Document of The World Bank

FOR OFFICIAL USE ONLY

Public Disclosure Authorized Report No. P-7104-IN

MEMORANDUM AND RECOMMENDATION

OF THE

PRESIDENT OF THE

INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT

AND THE Public Disclosure Authorized INTERNATIONAL DEVELOPMENT ASSOCIATION

TO THE

EXECUTIVE DIRECTORS

ON A

PROPOSED LOAN IN THE AMOUNT EQUIVALENT TO US$530 MILLION

TO COAL INDIA LIMITED

Public Disclosure Authorized AND A

PROPOSED CREDIT OF SDR 1.5 MILLION

TO INDIA

FOR A

COAL SECTOR REHABILITATION PROJECT

July 31, 1997 Public Disclosure Authorized

This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. CURRENCY EQUIVALENTS (As of June 30, 1997)

Currency units = Rupees (Rs) One Rupee = US$ .03 (approx.) One US Dollar (US$) = Rs35.8 One US Dollar (US$) = SDR 0.72

MEASURES AND EQUIVALENTS

1 metric ton of (Indian) coal = 0.46 metric tons of oil = 1.9 metric tons of lignite = 570 cubic meters of natural gas = 1.0 metric ton of firewood = 2.0 metric tons of animal dung

ABBREVIATIONS AND ACRONYMS

BCCL - Bharat Coking Coal Limited BIFR - Bureau of Industrial and Financial Restructuring CIL - Coal India Limited CMPDI - Central Mine Planning and Design Institute CSRP - Coal Sector Rehabilitation Project ECL - Eastern Coalfields Limited ESMP - Environmental and Social Mitigation Project JEXIM - Export-Import Bank of Japan GOI - Government of India kgoe - kilograms of oil equivalent Mt. - Million tons PAPs - Project-affected people SEB - State Electricity Board VRS - Voluntary Retirement Schemes WCL - Western Coalfields Ltd.

FISCAL YEAR

April 1 through March 31

Vice President: Mieko Nishimizu Country Director: Edwin Lim Sector Manager: Alastair McKechnie Task Manager: Hiroaki Suzuki FOR OFFICIAL USE ONLY

INDIA COAL SECTOR REHABILITATION PROJECT

LOAN /CREDIT AND PROJECT SUMMARY

Borrower: India, acting by its President (IDA credit) Coal India Ltd. (IBRD loan)

Implementing Agencies: Government of India (The Ministry of Coal), Coal India Ltd., Central Coalfields Ltd., Mahanadi Coalfields Ltd., Northern Coalfields Ltd., South Eastern Coalfields Ltd. and Western Coalfields Ltd.

Beneficiaries: Government of India, Coal India Ltd., Central Coalfields Ltd., Mahanadi Coalfields Ltd., Northern Coalfields Ltd., South Eastern Coalfields Ltd., Western Coalfields Ltd. and coal consumers

Poverty: Not Applicable

Env. Category: A

Amount: SDR 1.5 million (US$2.0 million equivalent) (IDA credit) US$530 million (IBRD loan) Terms: IDA Credit: Standard with 35 years maturity IBRD Loan: Repayment over a 20-year period, including five years of grace; standard interest rate for LIBOR-based US$ single currency loans

Onlending terms: Coal India to its subsidiaries at same terms as above for the IBRD loan

Commitment Fee: IDA Credit: 0.50 percent on undisbursed credit balances beginning 60 days after signing, less any waiver IBRD Loan: 0.75 percent on undisbursed loan balances beginning 60 days after signing, less any waiver

Financing plan: Schedule A

Net Present Value: The economic net present value is estimated at US$1,634 million and the corresponding financial net present value is estimated at US$945 million. A discount rate of 16% was used for the calculations of both net present values.

Project ID: IN-PE-9979

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

INDIA COAL SECTOR REHABILITATION PROJECT

TABLE OF CONTENTS

India's Energy Sector - Public Sector Dom inance...... 1 India's Coal Based Energy Strategy ...... Coal Sector Reform and Coal India's Restructuring ...... 2 Coal India Ltd...... 3 Project Objectives ...... 3 Project Description...... 3 Project Im plem entation...... 4 Project Sustainability ...... 5 Lessons Learned From Previous Bank Group Involvem ent...... 5 Link to Country Assistance Strategy...... 6 Rationale For Bank Involvem ent ...... 6 Actions Confirm ed at Loan N egotiations ...... 6 Program Objective and Poverty Category...... 8 Environm ental and Social A spects...... 8 Participatory Approach ...... 9 Project Benefits...... 9 Project Risks...... 9 Recom m endation...... 1

SCHEDULES

A. Project Cost Estimates and Financing Plan B. Procurement and Disbursement C. Time Table of Key Project Processing Events D. Status of Bank Group Operations in India and India at a Glance

ANNEX 1: Status of Sector Reforms and Anticipated Further Reforms

MAP

MEMORANDUM AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT AND THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO COAL INDIA LIMITED AND A PROPOSED CREDIT TO INDIA FOR A COAL SECTOR REHABILITATION PROJECT

1. I submit for your approval the following memorandum and recommendation on a proposed loan to Coal India Limited (Coal India) for the equivalent of US$530 million and on a proposed credit to India for SDR 1.5 million (US$2.0 million equivalent) to help finance a Coal Sector Rehabilitation Project (CSRP). The loan would be at the Bank's standard LIBOR-based interest rate for US$ single currency loans, with a maturity of 20 years, including five years of grace and the credit would be on IDA's standard terms with 35 years maturity.

India's Energy Sector-Public Sector Dominance

2. During the four decades before 1991, a broad consensus opinion among the policy makers in India had established self-reliance and the provision of cheap energy as the twin goals of India's energy sector and made the Government the agent charged with providing the growing population's energy needs. Executing that mandate, India devoted roughly 30 percent of its budgetary resources to the energy sector. This policy has led to the creation of public sector monopolies in the energy sector. Almost the entire power sector is controlled by the Central and State Governments. Coal India controls more than 90% of domestic coal production. Except for a few refining ventures, the Government owns the entire oil and gas sectors.

3. To provide cheap energy, subsidies for agricultural and residential consumers became the rule. Subsidies have had a far reaching effect on the Indian economy: encouraging uneconomic consumption of energy, undermining the efficient development of domestic energy resources, imposing heavy financial burdens on Central and State Government budgets (US$3.7 billion or 1.4% of GDP in 1995/96), exacerbating the poor financial and economic performance of public sector enterprises, and adversely affecting the environment.

4. The Government began to reform the energy sector as part of the fundamental policy shift toward economic liberalization triggered by the balance of payments and fiscal crisis of early 1991. The energy sector reforms were also necessitated by the rapid deterioration of service standards. The reforms focus primarily on rationalizing prices, liberalizing trade and attracting private resources to the energy sector. The State of Orissa, with support from the Bank-financed Orissa State Power Sector Restructuring Project (Loan 4014-IN), has pioneered power sector reform by eliminating vertical integration, inviting private participation, relying on competition where feasible, reforming tariffs, and introducing legislation to allow the creation of an independent regulator to set tariffs and regulate licenses. Haryana and Rajasthan have also recently adopted new power sector policies.

India's Coal Based Energy Strategy

5. With roughly 16 percent of the world's population, India's modest energy resource base amounts to only 0.6 percent of global hydrocarbon reserves and six percent of global coal reserves. Until the late 1960s, India met its energy needs predominantly through oil imports. After the steep increase in international oil prices during the early 1970s made indigenously produced coal more economically attractive than imported oil, the Government decided to make coal-based thermal power generation the backbone of India's energy economy. Indigenous coal is likely to remain the most stable and least-cost option for the bulk of India's energy needs for the foreseeable future because: (i) coal reserves are large enough to meet the demand for the next 250 years at current level of consumption, while the reserves of other indigenous energy resources are limited (oil to 15 years and natural gas to 18 years); (ii) development of hydroelectric power has become difficult due to opposition from environmental groups and project-affected people and disputes about riparian rights; (iii) renewable energy would satisfy only a fraction of future energy needs; (iv) realization of savings through demand side management is slow due to delays in power sector reforms; and (v) large scale energy imports, such as gas, would be limited by infrastructure bottlenecks (ports, railways, roads and pipe lines), at least in the short and medium terms.

6. Compared with other developing countries, India's per capita energy use of roughly 243 kilograms of oil equivalent (kgoe) is low'. India emits roughly 770 million metric tons of carbon dioxide (about 4% of global carbon dioxide emissions). On a per capita basis, India's CO2 emission is about 0.9 metric tons, compared with 12 metric tons in high income countries and 19 metric tons in the United States. But as India's urbanization and industrialization accelerate, energy consumption is likely to rise quickly, requiring the rapid development of indigenous energy reserves to advance India's sustainable economic development.

Coal Sector Reform and Coal India's Restructuring

7. The foreign exchange and fiscal crisis of 1991 forced the Government to rethink the support it had long given chronically weak public enterprises such as Coal India and, in the case of the coal industry, to embark on a path of making it commercially and financially viable. Faced with budgetary constraints and huge investment requirements to meet the ever increasing demand for coal, over the period of 1993-96, the Government: started to phase out its budgetary support to Coal India, lowered tariffs, gradually deregulated pricing and distribution of coking coal and high-grade steam coals (A, B and C grades), and opened captive mines and washeries to private ownership to set the stage for a competitive coal market (see Annex 1).

8. The framework for future reform is provided by the January 1997 Approach Paper to the Ninth Five Year Plan and the recommendations of the Government Committee on Integrated Coal Policy, the substance of which was approved by the Government on February 11, 1997, including: (i) immediate deregulation of the price and distribution of grade-D steam coal; (ii) full deregulation of remaining regulated coal by January 1, 2000; and (iii) opening up non-captive undeveloped mine blocks to competitive bidding by the private sector. These substantial reforms, considered a major departure from traditional central planning policy, triggered the appraisal of the proposed CSRP. In light of India's short- and medium-term dependence on indigenous coal for energy and persistent pressures on budgetary resources, it is imperative that the Government and Coal India implement reforms that would put Indian coal operations on a commercial basis. Annex 1 presents the status of current and anticipated sector reforms.

9. The decision to put Coal India's operations on a commercial footing through comprehensive restructuring should allow Coal India to attain long-term financial viability, provided that the above- mentioned sector reforms (para 8) take rapid effect and that the company receives the proposed loan. Although the proposed loan will not finance any investment in Coal India's two loss making subsidiaries,

Developing Countries: 647 kgoe in China, 393 kgoe in Indonesia and 691 kgoe in Brazil High Income Countries: 7,905 kgoe in the United States and 7,795 kgoe in Canada

2 Bharat Coking Coal Ltd. (BCCL) and Eastern Coalfields Ltd. (ECL), their restructuring is important for Coal India's long-term financial sustainability as Coal India's losses are concentrated in BCCL and ECL. The two companies jointly employ around 50% of Coal India's labor, but account for only 23% of its production. Their turnaround plans consist of: (i) financial restructuring; (ii) closures of unprofitable mines and reduction of labor through Voluntary Retirement Schemes (VRS); (iii) improvement of capacity utilization; and (iv) conditional short to medium term financial support from Coal India. Furthermore, Coal India's agreed corporatization program will effectively insulate its profitable subsidiaries from BCCL and ECL. The implementation of the turnaround plans will be closely monitored and supported by the Bank supervision team.

Coal India Ltd.

10. Coal India is the country's largest public sector enterprise in terms of employment and one of the world's largest coal companies in terms of production. It employs 636,000 people and produces about 250 million tons of coal a year (1996/97 forecast). It was established in 1975, a few years after the coal industry had been nationalized. Structured as a holding company with eight subsidiaries, Coal India has total assets of Rsl80 billion (US$5 billion), and an equity of Rs63 billion (US$1.8 billion). In 1995/96, its net sales were Rsl04.4 billion (US$2.98 billion) and its profit after tax was Rs6 billion (US$168 million). Its productivity (1.77 tons output per manshift) is low by world standards.

Project Objectives

11. The main project objectives are to support the market-oriented reforms India is undertaking in the coal sector and, specifically, to provide financial and technical support to Coal India's efforts to make itself commercially viable and self-sustaining. Underpinning India's broad drive to achieve economic growth, the project also aims to increase domestic supplies of coal, by financing investment in 24 of the most profitable opencast mines of Coal India until imports and production from private investments can fill the emerging supply gap.

Project Description

12. To meet the above project objectives, the proposed project would consist of: (a) Investment Component: high-return and quick-disbursing investments to maintain or improve the profitability of the 24 existing mine subprojects; and (b) Technical Assistance and Training Component: a study of the rules and regulations governing the coal industry, in light of the Government's decision to open up the coal sector to private investors, and technical assistance to support Coal India's institutional capacity development in the project implementation and mining operations and management.

13. In mid-1995, Bank Management recognized that the social and the environmental risks of the proposed CSRP were of such a magnitude that they needed to be dealt with by a dedicated free-standing mitigation project which should start before the implementation of major investments under the CSRP. Thus, Board approved in May 1996 an IDA credit of SDR 43.3 million (US$63 million equivalent) for financing the Coal Sector Environmental and Social Mitigation Project (ESMP/Cr. 2862-IN) to assist Coal India in addressing environmental and social issues in the project areas. Details of the ESMP are available in the Staff Appraisal Report No. 15405-IN. As requested by the Executive Directors during the Board presentation of the ESMP, the Region reported the implementation progress status of the ESMP to

3 Board on June 9, 1997 prior to the loan negotiations of the proposed CSRP. With some delays, Coal India has met its undertakings under the ESMP Development Credit Agreement and put in place an adequate structure and capacity for project implementation. IDA ESMP supervision missions found more positive developments in Orissa compared to Bihar and also noted the great diversity of conditions and problems faced by different mining communities and mine sites. The legacy of past mistakes - none of the project mines is a "greenfield site" - will not be easy to overcome. Major challenges facing Coal India are implementing environmental remedial actions, internalizing a full-fledged community participation process, and developing and implementing a viable income restoration program. The inescapable conclusion is that, while it is possible to mitigate the negative social and environmental impacts of coal mining in regions which are already disadvantaged by poverty and other social complexities, it is likely to be a long and a continuing process. The proposed CSRP loan will provide Coal India with a strong incentive to strengthen the mitigation activities already started under the ESMP and to overcome these challenges. The proper implementation of ESMP will be closely supervised and safeguarded through the cross-conditionality between the ESMP credit and the proposed CSRP loan.

14. The project is estimated to cost about US$1.7 billion, including physical and price contingencies of US$314 million and taxes and duties of US$238 million. Approximately 65% of the total project cost (US$1,107 million) would be in foreign exchange. The proposed credit and loan of US$532 million would finance 31% of the total financing requirements. In addition, the Export-Import Bank of Japan (JEXIM) would finance another US$530 million. A special account would be established in the amount of US$25 million. A breakdown of project costs and financing plan is shown in Schedule A. Amounts and methods of procurement and disbursements and the disbursement schedule are shown in Schedule B. A timetable of key processing events and the status of Bank operations in India are presented in Schedules C and D. A map is also attached. The Staff Appraisal Report (Report No. 16473-IN), dated July 31, 1997, is being distributed separately.

Project Implementation

15. While Coal India has overall responsibility, subproject implementation is the responsibility of its subsidiaries. The technical assistance and training component will be implemented by Coal India and the Government of India. The Ministry of Coal will be in charge of the study of the rules and regulations governing the coal industry.

16. To strengthen its project implementation and monitoring capacity, Coal India has set up a World Bank Projects Division which consists of: (i) a project implementation and monitoring cell; (ii) a procurement cell; (iii) an economic and financial evaluation cell; and (iv) an environmental and social cell. The division is headed by a Chief General Manager, assisted by 14 senior staff and a team of expatriate consultants for procurement.

17. Taking into account Coal India's experience with similar mine projects, implementation is estimated to take five years. In the past, delays in land acquisition and governmental clearance for environment, lack of effective social and environment policies and procedural delays in procurement of goods and services have been the main causes of slippage. Most of these issues are now being effectively dealt with under the ESMP. Bank staff, with assistance from foreign technical experts, have reviewed the mine design, equipment configuration and the design of the bid packages and found them acceptable.

4 Project Sustainability

18. The proposed project supports the ongoing market-oriented sector reforms which will make the coal industry commercially viable and competitive through price and distribution deregulation, import tariff reduction and opening the coal sector to private investors. Specifically, the project provides financial and technical support to Coal India's efforts to transform itself into a commercially viable and self- sustaining company. Coal India will undertake a comprehensive restructuring program, including financial restructuring, full corporatization of its subsidiaries, productivity improvement measures and management training. These measures, together with the ongoing reforms would allow Coal India to attain long-term financial viability. The ESMP is assisting Coal India to make coal production environmentally and socially sustainable.

Lessons Learned From Previous Bank Group Involvement

19. The Bank has made three loans to Coal India: in 1984, a loan of US$151 million for development of the Dudhichua coal mine in Singrauli (Loan 2393-IN); in 1985, a loan of US$248 million for development of the Jharia coalfield (Loan 2498-IN); and in 1987, a loan of US$340 million for expansion of an opencast mine (Gevra) in the Korba coalfield, construction of an opencast mine (Sonepur-Bazari) in West Bengal and imports of coking coal (Loan 2796-IN). In 1992, the Board approved a credit of US$12 million equivalent for a technical assistance project to deal with mine fires in Jharia coalfield (Cr. 2450- IN). In May 1996, the Board approved a credit of US$63 million equivalent for the Coal Sector Environmental and Social Mitigation Project (Cr.2862-IN). Loan 2498-IN for the Jharia Coking Coal project was closed on December 31, 1992, Loan 2393 -IN for the Dudhichua Coal project on March 31, 1993 and Loan 2796-IN for the Coal Mining Coal Quality Improvement Project on September 30, 1995. Implementation Completion Reports have been prepared for Loan 2393-IN, Loan 2498-IN and Loan 2796- IN and that of Loan 2393-IN has been audited by OED.

20. Several lessons can be drawn from these projects: (a) Technical assistance greatly enhances chances of a project being implemented properly and on time. That the Dudhichua mine is regarded as one of the most successful mines in the Singrauli coalfield is largely due to the considerable assistance and guidance from expatriate mining consultants during the initial construction of the mine; (b) Project implementation units need to be strengthened, in particular to manage environmental and social action programs; (c) Procurement under Bank-supported projects needs to be centralized and streamlined. Delays in procurement are the main cause for delays in implementation. All procurement should be carried out by a unit with specially trained staff to be established within Coal India on the basis of the Bank's standard bidding documents; (d) Project-affected people must be informed about a project as soon as it is contemplated. Staff trained in community relations need to keep the affected people fully informed about a project and ensure full participation of all members of affected communities; (e) If resettlement is involved, consultation with regard to rehabilitation options and the choice of resettlement sites needs to be substantially advanced before project start-up; (f) Community development and rehabilitation will go a long way towards reducing complaints and resolving existing problems; and

5 (g) Environmental management needs to be built into the design of the coal mine (e.g. plans for backfilling of overburden and reclamation of land).

Link to Country Assistance Strategy

21. The project is consistent with the Country Assistance Strategy discussed by the Board on June 20, 1995 and the Progress Report discussed by the Board on September 5, 1996. The strategy emphasizes continued Bank/IDA support for India on: (i) the reform of policies in key sectors of its economy; (ii) the rationalization of energy policy, in particular the pricing policies for various energy resources; (iii) the reform of public sector enterprises; (iv) the enhancement of the social and environmental sustainability of the Government's investment program; and (v) improving environmental protection, by strengthening capacity to deal with environmental issues and to enforce environmental legislation.

Rationale For Bank Involvement

22. The proposed project is a large, complex operation including sector reforms, corporate restructuring and environmental and social mitigation activities. The sector knowledge and experience that the Bank has accumulated through five previous lending operations with Coal India, as well as the extensive policy dialogue on sector reforms, would allow the Bank to effectively assist the Government and Coal India in implementing the comprehensive strategic approach which this project requires. Given the large financing requirement and the fact that Coal India's financial health depends upon the expeditious implementation of the proposed reforms and restructuring, only the Bank, together with the Export-Import Bank of Japan, has the resources to finance the proposed operations.

Actions Confirmed at Loan Negotiations

23. The following agreements have been reached: (a) Regarding the proposed credit, the Government has agreed to: (i) deregulate pricing and distribution of remaining regulated low- grade steam coal by January 1, 2000; (ii) a) not later than July 31, 1999, complete the study on the rules and regulations governing the coal industry in a manner satisfactory to the Association; b) not later than October 31, 1999, furnish to the Association for comments a draft timebound action plan regarding the implementation of the study's recommendations which are feasible; and c) not later than December 15, 1999, begin implementation of such action plan taking into account the Association's comments and in accordance with a timetable prepared in consultation with the Association; (iii) take all necessary actions to obtain the relevant authorities' commitment to finance BCCL's and ECL's VRS through provision of the following amounts to, inter alia, the NRF by the following dates: a) RsO.8 billion by March 31, 1998; b) Rs1.6 billion by March 31, 1999; and c) Rsl.6 billion by March 31, 2000; and (iv) carry out a midterm review of the regulatory framework study component of the project before January 31, 2000 and thereafter implement its recommendations.

6 (b) Regarding the proposed loan, Coal India has agreed that it will: (i) not merge any of its subsidiaries and cause each subsidiary not to merge without the consent of the Bank; (ii) conduct all financial transactions between itself and the subsidiaries, and cause the subsidiaries to conduct all financial transactions among themselves, based on written contracts; (iii) limit all financial transactions between itself and the subsidiaries and cause all financial transactions among the subsidiaries to be limited, to those relating to equity acquisition, loans and commitment, guarantee and service charges, which may be levied by Coal India on the subsidiaries and other incidental transactions, which are paid within a twelve month period; (iv) not lend, or otherwise make available to any of the subsidiaries other than BCCL or ECL, funds obtained by Coal India from external sources: a) for a time period different from that; and b) on terms more favorable than those, on which such funds shall have been so obtained by Coal India; (v) limit its corporate guarantees, if any, to profit-making subsidiaries; (vi) cause BCCL and ECL to maintain a debt to total capitalization ratio of no more than 70% during the period from FY 1998 through FY2000 and of no more than 60% after FY 2000; (vii) maintain and cause each subsidiary other than BCCL and ECL, to maintain a debt to total capitalization ratio of no more than 60%; (viii) cause BCCL and ECL from FY2001 to maintain a debt service ratio of at least 1.3; (ix) maintain and cause each subsidiary other than BCCL, ECL and CMPDI to maintain a debt service ratio of at least 1.3; and (x) carry out a midterm review of the investment and technical assistance components (except the study of the regulatory framework) of the project before June 30, 2000 and thereafter implement its recommendations.

24. The following conditions shall be met for the effectiveness of the proposed loan and credit: (a) The Government has invited "expressions of interest" for the study of the rules and regulations governing the coal industry; (b) Coal India is in compliance with: (i) all obligations under the legal agreements pertaining to the ESMP; and (ii) all obligations relating to environmental and social mitigation set forth in Schedule 9 of Loan Agreement and as also shown in Annex 4.4 of the SAR; (c) the Export-Import Bank of Japan Loan Agreement has been executed and delivered, and all of the conditions for its effectiveness, except only the effectiveness of the Bank Loan Agreement have been fulfilled; (d) the Development Credit Agreement has been executed and delivered and all conditions precedent to its effectiveness to the right of the Guarantor to make withdrawals thereunder, except only the effectiveness of the Loan Agreement, have been fulfilled; and (e) the subsidiary Loan Agreements have been executed on behalf of Coal India and the participating subsidiaries.

7 Program Objective and Poverty Category

25. The proposed project falls into the program objective categories of economic management (public enterprise reform), environmentally sustainable development and private sector development.

26. The project is not directly targeted to the poor. However, the project would indirectly help the poor by freeing up public resources for higher priority social expenditures and by accelerating economic growth through increased coal supplies to key power and industrial sectors.

Environmental and Social Aspects

27. The proposed project has been classified as Environmental Category 'A.' Environmental Action Plans, Rehabilitation Action Plans and Indigenous Peoples Development Plans were prepared for the 24 project mines to ensure full compliance with Indian legislation and the Bank's Operational Directives on Environmental Assessment (OD 4.01), Involuntary Resettlement (OD 4.30) and Indigenous Peoples (OD 4.20). Coal India is currently implementing these plans in the mines included in the project under the ESMP.

28. The World Bank is presently in process of preparation of a draft energy and environment strategy paper to be presented to the Board. The proposed project is in line with current strategy which: (a) supports energyproduction, conversion and consumption that is efficient, private-sector oriented and environmentally and socially sustainable The CSRP incorporates comprehensive policy reforms (such as price, distribution and trade liberalization) to promote the efficient extraction and use of coal. The price liberalization allows mining companies to adjust coal prices to economically valid levels, thus contributing to the efficient allocation of scarce resources. This expected allocative efficiency would promote the demand-side management of energy, because the coal price adjustment will be reflected in the tariff adjustment by power companies. Price liberalization would also permit producers to internalize the costs required for coal quality improvement through washing or selective mining methods. (b) promotes implementation of efficiency andprivate-sector development through sectoral dialogue and commitment-based lending operations, as underpinned by economic and sectoral analysis By promoting a greater role for private investors and trade liberalization, the CSRP promotes competition that will stimulate Coal India to improve its efficiency and coal quality. Commercial coal sales contracts, to be introduced under the CSRP, stipulating the precise quality of coal to be supplied will also provide Coal India with an incentive to provide a higher quality product. Such an improvement in quality would reduce coal-related pollution and improve the efficiency of power plants. (c) promotes implementation of sustainabilitythrough environmental and social assessment practicesprescribed in the relevant Bank operationalpolices. The ESMP addresses the specific, project-linked social and environmental issues. The corporatization program of Coal India and its subsidiaries will hold each subsidiary accountable for the full implementation of the environmental and social mitigation activities agreed under the ESMP.

8 Participatory Approach

29. Coal India's past consultation with project-affected people took place during the preparation of Environmental Action Plans, Rehabilitation Action Plans and Indigenous Peoples Development Plans and will be maintained through the implementation of these plans. Community Participation is an area of significant challenge. Coal India's management is aware that its staff needs to further develop their capacity for greater involvement of the project-affected people (PAPs) in the decision-making process. Coal India has initiated the measures to improve its performance in community involvement by establishing a continuous process of formal and informal training of staff, consensus building and awareness raising workshops for its personnel who work in the mines and at subsidiary headquarters, and staff who are in the direct contact with PAPs. NGOs which have credibility in the local communities have been retained by Coal India to facilitate the consensus building and partnership development between the project affected people and the subsidiary staff.

Project Benefits

30. In fostering coal industry reform by the Govertnent and Coal India, Bank support would: (a) significantly reduce the risk of lost momentum due to inadequate financial resources; (b) further promote the critical deregulation of price and distribution controls and the opening of the sector to private investors; (c) further facilitate the transformation of Coal India into a commercially viable and financially self-sustaining coal company through technical and financial support; (d) safeguard, in the short term, the Government's broader economic reform effort by reducing the risk of a decline in indigenous capacity to supply the coal needs of the power sector and other industries until imports and production from private investments can fill the emerging supply gap; (e) lend much-needed outside support to coal industry reforms by helping, inter alia, to attract financing from bilateral donors; and (f) contribute to improving coal quality by assisting Coal India to introduce selective excavation methods and to develop coal supply contracts that reward providers of better quality coals and penalize suppliers of lower quality.

Project Risks

31. The proposed project faces three major risks: delays in implementing sector reforms, in implementing the ESMP and in restructuring BCCL and ECL. These three concerns are discussed separately below.

Delays in Implementing Sector Reforms

32. Although the Government, by its actions, has clearly indicated a strong resolve to proceed with coal sector reform, some of the reform measures raise sensitive Central-State Government issues and some politicians and labor unions could resist opening the sector to private investors. Searching for consensus on these issues, the Government could temporarily slow the pace of the reforms. The timing of the full liberalization of coal prices could also be delayed if the State Electricity Boards (SEBs) were unable to improve their financial performance as a result of slow progress in the power sector reforms. Swift

9 Government action to amend the laws in order to open up all undeveloped coal reserves to private participation should preclude major delay in establishing the required legal framework. Private sector entry could, nonetheless, be held up by the absence of clear, transparent procedures - unhindered by red tape - to select licensees. These potential obstacles would not fundamentally affect the financial and economic viability of the CSRP investment and the financial performance of Coal India. India's supply- demand gap of coal, however, would rise sharply if private investment is delayed. In such a case either energy imports would increase or, most probably, energy shortages would occur. Given India's reduced budget resources and the large investments needed to meet the steadily increasing demand for coal, the reforms should continue without major delays in the medium and long term.

Delays in ESMP Implementation

33. Coal India is implementing the ESMP with diligence. However, the CSRP is not totally free from the risk that resettlement of project-affected people would not be implemented in a timely manner or - in the worst case facing 14 of 24 mines - not implemented at all if project-affected people refuse to move to resettlement sites. In such a situation, Coal India would be obliged to change the mine design to avoid existing settlements while awaiting the completion of the resettlement or to shift activities to other mining sites which would yield lower financial and economic net present value than the original subprojects. Coal India and its subsidiaries lack adequate experience in the implementation of Rehabilitation Action Plans and even more so, of the Indigenous Peoples Development Plans which are instruments new to Coal India. Beyond the agreements under the ESMP, Coal India has agreed to reinforce its capacity to deal with the social issues by significantly increasing its use of outside experts, appointing additional resettlement and rehabilitation/community development staff and reinforcing their training. The economic rehabilitation of project-affected people is the most difficult component of the Rehabilitation Action Plans. Assessment of progress of this component will be undertaken by a project monitoring consultancy team, an independent review panel and supervision team. Under the supervision of the ESMP, the Bank is paying special attention to this component, where NGOs could help in candidly judging progress or its absence, and where, if required, reinforcement measures or alternative approaches would be proposed in a timely manner.

Delays in Restructuring BCCL and ECL

34. Provided that sector reforms and restructuring proceed expeditiously and that it receives the proposed loan, Coal India as a whole can attain long-term financial viability. Further consolidating their financial positions, its profitable subsidiaries will generate sufficient internal resources to meet Coal India's debt obligation and maintain sustainable growth. However, since the success of restructuring depends on reducing surplus labor, the outlook for BCCL and ECL is highly uncertain. The magnitude of the social constraint on their progress can be gauged by the fact that more than 1.5 million people, assuming an average family size of five, depend on their economic activities. In addition, mining operations in remote areas provide primary job opportunities and most of the social infrastructure (housing, schools, hospitals, and water.) Experience in other countries has shown that a labor retrenchment program in the coal industry is a costly and lengthy process.

35. The pace of the restructuring of these subsidiaries will be constrained by their capacity, as well as that of the community and the Central and local governments, to absorb adverse social impacts arising from the reduction in employment. If they can reduce the labor beyond the level of the natural attrition through Voluntary Retirement Schemes, both BCCL and ECL should be able to turn around in five to six years. Coal India and its two subsidiaries have chosen the proposed labor reduction plan based on a realistic assessment of their absorptive capacity, but if slow implementation of that plan or a continuation

10 of low capacity utilization ratio delay the turnaround, Coal India's agreed, 'firewall' corporatization program will effectively insulate its profitable subsidiaries from BCCL and ECL and their weak financial position. If the turnaround of these two subsidiaries is substantially delayed, the Government would either use dividend revenues from Coal India to cover their financial losses or take the hard decision to close these companies according to the Bureau of Industrial and Financial Restructuring (BIFR) rules. Further deterioration carries the risk that Coal India would increase its dividend payout ratio by depriving profitable subsidiaries of resources they need for growth. In any case, the proposed loan will not finance any investment in these two subsidiaries.

Recommendation

36. I am satisfied that the proposed loan and credit would comply with the Articles of Agreement of the Bank and the Association and I recommend that the Executive Directors approve them.

James D. Wolfensohn President by Gautam Kaji

Washington, DC July 31, 1997

11

Schedule A Page 1 of 1

INDIA COAL SECTOR REHABILITATION PROJECT

Project Cost Estimates

Cost Components Foreign Local Total Foreign Local Total Foreign Exch Rs million US$ million Percent Civil works and coal handling plants 1,951.1 3,852.1 5,803.2 54.5 107.6 162.1 33.6 Equipment and vehicles 30,716.4 12,322.4 43,038.8 858.0 344.2 1,202.2 71.4 Technical assistance 408.1 93.1 501.2 11.4 2.6 14.0 81.4 Institution building 121.7 32.2 153.9 3.4 0.9 4.3 79.1 Policy support 50.1 14.3 64.4 1.4 0.4 1.8 77.8 Project implementation 236.3 46.5 282.8 6.6 1.3 7.9 83.5 Miscellaneous 179.0 179.0 5.0 5.0

Base cost (1997)* 33,075.6 16,446.5 49,522.1 923.9 459.4 1,383.3 66.8 Physical contingencies 3,311.5 1,646.8 4,958.3 92.5 46.0 138.5 66.8 Price contingencies 3,243.5 3,050.2 6,293.6 90.6 85.2 175.8 51.5

Total project cost 39,630.6 21,143.5 60,774.1 1,107.0 590.6 1,697.6 65.2

Financing requirements 39,630.6 21,143.5 60,774.1 1,107.0 590.6 1,697.6 65.2 *Base cost includes taxes and duties of approximately US$238.2 million Source: Bank staff estimates

Financing Plan (US$ million)

Source of Finance ForeignCost Local Cost Total Cost Shares

IBRD 530.0 530.0 31 JEXIM 530.0 530.0 31 IDA 2.0 2.0 1 Coal India 10.2 571.4 581.6 34 Suppliers' Credits 34.8 19.2 54.0 3 Total 1,107 590.6 1,697.6 100 Source: Bank staff estimates

Schedule B Page i of i

INDIA COAL SECTOR REHABILITATION PROJECT

Summary of Procurement Arrangements (US$ million)

ProjectComponents ProcurementMethod N.B.F.* Total ICB NCB Other

Civil works and coal handling plants 65.6 125.2 190.8 (28.3) 283) Equipment and vehicles 1,128.5 353.8 1,482.3 (4%6.3) (4963) Technical assistance 15.6 3.0 18.6 (7.4) (7.4) Miscellaneous 5.9 5.9 Total 1,192.1 15.6 487.9 1,697.6 (Bentk Lan/IDA Credit) (2446) i(7.4) (532,0} Source: Bank staff.estimates N.B.F.: Not financed by the Bank or Association

Proposed Allocation of Bank Loan, JEXIM Loan and IDA Credit

Category IBRD JEXIM IDA Percentageof Ex pendItures Financed Turnkey contracts (coal handling plants) 25.5 25.5 90%. ofexpenditures Equipment, vehicles and materials 446.6 446.6 100% of foreign expenditures 100% of local ex-factory costs 80% of other local costs Technical Assistance* 5.0 5.0 2.0 100%ofexpenditures Refmancing of PPF 2.0 Unallocated 50.9 52.9 Total 530.0 530.0 2.0 Source: Bank Staff Estimates

Estimiated Schedule of Disbursements (US$ million)

Bank Fiscal IBRD JEXIM IDA Coal India Supplers' Credits Year Amt. Disb. Cu. Dis Amt. Dsb. Cum. Disb Amt. b... Cum. Dish Amt. Disb. Cum. Disb Amt. Disb. Cum. Ds FY 1998 2.3 2.3 0.3 0.3 0.2 0.2 41.6 41.6 24.1 24.1 FY 1999 121.1 123.4 121.1 121.4 0.6 0.8 155.6 197.2 29.9 54.0 FY 2000 226.2 349.6 226.2 347.6 1.0 1.8 188.4 385.6 54.0 FY 2001 90.8 440.4 90.8 438.4 0.2 2.0 96.6 482.2 54.0 FY 2002 73.6 514.0 73.6 512.0 2.0 79.4 561.6 54.0 FY 2003 16.0 530.0 18.0 530.0 2.0 20.0 581.6 54.0 Source: Bank Staff Estimates

Schedule C Page 1 of I

INDIA COAL SECTOR REHABILITATION PROJECT

Time Table of Key Project Processing Events

Time taken to prepare the project: 48 months (May 1993 - May 1997)

Prepared by: Coal India Ltd.

First IBRD mission: May 1993

Appraisal mission departure: March 1997

Negotiations: July 1997

Planned date of effectiveness: December 1997

The Staff Appraisal Report was prepared by Messrs./Mmes. Hiroaki Suzuki (Task Manager), Sadhan Chattopadhya (Senior Mining Engineer), Charles Husband (Senior Financial Analyst), Chris Wardell (Principal Mining Engineer), Trish Hackman (Consultant), Mudassar Imran (Energy Economist), Lars Lund (Sociologist), Asger Christensen (Sociologist), Yaacov Ziv (Senior Environmental Specialist), Jelena Pantelic (Urban Redevelopment Specialist), Margaret Png (Counsel), Al Friendly (Consultant) and Peter Pollak (Principal Operations Officer).

This report could not have been written without the extensive support and contributions of Coal India's World Bank Project Division.

This report has been reviewed by Messrs. Peter van der Veen and Laszlo Lovei. It has been endorsed by Edwin Lim (India Country Director, South Asia Region), Mr. Robert Drysdale (Operations Director, South Asia Region), and Mr. Alastair McKechnie (Energy Sector Unit Manager, South Asia Region).

Schedule D Page 1 of 4

Status of Bank Group Operations in India IBRD Loans and IDA Credits in the Operations Portfolio (As of June 30, 1997)

Original Amount in USS Millions Difference Between expected Loan or Fiscal and actual Credit Year Project IBRD IDA Cancel- Undis- disburse- No. lations bursed ments a/ Number of Closed Loans/credits: 365

Active Loans C19230 1988 TAMIL NADU URBAN 0.00 300.20 45.47 20.51 65.02 L30960 1989 MAHARASHTRA POWER 400.00 0.00 62.67 85.04 141.61 L30240 1989 NATHPA JHAKRI HYDRO 485.00 0.00 0.00 227.97 217.27 L29940 1989 STATE ROADS I 170.00 0.00 61.41 9.95 151.36 C20080 1989 VOCATIONAL TRAINING 0.00 250.00 103.33 41.94 168.62 L32370 1990 NOR REG TRANSM 485.00 0.00 0.00 259.06 251.06 L31190 1990 TECHNOLOGY DEVELOP. 145.00 0.00 10.00 27.71 37.71 C21580 1990 SECOND TN NUTRITION 0.00 95.80 29.81 3.49 23.71 C21330 1990 POP. TRG (VII) 0.00 86.70 22.74 8.71 31.93 C21310 1990 WTRSH PLAINS 0.00 55.00 0.00 17.90 9.92 C21300 1990 TECH EDUC I 0.00 235.00 24.26 60.59 78.90 C21150 1990 HYDERABAD W/S 0.00 79.90 0.00 24.36 21.30 C21000 1990 WTRSH HILLS 0.00 75.00 0.00 32.76 40.26 C20760 1990 PUNJAB IRR & DRAINAG 0.00 150.00 4.72 36.70 34.71 C20640 1990 TECHNOLOGY DEVELOPME 0.00 55.00 0.00 24.51 17.53 L33640 1991 GAS FLARING REDUCTIO 450.00 0.00 0.00 25.87 25.87 L33340 1991 IND POLLUTION CONTRO 124.00 0.00 0.00 20.53 -6.07 L33000 1991 AGR.DEV.I (TN) 20.00 0.00 0.00 20.00 1.25 L32590 1991 PETROCHEMICALS 233.00 0.00 70.30 30.77 -131.93 L32580 1991 PETROCHEMICALS 12.00 0.00 0.00 1.88 1.88 C22520 1991 IND POLLUTION CONTRO 0.00 31.60 0.00 19.44 18.30 C22410 1991 DAM SAFETY 0.00 130.00 0.00 99.39 115.38 C22340 1991 MAHARASHTRA RURAL WS 0.00 109.90 0.00 43.21 45.11 C22230 1991 TECH EDUC II 0.00 307.10 51.37 132.95 138.85 C22150 1991 AGR.DEV.I (TN) 0.00 92.80 0.00 17.07 14.39 C21730 1991 ICDS I (ORIS & ANDHR 0.00 96.00 21.65 22.46 41.43 L34980 1992 MAHARASHTRA POWER II 350.00 0.00 0.00 237.75 230.55 L34700 1992 NAT. HIGHWAYS II 153.00 0.00 0.00 153.00 0.00 L34360 1992 POWER UTIL EFFIC IMP 265.00 0.00 25.00 72.31 92.01 C23940 1992 POPULATION VIII 0.00 79.00 0.00 71.51 45.93 C23650 1992 NAT. HIGHWAYS II 0.00 153.00 0.00 79.77 56.68 C23500 1992 AIDS PREVENTION AND 0.00 84.00 0.00 32.13 30.91 C23410 1992 WEST BENGAL FORESTRY 0.00 34.00 0.00 4.67 1.22 C23290 1992 SHRIMP & FISH CULTUR 0.00 85.00 48.51 24.81 58.93 C23280 1992 MAHARASHTRA FORESTRY 0.00 124.00 16.18 63.41 43.52 L36320 1993 NTPC POWER GENERATIO 400.00 0.00 0.00 256.65 256.65 L35770 1993 PGC POWER SYSTEM 350.00 0.00 0.00 189.40 140.20 C25280 1993 NATL LEPROSY ELIMINA 0.00 85.00 0.00 59.30 36.58 C25100 1993 UP SODIC LANDS RECLA 0.00 54.70 0.00 33.64 10.65 C25090 1993 UTTAR PRADESH BASIC 0.00 165.00 0.00 76.32 4.86 C24830 1993 KARNATAKA WS & ENV/S 0.00 92.00 0.00 70.11 43.04 C24700 1993 ICDS II (BIHAR & MP) 0.00 194.00 0.00 170.35 73.25 C24490 1993 RENEWABLE RESOURCES 0.00 115.00 0.00 87.81 73.70 C24390 1993 BIHAR PLATEAU 0.00 117.00 0.00 87.29 64.15 C24330 1993 ADP - RAJASTHAN 0.00 106.00 0.00 47.02 16.83 C24090 1993 RUBBER 0.00 92.00 36.58 40.46 46.45 L37530 1994 CONTAINER TRANSPORT 94.00 0.00 0.00 82.54 54.54 C26300 1994 POPULATION IX 0.00 88.60 0.00 75.85 13.06 Schedule D Page 2 of 4

Original Amount in US$ Millions Difference Between expected Loan or Fiscal and actual Credit Year Project IBRD IDA Cancel- Undis- disburse- No. lations bursed ments a/ C261 10 1994 BLINDNESS CONTROL 0.00 117.80 0.00 101.34 20.96 C25940 1994 MAHARASHTRA EARTHQUA 0.00 246.00 29.19 63.00 80.11 C25920 1994 WATER RES CONSOLID H 0.00 258.00 0.00 197.61 50.01 C25730 1994 ANDHRA PRADESH FORES 0.00 77.40 0.00 55.97 14.19 C25720 1994 FORESTRY RESEARCH ED 0.00 47.00 0.00 35.04 20.04 L39076 1995 MADRAS WATER SUP 11 269.80 0.00 189.30 77.10 -3.40 L38576 1995 FINANCIAL SECTOR DEV 144.00 0.00 0.00 142.46 -1.54 L38560 1995 FINANCIAL SECTOR DEV 350.00 0.00 0.00 200.00 -150.00 L37806 1995 INDUS POLLUTION PREV 50.00 0.00 0.00 45.51 -4.49 L37790 1995 INDUS POLLUTION PREV 93.00 0.00 0.00 85.93 3.98 C27450 1995 TAMIL NADU WRCP 0.00 282.90 0.00 239.67 44.30 C27330 1995 ASSAM RURAL INFRA 0.00 126.00 0.00 108.63 15.59 C27000 1995 MP FORESTRY 0.00 58.00 0.00 43.60 2.53 C26990 1995 AGRIC HUMAN RES DEVT 0.00 59.50 0.00 50.10 19.59 C26630 1995 AP 1ST REF. HEALTH S 0.00 133.00 0.00 117.44 20.01 C26610 1995 DISTRICT PRIMARY ED 0.00 260.30 0.00 192.43 15.67 C26450 1995 INDUS POLLUTION PREV 0.00 25.00 0.00 24.68 25.00 L40560 1996 UP RURAL WATER 59.60 0.00 0.00 57.20 -.20 L40140 1996 ORISSA POWER SECTOR 350.00 0.00 0.00 334.57 -.43 L39920 1996 ILFS-INFRAS FINANCE 200.00 0.00 0.00 175.00 -3.50 L39230 1996 B SEWAGE DISPOSAL 167.00 0.00 0.00 153.85 27.15 C28760 1996 DISTRICT PRIM EDUC 2 0.00 425.20 0.00 398.44 6.51 C28620 1996 COAL ENV&SOCIAL MIT. 0.00 63.00 0.00 57.47 1.11 C28380 1996 ILFS-INFRAS FINANCE 0.00 5.00 0.00 4.74 5.00 C28330 1996 STATE HEALTH SYS II 0.00 350.00 0.00 316.11 16.94 C28010 1996 ORISSA WRCP 0.00 290.90 0.00 237.34 -5.81 C27740 1996 HYDROLOGY PROJECT 0.00 142.00 0.00 119.69 15.24 L41920 1997 STATE HIGHWAYS I(AP) 350.00 0.00 0.00 350.00 0.00 L41660 1997 AP IRRIGATION III 175.00 0.00 0.00 175.00 0.00 L41560 1997 A.P. EMERG. CYCLONE 50.00 0.00 0.00 50.00 0.00 L41140 1997 TA ST'S RD INFRA DEV 51.50 0.00 0.00 47.76 6.26 C29640 1997 MALARIA CONTROL 0.00 164.80 0.00 166.17 0.00 C29520 1997 AP IRRIGATION III 0.00 150.00 0.00 150.70 0.00 C29500 1997 A.P. EMERG. CYCLONE 0.00 100.00 0.00 100.51 0.00 C29420 1997 RURAL WOMEN'S DEV 0.00 19.50 0.00 18.82 0.00 C29360 1997 TUBERCULOSIS CONTROL 0.00 142.40 0.00 132.50 -1.18 C29300 1997 ENV CAPACITY BLDG TA 0.00 50.00 0.00 48.37 0.00 C29160 1997 ECODEVELOPMENT 0.00 28.00 0.00 25.62 -1.00 CN0180 1997 REPRODUCTIVE HEALTH1 0.00 248.30 0.00. 250.24 0.00

6,445.90 7,688.30 852.48 8,481.50 3,286.36 Active Loans Closed Lon Total Total Disbursed (IBRD and IDA): 4,778.67 29,571.14 34,349.81 of which has been repaid: 168.78 8,544.66 8,713.44 Total now held by IBRD and IDA: 13,112.93 20,479.55 33,592.48 Amount sold : 0.00 133.77 133.77 Of which repaid : 0.00 133.77 133.77 Total Undisbursed : 8,481.50 96.81 8,578.31 a. Intended disbursements to date minus actual disbursements to date as projected at appraisal. Schedule D Page 3 of 4

India STATEMENT OF IFC's Committed and Disbursed Portfolio (As of June 30, 1997)

Amounts in US$ Millions Committed Disbursed IFC IFC FY Approval Company Loan Equity Quasi Partic Loan Equity Qua Partic si 1964/75/79190 MUSCO 0.00 1.08 0.00 0.00 0.00 1.08 0.00 0.00 1978/87/91/93 HDFC 40.00 2.29 0.00 0.00 40.00 2.29 0.00 0.00 1981 Nagarjuna Steel 0.00 .07 0.00 0.00 0.00 .07 0.00 0.00 1981/86/81/91/93/96 ITW Signode 0.00 1.55 0.00 0.00 0.00 1.55 0.00 0.00 1981/86/89/94/92 TISCO 8.45 15.37 0.00 0.00 8.45 15.37 0.00 0.00 1981/90/93 M&M .83 6.49 0.00 3.33 .83 6.49 0.00 3.33 1982 Modi Cement 16.83 0.00 0.00 0.00 16.83 0.00 0.00 0.00 1984/90/94 India Lease 1.31 .86 0.00 0.00 1.31 .86 0.00 0.00 1984/91 Bihar Sponge 13.05 .68 0.00 0.00 13.05 .68 0.00 0.00 1986 EXB-City Mills .48 0.00 0.00 0.00 .48 0.00 0.00 0.00 1986 EXB-CECL .01 0.00 0.00 0.00 .01 0.00 0.00 0.00 1986 EXB-NB Footwear .19 0.00 0.00 0.00 .19 0.00 0.00 0.00 1986 EXB-Paharpur .15 0.00 0.00 0.00 .15 0.00 0.00 0.00 1986 EXB-STG .46 0.00 0.00 0.00 .46 0.00 0.00 0.00 1986 EXB-TAN .03 0.00 0.00 0.00 .03 0.00 0.00 0.00 1986 EXB-Wires & Fab. .07 0.00 0.00 0.00 .07 0.00 0.00 0.00 1986/92/93/94 GESCO 0.00 13.05 0.00 0.00 0.00 13.05 0.00 0.00 1986/93/94/95 India Equipment .60 .77 0.00 1.47 .60 .77 0.00 1.47 1987 Hindustan 7.40 0.00 0.00 0.00 7.40 0.00 0.00 0.00 1987/88/90/93 Titan Watches 2.74 1.03 0.00 0.00 2.74 1.03 0.00 0.00 1988/90/92 Tata Telecom 0.00 .10 0.00 0.00 0.00 .10 0.00 0.00 1988/94 GKN Invel 0.00 1.40 0.00 0.00 0.00 1.40 0.00 0.00 1989 AEC 13.72 0.00 0.00 0.00 13.72 0.00 0.00 0.00 1989 UCAL 0.00 .63 0.00 0.00 0.00 .63 0.00 0.00 1989/90/94 Tata Electric 64.24 0.00 0.00 0.00 64.24 0.00 0.00 0.00 1989/91 Gujarat State 11.35 0.00 0.00 0.00 11.35 0.00 0.00 0.00 1989/95 JSB India 0.00 1.21 0.00 0.00 0.00 1.21 0.00 0.00 1990 HOEL 0.00 .28 0.00 0.00 0.00 .28 0.00 0.00 1990 TDICI-VECAUS II 0.00 1.94 0.00 0.00 0.00 1.94 0.00 0.00 1990/92 CESC 48.79 0.00 0.00 67.00 48.79 0.00 0.00 67.00 1990/93/94 IL & FS 27.75 3.11 1.81 10.00 27.75 3.11 1.81 10.00 1990/94 ICICI-IFGL 0.00 .30 0.00 0.00 '60.00 .30 0.00 0.00 1990/95 ICICI-SPIC Fine 0.00 1.88 0.00 0.00 0.00 1.88 0.00 0.00 1991 Block KG-OS-IV 0.00 .02 0.00 0.00 0.00 0.00 0.00 0.00 1991 BSES 45.00 0.00 0.00 0.00 45.00 0.00 0.00 0.00 1991/93 Triveni 0.00 1.11 0.00 0.00 0.00 1.11 0.00 0.00 1991/96 VARUN 11.35 1.35 0.00 5.33 11.35 1.35 0.00 5.33 1992 Indus VC Mgt Co 0.00 .01 0.00 0.00 0.00 .01 0.00 0.00 1992 Indus VCF 0.00 1.00 0.00 0.00 0.00 1.00 0.00 0.00 1992 Info Tech Fund 0.00 .64 0.00 0.00 0.00 .64 0.00 0.00 1992 SKF Bearings 6.70 0.00 0.00 0.00 6.70 0.00 0.00 0.00 1992/93 Arvind Mills 0.00 17.10 0.00 0.00 0.00 17.10 0.00 0.00 1992/94/97 Ispat Industries 85.55 5.77 0.00 85.00 38.19 5.77 0.00 0.00 1992/95 Creditcapital VF 0.00 1.05 0.00 0.00 0.00 1.05 0.00 0.00 1992/96/97 NICCO-UCO 1.88 .50 0.00 0.00 1.88 .50 0.00 0.00 1993/94/96 Indo Rama 20.31 11.98 0.00 8.13 20.31 11.98 0.00 8.13 1993/97 20TH Century 15.78 .80 0.00 4.62 5.78 .80 0.00 4.62 Schedule D Page 4 of 4

Amounts in US$ Millions Committed Disbursed IFC IFC FY Approval Company Loan Equity Quasi Partic Loan Equity Qua Partic si 1994 Centurion Growth 0.00 2.39 0.00 0.00 0.00 2.39 0.00 0.00 1994 Chowgule 15.00 4.58 0.00 27.00 13.75 4.58 0.00 24.75 1994 Crdcap Asset Mgt 0.00 .32 0.00 0.00 0.00 .32 0.00 0.00 1994 DLF Cement 11.00 4.94 0.00 17.00 11.00 4.94 0.00 17.00 1994 Global Trust 0.00 3.19 0.00 0.00 0.00 3.19 0.00 0.00 1994 Gujarat Ambuja 0.00 8.23 0.00 0.00 0.00 8.23 0.00 0.00 1994 Taurus Starshare 0.00 7.17 0.00 0.00 0.00 7.17 0.00 0.00 1994 TCAMC 0.00 .16 0.00 0.00 0.00 .16 0.00 0.00 1994/97 GVK 40.00 8.30 0.00 37.65 30.00 8.30 0.00 37.65 1995 Centurion Bank 0.00 3.87 0.00 0.00 0.00 3.87 0.00 0.00 1995 EXIMBANK 25.00 0.00 0.00 0.00 25.00 0.00 0.00 0.00 1995 ISIC 0.00 .32 0.00 0.00 0.00 .32 0.00 0.00 1995 Prism Cement 15.00 5.02 0.00 15.00 15.00 5.02 0.00 15.00 1995 Rain Calcining 19.25 5.40 0.00 0.00 10.50 4.72 0.00 0.00 1995 RPG Communicatns 0.00 8.30 0.00 0.00 0.00 8.30 0.00 0.00 1995 Sara Fund 0.00 7.03 0.00 0.00 0.00 1.10 0.00 0.00 1995 SRF Finance 13.89 5.00 0.00 0.00 13.89 4.39 0.00 0.00 1996 CVF Oil Gas-AL 8.00 8.00 0.00 0.00 0.00 0.00 0.00 0.00 1996 India Direct Fnd 0.00 7.50 0.00 0.00 0.00 .82 0.00 0.00 1996 Indus II 0.00 5.00 0.00 0.00 0.00 3.00 0.00 0.00 1996 Indus Mauritius 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1996 Moser Baer 5.70 .60 0.00 0.00 5.70 0.00 0.00 0.00 1996 United Riceland 10.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1997 CEAT 20.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1997 Owens Coming 25.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1997 WIPRO 10.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

Total Portfolio: 662.86 190.74 1.81 281.53 512.50 166.22 1.81 194.28

Approvals Pending Commitment Loan Equity Qurni Partic 1997 AEL 16.00 5.50 0.00 0.00 1996 CESC II -BLINC 0.00 0.00 0.00 37.00 1996 DEV CREDIT BANK 0.00 1.89 0.00 0.00 1997 DUNCAN HOSPITAL 7.00 1.00 0.00 0.00 1997 EEPL 0.00 .03 0.00 0.00 1995 IB VALLEY POWER 50.00 20.00 0.00 0.00 1997 ITC CLASSIC 20.00 0.00 10.00 0.00 1994 NEYVELI POWER 30.00 18.00 0.00 150.00 1997 NUFSL 5.00 0.00 0.00 5.00 1997 SAPL 0.00 .07 0.00 0.00 1995 SPIC-RGHTS ISSUE 0.00 .86 0.00 0.00 1997 SREI 15.00 3.00 0.00 0.00 1996 TARUN SHIPPING 0.00 .80 0.00 0.00 1997 WALDEN - MGMT 0.00 .08 0.00 0.00 1997 WIV 0.00 6.00 0.00 0.00

Total Pending Commitment: 143.00 57.23 10.00 192.00 India at a glance

POVERTY and SOCIAL South Low. . India Asia Income Dvlttiopment dlamond*

Population mid-1995 (mions) 929.4 1.243 3,188 Life expectancy GNP per capita 1995 (USS) 350 350 460 GNP 1996 (bfulons USS) 329.3 435 1,408 . Average annual growth, 1990.15 Population (%) 1.8 1.9 1.8 Labor force (%) 2.1 2.4 1.9 GNP per Most recent estimate (laestyeavaila e since 19&Wc Iin Poverty: headcount index (% o1populaon) Urban population (% of otal popridon) 27 26 28 Life expectancy at bWth (yeM) 62 1 63 Infant mortality (per 1.000 live birs) 68 73 8 Child malnutrition (% of ahildren under 5) 63 62 38 Access to safe water Access to safe water (% ofpopullaon) .. 70 68 Illteracy (% of populedon age 1S) 48 51 35 -india Gross primary enrallment (% ohoofee poprdafn) 102 98 5 -La group Male 113 110 112 Female 91 87 96

KEY ECONOMIC RATIOS and LONG-TERM TRENDS

1975 1988 I994 19e8 Economic ratos* GOP (bilions USS) 91.0 214.3 301.2 324.1 Gross domestic investmeitlGP 20.8 23.9 23.2 24.5 Openness of economy Expots of goods and non-factor sevcestGDP 6.2 6.0 10.9 12.2 Gross domestic savingsWGDP 20.4 20.8 21.4 21.8 Gross national savingsiGOP 20.8 21.1 22.1 22.7 Current account balancefGOP 41 2.8 *1.1 .1.8 Savings Investment interest paymentaiGOP 0.3 0.6 1.4 1.4 Total deot/GOP 15.1 19.1 33.7 28.9 Total debt servicelexports 13.1 22.7 27.2 28.7 Present value of debtGOP .. .. 23.4 .. Indedess Present value of debt/exports .. .. 176.7 ..

1175.14 111198 194 1116 199645 (average annual growth) -India GOP (factor cost) 4.0 5.1 6.3 6.6 6.3 - Low-income group GNP per capita 1.7 3.1 5.0 4.3 4.8 Exports of goods and nfs 11.5 11.1 17.2 21.1 12.1

STRUCTURE of the ECONOMY 1978 198s 1994 19ss (% of GOP) Growth rates of output and invesonent (%) Agriculture 40.5 33.0 31.1 29.5 Industry 23.7 28.1 28.0 29.0 a Manufacturing 16.7 17.9 17.4 18.5 Services 35.8 38.8 40.9 41.5. o N.t nU Prtvate consumption 70.2 68.1 68.1 67.9 .10 General govemment consumption 9.4 11.1 10.8 10.3 Imports of goods and non-factor services 8.6 9.1 12.7 15.0 -Gt -*GDP

197644 19869 1114 1196 (average annual growfh) Grown rates of esports end Imports (%) Agriculture 2.4 3.6 4.9 0.9 Industry 5.2 5.9 8.3 11.1 T Manufacturing 8.4 5.6 9.0 13.5 a Services 4.7 5.7 6.0 7.3 - .0 Private consumption 4.4 4.7 5.0 5.0 40? General govemment consumption 8.2 4.2 3.0 3.8 . Gross domestsc investment 3.7 5.1 19.8 11.7 Imports of goods and non*factor services" 13.3 10.3 28.0 27.2 Gross national product 4.0 5.2 6.5 6.1

Note: 1995 data are preliminary estimates. * The diamonds show four key indicators in te country (in bold) compared with its income.group average. If data are missing, the diamond will be incomplete. "ollar Growth Rates. India

PRICES and GOVERNMENT FINANCE 1975 1985 1994 1995 Inflation (%) Domestic pices (% change) Consurmer prices 5.7 5.5 10.2 10.2 frmpiic:t GOP deflator -1.5 7.8 11.1 8.0 ~ - - ~ ' Government finance (% of GOP) Current revenue .. 23.9 22.A 23.0 Current budget balance .. 1.5 0.0 0.0 -GOP det -CPI Overall surplusideficit .. -11.4 -11.9 .9.0

TRADE 1975 1988 1994 1995 Export and Import levels (milL USS) (millions USS) Total exports (fob) .. 9.463 26.857 32,789 oca Tea .. 511 311 350 Iron .. 473 413 518 40coW 4 Manufactures .. 5,639 21.088 24,889 oo Total imports (ci) .. 17,298 31,672 41,582 Food .. 1.321 1,484 1,368 2 Fuel and energy .. 4.054 5.928 7.718 ¶o cj Capital goods .. 3.503 8.388 8.381 Export price index (1987-100) .. 80 118 124 a 9o s0 at 92 93 94 as Import pnce index (1987=100) .. 96 121 132 cEports aimpoa Terms of trade (1987.100) .. 83 98 94 _

BALANCE of PAYMENTS 1975 1988 1994 1996 (millions USS) Current account balance to GOP ratio (%) Exports of goods and non-fsctor services 5,650 12.773 32.760 39.682 o Imports of goods and non4actor services 5.990 19,422 38.150 48,536 I a 0 I 9n I s i s Resource balance -340 4.849 *5,390 -8.854 1 iI .1 111L L4 Net factor income -191 -1,553 4.119 -4,45S Net current transtars 470 2.207 6.200 7,478 Current account balance.*L before official transfers -81 -5.995 -3.309 -5.830 i.3 Financing items (not) 838 8.807 10.167 3,825 Changes in net reserves -575 412 -6.858 2.005 Memo: Reserves including gold (mill. US= 2.064 9.730 24,079 20,366 Conversion rate (localVSS) 8.7 12.2 31.4 33.4

EXTERNAL DEBT and RESOURCE FLOWS

1975 lss 1994 1998 (millions US$) Total debt outstanding and disbursed 13,708 40,971 101.501 93,696 Composition of total debt 1995 (mill. USS) ISRD 436 2.396 11.120 9,849 IDA 2.809 9,750 17.668 17,499 Total debt service 822 3.534 10.257 13.123 G A IBRO 89 313 1.595 1.713 04 gas IDA 24 124 315 357 Compostion of net resource flows 174'e Official grants 511 450 472 335 C Official creditors 1.260 1.424 893 -816 2374 Private creditors 83 2.278 1.078 3.138 Foreign direct investment 85 106 1,314 2.133 17a Portfolio equity 0 0 3.581 2,214 27097 World Bank progra A -;ORDO - Blateral CoWnrtMents 917 2.882 2.068 1.696 -O 0 -Ot mnuiatel PPate Disbursements 531 1.375 1,708 1,367 C - IMF G. Short-term Principal repsyments 63 157 1.021 1,170 Net flows 487 1.218 687 197 interest payments 50 280 889 901 Net transfers 417 938 -202 -704

SA2CI and intemational EconlUicS Capartment 2/197 ANNEX 1 STATUS OF SECTOR REFORMS AND ANTICIPATED FURTHER REFORMS

Date Actions Taken by GOI Recent CabinetDecision on FurtherReforr Prepared Dated Coveatr Under the CSRP (February 11, 1997) Len 1. Coal Price and Distribution Deregulation 3/96 Deregulated pricing and distribution of Deregulated pricing and distribution of D grade Deregulate pricing and distribution of the coking coal & high-grade (A,B,C) steam coal. remaining regulated coal by January 1, 2000. steam coal. (Deregulated coal represents about 60%/ of India's coal production).

Announced decision to fully deregulate prices and distribution of the remaining regulated coal by January 1, 2000.

2. Annual Revision of the Prices of Regulated Low-Grade Steam Coal 6/94 Revised prices of regulated low-grade Authorized Coal India to revise prices of regulated low steam coal. grade steam coal every six months based on the normative costs developed by the Bureau of Industrial Cost and Prices, till full price deregulation of coal prices.

12/95 Revised prices of the low-grade steam coal of Western Coalfields Ltd. (WCL), Rajmahal mine.

3. Coal Import Liberalization 93/94 Ceased the quantity restriction of coal import and placed it under the Open General License Category.

4/93 Reduced the import duty on coking coal from 35% to 5%. (Import of coking coal has increased from 5.3 Mt in 1991/92 to 9.3 Mt in 1995/96, creating competitive environment in coking coal market)

94/95 Reduced the import duty on steam coal from 85% to 35%

7/96 Reduced the import duty on steam coal from 35% to 20% (In 1995/96, import of steam coal reached 4 Mt Imported steam coal is now competitive in the Southern Coast areas)

2/97 Reduced the import duty on steam coal from 20% to 10% and on coking coal from 5% to 3%.

4. Encouraging Private Investment 6/93 Amended the Coal Nationalization Act Announced the decision to open up undeveloped Complete the study of the regulatory framework to allow private investment for captive non-captive mining blocks other than those required of the coal industry by July 31, 1999 and begin mining for power and cement (in by the public enterprises (including Coal India) for implementation of its recommendations, taking addition to steel already allowed) and meeting their current commitment, to private into account the Association's comments, by private investment for washeries. investors, through competitive bidding. December 15, 1999.

The Ministry of Coal granted 19 blocks mainly to private partners (16 to power companies), four coking coal blocks to SAIL and one non- coking coal block to another sponge iron company.

2/96 Decided to disinvest Government's shares to private investors in Coal India's subsidiaries, starting with WCL. 1 Pat= UTTAR PRADESH C--' BANGLADtSH RAJASTHAN .-- ' - 7,,

¾. ,BIHAR Northern Coolfields Ltd. (NCL) -' ~ingula -ah Central Coalfields Ltd. (CCL)' NigahilJaya&t/Dudhichuw%ina ee

K-D.Hesalong O Bhopal Paej East 0 C Ra rappa MADHYA PRADESH 0 Dhanpuri WEST Southeastern Bisrampur 0 BENGAL Coalfields Ltd.

(SECL) (SECL) ,Calcutta Gevra 0 0 Mankpur

Dipka0 ------o Kusmunda - Samswari

mur elpahar

,.. ... Mahanadi Coalflelds Ltd. (MCL)

Anania Bharatpur lagmnath i3 unumr

ORISSA B MAHARASHTRA Western Coallields Ltd. (WCL) Bliubaneshwar Padmapur Curgapu

. - Sasu

.- 9 . .* Location of sub-projects

/ : Opencast subproject

ANDHRA PRADESH .0 . 10 0 200 300 400 500km 4 j IMAGING

Report No.: P 7104 IN Type: MOP