Document of

The World Bank

FOR OFFICIAL USE ONLY

Repwrt No. 5336-IN

STAFF APPRAISAL REPORT

INDIA

JHARIA COKING COAL PROJECT

February 7, 1985

Industry Department

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

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CURRENCY EQUIVALENTS

Rs 1.00 = Paise 100US$1.00 = Rs 12.0Rs 1.00 = US$0.08Rs I million = US$83,333

(Conversions in the Staff Appraisal Report were made at US$1.00 to Rs 12.0)

FISCAL YEAR

April 1 - March 31

WEIGHTS AND MEASURES

1 British thermal unit (Btu) = 0.252 kilocalories1 kilocalorie (kcal) = 3.97 British thermal units1 kilocalorie per kilogram = 1.805 British thermal units per

(kcallkg) pound1 cubic meter (m3) = 1.308 cubic yards1 kilowatt (kW) = 1,000 watts1 megawatt (MW) = 1,000 kilowatts1 gigawatt hour (GWh) = 1,000,000 kilowatt hours1 kilogram (kg) = 2.205 pounds1 ton of coal equivalent (tce) = 1 ton of coal containing

7,000,000 kcal1 ton (t) - 1,000 kilograms

PRINCIPAL ABBREVIAIIONS AND ACRONYMS USED

BCCL - Bharat Coking Coal Ltd.BICP - Bureau of Industrial Costs and PricesCCL - Central Coalfields Ltd.CIL - Coal India Ltd.CMPDI - Central Mine Planning and Design InstituteDOC - Department of CoalDOS - Department of SteelDVC - Damovar Valley Corporation (Power Authority)ECL - Eastern Coalfields Ltd.cOI - Government of IndiaICB - International Competitive BiddingIISCO - Indian Iron and Steel CompanyJPC - Joint Plant CommitteeLCB - Local Competitive BiddingLIB - Limited International BiddingMCC - Medium Coking CoalNEC - North-Eastern Coalfields Ltd.ODA - Overseas Development AdministrationOMS - Output per ManshiftPCC - Prime Coking CoalSAIL - Steel Authority of India Ltd.SCC - Semi Coking CoalSCL - Singareni Collieries Ltd.TISCO - Tata Iron and Steel CompanyWCL - Western Coalfields Ltd.

IN3DIA FOR OFMICL USE ONLY

JHARIA COKING COAL PROJECT

Table of ContentsPage

I. INTRODUCTION .............................................. I

11. THE COAL SECTOR .............................................. 1

A. Reserves and Production .............................. ....... 1B. Government Development Strategy . . 3

1. Objectives ....................... ,,,. ... 32. Investment Program . . . ..... ..... , 43. Coal Quality Improvements . . ............................. 6

C. Role of the Bank .... 7

III. THE MARKET FOR COKING COAL ...................................... 9

A. Coking Coal Supply and Demand Prospects...... ..*. *.. 91. Overviewr of Indian Coal Market ...................... 92. Coking Coal Requirements and Supply Prospects ........... 10

B. Coking Coal Prices and Pricing Policy . ...................... 13

IV. THE BENEFICIARIES ............................................... 14

A. Coal India Ltd .............................................. 141. Organization and Management .. 142. Operations .............................................. 163. Financial Positior ...................................... 19

B. Bharat Coking Coal Ltd . . .................................... 20

V. THE PROJECT ............................. , ......... 21

A. Project Objectives .. 21B. Project Description .. 22

1. Scope ....... 222. Location, Geology and Reserves . .223. Open Cast Block II Mining Complex . .234. Pootkee Bulliary Mining Complex . .255. Environment and Safety .. 28

C. Project Execution and Implementation. . . 29

VI. CAPITAL COSTS, FINANCING AND PROCUREMENT .32

A. Capital Cost Estimate .. 32B. Financing Plan .. 33C. Procurement ar.u Disbursement .34

This report was prepared by Messrs. J. Barrientos, B. Stenberg, J. Strongmanand Mesdames M. Kutcher and H. Wu of the Industry Department.

This document has a resricted distribution and may be used by recipients only in the performance oftheir off-cial duties. Its contents may not otherwise be disclosed without World Bank authonzation.

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VII. FINANCIAL ANALYSIS .......................... 36

A. Coal India Ltd. .... .o..o ........ 36B. Bbarat Coking Coal Ltdo o . .. ..... *.... 40C. Jharia Coking Coal Project ................. .............. 42

VIII. ECONOMIC ANALYSIS ................. *o......... .......... o...... 43

A. Economic Rates of Return ..... ................................... .*. 44B. Additional Benefits .... ............. .*....................... 45C. Least Cost Program ................................ .......... 45

IX. AGREEMENTS REACHED AND RECOMMENDATIONS .......................... 46

ANNEXES1 India - Steel Sector2 India - Coal Washeries3 India - Coal Price Schedule4 India - Schedule of Coal Taxes and Levies in the State of Bihar5 CIL Corporate Organization6 Scope of Work for Technical Assistance on Design and

Management of Mechanized Underground Mines7 CIL Financial Statements8 Scope of Work for Technical Assistance on Sand Transportation9 Scope of Work for Study on Shaft Sinking10 Project Management Organization11 Implementation Schedule for Open Cast Block II Mine12 Implementation Schedule for Pootkee-Bulliary Underground Mine13 Project Capital Cost Estimate14 Procurement Schedule and List of Bank-Financed Goods15 Disbursement Schedule for Bank Loan16 Assumptions Used in the Financial Projections17 Pro Forma Financial Statements for Coal India Ltd.18 Pro Forma Financial Statements for Bharat Coking Coal Ltd.19 Financial and Economic Rates of Return - Assumptions and Calculations20 Documents Available in the Project File

CHARTS1 Jharia Coalfield2 Block II - Project Area3 Pootkee-Bulliary - Project Area

MAPIBRD 18594

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JHARIA COKING COAL PROJECT

LOAN AND PROJECT SUKMARY

Borrower: India, acting by its President-

Beneficiary: Coal India Ltd. (CIL)

Amount: US$248 million equivalent.

Terms: Payable in 20 years, including five years of grace atthe Bank standard variable interest rate.

On-lending Terms: GOI to CIL for a period of 15 years, including fiveyears' grace, at an effective interest rate of notless than 13.25% per annum. CIL to Bharat CokingCoal Ltd. (BCCL) for a period of 15 years, includingfive years of grace, at an effective interest rate ofnot less than 13.25% per annum.

Project Description: The objective of the project is to increase thesupply of coking coal to the steel sector through thedevelopment of the Jharia Open Cast Block II andPootkee-Bulliary mines. It will also improve theaverage quality of coking coal supplies contributingto a better efficiency in the use of indigenousresources. The project consists of the developmentof one open-pit mine and one underground mine (withdesign capacities of 2.5 and 3.0 million tons perannum raw coal respectively), two coal washeries andother associated facilities in the Jharia coalfieldin the State of Bibar. The project will supportinstitutional development in the areas of undergroundmine design and operating practices as well asproject management, sand transportation and shaftsinking. It will ^lso address the sectoral issue ofcoal quality and fac4litate the continuation of thedialogue on coal transportation and distribution,producer-consumer linkages, and investment planning.The project faces minimal technical risks and apossible financial risk is mitigated by GOI'scommitment to a pricing policy which ensures thecontinued viability of CIL.

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Project Cost Estimate:US$ millions

Local Foreign Total

Equipment and Spares 77.3 138.2 215.5Land and Civil Works 47.7 2.5 50.2Washery 76.2 31.8 108.0Engineering and Training 5.7 - 5.7Pre-operating Expenditure 9.0 0.6 9.6Technical Assistance - 2.0 2.0Duties and Taxes 94.5 - 94.5

Base Cost 310.4 175.1 485.5

Physical Contingencies 24.2 10.4 34.6Price Escalation 100.2 58.1 158.3Working Capital 10.5 1.1 11.6

TOTAL PROJECT COST 445.3 244.7 690.0

Interest During Construction 6.0 - 6.0Front-end Fee on IBRD Loan - - -

Total Financing Required 451.3 244.7 696.0

Financing Plan:

Equity:

Government of India 215.8 - 215.8CIL Cash Generation 132.2 132.2Total Equity 348.0 348.0

Long-Term Debt

Government of India 85.8 - 85.8TBRD 17.5 230.5 248.0U.K (ODA) - 14.2 14.2

Total Debt 103.3 244.7 348.0

Total Financing 451.3 244.7 696.0= ~~~~~~~~~~~~~~~~~ _

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EstimatedDisbursements: US$ millions

FY86 FY87 FY88 FY89 FY90 FY91 FY92

Annual 0.6 54.6 53.6 71.2 22.4 36.2 9.4

Cumulative 0.6 55.2 108.8 180.0 202.4 238.6 248.0

Economic Rate of Return: About 21-22%

IBRD 18594

I. INTRODUCTION

1.01 The Government of India (GOI) has requested a Bank loan ofUS$248 million to assist in the financing of the Jharia Coking CoalProject. The Project, which is located in the state of Bihar, has two maincomponents: (i) the Open Cast Block II min:ng complex which comprises thedevelopment of a 2.5 million ton per year (tpy) open-pit mine andassociated washery to produce 1.1 million tpy of washed prime coking coal;and (ii) the Pootkee-Bulliary mining complex which entails the developmentof a 3.0 million tpy underground mine and washery facilities with acapacity to produce 1.5 million tpy of washed prime coking coal. Bothmining complexes will be constructed and operated by Bharat Coking CoalLtd. (BCCL), a wholly-owned subsidiary cf Coal India Ltd. (CIL), a GOIundertaking. The Jharia Coking Coal Project forms part of the Governmentstrategy to develop indigenous resources to meet the growing demand forcoking coal and to improve the overall operating efficiency of the sectorby introducing additional low cost open-pit and mechanized undergroundmining operations.

1.02 The financing requirements of the Project, includingcontingencies and escalation are estimated at US$696 million, of whichabout US$245 million (35%) will be in foreign exchange. The proposed Bankloan of US$248 million would cover about 94% of the foreign exchangerequired. The balance will be provided by Overseas DevelopmentAdministration (ODA) of the United Kingdom through its bilateral programfor assisting the Indian coal industry. The local component would beprovided from internally generated funds of CIL, Government resources andBank funds.

1.03 The proposed project was submitted by GOI to the Bank irn July*-2, and a pre-appraisal mission visited India in October 1982. It wasa raised in March 1983 and post-appraised in May 1984.

II. THE COAL SECTOR 1/

A. Reserves and Production

2.01 Coal production in India is largely in the hands of the whollygovernment-owned CIL which accounts for about 90% of coal production.Other coal producers are Singareni Collieries Ltd. (SCL) with about 8% oftotal coal production, which is owned by GOI and the State Government ofAndhra Pradesh, and two captive cokirn, coal mines of the Tata Iron andSteel Company (TISCO) and the Indian Iron and Steel Company (IISCO) - about1% each of total coal production.2 / The Department of Coal (DOC) is incharge of policymaking and it monitors and coordinates activities in thesector including approving CIL's production targets and annual investmentand operating budgets. Linkages between new mines and major consumers are

1/ Fuller background details of the coal sector are provided in India CoalSector Report, Report 3601-IN, September 1982, and Dudhichua Coal Project SAR,Report 4714-IN, February 1984.

21 In addition Neyveli Lignite Company produced 6.5 million tons (provisionalestimate) lignite in 1983/84.

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established by an interministerial committee and sanctioned by the PlanningCommission. CIL's production and investment program are also scrutinizedand reviewed by the Planning Commission.

2.02 Coal is India's most abundant indigenous energy source. Totalcoal resources (in seams greater than 0.5 meters and at depths of up to1,200 meters) are estimated at 112 billion tons.3/ India's coal resourcesare over eight times as large, in terms of calorific value, as India'shydrocarbon resources which were recently estimated at 6.5 billion tons ofoil equivalent.4/ The coal resources consist of about 78% thermal coalused primarily for heat and steam generation and 22% coking (i.e.,metallurgical) coal used in steel making. There is a wide variation in thequality of thermal coal reserves (with useful calorific value ranging from1,300 kcal/kg to over 6,200 kcal/kg) and in coking coal reserves (varyingin ash content from about 15% to over 35%). Reserves of high qualitythermal and coking coals are limited and both are in short supply.

2.03 To date, the coking coal reserves have been relatively moreextensively explored and developed than the thermal reserves. As a result,coking coal reserves account for about 47% of proven coal reserves. Thecoking coal reserves are specified as prime coking coal (PCC), mediumcoking coal (MCC) and semi coking coal (SCC) according to caking andswelling characteristics.5/ The bulk of the reserves (71%) are mediumcoking coal. The ash content for both PCC and MCC ranges from about 15% to35% and for SCC from about 15% to 18%.

India - Coal Reserves(million tons)

Indicatedand

Proven Inferred Total

Prime Coking Coal 3,673 1,724 5,397Medium Coking Coal 8,139 9,611 17,750Semi Coking Coal 567 1,323 1,890

Subtotal Coking Coal 12,379 12,658 25,037

Thermal Coal 13,952 72,889 86,841

Grand Total 26,331 85,547 111,878

Source: CIL.

3/ GOI has very recently revised this estimate to 127 billion tons basedon the results of geological work undertaken in the past severalyears. The additional reserves are almost entirely thermal.

4/ One ton of Indian coal has on average about half the heating value ofone ton of oil.

5/ This classification system is specific to India mnd not necessarilycomparable to classification in other countries.

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2.04 During the mid to late 19709 coal production in India wasconstrained and new projects delayed by a variety of difficulties includingpower interruptions, mine floodings, labor unrest and input shortages.These production difficulties, combined with transportation problemsresulted in coal supply disruptions to thermal power plants and majorshortages of both thermal and coking coal for industrial consumers. Since1980, however, the production situation has been largely turned around duein part to improvement in external factors such as power supplies and inpart to improvement in management effectiveness especially regarding newproject implementation. This has led to a significant expansion ofproduction during the last five years and preliminary figures for 1984/85Indicate a production of 149 million tons (incltding 131 million tons fromCIL) compared with 104 million tons in 1979/80 (of which 91 million tonswere from CIL).

B. Government Development Strategy

1. Objectives

2.05 Coal is India's most abundant indigenous energy source andpresently provides over 50X of India's commercial energy consumption.GOI's energy plans emphasize the development of coal both as a fuel forthermal power generation and for direct use by industrial and commercialconsumers. In the 1970s, when coal shortages were prevalent, GOI's mainpriorities were to increase production as quickly as possible with llttleregard for efficiency, cost-effectiveness, coal quality or distributionalfactors. Today, GOI's strategy has evolved to emphasize an adequate supplyof satisfactory quality coal with economically efficient mining andtransportation systems. Specifically, GOt's coal development strategy hadthe following major emphases:

(a) development of new large-scale highly mechanized coal mineswhich will permit the rapid expansion of coal productionwith due regard to safety and environmental protection usingincreasingly efficient mining teclnologies and equipment;

(b) rehabilitation and mechanization of certain deep undergroundprime coking coal operations in the Jharia Coalfield Inorder to increase the supply of prime coking coal as rapidlyas possible and reduce the need for imports;

(c) improvement in the availability and cost of coal toconsumers in distant locations from existing coalfields byoptimizing mineconsumer linkages, improving coaltransportation systems and giving priority to exploring forand developing mines in western and southern India; and

(d) introduction of measures to improve the quality of coaldelivered to consumers (in terms of both absolute qualityand consistency of quality) to reduce transportationrequirements and improve the efficiency of thermal powerunits, steel plants, industrial boilers, etc.

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2. Investment Program

2.06 During the five years from 1980/81 to 1984/85 incluslve, CIL hasimplemented an investment program of Rs 34 billion (equivalent to US$3.5billion). For the next five years, an investment of Rs 60 billion(US$5 billion)6/ in mid 1984 . terms of which about 20% would be foreignexchange requirements, is anticipated as shown below:

CIL - Investment Program(mid 1984/85 terms)

1984/85 1985/86 1986/87 1987/88 1988/89 1989/90Rs million 8,800 10,000 11,C00 12,000 13,000 14,000USS million 730 830 920 1,000 1,080 1,170

2.07 The above program represents an increase of about 402 in realterms compared with the previous five years. The increase represents acombination of an increase in both the number and average slze of projectsin the investment program as well as an increase in the amount ofdevelopment work required for each new large scale project. The sector 1iconsidered to be making good progress towards establishlng the necessaryorganizational resources and capabilities to implement the above programalthough continued progress is essential if the program is to be realized.In particular, CIL must make continued progress in improving itsimplementation capabilities (para 4.08) and, once Improvements aredemonstrated, in disseminating them to other projects throughout the CILGroup. The program is also viewed as consistent with the budgetaryallocation priority given by GOt to coal sector development. The programconsists of approximately 23% for expenditures co reconstruct and improveoperation at existing mines, 39Z for new projects presently beingimplemented, 21% for projects prepared and awaiting final sanction beforeinitiating construction and 17% for non-mine projects including washeries,sand transportation and project feasibility work. Approximately 60-65X ofthe expenditures are for open-pit mining projects and 20-25% forunderground projects - the balance being non-mine projects. A review ofCIL's overall investment program indicates that with a few exceptions theinvestment program is basically following a least cost development path.Examples are given in para 8.10 for the expansion of cokirg coalproduction.

2.08 The investment program places a strong emphasis on theidentification and development of new coalfields which are nearer toconsumers who are in distant locations from the major coalfields in easternIndia. In particular, priority is being given to meet the needs ofconsumers in western and southern India through exploratior. and development

6/ Preliminary figures for the Seventh Plan prepared by a GOI workinggroup for the coal/lignite sector target an investment program ofRs 85,000 million from 1985/86 to 1989/90. This is not consideredachievable. The investment estimate given in the text was prepared byBank staff and is considered feasible if CIL continues to improve itsimplementation capabilities.

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of new coalfields in the region of Nagpur, Maharastra and in the region ofBilaspur, Madhya Pradesh (by Western Coalfields Ltd.) and in Andhra Pradesh(by Singareni Coalfields Ltd). The efforts have resulted in promisingdiscoveries and developments in the Kusmunda and Korba coalfields in MadhyaPradesh (the Gevra deposit is located in the latter), the Wardha Valley(Maharastra) and the Godvari Valley (Andhra Pradesh). In order to improvecoal transportation to consumers in remote locations, GOI is presentlyundertaking studies of possible improvements in coal transportation andproducer/consumer linkages. Improvements in coal transportation will beaided by measures to improve coal quality (which will increase thecalorific value of a given quantity of coal thus reducing amounts to betransported) as discussed in para 2.10.

2.09 While the larger part of the program is for thermal coalprojects, coking coal projects are importantly emphasized in the program.Although total coking coal production Is in line with steel industrydemand, PCC has been in short supply for several years while the othergrades have been adequately available. During the past five years anaverage 0.4 million tons per year (tpy) PCC imports was required costingabout US$30 million yearly and a similar level of imports is expected to beneeded in 1984/85. PCC production is much more difficult to increase thanproduction of lower grades of coking coal (MCC and SCC) or thermal coalbecause mining conditions in Jharia coal field are much more difficult thanfor coal fields in most other parts of India. Most underground mines havebeen in the range of 0.1-0.5 million tpy and the recovery of coal in Jhariahas generally been in the order of 25-40%,7/ with an output per manshiftKOMS) of about 0.5-0.6 tons. These low recovery and productivity factors

considerably constrain PCC production in India. CIL has drawn up and isimplementing the Jharia Reconstruction Program to improve the recovery andproduction of PCC. One of the most promising measures is to mine theshallower areas by open-pit mining methods; this should provide for 90% ormore recovery of previously unmined areas together with recovery of coalfrom old workings. Another is to combine groups of small, unmechanizedmines (generally 0.1-0.3 million tpy production) into larger single units(up to 3.0 million tpy each) using more efficient, mechanized productionand haulage systems where geological conditions permit. Suchrehabilitation projects provide for increased productivity (with an OMS ofup to 2.0 for underground mines and 4.0 or higher for open-pit mines),higher output (mines of 1-5 million tpy) and higher recoveries (from 60 to80%). The Jharia Coking Coal project encompasses both approaches: theBlock II complex uses open-pit mining technology and the Pootkee-Bulliarycomplex is a rehabilitation undertaking which utilizes longwall mechanizedmining approach.

7/ Most underground mining methods can only recover a certain portion ofthe coal reserves in any particular deposit - generally about 45-55%.In the case of Jharia, prevailing geological conditions of thick coalseams in sands;one strata result in much lower recovery factors. Thecoal that is left in the ground is, so far, effectively lost from thereserve base suitable for productior..

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3. Coal Quality Improvements

2.10 GOI is rightly placing a high priority on improving the quality(in terms of consistency of coal quality as well as absolute coal quality)of both thermal and coking coals to consumers. GOI has appointed highlevel government commissions to study the problem of both thermal coalsupplies (Report of the Committee on the Problem of Coal Supply to ThermalPower Stations, a.k.a. the Fazal Committee Report, October 1983) and cokingcoal supplies (Report of the Working Group on New Sources of Coking Coals,Hot Metal Production, and Coal Availability/Linkage to Washeries During theSeventh Plan, a.k.a. the C. S. Jha Committee Report, September 1984). Forthermal coal, the Fazal Committee sade a broad range of recommendationscovering various topics such as specific mine/power plant linkages, railwayloading and dispatch procedures, coal preparation and deshaling, coalsampling and testing, coal stockpiling and coal quality bonus/penaltycontractual arrangements. A number of measures are already beingimplemented. These include, 'sportantly, the introduction of contractsbetween the coal companies and major power utilities with joint samplingfor coal quality and bonus/penalty clauses for quality differences versusagreed specifications. Another important measure which has been introducedby CIL is that satisfactory coal quality is now a criteria of minemanagers' operating performance. CIL has started measurement and recordkeeping of the removal of rock and waste material from coal supplies,together with procedures to monitor the accuracy of the record keeping.Other useful measures are presently being considered for implementation bythe Department of Coal.

2.11 The steel plants are concerned regarding (i) a steadydeterioration in PCC quallty over the past several years and (ii) dailyfluctuation in the quality of PCC received. The problem has been mostsevere and is mainly reflected in the increase of ash content in the coal.The CIL PCC washeries were designed to receive raw coal with 25% averageash content and produce washed coal with 17% average ash content. Howeverthe quality of both raw coal and washed coal has deteriorated in recentyears and in 1983/84 the raw coal had 312 average ash content and thewashed coal 22.5% average ash content8 / with daily fluctuation of as muchas 1-2%. The decline in raw coal quality is largely due to gradualdeterioration in the resource base combined with dilution due to increaseduse of blasting and mechanical coal cutting and inadequate supervision.Such high ash content means, on the one hand, a much higher coking coalproduction is required to meet a given level of hot metal production and,on the other hand, the productivity of the blast furnace is adverselyaffected. Improvement in the ash content of washed coking coal wouldtherefore provide important savings in coking coal and steel imports aswell as reducing steel production costs and lowering future investmentneeded to expand the capacity of coking coal mines and steel productionfacilities.

8/ By comparison most modern steel plants in other countries use washedcoking coal with ash in the range of 6-10%.

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2.12 During the past year the GOI and CIL have given a high priorityto improving PCC quality. Specifically, CIL has (a) eliminated a number ofsubstandard coals from the feed to the washeries and (b) initiated variousrepairs and improvements at some of the older washeries which weretransferred from ownership of SAIL to CIL in October 1983. Largely as aresult of these two measures the average ash percentage in prime cokingcoal was reduced to 20.6% in first quarter 1984/85. Further improvementsin PCC quality are expected over the next several years when (a) suppliesof washed coal with 17% ash content become available from new mine/washerycomplexes such as Block II and Pootkee-Bulliary, and (b) as CIL implementsa program of measures to improve raw coal supplies and washery operations.Measures to improve raw coal supplies include installation of new coalhandling plants at some coking coal mines, development of new mining areaswith superior quality prime coking coal, testing by Central Fuel ResearchInstitute of certain coals with disputed coking qualities and use ofpremium quality Assam coal for blending purposes. Measures to improvewashery operations include increased capital expenditures for washeryimprovements, installation of rotary breakers at certain washeries,upgrading of slurry by froth flotation at Dugda I and II washeries,umdifications to Patherdih washery, trials with pre-screening jigs atBarora washery and possible establishment of a washery institute.

C. Role of the Bank

2.13 The rationale for the Bank's involvement in the coal sector is tosupport its development so that it takes places in an efficient manner fromtechnical and economic standpoints, including efficient resourceallocation, and so that consumers are able to obtain sufficient quantitiesof adequate quality coal in a timely manner. The approach so far has beento (a) establish a policy dialogue to identify and address criticaleconomic, sectoral and institutional issues that may impede thesatisfactory achievement of GOI's objectives as outlined in para 2.05, andCb) initiate a lending program focused on large scale projects aimed atassisting GO to improve its implementation and operational capabilitiesfor highly mechanized, capital intensive mining projects.

2.14 The policy dialogue originated with a Coal Sector Survey (Report3601-IN, September 1982) which addressed selected issues pertaining to coalsupply/demand prospects, pricing, investment and financing. Energy pricingand resource mobilization were also addressed in Economic Situation ofIndia and Resource Mobilization Issues (Report 4375-IN), April 1983. Thepolicy dialogue, established during this sector work, was further developedwith specific measures regarding coal pricing and coal transportation inthe first lending operation for the Dudhichua Coal Project (Report 4714-IN,February 28, 1984) to provide thermal coal for power generation. A pricingagreement was reached with GOI in the Dudhichua project which should ensurethat the GOI's pricing approach will result in prices that provide thecorrect signals to both consumers and producers regarding the economicvalue of coal. Provided pricing increases are made in a timely manner, the

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pricing approach should also progressively move the sector towards a soundfinancing footing. Additionally, improvements in the coal transportationand coal producer/consumer linkages are being studied which should lead toeconomic coal distribution patterns and should assist GOI in improving coalsupplies to consumers in western and southern India. In the last lendingoperation support was also provided to institutional developments in CIL inoperation of large-scale open-pit mines, project management, and budgetingand cost control. Local and foreign consultants have been retained by GOIand CIL to provide assistance on these institutional matters.

2.15 GOI has requested the Bank Group financing of projects toincrease production of both thermal and coking coals, proposing one coallending operation per year for the next several years. The Jharia CokingCoal Project will be the second of these operations, and the Gevra ThermalCoal Expansion Project is under preparation for FY1986. It is intendedthat the lending strategy should lead to involvement with all of CILsubsidiaries, while progressively addressing one or two importantsectoral/institutional issues. The next priorities are (i) to developimprovements in coal sector manpower planning and training which areconsidered essential if CIL's project implementation and operationalcapabilities are to expand in line with the proposed investment program and(ii) to ensure that the implementation of measures to improve thermal coalquality takes place in a timely manner. Subsequently, it is intended tobroaden the scope of the Bank's involvement to unmechanized miningoperations including improvements in mine safety. Additionally, furthersector work is planned for FY1986 which would focus on a more detailed andin-depth review of CIL's approach for identifying, selecting, preparing andimplementing its investment decisions, as well as a review of theoperational and economic efficiency of a large number of labor intensiveunderground operations.

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III. THE MARKET FOR COKING COAL

A. Coking Coal Supply and Demand Prospects

1. Overview of Indian Coal Market

3.01 Coal is essential for future industrial growth in India. Atpresent, industrial and commercial consumption account for an estimated 48%of coal consumption in India. The largest industrial consumers are thesteel sector primarily for coking coal (18%), tbe cement sector (6Z) andthe fertilizer sector (3X). The balance (21%) is used largely for heat andsteam generation by about 20,000 industrial units in a variety of differentindustrial subsectors. Besides the industrial sector, power generationaccounts for 42% of coal consumption, railways (7%) and residential (3%).Demand projections for the period up to 1989/90 indicate that coal demandwill be in the range of 200-240 million tons by 1989/90 (an average annualgrowth of 6.6-9.9% per year) depending on underlying assumptions regardingproduct growth and energy consumption trends in different coal consumingsectors and inter-fuel market shares. Based on this range the most likelyestimate of future coal demand in 1989/90 is 220 million tons. Powersector demand for coal is expected to grow most rapidly and will accountfor 50% of coal consumption by that year. The share of industry willdecline slightly (to about 44% in 1989/90) but steel industry consumptionof coking coal will increase slightly to 19% of total consumption. Theratio of coking coal requirements to steel requirements will declineslightly because of improved average blast furnace productivity due to theexpansions at Bhilai and Bokaro and the new plant at Vizag.

Irdia - Goal DIeid Projectkns(millim txs raw coal)

Anmml AvegeGroth Rate(X per ̂ Mr)

1983/84 1984/85 1985186 1986187 1987/88 1988/89 1989/90 1983/84--LW/9

57 61 67 76 87 98 109 11.4--yes 10 10 9 9 9 8 8 (3.7)Mt 8 9 10 11 12 12 13 8.4ilize 4 5 6 6 6 6 7 9.8

30 31 36 37 39 40 42 5.8Subntotal fl~rnr1. 109 116 128 139 153 164 179 8.6

rGwO 27 30 32 35 37 40 41 7.213L 146 160 1D4 190 2D4 2m3 8.3

Grand Total - - - - = -

3.02 Production projections have been prepared for CIL and the othercoal companies based on the investment and development program discussed inpara. 2.08. These indicate that production could be increased to meet the

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projected demand of 220 million tpy 9 / with most of the increase beingprovided by CIL as shown in the table below:

Izxla - 9ae Spply Proj ti%osII(mill tons raw coal)

Amml Average&h Rate

(Z per M2!1983/84 L984/85 1985/86 1986/87 1987/88 198 _89 1989/90 ___3/84 to I989

CIL 121 131 142 151 163 176 190 7.8SCL 13 14 15 17 20 22 25 11.5TIsSID/IUSM 4 4 4 5 5 5 5 3.8Ibtal 49 161 173 188 203 220 8.1

dng GCoal 29 31 32 35 36 39 44 7.2Thnm Coal 109 118 129 138 152 164 176 8.3

Total 138 149 161 173 188 2D3 220 8.1

3.03 A review of the status of preparation and implementation of majorprojects in CIL's investment program indicates that a production increaseof about 70 million tpy from 1983/84 to 1989/90 is feasible. Inparticular, CIL, has increased production by 30 million tpy in the pastfour years (from 91 million tons in 1979/80 to 121 million tons in 1983/84)and it is quite feasible that CIL's production could further increase byanother 70 million tpy by 1989/90 given that several large new open-pitmines are being developed which would provide substantial production in thelate 1980s.

2. Coking Coal Requirements and Supply Prospects

3.04 Coking coal is required primarily by the steel industry formaking coke, which is used in the blast furnace for steel making. Inaddition, small quantities of coke (mostly produced from medium coking coalwhich is presently in excess supply in India) are used by household andindustrial plants. In 1983/84, the integrated steel plants produced 9.1million tons of hot metal. For the future, hot metal production isprojected to increase to 14.7 million tons in 1989/90-as described inAnnex 1 which provides a description of the steel industry and itsdevelopment prospects. The supply allocation and marketing of coking coalin India takes place within a set of formalized procedures under theauspices of GOI. A basic structure of linkages between washeries and steelplants has been established and the coal controller who is appointed by GOIand based in Calcutta makes monthly and quarterly supply allocations ofwashed coking coal taking into account any production difficulties orclosures for maintenance and repair of either the washeries or the steelplants.

9/ Coal production and demand have been targetted at 245 million tonsin 1989/90 by a GOI working group. These are not considered feasible.

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3.05 The basic product purchased by the steel mill is washed cokingcoal. Washing reduces the ash content of the coal and provides forconsistent quality - both of which, improve blast furnace efficiency.Coking coal requirements of each steel mill are based on a certain blend ofPCC, MCC and SCC. The blend ratio is fixed according to the technicalparameters of each plant to provide maximum efficiency in the blastfurnace. There is very little flexibility for adjusting the ratio if therequirements and supplies of different coking coals are imbalanced. Theaverage blend for the Indian steel industry is in the order of 55/38/7 forPCC/MCC/SCC. Washed coking coal supply and demand projections have beenprepared for the different types of coking coals as shown below.

India - Washed Coking Coal Supply/Demand Projections a/(million tons washed coal)

1983/84 1984/85 1985/86 1986/87 1987/88 1988/89 1989/90PCC

Supply 7.7 8.0 8.4 9.0 9.7 10.2 11.8Demand 8.4 9.4 9.9 10.9 11.6 12.4 13.0Balance (0.7) (1.4) (1.5) (1.9) (1.9) (2.2) (1.2)

MCCsupply 8.3 8.8 8.9 9.8 10.0 10.9 11.8Demand 5.8 6.5 6.8 7.5 8.4 9.1 9.5Balance 2.5 2.3 2.1 2.3 1.6 1.8 2.3

SCCSupply 0.8 0.8 0.8 0.8 1.0 1.2 1.5Demand 1.0 1.1 1.2 1.3 1.3 1.4 1.5Balance (0.2) (0.3) (0.4) (0.5) (0.3) (0.2) 0.0

TOTALSupply 16.8 17.6 18.1 19.6 20.7 22.3 25.1Demand 15.2 17.0 17.9 19.7 21.3 22.9 24.0Balance 1.6 0.6 0.2 (0.1) (0.6) 1.1

==90

a/ Includes small amounts of direct feed coal also.

3.06 These supply/demand projections are based on estimates of hotmetal production, washing capacity and mine production. The washed cokingcoal demand has been prepared based on a hot metal production of 14.7million tpy in 1989/90 as discussed in Annex 1. The washed coking coalsupply projections have been prepared on the basis of projections ofwashery capacity and mine production. There are presently twelve PCCwasheries plus three more planned and eight MCC washeries plus three moreplanned or under construction (Annex 2). 10/ The SCC does not need washingsince its ash content (16-18X) is within acceptable limits for direct useat the steel plant. Mine production projections for raw coal have been

IO/ One washery at Durgapur Steel Plant (DSP) is included in Annex 2 forboth PCC and MCC since it has circuits for both types of coking coal.

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prepared based on a detailed review of CIL's coking coal mines togetherwith an assessment of future production trends at the TISCO and IISCOmines. The projections include not only incremental production from newprojects but also declines in production at many existing operations due tomine depletion. The projections have been prepared taking into account thevarious grades of coking coal as follows:

India - Coking Coal Mine Production Prospects(million tons raw coal)

1983/84 1984/85 1985/86 1986/87 1987188 1988/89 1989/90

PCC 14.8 15.3 16.2 17.3 18.7 19.6 22.6MCC 13.8 14.6 14.8 16.4 16.7 18.2 19.6SCC 0.8 0.8 0.8 0.8 1.0 1.3 1.8Total 29.4 30.7 31.8 34.5 36.4 39.1 44.0

3.07 The above projections indicate that while the coal companiesshould be able to supply the steel sectors requirements for MCC, shortfallswill occur for PCC and SCC. The shortfalls will be most severe for PCC.As noted previously (para 2.09) PCC imports have been required for the pastseveral years and CIL has placed a high priority on increasing PCCsupplies. The above projections indicate that notwithstanding the effortsto increase FCC production, it is to be expected that imports of PCC willcontinue to be required and could increase to 1-1.5 million tors in themid-to-late 1980s. The Jharia coking coal project is an important part ofthe increase in PCC expected in the late 1980s and without the project coalimport requirements would be much higher. SCC production takes placelargely in deep underground mines in Bihar/West Bengal where production canonly be expanded slowly due to difficult geological conditions. CIL isexamining ways of improving SCC supplies including shipments of suitablequality coal from Assam. However, the shortages are less critical than forPCC since they are much smaller and the steel industry can more readilyadjust its operations to counterbalance shortages of SCC than FCC.

3.08 The raw coal does not have uniform washing charactistics. Thewashing characteristics depend on which seam is being mined and which partof the coalfield the seam is located in. Th.ts, the washeries are linked toparticular groups of mines based on the raw coal washing characteristics,and the washeries have different design characteristics according to thelinkage specified. CIL is undertaking a construction program for newwasheries linked with incremental mine production. The washed coal supplyprojections are based on adequate washing capacity being available to washall of the mine production. This is expected to be the case in all yearsexcept 1987/88 when a temporary shortage of washing capacity may arise asshown below:

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India - Prime Coking Coal Washery Capacity and Raw Coal Production(million tons - raw coal)

1983184 1984/85 1985/86 1986/87 1987/88 1988/89 1989/90PCC WashingCapacity 15.9 17.0 17.9 17.9 17.9 19.7 22.6

PCC MineProduction 14.8 15.3 16.2 17.3 18.7 19.6 22.5Balance 1.1 1.7 1.7 0.6 (0.8) 0.1 0.1

3.09 Since it is very unlikely that any planned washeries can beadvanced to be available in 1987/88 CIL is presently consideringcontingency plans to improve throughput at existing washeries such asBhojudih and Dugda I and II in the event chat coal supplies actually exceedcapacity 'La that year as projected. Also increased capacity may beavailable at three other washeries owned by SAIL, IISCO and the Governmentof West Bengal respectively.

B. Coking Coal Prices and Pricing Policy

3.10 Coal prices are set by GOI on an administered basis. During the1970s, prices were allowed to lag behind costs and the industry experiencedlarge losses. During the past five years, however, GOI has increasedprices on four separate occasions which has resulted in an overall priceincrease of 88%. In 1982/83, GO! also authorized CIL to introduce aninternal retention price system whereby internal accounting prices wereestablished for each subsidiary which took due account of cost differencesbetween the subsidiaries due to geological conditions, locational factorsand other influences outside of the control of the subsidiary. This changewas in line with the recommendations in the India Coal Sector Report(Report 3601-IN). The most recent coal price revision (January 1984),resulted in prices basically in line with economically efficient levels.Additionally, an important aspect of the 1984 price increase was that thelargest adjustments were provided for the higher grades of coal so that thedifferentials between the different grades of coal would better reflect thevalue to the users. The minehead price schedule is given in Annex 3. Inaddition consumers pay certain taxes and levies which amount toapproximately 25% of thermal and coking coal minehead prices for Jhariacoals. The levies on coal in Bihar are given in Annex 4.

3.11 GOI's coal pricing approach is to set prices at the minehead witha view to providing a satisfactory return on net worth under conditions ofefficient operation, and to ensuring the financial viability of Coal Indiaas well as progressively increasing the level of resource mobilization inthe sector in order to cover an increasing portion of coal sector capitalexpenditures. GOI has agreed to review coal prices periodically in linewith the above pricing approach and with agreements made under theDudhichua Coal project. An inter-ministerial working group, headed by theChairman of the Bureau of Industrial Costs and Prices (BICP), wasestablished in early January 1985 to consider the need for a coal priceincrease. The group is expected to complete its review by end February1985, following which recommendations will be submitted to the Government.

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3.12 Coking coal pricing, however, presents an addititionalcomplication because the basic product required by tite steel mills iswashed coking coal for feeding into coke ovents rather than the raw coalproduced by the mines. Additionally, in November 1983, the coking coalwasheries owned by SAIL were handed over to CIL. Prior to this date, SAILused to purchase raw coking coal from CIL paying a fee for washing.Following the change in ownership, all coking coal is now sold on a washedcoal basis. Accordingly, CIL and SAIL introduced contracts for the sale ofwashed coking coal which is in line with contractual arrangements in othercountries. In these contracts, the price of the washed coal is based on aformula taking into account the administered price of the raw coking coal,the operating cost of the washery, efficiency norms for the washery aud areturn on capital for the washery. Most importantly, the contracts includebonus and penalty clauses relating to the quality (in particular, the ashcontent) of the washed coking coal supplied to the steel plants. Thebonus/penalty system provides a direct incentive for CIL to improve bothits mining and washery operations to ensure the best possible feed toSAIL. This pricing approach is considered satisfactory since it results inprices very close to efficiency prices after due adjustment for qualitydifferentials. Ex-washery prices for coking coals with 20% ash content arecurrently at Rs 560 per ton (US$46.7), including sales taxes and levies.This is in line with the net-back parity price of imported Australiancoals"1/ which is estimated at US$50 per ton ex-washery after adjustmentsfor port handling, inland freight and quality differertials.

IV. THE BENEFICIARIES

A. Coal India Ltd. 121

L. Organization and Management

4.01 The CIL group of companies was organized by GOI in September1975, following a restructuring of the coal companies which werenationalized in the early 1970s. The group was established as a holdingcompany (CIL) and five 1 / wholly-owned subsidiaries, Bharat Coking CoalLtd. (BCCL), Central Coalfields Ltd. (CCL), Eastern Coalfields Ltd.(ECL), Western Coalfields Ltd. (WCL), and the Central Mine Planning andDesign Institute (CMPDI). Its activities are regulated under the frameworkof the Companies Act of 1956. CIL operates semi-autonomously under thedirection of an eleven-member Board of Directors, headed by its Chairmanrappointed by the President of India. The Chairman also acts as ManagingDirector, responsible for the day-to-day direction of the Group. The Boardof Directors also includes the chairmen of CIL's subsidiaries, and

11/ The CIF price of Australian coal is currently US$70 per ton for amedium/high volatile, low sulphur, 10% ash coking coal.

12/ Further background details on Coal India Ltd. have been recentlydiscussed in the SAR for the Dudhichua Coal Project, Report 4714-IN,February 1984.

13/ CIL also has one other small subsidiary, North-Eastern CoalfieldsLtd. (NEC), which is organized as an operating division directly underCIL headquarters.

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government representatives. The Board has also appointed a TechnicalCommittee, responsible for reviewing and recommending development projectsand bid awards for imported equipment.

4.02 According to its articles of incorporation, CIL is required toseek GOI's approval, inter-alia, for specific investments of Rs 50 millionor more, five-year and annual plans of development and capital budget, andits operating budget. Otherwise, CIL operates with autonomy for carryingout its operations, including the implementation of new projects. CIL isfunctionally organized with managers for production and safety, engineeringand supplies, corporate planning, project monitoring, coal marketing,personnel and finance. The Technical D)irector and Finance Director arealso Board members. CIL organization chart is shown in Annex 5.

4.03 CIL's subsidiaries operate under the direction of a Board ofDirectors, headed by a Chairman, who also acts as Managing Director,appointed by the President of India. Four of the subsidiaries namely BCCL,ECL, CCL and WCL are coal producing units organized functionally withmanagers responsible for production, corporate planning and projects,finance, marketing and personnel. For each company, mining activities areorganized into small regional areas, each under the supervision of an areamanager. Presently, these subsidiaries operate 384 mines, organized in 51areas with an average production of about 2.5 million tpy per area. A moredetailed description of BCCL is provided below (paras 4.18 to 4.20).

4.04 In addition to setting general policies for its subsidiaries andretaining authority regarding the typical managerial functions of a holdingcompany, CIL directly manages the financial resources of the group. CIL isresponsible for overseeing the group's investment program (para. 2.07).All contributions from the GOI (about US$800 million in 1983/84) in theform of new equity and long-term loans to fund the expansion programs arechanneled through CIL, who decides on the allocation to the subsidiarycompanies depending on priorities and their cash position. Under thisscheme CIL is the borrower of all long-term loans, and as such it hasdirect responsibility for servicing the long-term debt. Since CILis responsible for decision-making on financial and administrative matters,and is the borrower of all long-term loans, it was considered as theprimary beneficiary of the Bank loan for Dudhichua and is accordinglyconsidered as the primary beneficiary of the proposed loan for Jharia.

4.05 The CIL group is a very large and complex organization. Sinceits inception in 1975, and particularly during the last six years, CIL hasmade progress in terms of consolidating the organization, implementingaccounting and other operational control systems, expanding production,improving the operational efficiency (particularly labor productivity), andstrengthening its capability for project preparation and implementation.During this period, steps have been taken to decentralize the operationsgiving more autonomy to subsidiaries and its operating arms, mainlyregarding operational, marketing and personnel matters. These efforts haveresulted in steady improvements in CIL's functio;'ng and CIL is now able to

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play a major role in decentralizing from the Government the coordinatingfunction for the implementation of sectoral policies. The question hasbeen raised as to whether or not it would improve the efficiency of thesector to decentralize the group and create several autonomous companies.Such a move would not per se provide any substantial improvement in CIL'soperations at least at the present time and could retard the progressalready made. CIL has proved an effective agent in coordinating thesector's development which would otherwise need to be undertaken by thebureaucracy of the central government. There is, however, further room forimprovement in CIL's organization. A more effective approach adopted hasbeen to assist CIL in making further progress in strengthening itsoperations under the present organizational structure. To this end, threespecific operational. and managerial issues were addressed under theDudhichua Coal Project. These relate to budgetary and cost controlsystems, the operational efficiency in open-pit mines and projectmanagement organization and practices.

4.06 The Indian Institute of Management (Ahmedabad) has been retainedby CIL to provide technical assistance for strengthening the operationalbudgetary procedures of CIL and its subsidiaries. In particular, theassistance, which will be channeled through CMPDI, will focus on definitionof cost and profit centers, basic procedures for budget formulation andreporting, and definition of control mechanisms and corrective actions.The design stage will be completed by mid-1985 and the Implementation willfollow thereafter.

4.07 CIL has also invited proposals (through CCL) to contract theservices of about 50 man-months of foreign consultants (financed under theDudhichua Loan, 2393-IN) for improving the efficiency of open-pitoperations. Six consulting firms specialtzed in operational aspects ofopen cast mining have been invited to submit proposals under terms ofreference agreed with the Bank. Metchem, Canada, has been awarded thecontract and is expected to mobolize in February 1985. Additionally, CILhas retained the Central Road Research Institute (New Delhi) to assistCMPDI and CCL in the improvement of design, construction and maintenance ofhaulroads in open-pit mines.

4.08 With regard to project management practices, various positivesteps have been taken following the dialogue initated with the Bank duringpreparation, negotiations and early stages of implementation of theDudhichua Coal Project. Firstly, project managers were in the pastreporting to area general managers, who are mainly concerned withproduction. Recently, this has been modified and the position of projectmanagers has been elevated so that they report to a position withresponsibility for project development rather than production. In BCCL forexample, a new position of Technical Director Projects has been created andthe hierarchical level of project managers has been upgraded to generalmanagers. Secondly, a project implementation manual has been prepared forDudhichua, following terms of reference agreed with the Bank. The Bank hascommented on a draft, and after some modifications the manual is expectedto be implemented in early 1985. Similar manuals have been requested forboth components of the Jharia Coking Coal Project (para. 5.32).

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2. Operations

4.09 During 1983/84 CIL produced 121 million tons of coal of which 95million tons were thermal coal (79%), aP4 the balance 26 million tons(21%), coking coals. The contribution of each subsidiary to CIL productionis shown below.

CIL - Coal Production by Subsidiary, 1983/84(million tons of raw coal)

Thermal Coking Total

Bharat Coking Coal Ltd. (BCCL) 8.0 13.6 21.6Central Coalfields Ltd. (CCL) 25.3 11.5 36.8Eastern Coalfields Ltd. (ECL) 22.2 0.7 22.9Western Coalfields Ltd. (WCL) 39.0 0.4 39.4North Eastern Coalfields Ltd. (NEC) 0.7 - 0.7Total 95.2 26.2 121.4

Source: CIL.

4.10 Underground mining accounted for 51% of CIL production in1983/84. CIL is undertaking a program to rationalize its undergroundproduction, basically aimed at reorganizing groups of small mines intolarger units and introducing mechanization both in coal extraction andtransnortation. This program is a sound strategy which is expected tocontribute to reducing unit production cost as well as providing increasesin production. At present 24 reorganization/mechanization projects are atdifferent stages of implementation throughout the CIL group, of which 9 arefor coking coal mines predominantly in BCCL. These schemes imply both themechanization of the room and pillar mining operations and the use ofmechanized longwall technology. At present only about 5% of CIL'sunderground production is coming from mechanized mines but their proportionwill increase to about 35% in the early 1990s when these mechanizationprojects are fully operational. Management of these mechanized mines,particularly those using the fully mechanized longwall technology such asPootkee-Bulliary, needs strengthening. In order to improve the operationof these mines, BCCL has agreed to retain technical assistance to improvethe design, management and operating procedures for highly mechanizedunderground mines, and an outline for the scope of work is presented inAnnex 6. It has been agreed with BCCL that this technical assistance willbe financed with the proposed loan and that it will be initiated beforeDecember 31, 1985 under terms of reference acceptable to the Bank, and thatthe Bank should be furnished with a copy of the studies undertaken andgiven opportunity to comment on the findings which should then beimplemented. About seven man years of foreign consultants will be retainedaccording to procedures acceptable to the Bank.

4.11 Open-pit mines accounted for 49% of CIL production during1983/84. The operating efficiency of (?en-pit mines has been a matter ofconcern to the Bank. As noted earlier .para. 4.07), a program of technicalassistance was agreed in the loan for the Dudhichua Project, and itsimplementation is due to start in early 1985.

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4.12 Coal beneficiation operations of CIL include 15 washeries, andall of them except one process coking coals for the steel industry. Themain objective of this beneficiation is to reduce the ash content of cokingcoals. As discussed earlier (para. 2.11) the quality of the washed coaldelivered to steel plants has deteriorated in the past, and CIL has beenimplementing measures to change this trend, and some achievements have beenmade during the current fiscal year. During 1983/84 15.4 million tons ofraw coking coals were beneficiated in CIL's washeries,14/ yielding 9.2millicn tons of washed coal.

4.13 In 1983/84, CIL provided employment to 655,300 personnel. Thecomposition of the staff is as follows:

CIL - Staffing 1983/84

Category Staff X

Managerial and High Technical Staff 11,000 1.7Supervisors 92,700 14.1Qualified/Specialized Staff 10,600 1.6Skilled Workers 98,000 15.0Non-Skilled Staff/Manual Workers 443,000 67.6

Total 655,300 100.0

Source: CIL.

4.14 CIL directly operates seven central training centers specializedin management, open-pit and underground technologies and coalbeneficiation. In addition, the subsidiary companies operate sixteenregional training centers covering managerial, technical and vocationaltraining activities plus about fifty area training centers for vocationaland statutory safety courses. During 1983/84, the training program inthese centers comprised about 5,000 courses given to 103,000 participants,of which about 88Z were workers, and the rest managerial and supervisorystaff. CIL's training activities have been strengthened over the pastseveral years through a program of foreign collaboration including, mostimpotldntiy.. the British coal industry. However, while training activitiesfor certain skills or functions have been developed, there is nocomprehensive overview of training needs and how they should be met.Furthermore, the overall training functions is badly understaffed. TheBank has diseo_ssed with CIL measures to improve the effectiveness of thetraining function, particularly in the light of the impact of theinvestment program on the skills of the labor force over the next five toten years. During these discussions it became apparent that improvementsin training are only a part of a much broader issue related to manpowerplanning at all levels of the CIL organization. CIL has acknowledged theneed to improve its manpower planning and is preparing information on itspresent capabilities and requirements. This should be available early in1985 and will provide the basis for assistance which could be included inthe proposed Gevra Coal Expansion Project.

14/ Raw coal was also fed directly to the steel mills, was sent to cokingovens for non-steel consumers and was fed to two non-CIL washeries.

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3. Financial Position

4.15 The financial performance of CIL over the last five-year periodis summarized helow and given in fuller detail in Annex 7.

CIL - Summary of Financial Performance 1980/81 to 1984/85(Rs million)

1980/81 1981/82 1982/83 1983/84 a/ 1984/85 b/

Coal Sales (million tons) 94 102 109 116 124Net Revenues 11,300 14,209 17,063 19,051 23,800Operating Expenses 10,273 12,138 14,240 18,475 19,065Depreciation 738 951 1,344 1,716 2,138Interest 626 778 1,110 1,324 2,042

Net Income (Loss) (337) 342 369 (2,464) 555

Internal Cash Generation 401 1,276 1,713 (749) 2,693Capital Expenditures 3,412 5,809 7,142 8,615 8,800Long-Term Debt 12,557 13,196 17,461 19,273 21,753Accumulated Losses (8,461) (8,119) (7,370) (9,758) (9,203)Net Equity 2,385 5,483 9,542 11,541 17,113

Net Income (Loss)/Revenues % (3.0) 2.3 2.2 (12.9) 2.3Current Ratio 1.1 1.3 1.3 1.2 1.3LT Debt/Equity Ratio 84:16 71:29 65:35 62:38 56:44LT Debt Service Coverage 0.9 1.4 1.4 0.3 1.1

a/ Unaudited.b/ Estimate based on investment and operational budgets.

4.16 Up to 1980/81, CIL had been in a loss situation, which derivedfrom a low level of coal prices and an emphasis on increasing productionwithout due regard to cost effectiveness. This trend was reversed in1981/82 when CIL showed for the first time an acceptable income statementwith adequate levels of internal cash generation, long-term debt servicecoverage and current ratio. The financial position improved further during1982/83. However, during 1983/84 CIL showed a financial loss andconsequently a deterioration of the main financial indicators due to theback-dating of a national wage and salary settlement associated with a newfour year collective bargaining contract. The wage settlement wasfinalized in December 1983 and an offsetting price increase was made inJanuary 1984. However, the wage award was back-dated to January 1983causing a large loss for CIL which was financed by delaying debt repaymentto GOI. The budgeted re.sults for the current financial year (1984/85)envisage a return to a financial position similar to that of 1982/83.Preliminary results for the first quarter are positive and a profit ofabout Rs 555 million is expected for the full year.

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4.17 The accounts of CIL, as well as its subsidiaries, are auditedannually by statutory auditors (a partnership of independent charteredaccountants) appointed by the Government of India in consultation with theComptrolle-. and Auditor General of India. These arrangements aresatisfactory. Statutory auditors are appointed for a period of three yearsat the end of which they must be changed. At the completion of theiraudit, the statutory auditors express their opinion on the fairness of thefinancial statements, which is included in the Company's annual report.The auditing standards and procedures followed are those laid down by theIndian Institute of Chertered Accountants. An additional audit isconducted by the Audit Board of the Office of the Comptroller and ±=ditorGeneral of India. This is both a financial and a management audit and thecomments of the Audit Board are also published with the financialstatements of CIL.

B. Bharat Coking Coal Ltd. (BCCL)

4.18 BCCL is the subsidiary of CIL which is responsible for thedevelopment and operation of the Jharia Coking Coal Project. BCCL is themain producer of coking coal in India, accounting during 1983/84 for 52% ofthe total coking coal production and all of the prime coking coal. BCCL'sheadquarters are in Dhanbad, in the state of Bihar. At present, BCCLoperates about 100 coal mines, organized in 37 mining areas grouped in twooperating divisions. Additionally BCCL owns and operates nine washeriesand another three are planned to be constructed during the Seventh Plan.

4.19 During 1983/84, BCCL produced 21.6 mi'llion tons of run-of-minecoal, of which 13.6 million tons were coking coals (63%). Undergroundmining accounted for 65% of BCCL's production, which is significantlyhigher than the average for CIL (51%). This, and the difficult geologicalconditions result in relatively higher operating costs of BCCL's minecompared with other subsidiaries.1 / During 1983/84, the averageoperating expenditures of BCCL were Rs 234 per ton of saleable coal, whichwas 44% higher than CIL's average, whereas the average revenues were only20% above the group's average.

4.20 BCCL is currently in a relatively weak financial position.Although efforts have been made consistently for many years to improve theefficiency of BCCL's operations, BCCL's higher operating costs resulted inheavy losses during the late 1970s and early 1980s leading to large lossesand a concommitant decline in management morale and control. During1982/83, part of the funds channelled for covering BCCL's financingrequirements were converted into equity. This measure, together with theretention pricing system (para. 3.10), resulted in an improved internalcash generation. At the same time BCCL managemnent effectiveness increasednotably. The financial situation deteriorated somewhat during 1983/84, aswas the case for the entire CIL group due to a belated price revision(para. 4.16). However, during 1984/85 BCCL is expected to improve itsfinancial position as shown in the table below.

15/ Stowing operations for controlling subsidence in densely populatedareas, particularly in Jharia, contribute importantly to the higheroperating costs.

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BCCL - Summary of Financial Position(Rs million, current ter )

Fiscal Year 1982/83 1983/84 a/ 1984/85 b/

Coal Sales (million tons) 22.2 20.1 20.7

Net Revenues 4,112 3,249 5,941Operating Expenditures 3,515 4,451 4,713Net Income (36) (1,911) 69Internal Cash Generation 313 (1,592) 475Capital Expenditures 1,440 2,134 1,800

a/ Unaudited.b/ Estimate based on investment and operational budget.

V. THE PROJECT

A. Project Objectives

5.01 The proposed project fits in directly with both GOI's coaloverall development strategy (para. 2.05) and GOI's coking coal developmentplans increasing output, recovery of reserves and productivity (para.2.09). Both mining complexes form part of the master plan to restructurethe Jharia coalfield which is the main source of prime coking coal for thesteel industry. The Open Cast Block II complex is the first of themedium/large scale open-pit mines to be developed as part of the JhariaReconstruction Plan and by 1989/90 will account for about 11% of primecoking coal p _uction (2.5 million tpy raw coal). When completed, thePootkee Bulliary complex will be the largest underground mining operationto be implemented in India (3.0 million tpy raw coal). Both projects willutilize highly mechanized mining system for which Bank assistance will beprovided. The project, thus will provide for increased productivity,higher output and improved recoveries, and lower production costs. Theproject will also extend the Bank's assistance into three important areasrelating to (i) underground mine operating practices (improved proceduresfor ui&derground mining using highly mechanized equipment - para. 4.10),(ii) shaft sinking (improved efficiency through better organization andmore modern equipment para. 5.20), and (iii) transportation of stowingmaterials (study of alternative modes of transportation of sand for stowing(para. 5.19)). Both mining operations should, thus, improve the overalloperating efficiency of BCCL.

5.02 The project should also help improve the quality of coking coalsupplies to the steel industry thus contributing to GOI's objectives ofimproving coal quality. This will be accomplished, on the one hand,through the development of a sector-wide action program to improve cokingcoal quality (paras. 3.10 and 3.11) and, on the other hand, because of thesuperior quality of final product of the project compared with presentsupplies of washed prime coking coal. The final product will be washed

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coking coal with significantly lower ash content (17%) than the currentavera,e supply to the steel sector (20-21%). The lower ash coal will alsohelp co improve the operational efficiency and cost effectiveness of theblast furnaces in the steel plants. Further, the project will help toreduce the need for imported coking coals and thus contribute to conservescarce foreign exchange. The project will also support follow-up on thecoal transportation and producer/linkage studies being undertaken under theDudhichua project.

B. Project Description

1. Scope

5.03 The project 5cope comprises the development of -ne open-pit mineand one anderground mine with design capacities of 2.5 and ..0 mty of rawcoal respectively, two coal washeries, coal handling plants and surfaceinfrastructure including railway spurs, workshops, warehouses, offices andtown sites. Total annual output of washed prime coking coal for the steelindustry will be 2.6 million tons when both mines are operating at full--̂ pacity. Two new vertical shafts will be constructed for the undergroundmine. The project also includes measures to improve coking coal qualityand technical assistance for mechanized underground mining operations,shaft design and sinking techniques, and sand transportation.

2. Location, Geology and Reserves

5.04 Block II open-pit mine and Pootkee-Bulliary underground mine willboth be located in the Jharia coalfield in Dhanbad district of Bihar(Map 18594). In 1978 a master plan was prepared for the reconstruction ofthe total Jharia coalfield Chart 1 and 9 blocks were delineated as suitablefor open-pit mining methods and 21 blocks were to be mined with undergroundmethods. The coalfield is today characterized by a great number ofsmall-scale underground mines and open-pit operations in coal seamoutcrops. The topography is fairly flat at an altitude of about 200 mabove sea level. The area is drained towards the South in the rainy seasonmainly by the Damodar river. The infrastructure is well developed and thecoalfield is rather densely populated with Dhanbad being the major town.

5.05 The climate of the Jharia coalfield is tropical with very hotsummer months (March-June) with temperatures reaching 50°C (122°F). In thewinter (November-February) the temperature can be as low as 3°C (380F).The average annual precipitation is recorded to be about 1,350 mm out ofwhich 95% falls in the monsoon season (June-September).

5.06 The Jharia coalfield covers an area of about 453 km2 and the rocktypes are in a broad fashion classified in two main groups, i.e., thebasement Archaean Gneissic Complex and the Permo-Carboniferous sedimentswith the coal bearing strata and partings consisting of sandstone andshale. The strike of the formation is generally east to west and the dip7°-15° towards south.

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5.07 The first geological mapping was completed in 1930. This wasfollowed by an update and resurvey in 1956 and a major drilling campaigntook place in 1977/78 under supervision of CMPDI and the Geological Surveyof India. Total proven and indicated reserves are estimated at about 4.0billion tons. Exploration work and proven reserves for the two projectcomponents are summarized in table below:

Jharia Project - Exploration Work and Mineable Reserves

Project Number Number Average Seam MineableArea of Total of Thickness Reserves a/

(km2 ) Holes Meters Seams (a) (million tons)

Block II 3.46 34 8,462 9 1.6 - 9.9 39.3Pootkee-Bulliary 14.64 58 16,250 6 1.7 - 6.7 99.9

a/ In slit proven reserves less mining losses.

Source: CIL.

The project areas are tectonically disturbed by a number of faults.However, the available geological and hydrogeological information derivedfrom exploration work and operating open-pit and unierground mines isconsidered sufficient for the purpose of mine design and reservecalculation. At proposed mining rates the reserves allow for 17 and 33years of production for Block II and Pootkee-Bulliary respectively.

3. Open Cast Block II Mining Complex

5.08 The open-pit mine of the Block II complex will have an overallstripping ratio of 4.1 m3 /ton of coal and a depth of 220 m in its finalstage. The mine has been designed for an annual capacity of 2.5 milliontons of raw coking coal with an ash content of about 30X and a 17 yearlife. The coal is classified as washery grade IV. The coking coalmeasures are underlain by a series of thermal coal seams at depths whichare uneconomic to mine at this date and which could only be recovered byspoil rehandling in the future.

5.09 Overburden will be blasted and removed bo three draglines,assisted by forty-four 85 ton trucks and four 11 m3 shovels. Coal, afterdrilling and blasting, will be loaded by hydraulic shovels and hauled by 40ton bottom dump truicks to a crusher station from where the raw coal will bemoved to the washery by conveyor. Coal release will start very shortlyafter start of excavation. Mine planning has been done in sufficientdetails for the feasibility purpose, but needs some further refinementswith respect to geotechnical testing to confirm validity of applied slopestability parameters and safety factors. This testing has been initiatedand will be undertaken by India School of Mines in Dhanbad. CIL and BCCLhave agreed that the testing be completed and the results be reviewed withthe Bank not later than December 31, 1985.

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5.10 The selection of the main mining equipment for overburden isbasically sound. Also, given the circumstances of the presence of thinseams, tectonic faulting and old mine workings, the selection of hydraulicshovels for coal loading is a technically optimal solution period. BCCLhas prepared training and maintenance programs associated with thesemachines which are considered satisfactory.

5.11 Mine development work and in pit road maintenance winl beperformed by a fleet of dozers, graders and wheel loaders. A main sump andassociated pump installations for proper pit drainage will be constructedahead of the main haulage road construction and bench preparation in orderto ensure proper drainage. The estimate of required pump capacity which isbased on available rain statistics and experience of ground wateroccurrences in other adjacent operating mines appears to be adequate.Overall final pit slope is estimated at 450 assuming a safety factor of 2.While this is reasonable, based on experience to date, it should befinalized following the geotechnical testing (para. 5.09).

5.12 Block II coal will be processed in the Madhuband washery beingimplemented by BCCL and for which global tenders for a turnkey contracthave been received. The washery component comprises a washing plant withstockpiling facilities at a new railhead, and a 2.5 km long overland beltconveyor connecting a primary crushing station, located on the pit rim,with the washing plant. The capacity will be 2.5 million tpy of raw coaland the yield of clean coking coal, with a 17% maximum ash content, i.s 45%or 1.125 million tpy washed coal. The methodology applied for designingthe flowsheet is satisfactory. Disposal of the rejects has not been dealtwith in a satisfactory manner and warrants further detailed study andBCCL has agreed to complete the necessary study before December 31, 1985.Washed coal will be transported by the railway system to the steel plants.At present, the bulk of the output has been earmarked for the neighboringBokaro steelworks about 30 km away.

5.13 The mine, the washery and related industrial facilities will work300 days per year, 3 shifts per day and 8 hours per shift. The totalmanpower requirements at full production level of 2.5 million tpy of rawcoal are summarized in the table below.

Block II Mine and Washery - Manpower Requirements

Block II MadhubandMining Complex Washery

Management 98 42Supervisors/Staff 372 183Workers 1,044 497Total 1,514 722

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BCCL wil prepare a training program for Block II/Madhuband staff by July,1986. Thereafter, an annual training report will be submitted to the Bankon July 1 of each year addressing the previous fiscal year's trainingresults compared with the annual target.

5.14 Infrastructure facilities such as maintenance, warehouse andservice facilities of adequate size and capacity will be built north of theopen-pit and adjacent to the washery site Chart 2. Water requirements,installed electrical load, annual power consumption and specified powerconsumption are given below.

Block II Mine and Washery - Water and Power Requirements

Mine Washery

Industrial water m3/day 900 10,000Potable water, mA/day 470 890Installed electrical load, MW 26 8

5.15 Three different schemes have been designed for the provision ofwater from the nearby Jamunia River or Damodar River and at negotiationsconfirmation should be sought from BCCL on which scheme will beimplemented. For Block II three electrical sub-stations totalling 52 MVA,are proposed in addition to the existing 20 MVA Madhuband substation whichis being fed directly from the DVC grid. There is a shortage of power inthe Jharia area and grid reliability factors are reportediv as low as 67%.The peak load requirements for the dragline operation effectively rule outthe use of captive power stations. BCCL has reached an agreement with DVCto supp'ly power directly to the mining complex and a direct power line isunder erection. This arrangement is satisfactory. in addition, it isplanned that one of a series of new 210 MW units, to be constructed in theearly 1990s at Mejia, will be used to meet evolving requirements of coalmines and establishments in the Eastern Region, including the JhariaCoalfield.

5.16 Provision of housing and service facilities for the workforce isguided by CIL policies. Consequently 833 and 381 residential houses willbe constructed for the workforces of the mine and the washeryrespectively. Service facilities will consist of, e.g., schools, hospitaland community center. These arrangements are considered satisfactory.BCCL has agreed to provide the Bank, not later than June 30, 1985 with afinal schedule for the construction of housing and service facilities.

4. Pootkee Bulliary Mining Complex

5.17 The proposed Pootkee-Bulliary underground mine is being developedin Blocks 4 and 5 (Chart 1) of the Jharia coalfield to produce 3 milliontpy raw coking coal. This mine is second to the adjacent Moonidih mine interms of major underground mine development and rationalization as

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envisaged in the Jharia master plan. Development work will produce minoramounts of coal already from the beginning of major underground work in1985. Production build up is gradual and full capacity of 3 million tpyraw coal will be reached in 1995/96. The coal is classified as WasheryGrade II.

5.18 About 52Z of the coal will be mined by fully mechanizedretreating longwall mining techniques and the balance by conventionalretreating longwall techniques combined with stowing to prevent surfacesubsidence. Thick seams will be mined in two lifts using wire mesh asartificial roof. At full production 6 fully mechanized and 12 conventionalfaces will be in operation. Stowing material (sand, gravel, crushed rock)is in short supply in the Jharia coalfield and the medium/long termavailability of sufficient quantities of material is contingent on CILundertaking a proposed sand development projects at Maithon and Durgapurlocated about 40 km and 100 km from the coalfield, respectively.

5.19 BCCL has agreed to retain, by December 31, 1985, technicalassistance to examine alternative trarsportation modes including slurrypipelines. The scope of work has been agreed as outlined in Annex 8. Ithas been agreed that this technical assistance will be financed with theproposed loan. Betwen two to three manyears of foreign consultants will beretained according to procedures acceptable to the Bank. The Bank will befurnished with a copy of the studies to be undertaken and given opportunityto comment on the findings.

5.20 Access to the mine will be through nine existing shafts (formaterial transport, and ventilation) and two new 500 m deep shafts (forcoal hoisting) now being sunk with Polish technical assistance. The shaftsare part of an extensive shaft sinking program required for thereconstruction of the Jharia coalfield. Slippage has occurred in severalunderground mining projects including Pootkee-Bulliary due to overlyoptimistic shaft sinking schedules. Shaft sinking has been planned at arate of 20 m per month whereas progress is generally in the order of12-14 m per month. In order to provide for improvement in shaft sinkingproductivity, GOI will initiate a study by June 30, 1986, to improve shaftsinking organizational set-up and introduce more efficient equipment. Inview of the advanced state, this study will not directly impact thePootkee-Bulliary shaft sinking; it will, however, be applicable to severalother projects in Jharia and elsewhere where future shaft sinking isplanned. A scope of work has been agreed as outlined in Annex 9. The Bankshould be furnished with a copy of the studies undertaken and givenopportunity to comment on the findings which should then be implemented.

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5.21 The shafts in the Pootkee-Bulliary mine will be connected on twomain levels, about 350 m and 450 m below the surface respectively, throughroadways for coal and rock haulage on rail, and personnel/materialtransport. The risk for spontaneous combustion and the presence of methanegas (particularly in the upper seam) has in general been duly consideredwhen selecting mining method and designing the ventilation systems. Themine design is considered satisfactory subject to finalizing optimal faceand panel lengths which will be undertaken as part of the undergroundtechnical assistance as outlined in para. 4.10 and Annex 6.

5.22 The raw coal wilL be washed in a proposed new Pootkee washerywhich will be implemented by BCCL and totally integrated with the mine'ssurface installations at the site of the two new shafts. The washerycomprises a plant with facilities for crushing/screening, heavy mediaseparation, flotation and dewacering. The capacity will be 3 million tpyof raw coal and the yield of clean coal with 17% ash content is accordingto pilot plant tests 49% (1.47 million tpy clean coal).

5.23 As is standard in CIL/BCCL practice all industrial facilities andproduction units will work on a 300 days per year, 3 shifts per day and 8hours per day schedule. However, in order to ensure design output, themine will have four overlapping 8-hour coal production shifts per day toincrease the net productive hours available. Total manpower requirementsat full production is estimated to be:

Pootkee-Bulliary Manpower Requirements

Pootkee-Bulliary Mine Pootkee-Washery

Management 191 43Supervisors/Staff 884 107Workers 4,500 603

Total 5,575 753

BCCL will prepare a training plan for Pootkee-Bulliary staff before July 1,1986 and thereafter submit yearly progress reports comparable to those forBlock II (para. 5.13).

5.24 Adequate storage and maintenance facilities will be constructedclose to the two new shafts Chart 3 where offices and personnel servicebuildings will also be located (the main office is now underconstruction). The table below gives the specifics of water and powerrequirements:

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Pootkee-Bulliary - Water and Electrical Power Requirements

Mine Washery

Industrial Water m3/day 3,310 3,333Potable Water, m /day 2,600 333Installed Electrical Load, MW 75 8.5

BCCL has confirmed satisfactory arrangements for the supply of electricalpower and potable water for the Pootkee Bulliary mining complex.

5.25 The washery will receive water from the Damodar river which hasan adequate flow at all times.

5.26 Electrical power will be supplied directly from DVC's, main gridsub-station at Pootkee which is being extended to cope with the new load.In addition, the Pootkee-Bulliary mine would benefit from back-up powerfrom 2xlO MW units proposed for construction at Monidih which shouldprovide adequate emergency power for mine pumping and other needs in theevent of disruption to the main power supply.

5.27 A township for the Pootkee mine and washery personnel will beconstructed (for the mine about 3400 and for the washery about 500dwellings) plus community center with shops, guest house, schools and otherservice facilities. Such arrangements are considered satisfactory. BCCLhas agreed to provide the Bank, not later than December 31, 1985, with afinal schedule for the construction of housing and service facilities.

5. Environment and Safety

5.28 The planning of environmental protection measures to beundertaken is vested in CMPDI and guided mainly by the Water (Preventionand Control of Pollution) Act of 1974 and the Air (Prevention and Controlof Pollution) Act of 1981. Both acts prescribe measures and tolerancelimits tb t are in line with acceptable standards in the industry.Environmental management is the responsibility of CIL through itssubsidiaries. In general, water and air pollution problems are notexpected to be severe. Water and air quality will be monitored regularlyand dust, the major pollution hazard, will be controlled by adequatemeasures (ventilation, suppression/extraction equipment). CIL and BCCLwill ensure that the design, construction and operation of the project arecarried out with due regard to ecological, environmental and safetystandards satisfactory to the Bank.

5.29 The land which will be affected by the mining activities ischaracterized as forest land although very arid. Only very smallquantities of topsoil are present and soil conservation will be donewhenever feasible. Erosion control and prevention measures, such as

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placing of rip rap, turfing and revegetation will be undertaken on wastedumps and exposed slopes. This will also assist in reducing surface waterrun off. These measures will be done in consultation with the SoilConservation Department and the Forest Department of the State Governmentas well as the Environmental Research Institute of Forest Research Stationin Dehadrun.

5.30 Mine safety and related operational practices and design criteriaare laid down in the "Mines Act- of 1952 and the "Coal Mines Regulations"of 1956 supported by monthly circulars from the Director General of MineSafety, Ministry of Energy as well as Acts regulating human health and minerescue work. They appear to be adequate. The responsibility to follow theregulations is vested in the safety organization in each subsidiary and ona cooperative level a "Safety Board," chaired by the Chairman, CIL ismeeting quarterly to review adequacy of current safety practices and tointroduce corrective actions whenever necessary. Although the overallaccident rate in CIL greatly improved from 1973 to 1983 (fatality rate down44% and serious injuries down 63%) the rates in CIL and BCCL are relativelyhigh when compared with other major coal producing industrial countries.This is mainly attributable to very labor intensive, multisean miningmethods with a low degree of support form modern mechanical and electricalsystems in most underground mines. Further, the great number of workingplaces and large number of workers makes proper safety supervision/manage-ment cumbersome particularly during periods of rapid expansions. Theproject, Which involves a high degree of mechanization, with modernequipment, has adequate safety conditions but to further assist BCCL thetechnical assistance program (para. 4.10) will strongly emphasize thesafety aspect both from design and management standpoints. In order tosatisfy the Bank of the adequacy of safety measures and the incidence ofoccupational diseases, BCCL will make available to the Bank every sixmonths beginning January 1, 1986, statistics on mine-related accidents andoccupational diseases.

C. Project Execution and Implementation

5.31 The project components will be implemented by BCCL under thedirection of two Project General Managers reporting to the Project Directorof BCCL. Each Project Management Unit is comprised of staff from BCCL andCMPDI. and the organization is shown in Annex 10. The Project GeneralManager is supported by managers responsible for (i) mining and generalengineering; (ii) cost and scheduling control; (iii) administration; and(iv) a Deputy Project General Manager, directly responsible for projectimplementation. In each case total organization comprises about 200positions which are fully staffed and mobilized. The Project GeneralManager for each of the project components has been appointed and both areconsidered adequately qualified and experienced. BCCL agreed to ensurethat the organizational structure, staffing, powers and responsibilities ofeach Project Management Unit shall be such as necessary for timely andefficient implementatior. of the project.

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5.32 Some strengthening is required in procedures for projectmonitoring and control. To this effect, BCCL will prepare by September 30,1985 and by December 31, 1985 project implementation manuals for the OpenCast Block II mining complex and the Pootkee-Bulliary mining complexrespectively according to terms of reference agreed with the Bank, andexchange views with the Bank on the said manuals and subsequently adoptthem by December 31, 1985 and March 31, 1986 respectively.

5.33 Each Project Management Unit will be directly responsible for allactivities related to detailed engineering, procurement of local goods(excluding mining equipment) and services, equipment erection andcommissioning, construction and mine development. Procurement of miningequipment and other imported items will be carried out by the CIL CentralProcurement Organization, in direct collaboration with the Project GeneralManagers with progress reports provided to the BCCL Project Director and tothe CIL Project Monitoring Unit. A detailed and satisfactory schedule forimmediate procurement actions has been prepared and procurement documentshave been reviewed by the Bank. In the Dudhichua Project the experiencehas been that procurement has not been a cause of delay in projectimplementation. In order to minimize the impact of external factors GOIhas agreed to promptly grant permission to import foreign goods requiredfor the project and to promptly make available the foreign exchangerequired.

5.34 The implementation schedule for the project is given in Annexes11 and 12. This has been based on a detailed analysis of interrelationshipof different activities and is found to be realistic. Acquisition of thefirst dragline and hydraulic shovel, trucks and dumpers are on the criticalpath for Block II open cast mine. The schedule for these is consideredrealistic. Due to land acquisition difficulties the Madhuband washery hasbeen relocated and will be constructed on land presently in BCCL'spossession adjacent to the proposed crusher house complex. At the Block IImine site, land is currently available for carrying out mining operationsup to 1989/90. BCCL agreed to take possession of the balance of the landrequired for the rest of the mine life (i.e., until 2001/2) beforeSeptember 30, 1988. This is considered realistic in the light of progressduring the past eighteen months on land acquisition.

5.35 Overburden removal for Block II started in 1982 with temporarilyassigned equipment. Access roads, temporary residential buildings,maintenance facilities and office/service buildings have been constructed.Sufficient electrical power for construction as well as water are availableat the site. During 1983/84, about 400,000 m3 of overburden was removedand about 19,000 tons of coal mined by a fleet consisting of one 4.6 m3

shovel and four 50-ton trucks assisted by dozers, drills and frontendloaders. One 10 m3 shovel and fourteen 85-ton trucks are being erected on

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the site and the plan for 1984/85 calls for removal of 1.4 million m3 ofoverburden and completion of the initial stage (dragline bench preparation)by March/April 1985. Since certain items of equipment will be required inadvance of the Bank financed equipment, BCCL will provide alternativeequipment as necessary to meet the planned equipment deployment schedule.

5.36 At the Pootkee-Bulliary mine, shaft sinking operations started bymid-1983, and the two new shafts were respectively about 32% and 18Zcomplete in September 1984. This activity and underground development workis on the construction critical path. Rates of progress for theseactivities were reviewed in detail. The present implementation schedule isconsidered satisfactory and takes into account realistic rates for shaftsinking and advance rate for horizontal development work. The Pootkeewashery has been approved by the CIL Board and submitted to the PublicInvestment Board (PIB) for approval. This is expected by April 1985. TheGovernment has agreed to ensure that all necessary approvals are issued byJuly 1, 1985.

5.37 Based on the schedule for deployment of mining equipment andunderground development, the Block II and Pootkee-Bulliary are expected toreach the final capacity of 2.5 and 3.0 million tpy of raw coal in 1987/88and 1995/96 respectively. The production build-up (learning curve) shownin the table below is considered achievable considering that miningconditions are generally favorable and that BCCL has some past experiencewith similar mining methods and equipment.

INDIA - Jharia Coking Coal ProjectProduction Build-Up

Flock II Pootkee-BulliaryOverburden Coal Coal

Fiscal Year Removal Release Release(million mir) (million tons) (million tons)

Raw Washed Raw Washed

1984/85 1.40 0.20 0.09 0.01 0.0031985/86 1.40 0.40 0.18 0.13 0.061986/87 2.85 1.50 0.68 0.26 0.131987/88 5.95 2.50 1.13 0.37 0.181988/89 9.50 2.50 1.13 0.40 0.201989/90 9.50 2.50 1.13 0.41 0.201990/91 9.50 2.50 1.13 0.70 0.351991/92 9.50 2.50 1.13 1.94 0.971992/93 9.50 2.50 1.13 2.46 1.221993/94 9.50 2.50 1.13 2.92 1.451994/95 9.50 2.50 1.13 2.92 1.451995/96 9.50 2.50 1.13 3.00 1.48

5.38 Although the stripping is rather high in initial years ofoperation, the overall ratio for Block II deposit is 1:4.11 t/m3 (para.5.08) which is considered reasonable for a coking coal deposit.

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VI. CAPITAL COSTS, FINANCING AND PROCUREMENT

A. Capital Cost Estimate

6.01 The total financing requirements including physicalcontingencies, price escalation, working capital and interest duringconstruction are estimated at US$696.0 million (Rs 8,352 million), of whichabout US$245 million is in foreign exchange. Detailed capital costbreakdown for the major equipment and plants are given in Annex 13 andsummarized below.

mdi. - JIhar. Crng CaL PrectCGitcal Om Fztiiute

Blodc II Poctkee-BuUiarv Jh.ria rddiw rAl ProjectRS R10 s Mlllton - LISS IM

tccal For Toial Lal Foreign Total loc Fordegn Toetal Foreign T

EqaLt 6Spr 265.9 836.1 1.0.07 661 4 822.9 1,484.7 927.7 1,657.7 2,5854 77.3 138.2 2-11& CLvil Wwks 115.0 5.6 1206 457.5 24.2 681.7 572.5 29.8 6023 47.7 2.5

b*i-erh* & Trairdrqw 9.2 - 9.2 58.9 - 5B.9 68.1 - 68.1 5.J -Pe S Ex 71.1 73 79.0 37.4 - 37.4 10.5 7.9 116., q9D 0.6a1ury 537.5 91.5 629.0 376.8 289.9 666.J 914.3 331.4 1,295.7 76.2 31.8 t1"-TedwCd Assistam - - - - 24.0 24.D - 24 D 6b.0 - 2.0lit±esaToms 567.4 - 567.4 566.8 - 566.8 1.134.2 - 1,134.2 94.5 -

Bge Cct 1,566.1 939.8 2505 2,159.2 1.161 .0 3.320 2 3,7253 ,IIlM3 5,826.1 310 A 175.J 6V:

PFlysical Gaiting.cles 108.0 43.0 151.D 182.9 31.9 264.A 2909 1249 415. 2.2 10.4 -PrLe Escalaiont 320.3 163.4 483.7 882.0 533.6 1,415.6 1,2023 697.0 1.R993 10D.2 58.1 L_

InstaUl cs A 1,994.4 1,146.2 3.140.6 3,226.1 1.776.5 5,00XIA 5.2t28 2,922 .J 8.141.2 3L.8 2463.6 6'° 'king C4tuL 67.7 53 53.0 77.4 8.6 86.0 125.1 13.9 139.0 10.5 1.1

Project 036t 2,062.1 1.151.5 3.193.6 3,301.5 1,785.1 5,086.6 5,3432b 2,936b 8,280.2 6453 364J.7 f

Iesest dwig

mtriaction 6S_64.4 - 64.4 7.4 - 7.4 71.8 - 71.8 6.0 -

FratEn FecBazk t m

TotalFinancicgRgquLred 2,1065 1,1515 3,258.0 3,30S9 1.785.1 5,094.0 5,415 A 2,936.6 8,352.0 4513 214.J 6r.z- - - - - a a a

a/ Iacwlui Rs 186.2 iAllion (915.5 1ilion) for Blodc U in Wirdect fomeign e.hwtg: ad Rs 356.5 nIlliclx (12.7 rdltion) for Pwokee-kaliay tnindirea foreii exdwW.

6.02 The Project's base capital cost estimates were prepared by Q4PDIand are based on cost information related to recent orders for similar_,.quipment and actual cost data for on-going projects and are found to besatisfactory. The original estimate as of 1982 was updated subsequently in1983 and most recently in January 1985. The cost for outside technicalassistance (for design and operational aspects in underground mines, andsand transportation) including fees, travel and subsistence expenses, hasbeen estimated on the basis of past experience for similar activities. Theaccuracy of the base cost estimate at this stage is considered relativelyhigh, particularly given the degree of design and specification for mining

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equipment. For this reason, a provision for physical contingencies of 5%over the base costs is provided for mining equipment and 10% for other costitems. Price escalation has been based on the phasing of expenditureconsistent with the time schedule for implementing the project andprojected local and foreign escalation. Local inflation rates have beenprojected at 8.5% for 1984/85-1990/91 and 6% for years thereafter.International inflation rates are projected at 3.5% for 1984, 8.0% for1985, 9.0% for 1986-88, 7.5% for 1989, and 6.0% for 1990 and thereafter.

6.03 Working capital requirements have been estimated at about US$12million (Rs 139 million), using realistic assumptions on the level ofcurrent assets and liabilities required by the project until it reaches itsrated capacity (in 1988/89 and 1993/94 for Block II and Pootkee-Bulliaryrespectively). Interest during construction has been estimated at US$6.0million (Rs 71.8 million). Thib allows for capitalization of interest upto the end of 1985/86, on loans disbursed during that period which is basedon CIL's accounting practices.

6.04 The total capital cost for Block IH open cast mine and washery,excluding price escalation, working capital and interest duringconstruction is about US$197 per annual ton of washed coal output. Thecost for Pootkee-Bulliary is about US$203 per annual ton of washed coaloutput.

B. Financing Plan

6.05 The financing plan for the project is sommarized as follows:

India - Jharia Coking Coal ProjectFinancing Plan

A. Equity US$ Million X

Government of India 215.8 31.0CIL Cash Generation 132.2 19.0Total Equity 348.0 50.0

B. Long-Term Debt

IBRD 248.0 36.0Government of India 85.8 12.0ODA 14.2 2.0Total Debt 348.0 50.0

Total Financing 696.0 100.0

6.06 According to current Government policy, overall financing ofproject costs (including interest during construction, but excludingworking capital) is provided in the ratio of 50% debt and 50% equity.

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Under this formula, the proposed Bank loan for US$248 million would sunplyabout 36% of the financing to be provided for the Jharia Coking CoalProject, with another US$85.8 million coming in the form of long-term debtfrom GOI. GOI's approach to co-financing has been to link specificprojects with individual financing sources rather than have differentsources participate in each of several projects. In the case of Jharia,however, while the Bank will provide the bulk of the foreign firancing,assistance is also being provided by ODA for a dragline which is beingprocured in advance of the Bank loan. With respect to equity contributionsthe financial projections of CIL (para. 7.08) indicate that the Companyshould be able to generate funds to finance about 19Z of its investmentrequirements after debt repayment and provision of increase in workingcapital for the period of 1985/86 to 1989/90 and this same proportion hasbeen applied to the Jharia project. Thus, CIL would provide about US$132.2million equity out of its internally generated funds and the balance ofabout US$215.8 million would come from Government funds.

6.07 It is recommended that the proposed Bank loan of US$248 millionequivalent be made to GOI at the standard Bank interest rate for 20 years,including five years of grace. This would represent over 90% of theforeign exchange requirements of the project. GOI's practice is to makeloans to CIL for 15 years, at a nominal interest rate currently of13.5Z16/ per year and not to grant grace periods. Considering theproject's requirements in terms of its long implementation period andassociated cash flow, it is desirable that a normal grace period be appliedin this case, as has been the practice in other loans to the energy andindustrial sectors. It has been agreed that GOI onlend the funds for aperiod of 15 years including a grace period of 5 years at not less than the-current interest rate noted above. Additionally, in line with presentpolicy, GOI would assume the foreign exchange risk on the on-lent funds.The conclusion of a subsidiary loan agreement between GOI and CIL, and asatisfactory financial arrangement between CIL and BCCL, both under termsand conditions satisfactory to the Bank are conditions of effectiveness.

6.08 GOI has agreed to provide in a timely manner the debt and equityrequirements indicated above and whatever additional debt and equity fundswhich might be needed (in both local and foreign currency) to complete theJharia Coking Coal Project promptly.

C. Procurement and Disbursement

6.09 Procurement arrangements are suimmarized in table below:

16/ There is a reduction in interest rate of 0.25% per year (to 13.25% peryear) for timely payment.

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Proctrement Arrangements(US$ millions)

TotalProject Element ICB LCB Other Cost

Block IIa/

Mining equipment & parts 102.5 4.6 14.2 121.3(80.7) (80.7)

Washery 73.6 - - 73.6Land & civil works -10.0 2 1 b/ 12.1Engineering - 0.9 0.9Pre-operation - - 6.5 6.5

Sub Total 176.1 14.6 23.7 214.4(80.7) (80.7)

Pootkee-Bulliary

Mining equipment & parts 122.4 90.5 - 212.9(98.9) (98.9)

Washery 86.6 - - 86.6(66.4) (66.4)

Land & civil works - 58.5 0 .5bl 59.0Engineering - - 5.9 5.9Pre-operation - - 3.1 3.1Technical assistance - - 2.0 2.0

(2.0) (2.0)Sub Total 209.0 149.0 11.5 369.5

(165.3) (2.0) (167.3)Grand Total 385.1 163.6 35.2 583.9

(246.0) (2.0) (248.0)_ -

Note: Figures in parentheses are the respective amounts financed by theBank.

a/ UK financed draglineb/ Land acquisition only

6.10 Out of a total estimate of 56 packages listed in Annex 14 thereare 10 exceeding US$5.0 million each in value, requiring special review.The Bank will review all packages exceeding an estimated value of US$3.0million. This includes 15 packages which constitute over 81% of the valueof all goods financed out of the Bank loan, the balance being subject topost review. Local manufacturers and contractors are expected to bid forBank financed items under the project and a domestic preference of 15% orthe import duty, whichever is less, would be applied in bid evaluation foreligible equipment and a margin of preference of 7.5% would be grantedeligible civil works contractors. The Local Competitive Bidding (LCB)mainly consists of locally supplied goods including minor equipment,materials, civil works and erection of equipment as well as pre-operatingexpenditures for initial development work in both mining complexes.Technical assistance services regarding underground mining and sandtransport will be contracted in accordance with Bank guidelines. Aprocurement schedule is shown in Annex 14.

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6.11 The Bank loan of US$248 million will finance goods and servicesas shown in table below.

AlUlocatim of the Bck lam(USS will f )

lbodkee- JhatiaBlock II 1 Project Z Z of t5Wztures to be finaed

cateqw1. 4ff:niag q1p.pw a/ 77.6 91.9 169.5 68.4 1IOO of foreig ad lO= iE loov

expenditres (et-factory cost).

II. bery - 60.8 60.8 24.5 100% of forelgt eperniitwe ard70 if local. expenditures.

ILL Tedbaical Assistance - 2.0 2.0 0.8 100%

III. Front-End Fee 0.0 0.0 0.0 0.0

IV. U allocated 3.1 12.6 15.7 6.3Total 8.7 167.3 248.0 100.0

a Including spare parts estimated at L5% of CIF or 5% of ex-factory value of foreign ard Iocal supplyrespectively.

It is expected that for those items to be financed by the Bank, aboutUS$30.7 million (or about 12% of the Bank loan) will be for contractsawarded to local suppliers following ICB.

6.12 The disbursement profile (Annex 15) is somewhat slower than thehistorical country industrial sector profiles as well as for similarprojects in other countries because of the long gestation periodparticularly for the underground mine. The Bank loan is expected to befully disbursed by March 31, 1992 when all Bank financed items would havebeen physically delivered or completed.

VII. FINANCIAL ANALYSIS

A. Coal India Ltd.

7.01 The financial projections for CIL have been made based onassumptions regarding forecast production and the related investmentprogram, the structure of production costs and coal prices. Specificassumptions are given in Annex 16.

7.02 CIL coal production is expected to increase from 121.4 milliontpy in 1983/84 to 230 million tpy in 1992/93, an increase of 108.6 milliontons in 9 years representing an average annual growth rate of 7.3%.Projected production figures for open-pit and underground mines are shownin the table below:

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CIL - Production Forecast(million tons)

Fiscal Year Open-Pit Underground Total

1984/85 63.8 67.2 131.01985/86 72.0 70.0 142.01986/87 81.0 70.0 151.01987/88 90.0 73.0 163.01988189 101.0 75.0 176.01989190 112.0 78.0 190.01990/91 125.0 79.0 204.01991/92 138.0 80.0 218.01992/93 149.0 81.0 230.0

7.03 The projected expansioa of coal production is supported by alarge investment program. Total coal sector investnent during the SeventhFive-Year Plan (1985/86 to 1989/90) is projected at Rs 60 billion (US$5.0billion) in 1984/85 terms.

7.04 Financing to CIL has been provided entirely by GOI in the form oflong-term debt and equity from GOI's general budgetary allocations forcapital expenditure, with each covering about 50% of the requiredinvestment. It is expected that GOI will continue to finance 50% of theinvestment through long-term debt, and the balance would be partly providedby CIL from its internal resources and partly from equity contributions.It is expected that CIL's internal generation of investment resources wouldincrease from 1% at present to 30% by 1989/90 and 38% for 1990/91 to1992/93 after debt repayment and provision of increase in working capital.

7.05 CIL's average production costs per ton of raw coal are expectedto decrease from the present level of Rs 188 per ton (US$15.7) to Rs 177per ton (US$14.7) in real terms by 1989/90 as shown in the table below.

CIL - Production Costs Summary(Rs/ton 1984185 terms)

1984/85 1989/90Rs/ton % Rs/ton Z

Salaries & Wages 94.7 50.4 76.5 43.3Stores 27.8 14.8 28.3 16.0Power 11.1 5.9 11.2 6.3Other Operating Expenses 20.4 10.9 18.8 10.7Operating Cost 154.0 82.0 134.8 76.3

Depreciation 17.3 9.2 21.9 12.4Interest 16.5 8.8 19.9 11.3

Total Production Cost 187.8 100.0 176.6 100.0

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Along with this marginal decrease in unit production cost, a major changeis envisaged in the cost structure, which is due to the increasing share ofopen-pit production and to the capital intensive nature of the investmentprogram, resulting in improvement in labor productivity. This provides thereduction in the contribution of salaries and wages which offsets theincrease in depreciation and interest charges, associated with theincreased share of capital intensive mechanized mines.

7.06 CIL's operating costs compare favorably with those of major coalproducing countries, even when the comparison is made on the basis of tonsof coal equivalent (tce)17/ which raises the cost of Indian coals becauseof their relatively lower calorific value. This comparison has been madeon the basis of operating costs, i.e., excluding depreciation and interestcharges, since these concepts normally show wide variations for differentproducers depending on specific company policies and practices and the taxlegislation of the various countries. The following table compares averageoperating costs per tce for producers in selected countries.

International Comparison of Coal Mine Operating Costs(US$/tce 1984/85 terms)

Other OperatingLabor Costs Costs

India 1984/85 (actual) 11 7 18India 1989/90 (estimate) 9 7 16USA Eastern Producers 6-21 11-21 17-42USA Western Producers 6-13 13-19 19-32Australia 5-11 9-18 14-29South Africa 3-4 5-8 8-12

It can be noted that CIL average operating costs per tce (at minehead) arecompetitive with the lower cost producers in Australia and the UnitedStates and well below the average for producers in those countries. SouthAfrican producers have, on average, lower operating costs due primarily toa lower cost of labor per ton reflecting higher labor productivity as wellas low wage rates (compared with USA and Australia).

7.07 Based on the present coal price schedule effective en of January8, 1984 and grade-wise production mix of CIL, the average coal price forCIL in 1984/85 is budgeted as Rs 192.3/ton. In line with GOI's policy(para. 3.11), the average coal price for CIL has been assumed to increasemarginally in real terms (by 2%) during 1985/86. Thereafter, it is assumedthat average CIL coal prices would generally follow the local inflationrate. The average coal price in current terms is projected as follows:

17/ 1 tce- 1 ton of coal with a calorific value of 7,000,000 Kcal (i.e.,coal containing 7,000 Kcal/kg).

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CIL - Projected Average Coal Price(Rs/ton)

Fiscal Year Current Terms 1984/85 Terms

1984/85 192.2 192.21985/86 212.8 196.01986/87 230.9 196.01987/88 250.5 196.01988/89 271.8 196.01989/90 294.9 196.01990/91 320.0 196.01991/92 345.2 196.01992/93 366.0 196.0

7.08 Based on the above main assumptions, CIL financial projectionshave been prepared which are shown in Annex 17. The key financial data aresummarized below:

CIL - Summary of Financial Projections(Rs billion - current terms)

Fiscal Year 1984/85 1985/86 1987/88 1989/90 1991/92

Coal Sales (million tons) 123.8 132.8 151.2 178.6 204.9Sales Revenues 23.8 28.3 37.9 52.7 70.7Operating Expenses 19.1 21.5 28.4 36.2 47.3Net Income 0.6 1.6 1.7 5.2 7.5Internal Cash Generation 2.7 4.2 5.7 11.1 15.9

Investment 8.8 10.8 15.3 21.0 28.2Net Fixed Assets 22.3 28.3 43.7 64.1 90.8Long-term Debt 21.8 24.7 32.5 43.3 60.0Shareholders Equity 17.1 23.3 38.8 58.7 81.1

Ratios:

Net Income/Revenue X 2.3 5.6 4.6 9.9 10.6Current Ratio 1.3 1.3 1.3 1.3 1.3Lt Debt:Equity Ratio 56:44 52:48 46:54 42:58 42:58Lt Debt Service Coverage 1.1 1.3 1.3 1.7 2.0

7.09 The coal price increase effective as of January 8, 1984 issufficient to provide an estimated net income of Rs 555 million for1984/85. As additional production comes on stream, the ratio of net incometo revenue for CIL is expected to increase from 2.3% to about 9.9X by1989/90 due to changes in cost structure (para 7.05) and marginal increasesin unit prices in real terms. Accumulated losses are projected to becompletely absorbed by 1989/90, and long-term debt to equity ratio,

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currently at 56:44, is expected to improve to a more conservative level of42:58 in 1989/90 and stabilize at that level thereafter. Debt servicecoverage is broadly satisfactory throughout the period and is not expectedto fall below 1.3 after 1984/85.

7.10 The delay in the 1983/84 coal price increase was exceptionalbecause of the delay in completing the wage negotiations. However, thedeterioration of the financial position of CIL in 1983/84 (para 4.16)reinforces the importance of periodic and timely revision of coal prices.Such coal price increases together with GOI's continuous provision offinancing and CIL's successful implementation of the investment program arecritical to further improving the financial position of the CIL group. Thenext price review is expected to take place in March 1985 based onrecommendations from an inter-ministerial working group (para 3.11). Sinceprice increases are subject to a cabinet decision, a delay of one or twomonths is possible for the 1985 price increase since the government isnewly formed follov-ing elections in December. If the next review weredelayed by three months, the financial projections indicate that CIL's netincome in 1985/86 would drop from Rs 1,571 million to Rs 787 million.

7.11 Agreements have been reached with GOI and CIL on financialcovenants that will ensure that the financing for the project is adequateand that CIL will follow prudent financial practices and maintain asatisfactory financial position. Agreements on the project's financingplan are discussed in paras 6.07-6.08. Regarding the financial position ofCIL, it was agreed for the Dudhichua Project (Loan 2393) that CIL will on aconsolidated basis: (i) maintain a long-term debt to equity ratio notgreater than 60:40; (ii) maintain at all times a current ratio of at least1.2; and (iii) take all actions necessary to ensure a debt service coverageof at least 1.3. These same conditions have been agreedfor the JhariaProject. Additionally, CIL will have its accounts audited, by independentauditors acceptable to the Bank, and will submit certified copies of itsconsolidated financial statements (together with the auditor's report) assoon as available, but in any case not later than 9 months after the end ofeach fiscal year.

B. Bharat Coking Coal Ltd.

7.12 BCCL's projected financial position is summarized below. Theseprojections have been prepared on the assumptions discussed in Annex 14 andincorporate the recently implemented system of retention prices for CILsubsidiaries. Detailed financial projections for BCCL are given inAnnex 18.

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BCCL - Summary of Projected Financial Position(Rs billion)

Fiscal Year 1984/85 1985/86 1987/88 1989/90 1991/92

Coal Sales (million tons) 20.7 21.6 23.4 26.1 29.7Sales Revenues 5.9 6.8 9.0 11.8 15.6Operating Expenses 4.7 5.2 6.8 8.4 10.8Net Income 0.1 0.2 0.3 0.7 1.1Internal Cash Generation 0.5 0.8 1.1 2.0 2.9

Investment 1.8 2.4 3.5 4.7 6.5Net Fixed Assets 5.1 6.5 10.1 14.8 21.1

Current Ratio 1.1 1.2 1.25 1.25 1.25

7.13 BCCL's production cost for 1984/85 is budgeted at Rs 2491ton, 34%higher than CIL's average of Rs 188/ton. However, with the introduction ofthe retention price system, implementation of the investment program, whichemphasizes rationalization of existing underground mines, and developmentof new open-pit production, BCCL's financial position is expected toimprove. In 1989/90, BCCL is expected to produce about 29 million tons ofcoal, which represent an average annual growth of 5% from 1983/84 at anaverage operating expenditure of Rs 196 per ton (in 1983/84 terms). Somemines will require substantial pre-development work and will be in theearly stages of starting up in 1989/90. Such mines will only contributesmall amounts to BCCL's production in the next several years and BCCL'sexpected production growth is less than for the other subsidiaries.Underground mining would still account for most of the production (62%) atthat time. During the 1990s, however, the share of open-pit productionwill increase strongly and new production would be increasingly coming fromopen-pit mines. The share of coking coal production would remain high atabout 77% of total production.

7.14 As discussed earlier (para 4.04), given CIL powers andresponsibility for decision-making on financial and administrative matters,and because it borrows from GOI all long-term loans for the Group, CIL wasthe primary beneficiary for the Dudhichua loan and is also considered to bethe same for the proposed Jharia loan. For these reasons no specificfinancial covenants have been agreed for BCCL with the exception that BCCLwill have its accounts audited, by independent auditors acceptable to theBank and will submit certified copies of its financial statements (togetherwith the auditor's report) as soon as available but in any case not laterthan six months after the end of each fiscal year.

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C. Jharia Coking Coal Project

7.15 The operating cost estimates for Jharia Coking Coal Project weredeveloped by CMPDI and updated to January 1985 based on comparable costdata of BCCL. The table below shows the estimated operating costs on perton of clean coal basis for Block II and Pootkee-Bulliary when both minesand washeries are operating at full capacity. The difference in total unitoperating costs is primarily attributed to the stowing operation requiredin the Pootkee-Bulliary mine.

Jharia Project - Operating Costs(Rs per ton of clean coal - 1984/85 terms)

Block II Pootkee-BulliaryMine Washery Total Mine Washery Total

Wages 32.7 14.4 47.1 81.1 12.4 93.5Stores 97.3 30.8 128.1 57.4 26.5 83.9Power 24.3 11.3 35.6 62.4 9.6 72.0Stowing - - - 73.1a/ - 73.1Miscellaneous 37.4 9.3 46.7 14.9 8.0 22.9Overheads 24.3 6.0 30.3 20.1 5.0 25.1

Operating Costs 216.0 71.8 287.8 309.0 61.5 370.5

a/ Average stowing cost over the life of the mine.

7.16 According to the present practice, clean coal prices arenegotiated betweer, subsidiaries of CIL and SAIL on a washery by washerybasis, using a me:hodology which covers the pithead price of raw coal asinput to the washery, royalties and cesses on raw coal, mine to washerytransportation, washery operating cost including depreciation and intereston working capital, plus 15% return of net fixed assets of the washery andless credit from middlings. The technical parameters which have criticalimpact on the agreed clean coal price (ash content of clean coal, washeryyield, and washery capacity utilization) are reviewed and agreed upon everyyear. Penalties are included in the agreement to control the qualityvariation of clean coal. Based on this methodology, for 17% ash clean coalfrom Block II and Pootkee-Bulliary washeries, the price BCCL can realizenet of royalties, cesses and sales tax, is assessed to be Rs 660 per ton(US$55 per ton), which is used to derive the benefit stream of the project.

7.17 The financial rate of return for the project is 10.1%. This iscomposed of 12% for Block II and 9% for Pootkee-Bulliary. The differenceis due primarily to the higher operating costs of Pootkee-Buliary (para.7.15) and to the long implementation period (11 years) for Pootkee-Bulliarymine to reach designed capacity as compared to 5 years for Block II, whichmore than offsets the better coal quality from Pootkee-Bulliary. Detailed

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financial cost and benefit streams and the assumptions used, together withthose of the economic analysis are included in Annex 19. The financialrates of return and sensitivity tests are summarized below.

Jharia Project - Financial Rates of Return(X)

Pootkee- JhariaBlock II Bulliary Project

Base Case 12.0 9.0 10.1Capital Cost up 10% 10.3 7.8 8.7Operating Cost up 10% 10.3 7.6 8.7Revenue down 10% 8.4 6.4 7.1Upward Price Trend after 1989/90 12.6 9.9 10.9Completion delayed by one year 11.0 7.8 8.9

7.18 Of the various factors used in the sensitivity test, coal priceis the most critical. Clean coal price is a function of raw coal price,which is administered by GOI, and washery operating efficiency. AlthoughGOI has expressed basic commitment to the agreed pricing approach (para.2.14), there is some risk that price adjustments may not take place in atimely manner. In anticipation of this problem, extensive discussions havetaken place with GOI to ensure the financial viability of the project andCIL. There is also a risk that project revenues could be reduced by delaysin production build-up or by difficulties in reaching full production.Given CIL's recent achievements in increasing production and implementingnew projects this is not considered a serious risk. For other factors,while 10% variations cannot be excluded, significant increases in capitaland operating costs are unlikely because estimates are based on costinformation related to recent orders for similar equipment and actual datafor on-going projects. Furthermore, the techaical assistance in open-pitmine operations (included in the Dudhichua project) and in mechanizedlongwall operations (included in the Jharia project) is expected to yieldbenefits which ultimately would ensure achievement of full production in atimely manner as well as lowering operating costs.

VIII. ECONOMIC ANALYSIS

8.01 The project has important import substitution benefits. Primecoking coal is in short supply in India and imports of 1-2 million tpy(costing US$70-140 million annually) will be required to meet steelindustry requirements for the next several years. The project would helpcontain the need for imports, thereby, saving scarce foreign exchangeresources. Additional benefits will accrue from the project including (i)the strengthening of BCCL's operational management, particularly in fullymechanized underground mines, through a program of technical assistance;and (ii) the improvement of the average coking coal quality delivered tothe steel industry, leading to higher operational efficiency and costeffectiveness of the Indian steel plants.

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A. Economic Rates of Return

8.02 The economic rates of return have been calculated in real termsbased on the capital and operating costs used for the financial rates ofreturn, with the following adjustments (i) exclusion of all identifiabletaxes and duties; (ii) application of a standard conversion factor of 0.8to locally supplied equipment and materials; and (iii) application of ashadow wage rate of Rs 8 per day (US$0.67 per day), equivalent to 15% ofthe negotiated union wage, for unskilled labor participating both in theconstruction and future operation of the project; the shadow wage rate isconsidered an accurate estimate of the opportunity cost of labor in EasternIndia under conditions of widespread underemployment and unemployment.

8.03 Additionally, benefits for both project components have beencalculated on the basis of projected sales of washed coal and the importparity of coking coal. As discussed earlier (para 3.11) the appropriatepricing policy for Indian coking coals is the opportunity cost of imports.The import parity price has therefore been based on the long term trendprice for imported coking coal from Australia, the logical foreignsupplier. The current CIF price has been estimated at US$70 per ton for amedium/high volatile, low sulphur, 10% ash coking coal, and this has beenassumed to remain constant in real terms during the evaluation period.Current Bank projections for thermal coals are to increase slightly (up to1% per year) in real term in the long run; the above assumption for cokingcoal can therefore be regarded as on the conservative side. This CIF pricewas adjusted for handling, in-land transportation costs (port tosteelworks, and washery to steelworks) and quality differentials vis-a-visthe washed coal from the project. 18/ The net-back parity ex-washery isestimated at Rs 689 per ton (US$57.4 per ton), and is taken to be the samefor the washed coal produced by both mining complexes, since they will beof the same quality.

8.04 Based on the above estimates the economic rate of return for theJharia Coking Coal Project is 21.5%. The Block II and Pootkee-Bulliarycomponents have been projected at 28% and 17%, respectively. The rates ofreturn and sensitivity tests are summarized below and underlyingassumptions and cost and benefit streams are detailed in Annex 17. Ananalysis of switching values for key parameters indicates that the economicrate of return for the Jharia project would decline to 12% (which isconsidered to be the cost of capital in India) if (a) capital costsincreased by 55%, (b) operating costs increased by 63% or (c) revenuesdeclined by 24%. The economic rate of return is most sensitive to adecline in revenues which might be caused by lower than projectedproduction or by inadequate price increases. As noted in para. 7.18 suchrisks are not considered excessive.

18/ These adjustments (in Rs/ton) are: Port-handling 45, transport fromunloading port to steelworks 154, transport from washery to steelworks80, and quality differential between in favor of imported coal (with10Z ash) as compared to washed Jharia coal (with 17% ash) 270.

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Jharia Coking Coal Project - Economic Rates of Returnc%)

Pootkee- JhariaBlock II Bulliary ProJect

Base Case 28.2 17.1 21.5Capital cost up OZ 25.3 15.6 19.4Operating Cost up 10% 26.2 16.0 20.0Revenue Down 10% 23.0 14.4 17.7Upward Price Trend after 1989/90 28.6 17.8 22.1Completion delayed by one year a/ 27.7 14.7 19.4

a/ In the case of Block II only the washery is delayed by oneyear; in the case of Pootkee both washery and mine aredelayed by one year.

8.05 The major reason for the dif ferences between the economic andfinancial rates of return is the elimination of custom duties on. importedequipment (currently averaging 742 of CIF value). The main consequence ofthe difference is that a substantial portion of the economic rent of theproject accrues to the government (through taxes), suppliers and to thework force (through high wages compared to alternative occupations) ratherthan to CIL. It can also be noted that the difference between the economicrates of return for both components widens compared with the financialrates of return. This is mainly due to Block II having a higher foreignexchange component in the capital costs, and consequently the eliminationof custom duties has a larger impact.

B. Additional Benefits

8.06 The project represents a major technological step in theintroduction of medium/large-scale open-pit exploitation and large-scalefully mechanized underground mining techniques for expanding the supply ofprime coking coal. Additionally, washeries are being designed to produceclean coal with an ash content of 17%, significantly lower than the averageof prime coking coals presently delivered to the steel industry. This willhave an important impact on the productivity of blast furnace operations,particularly in terms of increased throughput and a better performance interms of reducing the consumption of coal per ton of hot metal produced.

8.07 The project will provide direct employment for about 8,500persons and will lead to additional employment opportunities throughcontractors and suppliers.

C. Least Cost Program

8.08 The economic rate of return calculations presented above arebased on evaluating the import-substitution effect of the project;therefore, they provide a measure of the component's marginal contributionto the economy, enabling comparison with investments in other sectors of

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the economy. The question may arise, however, whether these projectcomponents rank favorably compared with alternative investments forexpanding the production of prime coking coal.

8.09 As mentioned earlier, the Jharia coalfield provides all of thedomestic prime coking coal used by the steel industry, and both componentsform part of the master plan for the reconstruction of the coalfield.Generally speaking, open-pit mines compare favorably to underground minesas investment opportunities. Block II and Pootkee-Bulliary are noexception to this rule. Block II is the first medium/large-scale open-pitoperation in Jharia to be developed. It has a relatively favorablestripping ratio and a fast production build-up. Furthermore the mine siteis located in one of the least densely populated areas of Jharia, reducingthe need for relocation of existing buildings and settlements. Since itcould be developed in a relatively short period of time, CIL selected BlockII as the first open-pit operation in Jharia.

8.10 With regard to the development of underground mines, a firstgroup of five mines, with a combined rated output of 3.8 million tpy ofwashed coal, are at various stages of implementation (Sudamdih, Moonidih,Katras, Bhutgoria and Murulidih). The marginal costl / for these minesranged between Rs 420 and Rs 480 per ton of washed ioal. Presently, asecond group of four mines is proposed for development includingPootkee-Bulliary. While the marginal cost of production atPootkee-Bulliary (Rs 536 per ton of washed coal) is projected to be higherthan in the mines currently under implementation in Jharia, it is lowerthan any other prospective new underground mine In that field.

IX. AGREEMENTS REACHED AND RECOMMENDATIONS

9.01 The following agreements have been reached

(a) With the Government that it will:

(i) maintain coal prices that will ensure the financialviability of CIL and provide adequate resource mobilizationin the sector (para. 3.11);

(ii) initiate by June 30, 1986 a study of shaft sinking (para.5.20);

Ciii) promptly grant import permission and make available foreignexchange for foreign goods required for the project (para.5.33);

19/ The marginal cost has been estimated as the ratio of net present valueof capital investment plus operating cost streams (in 1984/85 terms)to net present value of physical production streams discounted at theopportunity cost of capital, estimated at 12%.

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(iv) ensure that all necessary approvals are issued for theHadhuband washery by July 1, 1985 (para. 5.36);

(v) on-lend the Bank funds to CIL on terms and conditionssatisfactory to the Bank (para. 6.07); and

(vi) provide in a timely manner the financing required toimplement and to complete the Jharia Coking Coal Projectpromptly (para. 6.08).

(b) With CIL that it will:

(i) follow prudent financial practices and maintain financialcovenants as described in para. 7.11. 20/

(c) With CIL and BCCL that it will:

(i) carry out further geotechnical testing in Block II andreview the results with the Bank by December 31, 1985(para. 5.09);

(ii) ensure that the design, construction and operation of theproject are carried out with due regard to ecologicalenvironmental and safety standards (paras. 5.28); and

(iii) maintain records and submit reports to the Bank as specifiedin paras. 5.30, 7.11 and 7.14 including audited financialstatements.

(d) With BCCL that it will:

(i) retain technical assistance by December 31, 1985 to improvethe design, management and operating procedures for highlymechanized underground mines (para. 4.10);

(ii) complete a study by December 31, 1985 on the disposal ofrejects from the Madhuband Washery (para. 5.12);

(iii) provide annual training programs and reports (paras. 5.13and 5.23);

(iv) provide the Bank, with schedules for the construction ofhousing and service facilities for both components (paras.5.16 and 5.27);

(v) retain technical assistance by December 31, 1985 to examinealternative transportation modes of sand to the Jhariacoalfield (para. 5.19);

20/ These are already included in the Project Agreement for Loan 2393.

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(vi) establish a Project Management Unit for each projectcomponent (para. 5.31);

(vii) prepare a project implementation manual for each projectcomponent (para. 5.32); and

(viii) by September 30, 1988 acquire the rest of land required forthe Block II mining operations beyond 1989/90 (para. 5.34).

9.02 The following is a condition of effectiveness of the Bank loan:the conclusion of a subsidiary loan agreement between GOI and CIL and afinancial arrangement between CIL and BCCL both under terms and conditionssatisfactory to the Bank (para. 6.07).

9.03 Given the preceding agreements and assurances, the Project issuitable for a Bank loan to GOI of US$248 million for a period of 20 years,including 5 years of grace, at the standard interest rate.

Industry DepartmentFebruary 1985

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ANNEX 1Page 1 of 8

INDIA - JHARIA COKING COAL PROJECT

STEEL SECTOR

1. Background

1. Steel production in India is provided by six integrated steelplants and over one hundred small mini-mills. Five of the integratedplants are owned and operated by the government-owned Steel Authority ofIndia (SAIL) (including the IISCO plant - a wholly owned subsidiary ofSAIL) and one by the privately owned TISCO). The steel sector isadministered by the Department of Steel (DOS), Ministry of Steel and Mineswhich is responsible for policy making, planning and development of theIron and steel sector including setting up new plants as well as foroverseeing existing production, distribution, pricing, import and export ofiron and steel.

2" The Bank's involvement in the steel sector, to date, has beenthrough five Bank lending operations from the mid 1950s to the mid 1960s toTISCO and IISCO, and through IFC lending operations for the construction ofa special steel production unit (1963, plus expansions in 1974 and 1978)and an expansion of the TISCO integrated steel works (1980). -

2. Steel Production, Consumption and Trade

3. During most of the 1970s, the Indian steel industry was able tosupply the domestic market at internationally competitive prices and withthe exception of a few specific products, India was self-sufficient insteel production. However, production from the integrated steel plants,measured in terms of hot metal output from the blast furnace, reached apeak of 9.9 million tons in 1976/77. Subsequently, the industryexperienced a variety of operating difficulties compounded by bottlenecksin the supply of critical inputs such as power and coking coal, andproduction stagnated as shown in the table below.

India - Annual Rot Metal Production by Integrated Steel Plants(million tons hot metal)

1979/80 1980/es 1981/82 1982/83 1983/84SAILBhilai 2.34 2.21 2.38 2.33 2.12Durgapur 0.99 0.82 1.02 1.06 0.98Rourkela 1.25 1.23 1.34 1.20 1.15Bokaro 1.69 1.68 2.19 2.20 2.28IISCO 0.69 0.79 0.80 0.93 0.84Subtotal - SAIL 6.96 6.73 7.73 7.,O 7.37

TISCO 1.52 1.65 1.77 1.80 1.75Grand Total 8.48 8.38 9.50 9.50 9.12

Source: SAIL.

- ~~~50- AU=

Page 2 of 8

In 1981/82 and 1982/83 the SAIL plants achieved over 90% of their targetedproduction although capacity utilization was only about 70%. Thedifference between the production target and installed capacity largelyreflects known bottlenecks which effectively limit production capacity.The GOI has set a high priority on measures to alleviate such bottlenecksalthough progress so far has been slow.

4. An adequate supply of steel is essential to the futuredevelopment of many basic sectors in the economy such as construction,engineering, mining, manufacturing and transportation. The major uses ofsteel are for construction and in the engineering industries. Steelconsumption grew slowly in the 1960s - at only 3.3% per year, but averaged6.6% per year in the 1970s. Even so, India has very modest steelconsumption compared to other countries. For example, per capitaconsumption of finished steel is about 20 kg/per capita in India comparedwith about 150 kg/per capita in newly industrializing LDCs such as Braziland Mexico, and 500-600 kg/per capita in industrialized countries.

5. In the mid 1970s India was a net exporter of steel products. Inthe past five years, however, exports have been minor and an average ofabout 1 million tons of steel imports have been required annually to meetdomestic consumer's needs.

India - Steel Imports and Exports a/(million tons crude steel equivalent)

1976/77 1977/78 1978/79 1979/80 1980/81 1981/82 1982/83

Imports 0.32 0.44 1.06 1.39 1.00 1.05 1.32Exports 1.41 1.10 0.52 0.06 0.05 0.01 0.01

Net Imports (1.09) (0.66) 0.54 1.33 0.95 1.04 1.31

a/ Canalized imports and exports.

Source: SAIL.

3. Steel Prices and Financial Position

6. Prices for mild (low-carbon) steel products are set by the JointPlant Committee (JPC) which consists of representatives of the major steelproducers and the Railway Board, under the chairmanship of theGovernment-appointed Iron and Steel Controller. Presently, JPC prices areuniform at all railhead destinations in India although consideration isbeing given to setting prices to reflect differential transport costs tospecific locations. Prices of medium- and high-carbon steels and mostspecial quality steel products are set by market forces. During most ofthe 1970s, Indian steel prices were generally lower than comparableimports. But a severe recession in the international steel market in the

-51- ANNEX 1Page 3 of 8

1970s resulted in import prices declining sharply and in late 1978, JPCintroduced levies on certain imported steels to offset the difference toconsumers between low priced imports and higher domestic steel prices. Thelatest JPC Base price list for various steel products is given at the endof this Annex. At present international steel prices are depressed andIndian prices are up to one half higher than currently prevailinginternational prices for most steel products and in some cases evendouble. International steel prices are expected to strengthen in the nextseveral years as worldwide market conditions improve and the pricedifferential vis-a-vis domestic prices should be narrowed providing Indiansteel producers are effective in implementing measures to reduce costs.

7. Up until 1981/82 both SAIL and TISCO operated profitably. In1982/83 while TISCO made small profits, SAIL suffered losses which derivedprimarily from a substantial increase in financial charges. SummarizedIncome statements for the period 1979/80 - 1982/83 are shown below:

SAIL and TISCO - Summarized Income Statements(Rs millions)

1979/80 1980/81 1981/82 1982/83SAIL TISCO SAIL TISCO SAIL TISCO SAIL TISCO

Revenues 21,825 4,547 23,100 5,209 29,363 7,047 33,521 7,982

Operating Costs 19,952 1,723 20,801 4,330 26,353 5,814 30,628 6,865Depreciation 1,064 230 1,052 237 1,148 272 1,281 284

Gross Profit 809 2,594 1,247 642 1,862 961 1,612 833Interest 726 101 1,237 121 1,470 184 2,670 384

Profit (Loss) 83 2,493 10 521 392 777 (1,058) 449before Tax - = =_ -__ _

Source: SAIL, TISCO Annual Reports.

8. While differences exist in terms of assets and product mix, theability of TISCO to remain profitable is indicative that SAIL could alsooperate profitably without substantial changes to steel prices.In order to rectify SAIL's situation, SAIL and GOI are undertaking measuresto re-establish SAIL's financial viability. The main emphasis is toimprove cost effectiveness by rationalization and other cost reductionmeasures and to make full use of existing assets by improving capacityutilization through a de-bottlenecking period. The Jharia coking coalproject should contribute to improving SAIL's financial situation since theincrease in quantity and quality of PCC that should result from the project(para. 3.10) should provide important improvements in blast furnaceproductivity. Improved blast furnace operations will contribute toreducing costs and increasing production thereby both improving the

-52- ANNEX 1Page 4 of 8

financial performance of SAIL and assisting the domestic steel sector tomeet domestic steel demand without the need for steel imports.

4. Development Priorities

9. GOI's basic strategy for the steel sector is to emphasizeincreased efficiency and de-bottlenecking at existing plants together withimprovement in infrastructure supplies. Specifically, the major prioritiesare (a) to undertake the necessary investment to complete the expansion ofthe SAIL plants at Bhilai and Bokaro from 2.5 million tpy to about 3.5million tpy hot metal production each; (b) to implement measures to reducecosts, improve efficiency and rationalize production at the other SAILplants; (c) to undertake a program of construction of captive thermal powerstations for each of the integrated steel plants to shield them from futurepower shortages; and (d) to ensure adequate availability of satisfactoryquality coking coal. In addition, one new steel plant to meet expecteddemand growth is in the early stages of construction at Vizag withassistance fom the USSR. Another greenfield project, planned at Paradipwith U.K. assistance, has been postponed. The investment program with itsemphasis on improved efficiency should assist the industry in improving itscost efficiency and competitiveness in the future.

10. The expansion and rationalization of existing SAIL plants isplanned to increase hot metal production from 7.4 million tons in 1983/84to 10.8 million toas in 1989/90. In addition, production by TISCO isprojected to increase from 1.9 million tpy hot metal 1983/84 to 2.3 milliontpy in 1989/90. Production from the new plant at Vizag is projected toreach 1.65 million tons hot metal by 1989/90 giving a total Indian hotmetal production of 14.7 million tpy in 1989/90 as shown below. Thisshould be sufficient to meet domestic demand providing the new plant atVizag is kept on schedule and the improvements are successfully completedat the SAIL plants.

India - Planned Production for Integrated Steel Plants(million tons hot metal production)

1983/84 1984/85 1985/86 1986/87 1987/88 1988/89 1989/90SAILBhilai 2.12 2.40 2.56 2.90 3.11 3.33 3.60Durgapur 0.98 1.10 1.10 1.22 1.24 1.24 1.32Rourkela 1.15 1.30 1.35 1.38 1.40 1.43 1.43Bokaro 2.28 2.60 2.77 2.86 3.00 3.20 3.41IISCO 0.84 0.90 0.90 0.97 0.90 1.00 1.00Subtotal - SAIL 7.37 8.30 8.68 9.33 9.65 10.20 10.76

TISCO 1.75 1.90 2.00 2.30 2.30 2.30 2.30Vizag - - - - 0.80 1.30 1.65

Grand Total 9.12 10.20 10.68 11.63 12.75 13.80 14.71

SOURCE: SAIL.

-53- ANNEX 1Page 5 of 8

INDIA STEEL PRICES

JPC BASE PRICE LIST FOR STEEL, EFFECTIVE 21 JUNE, 1984

Base Price in Rs per tonneF 0 R Railhead Station

CommercialStandard IS-1977

IS-226 ST-42/ST-32 Off Grade

1. Plates, Structurals,Railway Materials, etc.

A. Platesi) 5 to lOum 5230 5190 5150

ii) Above 10mm 56'8 5610 5570

B. Chequered Platesi) 5 to 10mm 5330 5290 5250

ii) Above 10mm 5750 5710 5670

C. Joists 5220 5180 5140

D. Unequal Angles andZ-Sections (includingZ-Piling) 5985 5945 5905

E. Crossing Sleeper Barsand Bearing Plate Bars 5530 5490 5450

F. Other Structuralsexcluding Joists, UnequalAngles, Z-Sections(including Z-Piling),Crossing Sleeper Barsand Bearing Plate Bars 5110 5070 5030

Base Selling Price in Rs.per tonne F 0 R Works

G. Wheels (all categories) 14950

H. Tyres (IRS: R-15)i) BG Carriage & Wagon

Tyre (W-492, W-501,Box Wagon Tyres) 14950

ii) Carriage Wagon & LocoTyre 864mm dia & below 15650

iii) Loco Tyre above 864mmdia 15150

-54. A1NNEX 1Page 6 of 8

iv) Diesel flectric, Loco &EMU Tyres, BG, MG, NGWater Quenched 15750

I. Axles (all categories) 16330

J. Sleepers (Pressed) 5350

Base Price in Rs per tonneF 0 R Railhead Station

K. Heavy Rails Class III/T-12 T-18 Untested

37 kg 4900 4750 420045 kg 6250 6100 460052 kg 5650 5500 435060 kg 6775 6625 5000

Base Price in Rs. per tonneF 0 R Railhead Station

Tested

L. Tin Bars 4415

N. Shell Blooms 4540

N. Shell Bars 5015

2. Semis, Billets, Bars, Base Price in Rs. per tonneGP/GC Sheets, etc. F 0 R Railhead Station

IS-2830 IS-2831 Offgrade

A. Blooms 3640 3600 3560

B. Slabs 3840 3800 3760

IS-2830/IS-6914 IS-2831/IS-6915 OffgradeC. Billets, RC Squares,

Continuously Cast 4000 3960 3920Billets

Coml. IS-1977Standard IS-226 ST-42/ST-32 Offgrade

D. Bars & Rods in Coils/Straight Lengthi) 5.5mm to 12mm 4900 4360 4820

ii) Above 12mm to 36mm 4650 4610 4570iii) Above 36mm 4850 4610 4770

B. Flats of all sizes 4955 4915 4875

_55_ ANNEX 1Page 7 of 8

Tested UntestedF. GP Sheets/Coils Bars

i) 16/20G (1.6Sm/1.00mm) 6660 6620ii) Thinner than 20G

(1.00mm) to 24G (0.63mm) 7800 7760iii) 26G (0.5am) 9540 9500

iv) 28G/30G (0.4mm/0.35mm) 10380 10340

G. GC Sheetsi) 16/20G (l.6m/I.ODmm) 6710 6670ii) Thinner than 20G

(1.00mm) to 24G(0.62mm) 7850 7810iii) 26G (0.5mm) 9590 9550

iv) 28G/30G (0.4mm/0.35mm) 10450 10390

H. Seamless Bars 5100 5060

1. Light Rails12 kg 622515 kg 6220

J. Tees 5980 5940

Base Price in Rs per tonneF 0 R Railhead Station

3. Skelp, HER Coils 2mm to 10mm Tested UntestedHR Sheets, CR Coils, CR Sheetsetc,

A. Skelpi) 3.15mm and below 5060 5020ii) Above 3.15mm 4900 4860

B. HR Coilsi) 3.15 and below thicknless 5160 5120

ii) Above 3.15mm to below5mm 5000 4960

iii) 5mm to 10mm 5200 5160

C. HR Sheetsi) 14G (2mm) and thicker 5435 5395

ii) 16G-20G (1.6mm-1.00 m) 5705 5665iii) Thinner than 20G (lmm) 6205 6165

D. CR Coilsi) 14G (2mm) and Thicker 6385 6345

ii) 16G-20G (1.6mm-1.OOmm) 6595 6555iii) Thinner than 20G

(1.OOmm) 6925 6885

-56-

ANNER 1Page 8 of 8

E. CR Sheetsi) 14G !2mm) and Thicker 6460 6420

ii) 16G-20G (1.6mm-I.OOmM) 6670 6630iii) Thinner than 20G

(1.00mm) 7000 6960

Note:

1. All JPC Section/Size and quality extras and rebates (vide AnnouncementNo. 263 dt. 21st June 1984) will apply.

2. Extras and rebates presently applicable for billets wil apply to RCSquare and continuously cast billets also.

3. The extra of Rs 200 per tonne in respect of galvanised sheets made outof cold rolled base metal will be charged.

4. Base price of crane rails will be the same as those of 52 kg (tested)rails.

5. The prices of heavy rails (tested) are exlusive of excise duty.Appropraite exise duty will be charged over and above those prices.

6. For deliveries of al items of steel from producers' stockyards,stockyard margin will be recovered at the rate of Rs 220 per ton inaddition to the above prices.

Source: Department of Steel

Industry DepartmentFebruary 1985

-57- ANNE2 2Page 1 of 2

INDIA - JHA 0lI COAL EW=E

CDAL WAS9EX a/

..

P C----- Capcity in tem of dli tpy rw coal fed

Yield 1983/84 1984/85 1985/86 1986/87 1987/88 1988/89 1989/90Cm Waserle

Dtlgda I 0.50 1.80 1.80 1.80 1.80 1.80 1.80 1.801i.ia II 0.50 2.00 2.00 2.00 2.00 2.00 2.00 2.00

Bojud:1h 0.70 1.70 1.70 1.70 1.70 1.70 1.70 1.70Paterih 0.60 1.60 1.60 1.60 1.60 1.60 1.60 1.60Sudaudih 0.60 1.00 1.50 1.70 1.70 1.70 1.70 1.70Mooidih 0.70 0.40 1.00 1.70 1.70 1.70 1.70 1.70Lodoa 0.67 0.24 0.24 0.24 0.24 0.24 0.24 0.24Baror 0.50 0.36 0.36 0.36 0.36 0.36 0.36 0.36

PlaeZdMdbubard 0.45 - - - - - 1.70 2.50Pbc±kee 0.49 - 2.10Thal1pra 0.50 - -

Subtotal 9.10 10.20 11.10 11.10 11.10 12.80 15.70

Otber Washlies

Jamloib (TEIS)) 0.68 1.44 1.44 1.44 1.44 1.44 1.44 1.44Chasrala (II50D) 0.50 1.80 1.80 1.80 1.80 1.80 1.80 1.80lsP-prixe (SAI) 0.50 1.15 1.15 1.15 1.15 1.15 1.15 1.15

DOO (West Bengal 0.50 0.35 0.35 0.35 0.35 0.35 0.35 0.35State)Subtotal 4.74 4.74 4.74 4.74 4.74 4.74 4.74

Direct Feed 2.06 2.06 2.06 2.06 2.06 2.06 2.06

Grand Total 15.90 17.00 17.90 17.90 17.90 19.60 22.60,.,- - -- -,

a/ CLL also operates one sml tterml cea whbery at Nrozabad (WL) with a raw ccsa feed of 0.4ntpy and a yield of 85%.

-58-ASI 2Pape 2 of 2

- -- -- Capacity in term of zUmLII tpy raw coal feed -------

Yield 1983/84 1984/85 1985/86 1986(87 1987/88 1988/89 1989/90CML Wasberies

Naraga1 0.68 2.4 2.4 2.4 2.4 2.4 2.4 2.4Kataa 0.50 2.4 2.4 2.4 2.4 2.4 2.4 2.4S=9C 0.68 0.7 0.7 0.7 0.7 0.7 0.7 0.7GIi 0.54 2.0 2.0 2.0 2.0 2.0 2.0 2.0Nmxia 0.79 0.8 0.8 0.8 0.8 0.8 0.8 0.8Melhu 0.64 - 0.4 0.6 0.6 0.6 0.6 0.6

Hagarh 0.68 - - - 1.8 2.7 2.7 2.7Kedla 0.50 - - - - - 1.0 2.4Parej 0.60 - - - - - - 0.6

Subtotal 8.3 8.7 8.9 lOJ 11.6 12. 14.6

West Bokaro (TIS(X) 0.50 2.0 2.0 2.4 2.4 2.4 2.4 2.41kUm (SAIL 0.65 0.2 0.2 0.2 0.2 0.2 0.2 0.2

ubtotal 2.2 2.2 2.6 2.6 2.6 2.6 2.6

Direct Feed 0.6 0.7 0.9 1.0 1.0 1.0 1.0

Grand Total 11.1 11.6 12.4 14.3 15.2 16.2 18.2

Fe~Ius~y 198per5mFebruay 1985

-59-

ANNEX 3

INDIA - JEARIA COKING COAL PROJECT

COAL PRICE SCHEDULE a/(Rs per ton)

Specification PriceRun of Mine

A. Thermal Coals b/

Grade A UHV exceeding 6200 kcal/kg b/ 264Grade B UHV 5600-6199 kcal/kg - 237Grade C UHV 4940-5599 kcal/kg 203Grade D URV 4200-4939 kcal/kg 177Grade E UHV 3360-4199 kcal/kg 125Grade F UHV 2400-3359 kcal/kg 95Grade G UHV 1300-2399 kcal/kg 61

Singareni Coalfields Ungraded 192

B. Coking

Steel Grade I Ash not exceeding 15% 450Steel Grade 2 Ash not exceeding 18% 370Washery Grade I Ash not exceeding 21Z 315Washery Grade II Ash not exceeding 24% 257Washery Grade III Ash not exceeding 28% 190Washery Grade IV Ash not exceeding 35Z 175

C. Semi Coking Coal

Grade I Ash plus moisture not exceeding 19% 315Grade II Ash plus moisture not exc:.eding 24% 257

a/ Effective January 8, 1984. The above prices are ex-pithead excludingStatutory Levies which are chargeable extra as per the prevailing rateat the time of actual sales.

b/ Long flame coals (grades A-D) have a surcharge of Rs 25 per ton.c/ Useful Heat Value (UHV) is defined by the following formula:

UHV = 8,900 - 138 (A+M) where UHV - Useful Heat Value in Kcal/kg,a - Ash content in Z M, - Moisture content in Z.

Industry DepartmentFebuary 1985

-60-

ANNEX 4

INDIA - JHARIA COKING COAL PROJECT

SCREDULE OF SALE TAXES AND LEVIES IN THE STATE OF BIHAR(Rs per ton)

A. BiharJharia __Local LeviesMines Stowing LaborHealth Excise Welfare Rescue

1. Thermal Coals Royalty CESS Board Duty Levy Levy Total

Grade A 6.50 52.80 1.50 3.25 0.75 0.03 64.83Grade B 6.50 47.40 1.50 3.25 0.75 0.03 59.4!Grade C 5.50 40.60 1.50 3.25 0.75 0.03 51.6-Grade D 4.30 35.40 1.50 3.25 0.75 0.03 45.23Grade E 4.30 25.00 1.50 3.25 0.75 0.03 34.83Grade F 2.50 19.00 1.50 3.25 0.75 0.03 27.03Grade G 2.50 12.20 1.50 3.25 0.75 0.03 20.2_

2. Coking Coals

Steel Grade I 7.00 90.00 1.50 4.50 0.75 0.03 103.78Steel Grade II 7.00 74.00 1.50 4.50 0.75 0.03 87.78Washery Grade I 7.00 63.00 1.50 4.50 0.75 0.03 76.78Washery Grade II 6.50 51.40 1.50 4.50 0.75 0.03 64.68Washery Grade III 6.50 38.00 1.50 4.50 0.75 0.03 51.23Washery Grade IV 5.50 35.00 1.50 4.50 0.75 0.03 47.28

Source: CIL.

Industry DepartmentFeruary 1985

? ~ ~~~~~~~~~~~~~~~ X

l. *~ C . -s"

g 3 S ? X 9.3!

J .31.~~~~~~~~~~~~~I. a.~~~~~~~

.3~~~~~~~~~~~~~

-62- ANNEX 6

INDIA -'JHARIA COKING ODAL PROJECT

SCOPE OF WORK FOR TECHNICAL ASSISTANCE ON DESIGN AND

MANAGEMENT OF MECHANIZED UNDERGROUND MINES

A. Objective

To assist the CIL group to improve the operational efficiency offully mechanized underground mines, with particular reference to thePootkee-Bulliary and the Moonidib mines in the Jharia coalfield.

B. Scope of Work

The consultant should assist in (i) the methodology foroptimization of face and panel layouts and face equipment for mines usingthe fully mechanized longwall technology, as well as coal haulage andtransport systems; and (ii) establishing an effective management systemduring construction and operation of the Pootke-Bulliary Nine. Inparticular, the technical assistance should cover the following areas:

(a) Optimization of Design. The consultant will be required toreview the design of the Pootkee-Bulliary underground mine andrecommend modifications, compatible with the Implementationschedule for the mine, for optimizing the face and panel layoutparameters, extraction method, development work, coaJ. clearancesystem and face equipment. The consultant should also review thecoal haulage and materials and personnel transport systems toensure that adequate capacities are provided to obtain highperformance rates with adequate safety standards. The consultantshould also assist in preparing detailed specification of theselected equipment for bid documents, and In preparingengineering documentation.

(b) Management System. The consultcnt will stu.tdy tne existingmanagement structure and its adequacy for exercising managerial,technical and financial planning and control, both during theconstruction and production phases of fully mechanizedunderground mines. The Moonidih Mine in the Jharia coalfieldwill be selected for the purpose of study. Based on thefindings, the consultant should establish an organizationalstructure for utilization in the Pootkee-Bulliary Mine includingcollection, processing and flow of information to the varioushierarchical levels of the organization, to enable an adequateavailability and efficient and safe use of resources (men,materials and funds) and a monitoring of the results obtained.The consultant should assist in the implementation of theorganizational structure proposed for the Pootkee Bulliary Mine,and provide continuous advice to the colliery manager,establishing effective lines of communication and organizing anefflcient flow of information.

C. Timing

It is estimated that the work described will require about 3man-years for the Optimization of Design Component and 4 man-years for theManagement System.

Industry DepartmentFebay 185

-63-Ak4X 7Page 1 of 2

INDIA - JHEA OaW: OAL P1LEc

CIL FDRU SrATOME

INuW TMM - 03ML IlIYEA (OVERALL.)(RS millions)

19081 L98182 1982/83 1983/84 1984/85 bl

Coal ProdEticnIbtal Coal Produced (milnio Uo) 100.6 109.1 114.7 121.4 131.0

Ccol. Produed by Rom= 97.2 105.3 113.5 119.2 127.7

Net Saleable Col frmn Reuelu 93.7 101.7 109.5 115.3 123.8lmies (Milln tUas)

&aer Sale Price (RB per tDO) 120.6 139.8 155.8 163.7 192.2

Nt Sales RevexB 11,300 14,209 17,063 19,051 23,800

Sa-arl and lOge 6,849 7,758 8,42 11,707 1.722*vedeads 537 997 753 940 1,004

Stares 1,508 1,996 2,603 3,014 3,443Power 534 745 964 1,185 1,380

.~azprtat of Col and Saud 296 42D 462 452 641()gr Costs 1ss Misc. Bepts a 549 622 917 1,178 876

Motal 0pertiz Exps 10,273 12,138 14,240 18,475 19,065

Dqpredon 738 951 1,344 1,716 2,138

Interest 626 778 1,110 1,324 2,042

Total ftodxtin Costs 11,637 13,867 16,694 21,515 23,246

Profit/loss (337) 342 369 (2,464) 555- m -m

a/ Tzo s Proft/Loss ca Soft mad Hd Coke ard %sbed Owl operatiox ar als aidjust t forO0verbui Nm al Cost and net profit of am.

b Figts fir 1984/85 are lbsed on CLs finandal proJections.

-64-

ANUEK 7Page 2 of 2

S[N 2EAR D W - mWL ]MIA WD.(Rs uuior as of Marcdh 31)

1981 1932 1983 1984 1985 a/Asets

Cureirt Assets 6,430 8,292 10,383 14,527 14,991szloas and Advankes 4,272 4,641 5,431 7,157 7,421Net Fixed Assetsb/ 10,665 14,177 18,984 24,142 30,540

Total Assets 21,367 27,110 34,798 45,826 52,952

4aWUi,tieSCirreint LtbLlitie 5,871 6,072 6,862 8,004 8,260

(a) Debts to Goaermuien 12,577 14,836 17,462 19,273 21,753(b) Otber Lliablties to Gowernmet 518 717 931 2,954 2,554

Total IaXg Term hialbties 13,095 15,553 18,393 22,227 24,307

(a) Sbare Capital 9,862 12,869 16,913 21,299 26,317(b) Reserve 385 733 1,049(c) Acomlateld PrEfit/Loss (7,846) (8,117) (8,419) (9,758) (9,203)

Total EquLty 2,401 5,485 9,543 11,541 17,113

Total EquLty and Aabdlities 21,367 27,110 34,798 45,826 52,952

a/ FlRgures based oual C's financial projectlors.b/ Tnc1udiil capital wuzk-dn-prcss.

Source: CIL.

Industry DepartmenFexlruay 1985

-65-ANNEX 8Page 1 of 2

INDIA - JHARIA COKING COAL PROJECT

SCOPE OF WORK FOR TECHNICAL ASSISTANCE ON TRANSPORTATION OF SANDTO JHARIA COALFIELD FROM MAITHON AND DURGAPUR

A. Objective

To determine the most economic and technically feasible mode oftransporting sand to be used for stowing in Jharia Coalfield from Maithonand Durgapur.

B. Scope of Work

The consultant should examine (a) the technical feasibility,environmental and safety implications and (b) the economics of differentmodes of transport for given quantities of sand including, as appropriate,rail, road, ropeway and pipeline from (i) Maithon to Jharia and (ii)Durgapur to Jharia and make recommendations regarding the preferred mode.In particular the study should cover the following areas:

a) Technical: The consultant should study the technical feasibilityand environmental and safety aspects of each mode of transportand should point out any major technical difficulties or risksthat may arise. For slurry pipelines, the consultant shouldconfirm the technical feasibility given the characteristics ofthe sand, the route, availability of water, etc. and makerecommendations regarding routing, location and specification ofpumping stations, pipeline specifications, source and disposal ofwater, etc. To the extent necessary the consultants shouldundertake any necessary physical tests to confirm the technicalfeasibility of slurry pipelines. For rail, the consultantsshould examine the suitability of any existing facilities andpresently-used equipment and address the benefits and feasibilityof improving present facilities and equipment and/or developingnew rail lines including optimal wagon and locomotivespecifications. For road, the consultants should examine thesuitability of using existing roads including maximum size oftrucks to be used, traffic congestion and safety implications.The consultants should also examine possible road improvementsand/or the development of new roads as well as the use ofdifferent vehicle sizes. Ropevays, in the case of Maithon, theconsultants should also examine the possible use of ropeways,including optimal routing. In all cases the consultants shouldspecify the point and means of loading sand in Maithon andDurgapur and discharging at Jharia.

-66-

ANNEX 8Page 2 of 2

b) Economics: The consultants should provide an estimate of thedelivered cost of sand for all cases considered. The costestimates should be based on conceptual engineering. Foreign andlocal costs should be separated and operating and investmentcosts should be specified together with manpower requirement.Economic comparisons will include discounted cash flow and netpresent value calculations (both excluding inflation) withadjustments made to exclude taxes, and use appropriate conversionfactors. Financial comparisons should be made, includinginflation and taxes of the investment requirements.

c) Timing: It is estimated that the work will require two to threeman-years effort.

Industry DepartmentFeiniary 1985

-67-ANNEX 9Page 1 of 2

INDIA - JHARIA COKING COAL PROJECT

SCOPE OF WORK FOR STUDY OF SHAFT SINKING

A. Objective

To assist the CIL group, in general, and BCCL, in particular, toimprove the design, engineering and implementation of shafts about 500-600meters deep.

B. Scope of Work

The consultant should assist in (i) conceptual design of shaftsand sinking techniques; (ii) detailed engineering of al facilities; (iii)in establishing the organizational structure; and (iv) in physicalimplementation. In particular, the technical assistance should cover thefollowing:

(a) Design phase

The consultant will be required to review current standard shaftdesigns, technology applied, work methodology and organizationduring implementation and recommend most suitable shaft design.Further, the consultant will assess the applicability ofdifferent shaft sinking techniques taking into consideration allpertinent factors including inter alia shaft design to beadopted, geological/hydrogeological conditions, existence of oldworkings and goaves, acceptable sinking rates, safety aspects andcosts. The optimal sinking method and the technology/equipmentto be used will be defined.

(b) Engineering phase

Detailed engineering should be done for all physical installationincluding shaft furnishing and methodology to be used. A generalsurface layout should be prepared and final shaft locatioudetermined. The consultant should assist in preparing detailedspecifications of the selected equipment for bid documents and inpreparing organization charts, manpower requirements and trainingschedules. Cost estimates and implementation schedules should beprepared.

-68- ANNEX 9

Page 2 of 2

(c) Implementation phase

During this phase the consultant will assist in the establishmentand training of the on-site organization and in supervision ofthe erection work with emphasis on the logistics. Subsequentlyassistance should be given in supervision of the actual start-upof the shaft sinking operation. Revisions in engineering/designshould be undertaken as deemed necessary. The consultants shouldprovide intermittent advice, as requested, during the shaftsinking period.

C. Training

It is estimated that the work described will require about 3-5man years.

Industry DepartmentFebuary 1985

-69-

AMJEX I0

INDIA -JHUARIA CDKING CDAL PROJECr

PRDJECr XWACEMNT ORSASIZATION

gProtect General uhnager|

| Engineering [ie IrtiZ| Adinlstration

Cost & SchedulingDeputy Project fbnager

Finance Procurement mung| Infrastructure Project PlanningSupervislon

Purchasing | ne Coal HandlYng Excavation |ining1 1' l~~~Superintendent 1| LI1|

q Stores 3 q Blastlng Auncillary Equipment SurveyingFacilities

Trai nInRg Tounsdite Infrastructurej Geology

Industry DepartmentPbcncey 1985

-70-ANNEX 11

INDiAJHARiA COKING COAL PROJECT

Impementation Schedule for Block 11 Open Cost Mine

CA8ERgMYER 1VM 190 Mhs l tgo17_ 19 - -- W 1900 1 99t

RFCL VEAR IWIIS 15/16 W87 67/U 15119 89/90 90 91t92

F l ll-T- 7- T i-- W T FTTI I I I - r-MANhWNNG EgLtD*J

DI>o 24/88(EMflh &XC O-k VDP09W* 26/816

D~og"r 6/iSSV- -Omq I _

Qowt Onlis 330 ffmO

gacas. Hyoft 32-45 m'3

OWIW)n 5. t

Cadb1 uI.s 29 tDozm ADD425 Hp

! z0oAs&o±v?

j M BINWANCE & SERE ACUMT1 .

IDRAAGE _

O SUPPL (STATED 1Q6)

MA', SAM WAERY(14) - p:

W!ECOALPODUC1ONWKNONSPER5VW 020 OJ 1*50 0 25 250 25 250

0NSWURDF 9EMOVALMIUOJN M30 P R VW 1 285 505 oSD °50 o50 °50

0 Bd hM?O?1on V DoCo¶V#e

0 Contrc Eflere V Cowrmianng

'Cco wouchon is congs an 9CQ eaL=ffwsr oecW t shbosJ ren keot

Bs-

Industry DepartmentFebruary 1985

-71-

Annex 12

INDLAJHARIA COKING COAL PROJECT

Impbmentolon Schedule for PootkeeBuIllory Underground Mkt

CAtUDb@WEA 1964 195 m 19 67'1 jg f9 199 "atU 199 199

I TT 1r~w/ mrr TTa mm T o Fr "r/r2 - -9s

'NO.2

gi.1 -s~ - _ -

(---- =,,,, --

(-2C0 M) ~bn I - -

4NOSl0&12(1UlYA

0.VW. tW- _

:MN069& 10 CLCrALAD

fnS FAOUdE CONSM, - -

A POUR SUB=7*N _COMUIJ!ON

*4w 0- --- 4 y

X~~ - - °>TD14 - _- o I s _ts

*E4QPER0V VEAD""MWV OW 0 120 020 0 .. 0 2M-. D a'o, "le" I.= a4o 29i

u- 0 B'Cono

V CCr4I09

WOW 8"--U746

Ldustry Departmentbruary 1985

-72-AMNEX 13Page 1 of 2

INDIA - JHARIA COKINIG COAL PROJECT

PROJECT CAPITAL COST ESTIMATE

Bl.ock I Potkee-BulliarvRS HlUco USS r1LJm Rs Kilian US M.Uoa

local Foreign Totia local Foin l Local Foreign Teoal Local Foreign Total

Equipawnt&Sppes 2658 834.8 1,100.7 22.1 69,6 91.7 661.8 8228 1,484.7 55.2 68.6 123.0Lud& C^vil1Work 115.0 5.6 120.6 9.6 0.5 10.1 457.5 242 481.7 38.1 2.0 40.1xlnewrf & Traixdng 9.2 - 92 0.8 - 0.8 5B.9 - 58.9 48 - 4.9Preoperaci Exqpditure 71.1 7.9 79.0 59 0.6 6.5 37.4 - 37.4 3.1 - 3.1Wadwry 537.5 91.5 629.0 44 7.6 52 .4 376.8 289 9 666.7 31.4 24.2 $5.6Teelmcal Assistanoe - - - - - - - 24.0 24.0 - 2.0 2J)Dtides &Tawms 567.4 - 567.4 47.3 - 47.3 566.8 - 566.8 47.2 - 47.2

Bae Cbst 1,566.1 9398 2,5059 130.5 78.3 208.8 2,159.2 1161.0 3,320.2 179.9 96.8 276J

Picsical mtinences 108.0 43.0 151.0 9.0 3.6 12.6 182.9 81.9 264.8 15.2 68 22 .0Pricl EscaLatiom 320.3 163.4 483.7 26.7 13.6 403 882.0 533.6 1,415.6 73.5 44.5 118.0

Installed Cost a/ 1,994.4 1,1462 3,140.6 166.2 95,5 261.7 3,224.1 1,776.5 5,000.6 268.6 148.1 416.7Workdng apital 47.7 5.3 53.0 4.0 0.4 4.4 77.4 8.6 86.0 6.5 0.7 7.2

Project Ze 2,042. 1,151.5 3,193.6 1702 959 266.1 3,301.3 1,785.1 5,086.6 275.1 148.8 4239

Interest czingCanstructim 64.4 - 64.4 5.4 - 5.4 7.4 - 7.4 0.6 - 0.6

'Front-Ead Fee nBark Lam - - - - - - - - --

Total Finocdrg Re 4ired 2,106.5 1,151.5 3,258.0 175.6 95.9 271.5 3,308.9 1,785.1 5,094.0 27J.7 148.8 426.5

iIncltung Rs 1862 mlflon (USS15.5 millan) fir Block 1 In I:irect foreign echange; and Rs 356.5 'illimn (0829.7 nLllion)for Pbotkee-111ary in indirect foeii exaie.

-73- ANNEX 13

Page 2 of 2

EQUIPMENT - DETAILED CAPITAL COST ESI.MATE

Rs MillionItem Quantity Unit Price a/ Base Cost

Block IIDragline 24/88 1 225.7 225.7Dragline 6/45 1 29.1 29.1Electric Shovel 10m3 4 35.6 142.4Rope Shovel 4.6m 3 1 4.5 4.5Hydraulic Shovel 4.5m 3 1 10.5 10.5Dumper 85t 44 9.4 412.7Dozer 400-425 Hp 7 3.7 25.7RHB Drill 330mm 2 32.5 65.0Hydraulic Shovel 3.2m 3 1 7.1 7.1Hydraulic Shovel 1.O 3 1 2.5 2.5REB Drill 160mm 2 3.3 6.6RUB Drill 250mm 4 6.6 26.4RHB Drill 160-200mm 3 3.4 10.1Drill 100mm 1 1.8 1.Dumper 50t 11 4.6 50.6Coal Hauler 29T 3 2.1 6.3Dozer 250-300 Hp 7 2.8 19.9Crane 50t 1 6.9 6.9Crane 15t 1 2.5 2.5Front End Loader 1 0.4 0.4Grader 1 1.5 1.5Water Sprinkler 2 2.7 5.4Other Local Equipment Lot - 205.4

Sub Total 1,269.0Spares Lot - 220.8

Total 1,489.8

Potkee-BulliaryCoal cars 5mJ 400 0.063 25.2Car feeder 16 0.119 1.9Man Riding Car 80 0.044 3.5DERD Shearer 1.8-3.8m 1 6.5 6 .5DERD Shearer 1.2-2.Om 1 10.1 10.1DERD Shearer 2.0-3.6m 5 23.5 117.5Shields 1.0- 2 .2m 130 0.43 56.4Shields 1.8-3.8m 645 0.66 425.7Single props 2.3m 6000 0.011 63.8Chain Conveyor 7 11.47 80.3Power Packs 15 1.83 27.5Road Headers 6 7.6 45.6Diesel Locomotives 18 1.74 31.3Other Local Equipment 77.6

Sub Total 972 .9Spares 184.1

Total 1157.0

a/ For foreign equipment, unit price - CIF + Duties + Inland Freight andErection. For local equipment, unit price - Ex-Works + Taxes + InlandFreight + Erection.

Industry DepartmentFebnrary 1985

- --. --- r-* . . - - -. - -- ------- -, -,, - -, - -, -, -- _ _ - -_- - _ _- _ - F--- Wi,

-- - - - - --- ---- r- -~-~-- -- -~---~-~- --- -- - - -X - -- -

WVWR igiw aiWVVViRigBg WWVWWVV.#ii8gi g V[ W.V ..

* W.V.. Vl l SV VVVVVWVW l Vi 0 ti VV sS W.Sis! slii| Ca X#w[CCCCCCC#gBX#R#XWg#X#gB#gB;X W#¢X¢X¢X¢#¢#¢g¢t¢X¢#¢#XX [WS~~~~~~~I

-75-

ANNEX 15

INDIA - JHARIA COKING COAL PROJECT

DISBURSEMENT SCHEDULE FOR BANK LOAN(million US$)

Bank Quarterly CumulativeFiscal Year Quarter Disbursement Disbursement

1986 III 0.2 0.2IV 0.4 0.6

1987 I 4.0 4.6II 6.0 10.61II 24.7 35.3IV 19.9 55.2

1988 I 12.0 67.2II 13.0 80.2III 13.8 94.0IV 14.8 108.8

1989 I 17.8 126.6II 17.8 144.4III 17.8 162.2TV 17.8 180.0

1990 I 5.6 185.6II 5.6 191.2III 5.6 196.8'V 5.6 202.4

1991 I 9.1 211.5II 9.1 220.6III 9.0 229.6IV 9.0 238.6

1992 I 4.5 243.1II 3.0 246.1III 1.9 248.0

Industry DepartmentFebruary 1985

-76-

ANNEX 16Page 1 of 3

iNDIA - JHARIA COKING COAT. PROJECT

ASSUMPTIONS USED IN THE FINANCIA. PROJECTIONS

A. Projection Period

1. The financial projections have been prepared for 1984/85 through1992/93.

B. Escalation

2. All projections have been prepared in current terms assuming thefollowing local inflation rates:

FY 1984/85 to 1990/91 8.5%1991/92 and thereafter 6.0%

C. Production Plan

3. Production plan for the CIL group is based on CIL's projactionadjusted according to availability of investment funds and the projects'implementation outlook. The adjusted production plan is given in thefollowing table.

CML - Projected Proftctlon(*ufiou tow)

1964185 1985/86 1986/87 1987/88 19R8/89 1989/90 1990191 1991/92 1992J93

u ergnowd 67.2 70.0 70.0 73.0 75.0 78.0 79.0 80.0 81.0Open-pit 63.8 72.0 81.0 90.0 101.0 112.0 125.0 138.0 149.0

Total 131.0 142.0 151.0 163.0 176.0 190.0 204.0 218.0 230.0

D. Investment Program

4. The investment program related to the above production plan ispresented in the following table.

CIL - Annual Investment Program(Rs million, 1984/85 terms)

1984-85 1985-86 1986-87 1987-88 1988-89 1989-90 1990-91 1991-92 1992-93

8,800 10,000 11,000 12,000 13,000 14,000 15,000 16,000 17,000

-77-

ANNEX 16Page 2 of 3

E. Coal Prices

5. The projected average coal price for CIL (ex-mine) has beenassumed to increase in real terms by 2% in 1985/86 so chat, in any year,the full cost o0E --oduction (including depreciation and interest) would becovered, and by 1989/90, CIL would earn a 10% return on net worth, if itmeets specified efficiency norms regarding production levels, output permanshift and unit operating costs. For years thereafter, it is assumedthat average coal price for CIL would follow the local inflation rate. Theprojections are as follows:

CIL - Averag Coal Price(Rs/tc - 1984/85 ters)

Fiscal Year 184/85 1985/86 1986/87 1987/88 1988/89 1989/90 1990/91 1991192 992193

Avera3 Prie 196.0 196.0 1.0 19.0 196.0 196.0 196.0 196.0 196.0

F. Production Costs

6. Salaries & wages, including base salaries & wages plus socialamenities and fringe benefits (calculated at 21% of the base salaries andwages), have been increased by 29% in real terms from 1984/85 to 1992/93,representing an average annual growth of 3.2% and explained by thefollowing factors:

- increase in the number of employees 10.2%- increase in the base salaries & wages 14.5Z- chernge in the composition of labor 2.2%

In calculating the base salaries and wages for each employee category a 7%increase in real terms has been assumed in 1987/88 and 1991/92 due to thescheduled renewal of CIL's labor contracts.

7. Administrative overhead a major portion of which (about 70%) isadministrative salaries, is assumed to increase at the same rate as thesalaries and wages.

8. Stores. power, transportation of coal, sand and other materials,and other costs/revenues are calculated on a variable cost basis. The unitcost for stores, which includes spares, explosives, timber, diesel fuel,lubricants aiid other general operating materials, have been slightl,increased from the base dute to the increase in open-pit production withhigher than average material consumption. All other variable unit costshave been assumed to remain constant throughout the projection period.

9. Dpreciation has been calculated using the 1983/84 figure as abase for existing assets and adeing 6% of new investments incorporated intothe gross fixed assets each year.

-78-

ANNEX 16Page 3 of 3

10. Interest expense has been calculated based on the followingaverage annual interest rates:

Existing long-term loans a/- planned portion 11.5Z p.a.- non-planned portion b/ 0.OZ p.a.

New long-term loans c/ 13.52 p.a.Short-term loans 18.0% p.a.

a/ Loans taken before April 1, 1984.b/ A subsidy equal to the interest payable is received from the

Government. Hence neither interest nor subsidy are included in thefinancial projections.

c/ Loans taken in 1984/85 and thereafter, which is about 48% of annualinvestment, repaid in 15 years.

G. Income Taxes

11. Accumulated losses from previous years have been carriedforward. In addition, an investment allowance, up to 40% of the annualinvestment, has been assumed in calculating the annual taxable income. A50% income tax rate has been applied to the taxable income (if any).

H. Balance Sheet

12. Current assets have been increased from the base at the same rate asthe growth in total operating expenditures.

13. Current liabilities have been assumed to follow generally thesame pattern as current assets. However, since labor costs are expected toincrease and only moderately, other current liabilities (which includemainly wages and bonuses payable at the end of the year) have beenincreased at a lower rate than the average growth in operatingexpenditures.

14. Fixed assets haze been increased by adding 80% of the annualinvestment to the previous year's balance. This addition is assumed toinclude both the direct addition from the annual investment and a transferfrom previous year's capital work-in-progress. 17% of the investment hasbeen assumed to equal the net increase in capital work-in progress and 3%of the investment. the net increase in loan & advances.

15. Long-term debt outstanding March 31, 1984 for CIL overallconsists of the following loans:

Planned Rs 14,947 millionNon-planned Rs 4,326 million

Total Rs 19,273 million

Industry DepartmentFebrwny 1985

-79-.

ANNEX 17Page 1 of 3

INDIA - JHARIA COKING COAL PROJECT

PRO FORMA FINANCIAL STATEMENTS FOR COAL INDIA LTD.

CIL - Profit and Loss Statement(Rs million, current terms)

83184 8419 85/96 86E17 9718 88199 8910 90191 91/92 92/93

CUAL PkIOUICTXE (HILLION TMISl:

UIC P/DuucTG 61.7 67.2 70.0 70.0 73.0 */h.0 78.0 79.0 80.0 91.0OIP PsVlJEIflH 59.7 6B.8 72.0 E1.0 90.0 101.0 112.0 125.0 138.0 149.0

TOTAL PICOUrD 121.4 131.0 149.0 151.0 163.0 176.0 10.0 204.0 218.0 230.0

SiLXJLE PRaDUCTroN 116.4 1Z3.8 132.8 140.8 151.2 165.4 178.6 191.8 2D4.9 216.2

5~E It'BES:

*EM PIICE, RSITON 163.7 192.2 212.5 230.9 250.5 271.9 294.9 319.9 2 .2 365.9

MTAL SALES M1MIE5 19,051 23,800 2,255 32,504 37,872 44,9b0 52.663 61,3t2 70,732 79,111

P98XEIWE COSTS:

S-A.*E5 I WAGES U11,707 11,722 13.041 14,43S 17,021 18.722 20,5n71 22,6 26,282 29,159OVER"EPU 940 1.004 1,1;7 1,236 1,456 1,604 1.762 1,929 2,251 2,412STraRS 3,014 3,449 4,011 4,633 5,419 6,4b6 7,599 8,9EE 10,2 7 11,538P0MR 1,18 1.890 1,606 1,840 2,1S3 2,55 2.9S4 3,4S 4,021 4,497TbWSpDUT1ON 452 642 746 9Y9 1.000 17 1,390 1,642 1,867 2,0E.OmEa COST/9" 1178 876 1.020 1. W1 1,367 1.623 1,Y01 2,215 2.5S4 2.856

1UTML OMEMT1FC COSTS IW,475 19,065 21.54a 24,t11 2B,417 32,146 96,212 40,660 47,252 51,S50

0UE04IAT0MN 1,716 2,1389 2,659 3,30 4,016 4,991 5,991 7,066 8,41B 9,941

INTET 1,32 2,042 Z,494 3,039 3,699 4,46 S,34 6,32 7,540 9,95

TOrTL PSLUUCTIDYN USTS 21,515 23,246 26,685 30,Z00 36,131 41,492 47,444 54,087 63,210 70,348

POFliT BEPOE TfX 12,4643 555 1,571 2,004 1,741 3,4S7 5,219 7.75 7,X22 8,743

NEr INCU!L (2,4643 SS5 1,571 2,004 1,741 3,457 5219 *7,275 7,522 9,763

-- ~~-m -

-80- ANNIEX 17Page 2 of 3

CIL BU.lance Sheet(Rs million, current terms)

(As of March 31)

1914 1985 1986 1987 1998 1989 199 199 1992 1993

ASSETS:

OIE ASSETS:CASH & W3M LAW 2.352 2,427 2,143 3.019 3,618 4,093 4,611 .1'77 6.016 6.z63COAL STOCK 4.2 4.133 4,901 3.01 6.46* 1,313 9.2 VI,2a 10,750 11,29

STOR5 & SP 3, 3,5 3.994 4.*43 5,268 a.960 6,1n3 7, S, 8,760 9.557SUWDRY OMT(S 3.,15 3,87J 4,381 4,n913 ,a^o 6.,33 7,365 8,270 9,611 10.4

IHER '189 814 920 1.032 1,213 1,372 1,246 1,/36 2,017 2,201

IMTAL UaRO'T ASSTS 14,w7 14,991 16,938 19,014 22,344 2z27 28,473 31,971 37,1S4 40,54

GiOSS FDXED ASSETS 2G,141 33,184 41,6 _2,223 64,45 '8,8999 95,739 11b,317 137,80 163,227

Less: AX.. IAPIEArTI 8,724 10,962 13,521 16,801 20,81 25,698 31,M 38,6W5 47,0f3 i/,014

NET FIXED ASSETS 17.40 22.322 29,31 35,432 13.668 53,200 64,150 76,661 T077 106,213

CAPIAL WMK-1N-14aEIES5 6,22 B,218 10.062 12,264 14,869 1r, 92 21,511 25,671 30.459 33,852

LOANS C AUVuES (. W7 *1.421 1.746 B,'3S 8,s94 9,1Sa 9,767 10,501 11,346 12,297

MrTAL ASSETS 45.26 S2,92 63,09 74,A4 W9.476 I5. 543 123,901 144,304 169,736 194,896=~~~ =~~ = =,-- -- --. - -- ----- _.

UASLAT(ES:

OJUWT LIAILITXT(S.5(urw CUEDITlS 8,t04 8,260 9,332 10,476 12,311 13,926 15,688 17,615 20,470 22,3S2RUTALUES,CESS.ETC. s6 896 1,012 1,136 1,335 1,510 1,701 1,910 2,220 2,42OrIER CUIIIET LM 1,419 5s3 62 '101 824 932 1,050 1,179 1,370 1,494SHOR1 TEAM OMl7 1.767 1,824 2,061 2,313 2,718 3, 07 3,464 3,a88 4,520 4,991

TATLI CUJIRENT LLA3IiUTTES 12,058 11,532 13,02 14,626 17,1I 19,4'S 21,903 24,593 29.50 31,10

IDNC TERN ULBT 19,273 21,753 24,136 29,221 32,463 37,251 43,275 51,139 60,049 69,9B2

OTHER LCA8LLTITES 2,954 2,554 2,054 1,554 1,054 554 - - - -

TOTAL UASLLITIES 34,285 35,939 39,820 44,461 S0,705 Sf,248 65,177 75,733 88.620 101,002

9SWHAMMMER QUTTY:

PAID-IN CAPITAL 21,299 26,317 30,903 36,t02 42,6S9 48,726 53,935 57,009 61,522 65,546ETrADE EAPRUhS. IV,75) (9, 203) 17,6331 (5,6291 13,9Yo; 4311 4,188 12,063 19,58S 29,34

TOTAL SHAREHLUERS WRJITY 11,541 17,113 23.270 30,373 38,771 48,295 58,723 69,0-12 81,107 93,894

TMTAL LIABLItIES * EQUITY:

45,826 52,952 63,090 74,834 89,476 105,543 123,901 144,804 169,736 194,896

=~ .~=m=

-81- ANNEX 17Page 3 of 3

CIL - Sources & Applications of Funds(Rs million, current terms)

8194 mm1 8W86 96su7 871S S 9 99196 9191 91/92 92l99

Mr IMI 1(2.464) m 1.571 2,00 1,741 3,457 5,219 7.2 7,52 9,763DEPDEUATIU 1.71t6 2,130 2, L9 3.280 4.016 4,031 5.99 7.066 S,418 9.94t

TfTrIL DrlE CAKI 1749) 2,699 4.M22 5.34 I,7-7 s,!A 1.110 14*341 15.940 I1,70

NE ETY CAP1TAL 4.316 5.019 4566 s,099 6,6s7 6,067 5,210 3,074 4,513 4.024

L4 TERM LAS 3,950 4,224 b.201 6,216 7,357 8,640 10.105 11.746 13,520 15,2f6

TUTML S1IXI 7.,i 11,935 14,023 16.5%V 1V.771 23,052 26.4!5 29.161 38,973 37.9s3

W1LWATIUS.

UIUESTEnT 9.61 9.t00 10.950 12.9b0 15,327 19,016 21.02 24,472 20.166 31,721

DENT ENMTQff 31s 1.44 2.2Z5 2,6&71 4,17 3.860 4,081 3.12 4,611 5,432

11CR. IN 1 E1N1 CAPITAL 11201 m 449 479 -769 677 738 807 1.196 ne

DEMC1. IN tmER ULIAhILLrT (1,2211 400 540 50 Sll aN sS4 - - -

TOTAM ME4IJCATL 7.597 11.935 14,029 16. S9 19. M 29,052 26.4Z 29,161 33,973 37.93

PAIOTS:

- iNT PATIO 1.n 1.30 1.30 1.30 1.30 130 1.30 1.3 1.30 1.30

LLI TERM OW I 62.5 U.0 51.5 4S.2 45.6 43.5 42.4 42.s 42.5 42.6ET EETM 37.5 44.0 48.5 51.8 54.4 56.5 3 7.6 7.5 57.b 57.4

LT EST %TWBI C0UE1WM 33 1.14 1.31 1.36 1.30 1.40 1.6Y 2.09 1.99 1.99

r6TE14. CasH ATIO (9.911 22.61 30.2 31.91 29.11 36.21 4e.n 49.21 46.91 49.31

Industry DepartmentFebruary 1985

-82- ANNEX 18Page 1 of 3

INDIA- JHARIA COKING COAL PROJECT

PRO FORMA FINANCIAL STATEMENTS FOR BHARAT COKING COAL LTD.

BCCL - Profit and Loss Statement(Rs million, current terms)

83184 84185 M186 ewe? 871 18199 89190 90191 91192 92199

OAL PMsILZOLG4N (HiUlIN TONSi.

UWC PA1DUCTN10 14.0 1:.1. 17.0 17.5 17.S 18.0 18.0 21.3 19.0 19.0alP PraMTI 7.6 7.S 1.0 7.5 8.5 9.0 11.0 12.5 14.0 16.0

rorUL PrU IN 21.6 z.o 24.0 25.0 26.0 21.0 23.0 31.0 a 3.0 S5.0

NLEA.LE PFUOUCT1W 20.1 20.7 a.6 2.5 23.4 B4.3 26.1 27.9 29.7 31.5

5^L3 SEENE:

*IEkJ. PRIM, ASIQIG 161.3 287.0 316.9 344.6 318.5 421.4 451.6 4E.2 35M5 55.4

iurfL SN.S IEIEtBE5 3.249 5,941 6,546 7,754 8.952 10,240 1,798 13.538 15,607 17.399

SALARIES WAGES 2,883 2,93 3,199 3,W2 4,166 4,536 4,995 5,429 6,32 6,73

READ 23t 261 2W 818 875 410 449 496 56 606ST=3 546 664 754 956 969 1,095 1,2 1,490 1,717 1,987PC" 3351 461 S29 590 666 7J0 974 1,014 1,164 1,30

AR WAT* I 119 291 251 213 32 360 4W0 49B 7 5Y 629

OlER COSTIWUJ 316 203 20 260 2 30 293 446 513 577

TOTAL OPEMATDC COSTS 4,4*1 4,723 3,244 5,LW 6,788 7,501 9,403 9,354 10.893 11,H13

VEPRECAT1ITDO 319 406 520 662 82I 1,0 1,244 1.510 1.SE 2,111

DNTEREST SW 753 6 9a 1.070 1.226 1,404 1,607 1,951 2,134

TurDL PAOcucTWE cosrs 5,160 5,tr/2 6,32 7,435 8,6BS 9,747 11,051 12,471 14,507 16,12

OFIT 9EFUE TAX (1,9113 69 2b4 319 267 493 137 1,067 1,101 1,271lEr DINOE 11,V113 6Y 254 S1Y 267 49r3 77 1,067 1,l01 ,271

ANNEX 18Page 2 of 3

BCCL- Balance Sheet(Rs million, current terms

3194 319a 3186 3197 319 3189 3190 3191 3192 39

A!i!iTS;

C1RENT ASSE:CASH S 1a hALMNS 131 139 134 17n 199 220 247 ZI4 319 37COAL STOCK 861 9l 1.014 1,12 1,312 1,450 1,629 1.90 2.093 2,294STOSS & SPARES 647 685 762 9 997 1.09D 1,221 1,960 1,7S5 1,717SIEY OCEBOS 1,226 1,299 1,445 1.6Ot 1,870 2,066 2.31 2.377 2,994 3,254OTHER 7 7 8 9 10 11 12 14 16 la

TOTAL CUAIT ASSLTS 2,971 3,040 3.392 3,766 4.379 4,838 *5,4E0 6.099 6,987 7,620

OMS FIED ASSETS S, 7.262 9,17 11,26 14,294 17.49 21.23 25,660 30.,7 36.94ess: ACQU. OEREEIATICE 1,751 2,156 2,6T1 3,38 4,165 S,185 6,429 7,939 9,762 1,Y94

NET FDED ASSET5 4,07 5.105 6,495 8,11 10.118 12,314 14,79Y 17,726 21,113 24.90

CAiT.L OM-1N-PUUCRLSS 1,578 1,894 2,290 2,790 3,376 4,060 4,852 5,795 6,902 8,171

LOW I ADJVANCES 2.4W9 2.541 2,614 2.709 2,806 2,927 3,067 3,Z3 3,4209 3,652

TOTAL AKSETS 11.009 12,572 14,781 17,446 2,679 24,.d9 28,137 32796 39,431 U4346

CINIERT LIA8IL5TtES:SLDRY CI8JITOiS 2,335 2.526 2.810 3.13 3,637 4,019 4,503 5.022 5,805 6,330WOYALTIES ,CESS,ETC. L36 144 160 178 207 229 256 295 330 3a6OtHER CUN8T LIAB 403 (1993 (4771 (6W7) (7643 Wb44) 19401 tl,OS23 (1,2191 (1,3291SHORT TERM OEST 277 293 26 33 422 467 529 SW 674 735

TOrAL CULMT LIABIUTMS 3,203 2,764 2.819 3.013 3,S02 3,t71 4,336 4,EEZ 5,590 6,096

LOC1 TER DEBT 9,248 9,412 9,800 10,379 11,106 11,996 13,06 14,412 16,040 17,925

UTHER LmBILILMES 351 257 157 - - - - - - -

TOTAL LIABLUTLES 12,807 12,TA2 12,775 13,39 14,608 1$,967 17,402 19,23Y 21,635 24,021

SHARI)CLOERS EQUrT:

PAID-IN CWITAL 3,S00 5,369 6,992 8,711 10.461 12,169 13,994 15,640 17,799 20,040WrAIlED EAWIMJS (5,2993 15,2293 (4,976) (4,6561 (4,303" (3.9971 (3,1603 (2,0921 (9921 290

TOrAL SICUEAO-S EownT (1,7923 140 2.006 4,0f 6,071 8,272 10,735 13,543 16,796 20,325

0T.IL LIMILITIES £ ES TY:

11.009 12.512 14,781 17,446 20,679 24,199 MB,137 32.717 38,431 44,346- m m

ANX 18

-84- Page 3 of 3

BCCL - Sources & Applications of Funds(Rs million, current terms)

83184 84iS Mil86 W87 8711 wins 99190- 90191 9n192 92193

NET 11COME (1,911) 69 a4 319 267 493 797 1,067 1,101 1.271

r EIATTIr N 311 406 52e 662 at 1,020 1,244 1,510 182 2,131

TOTAL INTEPPL CAiH 11,i921 47S 774 981 1,094 1,51 1,981 2.3T7 2,92 3,4S2

KU EQJITY CAPITAL - 1,869 1.612 1,729 1,70 1,709 1.726 1,746 2,148 2,7

LOIC TERI LL82E 2,8S9 964 1,146 1,413 1,6SS 1,929 2,23t 2,662 3,126 ,3

TOrTL SWAJb:E 1,267 3,209 S,5S2 4,123 4,498 5,O 5,944 6,9 8,197 9,22

DINV51ET 2,1d4 1,W)0 2,37 2,943 3,44 4,019 4,660 ,346 6.523 1,464

JST MAYMENT - 700 7S8 34 9Y2 1,031 1,167 1,316 1,494 1,71e

INC;. IN IUaacmC CwrrnL 15101 608 2E7 199 13 92 11A m 191 126

0EL(. IN OITER LLA81LITIE 137) 100 100 11 - - - - - -

TOrL APPLICATIUS I1,267 3,208 3,532 4,123 4,4" 5,1W 5,944 6,Y 8,197 9,22-..-- --.--- ..- - _ _

MTI0M:

OJAINT RATIO 90 1.10 1.20 1.25 1.25 1.25 1.25 1.25 1.25 1 25

e.INC TERI 11ET I 100.0 98.5 L. 0 1n.9 64.7 SY.2 54.9 S1.S 43.9 46.9EAWTY RATIO - 1.5 17.0 29.1 3b.3 40.9 45.1 48.5 51.1 53.1

LT (EiT SERVICE COVEWE 13.ael .84 1.01 1.S9 1. 1.Z9 1.83 1.45 1.44 1.47

INT9PENL (ASH RATIO 1125.03 14.81 2l.91 23.91 24.31 29.41 83.31 39% 35.71 37.21

Industry DepartmentFebruary 1985

-85- ANNEX 19Page 1 of 6

INDIA - JHARIA COKING COAL PROJECT

FINANCIAL AND ECONOMIC RATES OF RETURN - ASSUMPTIONS AND CALCULATIONS

Introduction

1. The financial rate of return (FRR) and economic rate of return(ERR) for Block II and Pootkee-Bulliary have been calculated in real termson an annual basis. According to mineable reserves and production profileof each mine, Block II has a life of 19 years starting 1983/84 while aperiod of 30 years starting 1984/85 it; taken as the life ofPootkee-Bulliary. Cost and benefit streams of each component are shown intables attached.

Cost Streams

2. Capital Costs are based on project implementation schedule andequipment deployment plan. Replacement investments are estimated accordingto useful life of major equipment deployed.

3. Operating Costs are derived from production schedule togetherwith fixed and variable cost components of the mining and washiLgoperations.

4. Working Capital requirement is derived taking into considerationthe level of minimum cash, inventory of consumables, stock of coal,receivables and rayables. This is equivalent to 2 months of mining andwashing operating expenditure.

Conversion Factors

5. For the calculation of ERR, all identifiable duties and taxes areexcluded. In addition, to refle-t the concept of opportunity cost, thefollowing conversion factors are applied to each category of cost.>':

Conversion Factor Category of Costs

1.00 Imported Equipment (CIF)0.80 Inland Freight and Erection of Imported Equipment0.77 Local Equipment0.80 Land, Civil Works and Infrastru'--1.00 Engineering and Training0.80 Pre-operating and Operating Costs (including a

shadow wage rate of 0.6 for unskilled labor).

-86- AMNE 19Page 2 of 6

Revenue Stream

6. For the financial rate of return, the revenue stream is derivedbased on clean coal sales volume and ex-vashery clean coal price net ofroyalties, cesses, sales tax and credit of middlings, i.e., the net benefitwhich will accrue to BCCL. Based on mutually agreed methodology, the netprice for 17% ash clean coal from Block II and Pootkee-Bulliary washeriesis assessed at Rs 660/ton. For Pootkee-Bulliary, sales revenue is adjustedupward by 5% for the first 10 years of full production to reflect thebetter than average quality of run-of-mine coal in that period. Inaddition, stowing rebate is added to the sales revenue to derive totalrevenue.

7. For the economic rate of return, as domestic coking coal can bedirectly substituted for imported coking coal, the net-back price ofimported coking coal after quality adjustment, currently at aboutRs 689/ton, is used to derive the revenue.

-87- ANNEX 19Page 3 of 6

BLOCK II

Financial Cost/Benefit Streams(Rs million - 1984/85 terms)

Capital Operating Working NetFiscal Year Costs Costs Capital Revenues

1983/84 391.4 - - -

1984/85 216.4 20.0 - 59.41985/86 357.6 40.0 - 118.81986/87 717.7 290.0 23.0 448.81987/88 648.6 494.3 17.0 745.81988/89 210.8 325.1 13.0 745.81989/90 91.1 325.1 - 745.81990/91 28.2 325.1 - 745.81991/92 128.2 325.1 - 745.81992/93 73.4 325.1 - 745.81993/94 143.7 325.1 - 745.81994/95 169.0 325.1 - 745.81995/96 70.5 325.1 - 745.81996/97 51.9 325.1 - 745.81997/98 133.5 325.1 - 745.81998/99 0.2 325.1 - 745.81999/00 0.2 325.1 - 745.82000/01 13.7 325.1 - 745.82001/02 (711.6) 325.1 (53.0) 745.8

ANNEX 19-88- Page 4 of 6

POOTKEE - BULLIARY

Financial Cost/Benefit Streams(Rs million - 1984/85 terms)

Capital Operating Working NetFiscal Year Costs Costs Capital Revenues

1984/85 109.7 0.6 - 2.11985/86 217.7 12.6 - 41.61986/87 293.1 66.0 7.0 90.11987/88 647.6 97.0 3.0 124.71988/89 1,102.3 119.6 3.0 138.61989/90 331.2 92.5 - 138.61990/91 631.7 121.5 8.0 399.01991/92 191.9 194.4 12.0 515.91992/93 63.5 343.1 24.0 749.71993/94 142.4 436.6 16.0 894.01994/95 46.2 491.0 10.0 1,039.41995/96 69.6 494.7 - 1,047.71996/97 130.5 511.4 3.0 1,065.91997/98 130.3 514.7 - 1,067.51998/99 145.7 518.0 - 1,069.21999/00 130.2 524.3 - 1,070.82000/01 130.2 524.6 - 1,072.52001/02 144.6 527.9 - 1,074.12002/03 130.0 531.2 - 1,075.82003/04 130.0 534.5 - 1,077.42004/05 144.6 537.8 - 1,029.92005/06 130.5 541.1 - 1,031.62006/07 130.3 544.4 - 1,033.22007/08 206.0 547.7 - 1,034.92008/09 130.0 551.0 - 1,036.52009/10 130.0 554.3 - 1,038.12010/11 144.4 557.6 - 1,039.82011/12 130.0 560.9 - 1,041.52012/13 130.0 564.2 - 1,043.12013/14 (757.0) 567.5 (86.0) 1,044.8

-89-ANNEX 19Page 5 of 6

BLOCK II

Economic Cost/Benefit Streams(Rs milllon - 1984/85 terms)

Capital Operating Working NetFiscal Year Costs Costs Capital Revenues

1983/84 239.9 - -1984/85 151.7 16.0 - 62.01985/86 257.7 32.0 - 124.01986/87 474.9 232.0 12.2 468.51987/88 440.2 395.4 9.0 778.61988/89 150.2 260.1 6.9 778.61989/90 56.5 260.1 - 778.61990/91 17.6 260.1 - 778.61991/92- 85.4 260.1 - 778.61992/93 46.8 260.1 - 778.61993/94 90.5 260.1 - 778.61994/95 107.6 260.1 - 778.61995/96 44.5 260.1 - 778.61996/97 32.7 260.1 - 778.61997/98 85.3 260.1 - 778.61998/99 0.1 260.1 - 778.61999/00 0.1 260.1 - 778.62000/01 9.7 260.1 - 778.62001/02 (496.9) 260.1 (28.1) 778.6

-90-ANNEX 19Page 6 of 6

POOTKEE - BULLIARY

Economic Cost/Benefit Streams(Rs 11lion - 1984/85 terms)

Capital Operating Working NetFiscal Year Costs Costs Capital Revenues

1984/85 92.1 0.5 - 2.21985/86 174.9 10.1 - 43.41986/87 226.2 52.8 3.7 94.01987/88 490.8 77.6 1.6 130.11988/89 731.7 95.7 1.6 144.61989/90 245.8 74.0 - 144.61990/91 390.9 97.2 4.2 409.51991/92 138.6 155.5 6.4 532.71992/93 46.0 274.5 12.7 773.51993/94 101.0 349.3 8.5 916.11994/95 29.8 392.8 5.3 1,053.81995/96 45.0 395.8 - 1,061.01996/97 82.2 409.1 1.6 1,077.31997/98 82.1 411.8 - 1,077.31998/99 93.1 414.4 - 1,077.31999/00 82.0 417.0 - 1,077.32000/01 82.0 419.7 - 1,077.32001/01 92.3 422.3 - 1,077.32002/03 81.9 425.0 - 1,077.32003/04 81.9 427.6 - 1,077.32004/05 92.3 430.2 - 1,026.62005/06 82.2 432.9 - 1,026.62006/07 82.1 435.5 - 1,026.62007/08 135.9 438.2 - 1,026.62008/09 81.9 440.8 - 1,026.62009/10 81.9 443.4 - 1,026.62010/11 92.1 446.1 - 1,026.62011/12 81.9 448.7 - 1,026.62012/13 81.9 451.4 - 1,026.62013/14 (542.5) 454.0 (45.6) 1,026.6

Industry DepartmentFebruary 1985

-91-

ANNEX 20

INDIA -JEARIA COKING COAL PROJECr

DOCUMENTS AVAILABLE IN THE PROJECT FILE

A. The Miuing Sector

1. Report ^f the Committee on the Problem of Coal Supply to ThermalPower Stations, the Fazal Committee Report, October 1983.

2. Report of the Working Group on New Sources of Coking Coals,C. S. Jha Comnmittee Report, September 1984.

3. Gover'nment of India, Ministry of Energy, Annual Report 1983-84.

B. The Company

1. Coal India Limited Annual Report and Accounts 1982-83 and1983-84.

C. The. Project

I. Feasibility Report for Open Cast Block II (Coking) Project,May 1980.

2. Feasibility Report for Pootkee-Bulliary Project.

3. Updated cost estimate for Madhuband Washery, October 1982.

Industry DepartmentFebruary 1985

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