Document of

The World Bank

FOR OFFICIAL USE ONLY

Report No. 15619

IMPLEMENTATION COMPLETION REPORT

INDIA

RENEWABLE RESOURCES DEVELOPMENT PROJECT(LOAN NO.3544-IN)

TAMIL NADU NEWSPRINT AND PAPERS LIMITEDPAPERMILL EXPANSION COMPONENT

May 9, 1996

Energy and Infrastructure Operations Divison (SA2EI)South Asia Country Department II

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

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CURRENCY EQUIVALENTS

Currency Unit = Rupees (Rs)Exchange Rate used in Staff Appraisal Report: Rs 26 = US$ 1.00

The following were the exchange rates between the Rupee (Rs) and the US Dollar (US$) during theproject's implementation period:

Year Rs/US$

1992 25.91993 30.51994 31.41995 32.4

MEASURES AND EQUIVALENTS

ton = metric ton (1000 kilograms)

ABBREVIATIONS AND ACRONYMS

EIA Environmental Impact AssessmentEIRR Economic Intemal Rate of ReturnEMP Environmental Management PlanFY Fiscal YearGOI Government of IndiaGOTN Govemment of Tamil NaduIAS Indian Administrative ServiceICR Implementation Completion ReportIDBI Industrial Development Bank of Indiam/min meters per minuteNGO Non-Governmental OrganizationRAP Resettlement and Rehabilitation Action PlanPAF Project Affected FamiliesSAR Staff Appraisal ReportTNPL Tamil Nadu Newsprint and Papers Lirmitedtpy tons per year

FISCAL YEAR OF BORROWER

April 1 - March 31

FOR OFFICIAL USE ONLY

TABLE OF CONTENTS

P reface .................................. iEvaluation Summary ................................. ii

PART I PROJECT IMPLEMENTATION ASSESSMENT

A. Evaluation of Project Objectives ........................... 1IIntroduction ............................ 1Project Objectives ............................ 2

B. Achievement of Project Objectives ............................ 2C. Major Factors Affecting the Project ............................ 4D. Project Sustainability ............................ 6E. Bank Performance ... 7........................7F. Borrower Performance ............................ 8G. Assessment of Outcome ........................... 8H. Future Operation ............................ 8I. Key Lessons Learned ............................ 9

PART II STATISTICAL TABLES

Table 1: Summary of Assessments .11Table 2: Related Bank Loans/Credits .12Table 3: Project Timetable .12Table 4: Loan Disbursement .12Table 5: Key Indicators for Project Implementation .13Table 6: Key Indicators for Project Operation .13Table 7: Studies Included in Project .14Table 8A: Project Costs .15Table 8B: Project Financing ............ 15Table 9: Economic Analysis ................. 16Table 10: Statud of Legal Covenants .17Table 1 1: Compliance with Operational Manual Statements .18Table 12: Bank Resources: Staff Inputs .18Table 13: Bank Resources: Mission ................ 19

APPENDICES:

APPENDIX A: Mission's Aide Memoire ..................................... 20

APPENDIX 13: Borrower's Contribution to the ICR ..................................... 27

This document has a restricted distribution and may be used by recipients oniy in the performance of theirofricial duties. Its contents may not otherwise be disclosed wikhout World Bank authorization.

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IMPLEMENTATION COMPLETION REPORT

INDIA

RENEWABLE RESOURCES DEVELOPMENT PROJECT(LOAN NO.3544-IN)

TAMIL NADU NEWSPRINT AND PAPERS LIMITEDPAPERMILL EXPANSION COMPONENT

PREFACE

1. This is the Implementation Completion Report (ICR) for the Tamil Nadu Newsprint andPapers Limited (TNPL) component of the Renewable Resources Development Project in India, forwhich loan No. 3544-IN in the amount of US$75 million equivalent was approved on December 17,1992, signed on March 5, 1993, and made effective on April 6, 1993.

2. The loan was fully disbursed on August 18, 1995 and was closed on December 31, 1995, theoriginal closing date.

3. This ICR was prepared by Mr. R. Chalk (Consultant) and Ms. M. Manzo (Task Manager)from the Energy and Infrastructure Operations Division (SA2EI), South Asia Country Department II(SA2). The report was reviewed by J. F. Bauer, Chief, SA2EI, and Ms. K. Uchimura, Project Adviser,SA2DR.

4. Preparation of this ICR is based on material in the project files and on information collectedand observations made throughout the project supervision and completion missions. The Borrowercontributed to the preparation of the ICR by submitting its own evaluation which is appended to thisreport, unedited.

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IMPLEMENTATION COMPLETION REPORT

INDIA

RENEWABLE RESOURCES DEVELOPMENT PROJECT(LOAN NO. 3544-IN)

TAMIL NADU NEWSPRINT AND PAPERS LIMITEDPAPERMILL EXPANSION COMPONENT

EVALUATION SUMMARY

Introduction

1. Encouraged by government incentives and a rising demand for newsprint in India, the StateGovemment of Tamil Nadu (GOTN) established Tamil Nadu Newsprint and Papers Limited (TNPL)in the late 1970s to undertake a program of research into the production of newsprint from sugar canebagasse. The objective of the undertaking was to further pilot plant development and ultimately tobuild a bagasse-based newsprint mill in this major sugar growing state. The development program wassuccessful, and TNPL decided to proceed with a full scale commercial operation. The Bank assistedTNPL with a loan of US$100 million through the Industrial Development Bank of India (IDBI), andthe first mill began operation in the mid-1980s. In the early 1990s, the Bank was approached again byTNPL for assistance to double the production capacity of the first mill. The Bank agreed to includeTNPL's project in a broader Renewable Resources Development Project which was approved by theBoard in December, 1992, and in which US$75 million was aUlocated for TNPL. This represented thefirst direct Bank loan to a state-owned public enterprise in India. The TNPL expansion project wasfully commissioned in December 1995.

Evaluation of Proiect Objectives

2. The main objectives of this project are to expand bagasse-based newsprint production to morecommercial levels and to promote environmentally sound investments to prevent depletion of India'slimited forest resources. These objectives, as well as corollary ones, have been achieved:

(a) the expanded TNPL mill can now produce newsprint at a more economicallyviable capacity level,

(b) some environmental and social problems caused by the first TNPL project havebeen addressed,

(c) no additional forest resources will be utilized; the whole fibrous raw material iscoming from sugar cane bagasse;

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(d) significant energy savings have been achieved in the paper mill and the supportingsugar mills;

(e) bagasse newsprint technology has been further improved;

(f) use of treated effluent for irrigation is well established; and

(g) the privatization of TNPL is underway.

Implementation Experience and Results

3. The project was implemented close to the planned time and budget. TNPL agreed to the useof model bidding documents agreed with the Bank from the onset of the project, and procurementprocessing, including for contracts involving two-stage tendering, was generally well conducted. Loandisbursement was timely and completed well before loan closing date.

4. Although there were frequent changes in top management appointed by the State Government,these did not hinder smootn project implementation as the appointees were highly competent and wellmotivated professional managers. Some delays in procurement decisions were experienced due tofurther review by GOTN. As whole, strong and sustained support from the Government for theproject and to making TNPL a commercial success was evident.

5. Environmental hazards normally associated with chemical pulping processes were addressedvith the installation of modem chemical recovery systems for recycling of pulping chemicals,electrostatic precipitators to control the discharge of particulate matters, a high degree of recirculationof process water and an efficient activated sludge effluent treatment system. However, somecomponents of TNPL's environmental management plan (EMP) are still to be completed, includingcontrol of odor from organic sulphur compounds, noise attenuation at the wood chipper facility, andfurther improvement of handling and safety facilities for hazardous materials. Stricter enforcement ofsafety standards in the plant site is also required.

6. Although expansion of the papemAill did not involve any new displacement of population, theoperation of the first mill had adversely affected 102 families in an adjacent village as a result ofseepage from the plant's effluent lagoon and settling of coal dust from the plant. Resettlement andrehabilitation was therefore required. TNPL was able to complete the agreed Resettlement ActionPlan (RAP) in a satisfactory manner and according to schedule. The implementation of the RAPinvolved, on the part of TNPL, early and regular consultation with the project affected families(PAFs), significant involvement in the community, provision of civic amenities as well as economicopportunities through employment and training.

7. TNPL, with the support of farmers residing in villages adjacent to the mill site, hasimplemented a unique lift irrigation system to fully exploit the treated effluent discharges from theplant. The scheme irrigates about 1400 acres of previously arid land allowing local farmers to nowharvest two or even three crops a year compared to only a single crop.

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8. TNPL's operational and financial performance has remained creditable despite the threat oflow-priced competition from imported newsprint during much of the early 1990s. Profit progressivelyincreased from Rs 364 million in FY1990/1991 to Rs 563 million by FY1994/1995 . The period sawthe emergence of new paper and newsprint product lines including the launching of TNPL's exports.The Company was able to sustain and increase its dividend payments for 5 consecutive years from 15%in FY1990/1991 to 27% in FY1994/1995, paving the way to a successful launching of its maiden issueof shares to the public in November 1995, thus reducing GOTN's shareholdings from 49% to 35%.

Project Sustainability

9. The project enjoys most of the requirements for long-term sustainability arising from a firmraw material base; growing domestic and intemational markets; world-class plant built on an excellentsite; and, above all, a dedicated and highly competent management and staff. Once outstandingenvironmental and safety issues have been addressed, the environmental sustainability of the projectwould be assured.

Performance by Bank and the Borrower

10. The Bank's performance on this project was satisfactory. Changes in Bank staff assigned toprepare and process the loan did not hinder efficient appraisal and supervision of the project. TheBorrower's performance at all stages has been exemplary.

Lessons Learned

11. The key lesson learned is the obvious one that a project which has all the basic ingredients for asuccessful industrial project and is well prepared by an experienced and committed client, has a goodchance of success.

12. The use of innovative and pioneering technology in developing countries is a suitable basis forBank-financed projects provided the technology has been thoroughly researched. Bank support forsimilar bagasse-based newsprint production in other countries with limited forest resources can helpreduce and manage technological risks and pave entry of the technology into the commercialmainstream for private investments.

13. Early agreement in use of model bidding documents, in this case by pre-appraisal stage,significantly facilitated procurement processing and disbursements.

14. In-house design by borrower of a RAP acceptable to the Bank resulted in a high degree ofmanagement resolve to complete the RAP as per design and within the original schedule.

15. To ensure their long-term sustainability, technology innovations and investments in state-of-the-art industrial machinery and equipment should be accompanied by state-of-the-art environmentaland safety management systems.

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IMPLEMENTATION COMPLETION REPORT

INDIA

RENEWABLE RESOURCES DEVELOPMENT PROJECT(LOAN NO.3544-IN)

TAMIL NADU NEWSPRINT AND PAPERS LIMITEDPAPERMILL EXPANSION COMPONENT

PART I - PROJECT IMPLEMENTATION ASSESSMENT

A. EVALUATION OF PROJECT OBJECTIVES

Introduction

1. Faced with declining forest resources and increasing demand for paper, especially newsprint,the Government of India (GOI) in the late 1970s launched a program of incentives to encourage theuse of alternative and renewable raw materials for the production of pulp and paper. The Governmentof Tamil Nadu (GOTN) took up the challenge and in April 1979 incorporated the Tamil NaduNewsprint and Papers Limited (TNPL) to explore the possibility of producing newsprint from sugarcane bagasse. This was an ambitious program given that success in similar attempts had eluded theworld's pulp and paper industry for several decades. TNPL, in cooperation with a large USA papermachinery manufacturer with a strong research base, undertook an extensive program of investigationof past attempts by the industry to use bagasse for newsprint production and undertook an imaginativepilot plant operation which ultimately lead to a successful process. TNPL decided to proceed with afull-scale commercial development and approached the Bank for financial assistance. In 1981, the Bankapproved a US$100 million loan to help finance the TNPL mill at Pugalur which proved to befinancially and economically successful, and for the most part proved the technical feasibility ofproducing newsprint from bagasse. Although some technical shortcomings were observed in thispioneering process, the experience gained through the first decade of operation of TNPL wassufficiently successful to encourage TNPL to plan a second mill in which technical improvementslearned in the first operation would be advanced.

2. The scope and objectives of TNPL's expansion program were compatible with a project beinginvestigated at the time by the Bank and GOI to encourage development through the utilization ofrenewable resources. The Bank agreed to explore TNPL's project as part of a renewable resourcesproject which also included small-hydro, solar, and wind electrical generation. One of the first steps inthe Bank's involvement in TNPL's expansion was to convince the Company to take the financially andtechnically more secure route of doubling the existing operation rather than building a green field plant.TNPL agreed to this approach as well as to launching a public issue of its shares in order to attractprivate sector participation.

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Project Objectives

3. The objectives outlined in the SAR of the Renewable Resources Project which specificallyrelate to the TNPL component are:

* to expand bagasse-based newsprint production to more commercial levels;* to promote environrnentally sound investments to prevent depletion of India's limited

forest resources; and* to reduce the energy sector's dependence on fossil fuels.

4. While the above are the three specific objectives noted in the SAR, there are several otherobjectives which justified the Bank's involvement in the TNPL component, including:

* improvement of bagasse newsprint technology for use in other developing countries,* to further the use of pulpmill effluent for irrigation;* more efficient utilization of the Bank-financed first stage TNPL plant;* correction of certain environmental and social shortcomings of the first project;* reduction in the volume of newsprint imports and in GOI's control over the import,

pricing, and distribution of newsprint, and* privatization of TNPL such that within one year after completion of the project at the

latest, GOTN's shareholdings would be reduced from 490/o to 26%.

B. ACHIEVEMENT OF PROJECT OBJECTIVES

5. This project has been successful in achieving the first objective stated in the SAR, i.e., toexpand production of bagasse-based newsprint to more commercial levels. The expanded mill is nowcapable of producing 100,000 tpy of good quality newsprint using 100% bagasse pulp, leaving theoriginal mill to concentrate on the production of 80,000 tpy of printing and writing paper. These levelsof production achieve economy of scale in this highly capital intensive industry. It must be pointed outthat at the time of preparation of this ICR, the expanded mill is still undergoing commissioning, and hastherefore not operated for sustained periods at design level. However, based on the experience of theoriginal mill, which operates consistently at greater than 100% of design level, no difficulties areanticipated in bringing the new facilities quickly up to full capacity. Furthermore, the expanded mill,with two paper machines and appropriate pulping and ancillary equipment, is now able to fully utilizeall installed equipment. Previously, the mill produced altemately newsprint or printing and writingpaper, and extensive sections of the mill were alternately superfluous and were not operated -- clearly awaste of capital resources.

6. The second objective listed in the SAR has been largely achieved, as the doubling ofproduction puts no additional demand on India's limited forest resources, the pulp for paper makingbeing produced 100% from bagasse using both chemical and mechanical pulping processes.Resettlement of families adversely affected under the first plant operation was satisfactorily completed.Most of the environmental hazards normally associated with chemical pulping processes have been

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properly addressed, with the instaDation of modem chemical recovery systems for re-cycling of pulpingchemicals, electrostatic precipitators to control the discharge of particulate material to the atmosphere,a high degree of re-circulation of process water, and an efficient activated sludge effluent treatmentsystem. A safety audit of the chlorine and caustic lye systems was conducted, and systemsmodifications made based on the audit recommendations. A disaster management contingency planwas developed and fire and chlorine mock drills conducted. Nevertheless, a number of environmentalissues remain outstanding relating to control of odor from organic sulphur compounds, noiseattenuation, enforcement of safety standards and general goodhousekeeping.

7. The third objective stated in the SAR, to reduce the energy sector's dependence on fossil fuels,is more directly relevant to the other components of the Renewable Resources Development Projectthan it is to TNPL. However, the overall concept of TNPL is energy efficient and improves energyconsumption in a number of ways. First, sugar mills bum bagasse to produce steam for use in theirown manufacturing process, but as the energy potential from the volume of bagasse is higher than theenergy requirements, sugar mills are traditionally energy inefficient and burn bagasse to dispose of it,generating steam without regard to efficient boiler operation, and generally paying little attention toenergy conservation in the sugar manufacturing process. However, there is a growing awareness ofthe potential for energy improvement in the sugar industry with resulting financial benefits, and inspiredlargely by the increased interest in bagasse for pulping, specifically the demands of TNPL, a number ofsugar mills have instituted energy saving measures to allow a reduction in the amount of bagasse usedfor fuel, thus providing a surplus for sale to the paper industry. TNPL takes advantage of this surplusand purchases part of its bagasse requirements from this source. However, the main supply of bagassefor TNPL is provided by a program of fuel replacement in the sugar mills. TNPL has installed efficientmulti-fuel boilers at specific sugar mills within a suitable economic radius of its paper mill and providesthese sugar mills with a reliable supply of steam generated from coal, lignite, and the non-fibrous pithportion of bagasse, in exchange for the sugar mills' entire production of de-pithed bagasse.Furthermore, use of fossil fuels is minimized within the TNPL mill itself a major source of energy isthe steam produced in the chemical recovery boiler which uses as its primary fuel the non-fibrousorganic material removed from the bagasse during chemical pulping. Also, pith removed from bagasseon-site is used as part of the fuel in the power boilers. Co-generation is practiced to the maximumextent possible, with more than 73% of the mill's electrical requirements being produced on-site inextraction turbines, thereby minimizing the demands on grid power generated from fossil fuel.Furthermore, although it was not a direct component of the paper mill expansion project, TNPL hasinstalled a 15 MW windfarm which further reduces the Company's dependence on the grid.

8. Various other objectives of the project, not specifically itemized in the SAR, have also for themost part been achieved:

improving the technology for bagasse-based newsprint production is a continuing processwhich will be greatly enhanced by the flexible process flow scheme provided in theexpanded mill which will allow commercial-scale experimentation to be carried out duringnormal production runs. Already after only two months of commissioning the plant,TNPL has demonstrated its ability to produce good quality newsprint from 100% bagassefiber (including up to 50% mechanical bagasse pulp) at speeds of greater than 725 m/min--the first time this has been achieved anywhere in the world.

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* as indicated earlier, the expanded plant can now make continuous use of all equipmentinstalled, as there is no need to alternate production between two products which usedifferent parts of the installed equipment.

* some unforeseen environmental and social problems which arose during the first projecthave now been corrected.

* India is self sufficient in all major grades of paper except newsprint for which about half ofthe country's consumption of some 500,000 tpy is imported. Thus the increasedproduction of newsprint by TNPL results in a significant reduction in foreign exchangeexpenditures. Furthermore, the ongoing dialogue with the GOI during the course of theTNPL project has led to a relaxation in GOI control over import canalization andnewsprint pricing. Today's newsprint price is market driven and influenced by free imports.

* TNTPL in November 1995 issued 20 million shares to the public and the Company is nowlisted on the Bombay Stock Exchange. This issue of shares to the public has now reducedthe GOTN's equity from 49 to 35%.

Implementation Record

9. The project was to be implemented over a period of three years and four months, fromJanuary 1992 to April 1995. The commissioning of the paper machine was delayed by about fivemonths and overall project conmissioning by eight months. The loan was fully disbursed in August1995, well before the loan closing date.

C. MAJOR FACTORS AFFECTING THE PROJECT

Factors Subject to Government Control.

10. Appoinitment of Corporate Officers. During the course of project design and implementation,three different IAS Officers held the appointment of Managing Director of TNPL, and two of thesewere also Chairman of the Company. All of these appointees have been highly competent and wellmotivated professional managers, and in spite of these changes in top management, the implementationof the project has proceeded smoothly.

11. Procurement. Although ostensibly the sole responsibility for procurement was lodged withTNPL, procurement decisions were subject to GOTN approval, at least for major packages. Inseveral instances there was extended delay in submitting procurement documents to the Bank forclearance. This did not, however, unduly delay the planned implementation schedule. In general,procurement processing went smoothly and in many cases, the period between bid opening andactual contract award was kept within six months.

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Factors Subject to Implementing Azencv Control

12. Corporate Culture and Project Management. The middle management of the Company,particularly those directly associated with project implementation, is made up of highly experienced andcompetent professionals most of whom have been with TNPL since the beginning of the first project.The existence of this core group, supported by a committed and enthusiastic, albeit changing, topmanagement, has been a major influence on the successfill design and implementation of this project.Implementation has been mostly trouble-free, and the project has been completed essentially onschedule and close to the original budget.

13. Engagement of Engineering Consultants. A key factor in getting the project started in anorderly and timely manner was the engagement by TNPL of a qualified consultancy firm for thepreparation of detailed engineering and costing, provision of procurement services includingpreparation of tender documents, and supervision of plant construction and erection.

14. EnvironmentalManagement. Under the project, capacity of the effluent treatment plant hasbeen augmented to treat additional effluent and to improve the treatment system as a whole in order tomeet the State Pollution Control Board standards for surface water discharge. Accordingly,complaints from NGOs about TNPL's non-compliance with environmental regulations, specificallyhaving to do with the discharge of effluent to irrigation canals have been addressed. While most of theelements of TNPL's environmental management plan (EMP) agreed to with the Bank during projectappraisal have been completed or are on-going, a number of mitigation measures have yet to beeffected. Odor control through the burning of sulphur compounds in the lime reburning kiln has notyet begun. The lime kiln itself is still on order for delivery in July 1996. Noise reduction from thewood chipper has not been addressed, although TNPL has expressed the opinion that this issue hasbeen over-emphasized by the Bank. Handling of hazardous materials needs to be further improved andinstallation of chlorine safety equipment completed. In this connection, the disaster management planably developed by TNPL should serve as foundation on which TNPL can build its environmental,health and safety management and loss prevention program.

15. Resettlement. Although expansion of the papermill did not involve any new displacement ofpopulation, the operation of the first mill had adversely affected 102 families in an adjacent village asresult of seepage from the plant's effluent lagoon and settling of coal dust from the plant. Resettlementand rehabilitation was therefore required. TNPL was able to complete the agreed Resettlement ActionPlan (RAP) in a satisfactory manner and according.to the six-month schedule. The implementation ofthe RAP involved, on the part of TNPL, early and regular consultation with the project affectedfamilies (PAFs), significant involvement in the community and provision of employment opportunities,scholarships, health services and civic amenities.

16. Social Aspects. TNPL, with the support of farmers residing in villages adjacent to the mill site,has implemented a unique lift irrigation system to fully exploit the treated effluent discharges from theplant. The scheme irrigates about 1400 acres of previously arid land and potentially another 3,000 to4,000 acres, allowing local farmers to now harvest two or even three crops a year compared to only asingle crop. The Tamil Nadu Agricultural University is monitoring the effect of usage of effluentwaters for irrigation over a 5-year period (1993 to 1998). In addition, TNPL has chosen to provide

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drinking water taps throughout the irrigation area as part of its community and public health serviceefforts.

17. Operational and Financial Performance. TNPL's performance has remained creditable fromtime of project appraisal despite the threat of low-priced competition from imported newsprint duringmuch of the early 1990s. Profit progressively increased from Rs 364 million in 1991 to Rs 563 millionby 1995. The Company was able to sustain and increase its dividend payments for 5 consecutive yearspaving the way to a successful launching of its maiden issue of shares to the public in November 1995.In addition, TNPL has been rated as FAAA (F-Triple A Highest Safety) for its Fixed Deposit Schemeby Credit Rating Information Services of India Ltd. (CRISIL).

18. Privatization. A loan covenant aimed at the privatization of TNPL states that the Companywill sell shares to the public on or before October 1994 to bring the GOTN shareholding to a minoritylevel, and within one year of achieving commnercial production, will have reduced the GOTN's share to26%. Market entry was delayed by a year to allow TNPL to comply with the new rules for listing ofshares in the stock exchanges. Moreover, to improve the earnings per share ratio and help attractinvestors to pay a premium of Rs 100 per share, TNPL restructured its capital by reducing its equitybase from Rs 982 million to Rs 500 million effective June 9, 1995. TNPL's shares are now quoted onthe Bombay and Madras Stock Exchanges. TNPL is concemed that selling another large block ofGOTN shares to reach the objectives of the loan covenant within the stated time period would have anadverse impact on the share price and have sought Bank agreement to delay the process. The Bankhas agreed that TNPL need not unload more shares on or before December 31, 1996 if the marketprospects are poor, provided TNPL informs the Bank by December 31, 1996 regarding its alternativeplan for further divestment of GOTN's shares.

D. PROJECT SUSTAINABILITY

19. Since its inception in 1979, TNPL has been well managed by experienced senior IASexecutives and operated by highly experienced technical and business managers and staff. By the early1990s TNPL has been hailed in the Indian business community as one of the most successful paperproducing company in India. The management has shown skill and imagination in making the firstproject a financial and technical success, even in the face of several years of drastic decline in theworld's pulp and paper industry when supplies far exceeded demand and low priced imports,particularly from the former Soviet Union and other eastem bloc countries, were in direct competitionwith TNPL in the domestic market. Having survived this difficult period and now profitably operatingthe first project at greater than design capacity, there is every reason to expect TNPL will continue tobe successful with the expansion project. This view is supported by the facts that TNPL has a soundraw material base, an ever-increasing domestic and international market for newsprint, world-classmanufacturing facilities including modern environmental protection equipment, and above all, adedicated and skilled management and staff However, to further ensure the project's long-termsustainability, completion of the outstanding components of the EMP is required.

20. Having brought prosperity to the ruraVagricultural community in which it operates, andequitably settled some social conflicts which developed during initial operation, TNPL now enjoys the

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enthusiastic support of the community because of the many social and economic improvements it hasbrought.

21. Newsprint is a politically sensitive commodity in India and it has suffered in the past from pricecontrols and import regulation from the GOI. However such controls have now been lifted andnewsprint producers operate in a totally free market situation. The major world producers ofnewsprint, such as the Canadian and US companies, are the only long-term threat to TNPL (and otherIndian producers) as they are very efficient low-cost producers which have free access to the Indianmarket. While TNPL is large by Indian standards, and has proven its financial and economic feasibility,it is still a relatively high-cost producer compared to the world leaders because of its relatively highcapital cost per ton of production and it needs to rely on a non-conventional and comparatively high-priced raw material. On the other hand, TNPL's competitive position is supported by low distributioncost to the domestic and selected export markets, and by low labor costs and efficient manufacturingcost control.

22. In summary, upon completion of remaining environmental mitigation measures, the projectfinanced by Loan 3544-TN is fully sustainable without fuirther Bank involvement, and the plant isexpected to have an economic life of at least 30 years.

E. BANK PERFORMANCE

23. Following the successful early operation of TNPL's first project financed by the Bank, TNPLapproached the Bank anew for financial assistance to expand. This request came during a period whenthe Bank was moving away from industrial lending. However, as the first project had been somewhatrisky in its technical concept but was proving to be successful and of great potential benefit to the paperindustry in other developing countries, and spurred by the satisfactory performance of TNPL in the firstproject, a follow-up lending operation seemed justified. Identification and preparation missions weretherefore launched and a successful dialogue ensued between the Bank and TNPL in which TNPL andGOTN, agreed with the Bank's suggestion to drop plans for a major green field mill at a new site infavor of an expansion of the original TNPL mill. At the Bank's request, TNPL revised its plans andprepared detailed feasibility studies for the new concept. In the midstream of project preparation,there was a change in Bank staff assigned to the project due to a departmental reorganization.However, the transition went smoothly and the change did not delay the project preparation orappraisal which speaks well of the competency and flexibility of both the Bank and TNPL staff. Oneconstant which helped this transition was the technical staff on both the Borrower and Bank sides whowere continuously involved in the first project and in the development of the expansion project.

24. An excellent rapport developed between the Bank and TNPL during the course of projectpreparation and execution, allowing issues to be resolved promptly including obtaining a pro-activeresponse from TNPL in preparing and expeditiously implementing a RAP. There were minordisagreements on some procurement issues, several of which reached the stage of formal objectionsfrom suppliers through Executive Directors to Bank management. These were all quickly andthoroughly reviewed and resolved through the Regional and Central Procurement Advisors. On somestages of the environmental program, Bank regional staff took stronger positions than the technical

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project staff, but no serious conflicts arose and the Bank was able to present a consistent position toTNPL.

F. BORROWER PERFORMANCE

25. The Borrower's performance throughout all stages of this project has been highly satisfactory.The management and staff have shown a high degree of professionalism, dedication to the project,flexibility to change, and a willingness to fulfill all of the Bank's requirements and requests. The projectimplementation unit established by TNPL, in cooperation with their Indian consulting engineers,demonstrated an unusually high degree of project implementation skills including the development ofbasic engineering design concepts, preparation of engineering drawings, procurement documents,evaluation of tenders, cost control, equipment inspections, scheduling and supervision of erection, andcommissioning of the plant for commercial operation. TNPL provided comprehensive and timelyprogress reports from which it was possible for the Bank to know at any given time at which stageeach contract, both Bank-financed and non-Bank-financed, was in. TNPL's project team was stronglycommitted to completing the project at the earliest possible time, as management sent out clear signalsthat every delay meant lost revenue and profit to the company.

26. Financial management of the project has been completely satisfactory, with the Bank loan beingfully disbursed within 3 quarters of the date estimated in the SAR, and well ahead of the original loanclosing date. Provision of local currency funding and foreign exchange requirements in excess of theBank loan amount was not a problem at any time.

G. ASSESSMENT OF OUTCOME

27. The project has achieved all its major objectives except the sale of a majority of shares to thepublic, which is expected to be executed within the first or second year of commercial operation of theexpanded plant. The overall outcome of the project is judged to be highly satisfactory. A reassessmentof the Economnic Rate of Return, given in Table 9, indicates the intemal econornic rate of return of26.6% which is close to that estimated at time of appraisal of 28.7%

H. FUTURE OPERATION

28. The expanded TNPL mill can be expected to reach its full capacity within two years. It shouldbe noted that an average pulp and paper mill in an industrialized country would normally require aboutthree years from commissioning to full capacity operation. TNPL is expected to better this averagebecause it is an expansion of a successfully operating similar plant and because it is managed andoperated by highly skilled and dedicated professionals who have demonstrated their ability in the firstproject and who are committed to the success of the second project.

29. In view of the continually increasing demand for newsprint and the availability of bagasse inthis major sugar-growing state of India, TNPL is already in the process of developing anothernewsprint production facility. The existing plant site at Pugalur is probably not capable of supporting

9

more expansion because of the limitation of sugar production within an economic radius for delivery ofbagasse. TNPL is therefore looking at a green field operation in the South Arcot district of TamilNadu. The mill could have great potential for developing further the concept of bagasse-basednewsprint production by incorporating a more integrated approach to development with renewableresources by locating sugar and paper production facilities on the same site, possibly including a co-generation power plant, or include additional by-products such as industrial alcohol. Such anoperation could prove to be a good demonstration plant worthy of IFC financing.

1. KEY LESSONS LEARNED

30. This project has been essentially trouble-free, and the main lesson learned is the obvious onethat a project well prepared by an experienced client which involves all the basic ingredients for asuccessful industrial project, namely raw material supply, markets, good plant and technology, andcapable management and staff, will succeed.

31. As was the case in the first TNPL project, the use of innovative and pioneering technology indeveloping countries is a suitable basis for Bank-financed projects, provided the technology has beenthoroughly researched and especially if there is a technical fall-back position. In this case, if newsprintproduction from bagasse would have failed, the fall-back is to make printing and writing paper, thetechnology for which is well established, and which in fact is financially more attractive. Bank supportfor similar bagasse-based newsprint production in other countries with limited forest resources can helpreduce and manage technological risks and pave entry of the technology into the commercialmainstream for private investments.

32. Early agreement on model tender documents, in this case by pre-appraisal, significantlyfacilitated procurement processing, timely equipment delivery, and disbursements.

33. The effort, comnmitment and goodwill invested by TNPL in preparing a resettlement andrehabilitation action plan for the PAFs have resulted in its smooth and speedy implementation.Although not specifically stated as objectives of this essentially industrial project, there has been asubstantial achievement of poverty reduction through the direct and indirect employment generated andrelocation of a village of some 600 individuals to a new community with better housing, electricity,water, and sanitation, as well as through the provision of irrigation facilities and waters to neighboringcommunities. The positive and long-term benefits derived from these project externalities make forsustainable industrial development.

34. To ensure their long-term sustainability, technology innovations and investments instate-of-the-art industrial machinery and equipment should be accompanied by state-of-the-artenvironmental and safety management systems. Agreement to a comprehensive EMP andfrequent reporting by borrower on its status, supplemented by regular follow-up visits byBank's environmental specialists, helped ingrained within the borrower's corporate culture theimportance of industrial safety and environmental management.

10

PART II: STATISTICAL TABLES

Table I Summary of AssessmentsTable 2 : Related Bank Loans/CreditsTable 3 Project TimetableTable 4 Loan Disbursements: Cumulative Estimate and ActualTable 5 : Key Indicators for Project ImplementationTable 6 Key Indicators for Project OperationTable 7 Studies Included in ProjectTable 8A Project CostsTable 8B Project FinancingTable 9 : Economic Costs and BenefitsTable 10 Status of Legal CovenantsTable 11 Compliance with Operational StatementsTable 12 Bank Resources: Staff InputsTable 13 Bank Resources: Missions

11

Table 1: Summary of Assessments

A. Achievement of Objectives Substantial Partial Negligible Not applicable

Macro Policies 0 0 0 E

Sector Policies 0 0 0 0

Financial Objectives 0m 0 0 0

Institutional Development 0 01 0 0

Physical Objectives 03 0 0 0

Poverty Reduction 0 0 0 0

Gender Issues 00 0 0

Other Social Objectives Q0 0 0

Environmental Objectives 03 0 0 0

Public Sector Management 0 0 0 0

Private Sector Development 0 0E 0 0

Other (Technical innovation) 0M 0 0 0

B. Proiect Sustainabilitv Likely Unlikely Uncertain

l 0 0

C. Bank Performance

satisfactorv Satisfactorv Deficient

Identification 0 [E 0

Preparation Assistance 0 0E 0

Appraisal 0 0 0

Supervision 0 0 0

ighlyD. Borrower Performance satisfactory Satisfactorv Deficient

Preparation 03 0 0

Implementation 0 0 0

Covenant Compliance 0 0 0

Operation (if applicable) 0 0 0

Hi2hlv HighlyE. Assessment of Outcome satisfactory Satisfactory Unsatisfactory unsatisfactorY

0 0 0 0

12

Table 2. Related Bank Loans/Credits

The only directly relatcd Bank Loan is Loan No 2050-IN for the construction of the first project of TNPL.This loan of US$ 100 million was approved on September 18, 1981, and closed on August 31, 1985, fullydisbursed.

Table 3: Project Timetable

Steps in Project Cycle Date Planned Date ActualULatest Estimate

Identification (Executive Project Summary) 06/10/91

Appraisal 06/29/92

Negotiations 11/19/92

Board Presentation 12/17/92

Signing 03/05/93

Effectiveness 04/06/93

Midterm Review 09/15/94 10/01/94

Implementation Completion 04/30/95 10/31/95

Loan Closing 12/31/95 12/31/95

Table 4: Loan Disbursements: Cumulative Estimated and Actual(US$ million)

FY 93 FY 94 FY 95 FY 96Appraisal estimate 18,000 58,000 75,000 75,000Actual 13,130 22,270 71,800 75,000Actual as % of estimate 73% 38% 96% 100%Date of final disbursement 08/18/95

13

Tablc 5: Key Indicators for Project Implementation

Key Milestones Planned Actual

Zero date 01/01/92 02/01/92

Basis engineering complete 10/15/92 09/30/93

Ordering key cquipment:paper machine 10/01/92 03/03/93chemical recovery plant 12/01/92 10/11/93pulp mill 03/15/93 04/24/93power plant 01/01/93 06/19/93

Deliverv of kev equipment.paper machine 08/31/94 12/31/94chemical recoverv plant 06/15/94 01/15/95pulp mill 06/15/94 09/30/95power plant 06/15/94 09/30/95

Commissioning of paper machine 04/30/95 09/04/95

Overall commissioning of project 04/30/95 12/31/95

* No key indicators were specifically defined in the SAR except those indicated on the implementation schedule.which are compared with the actual rcsults as above.

Table 6: Key Indicators for Project Operation

Key indicators for project operation were not identified in the Staff Appraisal Report or thePresident's Report at the time of the loan approval in June 1985

14

Table 7: Studies Included in Project

Purpose as DefinedStudy at Appraisal/Redefined Status Impact of Study

Environmental Impact To define environmental issues Completed by Indian Most environmental issuesAssessment Statement which needed to be addressed consultants and reviewed have been addressed.

in the mill design. and accepted by the Bank. Occasional problems suchas noise from the woodchippers and odor controlare still being investigatedbut full solution may notbe practical.

Socio-economic Programme/ To determine the effects of the Studies completed and The major impact is theResettlement Action Plan mill construction on the local action taken on all construction by TNPL of a

community. identified problems. new village to relocate andhouse the inhabitants ofsome 102 families (612people) which were beingbothered by mill effluentseepage and atmosphericfallout from the originalmill

Disaster Management To identify probable disaster Studies completed, Some modifications to fireContingency Plan; Fire that could occur, recommend required systems handling systems andHazard Survey; Safety Audit modifications to systems and modifications identified, chlorine and caustic lye

determine required responses to and emergency response systems were introducedemergencies plans developed. Some Fire mock drills and

safety improvements still chlorine leakage mockto be effected. drills conducted.

Occupational Health Survey To monitor incidence of health Phase I covering aboutproblems including respiratory 400 officers, staff andinfections, for the public and workmen of above 40workers inside the paper mill. years of age completed

Effluent Irrigation Studies To ensure no long-term damage The study is on-going by Only beneficial effectsto the soil will be caused by the Agricultural have been noted so far.using treated effluent. University of Tamilnadu

at Coimbatore.

15

Table 8A: Project Costs(Million Rs)

Appraisal Estimate Actual/Latest Estimate

Local Foreign Local Foreign

Item Costs Costs Total Costs Costs Total

1 Civil Works 162 0 162 431 0 4312 Equipment & Spares 488 1990 2478 2203 1608 38113 Duties & Taxes 1180 0 1180 499 0 4994 Erection 91 0 91 169 0 1695. Engineering 35 8 43 210 186 396

TO'(IAL PLANT COST 1956 1998 3954 3512 1794 5306

6 I're-Operatinig Cost 48 0 48 229 0 229

13ASE COST ESTEvIATE 2004 1998 4002 3741 1794 5535

7 I'hlsical Contirigencies 194 200 394 0 0 08 Price Contingencies 346 89 435 0 0 0

INSTALLED COST 2544 2287 4831 3741 1794 5535

9. Working Capital 58 0 58 0 0 010. Interest During Construction 361 0 361 578 0 578

TO'T'ALI FINANCING REQUIRED 2963 2287 5250 4319 1794 6113

Notc:Table 8A, costs incurred in foreign exchange have been converted to Rs. at today's exchange rate ofRs.37/USS as this represents the amount of Rs. needed to repay the loan. The difference in TotalFinanicing Required is 863 million Rs. (6113-5250) which is mostly due to currency fluctuations.

Table 8B: Project Financing(Million Rs)

Appraisal Estimate Actual/Latest Estimate

Local Foreign Local ForeignCosts Costs Total Costs Costs Total

IBRD - 2287 2287 1161 1614 27751)D131 1213 - 1213 1000 - 1000

1'NPI. 1750 - 1750 2158 180 2338

I'O'l'AL 2963 2287 5250 4319 1794 6113

Note: Table 8B, "SAR" amounts converted at 30.5Rs/US$ and "Actual" amount at 37Rs/US$ of TNPL'stotal financing of Rs.2338 mnillion; Rs.1460 million was raised from public issue of shares.

Table 9: Economic Analysis(In Rs Millions)

Production Sales Revenue Costs Net BenefitNewsprint Printing &

Year ()(00 tons) \xTiting paper Newsprint \NTP* Total Investiiicnt Operating I OTAL Net lieniefit('00)) tons) Fixed Variable

1991/92 . - . - 592 592 (592)1992/93 2707 2707 (2707)1993/94 19(01 1901 (1901)1994/95 15 40 432 1440 1872 100 88 439 627 12451995/96 35 40 1008 1440 2448 - 88 619 707 17401996/97 50 40 1440) 1440 2880 88 619 707 17401997/98 50 40 1440 1440 2880 - 88 758 846 20371998/99 50 40 1440 1440 2880 - 88 758 846 20371999/2000 50 40 1440 1440 2880 - 88 758 846 20372000/2001 50 40 1440 1440 2880 - 88 758 846 20372000/2002 50 40 1440 1440 2880 - 88 758 846 20372000/2003 50 40) 1440 1440 288) - 88 758 846 20372000/2004 50 40 1440 1440 2880 - 88 758 846 20372000/2005 50 40 1440 1440 2880 - 88 758 846 20372000/2006 50 40 1440 1440 288(0 (252) 88 758 594 2286

Note: Economic Iiternal Rate of Return = 26.6%*Writing & printing paper

17

Table 10: Status of Legal Covenants

To issue new shares to the public on or before The public issue was made in November 1995October 1994 equivalent to at least 25% of its and the GOTN share has now been reduced fromcurrent outstanding shares to bring GOTN's 49% to 35%. TNPL wishes to delay further saleshareholding to a level of 39% or lower. of any large block of shares in order not to

reduce the market value.

To implement the Environmental Management Satisfactonly in progress.Plan in accordance with the time table agreedwith the Bank.

To complete the relocation and resettlement of Completed.the 86 affected families from the village ofKurukkupalavam by February 1993, andimplement the benefit packages designed forthese families as well as the host community.

To finalize the arrangements for additional Completed.bagasse supply (240,000 tons per annum ofwhole wet bagasse) by December 1993.

Not to incur any debt unless reasonable forecast In compliance.of its finance shows that, including the debt to beincurred, the debt service coverage ratio is notless than 1.3.

Except as the Bank shall otherwise agree, TNPL In compliance. With the Bank's agreement,would not declare or pay dividends during the dividends were declared during the projectproject construction period until the project is implementation period.commissioned.

To submit to the Bank, not later than six months In compliance.after the end of the fiscal year, financialstatements certified by an independent auditoracceptable to the Bank, as well as to theauditor's report.

To submit to the Bank by December 31 of each In compliance.year the financial statements showing theestimates for the current year and the projectionsfor the following five years.

18

Table 11: Compliance with Operational Manual Statements

There was no known lack of compliance with any Operational Manual Statement.

Table 12: Bank Resources: Staff Inputs

Stage of Project Cvcle ActuallWeeks US$ thousands

T_hrough Appraisal 38 85Appraisal-Board 5 13Board Effectiveness 4_ 11Supervision 32 68Completion 8 25

TOTAL 87 202

19

Table 13: Bank Resources: Missions

Perfomiance Rating

Number Specialized Implemen- Develop-Stage of MonthW of Days in Staff Skills tation ment Types of

Project Cycle Year Persons Field Represented I Status Objectives Problems

Through Appraisal

Identification mission Jun/Jul 1991 2 3 EC, FAPreparation mission Nov. 1991 3 8 E,EN, ECPreparation/preappraisal April 1992 2 5 EC. FAAppraisal mission Jun/Jul 1992 5 14 E, EC,

FA,R,PA__ _ __ _ _ _

Appraisal through Board no missionsApproval

Board Approval through Jan/Feb 2 5 EC, LEffectiveness 1993

Supervision

No. I Apr 1993 2 5 OO, E I

No. 2 Jun 1993 1 3 00 I I

No. 3 Oct 1993 5 8 E, EN (2), FA, I IPA

No. 4 Jan 1994 1 4 R S HS

No. 5 Oct 1994 3 8 00, E, FA S HS Fnvironment

No. 6 Dec 1994 1 4 EN S HS

Completion Feb 1996 2 10 E, EN HS HS

E: engineer; EC: economist; EN: environmental specialist; FA: financial analyst; 00: operations officer; PA:procurement analvst; PO: project officer; R: resettlement.

20 Appendix APage I of 7

The World Bank 1818 H Street N W. (202) 477-1234INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT Washington, D.C 20433 Cable Address: INTBAFRAOINTERNATIONAL DEVELOPMENT ASSOCIATION U.S.A. Cable Address: INDEVAS

March 12. 1996

Mr. Shaktikanta DasManaging DirectorTamil Nadu Newsprint and Papers Ltd.16 Whites RoadMadras 600 014. India

Dear Mr. Das:India: Renewable Resources Development Project

TNPL Papermill Expansion Component (Ln3S44-IN)

Thank vou for the cooperation extended bv vou and vour staff to the Bank mission thatvisitcd TNPL last month. I am confirming the mission's findings as presented in the attached aidememoirc. \Ve are pleased to note that the Bank loan was fullv disbursed weil within the loanclosing date. the project fullv commissioned in December 1995 and that production of newspnntfrom 1 000/) bagasse pulp has been achieved. We trust that due attention would be given bv TNPLto furthcr improving the plant's cnvironmental performance.

We also congratulate TNPL for its successful maiden issue of shares to the public. Weurge that the Companv continue to invite the private sector to participate in its current and futureoperations to help sustain the commercial discipline fostered in TNPL. We recognize that furtherdilution of shares held by the State Government of Tamil Nadu to 26 % of the total capital baseshould bc timed based on market conditions favorable to TNPL. The Bank would nevertheless liketo be informed on or before December 1, 1996 as to TNPL's proposed plans for further publicissuc of shares to achieve the agreed level of disinvestment by the State.

Mav I rciterate our earlier invitation to you to visit the Bank to present TNPL'stechnological and commercial achievements as well as the social benefits to the area's farmingcommnunitv that have emerged from TNPL's operations.

Because of their interest in the project, we are furnishing a copy of this letter and aidememoire to the Department of Economic Affairs, Ministry of Finance.

Sincereiy,

Jean-Francois BauerChief

Energy and Infrastructure Operations DivisionSouth Asia Country Department 11

Copied to: Mr. V Govindarajan, Joint Secretary, DEA, Ministrv of Finance

RCA 248423. LJ WUI 64145 Ll FAX (202) 477-6391

21 ApDerdix APage 2 of 7

[NDIA:RENEWABLE RESOURCES PROJECTTNPL EXPANSION COMPONENT

Implementation Completion Report Mission

AIDE-MEMOrRE

I A mission consisting of Messrs A Picardi and R. Chalk. consultants to the World Bank, separatelv

visited TNPL at corporate headquarters m Madras and the rmil site at Pugalar during the second half of February

1996. to finalize an Implementauon Completion Report (ICR) for this project. The Borrower's contribution to the

ICR %%as received. The mission would like to thank TNPL for its hospitalitv and cooperation during our visit

with the Companv. This Aide-Memoire records the main points discussed, and is subject to confirmation by

Bank management.

Project Performance

2. The cxpandcd paper nuil is now opcrational. havmg been fuflv commissioned on 31 December 1995,

compared %%ith the original target date recorded in the SAR of 30 Apnl 1995. Reasons for tius relatively mmor

delav are given in the borrower's contribution to the ICR. Commercial production of paper from the new paper

mnachine was declared on 31 Januarv 1996.

3. The nussion confirmed that the main technical objectives of the project, specifically the doubling of

capacity. and the production of newsprint from 100% bagasse pulp, have been achieved. A trial run lasting 18

hours was made in earlv Februarv m which newsprint was produced contmuously with 40% mechanical bagasse

pulp (MBP) and 60% chemical bagasse pulp (CBP). During the mission, under the observation of the Bank

consultant. thc paper machine ran continuously for 5 hours at a speed of 725 mn/rin with a MBP/CBP ratio of

40/60. then at 50/50, with no breaks or anv other untoward operational problem. (The tnal was terminated only

due to lack of power from the gnd which restncted the production of the MBP plant to 50% capacity). The

production of nexvsprit wvth this pulp furrush and at this speed. is a remarkable achievement which to the

knowledge of the Bank. has never been accomplished in the world.

4. Certainly the abilitv of the machine to handle the bagasse furnish appears to be established, although it

should be noted that the machine guarantee states a 48 hour continuous run at 850 rn/min and the guarantee trials

are not scheduled until April, 1996. Also, it must be noted that while the qualitv of newsprint produced in these

trials is very good. the inherent characteristics of bagasse fiber result in certain quality challenges: brightness and

light scattermg are lower than top qualitv softwood newsprint, porosity is low which leads to low ink

consumption requirng adjustment in the pressroom, and the sheet exhibits a degree of two-sidedness unexpectedin a twin wire former. A brief test rcport is attached which compares the bagasse newspnnt made during themussion with top qualitv newspnnt from two Canadian producers.

5. The mission would like to congratulate TNPL for its achievement in advancmg the science of paper

making. Without detracting from this tnbute. the mission pomnted out to TNPL that it must contmue to develop

the technology of bagasse newsprint production in order to improve on the qualitv shortcomings and to increase

even further thc use of mechanical bagasse pulp and paper machine running speed. TNPL assured the rmission

that thev are committed to continuing the development of the process. The Bank requested that although the

Projcct is completc. that the Bank be penodically informed of further developments. TNPL agreed that it would

send brief rcports to the Bank about everv sLx months.

22 Appendix APage 3 of 7

Environmental Performance

While the rcview of thc environmental aspects of the project ndicatcd a generallv acceptable situation(scv ,Anncx tor dctails). scvcral arcas remain in need of further attention as summarizcd below:

. Lcaking gate vaives at the lift irrigation svstem are causing about 30% of the effluent waters to be wasted.* Buming of TRS is awaiting installation of the lime kiln.* No progress has becn made on wood chipper noise.v No additional firc protection has bcen installed in the paper wvarehouse--this is a conscious decision

of TNPL based on their cost/benefit analvsis.* Hazardous matenal handling sull needs improvement.* Chlorine safet, equipment is not fullv installed.* A problem is developing with solid waste disposal. This wvll be largely cleared up when the lime

kiln Is installed and lime mud will be re-cvcled on site instead of being stored on site prior to sale tocement factones. 1"he other mnajor solid waste is the portion of pith from the bagasse which issurpius to that consumed a:; fuel. TNPL is exploring with others the possibilitv of converting thismatcrial for agrncultural usc.

7 TTNPL itn its ICR report has expressed the opinion that some of the mmor environmental issues. such aschipper noise. havc probablv been over-emphasized bv the Bank.

irrigation Scheme Dlevelopment

8 Thc mission noted the success of the TNPL-supported lift imgation system which allows use of treatedeffluent by the local farmers. The transformation of previously idle land to a productive green area is veryimprcssive. The trussion suggested that the entire scheme of lift irimgation. including the institutionalarrangements with farmers, financmg, and the agnrcultural results as confirmed by the Tamil Nadu AgriculturalUnivcrsitv. should be formallv documented in a technical paper for presentation to some appropriate intenationalforum. perhaps through FAO. This imgation aspect of the project is equally interesting to the paper industrworld-wide as is the bagasse ncvsprint production.

Privatization oJ T7N'PL

9. The loan covenant covenng the privatization of TNPL is being complied with. Through a public issue ofnew shares, the Government's share of TNPL's ownership has now been reduced from 49% to 35%. TNPLpointed out that to reduce this to 26% by the end of 1996, as required in the loan covenant, might be difficultWithout causing a severe drop in share price. TNPL requests the Bank to agree to delaying further dilution of theGovemment share. The mission will bring this request to the attention of Bank management.

Future Projeas

1 0. TNPL rc-ported to the nmission that thev are in the early stages of a further expansion and have completeda teasibliltv study of a new plant to be located in South Arcot district of Tamilnadu. TNPL will formallv requestparticipation of IBRD -n this expinsion. The mission pointed out that further World Bank participation in such aproject is unlkely, bcut will advise Bank management of TNPL's intention to make a request.

Febrian 26,. i 996". a'aS

23 Ampendix .Page 4 of 7

ANNEX

India: Renewable Resources Dvelopment ProjectTNPL Papermill Expansion Component

ENVIRONMENTAL PERFORMANCE

The following is a brief ficld report of the site survev concemnng environmenta issues at TNPL. conductedFebruarv 16 and 17. 1996 by Mr/ A Picardi. The status of environmental issues brought out on previous sitevisits is reviewed below. with some additional observauons. Photographic documentation was made of the newstructurcs on the plant site. areas of environmental and safetv interest, and the resettlement village.

1. The activated sludee wastewater treatment svstem is now operational, and monrtoring indicates effluentis now *wcll wvithin permitted linuts. A copy of recent sampling data is attached.

2. The lift irneation svstem is fullv operational and the productivitv of farms in the irrgation area Is quitcimproved Thc gate valves at the pumphousc were observed to be leaking about 30%o of the effluent stream todischargc, and not the imgation system. This is a simple problem that should be repaired in a timel manner.Although the plant effluent now meets irrigation standards. there have been complaints to the World Bank in thepast conceming this discharge.

3. Potable water is also supplied to points in the irrigation area. The spigots for these points are stolen andnot rcplaced, in some places wvooden plugs have been isertca into the open pipe. TNPL pumps potable wNatersupplies to these pouits and to the resettlement village two hours m the mornung and evemni;g

4. Bumme of TRS in the lime kiln for odor control has not yet begun: the lime kiln is on order, and TRSincineration is part of the package for the kiln as ordered. The kln deliverv is to begin, Julv '96, with erectienestimatcd to take 8 months. completion should be by February, 1997

Noise from the wvood chipper has not been addressed. and it ran all night everv rnght while the missionwas on site.

6. No additional fire suppression svstem has been installed in the paper warehouse There are hoses and afire water header around the periphery and down the center, and a heat detector on one wall. According to TNPLthe cost/benefit of a fire versus loss of paper stock from a maffinctioring automated (spnnkleri system favors thecurrent svstem: in addition they pomt out that the wiarehouse is manned during all three shifts.

7 Hazardous materials handline is still in need of improvement. Contaiment dikes around the causticprocess area are not yet complete. the emergencv showers and esvewash stations are still located within the dikes,wherc spillage is likely to occur Thle mission observed a caustic loading operation from truck to process tanki mwhich the operator had bare feet and legs, and wore no protective equipment to guard agairst chcmical burns.The drains placcd for pump seal water removal crcate a breach in the contauiment arca. a spill overtopping thesepump scal wvater rcmoval drain opemngs. located 3 inches off the ground would draLri directlv out of thecontainrnent area.

X The acid and caustic loading and storage areas at the DM plant are In need of renovation for safety andspll control The acid and caustic tanks are diked: but the dikes are breached by open drains to the neutrali7aticnpit. The dike breaches should be closed and valves fitted for controlled rainwater release. The truck loading area

24 ADgendix APage 5 of 7

should havc a spill contaunment apron. and check valves should bc fitted in the tank loading lines to preventbackflow. A fibcrglass overhcad acid pipeline is supported bv a section of pipe here. the support is not attached attop or bottom. this poscs a scnous potential of spill. Tlic caustic tank overflow vent empues into the acid tankcontamment arca. and should be placed to overflow into the caustic containment area. The acid tank overflowvents arc not equippcd with vapor traps and pose an injurv threat during loading operations. There is noprotectivc clothing kcpt in this arca for loading operations or spill control. A spill cleanup pump with hose shouldbe kept in the area. Housekeeping is poor in this area and there is debns within the acid and caustic containmentdikes.

9. The plant is under full operation: but the chlorine safetv. leak detection and spill control equipmentinstallation is not vet complete. The neutralization column has not been installed. The rupture disks, with releaseto the milk of lime tank have not been installed. The leak stemming gear was reportedlv inside a box in thechlorine handling arca: but no one had the kev. There currentlv is one leak detector and alarm placed incorrectlv4 feet off the ground in the chlorine handling area. In addition there currently are two sets of SCUBA gear in thechlorine handling area. plus backups in the safety office. The chlorine emergency equipment includes respirators,but no protectivc clothing. A windsock has been placed here. but is not visible from the area surrounding thechlorine handling area. Thlie potable water chlorine dosing station is reported to have SCUBA. but no leakstemrmng gcar or protective clothing.

10. Disposal of solid waste is quicklv becomingz a problem. There are hundreds of tons of bagasse pith,bagasse pith sludge from anaerobic trcatment, lime and activated treatment sludge stockpiled in the plant area.As yet no senous efforts have been made to develop and implement an environmentally acceptable disposalmethod. with the exception of the lime waste. Lime waste is taken off site for recycling.

II. Housckccping is poor throughout the plant, posing manv hazards to those on foot, especially at night.There are manv incompletelv covered trenches. open trenches. and a great deal of construction debris throughoutthe facilitv.

12. Contractors arc often barefoot, and safety helmets are not worn. Only one welding gas bottle wasobserved to be equipped with a proper doliv out of over a dozen observed throughout the plant.

25 AMMendix APage 6 of 7

Tamil Nadu Newsprint and Papers Ltd

CHARACTERISTICS OF FINAL TREATED EFFLUENTS

(WEEKLY AVERAGE VALUES)

DECEMBER 95

WEEK pH SUSPENDED COD BODSOLIDS PPM PPM

1st Week 7.1 41 160 11

2nd Week 7.2 38 222 13

3rd Week 7.7 55 187 12

4th Week 7.8 57 227 11

Average 7.5 48 199 12

JANUARY 96

WEEK pH SUSPENDED COD BODSOLIDS PPM PPM

1st Week 7.6 61 200 12

2nd Week 7.7 51 187 8

3rd Week 7.7 47 195 6

4th Week 7.8 58 212 a

Average 7.7 54 199 9

TOLERANCE LIMITS 5.5 - 9.0 100mg/I 250 30

26 ADDendix APage 7 of 7

Tamil Nadu Newsprint and Papers Ltd

STACK EMISSIONS

Dust Concentration mqJNm3

Power Boiler Rec.Boiler

TNPCB Limit Max 150 Max 150

August 95 126 138September 106 148October 132 150

November 152 127December 113 150January 96 93 139

AMBIENT AIR QUALITY

Units Microgram/m3

Inside the Factory TNPCB AUG SEP OCT NOV DEC JANUmit 95 96

Transport Office 500 110 113 95 103 160 386

Depither Weigh Bridge 500 360 248 288 160 445 286

Outside the Factory

Kurukkupalayam 200 66 58 59 76 93 78

230 kV Station 200 60 57 60 94 133 218B-Hostel 200 82 71 83 100 79 65110 kV Station 200 62 51 60 110 87 71

Bagasse Gate 200 183 153 175 189 185 148

Pump House

All other characteristics like NoA, So2 and H2S are very low say <12 microgram/m3 against 80

microgram/mr3 f limit.

AnDendix BPage 1 of9

27

TAMIL NADU NEWSPRINT AND PAPERS LIMITEDBORROWER'S CONTRIBUTION TO THE IMPLEMENTATION COMPLETION REPORT

Introduction

TAMIL NADU NEWSPRINT AND PAPERS LTD (TNPL) embarked upon an expansionproject to augment its production capacity to 180,000 tonnes of Newsprint/Paper annually from the currentlevel of 90,000 tonnes. As in the original plant, the expansion too is conceived to utilize bagasse as theprincipal raw material, but this time, 100% bagasse pulp is intended to be used for production ofNewsprint.

Project Scope

The project is aimed at doubling of the mill capacity to 180,000 tonnes annually. Of this, 100,000tonnes will be Newsprint and the remaining un-coated Printing and Writing papers. While the existingPaper Machine (PM 1) will be dedicated to production of Printing and Writing papers, the proposed PaperMachine (PM 2) will be used for making Newsprint. The furnish mix for production of Newsprint consistsof 60% chemical bagasse pulp and 40% mechanical bagasse pulp. e

The expansion project also featured revamping of the existing mechanical bagasse pulp line to meetthe pulp requirements of PM 2.

The other key features of the Project are:

* Bagasse handling system of capacity 3000,000 typ.C Chemical bagasse pulping street of 240 od tpd capacity.

* Chemical Recovery plant to handle the additional Black liquor.* Augmentation of utilities to support the expanded capacitv.

Project Cost and Financing Pattern

The project cost as appraised during the Bank's mission held in July 1992 was Rs.5,250 million(Eq. US$ 172 million @ IUS$ = Rs.30.50). The loan drawal pattern as envisaged in the Staff AppraisalReport (SAR) vis-a-vis the actual drawal is as follows:

Period Estimated in SAR Actual (In Million US$)

Jan 93 - Jun 93 18.0 13.13Jul 93 - Dec 93 20.0 4.15Jan 94 - Jun 94 20.0 4.99Jul 94 - Dec 94 12.0 43.90Jan 95 - Jun 95 5.0 5.69Jul 95 - Dec 95 -- ** 3.14

** The drawal was completed on August 18, 1995.

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The country-wise procurement of Plant and Machinery utilizing the Bank loan is as follows:

Countrv In Million US$ %

Germany 41.12 55India 22.07 29Finland 4.59 6Sweden 4.21 6Austria 3.01 4Total 75.00 100

The project cost estimated in the SAR was Rs.5250 million. As of 31st December 1995, theproject cost stands revised to Rs.6113 million. The increase in the Project cost was mainly due to rupeedepreciation against USD and increase in debt burden on account of basket of currencies.

Capital Restructure and Revision in Financing Pattem

At the time of availing the loan of USD 75 million from World Bank, the share capital of theCompany was Rs.981.80 million (98.18 million shares of Rs. 10/- each). Subsequent to this, and with theapproval obtained from the Members of the Company in the General Meeting, Creditors including IBRD,the Company has reduced its share capital to Rs.500 million (consisting of 50 million shares of Rs. 10/-each).

The company issued 20 million shares of Rs. 10/- each at the premium of Rs. I 00/- per share to thepublic during November, 1995.

The details of share holdings before and after issue of shares to the public are given below:

PRE PUBLIC OFFER POST PUBLIC OFFERNo. of No. ofshares % Shares %(million) (million)

GOTN 24.45 8.89 .45 35.10IDBI 24.49 .97 .75 35.55COOPERATIVE SUGAR MILLS 0.2 .41 0.2 0.29NRIs / OCBs - - 2.36 3.39EMPLOYEES - - 0.28 0.40INDIAN PUBLIC 0.87 .73 7.60 5.27

50.00 100.00 69.64 100.00

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The capital raised from the public is utilized to part-finance the Project. The revised financingpattern is as follows:

Million MillionIndian RS. US$

Loan: IBRD ** 2,775 75.0IDBI 1,000 27.0

State Government subsidy 10 0.3Internal Generation: TNPL 750 20.3Public Issue 1,578 42.6

Total 6.113 165.2**The loan of $75 million in a basket of currencies is equated to RS 2775million at che Cumulative Revaluation Factor indicated by the Bank. OtherEauivalent US$ has been arrived at Rs.37=1 US$.

Proiect Implementation

T*NPL appointed SPB Projects and Consultancv Limited. Madras (SPB-PC) as Engineeringconsultants for the Project. The Zero date was reckoned from November 17, 1991. Subsequently, due todelay in finalization of procurcrment procedures, the Zero date was shifted to February 1, 1992. Withimplementation period as 40 months from Zero date.

As per the schedule, the Paper Machine manufacturing was to commence on October 01, 1992 anddelivery was to complete by end August 1994. However, the Paper machine was actually ordered onMarch 03, 1993 resulting in a delay of 5 months. There was delay in ordering of Paper Machine due toHigh priced offers received against the bid and TNPL, at one stage even considered for rebid with revisedspecifications to avoid cost over run of the project.

The Basic Engineering to fix the capacities of major items of Plant and Machinery was initiallytaken up and completed on time to proceed with the procurement activities of major ICB packages that arelong delivery items.

In the mean time, the upgradations carried out on the PM I resulted in improved productivity of themachine house. As a result, the entire Basic Engineering for the upstream plants and utilities was reviewedmid-way through and the capacities of these facilities reworked. There was thus overall delay incompletion of the Basic Engineering activity and ordering of plant and machinery.

Notwithstanding the initial delays, efforts were put in for scheduling trials of Paper machine withPurchased pulp by end April 1995. In view of floods in L&T works, the delivery of components wasdelayed by three months. Moreover, the incidence of plague had resulted in a delay of two months from allthe suppliers located in Western India. TNPL ordered special alloy steel pipe from Japan. Due toearthquake in Japan. the shipment got delayed by about four months, which had direct bearing oncompletion of the Project.

In view of the above, the Paper machine trials could be started during first week of September1995 (i.e.) 30 months from the date of placement of order for Paper Machine.

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Project Commissioning

Paper machine trials commenced with "stock on wire" on 4th September and first roll of paper wasreeled at 23.18 hrs on the same day. The machine commissioning was smooth. The downstream systemslike Winder, Reel wrapping and Reel handling were also commissioned.

The Multifuel boiler, which was commissioned in March 1995, suffered damages on tubes andcoils due to mild explosion suspected to have taken place in the fumace. The suppliers of the Boiler,Bharat Heavy Electricals Limited (BHEL), investigated and set right the problems. The Boiler is now re-commissioned.

In the Mechanical Bagasse pulp mill, all the new equipment procured for revamping the systemwere commissioned in March, 1995, which constituted 50% of the Line capacity. The balance capacity,which was to be realized by shifting of existing equipment to the new building, was commissioned inAugust, 1995.

TIhe augmented Effluent treatment plant was commissioned in November, 1995 and is now fullyoperational. The treated effluent is conforming to the norms for surface water (River) discharge.

The 10.5 MW Turbo Generator set was commissioned during December, 1995 and synchronizedwith the TNEB grid. There was considerable delay in completion of the supply of Generator and certaincomponents, which stretched the commissioning activities upto December, 1995.

There was also minor delay in the Recovery boiler erection and oil firing was done duringDecember 1995. The liquor firing commenced from January 4, 1996.

The bagasse handling system and the Chemical Bagasse pulping line were commissioned inDecember 1995.

Raw Material tie-up

TNPL is entering into tie-up for release of bagasse, with Kallakurichi Sugar Mills Unit 11 (KSM),a new unit and Perambalur Sugar Mills (PSM), an existing mill. Accordingly, the boilers have beenordered and supply is in progress.

There was delay in start-up of implementation activities of KSM which has resulted in hold-up oferection of Boiler by TNPL. KSM have since commenced the civil works and boiler erection is beingplanned to synchronise with the commissioning of the sugar mill.

The site clearance for erecting the boiler at PSM was delayed due to some operational problems attheir end. Tendering activities are in progress and work would be taken up shortly. To meet the bagasserequirement of the expanded capacity, all the existing tie-up sugar mills are being activated in addition tomobilizing maximum available low cost surplus bagasse in the open market.

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Key Technical Features

Paper Machine # 2

Bagasse as raw material for paper making is characterized by heterogeneity, high fines content,poor drainability, low wet web strength etc. Based on the operational expertise gained in running the PaperMachine(PM) # 1 using predominantly Bagasse pulp in the furnish mix, the configuration of PM #2 was chosen toinclude several improved design features as follows:

* Efficient wire cleaning system with wash rolls in the wire circuit, to reduce cloggin gog wires.* Compact tn-nip press to achieve after press dryness of 40% to improve the wet web strength.* Closed draw between Press and Dryer section to reduce incidence of Press breaks.* Single tier configuration for the first two groups of the Dryer section to avoid sheet flutter

especiallv when using mechanical bagasse pulp.

Pulp Mill

Mechanical Bagasse Pulp mill

The pulp mix envisaged for production of Newsprint after Expansion consists of 60% chemicalbagasse pulp and 40% mechanical bagasse pulp. A thorough review of the opcrations of the existingmechanical bagasse pulp line was undertaken and it was observed that in its current status, the MBP linewill not be in a position to meet the pulp requirements of the Paper Machine #2. In view of this MBP linewas revamped and located in a new building with the following key features:

* Provision of one dedicated reclaim and fibre preparation plant to process bright bagasse forMBP line.

* Shifting of present TMP and CMP refiners and introduction of steaming tubes to facilitateaddition of chemical in the feed to pressurized refiners.

* Installation of additional CMP refiner wvith an improved chemical mixer refiner* Installation of new screening and cleaning plant of augmented capacity and better

performance.* Incorporation of high consistency bleaching to optimize the peroxide consumption.

Chemical Bagasse Pulp mill

The operational experience of the existing 3 stage Brown stock washing system shows that thechemical losses off the final stage washer are high side. The new street has been chosen to include a fourthstage brown stock washing to bring the chemical losses under control. Also, a pressure knotter has beeninstalled ahead of the Brown stock washing system to remove uncooked fibre bundles and other debris toimprove cleanliness of the final pulp.

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Chemical Recovery Plant

Black Liquor Evaporation plant

The existing black liquor evaporation plant is of LTV type with raising film technology. Theoperational experience with Bagasse black liquor shows severe scaling in the first and second effects,resulting in frequent stoppages for cleaning the tubes thereby bringing down the rated throughputsubstantially.

In view of the above, Falling Film (FF) evaporators have been chosen under the Expansion projectto minimize the scaling tendency. The availability of the plant is expected to be more as compared to theLTV evaporators. The FF evaporators have been designed and operated with seven effects and the steameconomy of the system is around 6.35 as against 4.7 achieved in the LTV evaporators. Since the FFevaporators are operated without forced circulation effect which requires high capacity circulation pump(220 kW), the power consumption is also lower.

Recausticizing

The Expansion project envisaged installation of Lime mud rebuming kiln to recycle the Limesludge generated in the Recausticizing process. Since the Bagasse black liquor is charactenzed by highsilica, the operation of lime kiln will be affected due to ring formation inside the kiln. In view of this, theaugmentation of the recausticizing plant has been carried out with a two stage slaking process by which thesilica present in the green liquor is precipitated by binding it to the small quantity of lime added in the firststage slaking stage and purged out.

Lime Mud Reburning System

In the existing operations, about 100 tonnes (dry) of lime sludge containing mostly CalciumCarbonate is generated in the Chemical Recovery process. It is presently disposed of as raw material to thenearby cement plant operating on wet process. With cement mills switching over to dry process for energyconservation. the consumption of lime sludge by these plants will reduce in the longer run. On the otherhand, disposal of lime sludge as land fill will create environmental problems.

Lime Mud Rebuming kiln is being installed to recycle the generated sludge from the system toproduce of lime of high purity.

EfJfluent treatment Plant

The existing effluent treatment plant has been upgraded to handle additional effluent generated. Inthe upgraded treatment plant 'Activated sludge process' is adopted for effective removal of BOD instead ofsimple aeration system in operation at present. Under this system, one more primary clarifier is added inthe main stream to remove the suspended solids. The settling tanks in the bagasse stream are replaced withmechanical clarifier. The scheme also features installation of 32 nos. aerators (75 hp each) in the aerationbasin to achieve extended aeration, followed by two secondary clarifiers. The quality of treated effluenthas shown improvement with BOD and COD levels, conforming well within the limits prescribed forsurface water (River) discharge.

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General

Mill wide Distributed Control System

The new strcets of Pulp Mill. Recovery plant and Power house have been equipped with the state-of-the-art Distributed Control System for supervisory control of the process besides improving theefficiencv of the operations. The process upsets are also minimized.

Buildings

The new Chemical Bagasse Pulp and Mechanical Bagasse Pulp mill buildings are provided withpre-cast slab roof in lieu of conventional AC sheet roofing, to reduce the maintenance on account ofcorrosion of structures experienced.

The Finishing house/Ware house has also been provided with similar roof to over come theproblems of leakages wlich may damage the reels stored under the conventional AC sheet roofing.

Electricals

The new plant has be a provided with AC Variable Frequency drives, wherever speed control isrequired as opposed to the conventional Dyno drive units. This will result in better control, conservation ofenergy and less maintenance.

Proiect Objectives Achieved

The capacitv of the Plant is doubled and expanded Plant will allow the continuous operation of allthe sections of the Mill thereby climinating the imbalances experienced due to single machine operation tomanufacture Newsprint/Printing and Writing paper.

The upgradation of mechanical bagasse pulp line and installation of PM # 2 with improved designfeatures. allowed the mill to increase the proportion of bagasse pulp in the fumish mix for Newsprint. ThePM # 2 was trial run with 100% bagasse pulp for production of Newsprint and the results wereencouraging. Continuous run with target furnish will be established soon.

India is a net importer of Newsprint. With growing demand for this product and limited supplyavailable within the countrv, the project would contribute to substantial savings of foreign exchangetowards import of newsprint.

By utilizing bagassc on a large scale, the most significant contribution by the project isconservation forest land from commercial exploitation to the extent of about 12,000 ha. per annum.

The benefits to the community are:

The project generated employment opportunities to the local community. Through phasedrecruitment. direct employment to about 500 people is provided. About 1500 people arebenefited through indirect employment.

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* The project generates additional trcated effluent to the extent of about 30,000 m3/day. Thiswater is used for irrigating additional 240 ha. of barren lands abutting the mill boundarv.Cash crops like sugarcane. groundnut. gingelly, maize, etc. are grown in the fields.

* Rehabilitation of residents of Kurukkupalavam village had been undertaken to provide houses.drinking water, infrastructural facilities like roads, lighting, school. temple, etc. The Projecthas been completed to the satisfaction of the PAF's (Project Affected Families).

Lessons Leamed

Out of 25 packages procured under ICB, 8 packages were tendered out following two stage biddingprocedure. The two stage tendering procedure was useful only for the complex package like PaperMachine. In case of other packages like Brown stock washing, Continuous digester, Pulp thickeners etc.,the procedure delaved the order finalization-

Since no pre-engineering was done at the time of project take-off, the estimates for Civil works,Buildings, Piping and other mill wide items undenvent substantial increase which led to the increase in theProject cost.

The delay in detailed engineering, which was dependent on flow of information from the selectedvendors resulted in delayed procurement of millwide items like pipes, fittings, valves, cables etc. This hascaused pressure on the supplier and the Project tearn in making available the required material in time tomeet the erection schedule.

Some delav occurred in finalization of packages like SS Pipes, Insulation etc, as the lowest biddersubmitted unworkable rates. Alternate sources had to be identified and procured since the party failed totake up the work. Under priced bids should be disqualified.

Developing countries like India when drawing such debts have to face two types of devaluationviz.weakening of Indian Rupee against US$ and weakening of US$ against other currencies. Though TNPLreceived the loan in terms of US$, increase in debt burden was experienced due to weakening of dollaragainst major currencies like DM, Yen in the currency basket. On account of this, Lime Kiln package hadto be taken out of the World Bank shopping list. In view of this, the Bank should consider provision ofhedging to protect the interest of the borrower.

Conclusions

The Project is bcnefited by the high level of professionalism of the Bank staff which helped informulatior of sound project concept, systematic planning and implementation of the Project. On the partof Bank. the disbursement and various clearances were received on time which went a long way insuccessful implementation of the Project.

The Bank is particularlv insisting on management of certain minor environmental issues likeChipper noise, Incineration of TRS emissions etc, wvhich are not widely practiced. In our opinion, suchminor issues need not be insisted upon the Borrower.

The trial run of target. furnish using 100% bagasse pulp for production of Newsprint on PM # 2,has further boosted the level of coonfidenice in the technology pioneered by the Mill. When viewed against

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the background of several unsuccessful attempts for commercial production of Newsprmt from bagasse,worldwide, this achieverrient by the Mill was possible through sustained efforts of TNPL and the back-upsupport given bv the Bank. TNPL is now in a position to transfer this technology to the third worldcountries who are intc-ested in setting up similar Projects.

TNPL is planning to set up another bagasse based Paper Plant in Tamil Nadu for which thefeasibility study has bee.i taken up. The Bank's patronage for this Project is solicited.

As per the covenants, the share holding of Government of Tamil Nadu (GOTN) has to be broughtdown to 26% within one year from the date of commencement of commercial production. TNPLcommenced commercial production on January 31, 1996. Consequentlv, the share holding of GOTNshould be brought down 26% before January 31, 1997. In as much as the GOTN holding has already beenbrought down from 49% to 35% at one stroke any further dilution within next one year will increase thesupply / floating stock of TNPL shares in market. This will adversely affect the share prices and maycause problems in the future when the Company approaches the capital market to raise resources for newprojects. The Bank is requested not to insist on further dilution of GOTN share holding in the Company, atthis stage.

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