FRR 20.9%Swrce: KCP Ltd. Dry Cost date used. Wet process costs taken at 20% higherper ton, based on savings indicated.Sales revenue from wetprocess decreased bv 15% as set oflforcapital maintenance in continuing wet process


Table 9 (x) IDCOL Cement LTD.FRR Rs. Million

1992 75.83 -75.83 -75.831993 479.30 -479.30 -479.301994 713.16 -713.16 -713.161995 182.66 -182.65 -182.651996 189.06 720 565 607.98 615.19 956.47 637.72 159.44 22.52 136.921997 816 565 684.94 611.79 1072.22 631.05 387.28 19.26 368.021998 816 565 762.26 680.85 1198.37 705.29 436.11 24.44 411.671999 816 565 764.79 683.11 1198.37 705.29 433.58 22.18 411.402000 816 565 767.46 685.49 1198.37 705.29 430.91 19.80 411.112001 816 565 770.25 687.99 1198.37 705.29 428.12 17.30 410.812002 816 565 773.19 690.61 1198.37 705.29 425.18 14.68 410.502003 816 565 776.27 693.36 1198.37 705.29 422.10 11.93 410.172004 816 565 779.51 696.25 1198.37 705.29 418.86 9.04 409.832005 816 565 782.90 699.29 1198.37 705.29 415.47 6.00 409.46

FRR 15.4%Soure: IDGOL Itd.. DOy process costs as estimated. Wet process costs taken 29% higher per ton. Better qualty in dry processSales revenue fmm wet process decreased by 15% as set off for capial mantenance in contnuing wet process

Table 10: Status of Legal Covenants

INDIACement Industry Project

(Loan 2660/2661-IN)

=~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

Original RevisedCovenant Present fulfillment fulfillment

Agreemcnt Section Type status date date Description of Covenant Comments

LA2661 4.01 1 C The Borrower shall maintain procedures and records adequate to Nonemonitor and record die progress of Part B of the Project.

4.02 1 C The Borrower shall have its accounts and financial statements Noncauditcd each fiscal year by indcpcndcnt auditors acccptablc to theBank and funiish the annual audit report not later than fourmonths after the end of the year.

4.03 1 C [he Borrower shall maintain at all times its debt/equity ratio Nonewithin the limit referred to in Section 4-04 of the Agreement.

4.04 (a) I C The Borrower shall not incur or permit any subsidiary to incur any Nonedcbt if, after incurring such debt, the consolidated debt of theBorrower would be greater than 12 times its consolidated capitaland surplus. Further, the Borrower will ensure that at all times itsdebt service coverage is at least 1.1 timess.

4.05 l C The Borrower shall not make any repayment in advance of Nonematurity

4.06 l C The Borrower shall take such steps satisfactory to thc Bank as Noncshall be necessary to protect itself against risk of loss resultingfrom changes in the rates of exchange between the currencies(including Rs.) used in its operations

PA2660 2.04 1 C IDBI/CICI submit quarterly/biannual progress reports None

2-06 l C IDBI/ICICI to exchange views on progress performance. None

4.01 (a) I C IDB1ltCICI to maintain records and accounts in accordance with Nonesound accounting practices.

4.01 (b) I C ID81ACICI submit audited financial statements to the Bank. None

4.01 (c) I C Maintain separate accounts of statement ofexpenditures under the NoneLoan Account and ensure that such separate accounts are includedin the annual audited report and commented on by the auditors.

Status C - Complied withCD - Compliance after DelayNC - Not Complied with

SOON - Compliance Expected in Reasonably Shor t TimeCP - Complied with PartiallyNYD - Not Yet Due

- 27 -

Table 11: Compliance with Operational Manual Statements

There are no known incidences on non compliance with Operational ManualStatements.

m:\india\iCztbis

- 28 -

Table 12: Bank Resources: Staff Inputs

Stage of Project Cycle Planned Revised Actual

Weeks US$ Weeks US$ Weeks US$

Through Appraisal 100 l 206.1

Appraisal-Board 30 11.7

Board-Effectiveness 5 4.5

Supervision 56 82.6 151.0

Completion 72 14 16.0

TOTAL 203 389.3

m:\india\icrtbl 12

1/ Historical dollar costs of staff inputs are not available for years prior to FY94.

- 29 -

Table 13: Bank Resources: Missions

Stage Performance Ratingof Number Days

Project Monthl of in Specialized Staff Implementation DevelopmentCycle Year Persons Field Skills Represented Status Objectives Types of Problems

11/86 3 7 ECN, EGR, FNA I

10/87 3 17 ECN, EGR, FNA I 1

3188 2 6 FNA,ECN I

10/88 2 16 FNA, EGR I

4/89 2 20 FNA,EGR I I

7/89 3 15 FNA, EGR, TRG I I

1/90 2 15 FNA,EGR I 1

8/90 3 25 FNA,EGR,ECN I

3191 2 7 FNA,TRG I 1

11191 2 18 EGR,TRG I 1

5/92 2 13 EGR, ECN 2 2 Delay in implementation dueto local cost financing issuesin IDCOL project; andprocurement delays in

_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ K alyanpyrppr p ject1/93 2 25 EGR 2 2 -do-

7/93 2 25 EGR 2 1 -do-

1/94 2 29 EGR 2 1 -do-

7/94 3 32 EGR, CON 2 IDCOL: Project Completiondelayed to March 1995Kalyanpur: Financial

______________ .___________ Restuucruring to be done

mAindiakkn1 3

- 30 -

Aide Memoire

INDIA CEMENT INDUSTRY PROJECTS

SUPERVISION MISSION

JUNE-JULY 1994

1. A World Bank Mission comprising Messrs Uruj Kirmani (Mission Leader),

Mogens Fog and P. Venugopal (Consultants) visited India from June 22, through

July 22, 1994 :

(a) To review the progress under Ln 3196 IN- Cement IndustryRestructuring Project.

(b) - To prepare Project/Implementation Completion Report (ICR) on

closing of Loans 2660 and 2661-IN on June 30, 1994.

2. The aide memoire consists of two parts. Part A reviews the progress under

Ln 3196-IN and other issues. Part B highlights the Mission's findings on the

projects under Lns 2660/2661-IN, which will later be reflected in the ICR. The

findings of the Mission, the agreements reached and recommendations made are

summarized in Parts A and B as described above. A formal communication will be

sent from Washington DC to confirm or amend the Mission's findings as

appropriate.

3. The Mission takes this opportunity to express its gratitude for the

excellent cooperation and constructive discussions held with the officials of

Department of Economic Affairs (DEA) in the Ministry of Finance (MOF),

Department of Industrial Development in the Ministry of Industry (MOI),

Industrial Development Bank of India (IDBI), Industrial Credit and InvestmentCorporation of India (ICICI), Orissa State Government Officials and Hon'ble Chief

Minister of Orissa, Mr. Biju Patnaik and executives of sub-project entities. Alist of officials met is given in Annex - 1.

4. The Mission visited ACC (Gagal) and Gujarat Ambuja projects under

implementation in Himachal Pradesh, IDCOL Cement Limited (ICL) at Bargarh

Orissa, India Cement - Sankernagar (Tamil Nadu) and KCP Macherla in Andhra

Pradesh and Regional Training Center at Dalmiapuram (Tamil Nadu) and reviewed the

project activities with the field staff.

s. Ln 2660-IN (Loan amount US S 165 million),Ln 2661-IN (Loan amount US $ 35 million)

The original loan closing date June 30, 1992 was extended twice to enable

the projects under implementation to be completed. These loans have been closed

on June 30, 1994. As on June 30, 1994 an amount of US$ 151.8 million has been

disbursed under Ln 2660-IN and US $ 31.8 million under Ln 2661-IN. Further

disbursements from the loan will be made for withdrawal applications received at

the Bank Headquarters or at its New Delhi office by close of business on October

31, 1994 in respect of eligible expenditure incurred on or before the closing

date (i.e. Payments made for goods, work and services which have been Drovided

prior to the closing date). IDBI and ICICI are now working on the final

withdrawal applications for disbursement of the remaining amounts.

-31 -

PART B

7. CEMENT INDUSTRY PROJECT (LOANS 2660 IN & 2661 IN)

7.1 The project was approved by the Bank Board on March 20, 1986 and the loans(borrower GOI for one loan of $165 million with onlending of $163.5 millionequivalent to IDBI and ICICI in equal proportions l, and ICICI for the other loanof $35 million) became effective on November 10, 1986. The initial loan closingdate was June 30, 1992, but two extensions of one year each became necessary. Theloans were finally closed on June 30, 1994 with disbursements as follows- $151million as of June 30, 1994 under Loan 2660 IN, however with most of the balanceof the loan expected to be drawn down during the grace period of 120 days; and$31.8 as of June 30, 1994 under Loan 2661 IN, however with the balance of theloan expected to be drawn down similarly.

7.2 With the enthusiastic cooperation extended to the mission by GOI, IDBI,ICICI and 'the participating companies (ACC, India Cement, Birla Jute, KCP,Kalyanpur Cement and IDCOL among others), the mission decided to initiateprocesses for preparing an "Implementation Completion Report" (ICR- OP 13.55 ofApril 1994) in preference to proceeding to prepare a "Project Completion Report"in terms of the guidelines of June 7, 1989. Accordingly, this aide-memoire firstpresents the views of IDBI/ICICI (both as cofinanciers and as virtual borrowersin terms of the Project Agreement of July 22, 1986) , the participating companiesand the mission itself on the implementation of the project and its operation.

7.3 In reverse order, the record of views starts with the participatingcompanies. Nine sub-projects under Loan 2660 IN were involved, in general withmodernization of the cement plants and introduction of state of art dry processin place of the out moded wet process/ older dry process. The cement industry in1985 was controlled by GOI in many respects, prices, distribution, licenses,foreign exchange releases etc. Demand was far in excess of supply, yet theindustry was not growing. The Bank stepped in at a critical juncture with anumber of goals to be achieved. The dry process to be adopted would result inhigher production of cement, it would save substantially on coal and powerconsumption, allow more consumption of lower grade limestone, improve quality ofcement and almost eliminate pollution. All these results have been achieved/arein the process of being achieved. Cost of production was reduced/would bereduced, not only as a consequence of the superior technology adopted, but alsodue to the governmental exemptions from duties when IBRD loans are availed of,as well as in the government bearing the foreign exchange risks. Steps taken bythe government to deregulate partially, then fully in March 1989, also delicensethe industry in July 1991, under the Bank's active encouragement, have hadsalutary effects on cement production, even exports having begun. Theparticipating companies thus believe that the first "line of credit" (loans 2660IN and 2661 IN) was a watershed in the history of the cement industry '. Loan2661 IN assisted 20 small projects to rehabilitate and bring about technicalimprovements.

1 GOI retained $1.5 million for direct technical assistance to the Cementsector.

2 The views recorded here were universal, but were given more articulateexpression by Mr.N.Srinivasan. MD India Cement also the President of the CementManufacturers' Association and the Chairman of the Development Council for CementIndustry.

- 32 -

7.4 IDBI/ICICI fully endorse the views of the participating companies. When the

project was prepared in 1985, loan 2660 IN was intended to cover seven sub-projects, all for conversion from wet to dry process. As it happened, four outof the original seven became beneficiaries under the loan with the other three

being dropped. ACC sold off the Shahabad unit, while CCI Mandhar and SDC had

financial constraints. The scope of the project was broadened in August 1988 andfollowing that five new sub-projects were appraised and selected for IBRD cum

IDBI/ICICI financing. The later induction of these sub-projects required that theloan closing date be extended by two years. Although the loan has closed on June30, 1994 and disbursements (to the participating companies) effected, two sub-

projects remain to be physically completed; Kalyanpur Cement Ltd., (entrant in

April 1990) would be commissioning the converted plant in August 1994, with IDCOL(entrant in February 1990) expected to do so in March 1995. All objectives havebeen or would be met and the project benefits would be sustained over the fulllife of the plants.

7.5 The mission considers the project a success in the direct and indirect

impact it has had on the economy of the country and the environment. Cement

capacity reached 71.19 million tons in December 1993 and production in 1993 was56 million tons. India now ranks fifth among the cement producing countries after

China, Russia, Japan and USA. Dry process capacity which was 51 in 1982 of the

total rose to 83% in 1993. The Mission was gratified to see during its plantvisits how much pollution had been cut down and particulate emissions broughtbelow the norm of 150 mg/Nm3.

7.6 An operation plan was evolved during discussions with the companiesconcerned. Annex 3 outlines the brief understanding of the mission on the plan.

7.7 The mission also provided advice and support to the borrower for preparingits own contribution to the ICR. IDBI and ICICI have already initiated action toprepare the evaluation report and will complete it in about two months.

8. Further to the above observations, the mission has the following additionalcomments on some sub-projects.

8.1 Kalyanpur Cement Ltd. (KCL) The company continues to be beset withfinancial problems. It was a "sick" company in 1990 when Bank authorization wasgiven for onlending by IDBI/ICICI of $27 million under LN.2660 IN, on the basisof a comprehensive financing plan for the sub-project. The project cost at thattime was placed at Rs. 720 million (but then under revision to Rs.950 million).The estimate now stands at Rs.1906 million mainly due to delays in supply ofimported machinery and equipment, meanwhile the dollar/rupee exchange rate havingchanged considerably and interest on outstanding loans having accumulated. Thecritical issue presently is that the company is short of cash and its financialratios are unsatisfactory. It has a capital restructuring plan (raising moreequity) which it has placed before IFCI (letter dated May 30, 1994), which mayhelp it to tide over the problem. This plan calls for immediate attention byICICI/IDBI/IFCI. ICICI/IDBI should keep in view the financial covenants whichthey had undertaken to enforce on the participating companies, which KalyanpurCement Ltd. has not been complying with. The mission appreciates that thecompany,s financial position will change dramatically when the dry process plant

3 3 _

is commissioned and the additionally produced cement (150% increase in capacity)is marketed, but the effect of this change on the finances of the company willcome after a time lag. It is the interim position which has to be handledadequately and effectively. On project implementation, KCL's association withHolderbank (equity participation in KCL, technical assistance etc.) has been ofconsiderable help. Nevertheless, the carefully planned project implementation hasbeen affected by delays in delivery of equipment and unforeseen soil conditions.The kiln was lighted in February 1994, but due to a number of teething problems,commercial production is likely to commence from August 1994 only.

8.2 IDCOL Cement Ltd. IDCOL had financial problems too and was not in aposition to bring in its contribution to meet the local cost financing. Assuggested by an earlier supervision mission, a solution was found in firstsetting up a new company IDCOL Cement Ltd., (in place of Hira Cement Works, adivision of IDCOL), with effect from March 31, 1993 and second by raising itsshare capital, with 40t of the equity (equal to Rs.350 million) being subscribedby the Unit Trust of India in January 1994, and the balance 60% being retainedby IDCOL. The present problems of IDCOL relate to time slippages inimplementation of the project. As of now, mechanical completion is about 65%complete, electrical about 40-45%, and control system installation about 10-15a.Commissioning may not be expected earlier than March 1995. Project management

requires tightening up and monitoring closely on critical activities throughPERT/CPM charts and aids. A matter of urgent concern is training of key operatorsfor the new processes. Steps being taken by IDCOL with the advice given by themission, supplementing such other arrangements it had made earlier, have beenoutlined in para 6.10.3 of Part A.

8.3 Technical Assistance (TA). GOI retained $1.5 million of the loan amountunder 2660 IN to provide technical assistance to the cement sub-sector (Part Dof Schedule 2 of the Loan Agreement of July 22, 1986) . Study by consultants(Holderbank) seems to have cost $642,324.60 which amount was released by GOI toICICI who had administered the contract with the consultants. A sum of $0.9million has been allocated to DCCI for organizing the HRD. To this amount aDANIDA grant of $5.0 million and an amount of $1.5 million from Loan 3196 IN havebeen added. While the $0.9 million under Loan 2660 IN has been expended, stepshave been taken only recently for claiming reimbursement from the Bank. It isnecessary that a proper accounting and classification of the amount of $1.5million allocated to GOI under Loan 2660 IN be taken up by GOI.

- 34 -

Annex 1Page 1 of 3

CEMENT INDUSTRY PROJECTS (LN2660/61, 3196-IN)

SUPERVISION MISSION (JUNE-JULY 1994)

List of Officials Met

Government of India

Mr. Ajay Nath Deputy Secretary, DEA

Mr. B.R. Khurana Under Secretary, DEA

Mr. P.C. Chaturvedi Joint Secretary, MOI

Mr. Hasmukh Adhia Deputy Secretary, MOI

Government-of Orissa

Mr. Biju Patnaik Hon'ble Chief Minister

Mr. Mahapatra Principal Secretary to the ChiefMinister

Mr. R.N. Das Chief Secretary

Industrial Development Bank of India (IDBI)

Mr. S.H. Khan Chairman and Managing Director

Mr. G.P. Gupta Executive Director

Dr. K.C. Varshney Executive Director

Mr. S.K. Chakrabarti General Manager

Mr. P.S. Subramanyam General Manager

Mr. S. Gajendran Deputy General Manager

Mr. M.V. Badrinath Manager

Industrial Credit and Investment Cor=oration of India (ICICI)

Mrs. Lalita Gutpe Executive DirectorMr. A.P. Singh Assistant General Manager

Mr. R.P. Gokhale Assistant Manager

DANIDA

Mr. Bent Dahl Olsen Counsellor, Danish Embassy

Mr. S. Manohar Programme Co-ordinator (HRD)

JK Corp. Ltd.

Mr. G.A.R. Murthy Vice President (Technical)

Mr. S.K. Wali General Manager (Projects)

Mr. Y.K. Aggarwal General Manager (Finance)Mr. R.K. Razdan General Manager (Materials Proj.)

35 - Annex 1

Page 2 of 3

Kalyanpur Cements Ltd.

Mr. S.P. Sinha Managing Director

Mr. Sanjay Sinha Director

Birla Jute and Industries Ltd.

Mr. A.L. Kapur ED and CEO

Mr. N.C. Jain Vice President

Guiarat Ambula Cements Ltd.

Mr. Narottam Sekhsaria Managing Director

Mr. P.B. Kulkarni Vice President (Technical)

Mr. Anil Sanghvi General Manager (Finance)

ACC

Mr. A.R. Shenoy Director (Technical)

Mr. P.X. Sinor Director (Materials Management)

Mr. K. Ravindran General Manager

Mr. H.D.Daftary Senior Manager, Finance

Mr. H. Venugopal General Manager (Materials

Management)

IDCOL Cement Ltd.

Mr. S.N. Das Mahapatra Chairman

Mr. K.S. Rao Managing DirectorMr. Sahu General Manager

TISCO

Mr. J.C. Kalele Chief Corporate Manager

Mr. K.V. Ganesan Executive-in-charge (Cement Div.)

India Cements Ltd.

Mr. N. Srinivasan Managing Director

Mr. N. Swaminathan Vice President (Finance)

Mr. R.K. Das Vice President (Oprations)Mr. P.L. Subramaniam Senior General Manager

KCP Ltd.

Dr. V.L. Dutt Chairman & Managing DirectorMr. K. Venkatramaiah General Manager

Mr. K.B. Pranesh General Manager & Financial ControllerMr. K. Jayaram Vice President (Western Region)

- 36 -Annex 1

Page 3 of 3

Centurv Textiles & Industries Ltd.

(Maihar Cement)

Mr. B.L. Jain Senior President

Mr. R.M. Shah Technical Advisor

Bulk Cement Cornoration (India) Ltd.

Mr. P.V.S. Kurup Chief Executive

Consultants

Mr. Batra HOLTEC

Mr. Sanjeev Varma HOLTEC

Dalmia Cement (Bharat) Ltd.(Regional Training Centre)

Mr. N. Gopalaswamy Director

Mr. M.R. Srinavasan Deputy General Manager (Training)

Fuller KCP Ltd.

Mr. S.S. Sidhu President

Mr. N. Radhakrishnan General Manager (Procurement

Production)

-37 - ~ANNEX 2Page 1 of 7

OPERATING PLAN

The participating companies under Loan 2660 IN have indicated the following astheir operating plans. (No operating plan for the several mini-projects underLoan 2661 IN is prepared, nor is it necessary.)

ACC

Madukkarai Unit

Madukkarai expansion to 520,000 tons from 380,000 tons/pa of OPC cement hasbeen operational from May 1989. The performance achieved against the SARestimates has been as follows:

Project estimate Achieved

Output of kiln 1500 tons/per day 1600 tons/pdHeat consumed 1040 kcal/kg of 959 kcal/kg

clinkerPower 120 kWh/ton of 103 kWh/ton

cement

The unit plans to maintain the better than estimate performance , as above,in the coming years.

Madukkarai's production of cement during 1989-94 was as follows:

1989-90 1990-91 1991-92 1992-93 1993-94

Production(in :14 tons) 0.551 0.536 0.617 0.624 0.717

Capacity

utilization 106% 103t 119% 120k 13Bt

Madukkarai would thus maintain an above capacity production in the futurealso.

Gacral Modernization & Rehabilitation

This sub-project selected subsequent to loan effectiveness went intocommercial production in March 1993. The parameters as expected to change and asachieved are as follows:

Before Estimate As achievedproject after project

Clinker production 1850 TPD 2700 TPD >2800 TPDFuel Consumption 905 kcal/kg of 850 kcal/kg 859 kcal/kg*

clinkerCement grindingcapacity 130 TPH 180 TPH 180 TPH

* Reduction to 850 kcal/kg to be achieved by debugging in next shutdown.

ANNEX 2

-38 - Page 2 of 7

Mines Modernization and Enerqv Savincqs Scheme

The sub-project, a later inclusion, since completed and executed at a cost

of Rs.412 million (IBRD share being Rs.278 million) has already resulted in

reducing manpower and consumption of stores and spares in nine cement plants

owned by ACC. The pay back period is four years and the benefits achieved are

permanent.

ANNEX 2-39 - Page 3 of 7

THE K.C.P. LTD.

This sub-project for modernizing the Macherla plant was completed inDecember 1989. Cement production in FY89 had been a low 137,749 tons. Followingthe commissioning of the modernization scheme and introduction of the new dryprocess, production of cement has been continuously increasing and the energyefficiency parameters registering improvements as follows:

FY90 FY91 FY92 FY93 FY94

Prodn of cement/MMT 0.144 0.210 0.324 0.330 0.375Coal % 311 25t 25t 24% 20%Power kWh/ton 152 147 133 126 124

SAR estimates of 0.375 MM tons/pa of cement production have been realizedand will be maintained. SAR estimates of 800 kcal/kg heat use per ton of clinker(corresponding to coal at 22t), against 1600 kcal/kg in the old plant have beenmore than fulfilled and will be maintained for the rest of the plant life. Powerconsumption was forecast at 120 kWh/ton of cement, compared to 133/kWh in the oldplant. The present rate of consumption is slightly higher. But a new state-of-the-art cement mill will be installed within 24 months and that will help toreduce the power consumption significantly.

The atmospheric and fugitive emissions have been controlled to less than75 mgm/Nm3 against the statutory norm of 150 mgm/Nm3. This will be maintained.

K.C.P Ltd. has instituted a quality assurance system in conformity with ISO9002. Lloyds Registered Quality Assurance Ltd. certification is expected inAugust 1994.

NDI .CEMENTS LTD.

This sub-project for conversion the Sankarnagar plant from wet to dryprocess was commissioned in August 1990. It achieved results as follows:

SAR ----------- Actual----------------Estimates FY 91 FY92 FY93 FY94

ClinkerCapacity MMT 0.99 0.99 0.99 0.99 0.99

ClinkerProduction MMT 0.64 0.77 0.89 0.86

Cement Prodn MMT 1.04 0.73 0.82 1.01 1.03

Coal consumption 850 kcal/kg 827 kcal/kgof clinker of clinker

Power 120 kwh/ton 119 kWh/tonof cement of cement *

* The company has ordered a new cement mill which will be operational inOctober 1995. The new mill will help to reduce power consumption further.

The company functions in a fierce competitive environment. It recognizesthat its present old fashioned open circuit milling system limits the capabilityto attain higher fineness of cement. Therefore it has decided to install amodern milling system which will enable it to increase the fineness.

-40 - AMEX 2Page 4 of 7

The company expects to maintain and improve on all the parameters in future

operations. In financial terms, the reduction in variable costs has been about20t as between the earlier wet process and the new dry process, which has made

the operations profitable, a position which will be maintained.

-41 - ANNEX 2Page 5 of 7

BIRLA JUTE AND INDUSTRIES LTD.

Satna Cement Works

This sub-project of conversion from wet to dry process, originally includedin the SAR, was commissioned in February 1990. The results achieved compare withSAR estimates as under. Projections of expectations are also indicated.

SAR FY94 FY95 FY96 FY97Estimates Actual -------- Estimates--------

ClinkerCapacity MMT 0.82 0.923 0.923 0.923 0.923

CapacityUtilization 90t 111% 104% 108% 108t

ProductionCement MMT 0.75 0.80 0.80 0.80 0.80

Coal Consumptionin % per ton 21 17.7 18 18 18

Power kWh/ton 119 109 109 108 107

The variable cost reduction has been about 25% as between the wet and thedry processes. All improvements will be maintained through the plant life. Theplant would have sustained overall losses under the old process, instead of whichit has attained a profitability position as a result of the conversion.

BIRLA CEMENT WORKS & CHITTOR CEMENT WORKS

This sub-project was selected subsequent to loan effectiveness. The plantwas to be modernized by upgrading all two stage pre-heaters to five stage pre-heaters, also various balancing equipments were to be installed to reduce thermalenergy consumption and to increase production. The sub-project is undercommissioning and commercial production will begin in september 1994.

The operational parameters are projected as under:

ICICI FY95 FY96 FY97Appraisal

ClinkerCapacity MMT 1.40 1.35 1.38 1.40

CementCapacity MMT 1.40 1.40 1.45 1.47

CapacityUtilization % 100 100 104 105

-42 - ANNEX 2

Page 6 of 7

Coal Consump-tion k/per ton 20 19.5 19 18

Power kWh/ton 112 108 108 107

The old parameters were 0.9 MMT of clinker capacity, 0.9 MM tons of cementcapacity, 22t of coal consumption and 120 kWh/ton of power.

-43- ANNEX 2Page 7 of 7

IDCOL CEMENT LTD.

Since the project has not been commissioned, for the present theICICI/IDBI appraisal targets are expected to be achieved.

KALYANPUR CEMENT LTD.

Since the project has not been commissioned, for the present theICICI/IDBI appraisal targets are expected to be achieved.

- 44 -

Appendix B

SUMMARY OF BORROWER'S EVALUATION REPORTINDIA CEMENT INDUSTRY PROJECT

LOANS 2660-IN/2661-IN

INTRODUCTION

1. Prior to 1980s, due to inadequate production and supply the Indian Cement Industrywas subject to price and distribution control. With the GOI bringing about policy changes, theinstalled capacity grew. However, problems related to high ash coal and poor coal qualitywere acute in wet process plants. In consultation with GOI, The World Bank decided tosupport the industry by extending two Lines of Credit Ln 2660-IN and Ln 2661-IN formodernization of wet process plants and expansion of installed capacity in the country.

PROJECT OBJECTIVES

2. The project was expected to assist the cement industry in India in improving operatingefficiency, environmental controls, product quality, labor productivity and marketing anddistribution systems. Plant conversion subprojects were ACC: Madukkarai, Birla Jute: Satna,India Cement: Sankarnagar, KCP: Macherla, Kalyanpur Cements and IDCOL Cement. Themodernization subprojects were ACC: Gagal, ACC:Mines modernization, Energy Savings andCoal Washery (MEC), Birla Jute: Chittorgarh. Both Kalyanpur Cements and IDCOL Cementand the modemization subprojects were later included to substitute 3 projects earlier includedin the SAR which were withdrawn by project sponsors.

PROJECT IMPLEMENTATION

3. All the subprojects have been satisfactorily completed/expected to be completed. Inview of the late entry of Kalyanpur Cements and IDCOL Cement in the project portfolio, theimplementation period was extended by 2 years necessitating the extension of the closing dateof Bank loans by 2 years.

ACHIEVEMENT OF OBJECTIVES

4. All the completed projects have achieved and in some cases exceeded the technical andfinancial parameters set out at the time of appraisal. The projects under implementation -IDCOL Cement and Kalyanpur Cements are also expected to achieve their objectives asestimated. The technical assistance objective has been achieved by completion of study for

- 45 -

assessing manpower training needs. Implementation of this resulted in setting up of fourRegional Training Centers in different parts of the country for imparting training in technicaland managerial skills required in the cement industry. The policy liberalization objectiveshave also been achieved as visualized during appraisal. The cement sector is now deregulatedand is now operating under a free market economy.

PERFORMANCE OF BORROWER

5. Of the total loan of US$ 165 million, GOI channelled US$ 163.5 million throughIDBI/ICICI in equal proportion for onlending to cement projects. An amount of US$ 1.5million was utilized for training component by GOI. IDBI/ICICI extended all the requiredassistance and helped the subborrowers in complying with the various requirements of WorldBank.

PERFORMANCE OF WORLD BANK

6. The initiative taken by the World Bank in extending the first line of credit to thecement sector provided the impetus for quicking the pace of its growth and acted as a catalystto the private sector for undertaking modernization program using state-of-art technologiesand in attaining environmental and social objectives.

KEY LESSONS LEARNT

7. IDBI/ICICI as also the subborrowers were able to develop a broader perspective on theproven state-of-art technology in the cement sector as well as better knowledge ofenvironmental policies of the World Bank and pollution control measures and strategies in thecement industry on a global scale.

Closer co-ordination between the World Bank, GOI, IDBI/ICICI and subborrowers hasresulted in the successful achievement of the objectives.

For performance monitoring, regular interaction and joint supervision with the WorldBank Missions has proved highly productive.

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BORROWER'S FINAL EVALUATION REPORT ON INDIA CEMENTINDUSTRY PROJECT LN. 2660-LN/2661-IN

I. INTRODUCTION

1.1 Indian Cement Industry

The cement industry which had a capacity of 3.8 million tonnes per annum (tpa) in1950-51 underwent a period of accelerated expansion between 1950-69. The growth of theindustry slowed down during the decade of the 1970s as the regulated industrial environmentand controls on pricing and distribution acted as deterrant. At the start of the 1 980s capacityutilization in. the industry was poor mainly due to power shortage and labor problems. TheGOI brought about changes in pricing and distribution policies which stimulated rapid growthof the industry. Installed capacity grew by nearly 10% a year during 1980-85. Tocounteract the problems caused by interruptions in power supplies, the industry began toinstall captive power plants, particularly in conjunction with expansion and greenfield plants.However, problems associated with high ash coal and declining coal quality had become moreacute in the wet process plants. At the start of seventh Five Year Plan in 1985-86, the totalinstalled capacity was 44.6 million tpa. Only 58% of the total kiln capacity was based on themore energy-efficient dry or semi-dry processes and the rest on wet process technology.

1.2 Involvement of the World Bank

The GOI had initial discussions with the World Bank in June 1979 and the Bankmission came in September and November 1979 to study the cement industry in detail. Themajor recommendations contained in the cement sub-sector project in respect of pricing,output, control and distribution policies and energy conservation and modernization in theindustry were adopted by the GOI. Following further discussions with GOI and cementindustry representatives, the World Bank decided to support the industry in introducingmeasures aimed at energy conservation, improvement of the environment and cost reduction.Project appraisal was completed in September 1985.

The project was approved by the Bank Board in March 1986 and the loans (borrowerGOI for one loan of $165 million with onlending of $163.5 million to IDBI and ICICI inequal proportions, GOI US$ 1.5 million for conducting comprehensive study for skills andmanpower requirements in the cement industry and ICICI for the other loan of $35 million)became effective in November 1986. The scope of the project was broadened in August 1988and following that five new sub projects were appraised against the three projects droppedout and selected for IBRD cum IDBI/ICICI financing. The initial loan closing date was June30, 1992, but two extensions of one year each became necessary, mainly because of the lateentry of two sub-projects. The loan was finally closed on June 30, 1994.

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II. PROJECT DESIGN

2.1 The project consisted of four parts with Part A & C (Ln. 2660-IN) - financing forplant conversion sub-projects and technical assistance, Part B (Ln. 2661-IN) - financing forsmall scale efficiency improvement projects and Part D (Ln. 2660-IN) - formulation ofmanpower development strategy. While Part A and C were to be administered by IDBI andICICI, Part B by ICICI, Part 'D' was administered first by ICICI and then by DevelopmentCommissioner for Cement Industry. Part 'D' was provided as a grant by GOI for assessingthe training needs for cement industry personnel. A study was conducted by the consultantsand its recommendations implemented by formation of 4 regional training centers in thecountry.

LINE 2660-IN

III. PROJECT OBJECTIVES & DESCRIPTION

3.1 The objectives of the project were to assist the cement industry in India in improvingoperating efficiency, environmental controls, product quality, labor productivity and marketingand distribution systems, and to train local personnel in the skills required in the cementindustry.

3.2 Plant Conversion subprojects

ACC: Madukkarai, Birla Jute: Satna, India Cement: Sankarnagar, KCP: Macherla,Kalyanpur Cement and IDCOL Cement were the subprojects covered for conversion of thewet process kiln with a high capacity dry process kiln with preheater/pre calciner.

3.3 Modernization subprojects

ACC Gagal, ACC Mines Modernization, Energy Savings and Coal Washery, (MEC),and Birla Jute: Chittorgarh plants were modernized by installation of energy efficientequipment and also balancing equipment to attain higher levels of production.

IV. PROJECT IMPLEMENTATION

4.0 Proiect Costs

The project costs as given below for some of the sub-projects indicate a savingin US Dollar terms primarily due to changes in the Rupee/Dollar parity ( US$=Rupees 13 in1986 at SAR stage and US$=Rupees 31.3 in 1994). However, in Rupee terms , the costoverruns occurred due to exchange rate as well as increase in local costs (about 30% increasein the costs of indigenous equipment).

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4.1 ACC: Mladukkarai

The project was completed in April 1989. Commercial production commenced in May1989 with a time overrun of 12 months. This was due to time taken to learn ICB proceduresas also problems arising out of expiry of rupee payment under bilateral agreement made bythe Government. Further operational problems at machinery suppliers resulted in delay indelivery of major pyroprocessing machinery.

The completed cost of the project was US$31.80 million (Rs. 455 million) against theSAR estimate of US$32.65 million (Rs. 424 million). The main components of the overrunin rupee terms were increase in cost of plant & machinery, preoperative expenses and financecharges.

4.2 Birla Jute: Satna

The commercial production which was slated for May/June 1989 could only beachieved by January/February 1990 due to delay in obtaining import licenses, permission fromGOI for engaging consulting services for design, erection and commissioning of the plant.

The actual project cost was US$41.91 million (Rs. 722.10 million) as compared toUS$48.34 million (Rs. 628.41 million) originally envisaged. The cost overrun in rupee termswas due to increase in the price of steel and other construction materials and inclusion ofadditional equipment not originally envisaged as also foreign exchange fluctuation.

4.3 India Cement: Sankarnagar

The plant was scheduled for commissioning by October 1988. However, it wasactually commissioned in August 1990, i.e. time overrun of 22 months due to delay inobtaining Government approval for appointment of foreign consultants leading to delay inplacement of orders.

The cost of the project originally envisaged was US$72.51 million (Rs. 942.6 million)while the completed cost was US$60.85 million (Rs. 1064.8 million). The cost overrun inrupee terms was due to time overrun and foreign exchange fluctuation.

4.4. KCP: Macherla

The project was scheduled for completion by December 1987 but was delayed by 2years and finally conmmissioned in December 1989 due to delays in civil construction, supplyof process control and instrumentation system. The cost of the project originally envisagedwas US$18.34 million (Rs. 304 million) but the completed cost was US$24.43 million (Rs.381.91 million) which was mainly due to increased cost of machinery consequent toenhancement in the rate of import duty, additional expenditure on civil works and delay inproject implementation.

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4.5 Kalvanpur Cements: Baniari (KCL)

KCL was chronically beset with financial problems. It was, however, included forassistance under the Line because of its location in a cement deficit region and the fact thatconversion from wet to dry process would turn the company around. The project cost at thetime of sanction was estimated at US$58.43 million (Rs. 950 million) which now stands atUS$57.60 million ( Rs. 1800 million). The overrun in rupee terms was mainly due to changein scope of the project, high preoperative expenses as a result of delay in implementation andforeign exchange fluctuation.

Delay in implementation of around 17 months occurred as the company was unable totie up finances and later on delay in the supply of equipment.

4.6 IDCOL Cement: Bargarh

Owing to delay in obtaining clearances from various Govermment bodies, inadequacyof internal generation due to unfavorable market conditions for the cement industry andinability of State Governrnent to provide timely equity support as committed, there wassubstantial delay in project implementation. The cost of the project was originally estimatedat US$63.13 million (Rs. 1010 million) while the present estimate is US$46.46 million (Rs.1640 million). The cost overrun in rupee terms was mainly on account of foreign exchangefluctuation, increase in prices of equipment and delay in implementation of the project. Theproject is now expected to be completed in March 1995 i.e. a time overrun of 24 months.

4.7 ACC: Gagal

Commercial production commenced in March 1993 when all systems werecommissioned except Air Separator and Cement Silo which were completed in September1993. Project completion was delayed by 5 months which was due to non-availability oflabor due to extreme weather conditions and remoteness of site.

The cost of the project originally envisaged was US$22.29 million (Rs. 390 million)while the cost of completion was US$12.02 million ( Rs. 378.58 million).

4.8 ACC: MEC

The procurement of original mining equipment and installation of the coal washerywas on time. Energy saving equipment were installed 3 months after schedule.

The original cost of the project was US$13.54 million ( Rs. 237 million) while thecompleted cost was US$13.08 (Rs. 412 million). in May 1992, IBRD approved theprocurement of additional equipment as utilization in US$ terms was low due to exchangefluctuations.

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4.9 Birla Jute: Chittorgarh

The commercial production was originally envisaged in September 1992, but wasachieved only in September 1994 about two years behind schedule. The main reason fordelay was rebidding of one of the ICB Packages because of unsatisfactory response.

The completed cost of the project is estimated at US$29.75 million (Rs. 878 million)as against US$33.14 million (Rs. 580 million) originally envisaged. The cost overrun inrupee terms was on account of foreign exchange fluctuation on imported equipment andincrease in local costs.

4.10 Technical Assistance and Training

GOI effectively utilized US$ 1.5 million under this loan, for conductingcomprehensive study for skills and manpower requirements in Cement Industry. Therecommendations emerging from this study led to setting up of four regional training centerswith excellent facilities for training of cement plant operators, supervisors and line managers.

V. ACHIEVEMENT OF OBJECTIVES

5.1 ACC Madukkarai

Clinker production' of 1500 tpd was achieved within 8 weeks of plant commissioning.Presently the plant is producing 0.6 million tonnes per annum of cement . Guaranteed fuelconsumption was achieved and fuel consumption is less than 959 kcal/kg. The powerconsumption has been reduced from 120 kWVhtonne to 103 kWh/tonne.

5.2 Birla Jute :Satna

After conversion from wet to dry process the company has been able to raise theclinker production from 1750 tpd to 2350 tpd, reduce coal consumption from 34% to 18%and power consumption from 119 to 109 kWh/tonne of cement.

5.3 India Cement: Sankarnagar

The envisaged increase in capacity to one million tonnes per annum of cement hasbeen achieved. The plant has necessary equipment for environmental control to achieve the

1/ One tonne of clinker yields approximately 1.05 tonne of OPC.

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required emission level of 250 mg. per NM3 and emission level is well within norms (about100 mg per NM3.

Power consumption has come down from 120 kWh/tonne to 119 kWh/tonne ofcement. Fuel consumption is 827 kcallkg of clinker as against 1419 kcaL/kg under the wetprocess.

5.4 KCP: Macherla

With the replacement of wet process kilns the coal consumption dropped from 45% toless than 20% by weight of clinker while the power consumption came down from about 140to about 124 kWhltonne of cement. The atmospheric and fugitive emission are controlled toless that 75 mg/NM3 .

5.5 Kalyanpur Cements: Baniari

The project was completed in August 1994 and is on trial run. The capacity utilizationin the year of normal operations has been assumed at 90%. Power consumption is expectedto come down to 98 kWh/tonne from 125 kWhltonne and coal consumption from 36% to22%.

5.6 IDCOL Cement: Bargarh

The project is still under implementation and is expected to be commissioned byMarch 1995 i.e. time overrun of 24 months.

The capacity utilization in the year of normal operations (1996-97) has been assumedat 95%. Power consumption is expected to come down to 100 kWh from 110-115 kWh pertonne of cement.

5.7 ACC: GaaalProduction of cement has gone up to 0.86 million tonnes per annum. The output of

the 2 cement mills has increased to 90 tph each. The current fuel consumption is 859 kcalUkg.of clinker.

5.8 ACC: MEC

The setting up of a coal washery in a cement plant for improving the quality of coalwhich is beset with high ash content and lots of impurities is first of its kind in India. ACChas achieved reduction in man power from 2065 to 1720 and has realized Rs 40.9 millionfrom sale of old machines.

The evaluated benefits for these investments aggregate Rs 113.10 per annum due toenergy savings, reduction in man power and cost of stores and spares (Rs. 51.10 million),

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additional cement production (Rs. 60.00 million) and reduction in the loss by way of higherinterest burden due to higher inventory holding (Rs. 2.00 million).

5.9 Birla Jute: Chittorgarh

After modernization, the company has been able to achieve a coal consumption of19% as against 22% prior to modernization and power consumption of 110 kWh/tonne asagainst 120 kWh/tonne earlier. The cement capacity has increased from 0.95 million tpa to1.40 million tpa.

VI. PERFORMANCE OF IDBI/ICICI

6.1 During the loan period extending over 8 years from 1986 to 1994, a lot of changeshave taken place at the macro level in the country as also in IDBI/ICICI. The loan beingrupee tied, a number of cement units with wet process approached for foreign currency loansunder the Line which conferred on them a lot of benefits. IDBI/ICICI on their part, extendedall the required assistance and helped the sub-borrowers in observing the ICB procedures foravailing assistance. Even earlier, GOI, IDBI and ICICI were seriously thinking of convertingthe highly polluting and energy inefficient wet process cement plants into dry process plantswith modem technology. Right from the stage of appraisal of the project, IDBI/ICICI havebeen active in sanctioning, disbursing and implementing the projects. When some of theoriginal subprojects included in the Staff Appraisal Report (SAR) did not materialize,IDBI/ICICI identified other substitute subprojects.

6.2 IDBI/ICICI have been co-ordinating the follow-up supervision visits undertaken bythe World Bank mission regularly and arranging meetings with the concerned officials in theMinistry of Finance/Ministry of Industry, GOI, the Development Council for CementIndustry, coal authorities, railway authorities as also the Consulate General in the DanishEmbassy and sub-borrowers.

VII. PERFORMANCE OF WORLD BANK

7.1 The Bank loan was given effect to at a time when foreign exchange for importingmachinery was scarce in the country and was highly regulated by GOI. Cement industry wasin need of modernization by induction of latest state-of-art technology. Consequently, anumber of cement plants operating on wet process were covered under the Line and gotconverted into energy efficient dry process. This had the demonstration effect since all thenew greenfield plants set up thereafter also adopted the modern technology for their plants.Thus the Bank assistance under the loan was a pace setter for dry process plants. As alreadymentioned in the introduction, the installed capacity of 44 million tpa increased to 65.0million as on March 31, 1993 marking an increase of 48%. The World Bank acted as acatalyst in removing the control on prices and distribution of cement in India. With freemarket cement becoming easily available, it has opened channels for exports which have

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picked up considerably. From cement scarcity, India has come to a stage of cement surplus.With the encouraging experience gained in the first Line, the World Bank also extended theSecond Line for an enhanced amount of US$300 million. GOI has asked the World Bank toconsider extension of another Line for the development of infrastructure and abatement ofindustrial pollution.

VIII. OPERATION EXPERIENCE/KEY LESSONS LEARNED

8.1 The Loan was approved at a time when cement companies were averse to undertakemodernization as import of machinery would have exposed them to foreign exchange risks.GOI agreed to bear the foreign exchange risk for assistance under the line of credit. TheLine being Rupee-tied, the sub-borrowers availing assistance for import of machinery couldrepay in rupee.

8.2 The ICB procedure, though perceived as cumbersome by some sub-borrowers,conferred benefits of exemption from import and excise duties to the sub-borrowers. In mostof the cases the indigenous machinery manufacturers won the bids , which encouraged themto expand and modernize to become internationally competitive.

8.3 Regular interaction with the sub-borrowers throughout the monitoring and reviewperiod enabled IDBI/ICICI to assess the factors that contribute to effective projectimplementation.

8.4 IDBI/ICICI were able to develop a better perspective on proven state of arttechnologies in the cement sector as also better knowledge of environmental protectionpolicies of the World Bank and pollution control measures and strategies in cement industryon a global scale.

8.5 Social Obiectives

With the conversion of wet process into dry process plants, coupled with enhancementof the plant capacity, the profitability of the units assisted under these loans had showndefinite improvement. The plants had necessarily to increase the employment which meantalleviation of poverty and in the unskilled sector, employment to the local and tribal people.The modernized plants also developed selfcontained townships with essential arnenities likeschools, hospitals, banks etc.. All the cement units have grown gardens and taken upafforestation on a massive scale.

8.6 Environmental Protection

With the insistence of the World Bank/GOI/IDBI/ICICI the pollution control measures

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have tightened and the guidelines are being scrupulously observed and monitored. Cementplants have become conscious that controlling the particulate emissions increases productionof cement in addition to pollution abatement.

IX. IMPACT OF PROJECT ON THE INDUSTRY

9.1 The project helped in the development of the cement industry in many ways.

9.2 While the line was in operation, the World Bank could take up with GOI, the case ofdecontrol of distribution and price of cement. Adoption of the latest state-of-art technologyresulted in increased production, cost reduction and improved profitability in addition topollution control. Though only nine subprojects benefited under the Line, cement plantssubsequently set up in the country were all based on dry process only.

9.3 The subborrowers benefited in many ways. Foreign exchange assistance was free fromexchange risk. Clearance of licenses etc. for import of machinery was available under oneroof. Under the ICB procedure borrowers got the benefit of exemption from excise duty andtheir gain was around 20-25% of the total machinery cost. Introduction of the Line forcement industry in India and the benefits thereof gave impetus for extending a new line(Ln. 3196-IN) for greenfield projects, which was well received.

9.4 The cement industry has shown remarkable progress in the last few years, with anannual growth rate of about 7% and today India is the fifth largest producer of cement in theWorld after China, Russia, Japan and USA. As a result of decontrol of prices and distributionof cement, the industry has grown 2 1/2 times in terms of total installed capacity in 1980-81to 1992-93. Presently, 84% of the total capacity is based on energy efficient and environmentfriendly dry process technology. The quality of cement produced has improved and theindustry is now in a position to meet not only domestic but also the export demand. Many ofthe quality conscious units have obtained ISO-9000 certifications for quality assurance to becompetitive in the global markets.

9.5. The cement industry in India has come to robust health as is evident by a number ofcement companies accessing the global capital markets for taking up further projects, with theGOI adopting economic and financial reforms.

9.6 With exports picking up, some of the cement companies are setting up Export OrientedUnits. This is a clear indication that Indian cement is of international quality and globallycompetitive.

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X. OPERATING PLAN

10.1 During the ICR Mission in June/July 1994 , an Operation Plan by the participatingcompanies was prepared and agreed to by IDBI/ICICI and the World Bank mission and theplan became part of the Aide Memoire (Annex 3). Four companies - ACC, Birla Jute, IndiaCement and KCP which were appraised originally in the SAR and which have completedtheir projects and are financially sound and profit making companies. They are being regularlymonitored by IDBI/ICICI by way of quarterly progress reports, periodical field visits andreports submitted by the Directors nominated by IDBI/ICICI on the Boards of thesecompanies. These reports contain exhaustive details on the companies' performance in respectof production, efficiency parameters and profitability.

10.2 IDCOL Cement This substitute project, approved in August, 1991, has sincetied over the local cost financial problems and is in the process of restructuring itsmanagement. IDBI/ICICI are closely monitoring compliance with the agreed restructuringprogram. After implementation of the modernization and expansion scheme in March, 1995,the company's profitability is expected to improve further since its input costs would godown and, being located in a cement deficit region, it sales realization would be higher.

10.3 Kalvanpur Cements This project approved in July, 1988, is beset with financialproblems. Notwithstanding the then weak financial position of the company, IDBI/ICICIchose to finance this modem dry process project in the hope of turning around the companyand the World Bank agreed to it. With the implementation of expansion cum modernizationscheme, based on state-of-art technology, the company is expected to make improvedprofitability by achieving economies of scale. The Indian cement industry is presently doingwell and the project, being located in the cement deficit State of Bihar, would also cater toadjourning large markets of Bengal and Nepal.

A plan for capital restructuring of the company including infusion of freshequity is being worked out. IDBI/ICICI are not only intensively monitoring theoperations/performance of the unit but also extending assistance to formulate a restructuringplan for its revival.

LINE 2661-IN

XI. SMALL SCALE MODERNIZATION PROJECTS

11.1 The Line was directly lent to ICICI for import of equipment to provide support forsmall scale projects with the exchange fluctuation risks passed on to the subborrowers.However, not many subborrowers were willing to bear the foreign exchange risks and theimmediate response to the Line was poor. Hence GOI later agreed to bear the foreignexchange risk and the scope was also widened to cover Rupee expenditure. This led to

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speedy disbursement of funds under this loan.

11.2 Proiect Benefits Assistance under the Line was extended to 20 subprojects. Thefunds were mostly used to supplement the ongoing modernization programs of the sub-borrowers for import of latest technical know-how and equipment. All subprojects have beencompleted. The project sponsors have benefited not only by way of improvement in energyconsumption/cost reduction of cement plants but also by installation of coal washeries,improvement in captive power plant, research center equipments, etc. The objective of theLine to provide quick disbursal of funds to a large number of small scale modernizationprojects was thus achieved.

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