Document of The World Bank
FOR OFFICIAL USE ONLY Public Disclosure Authorized RepwrtNo. 5336-IN
Public Disclosure Authorized STAFF APPRAISAL REPORT
INDIA
JHARIA COKING COAL PROJECT Public Disclosure Authorized
February 7, 1985 Public Disclosure Authorized
Industry Department
This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Itsmontents may not otherwise be disclosed without World Bank authorization. CURRENCY EQUIVALENTS
Rs 1.00 = Paise 100 US$1.00 = Rs 12.0 Rs 1.00 = US$0.08 Rs I million = US$83,333
(Conversions in the Staff Appraisal Report were made at US$1.00 to Rs 12.0)
FISCAL YEAR
April 1 - March 31
WEIGHTS AND MEASURES
1 British thermal unit (Btu) = 0.252 kilocalories 1 kilocalorie (kcal) = 3.97 British thermal units 1 kilocalorie per kilogram = 1.805 British thermal units per (kcallkg) pound 1 cubic meter (m3) = 1.308 cubic yards 1 kilowatt (kW) = 1,000 watts 1 megawatt (MW) = 1,000 kilowatts 1 gigawatt hour (GWh) = 1,000,000 kilowatt hours 1 kilogram (kg) = 2.205 pounds 1 ton of coal equivalent (tce) = 1 ton of coal containing 7,000,000 kcal 1 ton (t) - 1,000 kilograms
PRINCIPAL ABBREVIAIIONS AND ACRONYMSUSED
BCCL - Bharat Coking Coal Ltd. BICP - Bureau of Industrial Costs and Prices CCL - Central Coalfields Ltd. CIL - Coal India Ltd. CMPDI - Central Mine Planning and Design Institute DOC - Department of Coal DOS - Department of Steel DVC - Damovar Valley Corporation (Power Authority) ECL - Eastern Coalfields Ltd. cOI - Government of India ICB - International Competitive Bidding IISCO - Indian Iron and Steel Company JPC - Joint Plant Committee LCB - Local Competitive Bidding LIB - Limited International Bidding MCC - Medium Coking Coal NEC - North-Eastern Coalfields Ltd. ODA - Overseas Development Administration OMS - Output per Manshift PCC - Prime Coking Coal SAIL - Steel Authority of India Ltd. SCC - Semi Coking Coal SCL - Singareni Collieries Ltd. TISCO - Tata Iron and Steel Company WCL - Western Coalfields Ltd. IN3DIA FOR OFMICL USE ONLY
JHARIA COKING COAL PROJECT
Table of Contents Page
I. INTRODUCTION ...... I
11. THE COAL SECTOR ...... 1
A. Reserves and Production ...... 1 B. Government Development Strategy . . 3 1. Objectives ...... ,,,. ... 3 2. Investment Program ...... , 4 3. Coal Quality Improvements...... 6 C. Role of the Bank .... 7
III. THE MARKET FOR COKING COAL ...... 9
A. Coking Coal Supply and Demand Prospects...... *... *.. 9 1. Overviewrof Indian Coal Market ...... 9 2. Coking Coal Requirements and Supply Prospects ...... 10 B. Coking Coal Prices and Pricing Policy ...... 13
IV. THE BENEFICIARIES ...... 14
A. Coal India Ltd ...... 14 1. Organization and Management .. 14 2. Operations ...... 16 3. Financial Positior...... 19 B. Bharat Coking Coal Ltd...... 20
V. THE PROJECT...... , ...... 21
A. Project Objectives .. 21 B. Project Description .. 22 1. Scope ...... 22 2. Location, Geology and Reserves . .22 3. Open Cast Block II Mining Complex . .23 4. Pootkee Bulliary Mining Complex . .25 5. Environment and Safety .. 28 C. Project Execution and Implementation. . . 29
VI. CAPITAL COSTS, FINANCING AND PROCUREMENT .32
A. Capital Cost Estimate .. 32 B. Financing Plan .. 33 C. Procurement ar.uDisbursement .34
This report was prepared by Messrs. J. Barrientos, B. Stenberg, J. Strongman and Mesdames M. Kutcher and H. Wu of the Industry Department.
This document has a resricted distribution and may be used by recipients only in the performance of their off-cial duties. Its contents may not otherwise be disclosed without World Bank authonzation. -ii-
VII. FINANCIAL ANALYSIS...... 36
A. Coal India Ltd...... o..o ...... 36 B. Bbarat Coking Coal Ltdo . o ...... *.... 40 C. Jharia Coking Coal Project ...... 42
VIII. ECONOMIC ANALYSIS ...... *o...... o...... 43
A. Economic Rates of Return ...... *. 44 B. Additional Benefits ...... *...... 45 C. Least Cost Program ...... 45
IX. AGREEMENTS REACHED AND RECOMMENDATIONS...... 46
ANNEXES 1 India - Steel Sector 2 India - Coal Washeries 3 India - Coal Price Schedule 4 India - Schedule of Coal Taxes and Levies in the State of Bihar 5 CIL Corporate Organization 6 Scope of Work for Technical Assistance on Design and Management of Mechanized Underground Mines 7 CIL Financial Statements 8 Scope of Work for Technical Assistance on Sand Transportation 9 Scope of Work for Study on Shaft Sinking 10 Project Management Organization 11 Implementation Schedule for Open Cast Block II Mine 12 Implementation Schedule for Pootkee-Bulliary Underground Mine 13 Project Capital Cost Estimate 14 Procurement Schedule and List of Bank-Financed Goods 15 Disbursement Schedule for Bank Loan 16 Assumptions Used in the Financial Projections 17 Pro Forma Financial Statements for Coal India Ltd. 18 Pro Forma Financial Statements for Bharat Coking Coal Ltd. 19 Financial and Economic Rates of Return - Assumptions and Calculations 20 Documents Available in the Project File
CHARTS 1 Jharia Coalfield 2 Block II - Project Area 3 Pootkee-Bulliary - Project Area
MAP IBRD 18594 -iii-
JHARIA COKING COAL PROJECT
LOAN AND PROJECT SUKMARY
Borrower: India, acting by its President-
Beneficiary: Coal India Ltd. (CIL)
Amount: US$248 million equivalent.
Terms: Payable in 20 years, including five years of grace at the Bank standard variable interest rate.
On-lending Terms: GOI to CIL for a period of 15 years, including five years' grace, at an effective interest rate of not less than 13.25% per annum. CIL to Bharat Coking Coal Ltd. (BCCL) for a period of 15 years, including five years of grace, at an effective interest rate of not less than 13.25% per annum.
Project Description: The objective of the project is to increase the supply of coking coal to the steel sector through the development of the Jharia Open Cast Block II and Pootkee-Bulliary mines. It will also improve the average quality of coking coal supplies contributing to a better efficiency in the use of indigenous resources. The project consists of the development of one open-pit mine and one underground mine (with design capacities of 2.5 and 3.0 million tons per annum raw coal respectively), two coal washeries and other associated facilities in the Jharia coalfield in the State of Bibar. The project will support institutional development in the areas of underground mine design and operating practices as well as project management, sand transportation and shaft sinking. It will ^lso address the sectoral issue of coal quality and fac4litate the continuation of the dialogue on coal transportation and distribution, producer-consumer linkages, and investment planning. The project faces minimal technical risks and a possible financial risk is mitigated by GOI's commitment to a pricing policy which ensures the continued viability of CIL. -iv-
Project Cost Estimate: US$ millions Local Foreign Total
Equipment and Spares 77.3 138.2 215.5 Land and Civil Works 47.7 2.5 50.2 Washery 76.2 31.8 108.0 Engineering and Training 5.7 - 5.7 Pre-operating Expenditure 9.0 0.6 9.6 Technical Assistance - 2.0 2.0 Duties and Taxes 94.5 - 94.5 Base Cost 310.4 175.1 485.5
Physical Contingencies 24.2 10.4 34.6 Price Escalation 100.2 58.1 158.3 Working Capital 10.5 1.1 11.6
TOTAL PROJECT COST 445.3 244.7 690.0
Interest During Construction 6.0 - 6.0 Front-end Fee on IBRD Loan - - -
Total Financing Required 451.3 244.7 696.0
Financing Plan:
Equity:
Government of India 215.8 - 215.8 CIL Cash Generation 132.2 132.2 Total Equity 348.0 348.0
Long-Term Debt
Government of India 85.8 - 85.8 TBRD 17.5 230.5 248.0 U.K (ODA) - 14.2 14.2 Total Debt 103.3 244.7 348.0
Total Financing 451.3 244.7 696.0 ~~~~~~~~~~~~~~~~~= _ -"-
Estimated Disbursements: US$ millions FY86 FY87 FY88 FY89 FY90 FY91 FY92
Annual 0.6 54.6 53.6 71.2 22.4 36.2 9.4 Cumulative 0.6 55.2 108.8 180.0 202.4 238.6 248.0
Economic Rate of Return: About 21-22%
IBRD 18594 I. INTRODUCTION
1.01 The Government of India (GOI) has requested a Bank loan of US$248 million to assist in the financing of the Jharia Coking Coal Project. The Project, which is located in the state of Bihar, has two main components: (i) the Open Cast Block II min:ng complex which comprises the development of a 2.5 million ton per year (tpy) open-pit mine and associated washery to produce 1.1 million tpy of washed prime coking coal; and (ii) the Pootkee-Bulliary mining complex which entails the development of a 3.0 million tpy underground mine and washery facilities with a capacity to produce 1.5 million tpy of washed prime coking coal. Both mining complexes will be constructed and operated by Bharat Coking Coal Ltd. (BCCL), a wholly-owned subsidiary cf Coal India Ltd. (CIL), a GOI undertaking. The Jharia Coking Coal Project forms part of the Government strategy to develop indigenous resources to meet the growing demand for coking coal and to improve the overall operating efficiency of the sector by introducing additional low cost open-pit and mechanized underground mining operations.
1.02 The financing requirements of the Project, including contingencies and escalation are estimated at US$696 million, of which about US$245 million (35%) will be in foreign exchange. The proposed Bank loan of US$248 million would cover about 94% of the foreign exchange required. The balance will be provided by Overseas Development Administration (ODA) of the United Kingdom through its bilateral program for assisting the Indian coal industry. The local component would be provided from internally generated funds of CIL, Government resources and Bank funds.
1.03 The proposed project was submitted by GOI to the Bank irnJuly
*-2, and a pre-appraisal mission visited India in October 1982. It was a raised in March 1983 and post-appraised in May 1984.
II. THE COAL SECTOR 1/
A. Reserves and Production
2.01 Coal production in India is largely in the hands of the wholly government-owned CIL which accounts for about 90% of coal production. Other coal producers are Singareni Collieries Ltd. (SCL) with about 8% of total coal production, which is owned by GOI and the State Government of Andhra Pradesh, and two captive cokirn,coal mines of the Tata Iron and Steel Company (TISCO) and the Indian Iron and Steel Company (IISCO) - about 1% each of total coal production.2 / The Department of Coal (DOC) is in charge of policymaking and it monitors and coordinates activities in the sector including approving CIL's production targets and annual investment and operating budgets. Linkages between new mines and major consumers are
1/ Fuller background details of the coal sector are provided in India Coal Sector Report, Report 3601-IN, September 1982, and Dudhichua Coal Project SAR, Report 4714-IN, February 1984. 21 In addition Neyveli Lignite Company produced 6.5 million tons (provisional estimate) lignite in 1983/84. -2-
established by an interministerial committee and sanctioned by the Planning Commission. CIL's production and investment program are also scrutinized and reviewed by the Planning Commission.
2.02 Coal is India's most abundant indigenous energy source. Total coal resources (in seams greater than 0.5 meters and at depths of up to 1,200 meters) are estimated at 112 billion tons.3/ India's coal resources are over eight times as large, in terms of calorific value, as India's hydrocarbon resources which were recently estimated at 6.5 billion tons of oil equivalent.4/ The coal resources consist of about 78% thermal coal used primarily for heat and steam generation and 22% coking (i.e., metallurgical) coal used in steel making. There is a wide variation in the quality of thermal coal reserves (with useful calorific value ranging from 1,300 kcal/kg to over 6,200 kcal/kg) and in coking coal reserves (varying in ash content from about 15% to over 35%). Reserves of high quality thermal and coking coals are limited and both are in short supply.
2.03 To date, the coking coal reserves have been relatively more extensively explored and developed than the thermal reserves. As a result, coking coal reserves account for about 47% of proven coal reserves. The coking coal reserves are specified as prime coking coal (PCC), medium coking coal (MCC) and semi coking coal (SCC) according to caking and swelling characteristics.5/ The bulk of the reserves (71%) are medium coking coal. The ash content for both PCC and MCC ranges from about 15% to 35% and for SCC from about 15% to 18%.
India - Coal Reserves (million tons)
Indicated and Proven Inferred Total
Prime Coking Coal 3,673 1,724 5,397 Medium Coking Coal 8,139 9,611 17,750 Semi Coking Coal 567 1,323 1,890
Subtotal Coking Coal 12,379 12,658 25,037
Thermal Coal 13,952 72,889 86,841
Grand Total 26,331 85,547 111,878
Source: CIL.
3/ GOI has very recently revised this estimate to 127 billion tons based on the results of geological work undertaken in the past several years. The additional reserves are almost entirely thermal. 4/ One ton of Indian coal has on average about half the heating value of one ton of oil. 5/ This classification system is specific to India mnd not necessarily comparable to classification in other countries. -3-
2.04 During the mid to late 19709 coal productionin India was constrainedand new projectsdelayed by a varietyof difficultiesincluding power interruptions,mine floodings,labor unrest and input shortages. These productiondifficulties, combined with transportationproblems resultedin coal supplydisruptions to thermalpower plants and major shortagesof both thermaland coking coal for industrialconsumers. Since 1980, however,the productionsituation has been largely turnedaround due in part to improvementin externalfactors such as power suppliesand in part to improvementin managementeffectiveness especially regarding new project implementation.This has led to a significantexpansion of productionduring the last five years and preliminaryfigures for 1984/85 Indicatea productionof 149 million tons (incltding131 million tons from CIL) comparedwith 104 million tons in 1979/80(of which 91 million tons were from CIL).
B. GovernmentDevelopment Strategy
1. Objectives
2.05 Coal is India'smost abundantindigenous energy source and presentlyprovides over 50X of India's commercialenergy consumption. GOI's energy plans emphasize the development of coal both as a fuel for thermalpower generationand for direct use by industrialand commercial consumers. In the 1970s,when coal shortageswere prevalent,GOI's main prioritieswere to increaseproduction as quicklyas possiblewith llttle regard for efficiency,cost-effectiveness, coal quality or distributional factors. Today, GOI's strategyhas evolved to emphasizean adequatesupply of satisfactoryquality coal with economicallyefficient mining and transportationsystems. Specifically,GOt's coal developmentstrategy had the followingmajor emphases:
(a) developmentof new large-scalehighly mechanizedcoal mines which will permit the rapid expansionof coal production with due regard to safety and environmentalprotection using increasinglyefficient mining teclnologiesand equipment;
(b) rehabilitationand mechanizationof certaindeep underground prime coking coal operationsin the Jharia CoalfieldIn order to increasethe supply of prime cokingcoal as rapidly as possibleand reduce the need for imports;
(c) improvementin the availabilityand cost of coal to consumersin distantlocations from existingcoalfields by optimizingmineconsumer linkages, improving coal transportationsystems and giving priorityto exploringfor and developingmines in western and southernIndia; and
(d) introductionof measures to improvethe quality of coal delivered to consumers (in terms of both absolute quality and consistencyof quality) to reducetransportation requirementsand improve the efficiencyof thermalpower units, steel plants,industrial boilers, etc. -4-
2. InvestmentProgram
2.06 During the five years from 1980/81to 1984/85incluslve, CIL has implementedan investmentprogram of Rs 34 billion(equivalent to US$3.5 billion). For the next five years, an investmentof Rs 60 billion (US$5 billion)6 / in mid 1984 . terms of which about 20% would be foreign exchangerequirements, is anticipatedas shown below:
CIL - Investment Program (mid 1984/85terms)
1984/85 1985/86 1986/87 1987/88 1988/89 1989/90 Rs million 8,800 10,000 11,C00 12,000 13,000 14,000 USS million 730 830 920 1,000 1,080 1,170
2.07 The above programrepresents an increaseof about 402 in real terms comparedwith the previousfive years. The increaserepresents a combinationof an increasein both the number and averageslze of projects in the investmentprogram as well as an increasein the amountof developmentwork requiredfor each new large scale project. The sector 1i consideredto be makinggood progresstowards establishlng the necessary organizationalresources and capabilitiesto implementthe above program although continuedprogress is essentialif the program is to be realized. In particular,CIL must make continuedprogress in improvingits implementationcapabilities (para 4.08) and, once Improvementsare demonstrated,in disseminatingthem to other projectsthroughout the CIL Group. The programis also viewed as consistentwith the budgetary allocationpriority given by GOt to coal sector development.The program consists of approximately23% for expendituresco reconstructand improve operationat existingmines, 39Z for new projectspresently being implemented,21% for projectsprepared and awaitingfinal sanctionbefore initiatingconstruction and 17% for non-mine projectsincluding washeries, sand transportationand projectfeasibility work. Approximately60-65X of the expendituresare for open-pit mining projectsand 20-25% for undergroundprojects - the balancebeing non-mineprojects. A review of CIL's overallinvestment program indicatesthat with a few exceptionsthe investmentprogram is basicallyfollowing a least cost developmentpath. Examplesare given in para 8.10 for the expansionof cokirg coal production.
2.08 The investmentprogram places a strongemphasis on the identificationand developmentof new coalfieldswhich are nearer to consumerswho are in distant locationsfrom the major coalfieldsin eastern India. In particular,priority is being given to meet the needs of consumersin western and southernIndia throughexploratior. and development
6/ Preliminaryfigures for the SeventhPlan preparedby a GOI working group for the coal/lignitesector targetan investmentprogram of Rs 85,000million from 1985/86 to 1989/90. This is not considered achievable. The investmentestimate given in the text was preparedby Bank staff and is consideredfeasible if CIL continuesto improveits implementationcapabilities. -5-
of new coalfieldsin the regionof Nagpur, Maharastraand in the region of Bilaspur,Madhya Pradesh (by Western CoalfieldsLtd.) and in Andhra Pradesh (by SingareniCoalfields Ltd). The efforts have resultedin promising discoveriesand developmentsin the Kusmundaand Korba coalfieldsin Madhya Pradesh (the Gevra deposit is locatedin the latter),the Wardha Valley (Maharastra)and the GodvariValley (AndhraPradesh). In order to improve coal transportationto consumersin remote locations,GOI is presently undertakingstudies of possibleimprovements in coal transportationand producer/consumerlinkages. Improvementsin coal transportationwill be aided by measuresto improve coal quality (whichwill increasethe calorificvalue of a given quantityof coal thus reducingamounts to be transported)as discussedin para 2.10.
2.09 While the larger part of the programis for thermalcoal projects,coking coal projectsare importantlyemphasized in the program. Althoughtotal coking coal productionIs in line with steel industry demand,PCC has been in short supply for severalyears while the other grades have been adequatelyavailable. During the past five years an average 0.4 million tons per year (tpy) PCC importswas requiredcosting about US$30 millionyearly and a similar level of importsis expectedto be needed in 1984/85. PCC productionis much more difficultto increasethan productionof lower grades of coking coal (MCC and SCC) or thermalcoal becausemining conditions in Jharia coal field are much more difficultthan for coal fields in most other parts of India. Most undergroundmines have been in the range of 0.1-0.5million tpy and the recoveryof coal in Jharia has generallybeen in the order of 25-40%,7/with an outputper manshift KOMS)of about 0.5-0.6tons. These low recoveryand productivityfactors considerablyconstrain PCC productionin India. CIL has drawn up and is implementingthe JhariaReconstruction Program to improvethe recoveryand productionof PCC. One of the most promisingmeasures is to mine the shallowerareas by open-pitmining methods;this shouldprovide for 90% or more recoveryof previouslyunmined areas togetherwith recoveryof coal from old workings. Another is to combinegroups of small,unmechanized mines (generally0.1-0.3 million tpy production)into largersingle units (up to 3.0 million tpy each) using more efficient,mechanized production and haulagesystems where geologicalconditions permit. Such rehabilitationprojects provide for increasedproductivity (with an OMS of up to 2.0 for undergroundmines and 4.0 or higher for open-pitmines), higher output(mines of 1-5 million tpy) and higher recoveries(from 60 to 80%). The Jharia CokingCoal projectencompasses both approaches: the Block II complexuses open-pitmining technologyand the Pootkee-Bulliary complexis a rehabilitationundertaking which utilizeslongwall mechanized mining approach.
7/ Most undergroundmining methods can only recovera certainportion of the coal reservesin any particulardeposit - generallyabout 45-55%. In the case of Jharia, prevailinggeological conditions of thick coal seams in sands;onestrata result in much lower recoveryfactors. The coal that is left in the ground is, so far, effectivelylost from the reservebase suitablefor productior.. -6-
3. Coal Quality Improvements
2.10 GOI is rightly placing a high priority on improving the quality (in terms of consistency of coal quality as well as absolute coal quality) of both thermal and coking coals to consumers. GOI has appointed high level government commissions to study the problem of both thermal coal supplies (Report of the Committee on the Problem of Coal Supply to Thermal Power Stations, a.k.a. the Fazal Committee Report, October 1983) and coking coal supplies (Report of the Working Group on New Sources of Coking Coals, Hot Metal Production, and Coal Availability/Linkage to Washeries During the Seventh Plan, a.k.a. the C. S. Jha Committee Report, September 1984). For thermal coal, the Fazal Committee sade a broad range of recommendations covering various topics such as specific mine/power plant linkages, railway loading and dispatch procedures, coal preparation and deshaling, coal sampling and testing, coal stockpiling and coal quality bonus/penalty contractual arrangements. A number of measures are already being implemented. These include, 'sportantly, the introduction of contracts between the coal companies and major power utilities with joint sampling for coal quality and bonus/penalty clauses for quality differences versus agreed specifications. Another important measure which has been introduced by CIL is that satisfactory coal quality is now a criteria of mine managers' operating performance. CIL has started measurement and record keeping of the removal of rock and waste material from coal supplies, together with procedures to monitor the accuracy of the record keeping. Other useful measures are presently being considered for implementation by the Department of Coal.
2.11 The steel plants are concerned regarding (i) a steady deterioration in PCC quallty over the past several years and (ii) daily fluctuation in the quality of PCC received. The problem has been most severe and is mainly reflected in the increase of ash content in the coal. The CIL PCC washeries were designed to receive raw coal with 25% average ash content and produce washed coal with 17% average ash content. However the quality of both raw coal and washed coal has deteriorated in recent years and in 1983/84 the raw coal had 312 average ash content and the washed coal 22.5% average ash content8 / with daily fluctuation of as much as 1-2%. The decline in raw coal quality is largely due to gradual deterioration in the resource base combined with dilution due to increased use of blasting and mechanical coal cutting and inadequate supervision. Such high ash content means, on the one hand, a much higher coking coal production is required to meet a given level of hot metal production and, on the other hand, the productivity of the blast furnace is adversely affected. Improvement in the ash content of washed coking coal would therefore provide important savings in coking coal and steel imports as well as reducing steel production costs and lowering future investment needed to expand the capacity of coking coal mines and steel production facilities.
8/ By comparison most modern steel plants in other countries use washed coking coal with ash in the range of 6-10%. -7-
2.12 During the past year the GOI and CIL have given a high priority to improving PCC quality. Specifically, CIL has (a) eliminated a number of substandard coals from the feed to the washeries and (b) initiated various repairs and improvements at some of the older washeries which were transferred from ownership of SAIL to CIL in October 1983. Largely as a result of these two measures the average ash percentage in prime coking coal was reduced to 20.6% in first quarter 1984/85. Further improvements in PCC quality are expected over the next several years when (a) supplies of washed coal with 17% ash content become available from new mine/washery complexes such as Block II and Pootkee-Bulliary, and (b) as CIL implements a program of measures to improve raw coal supplies and washery operations. Measures to improve raw coal supplies include installation of new coal handling plants at some coking coal mines, development of new mining areas with superior quality prime coking coal, testing by Central Fuel Research Institute of certain coals with disputed coking qualities and use of premium quality Assam coal for blending purposes. Measures to improve washery operations include increased capital expenditures for washery improvements, installation of rotary breakers at certain washeries, upgrading of slurry by froth flotation at Dugda I and II washeries, umdifications to Patherdih washery, trials with pre-screening jigs at Barora washery and possible establishment of a washery institute.
C. Role of the Bank
2.13 The rationale for the Bank's involvement in the coal sector is to support its development so that it takes places in an efficient manner from technical and economic standpoints, including efficient resource allocation, and so that consumers are able to obtain sufficient quantities of adequate quality coal in a timely manner. The approach so far has been to (a) establish a policy dialogue to identify and address critical economic, sectoral and institutional issues that may impede the satisfactory achievement of GOI's objectives as outlined in para 2.05, and Cb) initiate a lending program focused on large scale projects aimed at assisting GO to improve its implementation and operational capabilities for highly mechanized, capital intensive mining projects.
2.14 The policy dialogue originated with a Coal Sector Survey (Report 3601-IN, September 1982) which addressed selected issues pertaining to coal supply/demand prospects, pricing, investment and financing. Energy pricing and resource mobilization were also addressed in Economic Situation of India and Resource Mobilization Issues (Report 4375-IN), April 1983. The policy dialogue, established during this sector work, was further developed with specific measures regarding coal pricing and coal transportation in the first lending operation for the Dudhichua Coal Project (Report 4714-IN, February 28, 1984) to provide thermal coal for power generation. A pricing agreement was reached with GOI in the Dudhichua project which should ensure that the GOI's pricing approach will result in prices that provide the correct signals to both consumers and producers regarding the economic value of coal. Provided pricing increases are made in a timely manner, the -8-
pricing approach should also progressively move the sector towards a sound financing footing. Additionally, improvements in the coal transportation and coal producer/consumer linkages are being studied which should lead to economic coal distribution patterns and should assist GOI in improving coal supplies to consumers in western and southern India. In the last lending operation support was also provided to institutional developments in CIL in operation of large-scale open-pit mines, project management, and budgeting and cost control. Local and foreign consultants have been retained by GOI and CIL to provide assistance on these institutional matters.
2.15 GOI has requested the Bank Group financing of projects to increase production of both thermal and coking coals, proposing one coal lending operation per year for the next several years. The Jharia Coking Coal Project will be the second of these operations, and the Gevra Thermal Coal Expansion Project is under preparation for FY1986. It is intended that the lending strategy should lead to involvement with all of CIL subsidiaries, while progressively addressing one or two important sectoral/institutional issues. The next priorities are (i) to develop improvements in coal sector manpower planning and training which are considered essential if CIL's project implementation and operational capabilities are to expand in line with the proposed investment program and (ii) to ensure that the implementation of measures to improve thermal coal quality takes place in a timely manner. Subsequently, it is intended to broaden the scope of the Bank's involvement to unmechanized mining operations including improvements in mine safety. Additionally, further sector work is planned for FY1986 which would focus on a more detailed and in-depth review of CIL's approach for identifying, selecting, preparing and implementing its investment decisions, as well as a review of the operational and economic efficiency of a large number of labor intensive underground operations. -9-
III. THE MARKETFOR COKING COAL
A. Coking Coal Supply and Demand Prospects
1. Overview of Indian Coal Market
3.01 Coal is essential for future industrial growth in India. At present, industrial and commercial consumption account for an estimated 48% of coal consumption in India. The largest industrial consumers are the steel sector primarily for coking coal (18%), tbe cement sector (6Z) and the fertilizer sector (3X). The balance (21%) is used largely for heat and steam generation by about 20,000 industrial units in a variety of different industrial subsectors. Besides the industrial sector, power generation accounts for 42% of coal consumption, railways (7%) and residential (3%). Demand projections for the period up to 1989/90 indicate that coal demand will be in the range of 200-240 million tons by 1989/90 (an average annual growth of 6.6-9.9% per year) depending on underlying assumptions regarding product growth and energy consumption trends in different coal consuming sectors and inter-fuel market shares. Based on this range the most likely estimate of future coal demand in 1989/90 is 220 million tons. Power sector demand for coal is expected to grow most rapidly and will account for 50% of coal consumption by that year. The share of industry will decline slightly (to about 44% in 1989/90) but steel industry consumption of coking coal will increase slightly to 19% of total consumption. The ratio of coking coal requirements to steel requirements will decline slightly because of improved average blast furnace productivity due to the expansions at Bhilai and Bokaro and the new plant at Vizag.
Irdia - Goal DIeid Projectkns (millim txs raw coal) Anmml Avege Groth Rate (X per ^Mr) 1983/84 1984/85 1985186 1986187 1987/88 1988/89 1989/90 1983/84--LW/9
57 61 67 76 87 98 109 11.4 --yes 10 10 9 9 9 8 8 (3.7) Mt 8 9 10 11 12 12 13 8.4 ilize 4 5 6 6 6 6 7 9.8 30 31 36 37 39 40 42 5.8 Subntotalfl~rnr1. 109 116 128 139 153 164 179 8.6
rGwO 27 30 32 35 37 40 41 7.2 13L 146 160 1D4 190 2D4 2m3 8.3 Grand Total - - - - = -
3.02 Production projections have been prepared for CIL and the other coal companies based on the investment and development program discussed in para. 2.08. These indicate that production could be increased to meet the -10-
projected demand of 220 million tpy 9 / with most of the increasebeing provided by CIL as shown in the table below:
Izxla - 9ae Spply Proj ti%os II(mill tons raw coal) Amml Average &h Rate (Z per M2! 1983/84 L984/85 1985/86 1986/871987/88 198 1989/90_89 ___3/84 to I989
CIL 121 131 142 151 163 176 190 7.8 SCL 13 14 15 17 20 22 25 11.5 TIsSID/IUSM 4 4 4 5 5 5 5 3.8 Ibtal 49 161 173 188 203 220 8.1
dng GCoal 29 31 32 35 36 39 44 7.2 Thnm Coal 109 118 129 138 152 164 176 8.3 Total 138 149 161 173 188 2D3 220 8.1
3.03 A review of the status of preparation and implementation of major projects in CIL's investment program indicates that a production increase of about 70 million tpy from 1983/84 to 1989/90 is feasible. In particular, CIL, has increased production by 30 million tpy in the past four years (from 91 million tons in 1979/80 to 121 million tons in 1983/84) and it is quite feasible that CIL's production could further increase by another 70 million tpy by 1989/90 given that several large new open-pit mines are being developed which would provide substantial production in the late 1980s.
2. Coking Coal Requirements and Supply Prospects
3.04 Coking coal is required primarily by the steel industry for making coke, which is used in the blast furnace for steel making. In addition, small quantities of coke (mostly produced from medium coking coal which is presently in excess supply in India) are used by household and industrial plants. In 1983/84, the integrated steel plants produced 9.1 million tons of hot metal. For the future, hot metal production is projected to increase to 14.7 million tons in 1989/90-as described in Annex 1 which provides a description of the steel industry and its development prospects. The supply allocation and marketing of coking coal in India takes place within a set of formalized procedures under the auspices of GOI. A basic structure of linkages between washeries and steel plants has been established and the coal controller who is appointed by GOI and based in Calcutta makes monthly and quarterly supply allocations of washed coking coal taking into account any production difficulties or closures for maintenance and repair of either the washeries or the steel plants.
9/ Coal production and demand have been targetted at 245 million tons in 1989/90 by a GOI working group. These are not considered feasible. -1 1.-
3.05 The basic product purchased by the steel mill is washed coking coal. Washing reduces the ash content of the coal and provides for consistent quality - both of which, improve blast furnace efficiency. Coking coal requirements of each steel mill are based on a certain blend of PCC, MCC and SCC. The blend ratio is fixed according to the technical parameters of each plant to provide maximum efficiency in the blast furnace. There is very little flexibility for adjusting the ratio if the requirements and supplies of different coking coals are imbalanced. The average blend for the Indian steel industry is in the order of 55/38/7 for PCC/MCC/SCC. Washed coking coal supply and demand projections have been prepared for the different types of coking coals as shown below.
India - Washed Coking Coal Supply/Demand Projections a/ (million tons washed coal)
1983/84 1984/85 1985/86 1986/87 1987/88 1988/89 1989/90 PCC Supply 7.7 8.0 8.4 9.0 9.7 10.2 11.8 Demand 8.4 9.4 9.9 10.9 11.6 12.4 13.0 Balance (0.7) (1.4) (1.5) (1.9) (1.9) (2.2) (1.2)
MCC supply 8.3 8.8 8.9 9.8 10.0 10.9 11.8 Demand 5.8 6.5 6.8 7.5 8.4 9.1 9.5 Balance 2.5 2.3 2.1 2.3 1.6 1.8 2.3
SCC Supply 0.8 0.8 0.8 0.8 1.0 1.2 1.5 Demand 1.0 1.1 1.2 1.3 1.3 1.4 1.5 Balance (0.2) (0.3) (0.4) (0.5) (0.3) (0.2) 0.0
TOTAL Supply 16.8 17.6 18.1 19.6 20.7 22.3 25.1 Demand 15.2 17.0 17.9 19.7 21.3 22.9 24.0 Balance 1.6 0.6 0.2 (0.1) (0.6) 1.1 ==90
a/ Includes small amounts of direct feed coal also.
3.06 These supply/demand projections are based on estimates of hot metal production, washing capacity and mine production. The washed coking coal demand has been prepared based on a hot metal production of 14.7 million tpy in 1989/90 as discussed in Annex 1. The washed coking coal supply projections have been prepared on the basis of projections of washery capacity and mine production. There are presently twelve PCC washeries plus three more planned and eight MCC washeries plus three more planned or under construction (Annex 2). 10/ The SCC does not need washing since its ash content (16-18X) is within acceptable limits for direct use at the steel plant. Mine production projections for raw coal have been
IO/ One washery at Durgapur Steel Plant (DSP) is included in Annex 2 for both PCC and MCC since it has circuits for both types of coking coal. -12-
prepared based on a detailed review of CIL's coking coal mines together with an assessment of future production trends at the TISCO and IISCO mines. The projections include not only incremental production from new projects but also declines in production at many existing operations due to mine depletion. The projections have been prepared taking into account the various grades of coking coal as follows:
India - Coking Coal Mine Production Prospects (million tons raw coal)
1983/84 1984/85 1985/86 1986/87 1987188 1988/89 1989/90
PCC 14.8 15.3 16.2 17.3 18.7 19.6 22.6 MCC 13.8 14.6 14.8 16.4 16.7 18.2 19.6 SCC 0.8 0.8 0.8 0.8 1.0 1.3 1.8 Total 29.4 30.7 31.8 34.5 36.4 39.1 44.0
3.07 The above projections indicate that while the coal companies should be able to supply the steel sectors requirements for MCC, shortfalls will occur for PCC and SCC. The shortfalls will be most severe for PCC. As noted previously (para 2.09) PCC imports have been required for the past several years and CIL has placed a high priority on increasing PCC supplies. The above projections indicate that notwithstanding the efforts to increase FCC production, it is to be expected that imports of PCC will continue to be required and could increase to 1-1.5 million tors in the mid-to-late 1980s. The Jharia coking coal project is an important part of the increase in PCC expected in the late 1980s and without the project coal import requirements would be much higher. SCC production takes place largely in deep underground mines in Bihar/West Bengal where production can only be expanded slowly due to difficult geological conditions. CIL is examining ways of improving SCC supplies including shipments of suitable quality coal from Assam. However, the shortages are less critical than for PCC since they are much smaller and the steel industry can more readily adjust its operations to counterbalance shortages of SCC than FCC.
3.08 The raw coal does not have uniform washing charactistics. The washing characteristics depend on which seam is being mined and which part of the coalfield the seam is located in. Th.ts,the washeries are linked to particular groups of mines based on the raw coal washing characteristics, and the washeries have different design characteristics according to the linkage specified. CIL is undertaking a construction program for new washeries linked with incremental mine production. The washed coal supply projections are based on adequate washing capacity being available to wash all of the mine production. This is expected to be the case in all years except 1987/88 when a temporary shortage of washing capacity may arise as shown below: -13-
India - Prime Coking Coal Washery Capacity and Raw Coal Production (million tons - raw coal)
1983184 1984/85 1985/86 1986/87 1987/88 1988/89 1989/90 PCC Washing Capacity 15.9 17.0 17.9 17.9 17.9 19.7 22.6 PCC Mine Production 14.8 15.3 16.2 17.3 18.7 19.6 22.5 Balance 1.1 1.7 1.7 0.6 (0.8) 0.1 0.1
3.09 Since it is very unlikely that any planned washeries can be advanced to be available in 1987/88 CIL is presently considering contingency plans to improve throughput at existing washeries such as Bhojudih and Dugda I and II in the event chat coal supplies actually exceed capacity 'La that year as projected. Also increased capacity may be available at three other washeries owned by SAIL, IISCO and the Government of West Bengal respectively.
B. Coking Coal Prices and Pricing Policy
3.10 Coal prices are set by GOI on an administered basis. During the 1970s, prices were allowed to lag behind costs and the industry experienced large losses. During the past five years, however, GOI has increased prices on four separate occasions which has resulted in an overall price increase of 88%. In 1982/83, GO! also authorized CIL to introduce an internal retention price system whereby internal accounting prices were established for each subsidiary which took due account of cost differences between the subsidiaries due to geological conditions, locational factors and other influences outside of the control of the subsidiary. This change was in line with the recommendations in the India Coal Sector Report (Report 3601-IN). The most recent coal price revision (January 1984), resulted in prices basically in line with economically efficient levels. Additionally, an important aspect of the 1984 price increase was that the largest adjustments were provided for the higher grades of coal so that the differentials between the different grades of coal would better reflect the value to the users. The minehead price schedule is given in Annex 3. In addition consumers pay certain taxes and levies which amount to approximately 25% of thermal and coking coal minehead prices for Jharia coals. The levies on coal in Bihar are given in Annex 4.
3.11 GOI's coal pricing approach is to set prices at the minehead with a view to providing a satisfactory return on net worth under conditions of efficient operation, and to ensuring the financial viability of Coal India as well as progressively increasing the level of resource mobilization in the sector in order to cover an increasing portion of coal sector capital expenditures. GOI has agreed to review coal prices periodically in line with the above pricing approach and with agreements made under the Dudhichua Coal project. An inter-ministerial working group, headed by the Chairman of the Bureau of Industrial Costs and Prices (BICP), was established in early January 1985 to consider the need for a coal price increase. The group is expected to complete its review by end February 1985, following which recommendations will be submitted to the Government. -14-
3.12 Coking coal pricing,however, presentsan addititional complicationbecause the basic productrequired by titesteel mills is washed cokingcoal for feeding into coke oventsrather than the raw coal producedby the mines. Additionally,in November1983, the coking coal washeriesowned by SAIL were handed over to CIL. Prior to this date, SAIL used to purchaseraw coking coal from CIL payinga fee for washing. Followingthe change in ownership,all cokingcoal is now sold on a washed coal basis. Accordingly,CIL and SAIL introducedcontracts for the sale of washed cokingcoal which is in line with contractualarrangements in other countries. In these contracts,the price of the washed coal is based on a formula taking into account the administeredprice of the raw coking coal, the operatingcost of the washery,efficiency norms for the washery aud a return on capitalfor the washery. Most importantly,the contractsinclude bonus and penaltyclauses relating to the quality (in particular,the ash content)of the washed coking coal suppliedto the steel plants. The bonus/penaltysystem providesa direct incentivefor CIL to improveboth its mining and washeryoperations to ensure the best possiblefeed to SAIL. This pricingapproach is consideredsatisfactory since it results in prices very close to efficiencyprices after due adjustmentfor quality differentials. Ex-washeryprices for cokingcoals with 20% ash content are currentlyat Rs 560 per ton (US$46.7),including sales taxes and levies. This is in line with the net-backparity price of importedAustralian coals"1 / which is estimatedat US$50 per ton ex-washeryafter adjustments for port handling,inland freight and quality differertials.
IV. THE BENEFICIARIES
A. Coal India Ltd. 121
L. Organizationand Management
4.01 The CIL group of companieswas organizedby GOI in September 1975, followinga restructuringof the coal companieswhich were nationalizedin the early 1970s. The group was establishedas a holding company(CIL) and five 1 / wholly-ownedsubsidiaries, Bharat Coking Coal Ltd. (BCCL),Central Coalfields Ltd. (CCL),Eastern Coalfields Ltd. (ECL),Western Coalfields Ltd. (WCL),and the CentralMine Planningand Design Institute(CMPDI). Its activitiesare regulatedunder the framework of the CompaniesAct of 1956. CIL operatessemi-autonomously under the directionof an eleven-memberBoard of Directors,headed by its Chairmanr appointedby the Presidentof India. The Chairmanalso acts as Managing Director,responsible for the day-to-daydirection of the Group.The Board of Directorsalso includesthe chairmenof CIL's subsidiaries,and
11/ The CIF price of Australiancoal is currentlyUS$70 per ton for a medium/highvolatile, low sulphur, 10% ash coking coal. 12/ Furtherbackground details on Coal India Ltd. have been recently discussedin the SAR for the DudhichuaCoal Project,Report 4714-IN, February1984. 13/ CIL also has one other small subsidiary,North-Eastern Coalfields Ltd. (NEC),which is organizedas an operatingdivision directly under CIL headquarters. -15-
government representatives. The Board has also appointed a Technical Committee, responsible for reviewing and recommending development projects and bid awards for imported equipment.
4.02 According to its articles of incorporation, CIL is required to seek GOI's approval, inter-alia, for specific investments of Rs 50 million or more, five-year and annual plans of development and capital budget, and its operating budget. Otherwise, CIL operates with autonomy for carrying out its operations, including the implementation of new projects. CIL is functionally organized with managers for production and safety, engineering and supplies, corporate planning, project monitoring, coal marketing, personnel and finance. The Technical D)irectorand Finance Director are also Board members. CIL organization chart is shown in Annex 5.
4.03 CIL's subsidiaries operate under the direction of a Board of Directors, headed by a Chairman, who also acts as Managing Director, appointed by the President of India. Four of the subsidiaries namely BCCL, ECL, CCL and WCL are coal producing units organized functionally with managers responsible for production, corporate planning and projects, finance, marketing and personnel. For each company, mining activities are organized into small regional areas, each under the supervision of an area manager. Presently, these subsidiaries operate 384 mines, organized in 51 areas with an average production of about 2.5 million tpy per area. A more detailed description of BCCL is provided below (paras 4.18 to 4.20).
4.04 In addition to setting general policies for its subsidiaries and retaining authority regarding the typical managerial functions of a holding company, CIL directly manages the financial resources of the group. CIL is responsible for overseeing the group's investment program (para. 2.07). All contributions from the GOI (about US$800 million in 1983/84) in the form of new equity and long-term loans to fund the expansion programs are channeled through CIL, who decides on the allocation to the subsidiary companies depending on priorities and their cash position. Under this scheme CIL is the borrower of all long-term loans, and as such it has direct responsibility for servicing the long-term debt. Since CIL is responsible for decision-making on financial and administrative matters, and is the borrower of all long-term loans, it was considered as the primary beneficiary of the Bank loan for Dudhichua and is accordingly considered as the primary beneficiary of the proposed loan for Jharia.
4.05 The CIL group is a very large and complex organization. Since its inception in 1975, and particularly during the last six years, CIL has made progress in terms of consolidating the organization, implementing accounting and other operational control systems, expanding production, improving the operational efficiency (particularly labor productivity), and strengthening its capability for project preparation and implementation. During this period, steps have been taken to decentralize the operations giving more autonomy to subsidiaries and its operating arms, mainly regarding operational, marketing and personnel matters. These efforts have resulted in steady improvements in CIL's functio;'ng and CIL is now able to -16-
play a major role in decentralizingfrom the Government the coordinating functionfor the implementationof sectoral policies. The questionhas been raised as to whether or not it would improvethe efficiencyof the sector to decentralizethe group and create severalautonomous companies. Such a move would not per se provide any substantialimprovement in CIL's operations at least at the present time and could retard the progress already made. CIL has proved an effective agent in coordinatingthe sector'sdevelopment which would otherwise need to be undertaken by the bureaucracyof the centralgovernment. There is, however,further room for improvementin CIL's organization. A more effectiveapproach adopted has been to assist CIL in making further progressin strengtheningits operationsunder the presentorganizational structure. To this end, three specificoperational. and managerialissues were addressedunder the DudhichuaCoal Project. These relate to budgetary and cost control systems, the operational efficiency in open-pit mines and project managementorganization and practices.
4.06 The Indian Instituteof Management(Ahmedabad) has been retained by CIL to provide technicalassistance for strengtheningthe operational budgetaryprocedures of CIL and its subsidiaries. In particular,the assistance,which will be channeledthrough CMPDI, will focus on definition of cost and profit centers,basic proceduresfor budget formulationand reporting,and definitionof controlmechanisms and correctiveactions. The design stage will be completedby mid-1985 and the Implementationwill follow thereafter.
4.07 CIL has also invitedproposals (through CCL) to contractthe servicesof about 50 man-monthsof foreign consultants(financed under the DudhichuaLoan, 2393-IN)for improvingthe efficiencyof open-pit operations. Six consultingfirms specialtzedin operationalaspects of open cast mining have been invited to submit proposals under terms of referenceagreed with the Bank. Metchem, Canada,has been awarded the contractand is expectedto mobolizein February 1985. Additionally,CIL has retainedthe Central Road Research Institute(New Delhi) to assist CMPDIand CCL in the improvement of design, construction and maintenance of haulroadsin open-pit mines.
4.08 With regard to projectmanagement practices, various positive steps have been taken followingthe dialogueinitated with the Bank during preparation,negotiations and early stages of implementationof the DudhichuaCoal Project. Firstly, projectmanagers were in the past reportingto area generalmanagers, who are mainly concernedwith production. Recently,this has been modifiedand the positionof project managers has been elevated so that they report to a positionwith responsibilityfor project developmentrather than production. In BCCL for example,a new positionof TechnicalDirector Projects has been createdand the hierarchical level of project managers has been upgraded to general managers. Secondly, a project implementation manual has been prepared for Dudhichua,following terms of referenceagreed with the Bank. The Bank has commentedon a draft, and after some modificationsthe manual is expected to be implementedin early 1985. Similarmanuals have been requestedfor both componentsof the Jharia Coking Coal Project (para.5.32). -17-
2. Operations
4.09 During 1983/84CIL produced 121 million tons of coal of which 95 million tons were thermalcoal (79%),aP4 the balance 26 million tons (21%),coking coals. The contributionof each subsidiaryto CIL production is shown below.
CIL - Coal Productionby Subsidiary,1983/84 (milliontons of raw coal)
Thermal Coking Total
Bharat Coking Coal Ltd. (BCCL) 8.0 13.6 21.6 Central CoalfieldsLtd. (CCL) 25.3 11.5 36.8 EasternCoalfields Ltd. (ECL) 22.2 0.7 22.9 Western CoalfieldsLtd. (WCL) 39.0 0.4 39.4 North Eastern Coalfields Ltd. (NEC) 0.7 - 0.7 Total 95.2 26.2 121.4
Source: CIL.
4.10 Undergroundmining accountedfor 51% of CIL productionin 1983/84. CIL is undertakinga program to rationalizeits underground production,basically aimed at reorganizinggroups of small mines into larger units and introducingmechanization both in coal extractionand transnortation.This programis a sound strategywhich is expected to contributeto reducingunit productioncost as well as providingincreases in production. At present 24 reorganization/mechanizationprojects are at differentstages of implementationthroughout the CIL group, of which 9 are for coking coal mines predominantlyin BCCL. These schemesimply both the mechanizationof the room and pillar mining operationsand the use of mechanizedlongwall technology. At present only about 5% of CIL's undergroundproduction is coming from mechanizedmines but their proportion will increaseto about 35% in the early 1990s when these mechanization projects are fully operational. Managementof these mechanizedmines, particularlythose using the fully mechanizedlongwall technology such as Pootkee-Bulliary,needs strengthening. In order to improvethe operation of these mines, BCCL has agreed to retain technicalassistance to improve the design,management and operatingprocedures for highly mechanized undergroundmines, and an outline for the scope of work is presentedin Annex 6. It has been agreedwith BCCL that this technicalassistance will be financedwith the proposedloan and that it will be initiatedbefore December 31, 1985 under terms of referenceacceptable to the Bank, and that the Bank should be furnishedwith a copy of the studiesundertaken and given opportunityto commenton the findingswhich should then be implemented. About seven man years of foreign consultantswill be retained accordingto proceduresacceptable to the Bank.
4.11 Open-pitmines accountedfor 49% of CIL productionduring 1983/84. The operatingefficiency of (?en-pitmines has been a matter of concern to the Bank. As noted earlier .para. 4.07), a programof technical assistancewas agreed in the loan for the DudhichuaProject, and its implementationis due to start in early 1985. -18-
4.12 Coal beneficiationoperations of CIL include 15 washeries,and all of them except one process coking coals for the steel industry. The main objectiveof this beneficiationis to reduce the ash content of coking coals. As discussedearlier (para. 2.11) the qualityof the washed coal deliveredto steel plants has deterioratedin the past, and CIL has been implementingmeasures to change this trend, and some achievementshave been made during the currentfiscal year. During 1983/8415.4 million tons of raw coking coals were beneficiatedin CIL's washeries,14 / yielding 9.2 millicn tons of washed coal.
4.13 In 1983/84,CIL provided employmentto 655,300personnel. The compositionof the staff is as follows:
CIL - Staffing 1983/84
Category Staff X
Managerialand High TechnicalStaff 11,000 1.7 Supervisors 92,700 14.1 Qualified/SpecializedStaff 10,600 1.6 SkilledWorkers 98,000 15.0 Non-SkilledStaff/Manual Workers 443,000 67.6
Total 655,300 100.0
Source: CIL.
4.14 CIL directlyoperates seven central trainingcenters specialized in management,open-pit and undergroundtechnologies and coal beneficiation. In addition,the subsidiarycompanies operate sixteen regionaltraining centers covering managerial, technical and vocational training activities plus about fifty area training centers for vocational and statutorysafety courses. During 1983/84,the trainingprogram in these centers comprisedabout 5,000 courses given to 103,000 participants, of which about 88Z were workers, and the rest managerialand supervisory staff. CIL's trainingactivities have been strengthenedover the past severalyears througha programof foreigncollaboration including, most impotldntiy..the British coal industry. However,while trainingactivities for certain skillsor functionshave been developed,there is no comprehensiveoverview of trainingneeds and how they should be met. Furthermore,the overall trainingfunctions is badly understaffed. The Bank has diseo_ssedwith CIL measures to improvethe effectivenessof the trainingfunction, particularly in the light of the impactof the investmentprogram on the skills of the labor force over the next five to ten years. During these discussionsit became apparentthat improvements in trainingare only a part of a much broader issue relatedto manpower planningat all levelsof the CIL organization. CIL has acknowledgedthe need to improveits manpowerplanning and is preparinginformation on its present capabilitiesand requirements. This should be availableearly in 1985 and will provide the basis for assistancewhich could be includedin the proposedGevra Coal ExpansionProject. 14/ Raw coal was also fed directly to the steel mills, was sent to coking ovens for non-steelconsumers and was fed to two non-CILwasheries. -19-
3. Financial Position
4.15 The financial performance of CIL over the last five-year period is summarized helow and given in fuller detail in Annex 7.
CIL - Summary of Financial Performance 1980/81 to 1984/85 (Rs million)
1980/81 1981/82 1982/83 1983/84 a/ 1984/85 b/
Coal Sales (million tons) 94 102 109 116 124 Net Revenues 11,300 14,209 17,063 19,051 23,800 Operating Expenses 10,273 12,138 14,240 18,475 19,065 Depreciation 738 951 1,344 1,716 2,138 Interest 626 778 1,110 1,324 2,042
Net Income (Loss) (337) 342 369 (2,464) 555
Internal Cash Generation 401 1,276 1,713 (749) 2,693 Capital Expenditures 3,412 5,809 7,142 8,615 8,800 Long-Term Debt 12,557 13,196 17,461 19,273 21,753 Accumulated Losses (8,461) (8,119) (7,370) (9,758) (9,203) Net Equity 2,385 5,483 9,542 11,541 17,113
Net Income (Loss)/Revenues % (3.0) 2.3 2.2 (12.9) 2.3 Current Ratio 1.1 1.3 1.3 1.2 1.3 LT Debt/Equity Ratio 84:16 71:29 65:35 62:38 56:44 LT Debt Service Coverage 0.9 1.4 1.4 0.3 1.1 a/ Unaudited. b/ Estimate based on investment and operational budgets.
4.16 Up to 1980/81, CIL had been in a loss situation, which derived from a low level of coal prices and an emphasis on increasing production without due regard to cost effectiveness. This trend was reversed in 1981/82 when CIL showed for the first time an acceptable income statement with adequate levels of internal cash generation, long-term debt service coverage and current ratio. The financial position improved further during 1982/83. However, during 1983/84 CIL showed a financial loss and consequently a deterioration of the main financial indicators due to the back-dating of a national wage and salary settlement associated with a new four year collective bargaining contract. The wage settlement was finalized in December 1983 and an offsetting price increase was made in January 1984. However, the wage award was back-dated to January 1983 causing a large loss for CIL which was financed by delaying debt repayment to GOI. The budgeted re.sultsfor the current financial year (1984/85) envisage a return to a financial position similar to that of 1982/83. Preliminary results for the first quarter are positive and a profit of about Rs 555 million is expected for the full year. -20-
4.17 The accounts of CIL, as well as its subsidiaries, are audited annually by statutory auditors (a partnership of independent chartered accountants) appointed by the Government of India in consultation with the Comptrolle-. and Auditor General of India. These arrangements are satisfactory. Statutory auditors are appointed for a period of three years at the end of which they must be changed. At the completion of their audit, the statutory auditors express their opinion on the fairness of the financial statements, which is included in the Company's annual report. The auditing standards and procedures followed are those laid down by the Indian Institute of Chertered Accountants. An additional audit is conducted by the Audit Board of the Office of the Comptroller and ±=ditor General of India. This is both a financial and a management audit and the comments of the Audit Board are also published with the financial statements of CIL.
B. Bharat Coking Coal Ltd. (BCCL)
4.18 BCCL is the subsidiary of CIL which is responsible for the development and operation of the Jharia Coking Coal Project. BCCL is the main producer of coking coal in India, accounting during 1983/84 for 52% of the total coking coal production and all of the prime coking coal. BCCL's headquarters are in Dhanbad, in the state of Bihar. At present, BCCL operates about 100 coal mines, organized in 37 mining areas grouped in two operating divisions. Additionally BCCL owns and operates nine washeries and another three are planned to be constructed during the Seventh Plan.
4.19 During 1983/84, BCCL produced 21.6 mi'llion tons of run-of-mine coal, of which 13.6 million tons were coking coals (63%). Underground mining accounted for 65% of BCCL's production, which is significantly higher than the average for CIL (51%). This, and the difficult geological conditions result in relatively higher operating costs of BCCL's mine compared with other subsidiaries.1 / During 1983/84, the average operating expenditures of BCCL were Rs 234 per ton of saleable coal, which was 44% higher than CIL's average, whereas the average revenues were only 20% above the group's average.
4.20 BCCL is currently in a relatively weak financial position. Although efforts have been made consistently for many years to improve the efficiency of BCCL's operations, BCCL's higher operating costs resulted in heavy losses during the late 1970s and early 1980s leading to large losses and a concommitant decline in management morale and control. During 1982/83, part of the funds channelled for covering BCCL's financing requirements were converted into equity. This measure, together with the retention pricing system (para. 3.10), resulted in an improved internal cash generation. At the same time BCCL managemnenteffectiveness increased notably. The financial situation deteriorated somewhat during 1983/84, as was the case for the entire CIL group due to a belated price revision (para. 4.16). However, during 1984/85 BCCL is expected to improve its financial position as shown in the table below.
15/ Stowing operations for controlling subsidence in densely populated areas, particularly in Jharia, contribute importantly to the higher operating costs. -21-
BCCL - Summary of Financial Position (Rs million, current ter )
Fiscal Year 1982/83 1983/84 a/ 1984/85 b/
Coal Sales (million tons) 22.2 20.1 20.7
Net Revenues 4,112 3,249 5,941 Operating Expenditures 3,515 4,451 4,713 Net Income (36) (1,911) 69 Internal Cash Generation 313 (1,592) 475 Capital Expenditures 1,440 2,134 1,800
a/ Unaudited. b/ Estimate based on investment and operational budget.
V. THE PROJECT
A. Project Objectives
5.01 The proposed project fits in directly with both GOI's coal overall development strategy (para. 2.05) and GOI's coking coal development plans increasing output, recovery of reserves and productivity (para. 2.09). Both mining complexes form part of the master plan to restructure the Jharia coalfield which is the main source of prime coking coal for the steel industry. The Open Cast Block II complex is the first of the medium/large scale open-pit mines to be developed as part of the Jharia Reconstruction Plan and by 1989/90 will account for about 11% of prime coking coal p _uction (2.5 million tpy raw coal). When completed, the Pootkee Bulliary complex will be the largest underground mining operation to be implemented in India (3.0 million tpy raw coal). Both projects will utilize highly mechanized mining system for which Bank assistance will be provided. The project, thus will provide for increased productivity, higher output and improved recoveries, and lower production costs. The project will also extend the Bank's assistance into three important areas relating to (i) underground mine operating practices (improved procedures for ui&dergroundmining using highly mechanized equipment - para. 4.10), (ii) shaft sinking (improved efficiency through better organization and more modern equipment para. 5.20), and (iii) transportation of stowing materials (study of alternative modes of transportation of sand for stowing (para. 5.19)). Both mining operations should, thus, improve the overall operating efficiency of BCCL.
5.02 The project should also help improve the quality of coking coal supplies to the steel industry thus contributing to GOI's objectives of improving coal quality. This will be accomplished, on the one hand, through the development of a sector-wide action program to improve coking coal quality (paras. 3.10 and 3.11) and, on the other hand, because of the superior quality of final product of the project compared with present supplies of washed prime coking coal. The final product will be washed -22-
coking coal with significantly lower ash content (17%) than the current avera,e supply to the steel sector (20-21%). The lower ash coal will also help co improve the operational efficiency and cost effectiveness of the blast furnacesin the steel plants. Further, the project will help to reduce the need for imported coking coals and thus contribute to conserve scarce foreign exchange. The project will also support follow-up on the coal transportation and producer/linkage studies being undertaken under the Dudhichua project.
B. Project Description
1. Scope
5.03 The project 5cope comprises the development of -ne open-pit mine and one anderground mine with design capacities of 2.5 and ..0 mty of raw coal respectively, two coal washeries, coal handling plants and surface infrastructure including railway spurs, workshops, warehouses, offices and town sites. Total annual output of washed prime coking coal for the steel industry will be 2.6 million tons when both mines are operating at full --^pacity. Two new vertical shafts will be constructed for the underground mine. The project also includes measures to improve coking coal quality and technical assistance for mechanized underground mining operations, shaft design and sinking techniques, and sand transportation.
2. Location, Geology and Reserves
5.04 Block II open-pit mine and Pootkee-Bulliary underground mine will both be located in the Jharia coalfield in Dhanbad district of Bihar (Map 18594). In 1978 a master plan was prepared for the reconstruction of the total Jharia coalfield Chart 1 and 9 blocks were delineated as suitable for open-pit mining methods and 21 blocks were to be mined with underground methods. The coalfield is today characterized by a great number of small-scale underground mines and open-pit operations in coal seam outcrops. The topography is fairly flat at an altitude of about 200 m above sea level. The area is drained towards the South in the rainy season mainly by the Damodar river. The infrastructure is well developed and the coalfield is rather densely populated with Dhanbad being the major town.
5.05 The climate of the Jharia coalfield is tropical with very hot summer months (March-June) with temperatures reaching 50°C (122°F). In the winter (November-February)the temperature can be as low as 3°C (380F). The average annual precipitation is recorded to be about 1,350 mm out of which 95% falls in the monsoon season (June-September).
5.06 The Jharia coalfield covers an area of about 453 km2 and the rock types are in a broad fashion classified in two main groups, i.e., the basement Archaean Gneissic Complex and the Permo-Carboniferoussediments with the coal bearing strata and partings consisting of sandstone and shale. The strike of the formation is generally east to west and the dip 7°-15° towards south. -23-
5.07 The first geological mapping was completed in 1930. This was followed by an update and resurvey in 1956 and a major drilling campaign took place in 1977/78 under supervision of CMPDI and the Geological Survey of India. Total proven and indicated reserves are estimated at about 4.0 billion tons. Exploration work and proven reserves for the two project components are summarized in table below:
Jharia Project - Exploration Work and Mineable Reserves
Project Number Number Average Seam Mineable Area of Total of Thickness Reserves a/ (km2 ) Holes Meters Seams (a) (million tons)
Block II 3.46 34 8,462 9 1.6 - 9.9 39.3 Pootkee-Bulliary 14.64 58 16,250 6 1.7 - 6.7 99.9 a/ In slit proven reserves less mining losses.
Source: CIL.
The project areas are tectonically disturbed by a number of faults. However, the available geological and hydrogeological information derived from exploration work and operating open-pit and unierground mines is considered sufficient for the purpose of mine design and reserve calculation. At proposed mining rates the reserves allow for 17 and 33 years of production for Block II and Pootkee-Bulliary respectively.
3. Open Cast Block II Mining Complex
5.08 The open-pit mine of the Block II complex will have an overall stripping ratio of 4.1 m3 /ton of coal and a depth of 220 m in its final stage. The mine has been designed for an annual capacity of 2.5 million tons of raw coking coal with an ash content of about 30X and a 17 year life. The coal is classified as washery grade IV. The coking coal measures are underlain by a series of thermal coal seams at depths which are uneconomic to mine at this date and which could only be recovered by spoil rehandling in the future.
5.09 Overburden will be blasted and removed bo three draglines, assisted by forty-four 85 ton trucks and four 11 m3 shovels. Coal, after drilling and blasting, will be loaded by hydraulic shovels and hauled by 40 ton bottom dump truicksto a crusher station from where the raw coal will be moved to the washery by conveyor. Coal release will start very shortly after start of excavation. Mine planning has been done in sufficient details for the feasibility purpose, but needs some further refinements with respect to geotechnical testing to confirm validity of applied slope stability parameters and safety factors. This testing has been initiated and will be undertaken by India School of Mines in Dhanbad. CIL and BCCL have agreed that the testing be completed and the results be reviewed with the Bank not later than December 31, 1985. -24-
5.10 The selection of the main mining equipment for overburden is basically sound. Also, given the circumstances of the presence of thin seams, tectonic faulting and old mine workings, the selection of hydraulic shovels for coal loading is a technically optimal solution period. BCCL has prepared training and maintenance programs associated with these machines which are considered satisfactory.
5.11 Mine development work and in pit road maintenance winl be performed by a fleet of dozers, graders and wheel loaders. A main sump and associated pump installations for proper pit drainage will be constructed ahead of the main haulage road construction and bench preparation in order to ensure proper drainage. The estimate of required pump capacity which is based on available rain statistics and experience of ground water occurrences in other adjacent operating mines appears to be adequate. Overall final pit slope is estimated at 450 assuming a safety factor of 2. While this is reasonable, based on experience to date, it should be finalized following the geotechnical testing (para. 5.09).
5.12 Block II coal will be processed in the Madhuband washery being implemented by BCCL and for which global tenders for a turnkey contract have been received. The washery component comprises a washing plant with stockpiling facilities at a new railhead, and a 2.5 km long overland belt conveyor connecting a primary crushing station, located on the pit rim, with the washing plant. The capacity will be 2.5 million tpy of raw coal and the yield of clean coking coal, with a 17% maximum ash content, i.s45% or 1.125 million tpy washed coal. The methodology applied for designing the flowsheet is satisfactory. Disposal of the rejects has not been dealt with in a satisfactory manner and warrants further detailed study and BCCL has agreed to complete the necessary study before December 31, 1985. Washed coal will be transported by the railway system to the steel plants. At present, the bulk of the output has been earmarked for the neighboring Bokaro steelworks about 30 km away.
5.13 The mine, the washery and related industrial facilities will work 300 days per year, 3 shifts per day and 8 hours per shift. The total manpower requirements at full production level of 2.5 million tpy of raw coal are summarized in the table below.
Block II Mine and Washery - Manpower Requirements
Block II Madhuband Mining Complex Washery
Management 98 42 Supervisors/Staff 372 183 Workers 1,044 497 Total 1,514 722 -25-
BCCL wil prepare a training program for Block II/Madhuband staff by July, 1986. Thereafter, an annual training report will be submitted to the Bank on July 1 of each year addressing the previous fiscal year's training results compared with the annual target.
5.14 Infrastructure facilities such as maintenance, warehouse and service facilities of adequate size and capacity will be built north of the open-pit and adjacent to the washery site Chart 2. Water requirements, installed electrical load, annual power consumption and specified power consumption are given below.
Block II Mine and Washery - Water and Power Requirements
Mine Washery
Industrial water m3/day 900 10,000 Potable water, mA/day 470 890 Installed electrical load, MW 26 8
5.15 Three different schemes have been designed for the provision of water from the nearby Jamunia River or Damodar River and at negotiations confirmation should be sought from BCCL on which scheme will be implemented. For Block II three electrical sub-stations totalling 52 MVA, are proposed in addition to the existing 20 MVA Madhuband substation which is being fed directly from the DVC grid. There is a shortage of power in the Jharia area and grid reliability factors are reportediv as low as 67%. The peak load requirements for the dragline operation effectively rule out the use of captive power stations. BCCL has reached an agreement with DVC to supp'lypower directly to the mining complex and a direct power line is under erection. This arrangement is satisfactory. in addition, it is planned that one of a series of new 210 MW units, to be constructed in the early 1990s at Mejia, will be used to meet evolving requirements of coal mines and establishments in the Eastern Region, including the Jharia Coalfield.
5.16 Provision of housing and service facilities for the workforce is guided by CIL policies. Consequently 833 and 381 residential houses will be constructed for the workforces of the mine and the washery respectively. Service facilities will consist of, e.g., schools, hospital and community center. These arrangements are considered satisfactory. BCCL has agreed to provide the Bank, not later than June 30, 1985 with a final schedule for the construction of housing and service facilities.
4. Pootkee Bulliary Mining Complex
5.17 The proposed Pootkee-Bulliary underground mine is being developed in Blocks 4 and 5 (Chart 1) of the Jharia coalfield to produce 3 million tpy raw coking coal. This mine is second to the adjacent Moonidih mine in terms of major underground mine development and rationalization as -26-
envisaged in the Jharia master plan. Development work will produce minor amounts of coal already from the beginning of major underground work in 1985. Production build up is gradual and full capacity of 3 million tpy raw coal will be reached in 1995/96. The coal is classified as Washery Grade II.
5.18 About 52Z of the coal will be mined by fully mechanized retreating longwall mining techniques and the balance by conventional retreating longwall techniques combined with stowing to prevent surface subsidence. Thick seams will be mined in two lifts using wire mesh as artificial roof. At full production 6 fully mechanized and 12 conventional faces will be in operation. Stowing material (sand, gravel, crushed rock) is in short supply in the Jharia coalfield and the medium/long term availability of sufficient quantities of material is contingent on CIL undertaking a proposed sand development projects at Maithon and Durgapur located about 40 km and 100 km from the coalfield, respectively.
5.19 BCCL has agreed to retain, by December 31, 1985, technical assistance to examine alternative trarsportation modes including slurry pipelines. The scope of work has been agreed as outlined in Annex 8. It has been agreed that this technical assistance will be financed with the proposed loan. Betwen two to three manyears of foreign consultants will be retained according to procedures acceptable to the Bank. The Bank will be furnished with a copy of the studies to be undertaken and given opportunity to comment on the findings.
5.20 Access to the mine will be through nine existing shafts (for material transport, and ventilation) and two new 500 m deep shafts (for coal hoisting) now being sunk with Polish technical assistance. The shafts are part of an extensive shaft sinking program required for the reconstruction of the Jharia coalfield. Slippage has occurred in several underground mining projects including Pootkee-Bulliary due to overly optimistic shaft sinking schedules. Shaft sinking has been planned at a rate of 20 m per month whereas progress is generally in the order of 12-14 m per month. In order to provide for improvement in shaft sinking productivity, GOI will initiate a study by June 30, 1986, to improve shaft sinking organizational set-up and introduce more efficient equipment. In view of the advanced state, this study will not directly impact the Pootkee-Bulliary shaft sinking; it will, however, be applicable to several other projects in Jharia and elsewhere where future shaft sinking is planned. A scope of work has been agreed as outlined in Annex 9. The Bank should be furnished with a copy of the studies undertaken and given opportunity to comment on the findings which should then be implemented. -27-
5.21 The shafts in the Pootkee-Bulliarymine will be connectedon two main levels, about 350 m and 450 m below the surfacerespectively, through roadways for coal and rock haulage on rail, and personnel/material transport. The risk for spontaneouscombustion and the presenceof methane gas (particularlyin the upper seam) has in general been duly considered when selectingmining method and designingthe ventilationsystems. The mine design is consideredsatisfactory subject to finalizingoptimal face and panel lengthswhich will be undertakenas part of the underground technicalassistance as outlinedin para. 4.10 and Annex 6.
5.22 The raw coal wilL be washed in a proposednew Pootkee washery which will be implementedby BCCL and totallyintegrated with the mine's surface installationsat the site of the two new shafts. The washery comprisesa plant with facilitiesfor crushing/screening,heavy media separation,flotation and dewacering. The capacitywill be 3 million tpy of raw coal and the yield of clean coal with 17% ash contentis according to pilot plant tests 49% (1.47 million tpy clean coal).
5.23 As is standardin CIL/BCCLpractice all industrialfacilities and productionunits will work on a 300 days per year, 3 shifts per day and 8 hours per day schedule. However,in order to ensure design output,the mine will have four overlapping8-hour coal productionshifts per day to increasethe net productivehours available. Total manpower requirements at full productionis estimatedto be:
Pootkee-BulliaryManpower Requirements
Pootkee-BulliaryMine Pootkee-Washery
Management 191 43 Supervisors/Staff 884 107 Workers 4,500 603 Total 5,575 753
BCCL will preparea trainingplan for Pootkee-Bulliarystaff before July 1, 1986 and thereaftersubmit yearly progressreports comparable to those for Block II (para. 5.13).
5.24 Adequatestorage and maintenancefacilities will be constructed close to the two new shafts Chart 3 where offices and personnelservice buildingswill also be located (the main office is now under construction).The table below gives the specificsof water and power requirements: -28-
Pootkee-Bulliary - Water and Electrical Power Requirements
Mine Washery
Industrial Water m3/day 3,310 3,333 Potable Water, m /day 2,600 333 Installed Electrical Load, MW 75 8.5
BCCL has confirmed satisfactory arrangements for the supply of electrical power and potable water for the Pootkee Bulliary mining complex.
5.25 The washery will receive water from the Damodar river which has an adequate flow at all times.
5.26 Electrical power will be supplied directly from DVC's, main grid sub-station at Pootkee which is being extended to cope with the new load. In addition, the Pootkee-Bulliary mine would benefit from back-up power from 2xlO MW units proposed for construction at Monidih which should provide adequate emergency power for mine pumping and other needs in the event of disruption to the main power supply.
5.27 A township for the Pootkee mine and washery personnel will be constructed (for the mine about 3400 and for the washery about 500 dwellings) plus community center with shops, guest house, schools and other service facilities. Such arrangements are considered satisfactory. BCCL has agreed to provide the Bank, not later than December 31, 1985, with a final schedule for the construction of housing and service facilities.
5. Environment and Safety
5.28 The planning of environmental protection measures to be undertaken is vested in CMPDI and guided mainly by the Water (Prevention and Control of Pollution) Act of 1974 and the Air (Prevention and Control of Pollution) Act of 1981. Both acts prescribe measures and tolerance limits tb t are in line with acceptable standards in the industry. Environmental management is the responsibility of CIL through its subsidiaries. In general, water and air pollution problems are not expected to be severe. Water and air quality will be monitored regularly and dust, the major pollution hazard, will be controlled by adequate measures (ventilation, suppression/extractionequipment). CIL and BCCL will ensure that the design, construction and operation of the project are carried out with due regard to ecological, environmental and safety standards satisfactory to the Bank.
5.29 The land which will be affected by the mining activities is characterized as forest land although very arid. Only very small quantities of topsoil are present and soil conservation will be done whenever feasible. Erosion control and prevention measures, such as -29-
placing of rip rap, turfing and revegetation will be undertaken on waste dumps and exposed slopes. This will also assist in reducing surface water run off. These measures will be done in consultation with the Soil Conservation Department and the Forest Department of the State Government as well as the Environmental Research Institute of Forest Research Station in Dehadrun.
5.30 Mine safety and related operational practices and design criteria are laid down in the "Mines Act- of 1952 and the "Coal Mines Regulations" of 1956 supported by monthly circulars from the Director General of Mine Safety, Ministry of Energy as well as Acts regulating human health and mine rescue work. They appear to be adequate. The responsibility to follow the regulations is vested in the safety organization in each subsidiary and on a cooperative level a "Safety Board," chaired by the Chairman, CIL is meeting quarterly to review adequacy of current safety practices and to introduce corrective actions whenever necessary. Although the overall accident rate in CIL greatly improved from 1973 to 1983 (fatality rate down 44% and serious injuries down 63%) the rates in CIL and BCCL are relatively high when compared with other major coal producing industrial countries. This is mainly attributable to very labor intensive, multisean mining methods with a low degree of support form modern mechanical and electrical systems in most underground mines. Further, the great number of working places and large number of workers makes proper safety supervision/manage- ment cumbersome particularly during periods of rapid expansions. The project, Which involves a high degree of mechanization, with modern equipment, has adequate safety conditions but to further assist BCCL the technical assistance program (para. 4.10) will strongly emphasize the safety aspect both from design and management standpoints. In order to satisfy the Bank of the adequacy of safety measures and the incidence of occupational diseases, BCCL will make available to the Bank every six months beginning January 1, 1986, statistics on mine-related accidents and occupational diseases.
C. Project Execution and Implementation
5.31 The project components will be implemented by BCCL under the direction of two Project General Managers reporting to the Project Director of BCCL. Each Project Management Unit is comprised of staff from BCCL and CMPDI. and the organization is shown in Annex 10. The Project General Manager is supported by managers responsible for (i) mining and general engineering; (ii) cost and scheduling control; (iii) administration; and (iv) a Deputy Project General Manager, directly responsible for project implementation. In each case total organization comprises about 200 positions which are fully staffed and mobilized. The Project General Manager for each of the project components has been appointed and both are considered adequately qualified and experienced. BCCL agreed to ensure that the organizational structure, staffing, powers and responsibilities of each Project Management Unit shall be such as necessary for timely and efficient implementatior.of the project. -30-
5.32 Some strengtheningis requiredin proceduresfor project monitoringand control. To this effect, BCCL will prepareby September30, 1985 and by December31, 1985 projectimplementation manuals for the Open Cast Block II mining complexand the Pootkee-Bulliarymining complex respectivelyaccording to terms of referenceagreed with the Bank, and exchangeviews with the Bank on the said manualsand subsequentlyadopt them by December 31, 1985 and March 31, 1986 respectively.
5.33 Each ProjectManagement Unit will be directlyresponsible for all activitiesrelated to detailedengineering, procurement of local goods (excludingmining equipment)and services,equipment erection and commissioning,construction and mine development. Procurementof mining equipmentand other importeditems will be carriedout by the CIL Central ProcurementOrganization, in direct collaborationwith the ProjectGeneral Managerswith progressreports provided to the BCCL ProjectDirector and to the CIL ProjectMonitoring Unit. A detailedand satisfactoryschedule for immediateprocurement actions has been preparedand procurementdocuments have been reviewedby the Bank. In the DudhichuaProject the experience has been that procurementhas not been a cause of delay in project implementation. In order to minimize the impact of external factors GOI has agreed to promptly grant permission to import foreign goods required for the projectand to promptlymake availablethe foreignexchange required.
5.34 The implementationschedule for the project is given in Annexes 11 and 12. This has been based on a detailedanalysis of interrelationship of differentactivities and is found to be realistic. Acquisitionof the first draglineand hydraulicshovel, trucks and dumpersare on the critical path for Block II open cast mine. The schedulefor these is considered realistic. Due to land acquisitiondifficulties the Madhubandwashery has been relocatedand will be constructedon land presentlyin BCCL's possessionadjacent to the proposedcrusher house complex. At the Block II mine site, land is currentlyavailable for carryingout miningoperations up to 1989/90. BCCL agreed to take possessionof the balanceof the land requiredfor the rest of the mine life (i.e.,until 2001/2)before September30, 1988. This is consideredrealistic in the light of progress during the past eighteenmonths on land acquisition.
5.35 Overburdenremoval for Block II started in 1982 with temporarily assignedequipment. Access roads, temporaryresidential buildings, maintenancefacilities and office/servicebuildings have been constructed. Sufficientelectrical power for constructionas well as water are available at the site. During 1983/84,about 400,000m 3 of overburdenwas removed and about 19,000tons of coal mined by a fleet consistingof one 4.6 m3 shovel and four 50-ton trucks assistedby dozers,drills and frontend loaders. One 10 m3 shovel and fourteen85-ton trucks are being erectedon -31-
the site and the plan for 1984/85 calls for removal of 1.4 million m3 of overburden and completion of the initial stage (dragline bench preparation) by March/April 1985. Since certain items of equipment will be required in advance of the Bank financed equipment, BCCL will provide alternative equipment as necessary to meet the planned equipment deployment schedule.
5.36 At the Pootkee-Bulliary mine, shaft sinking operations started by mid-1983, and the two new shafts were respectively about 32% and 18Z complete in September 1984. This activity and underground development work is on the construction critical path. Rates of progress for these activities were reviewed in detail. The present implementation schedule is considered satisfactory and takes into account realistic rates for shaft sinking and advance rate for horizontal development work. The Pootkee washery has been approved by the CIL Board and submitted to the Public Investment Board (PIB) for approval. This is expected by April 1985. The Government has agreed to ensure that all necessary approvals are issued by July 1, 1985.
5.37 Based on the schedule for deployment of mining equipment and underground development, the Block II and Pootkee-Bulliary are expected to reach the final capacity of 2.5 and 3.0 million tpy of raw coal in 1987/88 and 1995/96 respectively. The production build-up (learning curve) shown in the table below is considered achievable considering that mining conditions are generally favorable and that BCCL has some past experience with similar mining methods and equipment.
INDIA - Jharia Coking Coal Project Production Build-Up
Flock II Pootkee-Bulliary Overburden Coal Coal Fiscal Year Removal Release Release (million mir) (million tons) (million tons) Raw Washed Raw Washed
1984/85 1.40 0.20 0.09 0.01 0.003 1985/86 1.40 0.40 0.18 0.13 0.06 1986/87 2.85 1.50 0.68 0.26 0.13 1987/88 5.95 2.50 1.13 0.37 0.18 1988/89 9.50 2.50 1.13 0.40 0.20 1989/90 9.50 2.50 1.13 0.41 0.20 1990/91 9.50 2.50 1.13 0.70 0.35 1991/92 9.50 2.50 1.13 1.94 0.97 1992/93 9.50 2.50 1.13 2.46 1.22 1993/94 9.50 2.50 1.13 2.92 1.45 1994/95 9.50 2.50 1.13 2.92 1.45 1995/96 9.50 2.50 1.13 3.00 1.48
5.38 Although the stripping is rather high in initial years of operation, the overall ratio for Block II deposit is 1:4.11 t/m3 (para. 5.08) which is considered reasonable for a coking coal deposit. -32-
VI. CAPITAL COSTS, FINANCING AND PROCUREMENT
A. CapitalCost Estimate
6.01 The total financingrequirements including physical contingencies,price escalation,working capitaland interestduring constructionare estimatedat US$696.0million (Rs 8,352million), of which about US$245 million is in foreign exchange. Detailed capital cost breakdownfor the major equipmentand plants are given in Annex 13 and summarizedbelow.
mdi. - JIhar. Crng CaL Prect CGitcal Om Fztiiute
Blodc II Poctkee-BuUiarv Jh.ria rddiw rAl Project RS R10s Mlllton - LISS IM tccal For Toial Lal Foreign Total loc Fordegn Toetal Foreign T
EqaLt 6Spr 265.9 836.1 1.0.07 661 4 822.9 1,484.7 927.7 1,657.7 2,5854 77.3 138.2 2- 11& CLvil Wwks 115.0 5.6 1206 457.5 24.2 681.7 572.5 29.8 6023 47.7 2.5 b*i-erh* & Trairdrqw 9.2 - 9.2 58.9 - 5B.9 68.1 - 68.1 5.J - Pe S Ex 71.1 73 79.0 37.4 - 37.4 10.5 7.9 116., q9D 0.6 a1ury 537.5 91.5 629.0 376.8 289.9 666.J 914.3 331.4 1,295.7 76.2 31.8 t1"- TedwCd Assistam - - - - 24.0 24.D - 24 D 6b.0 - 2.0 lit±esaToms 567.4 - 567.4 566.8 - 566.8 1.134.2 - 1,134.2 94.5 -
Bge Cct 1,566.1 939.8 2505 2,159.2 1.161 .0 3.320 2 3,7253 ,IIlM3 5,826.1 310 A 175.J 6V:
PFlysical Gaiting.cles 108.0 43.0 151.D 182.9 31.9 264.A 2909 1249 415. 2.2 10.4 - PrLe Escalaiont 320.3 163.4 483.7 882.0 533.6 1,415.6 1,2023 697.0 1.R993 10D.2 58.1 L_
InstaUl cs A 1,994.4 1,146.2 3.140.6 3,226.1 1.776.5 5,00XIA 5.2t28 2,922 .J 8.141.2 3L.8 2463.6 6'° ' king C4tuL 67.7 53 53.0 77.4 8.6 86.0 125.1 13.9 139.0 10.5 1.1
Project 036t 2,062.1 1.151.5 3.193.6 3,301.5 1,785.1 5,086.6 5,3432b 2,936b 8,280.2 6453 364J.7 f
Iesest dwig mtriaction 6S_64.4 - 64.4 7.4 - 7.4 71.8 - 71.8 6.0 -
FratEn FecBazk t m
TotalFinancicgRgquLred 2,1065 1,1515 3,258.0 3,30S9 1.785.1 5,094.0 5,415 A 2,936.6 8,352.0 4513 214.J 6r.z - - - - - a a a a/ Iacwlui Rs 186.2 iAllion (915.5 1ilion) for Blodc U in Wirdect fomeign e.hwtg: ad Rs 356.5 nIlliclx (12.7 rdltion) for Pwokee-kaliay tn indirea foreii exdwW.
6.02 The Project's base capital cost estimates were prepared by Q4PDI and are based on cost informationrelated to recentorders for similar _,.quipmentand actual cost data for on-goingprojects and are found to be satisfactory. The originalestimate as of 1982 was updatedsubsequently in 1983 and most recentlyin January 1985. The cost for outsidetechnical assistance(for design and operationalaspects in undergroundmines, and sand transportation)including fees, travel and subsistenceexpenses, has been estimatedon the basis of past experiencefor similaractivities. The accuracyof the base cost estimateat this stage is consideredrelatively high, particularlygiven the degree of design and specificationfor mining -33-
equipment. For this reason, a provision for physical contingencies of 5% over the base costs is provided for mining equipment and 10% for other cost items. Price escalation has been based on the phasing of expenditure consistent with the time schedule for implementing the project and projected local and foreign escalation. Local inflation rates have been projected at 8.5% for 1984/85-1990/91 and 6% for years thereafter. International inflation rates are projected at 3.5% for 1984, 8.0% for 1985, 9.0% for 1986-88, 7.5% for 1989, and 6.0% for 1990 and thereafter.
6.03 Working capital requirements have been estimated at about US$12 million (Rs 139 million), using realistic assumptions on the level of current assets and liabilities required by the project until it reaches its rated capacity (in 1988/89 and 1993/94 for Block II and Pootkee-Bulliary respectively). Interest during construction has been estimated at US$6.0 million (Rs 71.8 million). Thib allows for capitalization of interest up to the end of 1985/86, on loans disbursed during that period which is based on CIL's accounting practices.
6.04 The total capital cost for Block IH open cast mine and washery, excluding price escalation, working capital and interest during construction is about US$197 per annual ton of washed coal output. The cost for Pootkee-Bulliary is about US$203 per annual ton of washed coal output.
B. Financing Plan
6.05 The financing plan for the project is sommarized as follows:
India - Jharia Coking Coal Project Financing Plan
A. Equity US$ Million X
Government of India 215.8 31.0 CIL Cash Generation 132.2 19.0 Total Equity 348.0 50.0
B. Long-Term Debt
IBRD 248.0 36.0 Government of India 85.8 12.0 ODA 14.2 2.0 Total Debt 348.0 50.0
Total Financing 696.0 100.0
6.06 According to current Government policy, overall financing of project costs (including interest during construction, but excluding working capital) is provided in the ratio of 50% debt and 50% equity. -34-
Under this formula, the proposed Bank loan for US$248 million would sunply about 36% of the financing to be provided for the Jharia Coking Coal Project, with another US$85.8 million coming in the form of long-term debt from GOI. GOI's approach to co-financing has been to link specific projects with individual financing sources rather than have different sources participate in each of several projects. In the case of Jharia, however, while the Bank will provide the bulk of the foreign firancing, assistance is also being provided by ODA for a dragline which is being procured in advance of the Bank loan. With respect to equity contributions the financial projections of CIL (para. 7.08) indicate that the Company should be able to generate funds to finance about 19Z of its investment requirements after debt repayment and provision of increase in working capital for the period of 1985/86 to 1989/90 and this same proportion has been applied to the Jharia project. Thus, CIL would provide about US$132.2 million equity out of its internally generated funds and the balance of about US$215.8 million would come from Government funds.
6.07 It is recommended that the proposed Bank loan of US$248 million equivalent be made to GOI at the standard Bank interest rate for 20 years, including five years of grace. This would represent over 90% of the foreign exchange requirements of the project. GOI's practice is to make loans to CIL for 15 years, at a nominal interest rate currently of 13.5Z16/ per year and not to grant grace periods. Considering the project's requirements in terms of its long implementation period and associated cash flow, it is desirable that a normal grace period be applied in this case, as has been the practice in other loans to the energy and industrial sectors. It has been agreed that GOI onlend the funds for a period of 15 years including a grace period of 5 years at not less than the- current interestrate noted above. Additionally,in line with present policy, GOI would assume the foreign exchange risk on the on-lentfunds. The conclusion of a subsidiary loan agreement between GOI and CIL, and a satisfactory financial arrangement between CIL and BCCL, both under terms and conditionssatisfactory to the Bank are conditions of effectiveness. 6.08 GOI has agreed to provide in a timelymanner the debt and equity requirements indicated above and whatever additional debt and equity funds which might be needed (in both local and foreign currency) to complete the Jharia Coking Coal Project promptly.
C. Procurement and Disbursement
6.09 Procurement arrangements are suimmarized in table below:
16/ There is a reductionin interestrate of 0.25% per year (to 13.25% per year) for timely payment. -35-
Proctrement Arrangements (US$ millions)
Total Project Element ICB LCB Other Cost
Block II a/ Mining equipment & parts 102.5 4.6 14.2 121.3 (80.7) (80.7) Washery 73.6 - - 73.6 Land & civil works -10.0 2 1 b/ 12.1 Engineering - 0.9 0.9 Pre-operation - - 6.5 6.5 Sub Total 176.1 14.6 23.7 214.4 (80.7) (80.7) Pootkee-Bulliary
Mining equipment & parts 122.4 90.5 - 212.9 (98.9) (98.9) Washery 86.6 - - 86.6 (66.4) (66.4)
Land & civil works - 58.5 0 .5bl 59.0 Engineering - - 5.9 5.9 Pre-operation - - 3.1 3.1 Technicalassistance - - 2.0 2.0 (2.0) (2.0) Sub Total 209.0 149.0 11.5 369.5 (165.3) (2.0) (167.3) Grand Total 385.1 163.6 35.2 583.9 (246.0) (2.0) (248.0) _ -
Note: Figures in parentheses are the respective amounts financed by the Bank. a/ UK financed dragline b/ Land acquisition only
6.10 Out of a total estimate of 56 packages listed in Annex 14 there are 10 exceeding US$5.0 million each in value, requiring special review. The Bank will review all packages exceeding an estimated value of US$3.0 million. This includes 15 packages which constitute over 81% of the value of all goods financed out of the Bank loan, the balance being subject to post review. Local manufacturers and contractors are expected to bid for Bank financed items under the project and a domestic preference of 15% or the import duty, whichever is less, would be applied in bid evaluation for eligible equipment and a margin of preference of 7.5% would be granted eligible civil works contractors. The Local Competitive Bidding (LCB) mainly consists of locally supplied goods including minor equipment, materials, civil works and erection of equipment as well as pre-operating expenditures for initial development work in both mining complexes. Technical assistance services regarding underground mining and sand transport will be contracted in accordance with Bank guidelines. A procurement schedule is shown in Annex 14. -36-
6.11 The Bank loan of US$248 million will finance goods and services as shown in table below.
AlUlocatimof the Bck lam (USSwill f )
lbodkee- Jhatia BlockII 1 Project Z Z of t5Wztures to be finaed cateqw 1. 4ff:niagq1p.pw a/ 77.6 91.9 169.5 68.4 1IOOof foreig ad lO= iE loov expenditres(et-factory cost).
II. bery - 60.8 60.8 24.5 100%of forelgteperniitwe ard 70 if local.expenditures.
ILL TedbaicalAssistance - 2.0 2.0 0.8 100%
III. Front-EndFee 0.0 0.0 0.0 0.0
IV. U allocated 3.1 12.6 15.7 6.3 Total 8.7 167.3 248.0 100.0
a Includingspare parts estimated at L5%of CIF or 5% of ex-factoryvalue of foreignard Iocalsupply respectively.
It is expected that for those items to be financed by the Bank, about US$30.7 million (or about 12% of the Bank loan) will be for contracts awarded to local suppliers following ICB.
6.12 The disbursement profile (Annex 15) is somewhat slower than the historical country industrial sector profiles as well as for similar projects in other countries because of the long gestation period particularly for the underground mine. The Bank loan is expected to be fully disbursed by March 31, 1992 when all Bank financed items would have been physically delivered or completed.
VII. FINANCIAL ANALYSIS
A. Coal India Ltd.
7.01 The financial projections for CIL have been made based on assumptions regarding forecast production and the related investment program, the structure of production costs and coal prices. Specific assumptions are given in Annex 16.
7.02 CIL coal production is expected to increase from 121.4 million tpy in 1983/84 to 230 million tpy in 1992/93, an increase of 108.6 million tons in 9 years representing an average annual growth rate of 7.3%. Projected production figures for open-pit and underground mines are shown in the table below: -37-
CIL - Production Forecast (million tons)
Fiscal Year Open-Pit Underground Total
1984/85 63.8 67.2 131.0 1985/86 72.0 70.0 142.0 1986/87 81.0 70.0 151.0 1987/88 90.0 73.0 163.0 1988189 101.0 75.0 176.0 1989190 112.0 78.0 190.0 1990/91 125.0 79.0 204.0 1991/92 138.0 80.0 218.0 1992/93 149.0 81.0 230.0
7.03 The projected expansioa of coal production is supported by a large investment program. Total coal sector investnent during the Seventh Five-Year Plan (1985/86 to 1989/90) is projected at Rs 60 billion (US$5.0 billion) in 1984/85 terms.
7.04 Financing to CIL has been provided entirely by GOI in the form of long-term debt and equity from GOI's general budgetary allocations for capital expenditure, with each covering about 50% of the required investment. It is expected that GOI will continue to finance 50% of the investment through long-term debt, and the balance would be partly provided by CIL from its internal resources and partly from equity contributions. It is expected that CIL's internal generation of investment resources would increase from 1% at present to 30% by 1989/90 and 38% for 1990/91 to 1992/93 after debt repayment and provision of increase in working capital.
7.05 CIL's average production costs per ton of raw coal are expected to decrease from the present level of Rs 188 per ton (US$15.7) to Rs 177 per ton (US$14.7) in real terms by 1989/90 as shown in the table below.
CIL - Production Costs Summary (Rs/ton 1984185 terms)
1984/85 1989/90 Rs/ton % Rs/ton Z Salaries & Wages 94.7 50.4 76.5 43.3 Stores 27.8 14.8 28.3 16.0 Power 11.1 5.9 11.2 6.3 Other Operating Expenses 20.4 10.9 18.8 10.7 Operating Cost 154.0 82.0 134.8 76.3
Depreciation 17.3 9.2 21.9 12.4 Interest 16.5 8.8 19.9 11.3
Total Production Cost 187.8 100.0 176.6 100.0 -38-
Along with this marginal decrease in unit production cost, a major change is envisaged in the cost structure, which is due to the increasing share of open-pit production and to the capital intensive nature of the investment program, resulting in improvement in labor productivity. This provides the reductionin the contributionof salariesand wages which offsets the increasein depreciationand interestcharges, associated with the increased share of capital intensive mechanizedmines.
7.06 CIL's operating costs compare favorably with those of major coal producing countries, even when the comparison is made on the basis of tons of coal equivalent (tce)17/ which raises the cost of Indian coals because of their relatively lower calorific value. This comparison has been made on the basis of operating costs, i.e., excluding depreciation and interest charges, since these conceptsnormally show wide variationsfor different producersdepending on specificcompany policiesand practicesand the tax legislationof the various countries. The followingtable comparesaverage operatingcosts per tce for producersin selected countries.
International Comparison of Coal Mine OperatingCosts (US$/tce 1984/85 terms)
Other Operating Labor Costs Costs India 1984/85 (actual) 11 7 18 India 1989/90 (estimate) 9 7 16 USA Eastern Producers 6-21 11-21 17-42 USA Western Producers 6-13 13-19 19-32 Australia 5-11 9-18 14-29 South Africa 3-4 5-8 8-12 It can be noted that CIL average operatingcosts per tce (at minehead)are competitivewith the lower cost producersin Australiaand the United States and well below the average for producers in those countries. South African producershave, on average,lower operatingcosts due primarilyto a lower cost of labor per ton reflectinghigher labor productivityas well as low wage rates (comparedwith USA and Australia).
7.07 Based on the present coal price schedule effective en of January 8, 1984 and grade-wise production mix of CIL, the average coal price for CIL in 1984/85is budgeted as Rs 192.3/ton. In line with GOI's policy (para.3.11), the average coal price for CIL has been assumed to increase marginallyin real terms (by 2%) during 1985/86. Thereafter,it is assumed that average CIL coal prices would generally follow the local inflation rate. The average coal price in current terms is projected as follows:
17/ 1 tce- 1 ton of coal with a calorificvalue of 7,000,000Kcal (i.e., coal containing7,000 Kcal/kg). -39-
CIL - ProjectedAverage Coal Price (Rs/ton)
Fiscal Year Current Terms 1984/85Terms
1984/85 192.2 192.2 1985/86 212.8 196.0 1986/87 230.9 196.0 1987/88 250.5 196.0 1988/89 271.8 196.0 1989/90 294.9 196.0 1990/91 320.0 196.0 1991/92 345.2 196.0 1992/93 366.0 196.0
7.08 Based on the above main assumptions, CIL financial projections have been prepared which are shown in Annex 17. The key financial data are summarized below:
CIL - Summaryof Financial Projections (Rs billion - current terms)
Fiscal Year 1984/85 1985/86 1987/88 1989/90 1991/92
Coal Sales (milliontons) 123.8 132.8 151.2 178.6 204.9 Sales Revenues 23.8 28.3 37.9 52.7 70.7 OperatingExpenses 19.1 21.5 28.4 36.2 47.3 Net Income 0.6 1.6 1.7 5.2 7.5 InternalCash Generation 2.7 4.2 5.7 11.1 15.9
Investment 8.8 10.8 15.3 21.0 28.2 Net Fixed Assets 22.3 28.3 43.7 64.1 90.8 Long-term Debt 21.8 24.7 32.5 43.3 60.0 ShareholdersEquity 17.1 23.3 38.8 58.7 81.1
Ratios:
Net Income/RevenueX 2.3 5.6 4.6 9.9 10.6 CurrentRatio 1.3 1.3 1.3 1.3 1.3 Lt Debt:EquityRatio 56:44 52:48 46:54 42:58 42:58 Lt Debt Service Coverage 1.1 1.3 1.3 1.7 2.0
7.09 The coal price increaseeffective as of January 8, 1984 is sufficientto provide an estimatednet income of Rs 555 million for 1984/85. As additionalproduction comes on stream, the ratio of net income to revenue for CIL is expected to increase from 2.3% to about 9.9X by 1989/90 due to changes in cost structure (para 7.05) and marginal increases in unit prices in real terms. Accumulated losses are projected to be completelyabsorbed by 1989/90, and long-term debt to equity ratio, -40-
currently at 56:44, is expected to improve to a more conservative level of 42:58 in 1989/90and stabilizeat that level thereafter. Debt service coverage is broadly satisfactory throughout the period and is not expected to fall below 1.3 after 1984/85.
7.10 The delay in the 1983/84coal price increasewas exceptional because of the delay in completingthe wage negotiations. However, the deteriorationof the financialposition of CIL in 1983/84(para 4.16) reinforcesthe importanceof periodicand timely revisionof coal prices. Such coal price increasestogether with GOI's continuousprovision of financingand CIL's successfulimplementation of the investmentprogram are critical to further improvingthe financialposition of the CIL group. The next price review is expected to take place in March 1985 based on recommendationsfrom an inter-ministerialworking group (para 3.11). Since price increases are subject to a cabinetdecision, a delay of one or two months is possiblefor the 1985 price increasesince the governmentis newly formed follov-ingelections in December. If the next review were delayed by three months, the financialprojections indicate that CIL's net income in 1985/86would drop from Rs 1,571 million to Rs 787 million.
7.11 Agreementshave been reachedwith GOI and CIL on financial covenants that will ensure that the financing for the project is adequate and that CIL will follow prudent financial practices and maintain a satisfactoryfinancial position. Agreementson the project's financing plan are discussedin paras 6.07-6.08. Regarding the financialposition of CIL, it was agreed for the Dudhichua Project (Loan 2393) that CIL will on a consolidatedbasis: (i) maintaina long-termdebt to equity ratio not greater than 60:40; (ii) maintain at all times a currentratio of at least 1.2; and (iii) take all actionsnecessary to ensure a debt service coverage of at least 1.3. These same conditionshave been agreedforthe Jharia Project. Additionally, CIL will have its accountsaudited, by independent auditors acceptable to the Bank, and will submit certified copies of its consolidated financial statements (together with the auditor's report) as soon as available, but in any case not later than 9 months after the end of each fiscal year.
B. Bharat Coking Coal Ltd.
7.12 BCCL's projected financial position is summarized below. These projectionshave been preparedon the assumptionsdiscussed in Annex 14 and incorporatethe recently implementedsystem of retentionprices for CIL subsidiaries. Detailed financial projections for BCCL are given in Annex 18. -41-
BCCL - Summary of Projected Financial Position (Rs billion)
Fiscal Year 1984/85 1985/86 1987/88 1989/90 1991/92
Coal Sales (million tons) 20.7 21.6 23.4 26.1 29.7 Sales Revenues 5.9 6.8 9.0 11.8 15.6 Operating Expenses 4.7 5.2 6.8 8.4 10.8 Net Income 0.1 0.2 0.3 0.7 1.1 Internal Cash Generation 0.5 0.8 1.1 2.0 2.9
Investment 1.8 2.4 3.5 4.7 6.5 Net Fixed Assets 5.1 6.5 10.1 14.8 21.1
Current Ratio 1.1 1.2 1.25 1.25 1.25
7.13 BCCL's production cost for 1984/85 is budgeted at Rs 2491ton, 34% higher than CIL's average of Rs 188/ton. However, with the introduction of the retention price system, implementation of the investment program, which emphasizes rationalization of existing underground mines, and development of new open-pit production, BCCL's financial position is expected to improve. In 1989/90, BCCL is expected to produce about 29 million tons of coal, which represent an average annual growth of 5% from 1983/84 at an average operating expenditure of Rs 196 per ton (in 1983/84 terms). Some mines will require substantial pre-development work and will be in the early stages of starting up in 1989/90. Such mines will only contribute small amounts to BCCL's production in the next several years and BCCL's expected production growth is less than for the other subsidiaries. Underground mining would still account for most of the production (62%) at that time. During the 1990s, however, the share of open-pit production will increase strongly and new production would be increasingly coming from open-pit mines. The share of coking coal production would remain high at about 77% of total production.
7.14 As discussed earlier (para 4.04), given CIL powers and responsibility for decision-making on financial and administrative matters, and because it borrows from GOI all long-term loans for the Group, CIL was the primary beneficiary for the Dudhichua loan and is also considered to be the same for the proposed Jharia loan. For these reasons no specific financial covenants have been agreed for BCCL with the exception that BCCL will have its accounts audited, by independent auditors acceptable to the Bank and will submit certified copies of its financial statements (together with the auditor's report) as soon as available but in any case not later than six months after the end of each fiscal year. -42-
C. Jharia Coking Coal Project
7.15 The operating cost estimates for Jharia Coking Coal Project were developed by CMPDI and updated to January 1985 based on comparable cost data of BCCL. The table below shows the estimated operating costs on per ton of clean coal basis for Block II and Pootkee-Bulliary when both mines and washeries are operating at full capacity. The difference in total unit operating costs is primarily attributed to the stowing operation required in the Pootkee-Bulliary mine.
Jharia Project - Operating Costs (Rs per ton of clean coal - 1984/85 terms)
Block II Pootkee-Bulliary Mine Washery Total Mine Washery Total
Wages 32.7 14.4 47.1 81.1 12.4 93.5 Stores 97.3 30.8 128.1 57.4 26.5 83.9 Power 24.3 11.3 35.6 62.4 9.6 72.0 Stowing - - - 73.1a/ - 73.1 Miscellaneous 37.4 9.3 46.7 14.9 8.0 22.9 Overheads 24.3 6.0 30.3 20.1 5.0 25.1
Operating Costs 216.0 71.8 287.8 309.0 61.5 370.5 a/ Average stowing cost over the life of the mine.
7.16 According to the present practice, clean coal prices are negotiated betweer,subsidiaries of CIL and SAIL on a washery by washery basis, using a me:hodology which covers the pithead price of raw coal as input to the washery, royalties and cesses on raw coal, mine to washery transportation, washery operating cost including depreciation and interest on working capital, plus 15% return of net fixed assets of the washery and less credit from middlings. The technical parameters which have critical impact on the agreed clean coal price (ash content of clean coal, washery yield, and washery capacity utilization) are reviewed and agreed upon every year. Penalties are included in the agreement to control the quality variation of clean coal. Based on this methodology, for 17% ash clean coal from Block II and Pootkee-Bulliary washeries, the price BCCL can realize net of royalties, cesses and sales tax, is assessed to be Rs 660 per ton (US$55 per ton), which is used to derive the benefit stream of the project.
7.17 The financial rate of return for the project is 10.1%. This is composed of 12% for Block II and 9% for Pootkee-Bulliary. The difference is due primarily to the higher operating costs of Pootkee-Buliary (para. 7.15) and to the long implementation period (11 years) for Pootkee-Bulliary mine to reach designed capacity as compared to 5 years for Block II, which more than offsets the better coal quality from Pootkee-Bulliary. Detailed -43-
financial cost and benefit streams and the assumptions used, together with those of the economic analysis are included in Annex 19. The financial rates of return and sensitivity tests are summarized below.
Jharia Project - Financial Rates of Return (X)
Pootkee- Jharia Block II Bulliary Project
Base Case 12.0 9.0 10.1 Capital Cost up 10% 10.3 7.8 8.7 Operating Cost up 10% 10.3 7.6 8.7 Revenue down 10% 8.4 6.4 7.1 Upward Price Trend after 1989/90 12.6 9.9 10.9 Completion delayed by one year 11.0 7.8 8.9
7.18 Of the various factors used in the sensitivity test, coal price is the most critical. Clean coal price is a function of raw coal price, which is administered by GOI, and washery operating efficiency. Although GOI has expressed basic commitment to the agreed pricing approach (para. 2.14), there is some risk that price adjustments may not take place in a timely manner. In anticipation of this problem, extensive discussions have taken place with GOI to ensure the financial viability of the project and CIL. There is also a risk that project revenues could be reduced by delays in production build-up or by difficulties in reaching full production. Given CIL's recent achievements in increasing production and implementing new projects this is not considered a serious risk. For other factors, while 10% variations cannot be excluded, significant increases in capital and operating costs are unlikely because estimates are based on cost information related to recent orders for similar equipment and actual data for on-going projects. Furthermore, the techaical assistance in open-pit mine operations (included in the Dudhichua project) and in mechanized longwall operations (included in the Jharia project) is expected to yield benefits which ultimately would ensure achievement of full production in a timely manner as well as lowering operating costs.
VIII. ECONOMIC ANALYSIS
8.01 The project has important import substitution benefits. Prime coking coal is in short supply in India and imports of 1-2 million tpy (costing US$70-140 million annually) will be required to meet steel industry requirements for the next several years. The project would help contain the need for imports, thereby, saving scarce foreign exchange resources. Additional benefits will accrue from the project including (i) the strengthening of BCCL's operational management, particularly in fully mechanized underground mines, through a program of technical assistance; and (ii) the improvement of the average coking coal quality delivered to the steel industry, leading to higher operational efficiency and cost effectiveness of the Indian steel plants. -44-
A. EconomicRates of Return
8.02 The economicrates of return have been calculatedin real terms based on the capitaland operatingcosts used for the financialrates of return,with the followingadjustments (i) exclusionof all identifiable taxes and duties; (ii) applicationof a standardconversion factor of 0.8 to locallysupplied equipment and materials;and (iii)application of a shadow wage rate of Rs 8 per day (US$0.67per day), equivalentto 15% of the negotiatedunion wage, for unskilledlabor participatingboth in the constructionand futureoperation of the project; the shadowwage rate is consideredan accurateestimate of the opportunitycost of labor in Eastern India under conditionsof widespreadunderemployment and unemployment.
8.03 Additionally,benefits for both projectcomponents have been calculatedon the basis of projectedsales of washed coal and the import parity of coking coal. As discussedearlier (para 3.11) the appropriate pricing policy for Indian coking coals is the opportunitycost of imports. The import parity price has therefore been based on the long term trend price for importedcoking coal from Australia,the logicalforeign supplier. The current CIF price has been estimatedat US$70 per ton for a medium/highvolatile, low sulphur,10% ash coking coal, and this has been assumed to remain constantin real terms during the evaluationperiod. Current Bank projectionsfor thermalcoals are to increaseslightly (up to 1% per year) in real term in the long run; the above assumptionfor coking coal can thereforebe regardedas on the conservativeside. This CIF price was adjustedfor handling,in-land transportation costs (port to steelworks,and washery to steelworks)and qualitydifferentials vis-a-vis the washed coal from the project.18/ The net-backparity ex-washeryis estimatedat Rs 689 per ton (US$57.4per ton), and is taken to be the same for the washed coal producedby both mining complexes,since they will be of the same quality. 8.04 Based on the above estimatesthe economicrate of returnfor the Jharia CokingCoal Projectis 21.5%. The Block II and Pootkee-Bulliary componentshave been projectedat 28% and 17%, respectively. The rates of return and sensitivitytests are summarizedbelow and underlying assumptionsand cost and benefit streamsare detailedin Annex 17. An analysis of switchingvalues for key parametersindicates that the economic rate of returnfor the Jharia projectwould declineto 12% (whichis consideredto be the cost of capitalin India) if (a) capitalcosts increasedby 55%, (b) operatingcosts increasedby 63% or (c) revenues declinedby 24%. The economicrate of return is most sensitiveto a decline in revenueswhich might be caused by lower than projected productionor by inadequateprice increases. As noted in para. 7.18 such risks are not consideredexcessive.
18/ These adjustments(in Rs/ton)are: Port-handling45, transportfrom unloadingport to steelworks154, transportfrom washery to steelworks 80, and qualitydifferential between in favor of importedcoal (with 10Z ash) as comparedto washed Jharia coal (with 17% ash) 270. -45-
Jharia Coking Coal Project - Economic Rates of Return c%) Pootkee- Jharia Block II Bulliary ProJect
Base Case 28.2 17.1 21.5 Capital cost up OZ 25.3 15.6 19.4 Operating Cost up 10% 26.2 16.0 20.0 Revenue Down 10% 23.0 14.4 17.7 Upward Price Trend after 1989/90 28.6 17.8 22.1 Completion delayed by one year a/ 27.7 14.7 19.4
a/ In the case of Block II only the washery is delayed by one year; in the case of Pootkee both washery and mine are delayed by one year.
8.05 The major reason for the dif ferences between the economic and financial rates of return is the elimination of custom duties on. imported equipment (currently averaging 742 of CIF value). The main consequence of the difference is that a substantial portion of the economic rent of the project accrues to the government (through taxes), suppliers and to the work force (through high wages compared to alternative occupations) rather than to CIL. It can also be noted that the difference between the economic rates of return for both components widens compared with the financial rates of return. This is mainly due to Block II having a higher foreign exchange component in the capital costs, and consequently the elimination of custom duties has a larger impact.
B. Additional Benefits
8.06 The project represents a major technological step in the introduction of medium/large-scale open-pit exploitation and large-scale fully mechanized underground mining techniques for expanding the supply of prime coking coal. Additionally, washeries are being designed to produce clean coal with an ash content of 17%, significantly lower than the average of prime coking coals presently delivered to the steel industry. This will have an important impact on the productivity of blast furnace operations, particularly in terms of increased throughput and a better performance in terms of reducing the consumption of coal per ton of hot metal produced.
8.07 The project will provide direct employment for about 8,500 persons and will lead to additional employment opportunities through contractors and suppliers.
C. Least Cost Program
8.08 The economic rate of return calculations presented above are based on evaluating the import-substitution effect of the project; therefore, they provide a measure of the component's marginal contribution to the economy, enabling comparison with investments in other sectors of -46-
the economy. The questionmay arise, however,whether these project componentsrank favorablycompared with alternativeinvestments for expandingthe productionof prime coking coal.
8.09 As mentionedearlier, the Jharia coalfieldprovides all of the domesticprime coking coal used by the steel industry,and both components form part of the master plan for the reconstructionof the coalfield. Generallyspeaking, open-pit mines compare favorablyto undergroundmines as investmentopportunities. Block II and Pootkee-Bulliaryare no exceptionto this rule. Block II is the first medium/large-scaleopen-pit operationin Jharia to be developed. It has a relativelyfavorable strippingratio and a fast productionbuild-up. Furthermorethe mine site is located in one of the least denselypopulated areas of Jharia, reducing the need for relocationof existingbuildings and settlements. Since it could be developedin a relativelyshort period of time, CIL selectedBlock II as the first open-pitoperation in Jharia.
8.10 With regard to the development of underground mines, a first group of five mines, with a combined rated output of 3.8 million tpy of washed coal, are at variousstages of implementation(Sudamdih, Moonidih, Katras, Bhutgoriaand Murulidih). The marginalcostl / for these mines rangedbetween Rs 420 and Rs 480 per ton of washed ioal. Presently,a secondgroup of four mines is proposedfor developmentincluding Pootkee-Bulliary. While the marginal cost of production at Pootkee-Bulliary (Rs 536 per ton of washed coal) is projectedto be higher than in the mines currently under implementation in Jharia, it is lower than any other prospectivenew undergroundmine In that field.
IX. AGREEMENTSREACHED AND RECOMMENDATIONS
9.01 The followingagreements have been reached
(a) With the Governmentthat it will:
(i) maintaincoal prices that will ensure the financial viabilityof CIL and provide adequate resource mobilization in the sector (para. 3.11); (ii) initiateby June 30, 1986 a study of shaft sinking (para. 5.20); Ciii) promptlygrant import permissionand make availableforeign exchangefor foreigngoods requiredfor the project (para. 5.33);
19/ The marginalcost has been estimatedas the ratio of net presentvalue of capitalinvestment plus operatingcost streams (in 1984/85terms) to net present value of physical production streams discounted at the opportunitycost of capital,estimated at 12%. -47-
(iv) ensure that all necessary approvals are issued for the Hadhuband washery by July 1, 1985 (para. 5.36);
(v) on-lend the Bank funds to CIL on terms and conditions satisfactory to the Bank (para. 6.07); and
(vi) provide in a timely manner the financing required to implement and to complete the Jharia Coking Coal Project promptly (para. 6.08).
(b) With CIL that it will:
(i) follow prudent financial practices and maintain financial covenants as described in para. 7.11. 20/
(c) With CIL and BCCL that it will:
(i) carry out further geotechnical testing in Block II and review the results with the Bank by December 31, 1985 (para. 5.09);
(ii) ensure that the design, construction and operation of the project are carried out with due regard to ecological environmental and safety standards (paras. 5.28); and
(iii) maintain records and submit reports to the Bank as specified in paras. 5.30, 7.11 and 7.14 including audited financial statements.
(d) With BCCL that it will:
(i) retain technical assistance by December 31, 1985 to improve the design, management and operating procedures for highly mechanized underground mines (para. 4.10);
(ii) complete a study by December 31, 1985 on the disposal of rejects from the Madhuband Washery (para. 5.12);
(iii) provide annual training programs and reports (paras. 5.13 and 5.23);
(iv) provide the Bank, with schedules for the construction of housing and service facilities for both components (paras. 5.16 and 5.27);
(v) retain technical assistance by December 31, 1985 to examine alternative transportation modes of sand to the Jharia coalfield (para. 5.19);
20/ These are already included in the Project Agreement for Loan 2393. -48-
(vi) establish a Project Management Unit for each project component (para. 5.31);
(vii) prepare a project implementation manual for each project component (para. 5.32); and
(viii) by September 30, 1988 acquire the rest of land required for the Block II mining operations beyond 1989/90 (para. 5.34).
9.02 The following is a condition of effectiveness of the Bank loan: the conclusion of a subsidiary loan agreement between GOI and CIL and a financial arrangement between CIL and BCCL both under terms and conditions satisfactory to the Bank (para. 6.07).
9.03 Given the preceding agreements and assurances, the Project is suitable for a Bank loan to GOI of US$248 million for a period of 20 years, including 5 years of grace, at the standard interest rate.
Industry Department February 1985 -49-
ANNEX 1 Page 1 of 8
INDIA - JHARIA COKING COAL PROJECT
STEEL SECTOR
1. Background
1. Steel production in India is provided by six integrated steel plants and over one hundred small mini-mills. Five of the integrated plants are owned and operated by the government-owned Steel Authority of India (SAIL) (including the IISCO plant - a wholly owned subsidiary of SAIL) and one by the privately owned TISCO). The steel sector is administered by the Department of Steel (DOS), Ministry of Steel and Mines which is responsible for policy making, planning and development of the Iron and steel sector including setting up new plants as well as for overseeing existing production, distribution, pricing, import and export of iron and steel.
2" The Bank's involvement in the steel sector, to date, has been through five Bank lending operations from the mid 1950s to the mid 1960s to TISCO and IISCO, and through IFC lending operations for the construction of a special steel production unit (1963, plus expansions in 1974 and 1978) and an expansion of the TISCO integrated steel works (1980). -
2. Steel Production, Consumption and Trade
3. During most of the 1970s, the Indian steel industry was able to supply the domestic market at internationally competitive prices and with the exception of a few specific products, India was self-sufficient in steel production. However, production from the integrated steel plants, measured in terms of hot metal output from the blast furnace, reached a peak of 9.9 million tons in 1976/77. Subsequently, the industry experienced a variety of operating difficulties compounded by bottlenecks in the supply of critical inputs such as power and coking coal, and production stagnated as shown in the table below.
India - Annual Rot Metal Production by Integrated Steel Plants (million tons hot metal)
1979/80 1980/es 1981/82 1982/83 1983/84 SAIL Bhilai 2.34 2.21 2.38 2.33 2.12 Durgapur 0.99 0.82 1.02 1.06 0.98 Rourkela 1.25 1.23 1.34 1.20 1.15 Bokaro 1.69 1.68 2.19 2.20 2.28 IISCO 0.69 0.79 0.80 0.93 0.84 Subtotal - SAIL 6.96 6.73 7.73 7.,O 7.37
TISCO 1.52 1.65 1.77 1.80 1.75 Grand Total 8.48 8.38 9.50 9.50 9.12
Source: SAIL. - ~~~50- AU= Page 2 of 8
In 1981/82 and 1982/83the SAIL plants achievedover 90% of their targeted productionalthough capacity utilization was only about 70%. The difference between the production target and installed capacity largely reflects known bottlenecks which effectively limit productioncapacity. The GOI has set a high priority on measures to alleviate such bottlenecks although progress so far has been slow.
4. An adequate supply of steel is essential to the future development of many basic sectors in the economy such as construction, engineering, mining, manufacturing and transportation. The major uses of steel are for construction and in the engineering industries. Steel consumption grew slowly in the 1960s - at only 3.3% per year, but averaged 6.6% per year in the 1970s. Even so, India has very modest steel consumption compared to other countries. For example, per capita consumption of finished steel is about 20 kg/per capita in India compared with about 150 kg/per capita in newly industrializing LDCs such as Brazil and Mexico, and 500-600 kg/per capita in industrialized countries. 5. In the mid 1970s India was a net exporterof steel products. In the past five years, however, exports have been minor and an average of about 1 million tons of steel imports have been requiredannually to meet domesticconsumer's needs.
India - Steel Imports and Exports a/ (million tons crude steel equivalent)
1976/77 1977/78 1978/79 1979/80 1980/81 1981/82 1982/83
Imports 0.32 0.44 1.06 1.39 1.00 1.05 1.32 Exports 1.41 1.10 0.52 0.06 0.05 0.01 0.01
Net Imports (1.09) (0.66) 0.54 1.33 0.95 1.04 1.31 a/ Canalizedimports and exports.
Source: SAIL.
3. Steel Prices and FinancialPosition
6. Prices for mild (low-carbon)steel productsare set by the Joint Plant Committee(JPC) which consistsof representativesof the major steel producersand the RailwayBoard, under the chairmanshipof the Government-appointedIron and Steel Controller. Presently,JPC prices are uniform at all railheaddestinations in India althoughconsideration is being given to settingprices to reflect differentialtransport costs to specificlocations. Prices of medium- and high-carbonsteels and most special qualitysteel productsare set by market forces. During most of the 1970s,Indian steel prices were generallylower than comparable imports. But a severe recessionin the internationalsteel market in the -51- ANNEX 1 Page 3 of 8
1970s resultedin importprices decliningsharply and in late 1978, JPC introducedlevies on certain importedsteels to offset the differenceto consumersbetween low priced importsand higher domesticsteel prices. The latest JPC Base price list for various steel products is given at the end of this Annex. At present international steel prices are depressed and Indian prices are up to one half higher than currently prevailing international prices for most steel products and in some cases even double. International steel prices are expected to strengthen in the next several years as worldwide market conditions improve and the price differential vis-a-vis domestic prices should be narrowed providing Indian steel producers are effective in implementing measures to reduce costs.
7. Up until 1981/82 both SAIL and TISCO operated profitably. In 1982/83 while TISCO made small profits, SAIL suffered losses which derived primarily from a substantial increase in financial charges. Summarized Income statementsfor the period 1979/80- 1982/83are shown below:
SAIL and TISCO - SummarizedIncome Statements (Rs millions)
1979/80 1980/81 1981/82 1982/83 SAIL TISCO SAIL TISCO SAIL TISCO SAIL TISCO
Revenues 21,825 4,547 23,100 5,209 29,363 7,047 33,521 7,982
OperatingCosts 19,952 1,723 20,801 4,330 26,353 5,814 30,628 6,865 Depreciation 1,064 230 1,052 237 1,148 272 1,281 284
Gross Profit 809 2,594 1,247 642 1,862 961 1,612 833 Interest 726 101 1,237 121 1,470 184 2,670 384
Profit (Loss) 83 2,493 10 521 392 777 (1,058) 449
before Tax - = =_ _ -__
Source: SAIL, TISCO Annual Reports.
8. While differences exist in terms of assets and product mix, the ability of TISCO to remain profitable is indicative that SAIL could also operate profitablywithout substantialchanges to steel prices. In order to rectifySAIL's situation,SAIL and GOI are undertakingmeasures to re-establishSAIL's financialviability. The main emphasisis to improve cost effectivenessby rationalizationand other cost reduction measures and to make full use of existing assets by improving capacity utilization through a de-bottlenecking period. The Jharia coking coal project should contribute to improving SAIL's financial situation since the increasein quantityand quality of PCC that should result from the project (para. 3.10) should provide importantimprovements in blast furnace productivity. Improvedblast furnaceoperations will contributeto reducing costs and increasingproduction thereby both improvingthe -52- ANNEX1 Page 4 of 8
financial performance of SAIL and assisting the domestic steel sector to meet domestic steel demand without the need for steel imports.
4. Development Priorities
9. GOI's basic strategy for the steel sector is to emphasize increased efficiency and de-bottlenecking at existing plants together with improvementin infrastructuresupplies. Specifically,the major priorities are (a) to undertakethe necessaryinvestment to complete the expansionof the SAIL plants at Bhilai and Bokaro from 2.5 million tpy to about 3.5 million tpy hot metal productioneach; (b) to implementmeasures to reduce costs, improveefficiency and rationalize production at the other SAIL plants; (c) to undertakea program of constructionof captive thermalpower stations for each of the integratedsteel plants to shield them from future power shortages; and (d) to ensure adequate availability of satisfactory quality coking coal. In addition, one new steel plant to meet expected demand growth is in the early stages of construction at Vizag with assistancefom the USSR. Another greenfieldproject, planned at Paradip with U.K. assistance,has been postponed. The investmentprogram with its emphasis on improvedefficiency should assist the industryin improvingits cost efficiencyand competitivenessin the future.
10. The expansionand rationalizationof existingSAIL plants is planned to increasehot metal productionfrom 7.4 million tons in 1983/84 to 10.8 million toas in 1989/90. In addition,production by TISCO is projectedto increasefrom 1.9 million tpy hot metal 1983/84to 2.3 million tpy in 1989/90. Productionfrom the new plant at Vizag is projectedto reach 1.65 million tons hot metal by 1989/90giving a total Indianhot metal productionof 14.7 million tpy in 1989/90as shown below. This should be sufficientto meet domesticdemand providingthe new plant at Vizag is kept on scheduleand the improvementsare successfullycompleted at the SAIL plants.
India - Planned Productionfor IntegratedSteel Plants (million tons hot metal production)
1983/84 1984/85 1985/86 1986/87 1987/88 1988/89 1989/90 SAIL Bhilai 2.12 2.40 2.56 2.90 3.11 3.33 3.60 Durgapur 0.98 1.10 1.10 1.22 1.24 1.24 1.32 Rourkela 1.15 1.30 1.35 1.38 1.40 1.43 1.43 Bokaro 2.28 2.60 2.77 2.86 3.00 3.20 3.41 IISCO 0.84 0.90 0.90 0.97 0.90 1.00 1.00 Subtotal - SAIL 7.37 8.30 8.68 9.33 9.65 10.20 10.76
TISCO 1.75 1.90 2.00 2.30 2.30 2.30 2.30 Vizag - - - - 0.80 1.30 1.65
Grand Total 9.12 10.20 10.68 11.63 12.75 13.80 14.71
SOURCE: SAIL. -53- ANNEX 1 Page 5 of 8
INDIA STEEL PRICES
JPC BASE PRICE LIST FOR STEEL, EFFECTIVE 21 JUNE, 1984
Base Price in Rs per tonne F 0 R Railhead Station
Commercial Standard IS-1977 IS-226 ST-42/ST-32 Off Grade
1. Plates, Structurals, Railway Materials, etc.
A. Plates i) 5 to lOum 5230 5190 5150 ii) Above 10mm 56'8 5610 5570
B. Chequered Plates i) 5 to 10mm 5330 5290 5250 ii) Above 10mm 5750 5710 5670
C. Joists 5220 5180 5140
D. Unequal Angles and Z-Sections (including Z-Piling) 5985 5945 5905
E. Crossing Sleeper Bars and Bearing Plate Bars 5530 5490 5450
F. Other Structurals excluding Joists, Unequal Angles, Z-Sections (including Z-Piling), Crossing Sleeper Bars and Bearing Plate Bars 5110 5070 5030
Base Selling Price in Rs. per tonne F 0 R Works
G. Wheels (all categories) 14950
H. Tyres (IRS: R-15) i) BG Carriage & Wagon Tyre (W-492, W-501, Box Wagon Tyres) 14950 ii) Carriage Wagon & Loco Tyre 864mm dia & below 15650 iii) Loco Tyre above 864mm dia 15150 -54. A1NNEX1 Page 6 of 8
iv) Diesel flectric, Loco & EMU Tyres, BG, MG, NG Water Quenched 15750
I. Axles (all categories) 16330
J. Sleepers (Pressed) 5350
Base Price in Rs per tonne F 0 R Railhead Station K. Heavy Rails Class III/ T-12 T-18 Untested
37 kg 4900 4750 4200 45 kg 6250 6100 4600 52 kg 5650 5500 4350 60 kg 6775 6625 5000
Base Price in Rs. per tonne F 0 R Railhead Station Tested
L. Tin Bars 4415
N. Shell Blooms 4540
N. Shell Bars 5015
2. Semis, Billets, Bars, Base Price in Rs. per tonne GP/GC Sheets, etc. F 0 R Railhead Station
IS-2830 IS-2831 Offgrade
A. Blooms 3640 3600 3560
B. Slabs 3840 3800 3760
IS-2830/IS-6914 IS-2831/IS-6915 Offgrade C. Billets, RC Squares, Continuously Cast 4000 3960 3920 Billets Coml. IS-1977 Standard IS-226 ST-42/ST-32 Offgrade D. Bars & Rods in Coils/ Straight Length i) 5.5mm to 12mm 4900 4360 4820 ii) Above 12mm to 36mm 4650 4610 4570 iii) Above 36mm 4850 4610 4770
B. Flats of all sizes 4955 4915 4875 _55_ ANNEX 1 Page 7 of 8
Tested Untested F. GP Sheets/Coils Bars i) 16/20G (1.6Sm/1.00mm) 6660 6620 ii) Thinner than 20G (1.00mm) to 24G (0.63mm) 7800 7760 iii) 26G (0.5am) 9540 9500 iv) 28G/30G (0.4mm/0.35mm) 10380 10340
G. GC Sheets i) 16/20G (l.6m/I.ODmm) 6710 6670 ii) Thinner than 20G (1.00mm) to 24G(0.62mm) 7850 7810 iii) 26G (0.5mm) 9590 9550 iv) 28G/30G (0.4mm/0.35mm) 10450 10390
H. Seamless Bars 5100 5060
1. Light Rails 12 kg 6225 15 kg 6220
J. Tees 5980 5940
Base Price in Rs per tonne F 0 R Railhead Station
3. Skelp, HER Coils 2mm to 10mm Tested Untested HR Sheets, CR Coils, CR Sheets etc,
A. Skelp i) 3.15mm and below 5060 5020 ii) Above 3.15mm 4900 4860
B. HR Coils i) 3.15 and below thicknless 5160 5120 ii) Above 3.15mm to below 5mm 5000 4960 iii) 5mm to 10mm 5200 5160
C. HR Sheets i) 14G (2mm) and thicker 5435 5395 ii) 16G-20G (1.6mm-1.00m) 5705 5665 iii) Thinner than 20G (lmm) 6205 6165
D. CR Coils i) 14G (2mm) and Thicker 6385 6345 ii) 16G-20G (1.6mm-1.OOmm) 6595 6555 iii) Thinner than 20G (1.OOmm) 6925 6885 -56-
ANNER 1 Page 8 of 8
E. CR Sheets i) 14G !2mm)and Thicker 6460 6420 ii) 16G-20G (1.6mm-I.OOmM) 6670 6630 iii) Thinner than 20G (1.00mm) 7000 6960
Note: 1. All JPC Section/Size and quality extras and rebates (vide Announcement No. 263 dt. 21st June 1984) will apply. 2. Extras and rebatespresently applicable for billetswil apply to RC Square and continuously cast billets also.
3. The extra of Rs 200 per tonne in respect of galvanisedsheets made out of cold rolled base metal will be charged.
4. Base price of crane rails will be the same as those of 52 kg (tested) rails.
5. The prices of heavy rails (tested)are exlusive of excise duty. Appropraite exise duty will be charged over and above those prices.
6. For deliveriesof al items of steel from producers'stockyards, stockyardmargin will be recoveredat the rate of Rs 220 per ton in addition to the above prices.
Source: Departmentof Steel
IndustryDepartment February 1985 -57- ANNE22 Page 1 of 2 INDIA- JHA 0lI COALEW=E
CDALWAS9EX a/
..
P C----- Capcity in tem of dli tpy rw coal fed
Yield 1983/84 1984/85 1985/86 1986/87 1987/88 1988/89 1989/90 Cm Waserle
DtlgdaI 0.50 1.80 1.80 1.80 1.80 1.80 1.80 1.80 1i.ia II 0.50 2.00 2.00 2.00 2.00 2.00 2.00 2.00 Bojud:1h 0.70 1.70 1.70 1.70 1.70 1.70 1.70 1.70 Paterih 0.60 1.60 1.60 1.60 1.60 1.60 1.60 1.60 Sudaudih 0.60 1.00 1.50 1.70 1.70 1.70 1.70 1.70 Mooidih 0.70 0.40 1.00 1.70 1.70 1.70 1.70 1.70 Lodoa 0.67 0.24 0.24 0.24 0.24 0.24 0.24 0.24 Baror 0.50 0.36 0.36 0.36 0.36 0.36 0.36 0.36
PlaeZd Mdbubard 0.45 - - - - - 1.70 2.50 Pbc±kee 0.49 - 2.10 Thal1pra 0.50 - - Subtotal 9.10 10.20 11.10 11.10 11.10 12.80 15.70
Otber Washlies
Jamloib (TEIS)) 0.68 1.44 1.44 1.44 1.44 1.44 1.44 1.44 Chasrala (II50D) 0.50 1.80 1.80 1.80 1.80 1.80 1.80 1.80 lsP-prixe(SAI) 0.50 1.15 1.15 1.15 1.15 1.15 1.15 1.15 DOO (WestBengal 0.50 0.35 0.35 0.35 0.35 0.35 0.35 0.35 State) Subtotal 4.74 4.74 4.74 4.74 4.74 4.74 4.74
Direct Feed 2.06 2.06 2.06 2.06 2.06 2.06 2.06
Grand Total 15.90 17.00 17.90 17.90 17.90 19.60 22.60 ,.,- - -- -, a/ CLLalso operates one sml tterml cea whbery at Nrozabad (WL) with a raw ccsa feed of 0.4 ntpy and a yield of 85%. -58- ASI 2 Pape 2 of 2
- -- -- Capacity in term of zUmLII tpy raw coal feed ------
Yield 1983/84 1984/85 1985/86 1986(87 1987/88 1988/89 1989/90 CMLWasberies
Naraga1 0.68 2.4 2.4 2.4 2.4 2.4 2.4 2.4 Kataa 0.50 2.4 2.4 2.4 2.4 2.4 2.4 2.4 S=9C 0.68 0.7 0.7 0.7 0.7 0.7 0.7 0.7 GIi 0.54 2.0 2.0 2.0 2.0 2.0 2.0 2.0 Nmxia 0.79 0.8 0.8 0.8 0.8 0.8 0.8 0.8 Melhu 0.64 - 0.4 0.6 0.6 0.6 0.6 0.6
Hagarh 0.68 - - - 1.8 2.7 2.7 2.7 Kedla 0.50 - - - - - 1.0 2.4 Parej 0.60 ------0.6 Subtotal 8.3 8.7 8.9 lOJ 11.6 12. 14.6
West Bokaro (TIS(X) 0.50 2.0 2.0 2.4 2.4 2.4 2.4 2.4 1kUm (SAIL 0.65 0.2 0.2 0.2 0.2 0.2 0.2 0.2 ubtotal 2.2 2.2 2.6 2.6 2.6 2.6 2.6
Direct Feed 0.6 0.7 0.9 1.0 1.0 1.0 1.0
Grand Total 11.1 11.6 12.4 14.3 15.2 16.2 18.2
Fe~Ius~y 198per5m Februay 1985 -59-
ANNEX 3
INDIA - JEARIA COKINGCOAL PROJECT
COALPRICE SCHEDULEa/ (Rs per ton)
Specification Price Run of Mine A. Thermal Coals b/
Grade A UHV exceeding6200 kcal/kg b/ 264 Grade B UHV 5600-6199kcal/kg - 237 Grade C UHV 4940-5599 kcal/kg 203 Grade D URV 4200-4939 kcal/kg 177 Grade E UHV 3360-4199 kcal/kg 125 Grade F UHV 2400-3359kcal/kg 95 Grade G UHV 1300-2399kcal/kg 61
SingareniCoalfields Ungraded 192
B. Coking
Steel Grade I Ash not exceeding 15% 450 Steel Grade 2 Ash not exceeding18% 370 Washery Grade I Ash not exceeding21Z 315 Washery Grade II Ash not exceeding 24% 257 Washery Grade III Ash not exceeding 28% 190 Washery Grade IV Ash not exceeding35Z 175
C. Semi Coking Coal
Grade I Ash plus moisture not exceeding19% 315 Grade II Ash plus moisture not exc:.eding 24% 257 a/ Effective January 8, 1984. The above prices are ex-pithead excluding Statutory Levies which are chargeable extra as per the prevailing rate at the time of actual sales. b/ Long flame coals (gradesA-D) have a surchargeof Rs 25 per ton. c/ Useful Heat Value (UHV) is defined by the followingformula: UHV = 8,900 - 138 (A+M) where UHV - Useful Heat Value in Kcal/kg, a - Ash content in Z M, - Moisturecontent in Z.
IndustryDepartment Febuary1985 -60-
ANNEX 4
INDIA - JHARIA COKING COAL PROJECT
SCREDULE OF SALE TAXES AND LEVIES IN THE STATE OF BIHAR (Rs per ton)
A. Bihar Jharia __Local Levies Mines Stowing Labor Health Excise Welfare Rescue 1. Thermal Coals Royalty CESS Board Duty Levy Levy Total
Grade A 6.50 52.80 1.50 3.25 0.75 0.03 64.83 Grade B 6.50 47.40 1.50 3.25 0.75 0.03 59.4! Grade C 5.50 40.60 1.50 3.25 0.75 0.03 51.6- Grade D 4.30 35.40 1.50 3.25 0.75 0.03 45.23 Grade E 4.30 25.00 1.50 3.25 0.75 0.03 34.83 Grade F 2.50 19.00 1.50 3.25 0.75 0.03 27.03 Grade G 2.50 12.20 1.50 3.25 0.75 0.03 20.2_
2. Coking Coals
Steel Grade I 7.00 90.00 1.50 4.50 0.75 0.03 103.78 Steel Grade II 7.00 74.00 1.50 4.50 0.75 0.03 87.78 Washery Grade I 7.00 63.00 1.50 4.50 0.75 0.03 76.78 Washery Grade II 6.50 51.40 1.50 4.50 0.75 0.03 64.68 Washery Grade III 6.50 38.00 1.50 4.50 0.75 0.03 51.23 Washery Grade IV 5.50 35.00 1.50 4.50 0.75 0.03 47.28
Source: CIL.
Industry Department Feruary1985 ? ~ ~~~~~~~~~~~~~~~X
l. *~ . C -s"
g 3 ?S X 9.3!
J .31.~~~~~~~~~~~~~I.a.~~~~~~~
.3~~~~~~~~~~~~~ -62- ANNEX6
INDIA -'JHARIA COKINGODAL PROJECT SCOPEOF WORKFOR TECHNICALASSISTANCE ON DESIGNAND
MANAGEMENTOF MECHANIZED UNDERGROUND MINES
A. Objective To assist the CIL group to improve the operational efficiency of fully mechanized underground mines, with particular reference to the Pootkee-Bulliary and the Moonidib mines in the Jharia coalfield.
B. Scope of Work
The consultant should assist in (i) the methodology for optimization of face and panel layouts and face equipment for mines using the fully mechanized longwall technology, as well as coal haulage and transport systems; and (ii) establishing an effective management system during construction and operation of the Pootke-Bulliary Nine. In particular, the technical assistance should cover the following areas:
(a) Optimization of Design. The consultant will be required to review the design of the Pootkee-Bulliary underground mine and recommend modifications, compatible with the Implementation schedule for the mine, for optimizing the face and panel layout parameters, extraction method, development work, coaJ. clearance system and face equipment. The consultant should also review the coal haulage and materials and personnel transport systems to ensure that adequate capacities are provided to obtain high performance rates with adequate safety standards. The consultant should also assist in preparing detailed specification of the selected equipment for bid documents, and In preparing engineering documentation.
(b) Management System. The consultcnt will stu.tdy tne existing management structure and its adequacy for exercising managerial, technical and financial planning and control, both during the construction and production phases of fully mechanized underground mines. The Moonidih Mine in the Jharia coalfield will be selected for the purpose of study. Based on the findings, the consultant should establish an organizational structure for utilization in the Pootkee-Bulliary Mine including collection, processing and flow of information to the various hierarchical levels of the organization, to enable an adequate availability and efficient and safe use of resources (men, materials and funds) and a monitoring of the results obtained. The consultant should assist in the implementation of the organizational structure proposed for the Pootkee Bulliary Mine, and provide continuous advice to the colliery manager, establishing effective lines of communication and organizing an efflcient flow of information.
C. Timing
It is estimated that the work described will require about 3 man-years for the Optimization of Design Component and 4 man-years for the Management System.
Industry Department Febay 185 -63- Ak4X 7 Page 1 of 2
INDIA - JHEA OaW: OAL P1LEc
CIL FDRU SrATOME
INuW TMM - 03MLIlIYEA (OVERALL.) (RSmillions)
19081 L98182 1982/83 1983/84 1984/85 bl
Coal ProdEticn Ibtal Coal Produced (milnio Uo) 100.6 109.1 114.7 121.4 131.0
Ccol. Produed by Rom= 97.2 105.3 113.5 119.2 127.7
Net Saleable Col frmn Reuelu 93.7 101.7 109.5 115.3 123.8 lmies (Milln tUas)
&aer SalePrice (RB per tDO) 120.6 139.8 155.8 163.7 192.2
Nt Sales RevexB 11,300 14,209 17,063 19,051 23,800
Sa-arl andlOge 6,849 7,758 8,42 11,707 1.722 *vedeads 537 997 753 940 1,004 Stares 1,508 1,996 2,603 3,014 3,443 Power 534 745 964 1,185 1,380 .~azprtatof Col and Saud 296 42D 462 452 641 ()gr Costs 1ss Misc. Bepts a 549 622 917 1,178 876
Motal0pertiz Exps 10,273 12,138 14,240 18,475 19,065
Dqpredon 738 951 1,344 1,716 2,138
Interest 626 778 1,110 1,324 2,042
Totalftodxtin Costs 11,637 13,867 16,694 21,515 23,246
Profit/loss (337) 342 369 (2,464) 555 - m -m
a/ Tzo s Proft/Loss ca Soft madHd Coke ard %sbed Owl operatiox ar als aidjust t for O0verbui Nm al Cost and net profit of am. b Figts fir 1984/85are lbsed on CLs finandal proJections. -64-
ANUEK7 Page 2 of 2
S[N 2EARD W - mWL]MIA WD. (Rs uuior as of Marcdh31)
1981 1932 1983 1984 1985 a/ Asets Cureirt Assets 6,430 8,292 10,383 14,527 14,991 szloas and Advankes 4,272 4,641 5,431 7,157 7,421 Net Fixed Assetsb/ 10,665 14,177 18,984 24,142 30,540
Total Assets 21,367 27,110 34,798 45,826 52,952
4aWUi,tieS Cirreint LtbLlitie 5,871 6,072 6,862 8,004 8,260
(a) Debts to Goaermuien 12,577 14,836 17,462 19,273 21,753 (b) Otber Lliablties to Gowernmet 518 717 931 2,954 2,554
Total IaXg Term hialbties 13,095 15,553 18,393 22,227 24,307
(a) SbareCapital 9,862 12,869 16,913 21,299 26,317 (b) Reserve 385 733 1,049 (c) Acomlateld PrEfit/Loss (7,846) (8,117) (8,419) (9,758) (9,203)
Total EquLty 2,401 5,485 9,543 11,541 17,113
Total EquLtyand Aabdlities 21,367 27,110 34,798 45,826 52,952 a/ FlRguresbased oualC's financial projectlors. b/ Tnc1udiil capital wuzk-dn-prcss.
Source: CIL.
Industry Departmen Fexlruay 1985 -65- ANNEX 8 Page 1 of 2
INDIA - JHARIA COKING COAL PROJECT
SCOPE OF WORKFOR TECHNICAL ASSISTANCE ON TRANSPORTATIONOF SAND TO JHARIA COALFIELD FROMMAITHON AND DURGAPUR
A. Objective
To determine the most economic and technically feasible mode of transporting sand to be used for stowing in Jharia Coalfield from Maithon and Durgapur.
B. Scope of Work
The consultantshould examine (a) the technical feasibility, environmental and safety implications and (b) the economics of different modes of transport for given quantities of sand including, as appropriate, rail, road, ropeway and pipeline from (i) Maithon to Jharia and (ii) Durgapur to Jharia and make recommendationsregarding the preferredmode. In particular the study should cover the following areas:
a) Technical: The consultant should study the technical feasibility and environmental and safety aspects of each mode of transport and should point out any major technical difficulties or risks that may arise. For slurry pipelines, the consultant should confirm the technical feasibilitygiven the characteristicsof the sand, the route, availabilityof water, etc. and make recommendationsregarding routing, location and specificationof pumping stations, pipeline specifications, source and disposal of water, etc. To the extent necessary the consultants should undertake any necessary physical tests to confirm the technical feasibility of slurry pipelines. For rail, the consultants should examine the suitability of any existing facilities and presently-used equipment and address the benefits and feasibility of improving present facilities and equipment and/or developing new rail lines including optimal wagon and locomotive specifications. For road, the consultants should examine the suitability of using existing roads including maximum size of trucksto be used, traffic congestion and safety implications. The consultantsshould also examine possibleroad improvements and/or the developmentof new roads as well as the use of differentvehicle sizes. Ropevays,in the case of Maithon, the consultants should also examine the possible use of ropeways, including optimal routing. In all cases the consultants should specify the point and means of loading sand in Maithon and Durgapur and discharging at Jharia. -66-
ANNEX 8 Page 2 of 2
b) Economics: The consultants should provide an estimate of the delivered cost of sand for all cases considered. The cost estimates should be based on conceptual engineering. Foreign and local costs should be separated and operating and investment costs should be specified together with manpower requirement. Economic comparisons will include discounted cash flow and net present value calculations (both excluding inflation) with adjustments made to exclude taxes, and use appropriate conversion factors. Financial comparisons should be made, including inflation and taxes of the investment requirements.
c) Timing: It is estimated that the work will require two to three man-years effort.
Industry Department Feiniary 1985 -67- ANNEX9 Page 1 of 2
INDIA - JHARIA COKING COAL PROJECT
SCOPE OF WORKFOR STUDYOF SHAFTSINKING
A. Objective
To assist the CIL group, in general, and BCCL, in particular, to improve the design, engineering and implementationof shafts about 500-600 meters deep.
B. Scope of Work
The consultantshould assist in (i) conceptualdesign of shafts and sinking techniques; (ii) detailed engineering of al facilities; (iii) in establishing the organizational structure; and (iv) in physical implementation. In particular, the technical assistance should cover the following:
(a) Design phase
The consultant will be required to review current standard shaft designs, technology applied, work methodology and organization during implementation and recommend most suitable shaft design. Further, the consultant will assess the applicability of different shaft sinking techniques taking into consideration all pertinent factors including inter alia shaft design to be adopted,geological/hydrogeological conditions, existence of old workingsand goaves, acceptable sinking rates, safety aspects and costs. The optimal sinking method and the technology/equipment to be used will be defined. (b) Engineering phase
Detailed engineering should be done for all physical installation including shaft furnishing and methodology to be used. A general surface layout should be prepared and final shaft locatiou determined. The consultant should assist in preparingdetailed specifications of the selected equipment for bid documents and in preparing organization charts, manpower requirements and training schedules. Cost estimates and implementationschedules should be prepared. -68- ANNEX 9 Page 2 of 2
(c) Implementation phase
During this phase the consultant will assist in the establishment and training of the on-site organization and in supervision of the erection work with emphasis on the logistics. Subsequently assistance should be given in supervision of the actual start-up of the shaft sinking operation. Revisions in engineering/design should be undertaken as deemed necessary. The consultants should provide intermittent advice, as requested, during the shaft sinking period.
C. Training
It is estimated that the work described will require about 3-5 man years.
Industry Department Febuary1985 -69-
AMJEX I0
INDIA -JHUARIA CDKINGCDAL PROJECr
PRDJECr XWACEMNT ORSASIZATION
gProtect General uhnager| | Engineering IrtiZ [ie | Adinlstration
Cost & Scheduling Deputy Project fbnager
Finance Procurement mung| Infrastructure Project Planning Supervislon
Purchasing | ne Coal HandlYng Excavation |ining 1 1' l~~~Superintendent 1| LI1|
Storesq q Blastlng3 Auncillary Equipment Surveying Facilities
Trai nInRg Tounsdite Infrastructurej Geology
Industry Department Pbcncey1985 -70- ANNEX 11
INDiA JHARiACOKING COALPROJECT Impementation Schedule for Block 11Open Cost Mine
CA8ERgMYER 1VM l tgo17_190 Mhs 19 - -- W 1900 1 99t RFCLVEAR IWIIS 15/16 W87 67/U 15119 89/90 90 91t92 F l ll-T- i--7- TW TFTTI I I I - r- MANhWNNGEgLtD*J DI>o 24/88(EMflh&XC O-k V DP09W*26/816 D~og"r 6/iS SV- I _ -Omq Qowt Onlis330 ffmO gacas. Hyoft 32-45m'3 OWIW)n5. t
Cadb1 uI.s 29t DozmADD425 Hp ! z0oAs&o±v? jM BINWANCE& SERE ACUMT1 . IDRAAGE _ O SUPPL(STATED 1Q6)
MA', SAMWAERY(14) - p:
W!ECOALPODUC1ONWKNONSPER5VW 020 OJ 1*50 0 25 250 25 250
3 0NSWURDF9EMOVALMIUOJN M 0 P VWR 1 285 505 oSD °50 o50 °50
0 Bd hM?O?1on V DoCo¶V#e 0 Contrc Eflere V Cowrmianng
'Cco wouchon iscongs an 9CQ eaL=ffwsr oecW t shbosJ ren keot
Bs-
Industry Department February 1985 -71-
Annex 12
INDLA JHARIACOKING COAL PROJECT Impbmentolon Schedulefor PootkeeBuIllory Underground Mkt
CAtUDb@WEA 1964 195m 19 67'1 jg f9 199 "atU 199 199 I TT 1r~w/ mrr TTa mm T o Fr "r/r2 - -9s
gi.1 -s~ - _ -
'NO.2 (---- =,,,, --
(-2C0 M) ~bn I - -
4NOSl0&12(1UlYA
0.VW. tW- _
:MN069&10 CLCrALAD
fnS FAOUdECONSM, - - APOUR SUB=7*N _COMUIJ!ON *4w 0- --- 4 y
X~~ - - °>TD14- _- o I s _ts *E4QPER0V VEAD""MWV OW 0120 020 .. 0 0 2M-. D a'o, "le" I.= a4o 29i
u- 0 B'Cono
V CCr4I09
WOW 8"--U746
Ldustry Department bruary 1985 -72- AMNEX13 Page 1 of 2
INDIA - JHARIA COKINIGCOAL PROJECT
PROJECT CAPITAL COST ESTIMATE
Bl.ock I Potkee-Bulliarv RS HlUco USS r1LJm Rs Kilian US M.Uoa local Foreign Totia local Foin l Local Foreign Teoal Local Foreign Total
Equipawnt&Sppes 2658 834.8 1,100.7 22.1 69,6 91.7 661.8 8228 1,484.7 55.2 68.6 123.0 Lud& C^vil1Work 115.0 5.6 120.6 9.6 0.5 10.1 457.5 242 481.7 38.1 2.0 40.1 xlnewrf & Traixdng 9.2 - 92 0.8 - 0.8 5B.9 - 58.9 48 - 4.9 Preoperaci Exqpditure 71.1 7.9 79.0 59 0.6 6.5 37.4 - 37.4 3.1 - 3.1 Wadwry 537.5 91.5 629.0 44 7.6 52 .4 376.8 289 9 666.7 31.4 24.2 $5.6 Teelmcal Assistanoe ------24.0 24.0 - 2.0 2J) Dtides &Tawms 567.4 - 567.4 47.3 - 47.3 566.8 - 566.8 47.2 - 47.2
Bae Cbst 1,566.1 9398 2,5059 130.5 78.3 208.8 2,159.2 1161.0 3,320.2 179.9 96.8 276J
Picsical mtinences 108.0 43.0 151.0 9.0 3.6 12.6 182.9 81.9 264.8 15.2 68 22 .0 Pricl EscaLatiom 320.3 163.4 483.7 26.7 13.6 403 882.0 533.6 1,415.6 73.5 44.5 118.0
Installed Cost a/ 1,994.4 1,1462 3,140.6 166.2 95,5 261.7 3,224.1 1,776.5 5,000.6 268.6 148.1 416.7 Workdng apital 47.7 5.3 53.0 4.0 0.4 4.4 77.4 8.6 86.0 6.5 0.7 7.2
Project Ze 2,042. 1,151.5 3,193.6 1702 959 266.1 3,301.3 1,785.1 5,086.6 275.1 148.8 4239
Interest czing Canstructim 64.4 - 64.4 5.4 - 5.4 7.4 - 7.4 0.6 - 0.6
'Front-Ead Fee nBark Lam ------
Total Finocdrg Re 4ired 2,106.5 1,151.5 3,258.0 175.6 95.9 271.5 3,308.9 1,785.1 5,094.0 27J.7 148.8 426.5
iIncltung Rs 1862 mlflon (USS15.5 millan) fir Block 1 In I:irect foreign echange; and Rs 356.5 'illimn (0829.7 nLllion) for Pbotkee-111ary in indirect foeii exaie. -73- ANNEX 13 Page 2 of 2
EQUIPMENT - DETAILED CAPITAL COST ESI.MATE
Rs Million Item Quantity Unit Price a/ Base Cost
Block II Dragline 24/88 1 225.7 225.7 Dragline 6/45 1 29.1 29.1 Electric Shovel 10m3 4 35.6 142.4 Rope Shovel 4.6m 3 1 4.5 4.5 Hydraulic Shovel 4.5m 3 1 10.5 10.5 Dumper 85t 44 9.4 412.7 Dozer 400-425 Hp 7 3.7 25.7 RHB Drill 330mm 2 32.5 65.0 Hydraulic Shovel 3.2m 3 1 7.1 7.1 Hydraulic Shovel 1.O 3 1 2.5 2.5 REB Drill 160mm 2 3.3 6.6 RUB Drill 250mm 4 6.6 26.4 RHB Drill 160-200mm 3 3.4 10.1 Drill 100mm 1 1.8 1. Dumper 50t 11 4.6 50.6 Coal Hauler 29T 3 2.1 6.3 Dozer 250-300 Hp 7 2.8 19.9 Crane 50t 1 6.9 6.9 Crane 15t 1 2.5 2.5 Front End Loader 1 0.4 0.4 Grader 1 1.5 1.5 Water Sprinkler 2 2.7 5.4 Other Local Equipment Lot - 205.4 Sub Total 1,269.0 Spares Lot - 220.8 Total 1,489.8
Potkee-Bulliary Coal cars 5mJ 400 0.063 25.2 Car feeder 16 0.119 1.9 Man Riding Car 80 0.044 3.5 DERD Shearer 1.8-3.8m 1 6.5 6 .5 DERD Shearer 1.2-2.Om 1 10.1 10.1 DERD Shearer 2.0-3.6m 5 23.5 117.5 Shields 1.0- 2 .2m 130 0.43 56.4 Shields 1.8-3.8m 645 0.66 425.7 Single props 2.3m 6000 0.011 63.8 Chain Conveyor 7 11.47 80.3 Power Packs 15 1.83 27.5 Road Headers 6 7.6 45.6 Diesel Locomotives 18 1.74 31.3 Other Local Equipment 77.6 Sub Total 972 .9 Spares 184.1 Total 1157.0 a/ For foreign equipment, unit price - CIF + Duties + Inland Freight and Erection. For local equipment, unit price - Ex-Works + Taxes + Inland Freight + Erection.
Industry Department Febnrary1985 - --.--- r-* . . - - -. ------, -,, - -, - -, -, -- _ _ - -_- - _ _- _ - F--- Wi,
------r- -~-~-- -- -~---~-~------X - -- -
WVWR igiw WWVWWVV.#ii8gi aiWVVViRigBg V[ W.V .. g
* W.V.. Vl l SV VVVVVWVW X#w[CCCCCCC#gBX#R#XWg#X#gB#gB;Xl 0 Vi ti VV sS W.Sis!W#¢X¢X¢X¢#¢#¢g¢t¢X¢#¢#XX slii| Ca [WS~~~~~~~I -75-
ANNEX 15
INDIA - JHARIA COKING COAL PROJECT
DISBURSEMENTSCHEDULE FOR BANKLOAN (million US$)
Bank Quarterly Cumulative Fiscal Year Quarter Disbursement Disbursement
1986 III 0.2 0.2 IV 0.4 0.6 1987 I 4.0 4.6 II 6.0 10.6 1II 24.7 35.3 IV 19.9 55.2 1988 I 12.0 67.2 II 13.0 80.2 III 13.8 94.0 IV 14.8 108.8 1989 I 17.8 126.6 II 17.8 144.4 III 17.8 162.2 TV 17.8 180.0 1990 I 5.6 185.6 II 5.6 191.2 III 5.6 196.8 'V 5.6 202.4 1991 I 9.1 211.5 II 9.1 220.6 III 9.0 229.6 IV 9.0 238.6 1992 I 4.5 243.1 II 3.0 246.1 III 1.9 248.0
Industry Department February 1985 -76-
ANNEX 16 Page 1 of 3
iNDIA - JHARIA COKING COAT.PROJECT
ASSUMPTIONS USED IN THE FINANCIA. PROJECTIONS
A. ProjectionPeriod
1. The financialprojections have been prepared for 1984/85 through 1992/93.
B. Escalation
2. All projections have been prepared in current terms assuming the followinglocal inflationrates:
FY 1984/85 to 1990/91 8.5% 1991/92 and thereafter 6.0%
C. Production Plan
3. Production plan for the CIL group is based on CIL's projaction adjusted according to availability of investment funds and the projects' implementation outlook. The adjusted production plan is given in the following table.
CML- Projected Proftctlon (*ufiou tow)
1964185 1985/861986/87 1987/88 19R8/89 1989/90 1990191 1991/92 1992J93 u ergnowd 67.2 70.0 70.0 73.0 75.0 78.0 79.0 80.0 81.0 Open-pit 63.8 72.0 81.0 90.0 101.0 112.0 125.0 138.0 149.0 Total 131.0 142.0 151.0 163.0 176.0 190.0 204.0 218.0 230.0
D. Investment Program
4. The investment program related to the above productionplan is presented in the following table.
CIL - Annual Investment Program (Rs million, 1984/85 terms)
1984-85 1985-86 1986-87 1987-88 1988-89 1989-901990-91 1991-92 1992-93
8,800 10,000 11,000 12,000 13,000 14,000 15,000 16,000 17,000 -77-
ANNEX16 Page 2 of 3
E. Coal Prices
5. The projected average coal price for CIL (ex-mine) has been assumed to increase in real terms by 2% in 1985/86 so chat, in any year, the full cost o0E-- oduction(including depreciation and interest) would be covered,and by 1989/90, CIL would earn a 10% return on net worth, if it meets specifiedefficiency norms regardingproduction levels, output per manshiftand unit operatingcosts. For years thereafter, it is assumed that average coal price for CIL would follow the local inflationrate. The projectionsare as follows:
CIL- AveragCoal Price (Rs/tc - 1984/85 ters)
FiscalYear 184/85 1985/86 1986/871987/88 1988/891989/90 1990/91 1991192 992193
Avera3Prie 196.0 196.0 1.0 19.0 196.0 196.0 196.0 196.0 196.0
F. Production Costs
6. Salaries & wages, including base salaries & wages plus social amenities and fringe benefits (calculated at 21% of the base salaries and wages), have been increasedby 29% in real terms from 1984/85to 1992/93, representingan average annualgrowth of 3.2% and explainedby the followingfactors:
- increase in the number of employees 10.2% - increase in the base salaries & wages 14.5Z - chernge in the composition of labor 2.2%
In calculating the base salaries and wages for each employee category a 7% increase in real terms has been assumed in 1987/88 and 1991/92 due to the scheduledrenewal of CIL's labor contracts.
7. Administrativeoverhead a major portion of which (about 70%) is administrative salaries, is assumed to increase at the same rate as the salaries and wages.
8. Stores. power, transportation of coal, sand and other materials, and other costs/revenuesare calculatedon a variablecost basis. The unit cost for stores, which includes spares, explosives, timber, diesel fuel, lubricants aiidother general operating materials, have been slightl, increased from the base duteto the increase in open-pit production with higher than average materialconsumption. All other variableunit costs have been assumedto remainconstant throughoutthe projectionperiod.
9. Dpreciation has been calculatedusing the 1983/84 figure as a base for existingassets and adeing 6% of new investmentsincorporated into the gross fixed assets each year. -78-
ANNEX 16 Page 3 of 3
10. Interest expense has been calculated based on the following average annual interest rates:
Existing long-term loans a/ - planned portion 11.5Z p.a. - non-planned portion b/ 0.OZ p.a. New long-term loans c/ 13.52 p.a. Short-term loans 18.0% p.a. a/ Loans taken before April 1, 1984. b/ A subsidy equal to the interest payable is received from the Government. Hence neither interest nor subsidy are included in the financial projections. c/ Loans taken in 1984/85 and thereafter, which is about 48% of annual investment, repaid in 15 years.
G. Income Taxes
11. Accumulated losses from previous years have been carried forward. In addition, an investment allowance, up to 40% of the annual investment, has been assumed in calculating the annual taxable income. A 50% income tax rate has been applied to the taxable income (if any).
H. Balance Sheet
12. Current assets have been increased from the base at the same rate as the growth in total operating expenditures.
13. Current liabilities have been assumed to follow generally the same pattern as current assets. However, since labor costs are expected to increase and only moderately, other current liabilities (which include mainly wages and bonuses payable at the end of the year) have been increased at a lower rate than the average growth in operating expenditures.
14. Fixed assets haze been increased by adding 80% of the annual investment to the previous year's balance. This addition is assumed to include both the direct addition from the annual investment and a transfer from previous year's capital work-in-progress. 17% of the investment has been assumed to equal the net increase in capital work-in progress and 3% of the investment. the net increase in loan & advances.
15. Long-term debt outstanding March 31, 1984 for CIL overall consists of the following loans:
Planned Rs 14,947 million Non-planned Rs 4,326 million
Total Rs 19,273 million
Industry Department Febrwny 1985 -79-. ANNEX17 Page 1 of 3
INDIA - JHARIA COKING COAL PROJECT
PRO FORMA FINANCIAL STATEMENTSFOR COAL INDIA LTD.
CIL - Profit and Loss Statement (Rs million, current terms)
83184 8419 85/96 86E17 9718 88199 8910 90191 91/92 92/93
CUALPkIOUICTXE (HILLION TMISl:
UIC P/DuucTG 61.7 67.2 70.0 70.0 73.0 */h.0 78.0 79.0 80.0 91.0 OIP PsVlJEIflH 59.7 6B.8 72.0 E1.0 90.0 101.0 112.0 125.0 138.0 149.0
TOTALPICOUrD 121.4 131.0 149.0 151.0 163.0 176.0 10.0 204.0 218.0 230.0
SiLXJLE PRaDUCTroN 116.4 1Z3.8 132.8 140.8 151.2 165.4 178.6 191.8 2D4.9 216.2
5~E It'BES:
*EM PIICE, RSITON 163.7 192.2 212.5 230.9 250.5 271.9 294.9 319.9 2 .2 365.9
MTAL SALES M1MIE5 19,051 23,800 2,255 32,504 37,872 44,9b0 52.663 61,3t2 70,732 79,111
P98XEIWECOSTS:
S-A.*E5I WAGES U11,707 11,722 13.041 14,43S 17,021 18.722 20,5n71 22,6 26,282 29,159 OVER"EPU 940 1.004 1,1;7 1,236 1,456 1,604 1.762 1,929 2,251 2,412 STraRS 3,014 3,449 4,011 4,633 5,419 6,4b6 7,599 8,9EE 10,27 11,538 P0MR 1,18 1.890 1,606 1,840 2,1S3 2,55 2.9S4 3,4S 4,021 4,497 TbWSpDUT1ON 452 642 746 9Y9 1.000 17 1,390 1,642 1,867 2,0E. OmEa COST/9" 1178 876 1.020 1. W1 1,367 1.623 1,Y01 2,215 2.5S4 2.856
1UTMLOMEMT1FC COSTS IW,475 19,065 21.54a 24,t11 2B,417 32,146 96,212 40,660 47,252 51,S50
0UE04IAT0MN 1,716 2,1389 2,659 3,30 4,016 4,991 5,991 7,066 8,41B 9,941
INTET 1,32 2,042 Z,494 3,039 3,699 4,46 S,34 6,32 7,540 9,95
TOrTLPSLUUCTIDYN USTS 21,515 23,246 26,685 30,Z00 36,131 41,492 47,444 54,087 63,210 70,348
POFliTBEPOE TfX 12,4643 555 1,571 2,004 1,741 3,4S7 5,219 7.75 7,X22 8,743 NEr INCU!L (2,4643 SS5 1,571 2,004 1,741 3,457 5219 *7,275 7,522 9,763
-- ~~-m - -80- ANNIEX17 Page 2 of 3
CIL BU.lance Sheet (Rs million, current terms)
(As of March 31)
1914 1985 1986 1987 1998 1989 199 199 1992 1993
ASSETS:
OIE ASSETS: CASH& W3M LAW 2.352 2,427 2,143 3.019 3,618 4,093 4,611 .1'77 6.016 6.z63 COALSTOCK 4.2 4.133 4,901 3.01 6.46* 1,313 9.2 VI,2a 10,750 11,29 STOR5 & SP 3, 3,5 3.994 4.*43 5,268 a.960 6,1n3 7, S,8,760 9.557 SUWDRY OMT(S 3.,15 3,87J 4,381 4,n913 ,a^o 6.,33 7,365 8,270 9,611 10.4 IHER '189 814 920 1.032 1,213 1,372 1,246 1,/36 2,017 2,201
IMTALUaRO'T ASSTS 14,w7 14,991 16,938 19,014 22,344 2z27 28,473 31,971 37,1S4 40,54
GiOSSFDXED ASSETS 2G,141 33,184 41,6 _2,223 64,45 '8,8999 95,739 11b,317 137,80 163,227 Less: AX.. IAPIEArTI 8,724 10,962 13,521 16,801 20,81 25,698 31,M 38,6W5 47,0f3 i/,014
NET FIXED ASSETS 17.40 22.322 29,31 35,432 13.668 53,200 64,150 76,661 T077 106,213
CAPIAL WMK-1N-14aEIES5 6,22 B,218 10.062 12,264 14,869 1r, 92 21,511 25,671 30.459 33,852
LOANSC AUVuES (.W7 *1.421 1.746 B,'3S 8,s94 9,1Sa 9,767 10,501 11,346 12,297
MrTALASSETS 45.26 S2,92 63,09 74,A4 W9.476 I5. 543 123,901 144,304 169,736 194,896 =~~~ =~~ = =,------. ------_.
UASLAT(ES:
OJUWT LIAILITXT(S. 5(urw CUEDITlS 8,t04 8,260 9,332 10,476 12,311 13,926 15,688 17,615 20,470 22,3S2 RUTALUES,CESS.ETC. s6 896 1,012 1,136 1,335 1,510 1,701 1,910 2,220 2,42 OrIERCUIIIET LM 1,419 5s3 62 '101 824 932 1,050 1,179 1,370 1,494 SHOR1TEAM OMl7 1.767 1,824 2,061 2,313 2,718 3, 07 3,464 3,a88 4,520 4,991
TATLI CUJIRENTLLA3IiUTTES 12,058 11,532 13,02 14,626 17,1I 19,4'S 21,903 24,593 29.50 31,10
IDNCTERN ULBT 19,273 21,753 24,136 29,221 32,463 37,251 43,275 51,139 60,049 69,9B2
OTHERLCA8LLTITES 2,954 2,554 2,054 1,554 1,054 554 - - - -
TOTALUASLLITIES 34,285 35,939 39,820 44,461 S0,705 Sf,248 65,177 75,733 88.620 101,002
9SWHAMMMERQUTTY:
PAID-INCAPITAL 21,299 26,317 30,903 36,t02 42,6S9 48,726 53,935 57,009 61,522 65,546 ETrADE EAPRUhS. IV,75) (9,203) 17,6331 (5,6291 13,9Yo; 4311 4,188 12,063 19,58S 29,34
TOTALSHAREHLUERS WRJITY 11,541 17,113 23.270 30,373 38,771 48,295 58,723 69,0-12 81,107 93,894
TMTALLIABLItIES * EQUITY:
45,826 52,952 63,090 74,834 89,476 105,543 123,901 144,804 169,736 194,896
=~ .~=m= -81- ANNEX 17 Page 3 of 3
CIL - Sources & Applications of Funds (Rs million, current terms)
8194 mm1 8W86 96su7 871SS 9 99196 9191 91/92 92l99
Mr IMI 1(2.464) m 1.571 2,00 1,741 3,457 5,219 7.2 7,52 9,763 DEPDEUATIU 1.71t6 2,130 2, L9 3.280 4.016 4,031 5.99 7.066 S,418 9.94t
TfTrIL DrlE CAKI 1749) 2,699 4.M22 5.34 I,7-7 s,!A 1.110 14*341 15.940 I1,70
NE ETY CAP1TAL 4.316 5.019 4566 s,099 6,6s7 6,067 5,210 3,074 4,513 4.024
L4 TERMLAS 3,950 4,224 b.201 6,216 7,357 8,640 10.105 11.746 13,520 15,2f6
TUTMLS1IXI 7.,i 11,935 14,023 16.5%V 1V.771 23,052 26.4!5 29.161 38,973 37.9s3
W1LWATIUS.
UIUESTEnT 9.61 9.t00 10.950 12.9b0 15,327 19,016 21.02 24,472 20.166 31,721
DENT ENMTQff 31s 1.44 2.2Z5 2,6&71 4,17 3.860 4,081 3.12 4,611 5,432
11CR. IN1 E1N1 CAPITAL 11201 m 449 479 -769 677 738 807 1.196 ne
DEMC1.IN tmER ULIAhILLrT (1,2211 400 540 50 SllaN sS4 - - -
TOTAMME4IJCATL 7.597 11.935 14,029 16. S9 19. M 29,052 26.4Z 29,161 33,973 37.93
PAIOTS:
- iNT PATIO 1.n 1.30 1.30 1.30 1.30 130 1.30 1.3 1.30 1.30
LLI TERMOW I 62.5 U.0 51.5 4S.2 45.6 43.5 42.4 42.s 42.5 42.6 ET EETM 37.5 44.0 48.5 51.8 54.4 56.53 7.6 7.5 57.b 57.4
LT EST %TWBI C0UE1WM 33 1.14 1.31 1.36 1.30 1.40 1.6Y 2.09 1.99 1.99
r6TE14. CasH ATIO (9.911 22.61 30.2 31.91 29.11 36.21 4e.n 49.21 46.91 49.31
Industry Department February 1985 -82- ANNEX18 Page 1 of 3
INDIA- JHARIA COKING COAL PROJECT
PRO FORMAFINANCIAL STATEMENTSFOR BHARATCOKING COAL LTD.
BCCL - Profit and Loss Statement (Rs million, current terms)
83184 84185 M186 ewe? 871 18199 89190 90191 91192 92199
OALPMsILZOLG4N (HiUlIN TONSi.
UWCPA1DUCTN10 14.0 1:.1. 17.0 17.5 17.S 18.0 18.0 21.3 19.0 19.0 alP PraMTI 7.6 7.S 1.0 7.5 8.5 9.0 11.0 12.5 14.0 16.0
rorUL PrU IN 21.6 z.o 24.0 25.0 26.0 21.0 23.0 31.0a 3.0 S5.0
NLEA.LEPFUOUCT1W 20.1 20.7 a.6 2.5 23.4 B4.3 26.1 27.9 29.7 31.5
5^L3 SEENE:
*IEkJ. PRIM, ASIQIG 161.3 287.0 316.9 344.6 318.5 421.4 451.6 4E.2 35M5 55.4
iurfL SN.S IEIEtBE5 3.249 5,941 6,546 7,754 8.952 10,240 1,798 13.538 15,607 17.399
SALARIES WAGES 2,883 2,93 3,199 3,W2 4,166 4,536 4,995 5,429 6,32 6,73 READ 23t 261 2W 818 875 410 449 496 56 606 ST=3 546 664 754 956 969 1,095 1,2 1,490 1,717 1,987 PC" 3351 461 S29 590 666 7J0 974 1,014 1,164 1,30 AR WAT* I 119 291 251 213 32 360 4W0 49B7 5Y 629 OlER COSTIWUJ 316 203 20 260 2 30 293 446 513 577
TOTALOPEMATDC COSTS 4,4*1 4,723 3,244 5,LW 6,788 7,501 9,403 9,354 10.893 11,H13
VEPRECAT1ITDO 319 406 520 662 82I 1,0 1,244 1.510 1.SE 2,111
DNTEREST SW 753 6 9a 1.070 1.226 1,404 1,607 1,951 2,134
TurDL PAOcucTWEcosrs 5,160 5,tr/2 6,32 7,435 8,6BS 9,747 11,051 12,471 14,507 16,12
OFIT9EFUE TAX (1,9113 69 2b4 319 267 493 137 1,067 1,101 1,271 lEr DINOE 11,V113 6Y 254 S1Y 267 49r3 77 1,067 1,l01 ,271 ANNEX 18 Page 2 of 3
BCCL- Balance Sheet (Rs million, current terms
3194 319a 3186 3197 319 3189 3190 3191 3192 39
A!i!iTS;
C1RENTASSE: CASHS 1a hALMNS 131 139 134 17n 199 220 247 ZI4 319 37 COALSTOCK 861 9l 1.014 1,12 1,312 1,450 1,629 1.90 2.093 2,294 STOSS & SPARES 647 685 762 9 997 1.09D 1,221 1,960 1,7S5 1,717 SIEY OCEBOS 1,226 1,299 1,445 1.6Ot 1,870 2,066 2.31 2.377 2,994 3,254 OTHER 7 7 8 9 10 11 12 14 16 la
TOTALCUAIT ASSLTS 2,971 3,040 3.392 3,766 4.379 4,838 *5,4E0 6.099 6,987 7,620
OMS FIED ASSETS S, 7.262 9,17 11,26 14,294 17.49 21.23 25,660 30.,7 36.94 ess: ACQU. OEREEIATICE 1,751 2,156 2,6T1 3,38 4,165 S,185 6,429 7,939 9,762 1,Y94
NET FDED ASSET5 4,07 5.105 6,495 8,11 10.118 12,314 14,79Y 17,726 21,113 24.90
CAiT.L OM-1N-PUUCRLSS 1,578 1,894 2,290 2,790 3,376 4,060 4,852 5,795 6,902 8,171
LOW I ADJVANCES 2.4W9 2.541 2,614 2.709 2,806 2,927 3,067 3,Z3 3,4209 3,652
TOTALAKSETS 11.009 12,572 14,781 17,446 2,679 24,.d9 28,137 32796 39,431 U4346
CINIERTLIA8IL5TtES: SLDRY CI8JITOiS 2,335 2.526 2.810 3.13 3,637 4,019 4,503 5.022 5,805 6,330 WOYALTIES,CESS,ETC. L36 144 160 178 207 229 256 295 330 3a6 OtHERCUN8T LIAB 403 (1993 (4771 (6W7) (7643 Wb44) 19401 tl,OS23 (1,2191 (1,3291 SHORTTERM OEST 277 293 26 33 422 467 529 SW 674 735
TOrALCULMT LIABIUTMS 3,203 2,764 2.819 3.013 3,S02 3,t71 4,336 4,EEZ 5,590 6,096
LOC1 TER DEBT 9,248 9,412 9,800 10,379 11,106 11,996 13,06 14,412 16,040 17,925
UTHERLmBILILMES 351 257 157 ------
TOTALLIABLUTLES 12,807 12,TA2 12,775 13,39 14,608 1$,967 17,402 19,23Y 21,635 24,021
SHARI)CLOERSEQUrT:
PAID-IN CWITAL 3,S00 5,369 6,992 8,711 10.461 12,169 13,994 15,640 17,799 20,040 WrAIlED EAWIMJS (5,2993 15,2293 (4,976) (4,6561 (4,303" (3.9971 (3,1603 (2,0921 (9921 290
TOrAL SICUEAO-S EownT (1,7923 140 2.006 4,0f 6,071 8,272 10,735 13,543 16,796 20,325
0T.IL LIMILITIES £ ES TY:
11.009 12.512 14,781 17,446 20,679 24,199 MB,137 32.717 38,431 44,346 - m m ANX 18 -84- Page 3 of 3
BCCL - Sources & Applications of Funds (Rs million, current terms)
83184 84iS Mil86 W87 8711 wins 99190- 90191 9n192 92193
NET 11COME (1,911) 69 a4 319 267 493 797 1,067 1,101 1.271 r EIATTIrN 311 406 52e 662 at 1,020 1,244 1,510 182 2,131
TOTALINTEPPL CAiH 11,i921 47S 774 981 1,094 1,51 1,981 2.3T7 2,92 3,4S2
KU EQJITYCAPITAL - 1,869 1.612 1,729 1,70 1,709 1.726 1,746 2,148 2,7
LOICTERI LL82E 2,8S9 964 1,146 1,413 1,6SS 1,929 2,23t 2,662 3,126 ,3
TOrTLSWAJb:E 1,267 3,209 S,5S2 4,123 4,498 5,O 5,944 6,9 8,197 9,22
DINV51ET 2,1d4 1,W)0 2,37 2,943 3,44 4,019 4,660 ,346 6.523 1,464
JST MAYMENT - 700 7S8 34 9Y2 1,031 1,167 1,316 1,494 1,71e
INC;. IN IUaacmC CwrrnL 15101 608 2E7 199 13 92 11A m 191 126
0EL(. IN OITERLLA81LITIE 137) 100 100 11 ------
TOrL APPLICATIUSI1,267 3,208 3,532 4,123 4,4" 5,1W 5,944 6,Y 8,197 9,22 -..-- --.--- ..- - _ _
MTI0M:
OJAINT RATIO 90 1.10 1.20 1.25 1.25 1.25 1.25 1.25 1.25 1 25
e.INCTERI 11ET I 100.0 98.5 L. 0 1n.9 64.7 SY.2 54.9 S1.S 43.9 46.9 EAWTYRATIO - 1.5 17.0 29.1 3b.3 40.9 45.1 48.5 51.1 53.1
LT (EiT SERVICECOVEWE 13.ael .84 1.01 1.S9 1. 1.Z9 1.83 1.45 1.44 1.47
INT9PENL (ASH RATIO 1125.03 14.81 2l.91 23.91 24.31 29.41 83.31 39% 35.71 37.21
Industry Department February 1985 -85- ANNEX 19 Page 1 of 6
INDIA - JHARIA COKING COALPROJECT
FINANCIALAND ECONOMIC RATES OF RETURN- ASSUMPTIONSAND CALCULATIONS
Introduction
1. The financial rate of return (FRR) and economic rate of return (ERR) for Block II and Pootkee-Bulliary have been calculated in real terms on an annual basis. According to mineable reserves and production profile of each mine, Block II has a life of 19 years starting 1983/84while a period of 30 years starting 1984/85it; taken as the life of Pootkee-Bulliary.Cost and benefit streams of each componentare shown in tables attached.
Cost Streams
2. CapitalCosts are based on project implementationschedule and equipmentdeployment plan. Replacementinvestments are estimatedaccording to useful life of major equipmentdeployed.
3. OperatingCosts are derived from productionschedule together with fixed and variable cost componentsof the mining and washiLg operations.
4. Working Capital requirement is derived taking into consideration the level of minimum cash, inventory of consumables, stock of coal, receivables and rayables. This is equivalent to 2 months of mining and washing operatingexpenditure.
ConversionFactors
5. For the calculationof ERR, all identifiableduties and taxes are excluded. In addition,to refle-tthe conceptof opportunitycost, the following conversionfactors are applied to each categoryof cost.>':
ConversionFactor Categoryof Costs
1.00 ImportedEquipment (CIF) 0.80 Inland Freight and Erectionof ImportedEquipment 0.77 Local Equipment 0.80 Land, Civil Works and Infrastru'-- 1.00 Engineeringand Training 0.80 Pre-operatingand OperatingCosts (includinga shadow wage rate of 0.6 for unskilled labor). -86- PageAMNE 2 19 of 6
Revenue Stream
6. For the financialrate of return, the revenue stream is derived based on clean coal sales volume and ex-vashery clean coal price net of royalties, cesses, sales tax and credit of middlings,i.e., the net benefit which will accrue to BCCL. Based on mutually agreed methodology, the net price for 17% ash clean coal from Block II and Pootkee-Bulliary washeries is assessed at Rs 660/ton. For Pootkee-Bulliary, sales revenue is adjusted upward by 5% for the first 10 years of full productionto reflect the better than average quality of run-of-minecoal in that period. In addition, stowing rebate is added to the sales revenue to derive total revenue.
7. For the economic rate of return, as domestic coking coal can be directly substituted for imported coking coal, the net-back price of imported coking coal after quality adjustment, currently at about Rs 689/ton, is used to derive the revenue. -87- ANNEX19 Page 3 of 6
BLOCKII
Financial Cost/Benefit Streams (Rs million - 1984/85 terms)
Capital Operating Working Net Fiscal Year Costs Costs Capital Revenues
1983/84 391.4 - - - 1984/85 216.4 20.0 - 59.4 1985/86 357.6 40.0 - 118.8 1986/87 717.7 290.0 23.0 448.8 1987/88 648.6 494.3 17.0 745.8 1988/89 210.8 325.1 13.0 745.8 1989/90 91.1 325.1 - 745.8 1990/91 28.2 325.1 - 745.8 1991/92 128.2 325.1 - 745.8 1992/93 73.4 325.1 - 745.8 1993/94 143.7 325.1 - 745.8 1994/95 169.0 325.1 - 745.8 1995/96 70.5 325.1 - 745.8 1996/97 51.9 325.1 - 745.8 1997/98 133.5 325.1 - 745.8 1998/99 0.2 325.1 - 745.8 1999/00 0.2 325.1 - 745.8 2000/01 13.7 325.1 - 745.8 2001/02 (711.6) 325.1 (53.0) 745.8 ANNEX 19 -88- Page 4 of 6
POOTKEE - BULLIARY
Financial Cost/Benefit Streams (Rs million - 1984/85 terms)
Capital Operating Working Net Fiscal Year Costs Costs Capital Revenues
1984/85 109.7 0.6 - 2.1 1985/86 217.7 12.6 - 41.6 1986/87 293.1 66.0 7.0 90.1 1987/88 647.6 97.0 3.0 124.7 1988/89 1,102.3 119.6 3.0 138.6 1989/90 331.2 92.5 - 138.6 1990/91 631.7 121.5 8.0 399.0 1991/92 191.9 194.4 12.0 515.9 1992/93 63.5 343.1 24.0 749.7 1993/94 142.4 436.6 16.0 894.0 1994/95 46.2 491.0 10.0 1,039.4 1995/96 69.6 494.7 - 1,047.7 1996/97 130.5 511.4 3.0 1,065.9 1997/98 130.3 514.7 - 1,067.5 1998/99 145.7 518.0 - 1,069.2 1999/00 130.2 524.3 - 1,070.8 2000/01 130.2 524.6 - 1,072.5 2001/02 144.6 527.9 - 1,074.1 2002/03 130.0 531.2 - 1,075.8 2003/04 130.0 534.5 - 1,077.4 2004/05 144.6 537.8 - 1,029.9 2005/06 130.5 541.1 - 1,031.6 2006/07 130.3 544.4 - 1,033.2 2007/08 206.0 547.7 - 1,034.9 2008/09 130.0 551.0 - 1,036.5 2009/10 130.0 554.3 - 1,038.1 2010/11 144.4 557.6 - 1,039.8 2011/12 130.0 560.9 - 1,041.5 2012/13 130.0 564.2 - 1,043.1 2013/14 (757.0) 567.5 (86.0) 1,044.8 -89- ANNEX19 Page 5 of 6
BLOCK II
EconomicCost/Benefit Streams (Rs milllon - 1984/85 terms)
Capital Operating Working Net Fiscal Year Costs Costs Capital Revenues
1983/84 239.9 - - 1984/85 151.7 16.0 - 62.0 1985/86 257.7 32.0 - 124.0 1986/87 474.9 232.0 12.2 468.5 1987/88 440.2 395.4 9.0 778.6 1988/89 150.2 260.1 6.9 778.6 1989/90 56.5 260.1 - 778.6 1990/91 17.6 260.1 - 778.6 1991/92- 85.4 260.1 - 778.6 1992/93 46.8 260.1 - 778.6 1993/94 90.5 260.1 - 778.6 1994/95 107.6 260.1 - 778.6 1995/96 44.5 260.1 - 778.6 1996/97 32.7 260.1 - 778.6 1997/98 85.3 260.1 - 778.6 1998/99 0.1 260.1 - 778.6 1999/00 0.1 260.1 - 778.6 2000/01 9.7 260.1 - 778.6 2001/02 (496.9) 260.1 (28.1) 778.6 -90- ANNEX 19 Page 6 of 6
POOTKEE- BULLIARY
Economic Cost/Benefit Streams (Rs 11lion - 1984/85 terms)
Capital Operating Working Net Fiscal Year Costs Costs Capital Revenues
1984/85 92.1 0.5 - 2.2 1985/86 174.9 10.1 - 43.4 1986/87 226.2 52.8 3.7 94.0 1987/88 490.8 77.6 1.6 130.1 1988/89 731.7 95.7 1.6 144.6 1989/90 245.8 74.0 - 144.6 1990/91 390.9 97.2 4.2 409.5 1991/92 138.6 155.5 6.4 532.7 1992/93 46.0 274.5 12.7 773.5 1993/94 101.0 349.3 8.5 916.1 1994/95 29.8 392.8 5.3 1,053.8 1995/96 45.0 395.8 - 1,061.0 1996/97 82.2 409.1 1.6 1,077.3 1997/98 82.1 411.8 - 1,077.3 1998/99 93.1 414.4 - 1,077.3 1999/00 82.0 417.0 - 1,077.3 2000/01 82.0 419.7 - 1,077.3 2001/01 92.3 422.3 - 1,077.3 2002/03 81.9 425.0 - 1,077.3 2003/04 81.9 427.6 - 1,077.3 2004/05 92.3 430.2 - 1,026.6 2005/06 82.2 432.9 - 1,026.6 2006/07 82.1 435.5 - 1,026.6 2007/08 135.9 438.2 - 1,026.6 2008/09 81.9 440.8 - 1,026.6 2009/10 81.9 443.4 - 1,026.6 2010/11 92.1 446.1 - 1,026.6 2011/12 81.9 448.7 - 1,026.6 2012/13 81.9 451.4 - 1,026.6 2013/14 (542.5) 454.0 (45.6) 1,026.6
Industry Department February 1985 -91-
ANNEX 20
INDIA -JEARIA COKING COAL PROJECr
DOCUMENTSAVAILABLE IN THE PROJECT FILE
A. The Miuing Sector
1. Report ^f the Committee on the Problem of Coal Supply to Thermal Power Stations, the Fazal Committee Report, October 1983.
2. Report of the Working Group on New Sources of Coking Coals, C. S. Jha Comnmittee Report, September 1984.
3. Gover'nment of India, Ministry of Energy, Annual Report 1983-84.
B. The Company
1. Coal India Limited Annual Report and Accounts 1982-83 and 1983-84.
C. The. Project
I. Feasibility Report for Open Cast Block II (Coking) Project, May 1980.
2. Feasibility Report for Pootkee-Bulliary Project.
3. Updated cost estimate for Madhuband Washery, October 1982.
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