India - Coal Mining and Quality Improvement

 Coal Mining & Quality Improvement Report No: ; Type: Report/Evaluation Memorandum ; Country: India; Region: South Asia; Sector: Mining & Other Extractive; Major Sector: Mining; ProjectID: P009868 The India Coal Mining and Coal Quality Improvement project, supported by Loan 1796-IN for US$340 million equivalent, was approved in FY87. The loan was closed on September 30, 1995, one year after the original closing date. US$40 million was undisbursed and canceled. There was no cofinancing. The Implementation Completion Report (ICR) was prepared by the South Asia Regional Office, and includes the Borrower’s evaluation report on the project. The main objectives of the project were to: (a) increase the supply and improve the quality of thermal coal through the development of large scale open pit mining, and (b) to support Coal India Ltd. (CIL) in improving its operational efficiency and its financial performance. The project included: (i) a quick disbursing component of US$160 million for the importation of roughly half of the steel industry’s needs for coking coal for a two-year period (about 3 million tons), to improve blast furnace efficiency; (ii) expansion (second phase) of the Gevra open pit mining complex to increase output from 5 million tons per year to 10 million tons per year of low grade thermal coal for the Korba power plant; and (iii) construction of the Sonepur-Bazari open pit mining complex to produce 3 million tons per year of better grade coals. The quick disbursing component was to be released in two tranches. The condition for the second tranche release was the Bank’s acceptance of a satisfactory program for improving worker productivity, manpower containment, and improvement in equipment availability and utilization in CIL’s surface and underground mining operations so that CIL would improve its debt service coverage. Both tranches were released on time. The results for the two strip mine developments were mixed. The Gevra mine expansion was highly successful. It is a low cost mining operation with a high coal-to-overburden ratio, and output was increased to 12 million tons per year, instead of the 10 million originally planned. The Sonepur-Bazari project, however, is four years behind schedule, and is still grappling with resettlement and rehabilitation problems which stalled project implementation until recently. With the help of substantial Bank support these problems now appear to have been resolved, and full production is expected in 1998. The Operations Evaluation Department (OED) rates the overall outcome of the project as marginally satisfactory, and its sustainability as likely. The large scale open pit coal mining operations are expected to operate efficiently, have acceptable economic and financial rates of return and appear to have resolved the resettlement and environmental problems. However, there is no evidence that the project has had an impact on the efficiency of the mining sector as a whole, or on improving efficiency in other mining projects owned by the implementing agencies, which was the objective of the quick disbursing component of the project. The institutional development impact is therefore judged as negligible. Bank performance is rated as satisfactory because, while it failed to evaluate independently the resettlement issues, relying instead on the assurances of the implementing agencies, it worked closely with the company to find a resolution acceptable to all sides. The ICR rates outcome as satisfactory, sustainability as likely, achievement of institutional objectives as partial, and Bank performance as satisfactory. The major lesson of this project is that the Bank should not take at face value the implementing agency’s assessment of resettlement issues. Instead, it should require or commission an independent resettlement review, to assess the impact of design alternatives on the extent of resettlement, the quality of the rehabilitation plan, the adequacy of the implementing agency’s historical practices and the Government’s regulations. The ICR is unsatisfactory, failing to provide any information about the coal sector’s performance and achievements in meeting policy objectives of the fast disbursing portion of the loan and focusing only on the component’s physical implementation. It also fails to provide any analysis of the financial performance of the borrowing enterprises. No audit is planned.