FOR OFFICIAL USE ONLY

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1 Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Document of The World Bank FOR OFFICIAL USE ONLY STAFF APPRAISAL REPORT INDIA COAL MINING AND COAL QUALITY IMPROVEMENT PROJECT March 25, 1987 Repot No IN Industry Department This dwoment has a restricted distribution and may be used by recipients only in the performance of their official duties. Its eontents may not otberwise be disclosed without World Bank authorization.

2 CURRENCY EQUIVALENTS Rs Paise 100 US$1.00 = Rs 13.0 Rs US$0.08 Rs 1 million - US$76,923 (Conversions in the Staff Appraisal Report were made at US$1.00 to Rs 13.0) FISCAL YEAR April 1 - March 31 WEIGHTS AND MEASURES 1 British thermal unit (Btu) kilocalories 1 kilocalorie (kcal) m 3.97 British thermal units 1 gigacalorie (gigacal) - 1,000,000 kcal I kilocalorie per kilogram British thermal uaits per (kcal/kg) pound 1 cubic meter (m3) = cubic yards 1 kilowatt (kw) - 1,000 watts 1 megawatt (W) m 1,000 kilowatts 1 gigawatt hour (GWh) J 1,000,000 kilowatt hours 1 kilogram (kg) pounds I ton of coal equivalent (tce) - 1 ton of coal containing 7,000,000 kcal 1 ton (t) = 1,000 kilograms PRINCIPAL ABBREVIATIONS AND ACRONYHS USED BCCL - Bbarat Coking Coal Ltd. IISCO - Indian Iron and Steel Company BICP - Bureau of Industrial Costs and LCB - local Competitive Bidding Prices LIB - Limited International Bidding CCL - Central Coalfields Ltd. NCL - Northern Coalfields Ltd. CHP - Coal Handling Plant NEC - North-Eastern Coalfields Ltd. CIL - Coal India Ltd. NTPC - National Thermal Power Corporation CMPDI - Central Mine Planning and Design CM - Output per Manshift Institute SAIL - Steel Authority of India Ltd. CPRA - Coal Price Retention Account SCL - Singareni Collieries Ltd. DOC - Department of Coal SECL - South Eastern Coalfields Ltd. ECL - Eastern Coalfields Ltd. TISCO - Tata Iron and Steel Company GOI - Government of India WCL - Western Coalfields Ltd. ICB - International Competitive Bidding

3 FO OR 0CIAL USE ONLY INDIA COAL MINING AND COAL QUALITY IMPROVEMENT PROJECT TABLE OF CONTENTS I. INTRODUCTION I... 1 II* THE SCTOR II.THESECO... 1 Page A. Energy Resources... 1 B. The Coal Sub-sector... 2 C. Coal Development Prospects... D. Coal Sector Productivity and Efficiency... 5 E. Coal Marketing and Distribution... 7 F. Coal Quality Improvement Measures... 7 G. Coal Pricing H. Role of the Bank TII. THE BENEFICIARIES A. The Coal India Group... O Organization and Management Operations. *...* * Manpower and Training * Financial Position B. South Eastern Coalfields Ltd C. Eastern Coalfields Ltd IV. THE PROJECT o A. Project Objectives * B. Project Description.u* Gevra Mining Complex Sonepur-Bazari Mining Complex Environmental Protection, Safety and Resettlement Coking Coal Imports o... o 30 C. Project Execution and Implementation...o V. CAPITAL COSTS, FINANCING AND PROCUREMENT A. Capital Cost Estimates B. Financing Plan C. Procurement and Disbursement I This report has been prepared by Messrs. J. E. Strongman, L. Maraboli, A. Covindassamy, and Mmes. H. Wu and M. Kutcher of the Industry Department. Word processing services were provided by Mrs. N. Nguyen. This document has a rstrcted distribution and may be used by recipients only in the performance of their officid duties Its contents may not otherwise be disclosed without World Bank authorization.

4 VI. FINANCIAL ANALYSIS Page A. Coal India Ltd... *...* B. South Eastern Coalfields Ltd C. Eastern Coalfields Ltd ** D. Gevra and Sonepur-Bazari Projects VII. ECONOMIC ANALYSIS A. Economic Rates of Return B. Resource Mobilization... see Co Otber Benefits D. Least Cost Development Program E. Project Risks VIII. AGREEMENT Energy Sector Owerview 2. Coal Demand and Supply 1984/ /90 3. ECL and SECL Investment Portfolio 4. Fazal Coumittee Report-Summary of Recommendations 5. Measures to Lmprove Coal Quality 6. Coal Price Schecdule 7. Scope of Work for Assistance on Workshop Design 8. Scope of Work for Assistance on Manpower Planning and Training 9. CIL Financial Statements 1980/ / Scope of Work for Assistance on Training Institute Design and Development 11. Resettlement Arrangements 12. Project Management Organization 13. Implementation Schedules 14. Equipment Cost Estimates 15. Procurement Schedule and List of Bank Financed Goods 16. Disbursement Schedule for Bank Loan 17. Assumptions Usel in the Financial Projections 18. Pro Forma Financial Statements for CIL 1986/ / Medium Term Efficiency Improvement Program and Performance Targets ( ) 20. Pro Forma Income Statements for CIL Subsidiaries 1986/87 to 1993/ Financial and Economic Rates of Return - Assumptions and Calculations 22. Documents Available in the Project File CHARTS I Gevra Mining Complex 2 Sonepur-Bazari Mining Complex MAP IBIRD No R

5 -iii- INDIA COAL HINING AND COAL QUALITY IDPROVEMENT PROJECT Loan and Project Summary Borrower: India, acting by its President Beneficiary: Coal India Ltd. (CIL) Amount: US$340 million equivalent Terms: Payable in 20 years, including 5 years of grace at the Bank 2tandard variable interest rate. On-Lending Terms: US$180 million equivalent from GOI to CIL for a period of 15 years, including 5 years grace, at an effective interest rate of not less than 13.75Z per annum. CIL to Eastern Coalfields Ltd. (ECL) and to South Eastern Coalfields Ltd. (SECL) for a period of 15 years, including 5 years of grace, at an effective interest rate of not less than 13.75% per annum. Project Description: The main objectives of the project are to increase the supply of thermal coal (to the power and industrial sectors) and coking coal (to the steel sector) and to improve the quality of coal available to consumers. The project is also designed to support CIL in its efforts to develop and implement efficiency improvements and, thereby, improve its financial performance. The project will support the institutional development of CIL by strengthening its manpower planning and organization, by improving training, and by improving the maintenance of equipment through modernization of workshops. The project consists of the development of (i) the second phase of the Gevra mining complex to reach an output of 10 million tons per year (tpy) of low grade thermal coal to feed the Korba power plant; (ii) the construction of the Sonepur-Bazari mining complex to produce 3 million tpy of intermediate and superior grade thermal coal; and (iii) the importation of about 3.0 million tons of coking coal. By developing large-scale open-pit mines, India is pursuing a strategy of increasing coal supplies at least-cost while promoting diversification of mining technologies and improvements in productivity in the coal sector. By importing coking coal India is making-up for a shortfall in domestic supplies as well as improving the average quality of coking coal by blending low-ash imports with higher ash domestic

6 -ivcoals. The project faces minimal technical and marketing risks. Any possible financial risks are mitigated by (a) CIL's efforts to improve its efficiency and financial performance, (b) GOI's commitment to preparing a program that would assure CIL's future financial viability and (c) the high priority GOI places on developing India's coal resources in a timely and efficient manner. Project Cost Estimate: (US$ mllion) -- Local Foreign Total (a) Mining Component Equipment & Spares Coal Handling Plant Land & Civil Works Engineering Pre-Operating Expenditure Technical Assistance Duties and Taxes Base Cost Physical Contingencies Price Escalation Working Capital Total Project Cost Interest During Construction (b) Coking Coal Imports Component Total Financing Required Financing Plan: (a) Mining Component Equity Government of India CIL Cash Generation Total Equity Long-Term Debt Government of India IBRD Total Debt Sub-total (b) Coking Coal Imports Component Long-Term Debt IBRD Total Financing Required _

7 Estiuated Disbursements: -(US$ million) Bank FY Annual Cumulative Economic Rate of Return: Gevra Sonepur-Bazari 32Z 19Z Map: IBRD No R

8 I. INTRODUCTION 1.01 The Government of India (GOI) has requested a Bank loan of US$340 million to assist in the financing of a Coal Mining and Coal Quality Improvement Project. The project has three main components: (i) the Gevra mining complex which comprises a 10 million tons per year (tpy) open-pit mine and associated infrastructure in the state of Madbya Pradesh, which will be constructed and operated by South Eastern Coalfields Ltd. (SECL); (ii) the Sonepur-Bazari mining complex, which consists of a 3.0 million tpy open-pit mine and associated infrastructure in the state of West Bengal to be operated by Eastern Coalfields Ltd (ECL); and (iii) the import of about 3.0 millicon tons of coking coal. Both SECL and ECL are subsidiaries of Coal India Ltd. (CIL), a GOI undertaking. The project fonss part of the Government strategy to ensure timely supplies of adequate quality coal for consumers in India. In particular, the project will provide for improvement in the quality of both thermal and coking coal supplies. project will also support GOI's strategy to develop large-scale The economically efficient mining operations, as well as efficiency improvements in CIL and efforts by both CIL and GOI to reestablish CIL's financial viability. The proposed project was submitted by GOI to the Bank in September June It was appraised in March 1985 and post-appraised in II. THE SECTOR A. Energy Resources 2.01 India is well endowed with coal resources and has moderate hydropower potential; hydrocarbon reserves are only modest (Annex 1). Total coal resources (excluding lignite) are estimated at over 127 billion tons, of which 60 billion tons are considered technically and economically recoverable at present. Coal production in 1985/86 was million tons. Exploitable hydropower potential is estimated at 89,930 MW, against a 1985/86 generation from all sources of TWh. Recoverable reserves of oil are estimated at 187 million tons on-shore and 324 million tons off-shore. Associated and non-associated gas reserves are estimated at about 478 billion cubic meters (equivalento 397 million tons of oil). Production in 1985/86 was about 29 million tons of oil and about 7.2 million cubic meters of gas Energy use in India is among the lowest in the world. Per capita consumption of energy averages 210 kg (coal equivalent), compared with 680 kg in China and about 7,500 kg in industrialized countries. Over the past three decades, the composition of fuel consumption has increasingly shifted from the use of non-commercial fuels, such as vegetable and animal waste, to commercial energy resources. At present, non-commercial fuel accounts for less than 40% of total energy consumption, while coal accounts for 32Z, oil and gas about 20% and primary electricity for 8Z The increasing reliance on commercial fuels has stretched the capability of the energy sector to meet the energy needs of the economy and has placed a heavy burden on the balance of payment. Recognizing the

9 -2- importance of the energy sector to India's ongoing economic development, the Government has established three main objectives, namely: to fully develop indigenous energy resources, to improve the efficiency of energy utilization and to limit the use of oil products to end-uses in which economic substitution by other forms of energy, particularly coal, is not possible. In line with this policy the Government places particular emphasis on the development of the coal industry and the exploration for oil and gas. Through pricing policies and rationing, the Government has reduced the use of oil products, where this has been technically and economically feasible, and has encouraged the use of coal. To reduce power shortages which have been prevalent for many years and to overcome, at least in part, the transportation problem associated with the greater use of coal, the Government has also embarked upon a major construction program for coal based thermal power plants located near the mines. B. The Coal Sub-sector 1; 2.04 Coal is and will continue to be India's most abundant domestic energy resource. In 1985/86 coal production reached 153 million tons making India the 6th largest coal producer in the world. Coal presently accounts for about 60Z of all commercial energy produced in India and even allowing for good progress in new oil and gas discoveries, coal's contribution is expected to remain at more than 50% over the next decade. India's vast coal reserves will be sufficient to meet the country's needs for the next 100 to 150 years at least India is a low-cost coal producer. Operating costs average US$13 per ton, while capital costs for mine development are in the range US$20 to $60 per ton of annual output for new open-pit coal mines (including mine-related infrastructure but excluding other infrastructure, such as rail trunk lines). There is considerable variation in mining conditions and costs among regions. The older coalfields in Bihar and West Bengal, which contribute 55% of coal production including all of the prime coking coal, have mostly deep underground mines in difficult geological conditions and high operating costs (in the order of US$18-20 per ton). Operating costs are generally lower for newer mines in other states such as Madhya Pradesh, Orissa and Maharashtra. where mining conditions tend to be easier; operating costs are in the order of US$10-12 per ton for underground mines and as low as US$6-8 per ton for large-scale open-pit mines. Overall, only China, South Africa and Western US mines are competitive with India regarding average minehead coal production costs Coal accounts for more than half of commercial energy consumption in India. Roughly 70% of the annual coal production are consumed by power stations, steel, cement and fertilizer plants and the Indian Railways. The number of consuming units is small and the relationship between them and 1/ Fuller background details on the sector and on the CIL group of companies is provided in India Coal Sector Report (3601-IN, September 1982), Dudhichua Coal Project SAR (4714-IN, February 1984) and Jharia Coking Coal Project SAR (5336-IN, February 1985).

10 -3- the coal producers is close. The remaining 30Z of coal output are consumed by a large number of small industrial plants, such as jute mills, paper mills, textile mills and chemical plants, and countless buyers of soft coke for domestic use The northern, western and southern states of India account for significant share of coal consumption resulting in substantial coal transportation from coalfields in West Bengal and Bihar to consumers in Delhi, Haryana, Uttar Pradesh and Punjab and from coalfields in Madhya Pradesh and Bihar to consumers in Gujarat, Maharashtra and Rajasthan. This regional imbalance in coal production and demand places great stress on the railways. Coal makes up more than 35% of the railway's total freight traffic and more than 75Z of coal output is shipped to consumers by rail. Road transport and, to a very limited extent, coastal barges and ropeways account for the remaining 25%. Given the projected growth in supply and demand, the regional imbalance is expected to become more acute by the end of the Seventh Plan. Under the Dudhichua Coal Project (Loan 2393-IN, February 1984), a coal transportation study has been undertaken to address the capabilities of the rail system for meeting the growing transportation requirements of coal. The study addresses the issue of how to introduce state of the art rail technology for coal movement and how to improve the operational efficiency and capacity of the existing coal transportation system and the adequacy of present management and coordination policies regarding coal movement. The results of the study include specific recommendations regarding the improvement of (i) procedures and lineside facilities for loading and unloading coal railway wagons, (ii) railway motive power and rolling stock for coal movement, (iii) certain sections of railway line and marshalling yards, and (iv) coal linkage and distribution arrangements. The recommendations are now being considered by the various Ministries and organizations involved following which implementation decisions will be taken The coal industry is intensifying its exploration efforts in southern and western areas, where reserves are explored in response to the rapid growth of demand by consumers in western India, particularly in the Bombay area, and in Gujarat. To meet the need for new coal developments in adjacent locations, coal exploration priorities have been shifted to the states of Maharashtra and western Madhya Pradesh. This is a sound approach because it is expected to make more readily available, in the coming decade, coal supplies for western markets without the long transportation linkages from the distant eastern coalfields. However, the quality of coal reserves varies widely and both reserves and supplies of high quality thermal and coking coals are limited and tend to be concentrated in eastern India. For the most part, therefore, new coalfields will tend to be of lower grade coal Over 90% of coal production in India is in the hands of Coal India Ltd. (CIL), which is wholly owned by GOI. CIL has seven subsidiaries, of which six are producing companies, Eastern Coalfields Ltd. (ECL), Bharat Coking Coal Ltd. (BCCL), Central Coalfields Ltd. (CCL), Western Coalfields Ltd. (WCL), Northern Coalfields Ltd. (NCL), South Eastern Coalfields Ltd. (SECL), and one is a mine planning concern--central Mine Planning and Design Institute (CMPDI). Four of these subsidiaries

11 -4- (namely ECL, BCCL, CCL and WCL) were established in The other two (SECL and NCL) were established in 1986 (see para. 3.05). Coal production also takes place at North Eastern Coalfields (NEC) in Assam which is an operating division of the CIL holding company. In addition to CIL, there are three other coal producers and one major lignite producer. The coal producers are Singareni Collieries Company Ltd. (SCL) which is jointly owned by the Central Government and the State Government of Andhra Pradesh, and captive coking coal mines of the privately-owned Tata Iron and Steel Company (TISCO) and the Government-owned Indian Iron and Steel Company (IISCO). Lignite production in India is in the hands of the Government-owned Neyveli Lignite Corporation (which produced nearly 7 million Lons in 1985/86), and lignite production has recently started by a state-owned company in Gujarat. The Department of Coal (DOC), Ministry of Energy, is in charge of policy making in the coal and lignite sector and of monitoring and coordinating production, distribution and prices of coal, including the production targets, annual investment and operating budgets of the Government-owned coal companies. The Planning Commission reviews the various production and consumption targets and investment programs. It also approves linkages between new mines and major consumers. C. Coal Development Prospects 2.10 GOI's coal development strategy emphasizes the need to ensure timely and adequate supply of satisfactory quality coal with economically efficient mining and transportation systems. Specifically, GOI is now concentrating on a multi-track coal development strategy: (i) rapid expansion of lot-cost thermal coal production through developing large coal fields with shallow deposits, using increasingly efficient surface mining technologies and equipment while paying due regard to coal quality, safety and environmental protection; (ii) increasing the supply of coking coal (and thereby reducing the need for imports) through rehabilitating and mechanizing deep underground prime coking coal collieries and, where possible, developing mechanized, open-pit coking coal mines; (ii-) lowering production cost and improving the productivity of underground mining operations by new initiatives to improve labor productivity and reduce surplus employment in older, laborintensive underground mines; by accelerating the introduction of mechanized mining approaches, where appropriate; and by debottlenecking efforts including improving mine transport systems to match increased production capacities; (iv) improving coal quality to consme-rs by establishing stricter quality controls, of more coal handling plants (for thermal coals), improved washery operations (for coking coals), as well ae improved adherence to mine-consumer linkages;

12 -5- (v) improving the supply of coal from existing coalfields (as well as reducing its cost) to distant consumers through rationalizing mine-consumer linkages, streamlining coal transportation systems and emphasizing coal exploration and development in western and southern India to reduce the average hauling distance and introducing mechanization, where appropriate; and (vi) refining the current methods used in assessing the coal requirements of both major and minor coal users to reduce the costly build-up of pithead stocks Coal supply and demand are projected to increase at an annual growth rate of about 9Z during the Seventh Plan (compared with 5.6Z per year during the Sixth Plan 2 /) which will result in a total production and consumption of about 225 million tons and 232 million tons respectively in 1989/90 (Annex 2). The gap between supply and demand will be provided by coking coal imports (3-4 million tons of imported coking coal with 10 ash being approximately equivalent to 5-7 million tons of domestic coking coal with 21X ash). During the period of the Seventh Plan (1985/86 to 1989/90), CIL expects to implement an investment program of about Rs 53 billion (US$4.0 billion) in 1986/87 terms, of which about 20% would be foreign exchange requirements. This represents an expansion, in real terms, of 30% over investment expenditures in the Sixth Plan and is due to increases in the numbers and scale of projects ana in their implementation costs. The program is very ambitious but can be achieved provided CIL continues improving its project implementation procedures and, once improvements are demonstrated, ensures their dissemination throughout the CIL Group. The program consistent with GOI's budgetary allocations for the sector. An earlier review of CIL's overall investment program revealed that with a few exceptions, the investment program is following the least cost development path. That finding has been verified by a detailed review of the investment portfolios of the project executing agencies, ECL and SECL (Annex 3). D. Coal Sector Productivity and Efficiency 2.12 At the time of nationalization CIL inherited a very large labor force, with low productivity. CIL's original strategy had been to improve its efficiency through (a) the extensive reconstruction of the old underground operations including the introduction of highly mechanized mining techniques and (b) the selective development, wherever possible, of large-scale open-pit mines. CIL is presently undertaking a program to rationalize its underground production through the reorganization of small mines into larger units including the introduction of some degree of mechanization for both coal extraction and transportation. This program is a sound strategy and is expected to contribute to reducing unit production costs, as well as providing increases in production. There are presently 24 such reorganization/mechanization projects in different stages of implementation throughout the CIL Group. Underground production from mechanized mines is expected to increase to about 35% in the early 1990s 2/ By comparison GDP growth was almost 5% per year.

13 -6- from 5Z at present. A program to improve the design, management and operating procedures of highly mechanized underground mines is being undertaken by BCCL urder the Jharia Coking Coal project While the program to improve efficiency by mechanizing underground operations offers much promise for the future, a more immediate problem is that labor productivity as measured by output per manshift (OMS) in existing underground mines has been declining (from 0.57 in 1978/79 to 0.5_ in 1985/86 for CIL) partly due to a lack of efforts to improve efficiency in the unmechanized underground mines. In order to rectify this situation, CIL has implemented a number of initiatives including (i) a hiring freeze for existing underground operations, (ii) disciplinary measures (including firing workers) to reduce absenteeism among key workers such as loaders, (iii) no longer providing jobs to near relatives of retirees, (iv) debottlenecking investments to increase production in a particular colliery from the same workforce, (v) reduced hiring of resettled land owners, (vi) transfer of underutilized labor from old mines to new projects, and (vii) training and upgrading of skills. A program of measures to improve the performance of loss-making mines for ECL he been agreed with the Bank (para. 3.18) and a Medium Term Efficiency Improvement Program was prepared in December 1986 and is just starting to be implemented by CIL (para. 6.10). In addition, new measures to improve work practices and encourage voluntary retirement of workers are also under preparation and other measures are recommended in a recent report by the Committee on Eastern Coalfields (see para. 3.18) CIL also has a number of initiatives to improve the efficiency of it6 open-pit mining operations. CIL has progressively moved to larger equipment sizes and is now using 8 5-ton dump trucks and 10 yd 3 shovels in many operations and is introducing 120-ton and 170-ton dump trucks and 20 yd 3 shovels at selected projects. For large-scale open-pit mines, output per manshift is not a meaningful measure of productivity because it can vary widely from mine to mine depending on many factors including, importantly, the stripping ratio (i.e. the amount of overburden to be removed to produce one ton of coal) and the distance from the point of excavation to where the overburden is dumped or the coal unloaded. Instead, efficiency is generally measured in terms of the availability and utilization of equipment. Equipment availability reflects the amount of out-of-service time due to repair and maintenance. Equipment utilization reflects the amount of time that available equipment" is not in use due to shift changes, safety checks, queueing for fuel, tea-breaks etc. In the past few years CIL has taken several steps to improve its open-pit efficiency. Even so, CIL's equipment availability and utilization are presently still below international standards due to poor maintenance procedures, spare part shortages, inadequate workshop facilities and ineffective work practices. CIL is giving high priority to improving its open-pit efficiency including using foreign technical assistance to improve maintenance and operating procedures (which is financed under the Dudhichua project), introducing -hot seat' changes for major equipment and using overlapping shifts to improve utilization, and arranging for suppliers to

14 -7- open spare parts depots in major coalfields. In addition, new initiatives are being prepared to improve the availability of imported spare parts and to deal with the problem of equipuent which is out of commission due to the backlog of repairs. E. Coal Marketing and Distribution 2.15 The distribution of coal in India takes place within a set of administrati-on procedures which are set by the Government. Under these procedures, each major coal consumer (thermal power stations, cement, fertilizer and steel plants, as well as the railways) is linked to one or more collieries. These linkages, as well as the allocation of coal supplies, are then reviewed in quarterly meetings of the Special Linkage Committee and in monthly operational meetings between consumers, the railways and the coal companies. While these linkages do attempt to match new coal consumers with new mines, steadily rising pithead stocks and persistent complaints from major consumers about inadequate coal qualities or late shipments have led to growing concern within the Government about the efficiency of this system. In its review of the Sixth Five Year Plan, the Planning Commission proposed the adoption of a systems approach' in determining coal production, transport, consumption and stocks. Since the increase in pithead stocks (which reached a peak of 30 million tons in March 1985), was to a large extent due to overly optimistic demand projections for several large consuming sectors, the Planning Commission emphasized the need for irnprovements in the demand forecasting technology that is currently used. Under the Dudhichua Coal Project, the DOC has commissioned a study to review the current practice of establishing consumer-producer linkages, identify weaknesses in the current system and suggest improvements with the help of a linear programming model that would cover the entire system of existing linkages. The linkage study will use data and results from the coal transport study (para. 2.07). Data collection is now complete and various moduiles are operational. Initial runs of the complete model are being made and the identification of sub-optimal linkages and initial proposals to realign linkages are expected by May F. Coal Quality Improvement Measures 2.16 A major issue facing the coal industry is the unreliable and deteriorating quality of its coal. This leads to major additional operational and maintenance expenditures by its major consumers (the steel industry, the power sector, cement and fertilizer plants), due to increased system inefficiencies and plant downtime as well as higher transport cost (since consumers need to ship greater quantities of coal to make up for lower coal quality). For coking coal supplies, CIL is implementing a set of short and medium term measures established under the Jharia Coking Coal Project to improve the quality of prime coking coal supplies and, in particular, to lower the ash content. The short term initiatives include (i) testing of certain disputed coals by Central Fuel Research Institute; (ii) elimination of substandard coals and more intensive picking arrangements; (iii) deployment of more experienced and qualified personnel for washery operation; (iv) a technical assistance effort to improve the

15 -8- performance of the prime coking coal washeries; and (v) utilization of premium quality Assam coal for blending purposes. Medium term measures include (i) increased capital expenditure for washery improvements, (ii) installation of rotary breakers at certain washeries; (iii) upgrading of slurry by froth flotation at Dugda I and II; (iv) modification to Patheridih Washery; (v) trials with prescreening jigs at Barora Washery; and (vi) development of new areas of superior quality prime coking coals Projections prepared at the time of the Jharia Coking Coal Project indicated that coking coal imports of about 1.8 million tpy would be required to make up an expected shortfall between the availability of and requirement for prime coking coal between 1986/87 and 1989/90. As part of the efforts noted in para 2.16, certain seams of substandard coking coal have been recently excluded from feed to the washeries with the result that the shortfall is now expected to be about 3 million tpy of prime coking coal. By comparison, actual imports averaged about 1.5 million tpy in 1984 and The imported coal has an average ash content of about 10Z compared with about 21% for domestic prime coking coal, thus the imports also assist in improving the average quality of washed coal feed to the steel plants. A monitoring program is being established at each of the blast furnaces using the imported coal to quantify the benefits in order to optimize the blend With regard to thermal coals, the most frequent complaints refer to (i) the supply of oversized coal, (ii) the presence of extraneous material, such as shale and stone, and (iii) the increasing ash content _' both raw thermal coal and washed coking coal. While part of the deterioration of thermal coal quality is due to the development of new coalfields with low grade coal, it is also affected by (i) the shift towards open cast mining, (ii) the increased mechanization of coal mining, Ciii) the lack of coal handling plants, (iv) the comparatively poor performance of the two coal companies (ECL and BCCL)P *hich are the major suppliers of superior quality coking and non-coking coal, and (v) at times poor coordination between the mining companies, the transport companies, mainly the Indian Railways, and the power sector which results in coal shipments being diverted to unlinked users. & 2.19 In July 1982, GOI set up a high level committee (the Fazal Committee), representing the mining, railways and power sectors, to study these and related issues in the power sector. The committee submitted its report in late 1983 and its major recommendations which relate to the railway and power sectors, as well as the coal industry, have been accepted by the Government (Annex 4). GOI has agreed to provide the Bank with a detailed implementation schedule for the Fazal Committee recommendations by March 31, In the meantime, a number of the recommendations, which are directly under the control of CIL, have been implemented by CIL who is making a concerted effort to eliminate consumer dissatisfaction with the dispatch and quality of both thermal and coking coals (Annex 5). In line with the recommendations of the Fazal Committee, CEL has developed a two

16 -9- track product improvement program concentrating on (i) increasing quality control through greater supervision of mining operations; and (ii) increasing the proportion of coal that passes through coal handling plants 3 / (CHPs), where it is screened, crushed and sized and then is subject to weighing on dispatch (through weighbridges).4/ A critical element in the quality control program is the linkage of the performance evaluation of each colliery manager to consumer complaints that are attributable to his colliery. The program also established a Quality Control Department in each subsidiary of CIL to coordinate the monitoring of coal quality of each mine under its jurisdiction, to advise mine management on how to respond to consumer complaints and to report weekly to top management on its actions. Under its CHP and weighbridge program, CIL has a staged plan and budget to eventually have all its product handled and weighed on site. Power stations complaints regarding unsatisfactory coal quality declined from an average of 50 per month in 1984/85 to 12 per month in 1985/86 but increased to 28 per month in 1986/87 (of which three per month are complaints at the loading point and 25 at the destination). CIL - Complaints Recei'ed from Power Stations Regarding Coal Quality (Average l,imber of Complaints per Month) 1984/ / / Source: CIL Traditionally, coal producers have supplied coal to consumers without specific supply contracts. In the first half of 1985 CIL concluded bulk supply contracts with almost all State Electricity Boards (SEB) and with the National Thermal Power Corporation (NTPC). In the years ahead CIL intends to conclude such contra.ts with major buyers in other sectors. These contracts provide for (i) payments to be based on the results of joint sampling, (ii) bonuses or penalties in case the quality of the coal shipment differs from the grade stipulated in the contract, and (iii) invoicing of customers on dispatch of each consignment (with the SEBs) or on a daily basis with NTPC. The contracts provide for joint sampling of the coal (by CIL and the concerned power house) and for penalty/bonuses to apply if the coal quality moves into a different grade than that specified in the linkage. Certain improvements to these contracts are being contemplated; the most important are (i) the use of automatic joint sampling at the delivery point, considering that coal shipments are 3/ In 1985/86, 58Z of India's total coal production was processed by 50 major and 100 mini-coal handling plants operating in the subsidiaries of CIL. The Government plans to increase the share of coal being processed in CHPs to 75% by 1986/87, 85% by 1987/88 and about 90% by the end of the Seventh Plan period. 4/ CIL is currently carrying out a test program to determine the most cost-effective technology for de-shaling raw coal.

17 -10- frequently diverted from their originally intended destinations; (ii) the use of analytical procedures for the determination of the moisture content of coal as delivered based on its -free moisture content' rather than on its 'equilibrium moisture content- 5 /; (iii) the introduction of alternative formulations of the current bonus/penalty pricing structure, such as smaller quality ranges or bonuses/penalties using a sliding scale, and (iv) the provision of price incentives for beneficiation of non-coking coal. The joint sampling arrangements in the contracts have been an important element in identifying unsatisfactory coal quality and in monitoring CIL's progress in improvinig coal quality. CIL has confirmed that it will review the usefulness of the coal contracts by October 1, 1987 and will exchange views with the Bank shortly thereafter on possible improvement to the contracts. G. Coal Pricing 2.21 Coal prices are set by the Government on a pithead basis. The Government's basic pricing policy for public enterprises is to ensure financial viability and to provide for a reasonable rate of return on capital employed under conditions of efficient operation. GOI has agreed to review coal pr-ces periodically in line with the above pricing approach and with agreements made under the Dudhichua and Jharia projects to ensure the financial viability of CIL and provide increasing resource mobilization in the sector. The present coal price schedule is for seven grades of thermal coal based on useful heat value and eight grades of coking coal based on coking qualities and ash content as shown in Annex 6. Consumers also pay certain statutory levies and sales taxes, which :verage 12-30% of the pithead price (Annex 6) as well as transportation costs to the point of consumption. Coking coal prices receive a premium over thermal coal which takes account of the relative scarcity and higher costs of production for coking coal as compared with thermal coal. The differentials for higher grades of both coking and thermal coal have been substantially increased compared with lowr- grades of coal in the recent price increases. This is an important imp. ;ement as it brings the relatively scarce better grades of coal more in liae with their opportunity cost. A separate schedule is also provided for high grade thermal coals from the coalfields of ECL reflecting its better quality Recognizing that mining costs are relatively higher in West Bengal and Bihar (where the coalfields operated by BCCL and ECL are located) than in other regions due to difficult mirlng conditions, infrastructure constraints and other factors beyond the producer's control, in March 1983 the Government introduced a retentioq pricing system for the CIL group. 6 / Under this system, each CIL subsidiary is annually assigned an internal accounting price based on estimated production costs and 5/ The -equilibrium moisture content- refers to the intrinsic moisture contained in coal and does not reflect increases in the moisture content due to careless use of water sprays to reduce coal dust or exposure to rain during stocking, loading or transport. 6/ This pricing change, which is implemented through the Coal Price Retention Account (CPRA), was 'n line with the recommendation in the Coal Sector Report (3601-IN), September 1982.

18 -11- efficiency standards for that subsidiary. These production and costs standards are revised each year assuming improvements in operating performance. They are, therefore, designed to induce more cost efficient operations. So far, the retention pricing system has been partially successful in stimulating the management of ECL and BCCL to improve performance and reduce losses. However, the year-to-year adjustments in retention prices appear to be made somewhat on an ad-hoc and arbitrary basis. Further work presently being undertaken by the Bureau of Industrial Costs and Prices (BICP) on the coal industry's cost structure (see para. 2.23) should provide the basis for improving the retention pricing system Since nationalization of the coal industry in 1975, coal prices have been revised on seven occasions including the most recent price revision, which took place in January As a result of these increases, average coal prices approach long-run marginal cost for non-coking coals and import parity for coking coals (after allowing for adjustments for port handling, inland freight and quality differentials). Therefore they seem to be at an appropriate level in terms of economic efficiency. The last two increases (in January 1984 and January 1986) were based on the recommendations of reviews carried out by the Bureau of Industrial Costs and Prices (BICP) and led to price levels broadly In line with efficiency pricing criteria. More recently the Government has again requested the BICP to undertake a detailed study of coal pricing. BICP's basic tasks included examining the efficiency of various coal mining operations to derive production cost standards, and reviewing alternative principles and procedures for setting minehead coal prices and producer retention prices. The results of this work are expected in mid In addition, the Department of Coal is considering possible improvements in the approach to prices for washed coking coal which are presently negotiated between CIL and SAIL based on raw coal prices and normalized washing costs. H. Role of the Bank 2.24 Since energy will continue to be a critical factor in India's economic development, and since coal will continue to provide about half of India's incremental commercial energy products to the year 2000 and beyond, GOI has requested the Bank to include a series of coal projects in the lending program. The strategy so far has been to concentrate on the CIL group of companies given their importance to the sector and to undertake at least one lending operation to develop a new highly mechanized mine in a major coalfield with each of CIL's coal producing subsidiaries. Such projects are considered to have high payoffs since they involve important improvements in efficiency through the transfer of state-of-the-art mining technology to CIL, as well as relatively large increases in production. In the context of these lending operations, the Bank group addresses institutional improvements in the coal industry, as well as sector-wide issues (such as coal pricing) and sector coordination issues regarding coal transport and the quality of coal, which are closely linked to the performance of other sectors (railways, power and industry) and the economy as a whole. More specifically, the Bank group's assistance in the coal sector is focused on:

19 -12- (a) operational efficiency-to improve the efficiency of coal mining operations through the introduction of state-of-the art technology for the development of new large-scale open-nit and underground mines, as well as upgrade existing labor-intensive underground mines through the introduction of efficient work practices and appropriate intermediate technology; (b) institution building-the aim is to strengthen the management and finances of the coal industry and ensure the long-term financial viability of CIL by the introduction of improved management and cost control practices and by greater emphasis on internal resource mobilization, appropriate pricing policies and investment allocations based on the principle of least cost development; and (c) intersectoral coordination-to achieve greater efficiency in the distribution and use of coal resources through the introduction of measures to (i) enhance coal quality, (ii) reduce the cost of coal transport, (iii) increase the reliability of coal shipments and (iv) ensure the availability of adequate coal transport capacity The Bank group's involvement in the coal sector began with a loan for a coking coal project to the Indian Iron and Steel Company (IISCO) for US$35 million (Loan 290-P-IN, dated August 9, 1961). The Bank group resi'ed its activity in 1980 with a review of India's coal sector (India Coal Sector Report No IN). This review addressed issues related to coal marketing, pricing, investment and financing. It also facilitated the policy dialogue with GOI on coal pricing and resource mobilization issues, the results of which are detailed in the Country Economic Report (No IN, dated April 11, 1983). Specific measures affecting coal pricing and coal transportation were included in the Dudhichua Coal Project (Loan 2393). This project also provides for the institutional support of CIL in the operation of large scale open cast mines, project management and budgeting and cost control. The project is being implemented on schedule. The Jharia Coking Coal Project (Loan 2498) supports a sectoral program a*med at improving the quality of domestic coking coal supplies to the steel industry, as well as for further institutional strengthening of CIL in the design, management and operating procedures of highly mechanized underground mines and in addressing specific issues in shaft sinking and stowing to prevent surface subsidences. Delays have occurred in project implementation due to slippage in land acquisition and in shaft sinking. The shaft sinking difficulties are largely resolved but land acquisition progress is slow. CIL is working with state and local officials to find ways of expediting the land acquisition GOI has proposed further Bank group financing of projects to increase the production of both thermal and coking coals over the next several years. The Coal Mining and Coal Quality Improvement Project is the third of these operations which are designed to support GOI's development

20 -13- strategy and CIL's efforts to increase production, improve efficiency and reestablish its financial viability. This project brings the Bank's involvement to two more of CIL's operating subsidiaries (SECL and ECL) as well as to two more major coalfields (Korba and Raniganj). The project provides for sector-wide improvements in thermal coal quality and for improvement of coking coal supplies to the steel industry by blending high quality imported coking coal with lower quality domestic supplies. The project also provides for institutional development for the CIL group in training and manpower planning and to ECL regarding the introduction of highly mechanized open-pit mining (ECL presently has little mechanized open-pit mining). The project supports efficiency improvements in CIL (including, in particular, ECL's old), underground mining operations where labor productivity is extremely low with a view to improving CIL's financial performance. Future lending is expected to comprise further projects to develop large highly mechanized mines in important new coalfields (such as Talcher or Karanpura) as well as to help rehabilitate old, inefficient underground mining operations (especially in ECL and BCCL) to improve efficiency and reduce costs. It is also planned to progressively update the earlier coal sector study which may lead to sector-related lending. Lending operations, together with sector work, will strengthen the policy dialogue that has been established regarding sectoral issues such as coal pricing, transportation, distribution, and coal quality and will also support the implemen.ation of the results of studies undertaken under earlier projects to provide institutional improvements within CIL. III. THE BENEFICIARIES A. The Coal India Group 1. Organization and Management 3.01 The Coal India group was established in 1975, as a holding company (CIL) with five subsidiaries. CIL operates -:emi-autonomously under the direction of an 11-member Board of Directors which is headed by a Chairman-Managing Director appointed by the President of India. CIL's senior management is appointed by GOI. In addition to setting general policies for its subsidiaries and undertaking other managerial functions typical of a holding company, CIL directly manages the financial resources of the Group overseeing the investment program and arranging for all long-term financing. CIL handles procurement of major capital equipment for its subsidiaries as well as all foreign procurement. It is also responsible for administering the coal retention price system for the purpose of internal accounting. For these reasons, CIL was designated as a primary beneficiary of the previous two Bank loans and the same arrangement is recommended for the proposed Project CIL subsidaries operate under the direction of a Board of Directors, headed by a Chairman-Managing Director, appointed by the President of India. The subsidiaries' senior management down to the

21 -14- Director level is appointed directly by 'OI. Within the subsidiaries, mining is organized into small regional areas, each one under the supervision of an area manager. Presently the subsidiaries operate nearly 400 mines organized in about 50 areas with an average production of nearly 3.0 million tons per year (mtpy) per area. A more detailed description of SECL and ECL is provided below (paras to 3.18) CIL is the largest coal company in the world, and has a vast and complex organization. Nevertheless, the coal sector is still highly centralized and highly controlled. The actual autonomy of CIL and the subsidiaries is limited by price control, investment control and staffing policy control (wages, terms of employment, appointment of senior staff) by the Government. The effect on the coal sector productivity has tended to be adverse. Recently, the Government has embarked on a cautious decentralization, with the setting of operational objectives for each of the subsidiaries, and holding the management responsible for achieving these objectives. The trend toward more managerial autonomy and decentralization is expected to be strengthened by the establishment of a new budgetary system. As part of its efforts to improve management performance, and in particular financial discipline and control, CNPDI and the Indian Institute of Management (Ahmedabad) have undertaken studies of the budgetary and cost control systems of CIL and its subsidiaries for the purpose of strengthening the accountability of senior staff to the upper management, and allowing more decentralization in decision making. The results of the studies, which address the definition of cost and profit centers, basic procedures, reporting formats, budget formulation, control mechanisms and corrective actions are now being implemented on a trial basis at selective mines In order to improve the delivery of its large investment and expansion program CIL has taken measures to strengthen its project management practices by upgrading the status of project managers and by establishing a project function within each subsidiary reporting to a Froject Technical Director. Since its inception, CIL has made progress in strengthening its managerial capabilities. However, there has been a continuous change in CIL senior management with a consequent effect of changing priorities and strategies. While some management changes are both necessary and desirable, there is a need to improve management continuity to ensure that past progress is maintained and that the potential benefits of initiatives presently being undertaken are fully realized. The rapid expansicei of the sector in the past decade has also stretched the availability of qualified, experienced engineers and managers. CIL is concerned that too many managers are concentrated in headquarter positions to the detriment of field operation, and is reviewing its management structure with the aim of reducing the number of managers in headquarters of each subsidiary vis-a-is the number of management positions in the field.

22 Operations 3.05 In order to meet the demand for coal, CIL has succeeded in increasing production from 101 million tons in 1980/81 to 134 million tons in 1985/86. As part of its strategy CIL has emphasized the development of new open-pit mines and the proportion of open-pit coal production has risen from 37% to 55% in the same period. Until April 1986, CIL had four coal producing subsidiaries-bccl, ECL, CCL and WCL. Since CIL's creation in 1975, production has increased strongly in WCL and CCL which jointly accou-ted for 66% of coal production in 1985/86 and also have a predl inance of open-pit production. By comparison production has scarcely increased at all in BCCL and ECL (21 million and 24 million tons production respectively in 1985/86), both of which are still predominantly underground mining companies. The rapid growth of CCL has resulted in part from the development of the Singrauli Coalfield which is located about three hundred km west from CCL's headquarters in Ranchi (Bihar). Similarly, the rapid growth of WCL has been due in part to the development of the Korba Coalfield in the region of Bilaspur (M.P.) which is located over 200 km east from WCL's headquarters in Nagpur (Maharashtra). For several years, the Singrauli coalfield has been a separate operating area of CCL with its own Director-in-charge and Bilaspur has been a separate operating area of WCL also with its own Director-i n-charge. Recognizing that the operations at Singrauli and Bilaspur are becoming large enough for them to become independent entities and that the relative geographical isolation from their respective headquarters can be detrimental to effective management, CIL and GOI decided, effective April 1, 1986, to establish two separate new subsidiaries: Northern Coalfields (NCL), consisting of the Singrauli division of CCL, with an expected annual production of 13 million tons saleable coal in 1986/87, and South Eastern Coalfield Ltd. (SECL), consisting mainly of the Korba, Sohagpur, Jamuna-Kotwa divisions of WCL, plus the Orissa area of CCL, with an expected annual production of 35 million tons saleable coal in 1986/87. As such SECL will have the largest production of the individual CIL subsidiaries. Henceforth, CIL will have six operating subsidiaries rather than four as previously. The Bank has supported this reorganization Given the increasing importance of open-pit mining operations, CIL has contracted under the Dudhichua loan the services of Metchem (Canada) to provide technical assistance regarding operational efficiency and operating practices in open-pit mines. Metchem completed its field assignment and submitted a final report to CIL in CIL is proposing to extend the Metchem contract to cover implementation of their recommendation for NCL and SECL. CIL has also commissioned a study of the design, construction, maintenance of haul roads in open-pit mines for which a draft report has been submitted by the Central Road Research Institute and is presently being reviewed. In order to introduce some standardization into its open-pit operations, CIL has adopted a series of.standard' truck! shovel combinations. While most of the combinations seem sound, there may be scope for improvement and CIL is undertaking a review of the standard combinations to see if improvement is warranted.

23 The rapid development of open-pit mining within CIL has placed new requirements on CIL's materials management system and workshops as well as on the power system. In the past, CIL was able to establish its parts inventory requirements on the basis of experience with the equipment they were generally using. However, as new larger and more complex pieces of equipment are introduced at a rapid rate, CIL's materials management system is faced with the twin problem of both a major expansion in the amount of spare parts which must be carried plus difficulties of estimating what would be an appropriate level of spare parts for equipment with which they have relatively little experience. At present, CIL's material inventory records are maintained in the form of a cardex system at central and regional depots. While the system is reasonably accurate, it is relatively ineffective for identifying a spare part which may be in shortage at one location but available at another; furthermore, with the proliferation of spare parts, the maintenance of the recording system itself becomes an increasingly difficult task. CIL recognizes that such an outmoded system can no longer support the needs of their rapidly expanding equipment fleet. CIL has commissioned a study by consultants, for designing and implementing a computerized materials management system. In addition, given the importance of reliable power supplies for the operation of its equipment, CIL is preparing an overall plan of its power requirements on a coalfield-by-coalfield basis. This will be completed in mid-1987 and will provide the basis for CIL to plan adequate power supplies for its needs in conjunction with the power utilities CIL also recognizes that their equipment fleet has outgrown workshop capabilities. Presently even the most advanced workshop within CIL is not fully capable of dealing with the latest equipment. During negotiations, agreement was reached that CIL would retain technical assistance, by December 31, 1987, to help design state-of-the-art workshops to fully meet the requirements of their open-pit mining equipment. These consultants would be selected in accordance with Bank procedures and would have terms of reference, qualifications, and experience satisfactory to the Bank. An outline of the scope of work for this assistance is provided in Annex Manpower and Training 3.09 The efficient management and deployment of its labor force is critical to CIL's performance. CIL is the second largest employer in India, after Indian Railways. At year-end 1986, CIL provided employment to about 670,000 personnel of which nearly 2% were managers, about 16% were supervisors and specialized staff, 15% were skilled workers and 67% were unskilled/manual workers. Employment distribution among the six producing subsidiaries was as follows: ECL (28%), CCL (15X), WCL (12%), SECL (15Z), NCL (2%) and BCCL (26%). The balance (2%) is in CMPDI, NEC and CIL Headquarters. Employment was proportionately higher than production in ECL and BCCL because of the predominance of labor intensive underground mining operations. As a result, the output in tons per manshift was much lower in these two companies (0.57 and 0.64, respectively) compared with the other

24 -17- subsidiaries (CCL , 1CL , SECL and NCL ). As noted in para. 2.13, CIL is addressing this problem and is taking measures to control employment and increase labor productivity. With these measures and better administration, CIL manpower is expected to increase to about 690,000 personnel in 1989/90 (a 1.1% per annum increase), while production is expected to increase by 11% per annum. While manpower inventories and records are available at each mining area, CIL does not have a consolidated inventory of its manpower on an overall basis. Over the past two years, CIL has initiated a program at CIL headquarters in Calcutta of establishing a computerized manpower inventory base. While this represents a first step, CIL recognizes the information is very rudimentary and that the present process is rather slow. At negotiations, CIL agreed to retain technical assistance by December 31, 1987, to help design and Implement a manpower inventory system suited to its needs, employing consultants under terms of reference and with qualifications, experience and selection method satisfactory to the Bank. A scope of work for the manpower assistance is attached as Annex The supply of suitably trained, skilled manpower will be one of the major constraints to CIL meeting its investment program's production targets over the next five years. CIL directly operates seven central training centers specialized in management, open-pit and underground mining technologies and coal beneficiation. In addition, the subsidiary companies operate 16 regional training centers covering managerial, technical and vocational training activities plus about 50 area training centers for statutory, vocational safety courses. During 1984/85, the training programs in these centers comprised about 5,000 courses given to 110,000 participants of which about 88Z were workers and the rest managerial and supervisory staff. The rapid development of open-pit mining within CJL has stretched the limits of CIL's training capabilities, and the availability of adequate training facilities for both operations and maintenance staff is becoming ax limiting factor on the on-going development of majocoalfields, such as Singrauli, Korba and Raniganj. Furthermore, while CIL has endeavored to strengthen its training activities over the past years through a program of foreign collaboration, especially with the British coal industry, training activities are largely undertaken on a pieceteal basis and there is no comprehensive overview of training needs or how they should be met. Further, the training function is badly understaffed and has only rudimentary facilities. In order to strengthen the organization of its training function and to develop a satisfactory training action program, CIL will retain consultants under terms of reference and with qualifications, experience and selection procedures satisfactory to the Bank. This program would complement the assistance for manpower planning (para. 3.09). The scope of work is outlined in Annex Financial Position 3.11 The financial performance of CIL over the last five-year period is summarized below and given in fuller detail in Annex 9.

25 -18- CIL - Summary of Financial Performance 1980/81 to 1985/86 (Rs million) 1980/ / / / / /86 nm Sale (million tons) Net Revenues 11,3W 14,209 17,063 18,624 23,690 24,594 Operaticg EermWs 10,273 12,138 14,240 18,480 20,668 23,540 Dcepration ,344 1,716 2,069 2,497 interest ,110 1,324 1,733 2,158 Net T.ncame (tos) (337) (2,469) (780) (3,557) Internal Cash Gemeratimn 401 1,276 1,713 (753) 1,289 (1,060) Capital zeminditus 3,412 5,809 7,142 8,390 7,877 8,427 Log-Tem DEbt 12,557 13,196 17,461 19,273 21,737 25,284 Acmulated Losses (8,461) (8,119) (7,370) (9,765) (10,533) (14,422) Net Equity 2,385 5,483 9,542 11,534 15,034 15,701 Net Tne (Ioss)/Revemaes % (3.0) (13.3) (3.3) (15.1) Oraent Ratio LT Debt/Equity Ratio 84:16 71:29 65:35 63:37 59:41 62:38 Debt Serice Couerage Smrce: CT Up to 1980/81, CIL had been increasing losses constantly as a result of 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 a positive net income with an adequate level 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 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 back-dated to January 1983 and an offsetting price increase was only made in January 1984 causing a large loss for CIL which forced delaying debt repayments to GOI. CIL was able to reduce its losses to Rs 780 million in 1984/85 following the January 1984 coal price adjustment (which increased CIL's sales realization per ton by 17%). However, CIL's financial performance deteriorated again in 1985/86 and losses reached Rs 3,557 million 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 Comptroller 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.

26 -19- Although the auditing standards and procedures followed are those laid down by the Indian Institute of Chartered Accountants, higher standards regarding the audit of internal control procedures are advisable. An additional audit is conducted by the Audit Board of the Office of the Comptroller and Auditor 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. South Eastern Coalfields Ltd. (SECL) 3.14 SECL is the subsidiary of CIL responsible for the development and implementation of the Gevra mine. As noted in para. 3.05, SECL was formed in April 1986 and is the outgrowtb of the old WCL. SECL's first year of operation will be completed on March 31, In 1985/86, WCL produced about 49 million tons of saleable coal of which about 30 million tons were from the Bilaspur region (which was split off to become SECL) and about 19 million tons from the Nagpur region (which remains under the control of WCL). SECL, has its headquarters at Bilaspur, and operates coalfields in Korba, Sohagpur, Jamuna, Kotma, Chirimini Baikuntpur, Jhagrakhand plus the Ib River coalfield in Orissa. All of SECL's production is thermal coal Open-pit mining comprises about 55Z of SECL's production, mainly from large-scale highly mechanized operations centered on the Korba coalfield. Underground mining accounts for 45% of SECL's production. SECL's underground mines are newer, shallower operations with much easier mining conditions than those of BCCL and ECL. The output per manshift of SECL's underground mines is about 0.80 compared with 0.45 and 0.53 for the underground mines of ECL and BCCL respectively SECL is in a relatively sound financial position. WCL, the forerunner of SECL, has been able to earn moderate profits since 1979/80. In 1985/86, WCL/SECL's total production costs (including depreciation and interest charges) were is 171 per ton of saleable coal, which is about 78% of the average for the CIL group (Rs 219 per ton of saleable coal). The financial position of WCL from 1982/83 to 1985/86, is summarized below: SECL and WCL - Summary of Financial Performance (Rs million) WCL WCL WCL WCL/SECL Fiscal Year 1982/ / / /86 Coal Sales (million tons) Sales Revenues 4,632 5,591 7,659 8,017 Operating Expenses 3,380 4,663 5,334 6,518 Contribution to CPRA ,137 1,009 Net Income a/ (991) Internal Cash Generation a/ (20) Investment 1,965 2,779 2,759 2,847 a! axter contribution to Coal Price Retention Account (CPRA).

27 -20- C. Eastern Coalfields Ltd. (ECL) 3.17 ECL will be undertaking the development and future operation of the Sonepur-Bazari mine. ECL has its headquarters at Sanctoria, West Bengal and operates about 100 mines in the Raniganj coalfields in West Bengal and Mugma Rajmahal coalfields in Bihar. These are older, deep minefields which are the main source of superior quality thermal (Grades A-C) coal in India. Superior quality thermal coal is in short supply in India and is sought after by industrial consumers. ECL is therefore attempting, to the extent it can, to Increase the supply of such coal. However, the coal seams are found in very difficult, mining conditions. During 1985/86, ECL produced 24.0 million tons of saleable 23.6 million tons were thermal coals (96Z) and the balance, coal of which 0.4 million tons coking coals (2Z). Underground mining accounted for 68% of ECL's production, which is substantially higher than the average for CIL overall (45Z) ECL has much higher production costs than the average for CIL mining operations and has incurred heavy losses in the past. Surplus labor and low labor rroductivity are the most critical elements in ECL's high production costs which derive from a number of factors some external to ECL and others under ECL's control. The factors largely outside of ECL's control include geological conditions which result in deep, difficult mining conditions; power outages which cause production interruption and cutbacks in pumping capabilities (necessary to keep the deeper mines operating during the monsoon season); and a government-sanctioned national mine-workers agreement which constrains ECL's ability to layoff surplus labor. Within ECL, however, attempts to increase production were made with little, if any, regard for cost control and for many years, there appears to have been little concerted effort by either the management or the labor force to improve ECL's performance. Some efforts have been made to improve the labor situation in the past two years including severe restrictions on new hiring and on overtime work. In 1985, the "Chari Committee' was appointed to study ECL and make recommendation on measures to establish ECL's viability within a given time period. The Committee's report which is presently under consideration by the Government containe a wide ranging set of innovative measures to improve ECL performance, several of which are already being implemented by ECL. Management has taken a number of steps in an immediate effort to improve efficiency and cost consciousness in its operations. New hiring of skilled workers needed for new projects has been strictly limited to no more than 50% of retirees and ECL expects a net reduction of 1,700 workers in 1986/87. ECL is undertaking technical audits of twenty underground mines which are incurring the largest losses which are the basis for rehabilitation plans to improve the performance of these mines. ECL will implement these rehabilitation measures under a timetable satisfactory to the Bank and will submit progress reports on a regular basis for the Bank to review. In addition, ECL will conduct technical audits of a further twenty mines with large losses. These wasures should help improve ECL's performance in future years. In 1985/86, ECL's total production costs (including depreciation and interest charges) were Rs 307 per ton of saleable coal, which is about 40% higher than the average for the CIL group (Rs 219 per ton of saleable coal).

28 -21- ECL - Summary of Financial Performance (Rs million) Fiscal Year 1982/ / / Coal Sales (million tons) Sales Revenues 3,589 4,142 5,305 5,719 Operating Expenses 4,034 5,110 5,509 6,013 Contribution from CPRA Net Income a/ (553) (1,279) (137) (700) Internal Cash Generation a/ (244) (902) Investment 994 1,159 1,273 1,372 a/ After contribution from Coal Price Retention Account (CPRA). IV. THE PROJECT A. Project Objectives 4.01 The main objectives of the project are to improve the quality of coal available to consumers and to increase the supply of thermal coal (to the power and industrial sectors) and coking coal (to the steel sector). The project will help meet the demand for thermal coal through the development of two large-scale open-pit mines in Gevra and Sonepur-Bazari -with an ultilmate combined capacity of 13 million tons per year. The project will help improve the quality of coking coal supplies to the steel sector by supporting the importation of low ash-coking coal (average 10O ash). The imported coal will be blended with indigenous supplies (average 21Z ash) thereby lowering the average ash of the blended mix which will contribute to improving blast furnace productivity and efficiency in the steel industry. The project is alac designed to improve sector management through the implementation of a number of coal mining, handling and transportation measures which should also contribute to improved coal quality. In addition, the project will improve the efficiency of existing coal mining operations and strengthen the managerial, commercial and financial practices of both CIL and two of its four producing subsidiaries, ECL and SECL, through the implementation of a series of efficiency improvement and institutional development measures. By including training programs and training institute design in the project and by introducing state-of-the-art mining technology, the Bank will contribute to CIL's efforts to improve the efficiency of its mining operations. The inclusion of various efficiency-related and institutional development measures are aimed particularly at containing production costs in existing labor-intensive operations as well as strengthening the supply of skilled workers and managers to meet the needs of the industry's development program. Through its involvement in the project, the Bank will support GOI's objectives of maximizing the development of indigenous energy resources; of alleviating power shortages by expanding the country's

29 -22- thermal power generating capacity; and of providing power plants with the required coal supplies through the accelerated development of large-scale open-pit mines. B. Project Description 1. Gevra Mining Complex a. Scope 4.02 The scope of the proposed Gevra mining component consists of implementing the second stage of development of the Gevra open-cast coal complex. This will complement components already included in the first stage: coal handling plant, train loading facilities, and a railway link to the Korba power station. The second stage will increase output to 10 mtpy of raw coal, from a designed capacity of 5 mtpy in the first stage, for which construction and actual coal production were started in 1980 and 1981 respectively. The complex will include additional mining equipment, an in-pit conveyor for coal transport and crushing, a marginal expansion of service facilities, a training center and a township as its main components. b. Location, Geology and Reserves 4.03 The Gevra open-cast mine is located in the center of the Korba coalfield, on the western bank of the Hasdeo river. This coalfield is in the Madhya Pradesh state, about 90 km east-northeast of Bilaspur (Map 19279R). The altitude of the area is about 300 m above the sea level, and the topography is fairly flat. Drainage is towards the northeast-east during the rainy season, mainly by the Ahinar and Hasdeo rivers. The infrastructure provided during the first stage is well developed, and the coalfield is situated at a distance of about 10 km from the main Bombay/Calcutta railway in a region only sparsely populated with Korba being the major town The climate of the Korba coalfield is tropical, with very hot summer months (March-June) during which temperatures reach 46 C (115'F). The average annual precipitation is about 1,040 mm, which fall mostly during the monsoon season (June-September) The Korba coalfield extends over an area of about 520 sq km, of which Gevra and the project site cover 42 and 10.8 sq km, respectively. Coal bearing strata occur in the Permian stratigraphic formations, locally called Gondwama. Typically, they contain sub-bituminous and bituminous coals, with low contents of sulphur (maximum 0.7%) and phosphorous (about 0.01%), and high ash contents (20-35%). The strike of the formation is generally east-west and the dip about 5-10O towards the south Although the Korba region has been geologically examined since the late 1800s, systematic investigations were only initiated by the Indian Bureau of Mines in These were followed by drilling campaigns under

30 -23- the supervision of the National Coal Development Corporation (NCDC) in and , and by CMPDI that completed over 140 holes with a total length of about 16,000 m since Total mineable reserves are estimated at 589 million tons of coal broken down by main seam structures in table below: Gevra Project - Mineable Reserves Mineable Reserves a/ Seam (million tons) Upper Kusmunda 59 Lower Kusmunda (top split) 378 Parting 50 Lower Kusmunda (bottom split) 102 Total 589 a/ In situ mineable reserves less mining losses. The project areas are tectonically faulted. However, the available geological and hydrogeological information derived from geological mapping and drilling, and from operation of the adjacent Kusmunda mine is considered sufficient for the purpose of reserve calculation and mine design. At the proposed mining rate of 10 million tpy, reserves already delineated allow for about 60 years of mining. c. Mining 4.07 The general characteristics of the area and of existing open-pit mine designs for the proposed project are very favorable. The first 30 years of mining will have a very low stripping ratio of only 0.9 m 3 per ton of coal, reaching a depth of 180 m with final pit slopes of about 450, which is satisfactory to deal with the hydrogeological conditions of the area, assuming an adequate safety factor. The mine has been designed to produce 10 million tpy of raw coal with ash content and heating values ranging between % ash and 2,110-4,236 kcal/kg on a useful heat basis, indicating coal grade ranges from D to G Waste strata and coal will be drilled, blasted, and subsequently removed by different material handling systems. The overburden will be loaded and hauled with four 10 m 3 electric rope-shovels and a fleet of thirty- four 120/85-ton trucks. If suitable, 20 m 3 shovels may also be used. The coal will be loaded with 2.3 m 3 hydraulic shovels, and hauled by 35 t trucks to two conveyors. These will be equipped with feeder breakers, and will transport crushed coal to a coal handling plant, which is presently under construction, with a storage bunker of 30,000 t capacity, which will feed two train loading silos of 2,600 t capacity each. Coal release has already started under the first stage of the project with an output of 50,000 t in 1981/82. It has increased to a present level of about 3 million tons, and is planned to reach the designed capacity of 10 million tpy during 1991/92. Mine planning has been done in sufficient detail for feasibility purposes and equipment selection. The selection of main equipment for mining of coal and waste rock material is basically

31 -24- sound. Also, the selection of hydraulic shovels for coal is satisfactory given the presence of partings, shale bands and geological faulting. Adequate training and maintenance programs have been prepared to support operations of the mining equipment. On the other hand, further design refinements will be undertaken to delineate a more detailed short- and long-term sequence of plans, and to determine fluctuations in coal and waste material release, as well as changes required by materials handling systems and equipment. further complementary work will also be executed in respect of geotechnical aspects, for more detailed analysis of assumed slope stability and safety factors of strata and hydrogeological conditions. This work should be complete and ready for Bank review not later than December 31, 1989, and will not affect activities concerning procurement, mine development, and establishment of ancillary installations Mine development work and in-pit road maintenance will be performed by a fleet of dozers, wheel loaders and graders. A main sump and associated installations will be established for adequate pit drainage during the monsoon season. Pumping capacity appears adequately estimated, on the basis of information from the adjacent Kusmunda mine. A dragline will be provided to clean the sump The mine and related facilities will work 300 days per year, 3 shifts per day and 8 hours per shift. The total manpower requirements at full production of 10 million tpy are summarized in the table below: Gevra Mine-Manpower Requirements Senior Management 68 Junior Management/Supervisors 419 Workers 3,453 Total 3,940 A preliminary training program has been prepared for the Gevra complex. However, the training facilities at Gevra are presently inadequate to fulfill the training program. Furthermore, even the most advanced CIL training facilities (at Singrauli) are insufficient for CIL's rapidly advancing needs. CIL will retain technical assistance under procedures satisfactory to the Bank for the design and development of a training center for the Korba coalfield (Annex 10) by December 31, SECL have confirmed that they will provide the Bank with a training program for the Gevra project by January 1, 1988 and with annual training reports for the Gevra project on July 1 of each year, addressing the previous fiscal year's training results compared with the program. d. Infrastructure 4.11 Infrastructure facilities such as warehouse, unit maintenance and eervice installations of adequate size and capacity will be constructed north of the open-pit, adjacent to the main road which connects Gevra with the Kusmunda mine and the town of Korba. However, since workshop plans

32 -25- were considered insufficient, SECL will, provide adequate unit and central workshop facilities to meet requirements from the project based on the findings of the workshop Technical Assistance (Annex '0). A new road bridge will be built across the Hasdeo river to improve access during the monsoon season. Its completion is estimated for 1988/89. Water requirements, installed electrical load, annual power consumption and specific power consumption are summarized in the table below: Gevra Mine - Water and Power Requirements Industrial Water (m 3 per day) 1,735 Potable Water (m3 per day) 2,240 Installed Electrical Load (NW) 25.7 Power Consumption per ton of Coal (kwh) The Gevra complex will receive power from MPEB by means of two overhead 33 KV transmission lines and four sub-stations. Industrial and potable water requirements will be met from the Hasdeo river at about 10 km from the project site. To the extent possible, additional water required for dust suppressing in mine roads will be taken from the main in-pit sump. These arrangements are satisfactory. GOI will ensure adequate electric power and SECL will ensure adequate potable water supply to the project Provision of housing and service facilities for the work force will follow CIL's existing policies and guidelines. Accordingly, a new township will be constructed for the complex. It will consist of 2,674 houses and apartments, and will include schools, shops, a 22-bed hospital, community center and clubs. These arrangements are considered satisfactory. SECL will provide the Bank with satisfactory schedules for the construction of housing and service facilities for the Gevra project by January 1, 1988 and imp]ement them as part of the project. 2. Sonepur-Bazari Mining Complex a. Scope 4.14 The scope of the proposed Sonepur-Bazari mine component comprises the development of an open-pit mining complex with a designed capacity of 3 million tpy, inciuding a coal handling plant and surface infrastructure consisting of a railway spur, power lines, repair and maintenance shops, warehouses, training facilities, offices and a townsite. b. Location, Geology and Reserves 4.15 The Sonepur-Bazari open-pit mine will be located in West Bengal, in the north-eastern part of the Ranigani c,alfield. The mine will have an ultimate capacity of 3.0 million tpy saleabve coal of which about 1.5 million tpy will be Grade D coal to feed the Kologhat power station and the balance (1.5 million tpy) will be Grade C coal for industrial users. This coalfield is at about 35 km and 14 km from the townships of Durgapur and Ranigani. The area is about m above the sea level, and is mostly flat. Drainage is from west to east dui..ng the rainy season, mainly by the

33 -26- Bonbahal Jore and the Kumarkhala streams. The infrastructure is well developed, and the coalfield is only sparsely populated with the village of Bazari located adjacent to the project site The area has a tropical climate with maximum temperatures averaging between C ( F) during summer (March-June), and C (77-82 F) during winter (November-February). The difference between day and night temperatures during December is about C (18-25 F). The annual average rainfall is about 1,180 mm, with about 90% falling during the monsoon season (June-September) The Raniganj coalfield extends over an area of about 1,550 sq km, of which the project site covers 19 sq km. The rock types are in broad manner classified in two main groups, i.e., the basement Archaean granite/gneiss/schist complex, and the Quaternary and more recent sediments with coal bearing strata and waste rock, mainly consisting of sandstone, shale and conglomerates. The strata in the Sonepur-Bazari area dips only 1-5 towards the south, but steeper dips are observed in the vicinity of major faults and near the splits of thick seams. Typically, these seams contour coal of C and D quality, with moisture, ash and calorific values ranging between % H 2 0, % ash, and 4,940-5,675 Kcal/kg on a useful heat basis, respectively. The Sonepur-Bazari deposit was discovered on the basis of geological studies started in 1976 by CMPDI, which were followed by successful drilling of 10 exploration holes between 1977/78, under the supervision of the GSI. Subsequently, a total of 67 boreholes with overall length of about 10,000 m were drilled, resulting in a density of 7.2 boreholes per sq km, which is satisfactory. Total mineable reserves are estimated at 186 million tons of coal. The project area is disturbed by faults and split of seams. However, the available geological and hydrogeological information, derived from geological investigations and from operation of the adjacent Kumarkhela small open-pit, is sufficient for the purpose of coal reserve calculations and preparation of mine designs. At the proposed mining rates the existing reserves could support operations during a period of over 60 years. c. Mining 4.18 The Sonepur-Bazari open-pit will have an overall stripping ratio of 5.13 m 3 of waste per ton of coal and a depth of 270 m after the first 25 years of mining. Its final pit slopes are planned at 37e, which is satisfactory to deal with the hydrogeological conditions of the area, assuming an adequate safety factor. The mine has been designed to produce 3 million tpy of raw coal of types C and D. ECL is planning to blend a small amount of marginal quality Grade C coal with the Grade D coal. ECL will undertake certain tests when production is initiated to confirm that such blending is an economic proposition Overburden will be drilled with seven 250 mm rotary drills, and blasted using aluminized slurry explosive. Removal of material will be executed with one 24 m 3 dragline, six 10 m 3 electric rope-shovels and about thirty-five 120-ton trucks as main handling equipment. Coal and thinner waste rock partings after drilling and blasting will be loaded with seven

34 m 3 hydraulic shovels operating with a fleet of about fifty 50/35-ton rear dumpers and 32-ton bottom dumpers. Coal will be transported to rotary breakers, from where the -200/ +50 mm portion of superior quality material will be sent to a 10,000 ton storage bunker of grade C steam coal for supply to industrial consumers. On the other hand, due to expected impurities, the -50 mm portion of this same material will be sent to a separate 10,000 ton storage bunker of grade D slack coal, where it will join inferior quality material, which will be sized under 200 mm for shipment to the linked power plant. The bunkers will feed two train loading points using reclaim and wagon loading conveyors Coal release from the area already started with development in 1982 of the Kumarkhela small open-pit, which is located in the north-western corner of the Sonepur-Bazari deposit. Its production reached about 0.3 million tons of coal during 1985/86. On the other hand, coal release from the Sonepur-Bazari project will not start until 1989/90, increasing slowly to reach the designed capacity of 3 million tpy only seven years later in 1996/97. Mine planning has been done in adequate manner for feasibility purposes. Additional work will be done to further optimize the mining sequence, to detail the fluctuations in the output of coal and waste material and the possible changes in the materials handling system and equipment. Additional geotechnical testing will be executed for more detailed analysis of assumed slope stability parameters and safety factors. ECL will complete this testing and analysis, and provide the Bani. with its geotechnical reports not later than December 31, The selection of main equipment for mining of coal and waste rock material is satisfactory. Specific mairtenance and training programs to support this equipment will be prepared Mine preparatory works and in-pit road maintenance will be performed by a fleet of dozers, wheel loaders and graders. For drainage, a main sump located in the bottom of the pit, and associated installations, will operate with a 2,600 m 3 /hr pumping system, consisting of nine units. In addition, slurry pumps will be used to deal with muddy water and clean the sump. This is satisfactory since estimated pumping requirement are for 1,656 m 3 /hr. The larger capacity has been selected because of insufficient hydrogeological data. However, assumptions made for calculating water inflow are conservative and realistic The mine and coal handling facilities will work 300 days per year, 3 shifts per day, and 8 hours per shift. Manpower requirements at full production of 3 million tpy are summarized in the table below: Sonepur-Bazari - Manpower Requirements Senior Management 81 Junior Management/Supervisors 314 Workers 904 Total 1,299

35 ECL has the intention of implementing a substantial training program for the project. Although specific plans have not yet beer. formulated, this effort will include establishment of training facilities, assistance from ECL's Central Training Centre, visits to other mines, and execution management and operator training courses. CIL will retain technical assistance by January 1, 1988 for the design and development of a training center for the Raniganj coalfield (Annex 10). ECL have confirmed that they will provide the Bank with a satisfactory training program and training reports for the Sonepur-Bazari project. The training program should be prepared and completed for Bank review not later than January 1, In addition, ECL confirmed that it would submit annual training reports to the Bank on July 1 of each year comparing training results with the program including respective targets for the previous fiscal year. d. Infrastructure 4.2c Infrastructure facilities, such as warehouse and unit repair and maintenance workshops will be established adjacent to the pit. ECL will provide adequate unit and central workshop facilities, taking into account the results of the workshop Technical Assistance (Annex 8), to meet requirements from the project. At present, power is received at the nearby Bankola sub-station, which has an installed transformer capacity of 3 MVA. Provision of additional power for the project is planned in two stages. First, further power supply will be increased progressively to meet a demand of 6 NVA by 1988/89. For this purpose, an additional transformer will be installed at Bankola, and a new transmission line will connect this sub-station with the project site. In the second stage, additional connections will be provided to meet a demand of 17.2 NVA by The design has been completed satisfactorily for the first stage, and is still in progress for the second stage. GOI will ensure adequate electric power supply to the project and ECL wlll ensure the timely development of the new transmission lines and substations ECL plans to construct a new railway spur of approximately 11 km, to the northern part of the deposit, for the transport of coal from Sonepur-Bazari. Despite the existence of an old rail spur in the south of the proposed mine, this approach will permit transporting coal from adjacent deposits and will eliminate a difficulty with adverse gradients in the existing spur. Finally, potable and industrial requirements of water for the project are estimated at 0.63 and 0.67 million liters per day. Additional water for haulage ramps will be obtained from the nine sump. These arrangements are satisfactory. ECL will ensure adequate potable water supply to the project Provision for housing and service facilities will be made for 784 workers. The location for these residences coincide with the location for an integrated township being proposed for workers of ECL, adjacent to housing for Kumarkhala. Other buildings included for the project are offices, training center, and welfare and community services. All buildings have been located in barren areas to avoid blocking mining activities. These arrangements are considered satisfactory. ECL will

36 -29- provide the Bank by January 1, 1988 with satisfactory schedules for the construction of housing and service facilities for the Sonepur-Bazari project and implement them as part of the project. 3. Environmental Protection, Safety and Resettlement 4.28 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 Both Acts prescribe measures and tolerance limits that are in line with acceptable standards in the industry. Environmental management is the responsibility of CIL through its subsidiaries. CIL, SECL (for Gevra) and ECL (for Sonepur-Bazari) will ensure that design, construction and operation of their project components are carried out with due regard to ecological and environmental standards, as well as adequate safety standards (para. 4.30). Environmental arrangements are considered satisfactory. In general, water and air pollution problems are not expected to be severe. Their quality will be monitored regularly. Dust, which is considered the major pollution hazard, will be controlled by sprinkling haulage roads with water, and using suppression and extraction equipment at silos and railway loading facilities Both of the areas where the Gevra and Sonepur-Bazari mines are located have relatively gently undulating terrain with rather thin vegetation, and only small quantities of topsoil. Soil conservation will be done whenever feasible. For this purpose, at Gevra a survey is being executed by the Soil Survey Organization of India. Reforestation activities were started in March About 110,000 trees have been planted to create 'green-belts- along main roads and between industrial facilities and residential areas. Both mines will have equipment for land reclamation. While the general approach to reclamation is satisfactory detailed plans are still being finalized. ECL and SECL have confirmed that final plans will be submitted to the Bank by January 1, Erosion control and prevention measures, such as placing of rip rap, turfing and re-vegetation will be undertaken on waste dumps and exposed slopes. This will also assist in reducing surface water run-off. In addition, the dumps will be set in benches to avoid spills. This is satisfactory Mine safety, operational practices, and design criteria are laid down in the Mine Act of 1952 and the Coal Mines Regulations of 1956, and supported by monthly circulars from the Director General of Mine Safety (Ministry of Energy) as well as by Acts regulating human health and mine rescue work. They are considered adequate. The responsibility to follow the regulations is vested in the safety organization within each CIL subsidiary. On a corporate level, a "Safety Board- chaired by the Chairman of CIL is meeting quarterly to review adequacy of current safety practices and to introduce corrective actions, whenever necessary. Safety procedures and practices proposed for Gevra and Sonepur-Bazari are already used by CIL in other open-pit operations, where safety performance is adequate. This aspect has been extensively assessed and is being improved With input of foreign funded consultants by the Bank. during the execution of technical assistance programs

37 The overall accident rate in CIL has greatly improved since CIL was formed (fatality rate and serious injuries decreased 35% and 51Z respectively between 1974/75 and 1985/86). However, the rates in CIL are still relatively high when compared with other major international coal producers. This is mainly attributable to most of its underground mining operations being very labor intensive, and using multi seam mining methods with a low degree of support from modern mechanical and electrical systems. Further, the large number of mine working faces and of workers makes proper safety supervision/management cumbersome, particularly during periods of rapid expansions. The accident rate is expected to decrease further over time, as CIL's production share from open-pit mines Increases. In order to satisfy the Bank of the adequacy of safety measures and the incidence of occupational disease, CIL will provide the Bank with statistics on mine-related accidents and occupational diseases, every year beginning July 1, The mining complexes are to be developed on land that is generally sparsely populated. About 1,370 families will need to be resettled at Gevra and 740 families at Sonepur Bazari as a result of the mining operations. The resettlement is being undertaken in three phases at Gevra, where it will be complete in 1991, and two phases in Sonepur Bazari where it will be complete in In addition to cash compensation, ECL and SECL are providing assistance to the resettled families in terms of land, housing and shipment of household effects. Resettlement is most advanced at Gevra where up to now 500 families have already been settled in a new village with satisfactory facilities. CIL will undertake resettlement of the people affected by the project in accordance with resettlement plans agreed with the Bank. SECL and ECL will each appoint a community development officer and will coordinate the resettlement activities with the respective State Government officials. It is expected that jobs will be available to the resettled families associated with the mining development. At Gevra (where there are large mining operations already in existence), employment has already been provided to over 800 of the people involved in resettlement. In addition, other employment opportunities will be generated in mine construction, ancilliary small-scale industries and agriculture. Further details are provided in Annex Coking Coal Imports 4.33 The loan will provide finantcing for importing about half of India's coking coal requirements over the next two years. Procurement of the imported coking coal will be carried out by GOI. The importation of coking coal will: (i) fill the existing gap between the projected demand of the local steel industry and domestic supply of prime coking coal. (This gap, now estimated at about 3 million tpy between 1986/87 and 1989/90, is about 100% higher than the previous two years due to improved quality control of raw coking coal production including the exclusion of some substandard coals as feed for washeries); and (ii) support the efficient utilization of the steel industry's existing plant and equipment, by preventing shortages of coke, which would result in a reduced blast furnace capacity utilization. In addition, the imported coal will improve

38 -31- the average quality of coking coal supplies because the imported coal has a lower ash content (10Z average) than the local product (21% average). This improvement in coking coal feed, and hence in coke production, will result in increased blast furnace productivity and utilization. C. Project Execution and Implementation 4.34 The Gevra project component will be implemented by SECL under the direction of a Project General Manager reporting to the Project Director of SECL. The Project Management Unit consists of staff from SECL and CMPDI, organized as shown in Annex 12. The Project General Manager is supported by managers responsible for (i) general engineering and mining; (ii) scheduling and cost control; and (iii) administration. Responsibility for project implementation is direclty under a Deputy Project General Manager. The total project organization comprises about 200 positions, already staffed and mobilized. The Project General Manager has been appointed and is adequately qualified and experienced. SECL will establish a Project Management Unit, and that it will ensure that organizational structure, staffing, powers and responsibilities of the Project Management Unit shall be such as necessary for timely and efficient implementation of the project. Moreover, in accordance with standard practice adopted within CIL after the first coal project with Bank financing, SECL is preparing a project implementation manual following terms of reference already agreed with the Bank. SECL will exchange views with the Bank on this manual, and will adopt it by January 1, Similar arrangements are being made for the execution of the Sonepur-Bazari project component (Annex 11), which will be implemented by ECL. While the project organization of this component has not yet been officially approved, several of its main officials are already assigned to the project. Such is the case of its Project Officer who is expected to be appointed as Project General Manager, and principal staff concerning finance, personnel, and mine operations and maintenance. A preliminary project manual for implementation of this project was prepared by CMPDI in July ECL will revise it. By January 1, 1988 ECL will establish a Project Management Unit similar to that for Gevra (para. 4.34), and it will finalize, exchange views with the Bank and adopt a project implementation manual Each Project Management Unit will be directly responsible for all activities related to detailed engineering, procurement of local goods (excluding mining equipment) and services, equipment erection and commissioning, and construction and mine development. Procurement of mining equipment and other imported plant and equipment will be carried out by the CIL Central Procurement Organization, in direct. collaboration with the respective Project General Managers, who will provide progress reports to the Project Directors of the subsidiaries and to the CIL Project Monitoring Unit. A detailed and satisfactory schedule for procurement actions has been prepared, and procurement documents have been reviewed by the Bank. To minimize the risk of delays the GOI will promptly grant authorization to import foreign goods required for the project, and will promptly make available the foreign exchange required.

39 The implementation schedules for the Gevra and Sonepur-Bazari components of the project are given in Annex 13. They are based on detailed analysis of different critical activities, and on-going construction work at Gevra. They are realistic. For the Gevra mine, procurement of main mine equipment for delivery in 1987/88 is on the critical path. Status of main activities are summarized as follows: (a) all required land is presently in possession of SECL; (b) overburden removal started in 1981; (c) access roads and some residential and office/service buildings have been constructed; and (d) construction of the coal handling plant is well advanced, and one of the two train loading systems is fully operational. Finally, during 1984/85 about 2.6 million m 3 of overburden and 2.5 million tons of coal were mined. Project activities are at an earlier stage for the Sonepur-Bazari mine, where initiation of procurement of electric rope-shovels and 120-ton trucks are on the critical path. No implementation work has yet started. Arrangements for land acquisition for the project are well advanced. ECL has acquired 208 hectares (ha) of land, required for the infrastructure and the first five years of mining. However, ECL does not yet have possession of about 68 ha of that land which remains in the hands of the local authorities awaiting final processing and handover to ECL. Handover of the remaining Land is a condition of disbursement for the Sonepur-Bazari component of the project. Disbursement for the Sonepur-Bazari component is limited to a maximum of US$8 million until ECL confirms that it has taken possession of the 68 ha of land. Additionally, ECL gave assurances that it will ensure the timely availability of land for the railway siding by December 31, 1988, and land for mining operations beyond 1995/96 by December 31, Coal release and waste rock output are summarized in the following tables.

40 -33- Production Schedule and StripPing Ratio Coxd Waste Pb& Stc#*Euig htio Project Coui1et Year l(djl M3) () v PE tu of coal) * 1981/ * 1982/ * 1983/ * 1984/ * 1985/ / / / /9D M0/ / onwrds / / / / / / / / / / / & oammds 4.39 Productivity indicators for the mining complexes will include not only total quantities of coal and waste material removed but also utilization and availability for all major pieces of equipment, consumption of explosives, fuel, lubricants and other constmables. V. CAPITAL COSTS, FINANCING AND PROCUREMENT A. Capital Cost Estimates 5.01 The total financing requirements for the mining component (which consists of the Gevra and Sonepur-Bazari complexes) including physical contingencies, price escalation, working capital and interest during construction are estimated at US$483.2 million (Rs 6,282.6 million), of which about US$158.5 mill-ion is in foreign exchange. Detailed capital cost breakdown for major equipment and plant are given in Annex 14 and summarized below.

41 -34- qm - z ma ta fojt I" fordo Ta fb=ll.. lb 161k TBS Him s qmi a 8p _ ,167A J 1, ,312A Qil Mdlki plot SMA LS Lad & Cil1 P's M MA I'm P MP- aldl lbt l_ip3 hd4w " _m1nt L ftrmla &1buu bduic.tidst nkW E1dama im & T_ SS St arn Cr 1, , , ,219 3,3551 1, t FlyliMI 1 _pm S O MA PFIM binlm 292A mtaui am 2, , , PIl , I4xh CqitaL FWJat Cot ,233. 1, , , , zo*t dat snw uctm bf liva F nt-d Fd ai limi _ - _ Tmtal FII idzwi 2,67.7 8M ,5. 1, ,03.8 4,.A 2, A _Wr! TW32.8 mai- (UsM2A wu ) ad P n111k (USss.6 ulil lumkgm mis md8 for (wm ad 9nw4mE1 1-laftlmly. b For _ ohm. ira.w a n qi.1 p m ApwI 1. IM95 ad um lnl wr. up to tiut daf w in uomi auiay, t1itm. lmt &<q am_uttli aqiltdiad d no t cki fae Ebp. a r s5_pmwn ohm, _dla. _n rii.a lime t_t -- 1I dl _ta cma*y it for Sl d _ml _1- I tm ad of M9M90 _ tim de ng 1Ma 1wil m warbludwd n II= idta SOC d ad syx *dxty flimd* to, d im pmdt,d an to bh frm by qupty dl lztacnt dmlzu ratk. rct1-a 1m t csla,ntd anm 11 oly The Project's base capital cost estimates were prepared by CHPDI and are based on cost information related to recent orders for similar equipment and actual cost data for on-going projects and are satisfactory. The original estimates as of 1982 were updated subsequently in September 1984 and most recently in December The cost for outside technical assistance including fees, travel and subsistence expenses, has been estimated on the basis of past experience for similar services in Bank funded projects. The accuracy of the base cost estimates at this stage is relatively high, particularly given the degree of design and specification for mining equipment. For this reason, physical contingencies were estimated at 5X over the base costs for mining equipment and IOX for otner cost item. Price escalation has been based on the phasing of expenditure consistent with the implementation schedule of the project and projected local and foreign inflation. Local inflation rates are projected at 6% for 1986/87 through 1993/94. International inflation rates are projected at 1.1% for 1987, 6.9% for 1988, 3.4% for 1989, -2.5% for 1990, and 2.3Z for 1991 and thereafter.

42 Working capital requirements have been estimated at about US$14.7 million (Rs 191 million), using realistic assumptions on the level of current assets and current liabilities required by the project until each component reaches its rated capacity (1991/92 and 1996/97 for Gevra and Sonepur-Bazari, respectively). Interest during construction has been estimated at US$ 5.7 million (Rs million). This allows for capitalization of interest up to the end of 1982/83 for Gevra and 1989/90 for Sonepur-Bazari on loans disbursed during that period in line with CIL's accounting practices. 8 / 5.04 The capital cost for the Gevra mine (base cost plus physical contingency) is about US$21.3 per annual ton of run-of-mine coal and the capital cost for Sonepur-Bazari is about US$61.8 per annual ton of run-of-mine coal with the difference mainly accounted for by the wide disparity in stripping ratio. The unit investment costs of both mines compare favorably with comparable figures of around US$50 per ton of raw coal of annual capacity for low cost producers in Australia and South Africa. B. Financing Plan 5.05 The financing plan for the mining component of the project is summarized as follows: Mining Component - Financing Plan US$ million Z A. Equity Government CIL Cash Generation Total Equity B. Long-Term Debt IRRD Government of India Total Debt Total Financing / According to CIL accounting practices, interest during construction is capitalized up to the establishment of a revenue account for the project, i.e., two years after touching the coal seam, or when production reaching 40Z of designed capacity whichever comes first. Since the Gevra mine is already on revenue account, and since Sonepur-Bazari will probably transfer to revenue account in 1990 (since the coal seam in Sonepur-Bazari will be touched in 1988), the interest during construction is much lower than might have been anticipated for a project of this size.

43 According to current Government policy, overall financing of project costs (including interest during construction, but excluding working capital) is provided in the ratio of 5kZ dobt and 50Z equity. Under this formula, the proposed Bank financing ot "S$180.0 million would supply about 37.3Z of the total financing provided tor the mining component of the project, with another US$61.6 million coming in the form of long-term debt from GOI, or from co-financing (if co-financing were to be used for this project). GOI's approach has been to link specific projects with individual financing sources rather than have different sources participating in each of several projects. To this effect, GOI is making considerable use of bilateral sources (from countries such as UK, FR Germany, France, Canada, Soviet Union and Poland) under governmental cooperation agreements to finance imports of equipment and technical assistance in areas of project preparation, training, etc. It is expected that CIL would be able to contribute about 11% of the funda required for its investment program from internal cash generation after debt repayment and provision of increase in working capital for the period of 1987/88 to 1993/94. This same proportion has been applied to the Project. Thus, CIL would provide about US$53.1 million equity out of its internally generated funds and the balance of about US$188.5 million would come from Government funds The proposed Bank loan of US$340 million equivalent would be made to GOI at the standard Bank interest rate for 20 years, including five years of grace. The sum of US$1S0 million equivalent would be on-lent to CIL for the mining component of the project, the balance (US$160 million equivalent) being used by GOI for coking coal importation. The amount on-lent to CIL would represent about 100% of the foreign exchange and 6% of local costs requirements of the mining component. GOI's practice is to make loans to CIL for 15 years, at a nominal interest rate currently of 14% per year (resulting in an effective rate of 13.75% p.a.) and not to 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. GOI has agreed to onlend the Bank funds to CIL with 5 years of grace and will assume the foreign exchange risk on the on-lent funds in line with present policy The balance of US$160 million which will be used by GOI for coking coal importation, will be released in two tranches. The first tranche (US$100 million) will be available for disbursement at loan effectiveness. The second tranche (US$60 maillion) would be released following receipt by the Bank of a satisfactory program of measures designed to enable CIL to achieve certain financial performance targets in 1990/91 (see para. 6.11). The conclusion of an acceptable subsidiary loan agreement between GOI and CIL, and satisfactory financial arrangements between (i) CIL and SECL, and (ii) CIL and ECL, would be conditions of effectiveness. GOI has also agreed to provide, in a timely manner, the debt and equity financing requirements indicated above and whatever additional debt and equity funds which might be needed (in both local and foreign currpncy) to complete the Project promptly.

44 -37- C. Procurement and Disbursement 5.09 Procurement arrangements are summarized in the following table: Procurement Arrangements (US$ millions) Procurement Method Project Element ICB LCB Other Total Cost Gevra Mining & Training Equipment & Spares (48.6) (0.6) - (49.2) Coal Handling Plant - 45,4 _ 45*4 Land & Civil Works a/ 47,5 Workshop Equipment - (7.5) (7.5) 8.7 Engineering (7.0) (7.0) Pre-operating Expenditure Technical Assistance Sub-total - - (1.5) (1.5) (55.6) (8.1) (1.5) (65.2) Sonepur-Bazari Mining & Training Equipment & Spares (79.9) (1.2) - (81.1) Coal Handling Plant (6.6) - - (6.6) Land & Civil Works a/ (16.5) - (16.5) Workshop Equipment (9.1) - (9.1) Engineering Pre-operating Expenditure Technical Assistance _ - (1.5) (1.5) Sub-total (95.6) (17.7) (1.5) (114.8) Coking Coal Imports (160.0) (160.0) Grand Total (311.2) (25.8) (3.0) (340.0) a/ Payment for land acquisition. Note: Figures in parentheses are the respective amounts financed by- the Baak.

45 Out of a total of 62 packages to be financed by the Bank for the mining component of the project listed in Annex 15, the Bank will review all packages exceeding an estimated value of US$3 million, which comprise 17 packages that amount to about 74X of the Bank loan for the mining component, the balance being subject to post review. Eight of these packages are estimated to exceed US$7.5 million each and will require special review. Local manufacturers are expected to bid for Bank financed items under the project and a domestic preference of 15X, or the import duty, whichever is less, would be applied in bid evaluation for eligible equipment. Technical assistance services will be contracted in accordance with Bank guidelines. Thirteen mining equipment packages are on the critical path for mine implementation. Procurement of these packages, under intetnational competitive bidding procedures satisfactory to the Bank, is well under way (Annex 16) and it is possible that CIL may be ready to sign contracts and make initial payments for some of these packages before loan signing. With regard to coking coal imports GOI presently has commitments through June The procurement process for subsequent coking coal imports was initiated in March Provision for retroactive financing of up to US$20 million has been included in the loan for expenditures after April 1, 1987 associated with the initial equipment packages and with coking coal imports which follow procurement procedures satisfactory to the Bank. It is estimated that about US$5 million of the retroactive financing would be for equipment and about US$15 million would be for coking coal imports. A procurement schedule is shown in Annex The Bank loan of US$340.0 million will finance goods and services as shown in the table overleaf. It is expected that for those items to be financed by the Bank, about US$28.4 million (approximately 16% of the Bank loan allocation for the mining component) will be for contracts awarded to local suppliers following ICB, and about US$25.8 million (approximately 14% of the Bank loan allocation for the mining component) will be for contracts awarded following Local Competitive Bidding (LCB) procedures satisfactory to the Bank.

46 -39- Allocation of the Bank Loan (US$ million) Sonepur- % of Expenditure Gevra Bazari Total % to be inanced Category I. Coking Coal % of foreign expenditures II. Equipment a/ % of foreign 100% of local expenditure (exfactory cost) and 90% of local expenditures for other items procured locally III. Coal Handling Plant, % of foreign Training Centers expenditure and and Workshops 70% of local expenditure IV. Technical Assis;ance % V. Unallocated Total ,- - a/ Including mining equipment, spare parts (estimated at 15% of CIF or 5% of ex-factory value of foreign and local supply respectively), and workshop equipment The LCB will be mainly for ten contracts, (value about US$24 million) to be executed in seven separate geographical locations for workshop buildings and related civil works and service contracts including pre-operating expenditures (for initial work in both project components). The value of these contracts i& expected to range between US$1-4 million each, which is insufficient to attract interest of experienced international contractors, who typically require larger contracts to justify their mobilization. The balance of the LCB (not to exceed US$1.8 million) would include packages of miscellaneous small tools and components for workshops and training centers (such as surface plates, electrical parts, heaters, repair stands, benches, racks). These have a maximum value of US$20,000 per package and are not suitable for combining into packages large enough to be of interest for international suppliers. Additionally, items procured locally costing less than US$10,000 could be purchased off the shelf. Disbursement shall be made using Statement of Expenditure (SOE) procedures for contracts of less than US$20,000. The Borrower shall have the SOE audited every fiscal year by independent auditors acceptable to the Bank, and in accordance with appropriate auditing principles consistently applied. The resulting audit report will be furnished to the Bank as soon as available, but in any case not later than nine months after the end of the fiscal year. _

47 so The disbursement profile for the mining component (Annex 16) is somewhat slower than the historical country industrial sector profiles because of the long gestation period, particularly for the Sonepur-Bazari mine as a result of overburden configuration and high stripping ratio. The disbursement for the coking coal imports is expected to be completed in FY89. The Bank loan is expected to be fully disbursed by December 31, 1993 when all Bank financed items would have been commissioned. VI. FINANCIAL ANALYSIS A. Coal India Ltd The most critical factors affecting financial projections for CIL are forecasts of production and the related Investment program, structure of production costs and coal prices. Specific assumptioas are discussed in Annex The bulk of CIL's thermal coal project pipeline is to meet the incremental demand of the power sector. According to the 7th Five-Year Plan (1985/ /90) the next several years will be a period of rapid growth for power generation and coal production. CIL will be required to increase production from million tons in 1986/87 to million tons in 1989/90. Thereafter, CIL's production is further expected to increase to nearly 250 million tons by 1993/94. Overall CIL is projected to achieve an increase of about 107 million tpy capacity in 7 year representing an average annual growth rate of 8.3Z. During this period open-pit coal production is expected to increase from 55% to 66% as shown in the table below: CIL - Production Forecast (million tons) Fiscal Year Open-Pit Underground Total 1986/ / / / / / / / To support the growth of coal production, total coal sector investment requirements during the 7th Five-Year Plan (1985/86 to 1989/90) are projected at Rs 53 billion (US$4.0 billion) in 1986/87 terms. Financing to CIL has been provided entirely by GOI in the form of long-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 50% from equity contributions CIL's average production costs per ton of raw coal are projected to decrease in real terms from an estimated Rs 222 per ton in 1986/87 to Rs 194 per ton in 1989/90 and to coutinue to decline slightly thereafter

48 -41- as shown in the table below. This improvement reflects the benefits of measures included in a Medium Term Efficiency Improvement Program being implemented by CIL (para. 6.10). Compared with other major coal producing countries, CIL's average operating costs ore competitive with low cost producers in Australia and the United Stateb, though somewhat higher than those in South Africa, after accounting for differences in coal qualities. CIL-Production Costs Summary (Rs/ton 1986/87 terms) 1986/ / /94 Rs/ton Z Rs/ton % Rs/ton Z Salaries & Wages Stores Power Other Expenses Operating Cost Depreciation Interest Total Production Cost Salaries and wages constitute the largest component in the production cost structure and their movement has significant bearing on the overall production cost. In CIL, salaries and wages are fixed by the National Coal Wages Agreement which is renegotiated every four years between the unions and CIL management. So far the unions have been successful in securing wage increases in real terms but salaries and wages on a per ton basis have remained constant in real terms for the past 5 years indicating that improvements in labor productivity have more or less matched the real increase in wages and salaries. Increases in labor productivity and reductions in labor costs are now most important CIL priorities. CIL expect to be able to minimize future wage increases in real terms and CIL's efforts to improve efficiency (paras ) should result in a steady decrease in unit labor costs in real terms during the Seventh Plan period. If CIL achieves the production and productivity increases as projected, and if wage increases can be successfully controlled, labor costs will be reduced from 50% of production costs, at present, to 43% by 1989/90. CIL's efficiency efforts should also prevent any increases in other costs in real terms for the next few years. The share of depreciation and interest charges will increase due to the emphasis on capital intensive mines in the investment program Based on the present coal price schedule effective as of January 8, 1986, and grade-wise production mix of CIL, the average coal price for CIL in 1986/87 is about Rs 205/ton. Recent work by CIL on a detailed mine by mine production outlook has indicated that the grade mix for CIL will

49 -42- tend to decline sharply in the next few years because the bulk of incremental production will be of lower grades of coal, especially grades E and F (which are expected to account for about 85Z of CIL's incremental production from 1986/87 to 1989/90). To offset the impact of expected deterioration of grade mix on CIL's average price realization and to enable CIL to achieve a debt service coverage of 1.3 in 1990/91 (para. 6.11), n 4.5% coal price increase in real terms is projected in For years preceding and after 1990, it is assumed that coal prices would generally follow the local inflation rate. The average coal price in current terms for CIL as a whole is projected below. CIL - Projected Average Coal Price (Rs/ton current term) Fiscal Year Average Price 1986/ / / / / / / / Based on the above main assumptions, CIL financial projections have been prepared and are shown in Annex 18. The key financial data are summarized in the following table: CIL - Sumury of Financial Projections (Rs million - current terms) Fiscal Year 1986/ / / / /94 Coal Sales (lzlion tons) Sales Revenues 27,953 32,077 36,813 42,737 70,172 Operating Expenses 25,027 27,840 30,944 34,563 51,154 Net Income (2,402) (2,025) (1,466) (474) 4,761 Internal Cash Generation 498 1,400 2,625 4,340 12,633 Investment 9,690 10,335 13,466 15,233 17,070 Net Fixed Assets 31,822 37,389 45,012 53,451 81,344 Long-Term Debt 27,829 30,573 34,538 38,939 52,803 Shareholders Equity 20,706 26,235 33,105 40,840 68,240 Ratios: Current Ratio LT Debt:Equity Ratio 57:43 54:46 51:49 49:51 44:56 LT Debt Service Coverage

50 CIL faces a difficult financial position for the next few years. An improvement over 1985/86 is expected in 1986/87, partly as a result of the January 1986 price increase and partly as the result of CIL's efforts to increase efficiency and, in particular, a cost cutting program adopted by CIL in February Even so, a loss of Rs 2,402 million is projected for 1986/87 and this could be higher if production increases are restrained by lower than anticipated off-take. Based on the coal price assumption as outlined in para. 6.06, and assuming no adjustments to CIL's capital structure, CII. is unlikely to reach a profit making position until 1990/91. For the next several years CIL will need additional equity contributions (above 50% of the investment program) to assist with debt repayments including arrears and will not be able to generate funds for its investments program until 1990/91. With regard to CIL's balance sheet, the current ratio is projected to increase slightly to 1.31 in 1989/90. Long-term debt to equity ratio is expected to improve to a more conservative level of 49:51 in 1989/90 and further to 44:56 in 1993/94. Debt service coverage is expected steadily to progressively improve and reach 1.05 in 1989/90 and 1.30 in 1990/91. This allows for the repayment of about Rs 3.9 billion in debt and interest arrears over a six year period. Excluding payments on these arrears, the debt service coverage would be 1.15 in 1989/90 and 1.39 in 1990/ Agreements have been reached with 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. Agreements on the project's financing plan are discussed in paras Regarding the financial position of CIL, it was agreed for the Dudhichua Project (Loan 2393) and Jharia Project (Loan 2498) that CIL will on a consolidated basis: (i) maintain a long-term debt to equity ratio not greater than 60:40; (ii) maintain at all times a current ratio of at least 1.2; and (iii) take all actions necessary to ensure a debt service coverage of at least 1.3. The first two above conditions were also agreed for this Project However, a modification has been made to the debt-service coverage provision in view of the present financial outlook for CIL. CIL has not been able to increase production (due to demand rising more slowly than forecast) and contain unit costs as well as previously anticipated. Rather than compensate by simply raising prices in real terms to cover costs, GOI has encouraged CIL to make efficiency improvements in order to improve its financial viability. CIL has put in place a short-term cost reduction program for 1986/87 as a result of which cost savings of about Rs 620 million have been achieved. CIL has also developed a Medium Term Efficiency Program which is being implemented by the subsidiaries. This program includes inter alia manpower control measures (to improve labor productivity), computerized spare parts systems and improved operating and maintenance capabilities (to increase availability and utilization of heavy mining equipment) and stringent cost controls (to contain increases in administrative, stores, power and transport costs). More details are given in Annex 19 which also includes certain performance targets.

51 The extent of CIL's financial difficulties in the next several years became apparent in late 1986 during the preparation of the Medium Term Efficiency Improvement Program. While the emphasis on efficiency improvement is a sound approach, the present measures identified and being impleuented by CIL will not be sufficient to enable CIL to reach the 1.3 debt service coverage without price adjustments and/or other measures. GOI and CIL are considering various options that will enable CIL to achieve a 1.3 debt service coverage by 1990/91. While these could include an increase in the present coal price schedule in real terms (as assumed in the financial projections - para 6.06), other options als o exist including identification of further efficiency improvement measures, financial restructuring steps (including capitalizing or writing c'f certain CIL arrears in interest and debt repayment to GOI) and possible new approaches to coal pricing (such as coalfield pricing or even sliding scale pricing). Further time is needed to formulate these options and develop a comprehensive strategy. GOI will, therefore, prepare and submit to the Bank by October 1, 1988 a program of specific measures which will enable CIL to achieve a debt service coverage of 1.3 by 1990/91. CIL has established a set of annual operating performance targets for the next four years (Annex 1S) and will review its annual operating performance with regard to these targets annually with the Bank. Based on these arrangements, it was agreed that CIL would take all actions to ensure a debt-service coverage of at least 1.3 in 1990/91 and thereafter. This agreement will subsequently be adopted for the Dudhichua and Jharia Projects also. Additionally, CIL will have its accounts audited 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 nine months after the end of each fiscal year. B. South Eastern Coalfields Ltd SECL's projected financial position is summarized below. Detailed financial projections for SECL, given in Annex 20, are based on the assumptions discussed in Annex 17. 9BM- &mmy of Projected Ffmel positi a/ (Rs urfln) 1986/ J / / /94 Gsol SR (nuumin tons) Sales Revemws 9,748 11,661 13,620 16,144 26,955 Operating lepues 7,222 8,217 9,87 10,808 16,714 Net Inume before CPRA cmtr ibtimn 793 1,407 1,868 2,570 5,556 Net Ixcae after CERA coltrbaimn (8D6) (689) (476) (75) 1,947 tetumt CSash Glemation ,490 4,467 Investmzrt 2,830 2,862 3,147 3,454 4,211 a/ The projcxke it-uide the Nw'r operatiois and emclude the Orissa operatlons. ' After eontibhutm to ML&.

52 Due to locational advantages in relation to major coal consumers in western India, development of new coalfields in SECL has been given priority in CIL's investment program. SECL's production is expected to increase from 54 million tpy in 1986/87 to 103 million tpy by 1993/94, representing an average annual growth of 9.6Z. The emphasis of SECL's investment portfolio Is the development of new large-scale open-pit mines which would bring the share of open-pit production to 68 by 1993/94 from the current level of 51%. 6.1x. Mainly due to better mining conditions, less power shortages and less labor unrest, SECL is a low cost producer among all subsidiaries. In 1986/87 average operating cost per ton of saleable coal in SECL are expected to be Rs 138/ton, about 75Z of CIL's average of Rs 183/ton. Production cost in real terms is expected to decrease by about 17% by 1993/94. SECL is in a sound financial position. Its forerunner (WCL) has been able to earn moderate profits since 1979/80 and SECL is also expected to be profitable before CPRA contributions. Although the Impact of the retention price system results in substantial transfer from SECL to ECL and BCCL and will cause a negative net income (after CPRA adjustment) for several years for SECL, the ratio of internal cash generation to investment rewains positive and is projected to increase from the current level of 6Z to about 106% in 1993/94. C. Eastern Coalfields Ltd ECL's projected financial position is summarized below. Detailed financial projections are given in Annex SuurrY of Pzojected Finmial Pbsiticx Bs. mwluon) 1986/ / / / /94 Coal Sales (mmillon tons) Ss Reve_ues 6,335 7,155 8,408 9,798 14,697 Operating costs 6,377 6,976 7,702 8,503 11,305 Net lie before CERA justtent (1,185) (1,161) (871) (562) (340) Net I after CM Adjustiunt (455) (385) (294) (120) (754) Internal Cash Genration a/ ,529 1nvesm.t 1,500 1,696 2,248 2,382 3,008 a/ hi g catributin frm CMM& 6.16 Due to difficult mining conditions, the labor-intensive nature of existing operations, and overstaffing, average cash operating cost of ECL is the highest among all subsidiaries (Rs 268/ton). ECL's investment program amounts to nearly Rs 2.0 billion per annum over the 1986/87 to 1989/90 time period. It consists of reconstructing its older, deep underground mines and developing certain new open-pit mines including the Raimahal mine to feed the Farraka super-thermal power station in northern BiIiar as well as Sonepur-Bazari. Because of the geological conditions and

53 the age of the workings, there is only limited opportunity for increasing production from the underground mines and the emphasis of the reconstruction program is therefore on efficiency improvements and cost reduction, as well as increased production. Since there are fewer undeveloped coal deposits in the regions operated by ECL, its incremental production program is such smaller than SECL. By 1993/94, ECL is expected to increase production to 40 million tons, with an average annual growth of 6.8% from 1986/87. Open-pit mining would only moderately increase its share from 33Z in 1986/87 to 45% in 1993/ As discussed earlier, given CIL's power and responsibility for decision-making on financial and administrative matters, and because it borrows from GOI all long-term loans for the Group, CIL is considered the primary beneficiary for the proposed loan. For these reasons, no specific financial covenants are considered for SECL and ECL with the exception that SECL and ECL will have their accounts audited, by independent auditors acceptable to the Bank and will submit certified copies of their financial statements, together with the auditor's report as soon as available but in any case not later than nine months after the end of each fiscal year. D. Gevra and Sonepur-Bazari Projects 6.18 The operating cost estimates for Gevra and Sonepur-Bazari were developed by CMPDI in 1979 and updated subsequently in September 1984 and December 1986 based on actual and comparable cost data. Due to excellent geological conditions, the operating costs of the Gevra mine compares extremely favorably not only with the companywise averages but also with the lowest cost coal producers in South Africa even after adjustment for coal quality differences as shown in the table below. The operating cost estimates of Sonepur-Bazari, while higher than Gevra due to a higher stripping ra-io, are also well below ECL average due to its capital-intensive nature. Inter-Company Comparison of Cash Operating Costs (Rs per ton of Saleable Coal, 1986/87 terms) -46- Sonepur- Gevra Bazari SECL ECL CIL Salaries & Wages Stores Power Other Expenses Total Operating Costs International Comparison of Cash Operating Costs (US$ per ton of Coal Equivalent 1986/87 terms) Sonepur- Gevra Bazari South Africa Labor Cost Other Costs Total Operating Costs

54 The financial rate of return of Gevra mine is 22% and that of Sonepur-Bazari is 10%. The difference is due primarily to the higher stripping ratio for Sonepur-Bazari which is about five times that of Gevra, though coal from Sonepur-Bazari is of much better quality. However, considering the actual supply shortages of higher grades of thermal coal which is economic to transport over relatively long distance, the development of Sonepur-Bazari mine is of equal priority with Gevra. Detailed financial cost and benefit streams and the assumptions used, together with those of the economic analysis are given in Annex 21. The financial rates of return and sensitivity tests are summarized below. Switching values of coal price, capital and operating costs wich would reduce the return of the Gevra project to 10% are also presented. Gevra and Sonepur-Bazari Projects - (M) Financial Rates of Return Gevra Sonepur-Bazari Base Case Capital Cost Up 10% Operating Cost Up 10% Production Build-up Slippage Capital Cost Up 10% and Production Build-up Slippage Gevra - Switching Values Y'ieldi,g 10% Financial Rate of Return Factor Percentage Change Coal Price -31 Operating Cost +79 Capital Cost Of the various factors used in the sensitivity test, the return stays sensitive to variations of coal price which is the least controllable by CIL. Although GOI has expressed basic commitment to adopt a rational coal pricing policy, risks exist that price adjustments may not take place in a timely manner. In anticipation of this and to ensure the financial viability of the project and CIL, the Bank will continue its pricing dialogue with GOI in the context of GOI's preparation of further measures to enable CIL to meet its financial targets (para. 6.11). Although ECL has limited experience with mechanized open-pit operations, the possibility of significant implementation delays causing slippage in the production build-up is considered low given CIL's commitment to rationalize and strengthen ECL's management as well as cross-fertilization of benefits expected from technical assistance on open-pit mining operations under the Dudhichua project. In the case of Gevra, since the technology involved is already adopted by SECL in other open-pit operations, time overruns are unlikely except that production build-up is conditioned by the implementation progress of the Korba power plant being financed with Bank group assistance. Possibility of capital and operating cost overruns is relatively low because estimates are based on actual data for on-going projects. Further, the impact on the rate of return is not critical in either case.

55 -48- VII. ECONOMIC ANALYSIS 7.01 The Gevra mine is a captive supplier of the Korba power station, one of the four large central power stations planned by GOI for the current decade and being developed with Bank Group assistance. Upon completion, the Korba power station will have 2,100 MW generating capacity and will contribute about 8% of total energy supply in the western region from 1991 onwards. In this context, the Gevra mine plays an important role in the provision of necessary incremental base load capacity of the required size and reliability. As for Sonepur-Bazari, 50% of coal production is linked with the Kolaghat power station which is at present under construction with ultimate capacity of 6x210 MW. The project will help to alleviate the acute power shortages and associated losses in industrial output in West Bengal. The balance of Sonepur Bazari's production will help to alleviate shortages of higher grade coals for industrial consumers The importation of coking coal will assist GOI in filling the gap between the present availability of domestic prime coking coal and the steel industry's requirement for prime coking coal. The loan would finance approximately half of India's coking coal requirements during the next two years. Without the imports, the production of steel would be constrained by raw materials shortages with a resultant decline in capacity utilization and, hence, inefficient use of the steel industry's existing plant and equipment. Since the imported coal will have a lower ash content (average 10% ash) than domestic supplies (average 21% ash) blast furnace productivity should be improved by a judicious blending of imported and domestic coal. The results of the program to monitor the benefits of the imports (para. 2.17) will be useful not only for optimizing the blend ratio in the next several years but also for assessing the economics of using imported coal on a permanent basis to sweeten the India coking coal, since even under the best of conditions Indian prime coking coal will not be lower than 17% ash. A. Economic Rates of Return 7.03 The economic rates of return for the investments in the two mining complexes have been calculated based on the cost and benefit streams used for the financial rates of return except for (i) exclusion of all identifiable taxes and duties; (ii) application of standard conversion factor of 0.8 to locally supplied inputs and labor to reflect their opportunity costs to the economy; (iii) the use of projected domestic sales prices paid by consumers at mine-head (adjusted by the standard conversion factor) as proxies for the economic values of the relevant grades of coal to calculate project revenues (para. 7.04) In principle, coal is tradeable and should be priced at opportunity cost. However, the bulk of India's thermal coal production is not expected to be economically tradeable because of both its low quality and the heavy transportation costs involved. In these circumstances, the

56 -49- efficiency price is the long run marginal cost. Given that the projected average thermal coal price for CIL is broadly in line with the long run marginal cost estimate, the projected domestic prices paid by consumers at mine-head for each grade, adjusted by the overall conversion factor, have been used in calculatiag project benefits for the purpose of economic evaluation.?2 The mine-head consumer price for each grade comprises mine-head producer price plus various statutory levies and sales taxes collected by state and central governments. The prevailing rates of these levies effective as of January 1, 1987 are much higher in Bihar and West Bengal than in other coal-producing states. Presently, the differentials between producer and consumer prices at mine-head average about 30% of producer prices for ECL and BCCL, about 25% for CCL, and about 10 for SECL The economic rate of return thus calculated is 32Z for Gevra and 19% for Sonepur-Bazari. Sensitivity tests of adverse scenarios are summarized below and underlying assumptions and cost/benefit streams are detailed in Annex 21. It can be noted that the economic rate of return is about 10 points higher than the financial rate of return reflecting that substantial portion of the economic rent accrues, partly, to the central and state governments in the form of taxes and partly to the labor force which is paid high wage rates relative to wages in other occupations. Gevra and Sonepur-Bazari Projects - Economic Rates of Return (O) Gevra Sonepur-Bazari Base Case Capital Cost up 10% Operating Cost up 10% Production Build-up Slippage Capital Cost Up 10% and Production Build-up Slippage B. Resource Mobilization 7.06 Substantial amounts of resources are generated by the coal sector in the forms of statutory leviee, sales tax, and custom duties on CIL's coal sales and equipment purchases. During 1986/ /90, CIL's contribution to Government revenues is projected to average 70% of CIL's investment requirements, whereas CIL's projected internal cash generation averages 18% of CIL's investment before debt service and only becomes 9/ The question may arise whether consumers would be willing to pay higher prices, i.e., whether these prices clear the marilet and obviate any need for rationing. Although coal supply in India has been pressed at times to satisfy domestic demand at prevailing level of prices due to the structure of demand, it appears reasonable to assume that at the projected prices no scarcity will develop.

57 -50- positive in the early 1990s, after debt service. Most part of the statutory levies on coal sales go to State Governments, although 10X of these are given back to CIL as subsidies for stowing operations, housing and medical facilities, etc. Considering that the Central Governme t intends to continue to finance CIL's investment program on 50X debt and 50X equity basis, this will impose a substantial burden on GOI's budget for capital expenditure if present arrangements remain in force. It is, therefore. desirable that measures be taken so that CIL can soon move to a position. where it is able to generate part of its investment requirements itself. It should be noted that the customs duty on imported equipment for govexmnment-sanctioned projects has been reduced from 65% to 45% of CIF cost stalting January 1, 1985, which is helping reduce CIL's investment requirements and is encouraging domestic suppliers to improve efficiency. CIL - Projected Resource Mobilization (Rs million - current terms) Fiscal Year 86/87 87/88 88/89 89/90 93/94 Internal Cash 498 1,400 2,625 4,340 12,633 Generation (ICG) a/ Contribution to Government Revenues (CGR): Duty & Taxes on Equipment ,150 1,310 1,470 Levies on Coal Sales 5,990 6,800 7,780 8,970 14,560 Subtotal 6,820 7,690 8,930 10,280 16,030 CIL Investment 9,690 10,335 13,466 15,233 17,070 Debt Repayment b/ 2,583 3,143 3,488 3,936 5,145 ICG/Investment (X): Before Debt Service After Debt Service neg. neg. neg CGR/Investment (X) a/ Before servicing long-term debt to the Government. bj Including arrears. C. Other Benefits 7.07,the project should help to develop efficient operating practices in ECL through the demonstration effect of a modern, high-productivity mine and provide stimulus towards the efforts of rationalization of existing operations. Furt.iermore, the selection of 120 t dump trucks for both mines represents a major step forward in exploiting the potential of modern mining technology and will accelerate the collaboration between the domestic manufacturing industry and foreign suppliers to upgrade domestic manufacturing capabilities. The project will provide direct employment for about 4,000 persons at the Gevra mine and will open an avenue to alleviate the current over-staffing of ECL by providing required manpower for the

58 -51- Sonepur-Bazari mine (of about 1,200 persons) partly from within the existing labor force. The project will also support CIL in its efforts to improve its overall efficiency through short-term cost reduction and medium-term efficiency measures. Finally, improvements in the quality of coal received by consumers should contribute to greater productivity in consuming sectors, in particular, power, steel and general industrial consumers. D. Least Cost Development Program 7.08 The econou#ic rate of return calculations presented above evaluate the marginal contribution that each mine is making to the economy, and thus enable a comparison with investments in other sectors. This is not sufficient, however, to rank projects within the coal industry, or a segment of it, according to their relative economic merits. Since transport costs are high compared to mining costs (and can even be higher than mining costs for long distances), the merits of a project meeting domestic demand in a particular location are of paramount importance, especially in the case of large scale thermal power plants In the case of the Gevra mine, it should be compared with other projects in the Korba field and with others in neighboring fields in Madhya Pradesh and Orissa. SECL and WCL have currently under implementation 15 underground and 11 open-pit major mines with economic costs 10/ at mine-mouth averaging Rs 23 per Gigacal (ranging from Rs 13 to 36 per Gigacal 11/). Apart from the expansion of Gevra, four other projects are presently being considered for investments in Korba or relatively near areas. Of these, the expansion of Gevra ranks second with an economic cost per Gigacal of Rs 24.8, fairly close to the average of projects under implementation. The only project with an economic cost lower than Gevra (Rs 20.9 per Gigacal) consists of the expansion of the existing open-pit mine Kurasia, which for technical reasons cannot be expanded by more than 1 million tpy ECL's investment program is geographically concentrated in a much smaller area and given the relatively higher grades of coal produced, the demand is considerably more dispersed throughout India. For these reasons, the analysis here has been focused on the overall investment program for ECL. There are at present 12 major projects under implementation with an average economic cost of RS 28 per Gigacal (ranging from 17 to 35). Some other thirteen projects have been formulated and in all cases the economic cost has been estimated at above Rs 28 per Gigacal, which is a clear indication of the rising trend in long-run marginal costs. The Sonepur-Bazari project with a cost of Rs 33.7 per Gigacal, ranks third in this program, satisfying the least-cost development criterion. 10/ The economic cost has been estimated as the ratio of the net present value (NPV) of capital plus operating cost streams (in early 1985 terms) to the NPV of the energy content of coal production (measured in Gigacals) discounted at the opportunity cost of capital, estimated at 12X. To express them in economic terms, the cost streams have been adjusted using the same criteria described in para / Except for one project with an economic cost of Rs 49.9 per GigacF_.

59 -52- E. Project Risks 7.11 The project faces minimal technical and marketing risks. There is a risk that the Sonepur-Bazari component may be delayed by land acquisition difficulties. The required land is in the hands of the Government of West Bengal and handover is expected within two to three months. If undue delays occur, disbursements will be limited to US$8 million for the Sonepur-Bazari mining equipment until the land is handed over. Any possible financial risks are mitigated (a) by CIL's efforts to improve its efficiency and financial performance; (b) by the Government's commitment to preparing a program, including price increases if appropriate, that would assure CIL's financial future viability; and (c) the high priority that GOI places on developing its critically needed coal resources in a timely and efficient manner. VIII - AGREEMENTS REACHED AND RECOMMENDATIONS 8.01 The following agreements have been reached: (a) With thc Government that it will: (i) prepare a detailed implementation schedule for measures to improve coal quality (para. 2.19); (ii) maintain coal prices that will ensure the financial viability of CIL and provide increased resource mobilization in the Sector (para. 2.21); (iii) ensure adequate power supply to the project (paras and 4.25); (iv) on-lend Bank funds to CIL on terms and conditions satisfactory to the Bank (para. 5.07); (v) provide in a timely manner the financing necessary to complete the project promptly (para. 5.08); and (vi) furnish the Bank with a program of measures that will enable CIL to achieve its agreed financial targets (para. 6.11). (b) With CIL that it will: (i) retain technical assistance by December 31, 1987, regarding the design of workshop facilities (para. 3.08); (ii) retain technical assistance by December 31, 1987, to improve manpower planning within CIL and the planning and organization of training activities (paras and 3.10); (iii) retain technical assistance by December 31, 1987 for the design and development of training institutes (paras and 4.24);

60 -53- (iv) undertake a resettlement program for people affected by the project (para. 4.32); (v) follow prudent financial practices; and maintain financial covenants as describtd in paras and 6.11; and (vi) review with the Bank its annual operating performance (para. 6.11). (c) With CIL and SECL (for Gevra) and ECL (for Sonepur-Bazari) that they will: (i) undeltake additional geotechnical testing and prepare and submit to the Bank a repurt on detailed mine planning and slope stability for both components (para and 4.20); (ii) ensure the design, construction and operation of the project are carried out with die regard to ecological and environmental standards and ensure satisfactory arrangements for the supply of electric power and potable water to each component (paras. 4.12, 4.25, 4.26 and 4..2); and Ciii) prepare and submit financial statements and audited financial reports to the Bank (par-. ' 11 and 6.17). (d) With SECL and ECL (for Cevra and Sonepur-Bazari respectively) that they will: (i) establish a satisfactory Project Management Unit for each compenent (para and 4.35). (e) With ECL that it will (i) implement a rehabilitation program for twenty loss-making mines satisfactory to the Bank, submit progress reports for Bank review, and extend the program to another twenty mines as agreed with the Bank (para. 3.18) The following are conditions of effectiveness: (i) the conclusion of a subsidiary loan agreement between GOI and CIL under terms and conditions satisfactory to the Bank '?ara. 5.07); and (ii) financial arrangements between (a) CIL and ECL, and (b) CIL and SECL, all under terms and conditions satisfactory to the Bank (para. 5.08).

61 As a condition of disbursement, disbursements on the Sonepur- Bazari component will be limited to a maximum of US$8 million until ECL has confirmed possession of 68 ha of land (part of the land needed for the first five years of mining-para. 4.37). In addition, the second tranche of the coking coal component (US$60 million) will be released on receipt of a satisfactory program of measures that will enable CIL to reach its financial targets in 1990/91 (para. 5.08) Given the preceding agreements and assurances, the project is recommended as suitable for a Bank loan to GOI of US$340 million for a period of 20 years with 5 years of grace, at the standard interest rate. Industry Department March 1987

62 ANNEX I Page 1 of 4 INDIA - COAL MINING AND COAL QUALITY IMPROVEMENT PROJECT ENERGY SECTOR OVERVIEW A. Energy Resources 1. Energy use in India is among the lowest in the world. In 1980 per capita consumption of energy averaged 210 kg (coal equivalent),i/ compared with 680 kg in China and 7500 kg in industrial countries. Over the past three decades the composition of fuel consumption has increasingly shifted from the use of non-commercial fuels, such as fuelwood, vegetable wastes and cow dung, to commercial energy resources. At present, non-commercial fuels account for less than 40% of total energy consumption, while coal accounts for 32%, oil and gas for about 20% and primary electricity for 8%. The bulk of the substitution of non-commercial fuels has been in the form of coal and oil products reflecting India's large coal resources and the rapid growth of road transport, where energy use in the form of petroleum products has almost doubled over the past decade. The increasing reliance on commercial fuels has strained the capability of the energy sector to meet the energy needs of the economy and has placed a heavy burden on the balance of payments. 2. Concerned about the adverse impact of energy shortages on economic growth, the government has continuously stepped up investments in the energy sector. Since 1973/74 the share of total public investment in the energy sector has nearly doubled. While this reflects to a large extent the government's response to the increase in international oil prices, it is also in line with the traditional perception that the energy sector must provide the Indian economy with the energy it requires to sustain growth. The relative shares of public investment in the major energy sub-sectors, coal, oil and gas, and electric power reflect the changing structure of energy demand, in particular the rapid growth in the demand for oil products, the need to minimize the burden energy imports place on the balance of payments and India's relative endowment with energy resources. 3. Coal is and will continue to be, India's most abundant domestic energy resource. Its contribution to the country's commercial energy requirements is expected to remain more than 50% over the next decade. Total coal resources (excluding lignite) are estimated at over 127 billion tons, out of which 60 oillion tons are considered technically and economically recoverable under present conditions. Based on current projections of the growth of coal demand, these reserves would be sufficient to meet India's coal needs over the next 130 years. In contrast to the experience of many other countries, the share of coal in commercial energx production in India has declined only slightly over the years, and coal still accounts for about 60% of all commercial energy produced. In 1984/85 coal production reached million tons, making India the sixth largest coal producer in the world. 1/ Internationally, coal is rated at 7,000 kcal/kg while in India, due to generally lower coal quality, coal is rated at 5,000 kcal/kg.

63 ANNEX 1 Page 2 of 4 4. Oil, because of its rapidly growing demand that absorbs a large share of India's export earnings, will remain critical to the management of the Indian economy 2 /, in particular lts balance of payments. While domestic oil output has increased from 0.5 million tons in 1961/62 to 29.0 million tons in 1984/85, mainly as a result of the discovery of the Bombay High off-shore field, it currently provides only two-thirds of domestic consumption. Although the reliance on lmported oil ls projected to decline to about one-fourth towards the end of the 1980D, it is expected to rise again to about one-third by the mid as domestic oil production (from currently known fields) reaches a plateau of about million tons. To avoid a significant increase in oil imports by 1995, new reserves will have to be discovered and brought into production within the next decade. Total prognosticated resources of hydro-carbons have been estimated by ONGC in 1982 at 15 billion tons of oil equivalent of which about 75% is natural gas and 251 is oil. Two-thirds of the resources are located off shore and one-third on shore. Of these resources, 511 million tons of oil and 478 blllion cubic meters of gas have been estimated as proved reserves as of January Current geological knowledge of the country indicates that natural gas is likely to be India's predominant hydrocarbon resource. Up to now however, the role of natural gas has been small and limited to associated gas produced with crude oil. The situation will change, however, with the development of the large South Bassein gas field and the appraisal and proving of more recent discoveries in the western region. Current natural gas production has reached 7.2 billion cubic meters (bcm) per year, or about 6.0 million tons of oil equivalent, of which 3.8 million tons of oil equivalent are used as fuel or feedstock, the remainder being flared for lack of compression and dehydration facilities off-shore, transmission infrastructure or consuwmrs onshore. 6. India's economic growth depends to a large extent on the performance and development of the power sector, since power shortages have an immediate impact on virtually all other sectors of the economy. Total installed power generating capacity as of March 1985 was 46,680 MW (including non-utility plants), of which about 672 was conventional thermal, 312 hydro, and 22 nuclear. The Central Electricity Authority (CEA) has recently completed a systesatic reassessment of India's hydroelectric resources, and placed the estimated potential at 89,830 MW. At a load factor of 60% this potential capacity would yield an annual power output of twh, almost three times the 1984/85 level of power generation from all sources (166.6 twh). Of this potential only 14,314 MW have been developed and 5,100 MN are under construction. GOI has given high priority to the development of India's hydro potential but these projects have very long gestation and implementation periods. Most of the recent additions to power generating capacity bas therefore been from thermal power plants. The share of thermal power generation has increased to about 67% of total capacity in 1984/85 from its lowest level of 54% during the second half of the 1960s. With the increase in the share of 4/ India's two major national oil companies, the Oil and Natural Gas Commission (ONGC) and Oll India Ltd. (OIL) have emerged as the largest net contributors of resources to the public sector.

64 ANNEX I Page 3 of 4 thermal power in total electricity generation, there has also been an increase in the share of coal used for power generation-from less than 20% in the early 1970s to a current share of about 44Z. During the same period the corresponding share of petroleum products has remained fairly constant at about 7% to 8%. 7. Over the years the Indian economy has been increasingly plagued by power shortages. While power generation has kept pace with the demand for power during the 1950s and 1960s, since 1970 supply has fallen short of demand, mainly because of delays in the commissioning of new power projects, operating and maintenance problems, and severe budget constraints which have limited investments in the power sector. The situation has been aggravated by unreliable coal supplies caused by inadequate transport and the declining quality of coal. In 1980 a high-level commission carried out an analysis of the situation and submitted its findings (Report of the Committee on Power) to the Government. As a result of this report the Government has introduced several measures to improve the efficiency of thermal power plants, including: (a) improved preventive and planned maintenance; (b) better availability of spare parts; (c) improved training; (d) adequate coal supplies of acceptable quality; and (e) more effective management of both State Electricity Boards and power plants. Despite these measures the supply of power is expected to remain inadequate for some years to come, particularly in areas where coal is not available nearby. B. Energy Consumption 8. While households account for a small share of commercial energyabout 7% of coal, 19% of petroleum and 10% of electricity-their cousumption of non-commercial energy is comparatively high, particularly in rural areas while the use of electricity and kerosene remains mostly limited to lighting. Although commercial energy will continue to replace non-commercial energy, the latter will remain a major source of energy supply for rural households. Energy needs in agriculture are still met mostly by animal power. Currently commercial energy consumption in this sector accounts for only about 7S and consists mainly of electricity and diesel oil. However, the use of commercial energy in agriculture has been growing rapidly reflecting the efforts to modernize the sector. 9. The industrial sector, which consumes about 40% of commercial energy resources is the largest user of coal and electricity. In 1984/85 it accounted for 42Z of coal consumption and 71Z of electricity consumption. The energy intensity of the industrial sector has remained virtually unchanged since the early 1970s, mainly because of the slow turn down of capital. 3/ It is largely the result of the relatively poor energy efficiency of the technology that is still used in many manufacturing processes. Thus the expected acceleration of industrial growth in India is likely to place a heavy strain on the energy sector. 3/ In terms of industrial energy Lntensity, India ranks near the top among developing countries and well above the average intensity in industrial countries.

65 -58- ANNEX 1 Page 4 of The transport sector is the largest user of petroleum products and the third largest user of coal, after power and industry. Over the past twenty years the structure of demand has changed considerably as a result of the rapid growth of road transport and the substitution of diesel electric for steam locomotives. In 1984/85 oil products accounted for 66% of the commercial energy consumed in the sector compared to 47% in 1970/71, while the share of electricity remained at about 3%. Current projections in the transport sector indicated continuing decline in coal consumption as road transport increases in importance and as railways continue to shift to more efficient diesel electric locomotives, thereby contributing to a growing demand for petroleum products. C. Energy Policy 11. In its energy policy the Government pursues three objectives, to fully develop indigenous energy resources, to improve the efficiency of energy utilization and to limit the use of oil products to those end-uses in which economic substitution by other energy resources, particularly coal, is not possible. In line with this policy the Government places particular emphasis on the development of the coal industry and the exploration for oil and gas. To this end the Government has increased the allocation of resources to these two sub-sectors in the forthcoming Seventh Plan. In addition, the Government is currently considering new initiatives to attract foreign oil companies to explore in India. 12. This policy, whose design reflects the Government's response to the increases in international oil prices during the 1970s, places much of the burden of replacing oil products on the coal industry. Through pricing policies and rationing the Government curtailed the use of oil products, where this was technically and economically feasible, and encouraged the use of coal. To overcome, at least in part, the distributional problems associated with the greater use of coal, the Government encouraged also the construction of coal-based thermal power plants.

66 -59- ARM 2 MND - CXOL!UI AID a) gnr= W 3r W COAL ED31 AND SJUX 1984/ /90 a/ AMS A g Gh Rate Cbal Deman 1984/ / / / / /90 (Z per year) Them.l Coil Paw Railbys (3) 9 (3) 9 (4) 8 (5) 8 (7) 8 (9) (2.3) Ceent Fertize Othr _ Subtotal Thezmi QdIxWcGal (raum Total ~~ y m CIL 131 L % 8.4 SaL (3) 12 (3) 16 (4) 17 (5) 19 (7) 22 (9) TISM/IISCD Total Thermal COl WddgCol Total a/ Figu In rkets are the qmttlies f iubexy mddlin uszed fer pa. Soaces: CfMDI, flaik Staff.

67 - 60- ANNEX 3 Page 1 of 2 DhIA - AL Ml AND aol (qjl Dnwiw PMc EC AND )M 1EWN POD M M lb asms the quality of invenctm poztfolls of FM and SE0. a revim hu been mdek of projects ir i-ammtaton and az itted for approval, with focum an tecllal vuability, capital and operatiri tixmtes, projec iqlemtstin sdulble, and actual roges. S1ze projects ffer in m1 qtality, pro&xction profle and servics 3ife, they bv beew brubht to a cmn basis for the pupme of campa thir relativ ecouwc writs uuizg the concept of ecao c cost per Gallode, :dch Is defin M tm rtio of rat prent vlm (NPV) of capital asd operstix cost stre In econic tex 0to the WV of enz content of coal prouctioon (w sld in Gigaclories) disuited at the ppotunity cast of apital In Try"an emy estimated at 12Z p.a. For thls purpose, cittal asd opemtki cast streem of each project hie been ajisted to ecll al Identifiable taf and dutis, wa a staulaz cnersion factor of 0.8 ha been applied to loclly s.ppim irpx to reflect tkir apportlity cot to the. The renks thus dedi are glven in te follwizr table. Caloif ic C1pital OpetfRg EFnlc Capsdty Vale CaGt / Cat Ccst Project (BiS t), (kcal/kg) (PA/tOn) (Rs/tm) (Rs/Gigcal) ECL - I 1 =emaza I. Bao.l avg S Btg UG BaEilAUG JKt NgrWU Parbelia G Jhanjra UG ) Chinawd UG Dtuimin UG I ottatuh UG N. Sear Sole UG SeealpUr U; Raj.Pu. OC For A Wprva 1. C(Dra BlockUG Sarpd BlodcUG K1a5rdlhi U Guuik UG BlhUatdukU; D Jaili U; alidainpor UG 1.0 5U aidaba UG Kttadih OC GouraidihOC Sonp i OC Omm n0c D JanbmOC al Cpltal costs (iry1ilm muddzr capltal) per mtof aeuzal cap ty in ealy 1985 tem.

68 ; 61- ANNEX 3 Page 2 of 2 Project Cmlod.ElC acpita 0alratizb Eonwlc C:aaty Valim Cmt 5/ Ctst cozt t) (/tn (R/ton) P/G4pcaI) SEMl - Uner iplsiatimi 1/ 1. PaliUG W Ncph Ur ChidIa UG Slwra UG Snr UG Balgi UG Rajgaw Ur Churds W. UG Ppr UC I Rir wr. UC Goisa UG Svpuri UG I Jamm UG Ne Chadui UG llwr UG Kawnta OC Ge aoc uer OC Sti OC Bsuanpw OC D Becpahar OC lajmra oc G4gm OC Padmpur Oc D NewMajri OC Rajapr OC O (iem - For a4ep I 1/ 1. Namian UG TazUisiU; Bh4gatn UG Shobhqxr UG q Katkona U D Gevra Exp. OC KuraslaExp. OC Dlk*aOC Nljal OC / Al9no li 0.. projects.

69 ANNEX 4 Page 1 of 10 INDIA - COAL MINING AND COAL QUALITY IMPROVEMENT PROJECT FAZAL COMMITTEE REPORT - SUMMARY OF RECOMMENDATIONS Recommendation Government Decision 1. The long-term Standing Linkage Accepted. Committee should at suitable intervals of say every 5 years review the entire pattern of coal linkage to thermal power stations - whether existing, under construction or proposed - in order to eliminate irrationalities that might have crept in, though frequent shifting of coal linkages should be avoided. 2. Rajmahal, Talcher, Singrauli, Accepted, except that coal Korba Mand-Raigarh, Hasdeo- from Wardha has to be supplied Arand, North Karanpura, to consumers in South India Hanuguru, Wardha and some such as cement plants to make portion of lb Valley up the shortfall from coalfields should be mainly Singarani, and these linkages reserved for pithead will have to continue. generation. 3. Raniganj, Jharia, North Karanpura, some portion of Ib Valley and Godavari Valley coalfields should be the main sources of coal supply to power stations located at load centers. 4. The power stations in Northern India (Punjab, Haryana, Delhi and U.P.) should be linked mainly to Bihar/Bengal coalfields only. 5. All power stations located in Bihar, west Bengal and the areas in Assam served by the broadguage railway line should be linked to Bihar/Bengal coalfields. Accepted. Accepted. Accepted.

70 ANNEX 4 Page 2 of 10 Recommendation Government Decision 6. The existing linkages of old Accepted, however CEA should power stations to superior examine each case of such old grade coals of Ranigani, South power stations using A & B Karanpura, Central India and Grades of coal, to see whether Pench-Kanhan Valley Coalfields it is economically viable to should.tontinue till power continue the operation of stations exist. these power stations and indicate to the Department of Coal when they are expected to be closed down. This will also help in the saving of higher grades of coal which can be supplied to industrial consumers who need such coal. 7. Power stations in Rajasthan Railways have not accepted should be linked to Singrauli, and in case of need for this. They have stated that power stations in Rajasthan alternative source from North Karanpura Coalfields. should be linked to Singrauli and CIC (WCL). Hence this recommendation is not accepted. 8. New Power Stations in Gujrat The recommendation in respect should be l'nked to Korba and of South Guiarat Power Ib Valley, Hasdeo-Arand and Stations is accepted. It has Mand-Raigarh coalfields. been decided that Railways should examine the extent of investmint required and take appropriate action for building up the capacity. Regarding power stations for North Gujarat, Railways have suggested that the linkages should be to CIC fields. This may not be feasible since the potential for growth In CIC is limited. To meet the requirements of power stations adequately, it would be necessary to link power stations in North Gujarat also to Korba. Railways may be asked to examine the matter again.

71 ANNEX 4 Page 3 of 10 Recommendation Government Decision 9. Power Stations In Maharashtra Accepted. However Wardha, should be linked to Wardha Umrar and Kamptea will not be Valley, Umrar and Kamptea able to meet the requirements Coalfields. of MSEB Power Stations. At present 60Z of the linkages of Koradi TPS are met from Gevra- Kusounda. This needs to be examined further. 10. Power Stations in Southern Accepted. However, due to Maharashtra should, however, inadequate availability of be linked to Godavari Valley coal from SCCL, the flfth unit Coalfields. of Parli has been linked to lb Valley. 11. Existing linkages from Existing linkage to Wanakbori Singrauli Coalfields to from Singrauli may continue. Wanakbori and Trombay power Trombay may be linked either stations should, however, to CIC or NPKW. continue. 12. Power Stations in Southern Accepted. India should be linked to Godavari Valley Coalfields. Existing linkage of Tutico-rin thermal power station to Raniganj Coalfield should, however, continue. 13. The number of mines supplying Accepted to the extent oal to a particular power feasible considering the station should not exceed ten availability of coal, loading in any case and be preferably capacity, etc. three or four in case of bigger mines. 14. The Planning Commission should Accepted. attempt to give to the coal department periodically a forecast of the region-wise power-generation program, and the consequential coal requirement. 15. It is desirable to have cushion Accepted. in terms of the linkage against actual consumption so that over a period of time, with the actual supply being in excess of consumption requirements, some ground stocks could be built up.

72 ANNEX 4 Page 4 of 10 Recommendation Government Decision 16. Annual reviews of requirement Accepted. of coal for power stations are suggested to be done at the time of formation of the annual plans and made known to all agencies concerned so that the program for generation of power, the production of coal and its transportation can be planned accordingly. The Coal Projects linked to a particular power station should be approvtd at least three years in advance of the approval of the power station to which they are linked in view of the longer gestation period of the coal projects. 17. All collieries linked for coal Accepted. supply to thermal power stations should have mechanized facilities to load a full large rake of minimum 44 box wagons. 18. In case of collieries where Accepted. setting up of facilities for full rake loading is not possible because of low production or non-availability of land, a centralized loading point for a group of such collieries should be established. 19. Box 'N' wagons should be Accepted. However, railways introduced in existing should take early decisions on collieries/power stations for the free-time allowed for movement of power coal in loading and unloading of Box consultations with the 'N' rakes. Also, since Box collieries/power stations. 'N' cannot be weighed on the existing weighbridges the carrying capacity of the wagons and the mode of loading should be decided by the railways after proper trials in association with the coal companies and consumers.

73 ANNEX 4 Page 5 of 1o Recommendation Government Decision 20. Box 'N' wagons should be Accepted subject to the introduced as per program condition as pointed out suggested by the Railways to against recommendation No. 19. the coal mine. 21. The issue of granting free Accepted. loading/unloading time more than 5 hours for manual loading/unloading may be looked into by Railways. 22. Open wagons should be Accepted. supplied to collieries having mechanical loading facilities and to power stations having mechanical unloading facilities. Railways should try to supply covered wagons only to manually loading points and manually unloading ends. 23. Where only manual loading Accepted. facilities are available, the wagons should be supplied barring exceptional circumstances at specified pilot time. 24. The supply of wagons by the Accepted. railways should be according to the offer of slack or steam made by the colliery for that particular day. The colliery should indent according to standard rake size and siding capacity and should not indent for undersize rakes. Railways will supply accordingly. 25. The Committee recommends Accepted. However, Railways reconciliation by railways for should take an early decision restoration or tolerance for for restoration of the overloading and underloading tolerance fc- underloading/ of wagons. overloading of wagons.

74 ANNEX 4 Page 6 of 10 Recomendation Government Decision 26. Arrangements provided for Accepted. mechanical unloading at power stations should be kept in absolutely good working order. 27. The minimum coal stock at the Accepted. power stations should be equivalent to 4-5 weeks' consumption, and that at loading points should be equivalent to 2-3 weeks' dispatches. 28. Railways should ensure The actual movement during movement of coal for power for power stations was plants at an average of 5,470 at the rate of 4,891 wagons wagons per day during 198,-84. per day. Railways should move at the rate of 6,235 wagons per day. 29. Coal weighing facilities Accepted. should be provided at all major loading points, and at all power stations. 30. The weighbridges provided, Accepted. both at loading points and power stations, should be regularly recalibrated. 31. Gradually, electronic weigh- Accepted. However, before bridges should be installed in installing the weighbridges, place of the existing all relevant factors including mechanical weighbridges and the possibility of underloadall future installations ing and overloading should be should be electronic weigh- examined. In electronic bridges, which would provide recording of tear of wagons. weighbridges, once weight is recorded automatically while the rake is in motion, no adjustment is possible if there is underloading/ overloading. In such cases railways should allow reasonable tolerances so that payment of penal freight is avoided.

75 ANNEX 4 Page 7 of 10 Recomuendation Government Decision 32. Bottom discharge wagons for Accepted. However, railways transport of coal from collieries to power stations should consult the power sta- tions and the Coal Companies should be introduced as soon before deciding on any change as possible to facilitate in the design of wagons. convenient and quick unloading at power plants. Otherwise, problems will arise later on, as has happened in the case of Box 'N'. Accepted with the condition that no subsidy would be pay- able in respect of such movement. 33. Government should examine the feasibility of utilizing coastal shipping for transport of coal to power stations. If necessary, Government may consider extension of a subsidy for such movement. 34. Railways should take suitable Accepted. steps to increase line capacity to enable evacuation of coal from North Karanpura coalfields to power stations in Northern India. 35. Railways should increase the Accepted. line capacity in Gevra Road Champa Section. 36. The program of installation of coal handling plants and mini coal handling plants is to be implemented on schedule and the coal companies should give priority and monitor its implementation vigorously. Whenever coal handling plants are installed, the entire coal of the mine must pass through coal handling plants and by pass is avoided. 37. Pneumatic/hydraulic hammers and grabs should be provided near the grizzley at the loading end of the mine and unloading end of the power houses. Accepted. Accepted.

76 ANNEX 4 Page 8 of 10 Recommendation Government Decision 38. In small and medium mines Accepted. which are supplying coal to power stations either singly or jointly with others should be provided with crushers of permanent/semi-permanent/ portable in conjunctioa. with mini coal handling plants for enabling these collieries to load coal of proper sizes. 39. The shale stone picking area Accepted. should be well lighted to ensure that dirt and stone are completely removed before coal is loaded into rakes. 40. The joint sampling arrangement Accepted. at each coal mine as decided by the Ministry of Energy should be put into effect at once and should from basis of agreement between coal producer and thermal power stations. 41. Electronic sorters for dirt separation should be introduced as soon as possible at coal mines. Accepted. 42. Coal should be tested for Accepted. arriving at the design dimension of mechanical cleaning equipment. 43. The stacking ground at coal Accepted as far as stacking mines and power stations areas at loading points and at should be made of properly the power houses are compacted formation to prevent concerned. contamination. 44. Simple beneficiation circuit should be designed for Indian coals which are difficult to wash and which cannot be used in boilers in ROM condition. Accepted.

77 ANNEX 4 Page 9 of 10 Recommendation Government Decision 45. Railways should take care, Accepted. while diverting rakes meant for one consumer to another, to ensure the proper quality and size as needed by consumer. 46. Automatic Ash Indicator (coal Accepted. analyzer) should be installed in coal handling plants. 47. The coal mine supplying coal Accepted. to power plants should supply, at the time of drawing of agreements of coal supply, authenticated quality certificates relating to ash and moisture content, with copy to Central Electricity Authority, and there should not be a variation of more than 5% in quality, in any consignment actually supplied during the currency of coal supply contract between the colliery and

78 ANNEX 4 Page 10 of 10 Recommendation Governuent Decision 49. The Committee recommended that Accepted. even for power stations located in load centers, linkage should be made to specific mines.

79 ANNEX 5 Page 1 of 9 INDIA - COAL MINING AND COAL QUALITY IMPROVEMENT PROJECT MEJASURES TO DMPROVE COAL QUALITY 1/ A. Thermal Coal With the enormous increases in the demand of coal, psrticularly in the power sector, there has been definite spurt in coal production during recent years. From a meager 15.4 million tonnes of coal demand from power houses during , it now stands at a level of 63.5 million tonnes in Against this, the actual take-off was 65.2 million tonnes which reflects a demand materialization of 102.7Z. In fact dispatch to power sector works out to about 50% of total CIL dispatch. Nationalized coal sector has not only been meeting this increased demand but is also geared up to meet the future growth in the demand of the power sector. In fact, the year will likely see nearly 64% of total CIL dispatch to various power stations, with the supplying pattern effectively streamlined, keeping in view their qualitative and quantitative requirement. 1. Fluctuations in Coal Quality and Efforts to Reduce the Same: Occasionally there has been fluctuations in the qual$ty of coal being supplied to the power stations when compared to the design parameters of their boilers. Some of the old power stations are continuing with their old boilers designed for consumption of higher grade coal with low ash content. However, with the depletion of higher grades of coal, the ash content of coal supplies is on the rise with the result that despite efforts made by CIL, complaints on quality have at times been received from power stations. Modern and new thermal power stations, however, have been designed for consumption of coal with high ash and therefore complaints on quality from such power stations are seldom received. The main complaint in respect of coal supplied to such power stations are receipt of lumpy coal and shale etc. Different power stations have different sizes of opening in their grizzlies (metal gratings) at the coal receiving point. Any piece bigger than the size of such opening is termed as oversized and complaints are then made. However, the same coal would be quite acceptable at other power stations with larger openings in their grizzlies. Linkage of coal is normally provided in such a way that low ash coal is supplied to those power stations that essentially need it. While making supplies to such power stations, collieries are also taking recourse to extensive shale picking etc. so that the ash content in coal remains within the stipulated limit. However, for a permanent solution it is desirable that all power stations should phase out old boilers and replace them with units that can consume high ash coal which is available in plenty today. It is a matter of regret that none of the older power stations have so far given a thought to bringing in new technology for consumption of this high ash coal. 1/ Provided by CIL.

80 ANNEX 5 Page 2 of 9 Presently about 44% of the total coal supplied to the power stations is loaded manually. There is no chance of any complaint of oversized coal in the supplies made through CHPs but the possibility of passage of oversizes in the manual loading collieries cannot altogether be eliminated. The reason for such may be due to loading of wagons by payloaders when the supplies are made in the night time or odd hours and enough payloaders are not available. The oversized problem is likely to be eliminated altogether when the entire coal passes through the CHPs. It is planned that by about 90% of our total power coal could be routed through CHPs. The above, coupled with occasional diversion of rakes by the railways also cause problems in matter of both size and quality as coal earmarked for a particular consumer may not be suitable for another to whom the rake has been diverted. It is thus suggested that while power stations gradually phase out their old boiler and bring in new technology to accommodate high ash coal, railways on their part should also make placement of rakes at a fixed time at every siding and provide adequate loading time for loading of rakes. Thus, a concerted effort of the three agencies namely the CIL, the railways and the power houses can only bring forth a solution to the problem. 2. Investment Program in Commissioning of Coal Handling Plants: At present around 56% of the total dispatches are routed through Coal Handling Plants (CHPs). In alone, 13 major and 19 mini-chps with an aggregate annual capacity of 24 million tonnes have been commissioned. Coal India is expected to construct another 23 major CHPs with an aggregate capacity of almost 29 million tonnes during It is expected that 90% of the dispatches would be make through CHPs at the end of the 7th Plan period. Built in capacity of CHPs are as below: million tonnes (i) Existing CHPs as on 1/7/ (ii) CHPs under construction (iii) CHPs proposed during the 7th Plan period It has been decided to provide all future CHPs with such facilities as screening/crushing and/or feeder breaker wherever necessary. Cost of commissioning of CHPs under construction as also those in the Project would be around Rs crores. Company-wise break up of cost would be as below:

81 ANNEX 5 Page 3 of 9 No. of Capacity Cost Involved Company CHPs (tonnes) (lakh Rupees) ECL BCCL CCL WCL A time bound schedule has been drawn up and close monitoring of progress of construction of CHPs has been resorted too, so that no unneces;sary delay takes place at any point of time to retard progress of work. 3. Other Infrastructural Facilities: Similarly other infrastructural facilities such as provision of weighbridges at all major loading points have been made to ensure loading of desired quantity, so that consumers do not suffer on account of either loss or excess supply. While there is a program for installation of new weighbridges (ECL - 4, CCL - 4, BCCL - 1 and SECL - 1), another 12 existing weighbridges would be modified as per requirement. Well equipped laboratories have been provided at all areas for quick assessment of quality and necessary feedback for assuring better future supplies. It has also been decided to build some express laboratories at some of the major loading collieries for quick analysis of samples. 4. Improvement in Quality of ROM Coal from Open Cast Mines: The deterioration in quality takes place due to admixture of extraneous materials along with coal during extraction specially in OCP mines where overburden stones often gets mixed up and create quality problems. Thus need for planned extraction of coal specially in OCP mines have been felt. Annual plans of each mine has been drawn to identify bench formation and maintaining them always sufficiently in advance during extraction to prevent any contamination. In case of bands of over one meter thickness, these will be separately mined. The deployment of small capacity hydraulic shovels in conjunction with 160 mm drills will enable bands to be removed separately. 5. Dry beneficiation of coal after crushing and screening is under consideration and will be introddced in a phased manner, for +10 mm size fraction. 6. Washing of poor grade coal for large consumers has been considered. It has been decided that coal that will be supplied to power plants of the National Capital region from North Karanpura as also Southern region power plants from the new mines at Kolinga will be crushed.

82 ANNEX 5 Page 4 of 9 7. Other Remedial Steps: Other remedial steps taken to ensure proper quality and size of coal dispatches to power stations are: (i) Joint Sampling Agreements: Contractual agreement of Joint sampling for bulk coal supplies has been reached with various State Electricity Boards (vide Annexure I) which provides for necessary adjustment of bonus or penalty as the case may be from subsequent bills. As per agreement, joint sampling shall initially be done at the loading and based on which coal companies will raise bills. Joint sampling will be done at the power houses and at fixed block period of four to six hours per day. Destination-end sampling will however be the deciding factor for final payment. In fact, with the signing of the agreement and introduction of joint sampling number of complaints have come down sharply. Company-wise comparative position for the years and are given below: Company ECL BCCL CCL WCL CIL (Total) Percentage of supplies involved under complaint is only 0.23X of overall dispatch to power stations. Month-wise complaint position in respect of subsidiary companies for the year is given in Annexure II. (ii) Grade Control: Reassessment of coal seams of every working mine is done seam-wise for reidentification (regradation) of coal quality and declare the grade in the beginning of each financial year. Periodic check samples are also drawn to verify the quality of coal being dispatched. (iii) Inspection Facilities to Consumers During Loading: The facility of joint inspection of coal being loaded has been provided at each loading po'.nt and any consumer can avail himself of the same for instant rectification of wagons in case that is necessary. Inspection registers are also provided where consumer can put on record his observation about standard of loading and/or his reaction to the facilities provided.

83 ANNEX 5 Page 5 of 9 (iv) Feedback on Supply: Regular feedback on quality is followed up as below: (a) In order to get proper feedback mainly on quality, representatives of the supplying companies are stationed at major power stations for round the clock monitoring of quality and size of coal being supplied. (b) Review of quality performance In respect of each subsidiary company is made every week and suggestions put forward for future guidance. (c) Regular quality audit inspections are carried out at producing end and at destination end and monthly reports a._e prepared incorporating monthly weight average ash p.c. in supplies to PEs as determined by joint sampling and is at Annexure III. Results are not at all unsatisfactory as barring a few cases, majority of cases ash p.c. supplies are within norm of power house boilers. Cd) For achieving quality control, the existing management structure of quality control department at different levels is being made uniform in each subsidiary. The Quality Control Department will have three tiers and will be responsible for quality of coal being loaded, implementation of remedial measures to improve quality, etc. 6. Implementation of the Recommendation of the Fazal Committee and Government' s Acceptance Thereof: Statement showing various recommendations of the Fazal Committee on coal supplies to TPSs and Government's decision thereof is enclosed at Annexure IV. As will be seen from the statevent, most of the recomiendations have been accepted by the Government, many of which are already in operation as decided time to time under the SLC Meeting. Those yet to le operated are being sorted out by the Government or by direct dialogue between CIL/coal companies and the railways/pss. While in a number of cases, implementations of Governient decisions depend upon the railways acceptance of the issues, CIL's shaxe primarily rests in implementation of the decisions at paras , which mainly deals in building up infrastructural facilities and protocol of joint sampling agreement with power stations. As already enumerated in earlier paragraphs above, building of infrastructural facilities in the form of CHPs/weighbridges at all the major loading points have already been taken at hand. As regards installation of electronic weightbridges, it has been decided to provide the same at ten load centers of CCL and WCL initially. All future CHPs will be provided with crushers and slow moving picking belts, latter to enable shale pickers to work effectively. Advice has already been issued to all loading personnel to onsure that dirt and stone are completely removed from the siding and this is being monitored. W...~.

84 ANNEX 5 Page 6 of 9 As regards payment of bonus/penalty on the basis of analysis of joint sampling with PRs, this has already been taikn care of in joint sampling agreement reached with various power stations. 7. Conclusion: Concerted efforts from all concerned have resulted in reduction of the number of complaints from power stations which are negligible in terms of percentage of total supplies. This will be apparent from D.O. letter from Minister of State for Power to the Union Minister of Steel, Mines and Coal who expressed his appreciation as below: 'As a result of the steps taken by the Department of Coal there is an improvement in the quality of coal and the plant load factor of the thermal stations in March 1985 was 55.5Z which is the highest during the last two years." In fact, the PLF (overall) of thermal power plants during April- December 1985 was 50.8 against 48.0 during the corresponding period the previous year. There has also been an increase in generation of 15.7Z during this period. - B. Coking Coal As part of the Jharia Coal Project, 'CIL are preparing an annual progress report on actions to improve prime coking coal quality including inter alia statistics on the ash content of raw coking coal production by mine, and washed coking coal by washery plus a text discussing progress regarding the following matters and its impact on coal quality. CIL have initiated the following measures which are already providing improvements in washed coal production: (i) elimination of substandard coals and more intensive picking arrangements; (ii) deployment of more experienced a d qualified personnel for washery operation; (iii) closer monitoring of washery operations; (iv) increased capital expenditure for washery improvement; (v) installation of rotary breakers at certain washeries; and (vi) utilization of premium quality Assam coal for blending purposes. In addition, CIL is preparing the following measures which should provide benefits in the longer term: (i) upgrading of slurry by froth flotation at Dugda I and II; modification to Patheridih Washery; (ii) trials with prescreening jigs at Barora Washery; (iii) development of new areas of superior quality prime coking coal; (iv) installation of new coal handling plants; (v) testing of certain disputed coals by Central Fuel Research Institute; and (vi) possible establishment of a Washery Institute. Source: CIL.

85 ANNEX 5 Page 7 of 9 ANNEXURE I Name of Power Stations with Whom Agreement Reached for Joint Sampling: Si. Electricity Power Si Electricity Power No. Board Station No. Board Station 1. W B S E B Bandel-TPS S e B Talcher Santaldih Gouripur. 12. A S E B Bangaigaon 2. D V C Durgapur 13. H S E B (Faridabad Chandrapura. (Panipath 3. B S E B Barauni 14. OTHERS DPL Patratu (WB Gvt.) Muzaffarpur. Pvt.(AEC 4. U P S E B KESA (Renusagar Panki Harduagani 15. D E S U Indraprastha OBRA. Rajghat. 5. P S E B GNDTP Bhatinda Rupar. 6. N T P C Singrauli Badarpur Farakka Korba 7. R S E B K O T A. 8. G E B Gandhinagar 9. M P E B KORBA Amarkantak Sarni. 10. M S E B Koradih Khaparkheda Nask.i Bhuswal Chandrapur Ballars-hah.

86 ANNEX 5 Page 8 of 9 ANNEXURE II Month-Wise Complaint Received from Power Stations ( ) CCL WCL Months ECL BCCL (Including NCL) (Including SECL) April ' May ' June ' July ' August ' Septerber ' October ' November ' December ' January ' February ' March ' I I Total Total

87 - 80- ANNE 5 Page 9 of 9 ANNW M Wothy gb1gt AwEr AMh P.C. In Bpmes to Thuruml Por StatLam -A di-dsi*ii2r 1985) Nam of Noz of Ash Powr Stati Atw NW Jum Juy Avg Sep Oct Now DIC BuRel ' Santaldih kA OESLJ (BCL CIPS (BOCL) BIPS (L) TIPS (CCL) Lhiapeda Balluzalh Paras NS 32.6 NS N Nasid Ganxihinagar Ukai ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

88 ANNEM 6 Page 1 of 3 INDIA - ODAL MINING AND COAL QUALITY IMPROVEMENT PROJECT COAL PRICE SCHEDULE a/ (Effective January 8, 1986) Grade Specification Price (Rs/ton) A. Non-Coking b/ Grade A UHV exceeding 6200 kcal/kg cj 296 Grade 8 WV kcallkg 269 Grade C UHV kcal/kg 235 Grade D UHV kcal/kg 205 Grade E UWV kcal/kg Grade F UHV kcal/kg Grade G UHV kcal/kg 74.5 Singareni Coalfields Grade C Grade D Grade E Grade F Grade G Assam Ungraded 342 B. Coking Steel Grade 1 Ash not exceeding 15% 480 Steel Grade 2 Ash not exceeding 18% 402 Washery Grade I Ash not exceeding 21% 347 Washery Grade II Ash not exceeding 24% 289 Washery Grade III Ash not exceeding 28% 222 washery Grade IV Ash not exceeding C. Semi-Coking Grade I Ash plus moisture not exceeding Grade II Ash plus moisture not exceeding 24% 289 D. Hard Coke By-product Hard Coke Premium Ash Not Exceeding 25% 1,110 - " ~- Ordinary % 1,000 Beehive - Premium - 27Z Superior % Ordinary E. Soft Coke For Industrials 300 For Domestic use 175 a/ This schedule refers to ex-pithead prices of run-of-mine coal excluding all statutory levies and sales tax which are chargeable extra as per the prevailing rates. b/ Long flame coals (grades A-D) have a surcharge of Rs 25 per ton. ci Useful Heat Value (UWV) is defined by the following formula: UHV - 8, (A+M) where UHV - Useful Heat Value in Kcal/kg, A - Ash eontent in 2 M, - moisture content in Z.

89 ANNEX 6 Page 2 of 3 STATUTORY LEVIES AND SALES TAX (As of January 1, 1987) 1. Statu.ory Levies A. Co_mmn for All States 1. Royalty Coking Non-Coking Grade Re/ton Grade Rs/ton Steel I 7.00 A 6.50 Steel II 7.00 B 6.50 Washery I 7.00 C 5.50 Washery II 6.50 D 4.30 Washery III 6.50 E 4.30 Washery IV 5.50 F 2.50 Semi-Coking I 6.50 G 2.50 Semi-Coking II 6.50 Assam Coal Stowing excise duty - Non-Coking Rs 3.50/ton - Coking Rs 4.25/ton 3. Coal mines labor welfare cess Rs 0.75/bon B. other Levies West Bengal 1. Rural employment and production cess 20% on coal value 2. Primary education cess 5% on coal value 3. Public Works and Road cess Rs 1.00/ton 4. Asansol Mines Board Health cess Rs 0.40/ton Bihar 06/21/85 1. Cess on Coal 30% on coal price 2. Royalty cess 5% on Royalty 3. Jharia Mines Board Health cess (BCCL only) Rs 3.50/ton Orissa - 1. Mineral Area Development cess 200% on Royalty

90 ANNEX 6 Page 3 of 3 Madhya Pradesh 1. Mineral Area Development cess 125Z on Royalty 2. Storage cess Rs 2.00/ton Maharastra 1. Cess on Royalty 10Z on Royalty II. Sales Tax 4Z sales tax is charged on coal values plus all statutory levies.

91 ANNEX 7 INDIA - COAL MINING AND COAL QUALITY IMPROVEMENT PROJECT SCOPE OF WORK FOR ASSISTANCE ON WORKSHOP DESIGN A. OBJECTIVE To assist the CIL Group to design modern workshops to fully meet CIL's requirements to service mechanized open-pit mining equipment. B. SCOPE OF WORK The consultant should assess th! present (Singrauli) and projected (Korba and Raniganj) requirements of workshop services within CIL, in close consultation with its counterpart, and should assist in the location and design of state-of-the-art factilities to meet CIL's needs. The assistance will cover in particular the following areas: (1) Repair and Maintenance Facilitiv.=. Review the adequacy and capacity of existing repair and maiatenance facilities, tooling, procedures and skills of peisonnel in light of existing fleet of equipment and its actual service requirements. (2) Additional Workshops. Size, location and design of state-of-the-art workshops for open cast and underground coal mining equipment, on basis of projected increase of quantity and capacity of equipment as reviewed in consultancy with counterpart staff. Detailed consideration should be given in designs to permit future expansions, and whenever possible to design these expansions. (3) Fabrication of Spares. Associated with the workshops, the consultants should also design foundry and machine/tool facilities, in consultancy with counterpart staff, to fabricate spares required within CIL. C. DURATION AND REPORTS The work, which should be initiated by December 31, 1987 and completed by December 31, 1988, will require about 36 man-months of effort by consultants with sound background in the design of workshops for large mining operations. The consultants should issue an interim report regarding location, size and service options of the proposed workshops. On completion, workshop designs and a final report would be issued concerning the implementation of the facilities.

92 ANNEX 8 Page 1 of 3 INDIA - COAL MINING AND COAL QUALITY IMPROVEMENT PROJECT SCOPE OF WORK FOR ASSISTANCE ON MANPOWER PLANNING AND TRAINING A. OBJECTIVES To assist the CIL Group in improving its training and manpower planning sys8tems for the entire organization. B. SCOPE OF WORK The consultants should provide assistance regarding (i) improving the training setup of the CIL Group, (ii) developing a computerized manpower planning system, and (iii) establishing the requirements for and undertaking detailed design work to assist the development of two excevation training centers. Based on their conclusions, they should present detailed and specific recommendations. Their work should focus on the following aspects: (a) Training Assistance for training should be mainly oriented to: I, Organization and policies. Review cof present training structure, policies, norms, controls, communicateons and relationships, both between CIL and subsidiaries, and among the latter. Particular emphasis should be given to implementation of training policies and relationships between training and production activities. 2. Training capabilities. Review and assess existing training activities (on-the-job and off-the-job, and outside CIL), programs and facilities (Centers and Institutes), in terms of their qualitative and quantitative ability to satisfy present and projected training requirements. This review should include the following areas, presenting specific recommendations for improvement: (i) the competence and skills of training officers and instructors (sample); (ii) the curriculum and course content for different trades (including supervisory and management training); (iii) the capability of outside institutions at present training CIL Group personnel; (iv) adequacy of facilities, equipment, training aids, audio-visual aids, and written teaching materials; and (v) review of present evaluation (if existent) of training activities. 3. Training needs and training program. Assess present methodology for determination of training needs both at CIL and subsidiaries level. The consultants should present a very detailed proposal for determining training needs because this is one of the weakest points at the CiL Group. Based on identified needs, the consultants should

93 ANNEX 8 Page 2 of 3 prepare a detailed training program for the next five years, which the consultants will implement in a specific subsidiary (SECL), where they vlll train a number of training officers on this task. This exercise would include a preliminary estimate of additional facilities to be established and programs to be developed. 4. Evaluation of results. After reviewing existing practices, the consultants will present a proposal for periodic evaluation of training activities and the follow-up of the implementation of training programs. 5. Unskilled personnel. A review will be undertaken of this highly populated category to derive conditions suitable for establishing policies and procedures regarding their possible utilization/training/ education and changes in recruitment policies. (b) Manpower Planning 1. System Development xi) Manpower Data Base. The consultantshould study and analyze in close consultation with its counterparthe existing manpower planning system (MPS) within CIL. They should also review the present data base of the MPS and the reliability of its source data. The consultant should assess the acceptability of present practices including level of detail and recommend detailed procedures for reaching more disaggregated data in the system that may allow a sound MPS. (ii) Manpower Needs. The consultants should evaluate the present methods for deducing manpower needs from corporate work plans, expansions, projects, levels of activity, manning levels per type of operations and skills inventory. In consultations with the counterpart and managers, the consultant will recommend specific modifications so that needs can be directly related to availability with adequate level of detail. (iii) Manpower Supply. The consultantshould also review and evaluate present methods for analyzing current manpower resources, changes in manpower resources, turnover analysis and replacement, changes in work conditions, and external supply factors. - should relate these elements to the potential impact of changes of technology and labor productivity for the future years on the manpower structure (occupational mix) and propose adequate models. - another aspect will be analysis of the composition of overstaffing at all unskilled and semiskilled level and the clarification of recruitment and training policies regarding this level of staff.

94 ANNEX 8 Page 3 of 3 (iv) Manpower Forecasting. The consultant should review (a) the statistical methods presently used for forecasting, (b) the appropriate level of details in skill mix and organizational level, analyze them and make recommendatons for improvement. (v) Computerization. The consultant should review the current limited use of the computer in CIL's MPS and recommend procedures of more effective use, including personnel information systems, coding and data collection analysis. Also assess needs for (1) CIL HQ' and (2) subsidiary companies. 2. System Implementation. After agreeing on the new MPS, for which hardware and software would be provided as part of the project, the recommendations would be implemented by CIL with the help of the consultants. Once the system is operatonal, follow-up assistance will be required to monitor its performance and rectify any problem. C. DURATION AND REPORTS The work, which should be initiated by December 31, 1987 and completed by December 31, 1989, will require about 66 man-onths by consultants with solid experience in training and manpower planning systems for mining companies and/or other organizations with very large workforces. The first stage, which should last twelve months (and will entail 48 man-months effort), will consist of (i) the review of and recommendations for improving CIL's training set-up, including a proposed five year training program for SECL (18 months); and (ii) the detailed development of a manpower planning system suitable for implementation within the CIL Group (18 man-months). An interim report will be issued concerning the present training organization, policies capabilities and needs. It will also cover the manpower data base, needs, supply and forecasting, as well as computerization. The second stage, which will follow on from the first, should also last about twelve months and will consist of (i) implementation of SECL training program (12 man-months) and (ii) implementation of computerized manpower planning system for CIL (18 man-months). The final report will address the full scope of the work accomplished.

95 ANNE 9 Pasp 1 of 2 INDL- _ & iw MI NID 0A3L (WIflY DIFIW PMM CIL FEINAAL SEAMDO DNCME SMEM1TMS - ODAL INDIA II 1980/ /86 (Rs milhtoei) 1980/ / / / / /86 Coal P Total Col Produoud (nlluion tons) U Coal Produe&d by Revenm Mines (UDL1n tmns) Net Saleable Coal fron Reuenue Mines (aili MM ) Rns Average Sale Price (Rs per ton) Net Reerumes 11,300 14,209 17,063 18,624 23,690 24,594 Salaries andwages 6,849 7,758 8,42 11,70B 12,620 13,321 Ovrhebls ,083 Stores 1,508 1,996 2,603 3,015 3,336 3,8EI Power ,187 1,437 1,706 Transportionlm of Coal and Sand Other Costs less Misc. peceipts al ,178 1,8B5 2,853 Total Operating Expenses 7-0Z73 12,138 14,240 18,480 20,668 23,306 Depreciation,a ,344 1,716 2,069 2,497 Interest ,110 1,324 1,733 2,158 Total Productiom Costs 11,637 13,867 16,694 21,520 24,770 27,961 Profit/Loss (337) (2,896) (780) (3,367) a,' Tnels PFi/Aoss o Soft arx Hard Coke and Washed Coml opealoio ard also adjusbt for overburden Peamwal Coat.

96 ANa 9 Pasp 2 of 2 SlIAM EAlANCE MFEMS - 0WAL INDIA JID. 1980/ /86 (Rs Millon, aoe Mard 31) Assts 1980/ / / / / /86 Current Assets 6,430 8,292 10,383 14,52 15,205 15,254 TomIw and AMvamn 4,272 4,641 5,431 7,147 7,913 7,363 Net Fi2ed Aseta 10,665 14,177 18,984 24,139 28,693 34,633 Total Assets 21,367 27, ,798 45,788 51,811 57,250 T4Ablitifi Crnent Liabities 5,871 6,072 6,862 11,8S4 11,611 12,382 (a) Debts to GDeVnenMc 12,577 14,836 17,462 19,273 21,737 25,2B4 (b) Otber LiailLities to Gbvernmet b/ _931 3,137 3,430 3,883 Total LLng TenA Liabi1tites 13,095 15,553 18,393 22, ,549 (a) Share Capital 9,862 12,869 16,913 21,299 25,567 30,123 (b) Rserue ,049-1, (e) Aowulated Profit/Loss (7,846) (8,117) (8,419) (9,765) (12,159) (14,941) Total Equity 2,401 5,485 9,543 11,534 15,034 15,701 Total EqUity anid Liabilities 21,367 27,110 34,798 45,788 51,811 57, m a/' Including cagital wcd1rpqrso bi Overdue oipital Iepay.nt and interest cn Government ioans Source: CIL.

97 ANNEX 10 I}DIA - COAL MINING AND COAL QUALITY IMPROVEMENT PROJECT SCOPE OF WORK FOR ASSISTANCE ON TRAINING INSTITUTE DESIGN AND DEVELOPMENT A. OBJECTIVE To assist the CIL Group in finalizing -be design and implementing excavation training centres at Korba and Raniganj. B. SCOPE OF WORK (c) Excavation Training Centers Aasistance in this aspect will include assessment of justification for the establishment of the three proposed centers in (Korba and Raniganj) consultation with the relevant CIL Group personnel (training, planning, production, and maintenance). Based on this assessment, the consultants should design in detail the centers, giving particular attention to: 1. The projected capacity of the center for each specialty to be imparted. This comprise classrooms, workshops, laboratories and yards, including size and number of working places, schedule of accommodation, and number of instructors needed. A detailed layout of the center will be prepared and will be the base for the architectural and civil engineering design. 2. A detailed list of equipment with its specifications will be prepared including estimated cost per item (including the supplementary equipment to be provided to the BETI-Korba). The list would also include teaching materials and visual aids. 3. The above-mentioned aspects will be based on a thorough job analysis of the various kinds of jobs being performed in open cast coal mines in India, leading to detailed job descriptions for the different kinds of operators and maintenance personnel. Based on this draft, course contents will be produced by the consultant in collaboration with local instructors. C. DURATION AND REPORTS The work, which should be initiated by December 31, 1987 and completed by December 31, 1990 will require about 18 man-months work by consultants with experience of developing and running mining training centres. The first stage, which will involve 6 man-month effort, will be a review to recommend improvements in the design of the training institutes as presently envisaged. The second phase will involve assistance in the implementation and organization of the centres. An interim report will be prepared at the end of the first phase and a final report will be prepared on completion of the asfagnment.

98 -91- ANNEXI I Page I of 3 INDIA - COAL MINING AND COAL QUALITY IMPROVEMENT PROJECT RVSETTLEMgNT ARRANGEMENTS A. Gevra The project at Gevra involves the expansion of an existing mine and land acquisition is well advanced with about 85Z (2,956 ha lan-'^ having been acquired so far out of a total of 3,500 ha. Compensation has been agreed with the families according to Government norms and Rs 31.7 million had been paid as of March More than half of the families involved (500 out of 995) have already been resettled. Each household receives 150 m2 as per GOI norms. Basic amenities being provided include approach road and drainage system, school building, drinking water sources, shopping center, health center, street lighting and power supply (the latter two facilities through the local Electricity Board). To the extent that the project needs to employ local people, preference is given to members of resettled families. So far at least one job has been provided to over 80% of the families being resettled (818 jobs for 995 families). Wages with the coal industry are over Rs 80 per day, three to four times earnings in agricultural or other unskilled employment. Indirect employment is also being generated Luy the large scale development and construction work associated wi.lh the Gevra project. The mining activities are also generating other small scale ancilliary industries in the coalfield area which also offer employment potential for the reaettled families. SECL is encouraging local self employed cottage industries and farming and has established market complexes in tne colonies so that sellers can directly sell their products which will enable them to realize higher prices than if they sell them to traders which is the usual practice. The remaining 495 families at Gevra will be resettled by March At the same time, 375 families will be resettled from the Dipka mine which is being developed adjacent to the Gevra mine. The families will be resettled in two phases according to the following schedule:- first phase of 364 families to be completed by March 1988 and second phase of 506 families to be completed by March B. Sonepur-Bazari Land acquisition is at an early stage at Sonepur-Bazari with about 13% (157 ha/1205 ha) having been acquired so far and no resettlement having taken place. During the life of the project about 740 families will need to be resettled. About one third of the land to be acquired is cultivable, much of the rest being so-called -danga land which is barren and uncultivable. For the remainder it is estimated by ECL that the annual earnings per hectare of cultivable land is about Rs 2,000 about one tenth of the annual earnings of a coal miner (about Rs. 20,000 per year). It is estimated that 40-50% of the families involved in resettlement presently are directly or indirectly dependent on coal mining activities in the region.

99 ANNEX 11 Page 2 of 3 During the first phase of land acquisition about 270 families will need to be resettled. As with Gevra, compensation is based on government norms and the villages will be given the similar basic amenities (approach road, drainage system, school building, drinking water sources, shopping center, health center, community center and playground) most of which are not available in the villages where the people presently live. ECL will help the state government in providing suitable training facilities for the affected population, in consultation with and as per the guidelines of the state government, so as to make them suitable for possible future employment in the project or elsewhere if oppirtunities arise. ECL will also help in developing small scale industry ancilliary to the mining project. These include enterprises to make the following supplies needed by ECL's operations (a) coal tub wheels and axles; (b) brattice cloth (fireproof); (c) water bottles; (d) dognails and fish plates; (e) bolts and nuts of various sizes; (f) safety boots and shoes and (g) building brick-. A report prepared by outside consultants has indicated that such activities could provide employment for up to 300 persons in the areas around the Sonepur-Bazari project--although the major share would be brick making which is a seasonal industry. In addition, ECL has other mines and new projects in the surrounding area which might be a source of employment for resettled persons. Other employment opportunities for resettled people include construction activities at the project which are likely to require persons per day for the next seven to eight years and cottage industries spawned by the project. The latter include poultry farming, animal hu;bandry and dairy, piggery, pisciculture, shops in the shopping center and farming in reclaimed/undistributed land owned by ECL. ECL estimate that about 195,000 man-days of self employment could be available annually from such activities (including project construction 75,000, brick making 30,000, township 30,000, ancilliary industries 30,000, forestry related 20,000 and small contracts 10,000). ECL estimate the earnings from such employment would more than compensate for the foregone annual earnings from the land lost from cultivation (which would be about Re 900,000 per year i.e. 450 ha times Rs 2,000 per ha per year). ECL are aware that small units will require assistance in raising initial capital investments and working capital. ECL propose to work with the appropriate authorities of the state government to establish sources of finance for small units possibly including state government guarantees to commercial institutions. ECL also recognize that such small units, especially engineering and manufacturing units, will require necessary technical capabilities and are prepared to consider providing suitable training for such entrepreneurs on a limited scale.

100 ANNEX 11 Page 3 of 3 The timetable for resettlement at Sonepur-Bazari is as follows: So epur-uszari-land Acquisition and Resettlement Land acquisition for resettlement - complete by December 1988 Land development - complete by March 1989 Construct basic facilities - complete by March 1990 Phase I resettlement families by December 1990 Phase II resettlement families by December 1993 Total 740 famdlies Conduct training program - December December 1990

101 IA -CAL KM= A. COAL QaLlPl DW UO W n Cr ANNE 12 PROJUC KNONCO.Z M-o OWGAPZZAntIO Project Qm"a MInage I~~~~~~~~~~F-t. PvO*c: r- Coat & Scebduling Engineeringnmftratfc D9Peput oject ngr too Purchang l i ne Cal>< manding C xcvt lo 11ing. rinn Tou4 a e 1 fratuctur C eoro I Finance Procurmu Projicg Infeftutr P A isroje t Panni n trerantzwtom Project SoperSupeviaio T - IAT flu cm n_rlts _.~~~

102 nxu - WAL ;m A Wei WT! DaW mr nomic? DWIZEUTrATI[ SC== Mm CiiMM iay ml. I I - - ' I.I I - 1- I I.. I nr. w a m vi am WmI am 9. mi I rit. S.a. alto I _u1 _ w =om inc w m w.m 0i _am_ I I I _ Tl 0:Fm Ao=ines aum. lime 11. wl3s. LW2 LB 5.50 i.m m.1 io.ao ID Wm L31 S1. Lm L' JD 90 nu%duldatxsul1 FOR SKIUI-L KUM GW nd - m l el _ 0 mno 1 1I 2 I 1./ w T- -- T-T-r- D1 -s _iin o w ftm inmncna a ir mm.i. cm Rm= I I tuzi *icmn 3g - mna. V3-ii -m _5 m.d. o m _ hiu. em is. 7 I MM O.ul dqs ff.-

103 AM=nE 14 INDIA - COAL MININC ND COAL QUALITY DIPROVEMENT PROJECT EQUIJMENT COST ESTDI&TES (Rs million) Itm Quantity Unit Price a/ Base Cost Gevra Electric Rope Shovel Electric Rope Shovel Hydraullc Shovel R Hydraulic Shovel with Backhoe Dozer 400 HP ^ Dozer 300 HP IBH Drill RBR Drill an Dumper 85t Dumper 120t Coalhauler/Duapers 35t Scraper Grader HP Water Sprinkler Training Center Workshop CHP Other Local Equipment Lot Subtotal 1,872.7 Spares Total 2,059.7 Sonepur-Bazari Dragline 24/ Electric Rope Shovel 10m Hydraulic Shovel Dozer 400 HP Dozer 300 HP RRR Drill 250 om Dumper 120t Dumper 35t Coalhauler 32-40t Scraper Grader Hater Sprinkler Workshop Training Center CHP Other Local Equlpnt Lot Subtotal Spares Total 2,005.8 a/ For foreign equipment, unit price - CIF + Duties + Inland Freight and Erection; for local equipmnt, unit price - Ex-Works + Taxes + Inland Freight and Erection.

104 L5 MU - alm and ML Q umr PIM _Tnseer SNE AM tusr WO k FDO anm BId am i Tder Tar Ed E,ulmtlcm lidug to au for lde Clmlsx w But Gmtruet B Si!sty 1 Reie bde DbW for 1eis Wffctim w! 1043 lbk be Fb 15. va Am Sept G l 163 tbyr hjuly (lt 1191 rit Hy 1, 1992 t-3 3 womee 4.frP Jul Sep 1, 199f be 1c 1988 hly 1. Mg9 Jo 1. I Thck SIt Apr 6, 198 Dee 15, I981 Feb 15. 1q87 Ji Sp cis 11 t Tac kb[ 1f bs e 15, 1988 Feb 15, 1987 JD Sept r-6 11 nxk Ilt rhy Ad Oa I w 1, 399D May b killt 25tk Apr 16, 1986 ee b e 1b 2987 I Jm Sept G-B3 5 Ibm 4(H Apr 16, 1986 bee Feb 15, 197 Jun Sept Gt9 1 ear 4(ow hy ,Jl ) cit 1. Ifli 1mI, 1993 thy C-lu 5 bea 3)09 Ar 16, 1988be 25, 2 Feb 15, 1987 J Sept 15, 1987 Gil I bainhe Oscw Ag 1, 39H7 lw 1, 1987 Apr 1. 19B Jun ldwxp FPa. Jun I. 19 A u7 1, 1917 Nbv 1, 197 Apr Jm I QauIbdp CiV. IWok un 1,1987 I A 1. 19* Nos Ar1r J 1, 198W C1G I set chwtg WEqp Jul 1, Sep Db 1, 3967 my 1. 9W8 1.b 39W C35 I1t lty Repair Eq..5l Sep bte hy Jul 1. lf Cib I Et Fr4he - -.hl 1, 19B7 Sep 1, 1987 bee 1, 1987 hy 1. 19RB.5l 1, I8 l7 1poet Electrle - Ju,l 1, 1987 Sep 1. I9dm be 3, 3907 thy13 15,i 1, 1988 Gin Elecnutdo Ptu. Ad 1, Wtl7 Sep be 3, 1967 thy 1. 19H8 A. 1, 198W G19 I1t Hydrsalic Equip Ju1, 397 Sr I 1917 ec 1, 1967 thy Jul 1, 19W (3) 4 Hwel flue n Ar 1, 987 INy 1, 19R7 Aug 1 19H7.o Par 1 19WI ;11 6 CGrd 21O-2PW Apr 1, 1917 Hay A J1. 1, 19W N (22 5 %ftr Splrber Apr 1. I397 thy 1. 1*1?7 A 1, 987 Ja n 1988 nor S-I 3 9Inl 1IkP I bv B6 bee 35, 1988 Feb 35, 1987 un 15, I987 t5, S%,i IOA3 Jun 1, 1989 Ag lfl 3, 1989 Apr 1, 199D JLm ) S-3 1 tlize 24/8B Ibv 15, 18 bdee 35, 198b Apr IS, 1907 Spt 15. D67 Nov S-4 2 lhel Hyd1 Nlv 35, 198Rb be b Feb B7 Jum Sept 15, S-5 18 Tnd k 1 ks 15, 986 De 15, 198b Feh IS Am 15, 1987 Sep S-0 17 Thitk3Mk JuZt 1, 99 Ag L, 1989 Nlb Apr t) Jn 1. IMs talr 350M I Apr 16, 19b Dbe 15, 1986 Feb 35, 1987 Jun 15, 1987 Sept.5. 19R7 S=- 4 fer 350M W Jul 1. 19B9 Sep bex1 199 thy Jul S-9 2 l tifel 1.Apr n,w,1987 tky Ag 1, 1987 I 1. I19P0 nw S-1u 5 Tttdc 3-4Gt lbv 15, 196 bec I5, 1966 Feb 35, 19B6 Jun 15, 1987 Sepc Thdc 32-4lt.m 1, MT Ag 3, 199r) Nws 1, 1990 Apr t1 991 JLr 1, 1991 S-12 3 Drill 75 Apr 16, 1966 be 15, 1906 Feb 15, 1907 J SePt 15, I DrilU 256m Ad Sep 1, IY91 br 13, 1993 ty d 1, 1992 S-14 & Cluder W Apr 1, 1987 thy Aug 1. I lrtt 1 I89 S rw Sprinkler Ar 1. 19R7 thy 1 I37 AM 1, 19B7.1s 1, 190R vr W S-b6 1 0m1 HIdllhg Am 1, 1390 Ag lbv 1, 1989 Apr 1, 1989 Jl 1, 1939 P- S-17 unlb 6saer t ud 1, 1987 Ag 1, 1987 NoV Ar 1, 19B Jn S-Ie I Ulcitq..ut Ildetial Ju 1, 197 Aw 1, I7 kw 13, 197 4r Jul 1. 19S S-Itb I tdadiwl tral RleidmntLal un 13, 1987 A It, 1, IP37 Apr 1, 198B Jun 1, Iltt Axkduc S-19 Filitis Jum H Ag 1 1?87 bm 1, 187 Apr 1, 19B.Jun 1, 19B8 sy-19b Cvitl Ag 1, 1987 Nlv Apr 1, I.f S-19 Ihddnirg qup.513, 1987 Sep, be l'q 1 19 Jul I 1 19B8 5-19d tw0ne 1p lip jai 1, 1987 Sep be 1, 1987 NWy 1 19S 3 Jul 1, 1968 S-19e Iydt tru Fq Jul Sep, IY 1987 bee 1, 397 Hy 1, 198 Jal 1. 19B0-19f Body Pop Sep Dee May 1. 19BS,1 1.S9 S-19 Ibbile Rep Equ.ul Sep ee 1, , 1968 Jul 1, 19PB S-19h lilt EtTdl Equ Jul 1, 1987 Sqt e, 1 VW7 9 thy Jul S-191 Else Equp JUtI set be 1, 3987 Hay 1119W.5e 1. 1I9 S-20 I tl Ib*p Swvite baid J Ag Nbs Apr 3 19WB Jt a 1 19B8 S-2b Civil wars J3 1, 1927 Ag lbn Apr 1. 19W Jun 1, 19W0 S-201 ladddrg Ey. Ju Sep ic Pay Jt5l S-2W1 Eigh Rep Fq Jul Sep n!e th Jul 1. 19SB S-le Hay Rep Fa.Jul I 3987 Sep Dir rhy 1, 3191 Jul S-20f Trum Rip Eip Jul Sep re 1, 1987 tw I, 1ISB Jul R 5-It Dear Pqtpr Ep Jai Sep 1, 1987 Ilew 1, 1987 thy 1. I9 Jl S-20h Bdya[id Stn e lip. J 1, 1987 Sep 1. I7 Dbe 1, 1987 thfy 1. 19W8 Jul 1, 1S Elecla Equ.d Sep De flh 1 ISB Jl S-Afl Fesy Eqdp id 13W87 Sep bee 1, 1987 ty 1. 19B Jul 1 19W S-& thoile Rep Eqp Jrl Sep L. 198 Da 1, 1987 NlW hyl 1, Jul t, M u lsm 15, 186 De I, 1966 hfb 15, 1967 Jun 15, 1987 Sept

105 ANNEX 16 INDIA - COAL MINING AND COAL QUALITY IMPROVEMENT PROJECT DISBURSEMENT SCHEDULE FOR BANK LOAN (million US$) (a) Mining Component Bank Quarterly Cmulative Fiscal Year Quarter Disbursement Disbursement 1988 I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I II (b) Coking Coal Disbursements will be at a rate approximately of about US$20 million per quarter, starting in the I quarter of Bank FY1988 tbrouigh the IV quarter of Bank FY1989.

106 ANNEX 17 Page 1 of 4 INDIA - COAL MINING AND COAL QUALITY IMPROVEMENT PROJECT ASSUMPTIONS USED IN THE FINANCIAL PROJECTIONS A. Projection Period 1. The financial projections have been prepared for 1986/87 through 1993/94. B. Escalation 2. All projections have been prepared in current terms assuming the following local inflation rates: C. Production Plan 1986/ /94-6.0% per year 3. Production plan for the CIL group is in line with the Seventh Five Year Plan from 1985/86 to 1989/90 and shows steady thereafter: CIL - Projected Production (million tons) l986;s / / / / /94 kdergruxlnd Open-Pit Total D. Investment Program 4. The investment program to support the above production plan is projected on the basis of average unit investment costs for open-pit and underground operations in CIL and investment requirements of existing mines to sustain current level of production. The investment profile is presented in the following table:

107 ANNEX 17 Page 2 of 4 E. Coal Prices CIL - Annual Investment Program (Rs million, 1986/87 terms) 1986/ / / / / / /93 1M9394 9,690 9,750 11,320 12,550 11,850 11,350 11,50 11,3O 5. Until GOI and CIL complete the preparation of new measures to improve CIL's financial performance. Since coal prices are presently at economic efficiency levels, average coal prices have been assumed to remain constant in real terms and follow the local inflation rate in current terms. CIL - Average Coal Price (Rs/ton /87 terms) Fiscal Year 1986/ / / / / / /93 L993/94 With 1986/87 grade mix 235 2D D D With adjustbd grade mix F. Production Costs Salaries and Wages 6. Salaries and wages are dependent on production level, output per manshift (OHS) and earnings per manshift (EMS). EMS 7. In CIL, salaries and wages are fixed by the National Coal Wages Agreement which is renegotiated every four years between the unions and CIL management. It is assumed that earnings per manshift will remain unchanged in real terms during the forecast period. OMS 8. OMS projections for each subsidiary are based on CIL's estimates. The projections are shown below.

108 ANNEX 17 Page 3 of 4 OMS Projections (tons/manshift) ECL BCCL CCL SECL NEC 1986/ / / / / / / / Administrative overhead, a major portion of which is administrative salaries, is assumed to increase at the sane rate as the salaries and wages. 10. Stores, power, transportation and other costs are calculated on a variable cost basis. For each subsidiary, the unit cost for stores, which includes spares, explosives, timber, diesel fuel, lubricants and other general consumables, has been slightly increased in real terms and unit cost of power has been marginally downward adjusted to reflect the increasing share of open-pit production characterized by higher than average usage of etores and lower power consumption. All other unit costs have been assumed to remain constant throughout the projection period. 11. Depreciation has been calculated using subsidiary-specific depreciation factor which is derived from data of historical depreciation as percentage of gross fixed assets to reflect the difference in the nature of investment in each subsidiary, i.e., underground vs. open-pit project, greenfield vs. rehabilitation. 12. Interest expense has been calculated based on the following average annual interest rates: Existing long-term loans a/ - planned portion 10.6% p.a. - non-planned portion b/ 0.0% p.a. New long-term 1== c 13.75Z p.a. Short-term loans 18.0% p.a. a/ Loans taken before April 1, 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 1986/87 and thereafter, which is about 48Z of annual investment, repaid in 15 years.

109 ANNEX 17 Page 4 or 4 G. Income Taxes 13. 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 50Z income tax rate has been applied to the taxable income (if any). H. Balance Sheet 14. Current assets have been increased from the base at the same rate as the growth in total operating expenditures. 15. Current liabilities have been assumed to follow generally the same pattern as current assets with exception of the item of 'other current liabilities" which consists mainly of wages and bonuses payable at the end of the fiscal year and is assumed to increase at the same rate as salaries and wages. 16. Fixed assets have been increased by adding 80Z 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. Seventeen percent of the investment has been asslmed to equal the net increase in capital work-inprogress and 3% of the investment, the net increase in loan & advances. 17. Long-term debt outstanding March 31, 1986 for CIL overall consists of the following loans: Planned Non-planned Total Rs 20,958 million Rs 4,326 million Rs 25,284 million

110 ANNEX 18 Page 1 of 3 INDIA - COAL MINING AND COAL QUALITY IMPROVEMENT PROJECT PRO FORML FINANCIAL STATEMENTS FOR COAL INDIA LTD INCOME STATEMENT 1986/87 TO 1993/94 (in Rs million) COAL PRODUCTION (MILLION TONS) 86/87 87/88 88/89 89/90 90/91 91/92 92,':3 93/94 UG PRODUCTION ? OP PRODUCTION TOTAL PROD-UCTION SALEABLE PRODUCTION EVENUES AVERAGE PRICE, RS/TON SALES REVENUES OTHER REVENUES TOTAL REVENUES PRODUCTION COSTS SALARIES & WAGES OVERHEAD STORES POWER TRANSPORTATION OTHER COSTS TOTAL OPERATING COSTS DEPRECIATION INTEREST TOTAL PRODUCTION COSTS PROFIT BEFORE TAX NET INCOME _ -

111 ANNEX 18 Page 2 of 3 BALANCE SHEET 1986/87 TO 1993/94 "in Rs million) (As of Narch 31) ASSETS CURRENT ASbZTS CASH & BANK BALANCES COAL STOCK STORES & SPARES SUNDRY DEBTORS OTHER TOTAL CURRENT ASSETS GROSS FIXED ASSETS , less ACCUMULATED DEPREC NET FIXED ASSETS CAPITAL WORK-IN-PROGRES LOANS & ADVANCES ' TOTAL ASSETS LIABILITIES CURRENT LIABILITIES SUNDRY CREDITORS ROYALTIES, CESS, ETC OTHER CURRENT LIAB SHORT TERM DEBT TOTAL CURRENT LIAB LONG TERM DEBT OTHER LIABILITIES TOTAL LIABILITIES SHAREHOLDERS' EQUITY PAID-IN-CAPITAL RETAINED EARNINGS SHAREHOLDERS' EQUITY TOTAL LIAB. & EQUITY _ -_ -

112 ANNEX 18 Page 3 of 3 SOURCES AND APPLICATION OF FUNDS 1986/87 TO 1993/94 (in Rs million) 86/87 87/88 88/89 89/90 90/91 91/92 92/93 93/94 SOURCES NET INCOME DEPRECIATION u TOTAL INTERNAL CASH NEW EQUITY CAPITAL LONG TERM LOANS TOTAJ. SOURCES APPLICATIONS INVESTMENT DEBT REPAYMENT INCREASE IN WORKING CAP DECREASE IN OTHER LIABL TOTAL APPLICATIONS RATIOS CURRENT RATIO LONG TERN DEBT/ EqUITY L LONG TERN DEBT SERVICE

113 -106- ANNEX 19 Page 1 of 5 INDIA - COAL MINING AND COAL QUALITY IMPROVEMENT PROJECT MEDIUM TERM EFFICIENCY IMPROVEMENT PROGRAM ( ) AND PERFORMANCE TARGETS In December 1986 CIL issued a Medium Term Coal Efficiency Improvement Program (the Efficiency Program) to cover the period 1985/86 to 1989/90. The contents of the Efficiency Program include (i) enumeration of specific priority actions to be implemented in the subsidiary companies to increase coal production, reduce costs and improve productivity; (ii) evaluation of the effects of such measures in terms of their physical impact on production terms; and (iii) assessment of the impact of the Efficiency Program on CIL's financial viability. The Efficiency Program draws upon CIL's Action Plan for 1986/87 as well as a draft CIL Five Year Corporate Plan covering the period which CIL had previously prepared. The Efficiency Program is based on a mine by mine production analysis which targets an increase from 134 million in 1985/86 to 196 million tons in 1989/90 as shown below: CIL - Production Target 1985/ /Sq (Million tons, raw coal) 1985/ / / / /90 (Actual) Existing mines Sanctioned mines New mines to be sanctioned Production Of the present production of 143 million tonnes ( ), the underground mines account for 45% and the rest comes from opencast projects. In the increased production of 53 million tonnes envisaged by , 75% would be contributed by opencast mines. By the share of opencast mines to total production would be 61%. The predominance of fixed cost element over the variable costs in capital intensive projects (fixed 80%, variable 20Z) has necessitated CIL to pursue economies of scale through planning and implementation high capacity mining projects. The

114 ANNEX 19 Page 2 of 5 common size of a mechanized opencast m3lxe which used to be 1-2 m.tonnes per annum is being progressively increased to m.tonnes per annum. Examples of such big projects are Mukunda (12 m.tonnes), Jayant (10 m.tonnes), Rajmahal (10 m.tonnes), Nigahi (14 m.t.) Dudichua (10 m.t.). Planning of high capacity projects is not confined to opencast mining alone. Underground mines like Jhanjra (3.5 m.tonnes) and Pootkee Ballihari (3 m.tonnes) are also under implementation. In planning and implementing high capacity projects the induction of technological expertise and equipment and machinery from a number of foreign countries is being pursued actively. Some of the countries from whom such assistance is being obtained are USSR, West Germany, UK, France, Poland and Canada. Many of these projects are being entrusted on a turnkey basis with adequate performance guarantees. Productivity Productivity improvements are designed to increase the output per manshift (OHS) of both underground and open-pit mines. In the area of mechanization in existing underground mines, the technology of powered-support longwall mining would be extended. As against six longwall faces working in , 23 would be working by Medium level mechanization has been introduced with side discharge loaders and load control dumpers in bord and pillar mines. The possibility of introduction of continuous mining and shuttle cars in bord and pillars mines with roof bolting is being investigated. The need for mechanizing transport of men and material in underground mines has been recognized and would find introduction during the Seventh Plan period. Other special methods of mining like Blasting Gallery method and Hydraulic Mining and Descending Shield method are also being adonted. Besides mechanization, a number of system improvement and managerial measures are being adopted. These include "all men all iob systems- in mechanized mines, better amenities (such as housing, recreational, water supply facilities) to reduce absenteism and a system approach in mechanizing coal evacuation, face ventilation etc. Based on these measures CIL is targetting the following progressive increase in OMS for each subsidiary: CIL - Output Per Manshift Target 1987/ /90 (tons per manshift) Company OMS Eastern Coalfields Ltd Bharat Coking Coal Ltd Central Coalfields Ltd Northern Coalfields Ltd Western Coalfields Ltd South Eastern Coalfields Ltd North Eastern Coalfields Coal India Ltd

115 ANNEX 19 Page 3 of 5 Manpower Planning The existence of a substantial surplus labour force in some of the coal mines has been well recognized. Concerted efforts are afoot to contain and reduce the labour force through a package of measures. The broad contours of the strategy are as follows: (a) control over fresh recruitment; (b) preparation of manpower budgets; (c) introduction of multi-scale workforce; td) training and re-orientation of workforce; (e) reorganization of uneconomic mines; (f) re-deployment of surplus workforce; and (g) voluntary retirement scheme. One of the important steps taken to control fresh recruitment has beel. the abolition of the system of providing jobs to land losers in the coal projects. Following the recommendations of the Chari Committee on Eastern Coalfields Ltd., measures are afoot to rationalize the labour force in the identified uneconomic mines and deploy the surplus labour force elsewhere. A voluntary retirement scheme is also under formulation. As a result of the various measures enumerated above it is expected that the net addition to the labour force would be about only by 1989/90 as shown in the following table: CIL - Manpower Targets Company Manpower as on 1st April Eastern Coalfields Ltd. 1,88,500 1,88,500 1,88,500 1,88,500 Bhrat Coking Coal Ltd. 1,71,000 1,71,000 1,71,000 1,71,000 Central Coalfields Ltd. 1,05,000 1,03,300 1,02,400 1,00,400 Western Coalfields Ltd. 80,249 82,000 82,600 82,600 South Eastzern Coalfields Ltd. 1,05,200 1,07,700 1,14,000 1,20,500 Northern Coalfields Ltd. 11,000 14,000 17,000 19,100 North Eastern Coalfields 5,426 5,400 5,500 5,600 Central Mine P1- ing & Design Institute.'Coal 5,096 5,200 5,500 5,900 India Ltd. Office/ Dankuni Coal Complex Total: 6,71,471 6,76,400 6,86,500 6,93,600 Equipment Availability and Utilization Increasing introduction of machine' y and equipment in underground mining and the key role which equipment and machinery play in opencast mining call for strict adherance to international standards in their availability and utilization. It has been estimated that in the development of a large sized opencast project, plant and machinery account for 64-78% of the project cost. A multi-pronged strategy covering the whole gamut of activitiea from equipment selection to their efficient operation on field has been drawn up by Coal India. The strategy consists

116 ANNEX 19 Page 4 of 5 of (a) equipment selection; (b) equipment standardization; (c) equipment operation and training; (d) equipment maintenance (including spare parts management, spares depots, service centres, rehabilitation of idle equipment, high technology electrical inspection and workshop facilities); (e) computerized information system; and (f) other measures (including operating procedures, pit lighting, optimal drilling and blasting and _mplementing the results of the METCHEM study). Material Management The objectives of CIL in the area of materials management could be broadly classified as follows: (a) material demand and compatibility in keeping with end-user work stations; (b) integration of quality, quantity and price of materials to meet the projected demand efficiently with due regard to inventory holding norms and availability fluctuations; (c) minimization of down time of production equipment and project implementation delays by obviating stock outs; and Cd) ensure optimum inventory levels. To achieve the above objectives a series of steps have been taken. These include streamlining the purchase, procedures, vendor rating, computerization, opening of spare parts depots, training of executives, increasing the number of warehousing stations at carefully identified locations, disposal of obsolete items and evolution of optimum inventory levels. Communication and Comouterized Management Information System One of the felt requirements for efficient management of the coal sector is the availability of a speedy and reliable communication network linking the mines, the areas, the headquarters of the companies and Coal India Office in Calcutta. Towards this end a communication facility called Coalnet is under implementation. This network would be based on satellite communication. Under phase I of this satellite communication program 10 stations would be linked with each other and would have speech and data communication facilities. Under phase II, 9 more stations would be linked. Both these phases are expected to be completed by Managerial Climate Several steps have been taken to improve the managerial climate in the coal industry. Some of these steps are: (a) drawing up organization charts identifying responsibility and accountability; (b) adequate delegation of financial and administative powers; (c) master plan for reorientation training utilizing institutions in the country and bilaterial assistance for training in new technologies being imported; (d) more stress on participative management to improve industrial climate; and (f) introducing systems for recognition of good work and penalties for failures. Labour Participation The Joint Bipartite Committee of the Coal Industry has been fully activised and regular consultations are taking place between the management