India - Cement Industry Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. 16814 PERFORMANCE AUDIT REPORT INDIA CEMENT INDUSTRY PROJECT (LOANS 2660-IN AND 2661-IN) June 27, 1997 Operations Evaluation Department This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. Currency Equivalents (annual averages) Currency Unit: Rupee 1987 US$1.00 12.96 Rupees 1988 US$1.00 13.92 Rupees 1989 US$1.00 16.23 Rupees 1990 US$1.00 17.50 Rupees 1991 US$1.00 22.74 Rupees 1992 US$1.00 25.92 Rupees 1993 US$1.00 30.49 Rupees 1994 US$1.00 31.37 Rupees 1995 US$1.00 32.43 Rupees 1996 US$1.00 35.43 Rupees Abbreviations and Acronyms ACC - Associated Cement Companies Birla - Birla Jute and Industries Ltd. CCI - Cement Corporation of India CMA - Cement Manufacturers' Association CRI - Cement Research Institute of India DEA - Department of Economic Affairs, Ministry of Finance GDP - Gross Domestic Product GNP - Gross National Product GOI - Government of India ICB - International Competitive Bidding ICICI - Industrial Credit and Investment Corporation of India ICL - India Cement Ltd. IDBI - Industrial Development Bank of India KCL - Kalyanpur Cements Ltd. KCP - KCP Marcherla Cement MOI - Ministry of Industry MP - Madhya Pradesh NPC - National Productivity Council OED - Operations Evaluation Department OPC - Ordinary Portland Cement PPC - Pozzolana Portland Cement PSC - Portland Slag Cement SDC - Shree Digvijay Cement Co. Ltd. STC - State Trading Corporation TPD - Tonnes per Day TPY - Tonnes per Year Fiscal Year : April 1 - March 31 Director-General, Operations Evaluation : Mr. Robert Picciotto Director, Operations Evaluation Department: Mr. Roger Slade for Ms. Elizabeth McAllister Acting Division Chief : Mr. Rene Vandendries Task Manager Mr. Farrokh Najmabadi FOR OFFICIAL USE ONLY The World Bank Wa1nfln,n c G 20433 U.S.A. Office of the Director-General Operations Evaluation June 27, 1997 MEMORANDUM TO THE EXECUTIVE DIRECTORS AND THE PRESIDENT SUBJECT: Performance Audit Report on the India Cement Industry Project (Loans 2660-IN and 2661-IN) Attached is the Performance Audit Report (PAR) on the India Cement Industry Project (Loans 2660-IN and 2661-IN) prepared by the Operations Evaluations Department. The loans in the amount of US$200 million were approved in FY86 and closed in FY94 with two years delay. The last disbursement took place in November 1994, at which time a balance of US$3.5 million was canceled. Facing a stagnating cement subsector characterized by shortages, rationing, price control, outdated technology and paucity of investment by the private sector, the Government of India adopted a strategy, recommended by the Bank in the early 1980s, to gradually deregulate and liberalize the subsector. Building on the satisfactory start of this strategy, discussions were held between the Bank, the Government of India and the cement industry representatives which resulted in the formulation of this project. The project had three objectives: (i) to assist the cement industry in improving operating efficiency by converting the older wet process cement plants to dry process, thereby bringing about considerate energy saving; (ii) to effect other improvements in operating efficiency, environmental protection, product quality and labor productivity; and (iii) to assist the industry as a whole in upgrading plant operator skills. Out of the initial seven subprojects for conversion from wet to dry process (Loan 2660-IN), three were dropped and replaced by five new subprojects. Among the replaced subprojects only two were for conversion, with the others earmarked for balancing/modernizing/retrofitting and modernization of extraction techniques in limestone quarries. The proceeds of the line of credit (Loan 2661-IN) were used in 18 small subprojects in four areas: balancing and debottlenecking; energy conservation; process improvement; and transfer of technology. This PAR substantially confirms the ratings of the ICR review. The project has substantially achieved its physical, technical efficiency, environmental, product quality and labor productivity objectives. The technical problems at two large plants (Kalyanpur Cement and IDCOL) have progressively been resolved. Given the reestimated combined rate of return of 11 percent for the six conversion projects, the outcome of this project is rated as satisfactory. Since the industry is now operating profitably within a liberalized, deregulated and buoyant market with market prices approaching international levels, the sustainability of the project is rated as likely. The institutional development impact of the project has been substantial. Through an extensive training program and the introduction of new technology combined with attention to quality control, environmental This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. -2- concerns and preventive maintenance, the cement companies are operating efficiently within a highly competitive environment. Both the Bank and the Borrower have performed satisfactorily. Major lessons of this project include: (i) a deregulated and liberalized setting is essential for the success of industrial restructuring projects; (ii) quick access to know-how and technology including engineering, consultancy and equipment manufacturing, provide the critical support for high performance of industrial plants; (iii) successful project execution needs an experienced team and a suitable organization; and (iv) the introduction of unproven technology in industrial projects should be avoided. Attachment Contents Ratings and Responsibilities. ............................................... 3 Preface ............................................................... 5 Evaluation Summary..................................................... 7 1. Introduction............................................................ 13 Project Background ..................................... ..... 13 The Project .................................................... 14 2. Implementation Experience ......................................... 17 Preappraised Subprojects (Loan 2660-IN) ..................... 17 Replacement Subprojects (Loan 2660-IN) ..................... 17 Line of Credit (Loan 2661-IN) .................................. 18 3. Results ............................................ ...... 21 Capacity Additions ................ .................... ..... 21 Technical Indicators ......................................... 22 Human Resource Development - Technical Assistance ................. 22 Environmental Protection ........................................ 23 4. Overall Assessment and Issues ...................................... 25 The Current Status of Indian Cement Industry....................... 25 Technical Performance of Plants................................ 28 Development of Indigenous Cement Machinery Manufacturing and Consulting Services.....................................29 Profitability and Economic Rates of Return......................... 29 Institutional Development....................................30 Sustainability .............................................. 31 Bank/Borrower Performance ....................................... 31 5. Conclusions and Lessons Learned .......................... .......... 33 2 Annexes A . ....................................................... 35 I. The Associated Cement Companies Ltd. (ACC)....................... 39 H. Birla Jute Industries Ltd.............................47 III. India Cements Ltd. ................................ ....... 53 IV. The KPC Ltd.......................................... 59 V. Kalyanpur Cement Ltd .............................. ...... 65 VI. IDCOL Cements Ltd...............................71 VII. Subprojects Financed by Loan 2661r N.........................77 VIII. Project Costs................... .................. .....87 IX. Geographical Distribution of Cement Producing Capacity in India................89 X. Assumption for ERR Calculations ................................91 3 Ratings and Responsibilities Performance Ratings Loans 2660-IN and 2661-IN Outcome Satisfactory Sustainability Likely Institutional Development Impact : Substantial Bank Performance Satisfactory Borrower Performance Satisfactory Key Project Responsibilities Loans 2660-IN and 2661-IN Task Manager Division Chief Director Appraisal R. Venkateswaran M. Rowat A. Golan M. Fog Completion Uruj Kirmani Luis E. Derbez Heinz Vergin ICR Prepared by: Industry, Trade & Finance Division Country Operations Department H South Asia Region  5 Preface 1. This is the Performance Audit Report (PAR) for a Cement Industry Project in India for which the Board approved a US$165.0 million loan in March 1986. The last disbursement took place in November 1994, at which time a balance of US$3.5 million was cancelled. 2. The PAR was prepared by the Operations Evaluation Department (OED). An OED mission visited India in November/December 1996 and discussed the effectiveness of the Bank's assistance with the Government of India, the Industrial Development Bank of India (IDBI), the Industrial Credit and Investment Corporation of India (ICICI) and six of the cement companies that utilized the financing provided by the Bank. Their kind cooperation and assistance is greatly appreciated and acknowledged. 3. The ICR was prepared by the Industry, Trade and Finance Division, Country Operations Department II, South Asia Region. Part II was provided by the financial intermediary institutions, IDBI and ICICI, in collaboration with the beneficiary companies. The PAR complements the ICR by providing a fuller account of the achievements, problems and further steps that are needed to ensure the sustainability of the project's benefits. The PAR has specially drawn lessons from the implementation experience at the Kalyanpur and IDCOL plants, pointing out some pitfalls that should be avoided for the satisfactory completion of industrial projects. 4. The PAR was sent to the Borrower for comments. No comments were received.  7 Evaluation Summary Project Background I. The Bank has had a long-standing relationship with India's industrial sector. In the 1950s, the Bank approved several loans supporting both publicly and privately owned steel plants. In the 1960s and 1970s, loans to intermediary financial institutions and the fertilizer industry dominated sectoral assistance. Toward the end of the 1970s, the Bank undertook a series of studies of industrial subsectors aimed at enriching the dialogue between the Bank and the borrower. These studies provided the basis for an effective overall lending program to the industrial sector. 2. The first in the series was the Cement Subsector Study (Report No. 3141-IN) issued in November 1980. The study addressed the policy constraints facing India's cement industry. Between 1950/51 and 1971/72, the rate of growth of installed capacity had averaged around 9 percent. From 1971/72 to 1978/79, it dwindled to around 2 percent. At the end of 1978/79, India's consumption of cement (28 kg per capita) was one of the lowest in the world. The country had 51 integrated plants with 134 kilns, three grinding units, and one mini plant. There were rationing and recurrent cement shortages. Imbalances in production/consumption across regions exacerbated the problems in the market. Government distribution and pricing policies had given rise to abnormally large transportation flows among regions and a complicated pattern of cross subsidization among producers and consumers in different regions. Like other Indian industries, the cement industry also suffered from shortages of coal and power. 3. The study endorsed the government's proposed modernization plan and made a host of technical recommendations. It also advanced a strong argument for deregulating and liberalizing the cement industry (including prices) and dismantling the policies that complicated distribution. When the study came out, the Bank and the government were already appraising a project that would support a major expansion of the public sector's cement-producing capacity. The project was shelved when the Bank and borrower could not agree on the timing of reforms. In 1982, the government began a gradual process of reform in the cement industry, removing distortions that affected production, distribution, and consumption, and providing incentives (in the form of an appropriate price structure) for expanding capacity and modernizing plants. These developments, plus relaxed controls and reduced levy quotas, were enough for the Bank to resume its dialogue with the government and cement industry representatives. These discussions resulted in a decision to support existing private and public sector plants by introducing measures aimed at conserving energy, protecting the environment, and reducing costs. 4. The Cement Industry project, (Loans 2660-IM and 2661 -IN for US$200 million equivalent) had three components, each with a specific objective. The first was to help the cement industry improve its operating efficiency by converting seven older wet process cement plants to dry process, a shift that would save considerable energy. The second would support subprojects the would improve operating efficiency, environmental protection, product quality and labor productivity. The third component would provide technical assistance and training to upgrade plant operator skills throughout the industry. 8 Implementation Experience 5. Three of the seven subprojects originally preappraised and earmarked for financing under the first component (Loan 2660-IN) were dropped in 1987 and 1988 because the cement companies withdrew. By 1989, five new projects had replaced the initial three. Two of these would convert wet process plants to dry process, two would provide balancing, modernization, and retrofitting (BMR), and the other aimed to modernize and implement energy conservation measures in mines. The borrower's slow approval process and the private sector's lack of knowledge of Bank procedures delayed implementation. By 1990, however, the four preappraised subprojects (ACC's Madukkarai, Birla's Stna, Indian Cement's Sankarnagar and KCP's Macherla) were all completed. Annexes I-IV describe these projects. 6. The first of the five additional subprojects (the Kalyanpur cement plant) was located at Banjari in Bihar. The plant had been performing poorly because of its outdated technology. Although implementation began shortly after approval, it was delayed almost two years by the company's lack of managerial experience, the failure of machinery and equipment suppliers to deliver on schedule, and the suppliers' poor technical performance. The other conversion subproject was carried out at the Industrial Development Corporation of Orissa Ltd. (IDCOL) plant at Bargarh in Orissa. This "expansion" project actually involved installing what was basically a new plant at the site. Although the new plant was to be commissioned by July 1994, a series of problems postponed the full commissioning until much later. The problems resulted from delays in equipment supplies, mismatches in machinery parts, the relative weakness and inexperience of the project implementation team (which had never carried out a project of this magnitude), and several changes in top management. The other three replacement subprojects-the BMR schemes by Associated Cement Companies (ACC) and Birla Jute and Industries Ltd. (Birla) and the ACC's mine improvement subproject-were completed on time and without any problems. 7. The Bank provided a line of credit (Loan 2661 -IN) to the Industrial Credit and Investment Corporation of India (ICICI) that was used to finance 18 subprojects. The ICICI developed a set of criteria for modernization subprojects in four areas: balancing and reducing bottlenecks; energy savings; process improvement; and technology transfer. In most subprojects involving process improvement, balancing, and reducing bottlenecks, financing from the credit line was only a small part of the total cost. In five out of the six subprojects aimed at process improvement, it was used to install or modernize preheater/precalciner equipment for converting from wet to dry process and to expand capacity. Of the six subprojects designed to effect energy savings, two installed vertical roller mills, three financed pollution controls and closed circuiting of mills in the cement plants, and one supported coal beneficiation and cooler table modification. All projects achieved their objectives. These investments have generally helped reduce environmental damage around the plants. Project Results 8. Of the six plants converted from wet to the dry process, four-ACC Madukkarai, Birla Jute Satna, KCP Macherla, and Indian Cements Ltd. (ICL) Sankarnagar-have been stabilized and are currently producing at above nominal capacity (between 105 and 160 percent). The two BMR subprojects (ACC Gagal and Birla Jute Chittor) have also been producing above capacity for the last three years. Total annual production at these six plants rose from 3.65 million tons before 9 conversion and modernization to 5.78 million tons in 1995/96. The other two-the Kalyanpur and IDCOL plants-still face difficulties, though many of the problems with malfunctioning equipment have been resolved. The conversion subprojects have resulted in substantial energy savings of from 610K cal/kg of clinker at the India Cement Sankarangar plant to 870K cal/kg of clinker at the KCP plant at Macherla. These savings are generally better than what was anticipated at appraisal and compare favorably with best practice around the world. 9. These successful achievements were the result not only of new and more efficient technology but also of the attention the various companies gave to developing their human resources. The government of India used the funds under the technical assistance subcomponent to conduct a comprehensive study of the industry's skill and manpower requirements. This timely study formed the basis for a training strategy. Because the industry's need for skilled workers was acute, the study recommended setting up regional training centers (RTCs). The government and the Danish International Development Agency (DANIDA) supported the establishment of four RTCs. These training centers were to serve groups of cement plants (clusters) in different parts of the country and would be located at the lead plants of the following companies: the ACC for Madhya Pradesh and Eastern India, J. K. Synthetics for Rajasthan, Gujarat Ambuja Cement for Gujarat, and Dalmia Cement for Tamil Nadu and South India. This demand-driven, in-plant training came at a time when India's cement industry was experiencing rapid growth and technological change. The RTCs have so far played an important role in helping to upgrade the essential skills of staff at nearly all the country's cement plants. Qualified professional staff using systematic training needs assessments have designed suitable training packages and offered training courses in regional dialects. Environmental Protection 10. Because traditional cement plants emit large quantities of dust from several sources, one of the project's major objectives was to control pollution and thus to protect the environment. Virtually all the conversion and BMR subprojects under Loan 2660-IN were accompanied by major investments in pollution control equipment. Electrostatic precipitators and bag filters were placed at various parts of the plants to suppress dust emissions (the most dangerous of the pollutants), especially before hot gases were led to stacks or where raw or clinkerized materials were transferred from one process stage to another. In installing the equipment and keeping it in good working condition, the companies have improved the environment within the plant and the ambient air quality around it. Special teams using up-to-date equipment carry out regular monitoring. In line with the requirements of the respective State Pollution Control Boards, the companies submit periodic environmental audit reports. In some plants, the pollution control performance is in the ISO 9002 (International Standards Organization) monitoring and certification process. Overall Assessment and Issues 11. The Indian cement industry has undergone a truly remarkable transformation since the early 1980s. It has changed from an industry plagued with government intervention and chronically in need of investments to a vibrant, technologically up-to-date, and largely profitable subsector. It not only satisfies domestic demand for cement but also exports to neighboring countries and regional markets. This transformation is the direct result of the government's decision to deregulate the industry and liberalize prices. This new policy, which was instituted between 1982 and 1989, 10 prepared the industry for heavy private sector investment. Between 1982/83 and 1995/96, the capacity of large cement plants increased from 33.5 million tons per annum to 88.2 million tons. While the location of large limestone reserves still dictates the site of new plants, the geographical distribution of cement producing capacity has also improved substantially. Many states have both large and small cement plants, helping reduce pressure on the country's already overburdened transportation system (especially the railways). At present, the public sector accounts for only about 10 percent of India's cement-producing capacity and actual production, down from around 18 percent in fiscal 1984/85. More significantly, however, the dry process kilns now account for 87 percent of clinker-producing capacity, compared with 58 percent in fiscal 1984/85. This new and more efficient technology has allowed the cement industry to withstand dramatic increases in the cost of inputs and still remain profitable. 12. Power shortages, problems with the quality and availability of Indian coal, and difficulties with the transportation system still handicap the industry, however. Power cuts and restrictions have forced the industry to invest heavily in captive power stations to meet its own demand. Because the quality of India's coal continues to deteriorate and shortages persist, the industry has taken remedial action. Coal washeries are being introduced in many plants, with reasonably good results. The government of India has been moving in the direction of permitting cement producers to lease and operate captive coal mines. The unreliable transportation system, especially the railways, makes moving coal from linkage mines to plants difficult. In response, cement companies are considering investing in the wagons or dedicated closed circuit movement. And the government has reduced import duties on coal, allowing cement plants located far from the coal belts but near major ports to experiment with imported coal. 13. Notwithstanding these efforts, the cement distribution system in India remains primitive and inefficient. At present, the bulk movement of cement (which is around 70-80 percent in many countries) is negligible in India. Encouraged by the Bank and assisted by the government, the industry recently decided to implement a pilot project in the Mumbai area. This pilot project became a subcomponent of the second cement industry loan the Bank approved for India (Loan No. 3196- IN). Ratings and Economic Rates of Return Project Outcome 14 Project outcome is rated as satisfactory. India's cement market has been buoyant in recent years, and most plants benefiting from this project (except Kalyanpur and IDCOL) have been operating profitably. To remain profitable, the companies must become more efficient, reducing production time by improving repair and maintenance and providing captive power to counteract the frequent power cuts and shortages. Plant availability is now more than 330 days per year, indicating the effectiveness of the steps plant managers have taken. Assuming that India's economic policy remains on track and that the economy continues to grow at the levels of the last few years, cement consumption in India should continue to expand, and market prices may approach international levels. Despite the poor results at the Kalyanpur and IDCOL plants, the reestimated combined economic rate of return (ERR) for the six conversion subprojects is around 11 per cent. 11 Institutional Development 15. This project has resulted in substantial institutional development. It has introduced an extensive training program and new technology, improved quality control and preventative maintenance, and heightened environmental awareness. As a result, the firms benefiting from Bank financing have become efficient enterprises capable of running their businesses profitably in a highly competitive environment. New plants can now be constructed quickly and soon begin operating at full capacity. Technical expertise allows many plants to operate at above nameplate capacity. The achievement of ISO 9002 certification at practically all the beneficiary firms testifies to the improvements in the technical management of the Indian cement industry. Sustainability 16. Project sustainability is rated as likely. Cement production in India is an efficient economic activity based on the availability of high-quality limestone and other additives such as gypsum, laterite, and bauxite. Most plants use the most modem clinkerization and milling technologies, and most now have pollution control devices. The industry is also operating profitably within a liberalized, deregulated, and competitive environment that rewards initiative and punishes inefficiency. The financial future of the four stabilized plants (Madukkarai, Satna, Macherla, and Sankamagar) is assured. But the Kalyanpur and IDCOL plants need financial restructuring, even if their technical problems are quickly resolved. Bank/Borrower Performance 17. Both Bank and borrower performance are rated as satisfactory. The Bank has played a major role in helping India's cement industry become more competitive and self-sufficient. By insisting that the government institute deregulation measures before receiving financial assistance, the Bank was instrumental in improving India's once stifling and distorted economic environment. Policy reforms have eliminated the chronic shortages, rationing, price controls, investment licensing and controls, and unworkable transportation schemes. What has emerged is a liberalized subsector framework conducive to the rapid development of the cement industry. The private sector takes the lead in increasing capacity and eliminating market shortages. In many respects, the Bank's funds were not essential in increasing production capability, because the banking system could also have provided financing. But the focus, attention, and leverage the project generated, as well as its demonstration effects, made it highly effective. 18. Although the project was well prepared, the withdrawal of three of the initial subprojects created pressure to identify and appraise other plants for wet-to-dry conversion quickly. The two plants chosen-Kalyanpur and IDCOL-did not possess strong and experienced project management teams. And the choice of some equipment, especially the vertical roller mill for slag grinding, was ill-advised. However, their problems do not diminish the project's achievements, both direct and indirect. The success of this project owes much to the close collaboration among the Bank, the Government of India, the financial intermediaries and the sub-project entities. In addition, the borrower and executing agencies complied with the loan covenants in all material respects. 12 Conclusions and Lessons Learned 19. The major lesson of this project reaffirms the notion that successful restructuring cannot be achieved in a highly distorted economic and sector setting. The minimum requirements are domestic competition and a liberalized investment environment. Over the last 15 years, the Bank and Indian authorities have developed a constructive dialogue about the industrial sector. In particular, they are considering how to introduce further reforms that will enhance competitiveness and encourage private sector investment. The successful liberalization and deregulation of the cement industry offer a clear example of what can be achieved in other industrial subsectors. 20. A second important lesson is that the competitiveness and long-term sustainability of any industry in a developing country depends on quick access to know-how and modem technology. The development of consultancy and engineering capabilities, along with high-quality equipment manufacturing, has provided the support for India's cement industry needs. The industry can now complete a new cement project in less than 30 months. 21. This project also reemphasizes four well-established lessons: * Project implementation often fails when the project executing team is inexperienced and disorganized. * Projects should not introduce unproved technology, even if the gains may initially appear to be large. Developing countries should not become testing grounds for new technology unless equipment manufacturers are prepared to shoulder all contingent losses. * Liberalizing other sectors can lead to important countrywide benefits and externalities. For example, liberalizing the importation of coal and revamping the Indian railways are essential to the efficient development of other sectors. * Beneficiary ownership ofproject concepts and institutions is necessary for projects to succeed. The beneficiaries of this project quickly saw the benefits of the training facilities that were set up with their close involvement and participation. 13 1. Introduction Project Background 1.1 In 1979, the Bank embarked on a series of studies of specific Indian industrial sectors. These studies were designed to: (a) improve the bank's understanding of the industrial sector in India; (b) serve as a foundation for a policy dialogue with the Indian Government on issues facing the sector; and (c) contribute to the design of an effective lending program in the industrial sector. The first in the series was the Cement Subsector Study (Report No. 3141 -IN) issued in November 1980. 1.2 The study addressed a variety of serious policy constraints facing the cement industry in India. During the eight years immediately preceding the issuance of the study, the rate of growth of installed capacity had dwindled to around 2 percent from an average of about 9 percent between 1950/51 and 1971/72. As a result, the installed annual capacity was only 22.6 million tons at the end of 1978/79, consisting of 51 integrated plants with 134 kilns, three grinding units and one mini plant. At this time about 65 percent of the total capacity was based on the wet process and capacity utilization ranged from 40 percent to over 100 percent among the operating plants; the average for the whole industry being 80 percent. There were recurrent cement shortages and cement was rationed administratively through a three tiered system. Public sector users had first priority, users earmarked by the Government had second priority and the remainder (around 20 percent of total production) was allocated to the States for sale in the open market at controlled prices. The problems in the cement market were exacerbated by regional production consumption imbalances that had emerged as a result of a freight equalization scheme and the uniform pricing policies. These distribution and pricing policies had caused the industry to grow near known sources of raw materials without sufficient regard to the location of potential markets. They had also given rise to abnormally large transportation flows among regions and a complicated pattern of cross subsidization among producers and consumers in different regions. Not unlike many other industries in India, the cement industry also suffered from coal and power shortages. 1.3 Against this background, the Study made a host of recommendations which were mostly of a technical nature. While endorsing the proposed modernization plan by the GOI (Government of India),1 the study's recommendations ranged from the need to explore for and prove more limestone reserves and other additive materials, especially in deficit states, to improvement in coal availability and quality, development of facilities for bulk cement distribution, expansion of railway facilities, improvement in cement quality, establishment of This modernization plan consisted of: improvement in quarry operations; transportation systems; material handling; storage facilities; sizing of limestone and coal before feeding to mills; introduction of closed circuit mills; improvement in the heat recovery systems; and installation of electrostatic precipitators in kiln and cement mills. 14 standards and specifications, conversion from wet to dry process, energy conservation and enhanced training, research and development. Moreover, the study made a strong argument for the deregulation and liberalization of industry-including prices-and the dismantling of the Freight Equalization system. 1.4 Before the issuance of the Cement Sector Study, the Bank and the Government of India were already engaged in a dialogue and the appraisal of a project comprising a major expansion of the public sector cement producing capacity. The processing of this project was discontinued when agreement could not be reached with the government on the timing of the implementation of pricing policy reforms. In 1982, however, the Government of India began a gradual process of reform in the cement industry. Initially, it instituted a dual pricing policy whereby the cement plants (other than the mini plants) were required to sell only a specified portion of their output at a fixed (levy) price, with the remainder free to be sold at the open market price. Simultaneously, the GOI declared its strategy for the development of the subsector which consisted of removing distortions to production, distribution and consumption, and providing incentives, through an appropriate price structure and levels, for capacity expansion and plant modernization. These developments together with the relaxation of controls and gradual reduction of the levy quota prepared the ground for the resumption of the dialogue between the Bank, the Government of India and the cement industry representatives. These discussions resulted in a decision to shelve the concept of expanding capacity in the public sector and to move to one of supporting the already established plants in the private and public sectors by introducing measures aimed at energy conservation, environmental protection and cost reduction. The Project 1.5 The project had three objectives: (i) to assist the cement industry in improving operating efficiency by converting the older wet process cement plants to dry process, thereby bringing about considerable energy conservation; (ii) to effect other improvements in operating efficiency, environmental protection, product quality and labor productivity; and (iii) to assist the cement industry as a whole in upgrading plant operator skills (by organizing regular training schemes and obtaining know how in specific areas such as plant start-up procedures, computerized controls and other aspects of modem cement plant operations). The project, thus, consisted of three parts, with Part A, the main component, providing the financing for conversion from wet to dry process in seven plants; Part B, financing for smaller scale efficiency improvement subprojects; and Part C, financing for technical assistance and training. 1.6 Out of the seven cement plants earmarked for conversion, only one was in the public sector. In preappraising the subprojects, all options for conversion were identified and analyzed in order to find the most cost effective approach. These seven subprojects entailed a total production increase of 1.82 million TPY, corresponding to 46 percent of their prevailing cement producing capacity. The average fuel efficiency improvement was expected to be in excess of 40 percent. The financing for this subcomponent, which covered technical assistance and training at the company level, amounted to US$163.5 million. These funds would be onlent by the Government of India to the Industrial Development Bank of India (IDBI) and Industrial Credit and Investment Corporation of India (ICICI) as intermediary institutions in equal proportions. 15 1.7 The Part B subcomponent provided a line of credit of US$35 million covering the estimated foreign exchange financing requirements for smaller scale modernization, rehabilitation, energy conservation, environmental control and balancing schemes that were expected to be carried out at a number of other existing plants. This subcomponent was aimed at assisting such units to acquire advanced technology and modern operational know-how and to improve productivity, fuel efficiency and environmental protection in their plants. This subcomponent was also earmarked for financing technical assistance to improve operations and management. The line of credit was to be managed by ICICI which had already received requests for modernization programs from various companies. 1.8 The Part C subcomponent (US$1.5 million) provided financing for technical assistance and training. These funds would be transferred as a non-reimbursable grant to ICICI in order to carry out the subsector level technical assistance and training. ICICI would, in turn, provide assistance to the Cement Manufacturers' Association (CMA) to employ consultants in order to prepare a development strategy for the cement industry covering manpower needs, training requirements and the strategic plan for medium- and long-term manpower development. The consultants would also evaluate the feasibility of jointly owned and operated training centers for the industry as a whole.  17 2. Implementation Experience Preappraised Subprojects (Loan 2660-IN) 2.1 The project received Board approval in May 1986 and the loan became effective in October 1986. Of the subprojects originally preappraised and earmarked for financing in Part A, three were gradually dropped during 1987 and 1988 as the respective cement companies expressed their unwillingness to proceed with the investment. In one instance (Shahabad) the owners decided to sell the plant. In the course of 1988 and 1989, these three subprojects were substituted by five new ones, two of which consisted of wet to dry process conversions, two were for balancing/modernization/retrofitting (BMR) purposes and one was for mines modernizing and energy saving. Despite the delays caused by the slow processing of approvals of the conversion and expansion subprojects by the GOI and the unfamiliarity of the private sector enterprises with the Bank's ICB procedures, the four preappraised projects under implementation (ACC's Madukkarai, Birla's Satna, Indian Cement's Sankarnagar and KCP's Macherla - See Annexes I, II, III & IV) were all commissioned during 1989 and the early part of 1990. By the second half of 1990 all four plants were in commercial operations, moving toward full capacity utilization. Replacement Subprojects (Loan 2660-IN) 2.2 Of the five replacement subprojects, two were designed to convert the plants from wet to dry process. The first located at Banjari in the State of Bihar, (the Kalyanpur cement plant) had been in operation since 1946. After several expansions the plant's capacity had been raised to 400 thousand TPY by the early 1980s. but because of the outdated technology the company was performing poorly. In 1989, a decision was made to modernize and expand the capacity to around 800 thousand TPY. While the subproject was approved in 1990 and construction started shortly thereafter, implementation encountered serious problems that resulted in a delay of nearly two years before the plant could be commissioned in September of 1994. The delay was due partly to the weakness and the lack of experience in the company's project management team, and partly the failure of the machinery and equipment suppliers in meeting their obligations of both delivery and technical performance. Despite having a well known international cement consulting group as shareholder, such problems during project implementation and the operational phase continued with debilitating results for the company. (See Annex V). 2.3 The other conversion subproject was carried out at the IDCOL's (Industrial Development Corporation of Orissa Ltd.) plant located at Bargarh, Orissa. This plant, which was taken over by IDCOL in the latter part of the 1980s, had a capacity of 400 thousand TPY. Facing competition from new and more efficient dry process plants, the new management decided to implement a modernization/expansion project, thereby increasing the capacity to 960 thousand TPY of slag cement. The expansion project constituted, in reality, the installation of a 18 practically new plant at the site. Although the new plant was to be commissioned by July 1994, a series of problems postponed the full commissioning until much later. In the case of this plant too, most problems were associated with the relative weakness and inexperience of the project implementation team which had never carried out a project of this magnitude and several top management changes. These problems were compounded by delays in main equipment supply, mismatch in machinery parts necessitating reassembly and replacement and faulty specifications of some machinery (Annex VI). 2.4 Of the other three replacement subprojects two were in the nature of balancing/modernization/retrofitting (BMR) at the ACC's plant in Gagal, Himachal Pradesh, and Birla Jute's plant at Chittorgarh, Rajasthan. Given the long and extensive experience of both companies in plant erection, commissioning and operation, these BMR subprojects were completed on time and went into production immediately without any difficulty. The last subproject was implemented by ACC and was designed to improve the productivity of various limestone mines as well as installing energy saving equipment at a number of ACC plants. All three replacement subprojects were satisfactorily completed achieving their objectives of expanding capacity, balancing mines production with expanded output, reducing energy consumption and introducing modern technology. Line of Credit (Loan 2661-IN) 2.5 This line of credit which was intermediated through ICICI was utilized in the financing of 18 subprojects with the objective of improving operating efficiency, environmental protection, labor productivity and product quality. ICICI developed a set of criteria for the consideration of modernization subprojects, generally in four areas: balancing and debottlenecking; energy savings; process improvement; and, transfer of technology. This line of credit provided financing for such subprojects as follows (Annex VII): Balancing and Debottlenecking 4 Energy Savings 6 Process Improvement 6 Transfer of Technology 2 2.6 Two of the beneficiaries of the financing provided by Loan 2660-IN-ACC and Birla Jute-also borrowed from this line of credit. As indicated in Annex VII, all these subprojects achieved their objective. In most instances where process improvement or balancing and debottlenecking was attempted, the financing from the line of credit constituted only a small part of the total cost of the subprojects. In five out of the six subprojects aimed at process improvement-J.K. Synthetics, Chettinad Cement, Mangalam Cement, J.K. Udaipur Udyog and ACC Madukkarai-the borrowing was used to install or modernize preheater/precalciner equipment in order to convert the wet to dry process and to expand capacity. 19 2.7 Out of the six subprojects designed to effect energy saving, two were for the installation of vertical roller mills, three were for pollution control and closed circuiting of mills in the cement plants and one was for coal beneficiation and cooler table modification (in most instances, energy saving is concomitant with closed circuiting of the raw material, coal, clinker and cement grinding mills and collection of dust and other polluting particles through electrostatic precipitations or high efficiency dust separating filter bags). These investments have generally helped alleviate the environmental degradation around the respective plants. 2.8 Annex VIII provides data in respect of project costs and financing. Although overruns and underruns of up to 20 percent can be seen, most projects were completed close to budget in dollar terms. When converted to rupees, however, the costs escalated substantially as the conversion rate for US dollars went from around 13 rupees in 1987 to over 30 rupees in 1993. Nonetheless, the companies utilizing the proceeds of Loan 2660-IN managed to increase their own internal cash generation from an appraised estimate of US$77 million equivalent to US$95 million equivalent while reducing their call on rupee loans from IDBI and ICICI (actual US$93 million equivalent compared with US$122 million estimated at appraisal). In the case of the companies using the proceeds of the line of credit (Loan 2661 -IN) the total cost of the subprojects declined from US$88.8 million at appraisal to US$75.0 million at completion.  21 3. Results Capacity Additions 3.1 The project succeeded in converting six large plants to utilizing the modem and technologically advanced dry process. Out of the six plants, four have been stabilized for many years and their production has increased through fine tuning optimization exercises and the removal of process constraints. The other two-Kalyanpur and IDCOL cement plants-still face difficulties, though many of the earlier problems with equipment malfunctioning have been resolved. The production performance of these converted plants and the BMR subprojects is shown in the table below. Table 1 - Production Performance of Various Cement Plants (Thousand Tons per Year-TPY) Production Design Capacity Actual Capacity Before After Conversion Production Utilization Conversion and and 1995/96 Percentage Modernization Modernization ACC - Madukkarai 440 520 830 160 ACC - Gagal 610 1020 1060 104 Birla Jute - Satna 450 750 820 109 Birla Jute - Chittor 1100 1400 1550 110 KCP - Marchela 250 425 475 111 India Cements - Sankarnagar 800 1000 1050 105 Kalyanpur - Banjari 300 1000 550 55 IDCOL -Bargarh 400 960 419 44 The above actual production figures indicate that, even without Kalyanpur and IDCOL plants achieving high capacity utilization, the total production of the eight plants has increased by nearly 2.3 million tons in 1995/96 as compared with production before conversion and modernization. For the first half of the 1996/97 campaign, both Kalyanpur and IDCOL cements plants enhanced their capacity utilization. 22 Technical Indicators 3.2 The major indicator of energy efficiency-heat consumption per kilogram of clinker - has improved substantially for all the plants financed by Loan 2660-IN. In many plants, the other indicator of energy efficiency - electrical energy consumption per ton of cement - has also improved. Some of the subprojects utilizing the line of credit (Loan 2661 -IN) also addressed energy conservation with satisfactory results. These results for the various plants is shown in Table 2 below. Table 2: Technical Indicators After Conversion/Modernization Heat consumption Electrical Energy Consumption Kilocalorie/Kg Clinker KwH per ton of Cement Before Aftea BforAtg ACC - Madukkarai 1656 970 117 102 Birla Jute - Satna 1535 790 120 107 KCP - Macherla 1600 730 133 120 India Cements - Sankarnagar 1430 820 116 119 Kalyanpur - Banajari 1510 760 121 123 IDCOL - Bargarh 1450 802 120 113 The energy consumption figures are generally better than what was anticipated at appraisal and favorably compare with the best practice around the world. These savings in energy consumption, along with high capacity utilization have helped these companies to keep their cost under reasonable control at a time of rapid increase in the cost of fuel and power and other consumables. Human Resource Development - Technical Assistance 3.3 The Government of India utilized the funds under the technical assistance subcomponent to conduct a comprehensive study for skills and manpower requirements in the cement industry. This study was completed on time and formed the basis for a training strategy. Referring to the acute training needs of the industry, the study recommended the setting up of Regional Training Centers (RTCs). During the preparation of the second Bank loan for the restructuring of the Indian cement industry (Loan 3196-IN), the question of training centers was discussed with the GOI. As a result, it was decided to set up four regional training centers with the assistance provided by the Government and the Danish International Development Agency (DANIDA). These training centers were to serve groups of cement plants (clusters) in different parts of the country and were to be located at the lead plants of the following companies: ACC for Madhya Pradesh and Eastern India. J.K. Synthetics for Rajasthan. Gujarat Ambuja Cement for Gujarat. Dalmia Cement for Tamil Nadu and South India. 23 3.4 Many factors affected the choice and location of these RTCs. The lead plant had to be willing to organize the training program including selection of trainers from amongst experienced operational personnel, to make a financial commitment to the RTCs operational cost and to represent a well run organization with solid performance, equipped with modem technology suitable for the intended training. Moreover, there had to be a sufficient number of trainees in the cluster plants, a demand for training and a willingness, by the respective companies, to pay a reasonable fee. The training programs were to focus on skill upgrading in areas such as mechanical and electrical maintenance, control room operations, quality control and laboratory equipment, electronic instrumentation, computer operations, pollution control and environmental protection. Such training was to be given to cement plant operators, supervisors and line managers. 3.5 The establishment of this type of demand-driven, in-plant training came at a time of unprecedented growth and substantial technological change in the Indian cement industry. The RTCs have so far played a critical role in providing essential skills upgrading for the personnel of practically all cement plants in India. Through systematic Training Needs Assessment, suitable training packages have been designed. Training courses are being offered in regional languages by line staff who are professionally equipped to function as trainers. As indicated in Annexes I-VII, the beneficiaries of this project have taken advantage of the RTC facilities to train their operators and supervisory personnel. This has been in addition to whatever training programs they were traditionally carrying out. The commitment to training and skills upgrading was apparent in all the visited plants and the achievement of high capacity utilization with good technical indicators is evidence of the efficacy of the training programs. 3.6 This human resource development project has had the added advantage of developing the indigenous capability to design quality training packages in technical areas. For example, sophisticated computer based training aids have recently been developed that depict the functioning of various equipment in a cement plant both pictorially and dynamically. Furthermore, these training aids indicate the cause and effect linkages in equipment malfunctioning. These training aids have proved to be powerful tools for training purposes. With a major part of the grants already expended, the program has now reached a stage where the promoters have to seriously consider the long term technical, administrative and financial sustainability of the RTCs. Environmental Protection 3.7 Pollution control and environmental protection constituted one of the major objective of this project. In practically all subprojects utilizing the Bank financing under Loan 2660-IN, the conversion from wet to dry process or the BMR subprojects were accompanied with large investments in the installation of pollution control equipment. Dust emissions (the most polluting part of the cement plant) were suppressed by using electrostatic precipitators and bag filters at various parts of the plant, especially before hot gases were led to stacks or where raw or clinkerized materials were transferred from one process stage to another. The closed circuiting in these plants which was aimed at maximizing heat recovery and energy conservation also helped the pollution control measures. By installing these equipments and keeping them in good working conditions, the companies improved the working environment in the plant and the ambient air quality around it. 24 3.8 In all companies, environmental protection was taken seriously. Regular monitoring was being carried out by a team using up-to-date equipment. In conformity with the requirements of the respective State Pollution Control Boards, environmental audit reports are submitted periodically. The Control Board inspectors regularly check the pollution control system in the plants and make their own independent measurements of various parameters especially the emission of particulates from stacks at different locations, both inside and outside the plant. In some plants, the pollution control performance is in the ISO 9002 monitoring and certification process. An inspection of stack emission and air quality records indicated that all the plants complied with the State's pollution control norms. Being engaged in mining quarries and operating a potentially polluting plant, the cement companies have created green belts around the plants as well as carrying out extensive afforestations in the mined out areas. These measures have greatly attenuated noise pollution and the propagation of dust and fugitive gases. 25 4. Overall Assessment and Issues The Current Status of Indian Cement Industry 4.1 Since the early 1980s, the Indian cement industry has undergone a truly remarkable transformation. From being plagued with incessant government intervention and suffering from the paucity of investment, it has emerged as a vibrant, technologically up-to-date and largely profitable industry, satisfying not only the domestic demand for cement, but also exporting to the neighboring and regional markets. This transformation has been the direct result of the decision by the Government of India to deregulate the industry and liberalize prices. This new policy of decontrol which was put into effect in 1982 and completed in March 1989, prepared the ground for the private sector to begin investing heavily in the cement industry, increasing the capacity nearly threefold between 1982-83 and 1995-96. The growth of the Indian cement industry is shown in the following Table 3. 4.2 As indicated in the above table, after a period of rapid capacity increase during the first half of the 1980s, the pace slowed somewhat in the late 1980s with capacity utilization approaching 88 percent in fiscal 1991/92. In the last few years, however, large new capacities have again been added with cement plants coming into operation in many states. During 1995- 96 alone, seven new plants (including grinding units with a total capacity of 7.3 million tons) and six expansion projects have been commissioned increasing the total cement producing capacity by 10.1 million tons. As a result capacity utilization for the large plants dropped from 88 percent in 1991-92 to 82 percent in 1995-96. In addition to this capacity which is related to the large plants, the CMA estimates that the mini plants and white cement plants have a total capacity of around 9 million tons. It is anticipated that additions to capacity during fiscal 1996-97 will be around 16 million TPY which includes the completion of 9 new cement and one grinding plants with a total capacity of 13.5 million tons. These plants-Sanghi Cement at Gujarat, Phoenix Cement at Satna and Prism Cement at Satna-will each have a capacity in excess of 2 million TPY. 4.3 While the location of large limestone reserves-Satna and Bilaspur in Madhya Pradesh, Gulbarga in Karnataka, Chandrapur straddling Maharashtra and Andhra Pradesh, Nalgonda and Yeranguntla in Andhra Pradesh, and Chanderia in Rajasthan-still dictate the site of the new plants, the geographical distribution of cement producing capacity has improved substantially since the 1980s with large and small cement plants presently existing in many States of India (Annex IX). This has helped reduce the pressure on the already over burdened transportation system (especially railways) in the country. In some States such as Uttar Pradesh and West Bengal with little integrated cement producing capacity and large consumption, grinding capacities have been created. Table 3 - Growth of the Indian Cement Industry - Capacity, Production and Consumption (Million TPY) Capacity Total Capacity Utilization Production Large Plants Production Large Plants Production Large and Apparent Exports End of Year Large Plants % Small Plants Small Plants Consumption (Imports) 1982-83 33.5 23.2 69 NA NA 24.6 (1.3) 1983-84 36.9 26.7 73 NA NA 29.0 (2.0) 1984-85 42.6 29.6 74 1.1 30.7 30.4 NA 1985-86 46.0 32.0 76 1.2 33.2 33.0 NA 1986-87 52.3 34.8 80 1.3 36.1 35.9 NA 1987-88 54.1 37.4 79 1.7 39.1 39.3 NA 1988-89 55.0 41.7 78 2.0 43.7 43.6 NA 1989-90 55.6 42.9 81 2.3 45.3 45.4 NA 1990-91 57.3 45.7 84 2.5 48.2 48.3 NA 1991-92 61.3 50.6 88 1.9 53.5 53.1 .36 C 1992-93 64.9 50.7 85 3.4 54.1 53.2 1.18 1993-94 71.2 54.1 85 3.9 58.0 56.8 2.85 1994-95 78.1 58.3 85 4.0 62.3 60.7 3.17 1995-96 88.2 64.5 82 5.1 69.6 68.0 2.38 Source: SAR - Cement Manufacturers Association of India. Stock changes have not been reflected. 27 4.4 At present, the public sector accounts for only around 10 percent of the capacity and production of cement in India. This is down from around 18 percent in fiscal 1984-85. In fact, the private sector has been responsible for creating around 53 million tons annually of new capacity since 1984-85, while the capacity of public sector cement plants has increased by only 2.3 million tons from 7.6 to 9.9 million TPY during the same period. More significantly, the dry process kilns now account for 87 percent of the clinker producing capacity as compared with 58 percent in fiscal 1984-85. Thanks to this wholesale introduction of the new and more efficient technology, the cement industry has been able to withstand the dramatic input cost increases of the recent years and still remain, on the whole, profitable. 4.5 Despite these enormous advances, the industry is still partially handicapped because of the problems associated with the power shortage, the quality and availability of Indian coal and the difficulties in the transportation system. In the face of Power cuts and restrictions which are common place in practically all large cement producing states, the industry has been forced to invest heavily in captive power stations to meet the bulk of its own demand.2 These captive units usually consist of coal-fired thermal units or diesel generator sets. Where coal-fired turbo generators are installed they are operated in preference to the grid power while the diesel generators are normally used for emergency purposes when grid power is either cut or restricted. On the whole the industry has learned not to depend heavily on the grid and is becoming increasingly self-reliant. But unfortunately this comes at a high cost both for this industry and the economy. The increase in the cost of power for the production of cement in the last decade can, therefore, be attributed partly to the price hikes by the State Electricity Boards and partly, to the relatively high cost of generating electricity through small size captive units. Nonetheless, the captive power units have, in many instances, made the difference between a reasonably continuous profitable operation and near paralysis. 4.6 The deteriorating quality and inadequate availability of coal continue to provide a serious challenge to the cement industry. This problem is exacerbated by the difficulties encountered with the transportation system, especially the railways, and the movement of coal from linkage mines to the plants. In the last several years, despite an increase in demand for coal by the cement industry, supplies by rail have remained stagnant (around 10 million tons) and wagon movements have declined with the result that the industry has been obliged to increase its purchases in the domestic market and imports that reached, in 1995/96, to around 2 million tons and one million ton, respectively. In recent years, the coal supplies have also been augmented by lignite production in the State of Tamil Nadu. The lignite supplies were about 0.8 million tons, only partially satisfying the needs of the Southern Region cement plant but, nonetheless, a welcome addition. The industry is, of course, attempting to solve the problem of coal quality in so far as it can take remedial action on its own. Coal washeries are being introduced in many plants with reasonably good results.3 2 A number of cement companies utilizing the bank's financing, borrowed funds to expand their captive power generating capacity. A few companies utilized the World Bank financing to install coal beneficiation plants. 28 4.7 However, given the rapid increase in the demand for coal by the power, steel and cement industries and the difficulties of satisfying demand by Coal India Ltd. (CIL), it is clear that some radical actions need to be taken. Of late, the Government of India has been moving in this general direction. Having already allowed the private sector power producers to lease and operate captive coal mines, the practice has been extended to cement companies. This is a giant step in the right direction provided suitable reserves can be identified and leased to cement companies for development and extraction. Other initiatives such as cement companies investing in the ownership of wagons or Dedicated Closed Circuit Movement (which allows the cement companies to own a full rake with locomotive and run it on a railway track against the payment of a fee) have been discussed and may be implemented. Along with these activities, the Government of India has also reduced the import duty on coal in several steps,4 making it possible for some cement plants that are located far from the coal belts and near the major ports to experiment with imported coal. 4.8 Notwithstanding the efforts enumerated above, the cement distribution system in India remains primitive and inefficient. At present, the bulk movement of cement (around 70-80 percent in many countries) in India is negligible. Encouraged by the Bank and assisted by the Government of India, the industry decided in recent years to implement a pilot project in the Mumbai area. This pilot project became a subcomponent of the second cement industry loan approved by the bank for India (Loan No. 3196-IN). In addition, one of the producing companies in Gujarat has set up a system of bulk movement by sea using specially designed ships to transport bulk cement from the producing plants to a bulk terminal in Mumbai. It is still not very clear that the industry is seriously committed to such radical departure from its traditional system of packing cement in 50 kilogram bags. Moreover, the Indian construction industry is far from adopting the current practice of using ready mixed cement which helps assure quality standards while saving costs. Technical Performance of Plants 4.9 The introduction of new technology and computerized process control along with well equipped laboratories and testing devices has greatly improved the quality of Indian cement. The industry is now capable of fine tuning and optimizing the process with highly satisfactory results. In most plants the energy consumption figures (as given in para 3.2 for the subprojects) are near or better than the designed specifications. More significantly, the new testing devices have made it possible for the plants to control the quality-even particle sizes and their mix-at different stages in the process with the result that most cement plants have been approved for ISO 9002 certification. This is no small achievement for an industry that only a dozen years ago was still facing serious imponderables and still produced 40 percent of its cement using the wet process. The industry's environmental record in reducing dust and other pollution has also been impressive. By using electrostatic precipitators and filter bags, the industry has substantially cleaned the atmosphere around the cement plants. In most instances the recovered cement has more than paid for the investment made in installing anti-pollution equipment. 4Duties have dropped from 85 percent in 1993-94 to 35 percent in 1994-95 and later to 20 percent in 1995-96. 29 Development of Indigenous Cement Machinery Manufacturing and Consulting Services 4.10 During the last decade the consulting services and domestic manufacturing of cement plant machinery and equipment have greatly developed in India. Because of the deregulated environment and the abolition of industrial licensing for cement plants by the GOI (other state and local permits related to environmental protection, zoning and other issues are, of course, required), implementation periods for even large plants (about 1-1.2 million TPY capacity) have declined to around 24 to 30 months.5 The capability of Indian engineering firms and machinery manufacturers (in many instances in technical association or joint venture partnership with firms from industrial countries) have made it possible for the industry to rely on a dependable and accessible source of technical know-how and after sales service. This development accounts both for the relatively low and stable investment costs (the equivalent of US$80-100 per annual ton of capacity installed) and the rapid run-up to full capacity utilization (in some cases, well above the name plate capacity). Profitability and Economic Rates of Return 4.11 Except for the two plants still not completely stabilized (Kalyanpur and IDCOL), the other subprojects are currently operating at near or above capacity without any technical problems. The growth in the demand and the market conditions have been such that the cement company have had little trouble absorbing the increasing costs of fuel (coal), power and other imported spare parts and supplies. To achieve and sustain profitability, the companies have been challenged to become operationally more efficient by cutting down time through better repair and maintenance and the provision of captive power to counteract frequent power cuts and shortages. The plant availability has gradually crept above 330 days in recent years indicating the effectiveness of the steps taken by the plant's management. The profitability of the various companies utilizing the World Bank financing is given in Table 4 below. Table 4 - Trend in Profitability of Plant Utilizing Bank Financing (million rupees) 1990-91 1991-92 1992-93 1993-94 1994-95 1995-96 ACC Madukkarai 81.7 134.0 136.4 256.2 375.7 508.1 ACC Gagal 347.0 568.4 350.3 228.3 231.1 215.8 Birla: Satna 208.4 342.3 11.4 (20.7) 104.6 297.2 Birla: Chittor 61.3 406.7 58.8 (72.7) 183.8 453.9 India Cement: Sankarnagar 85.2 124.8 205.1 187.0 349.4 484.8 KCP: Macherla (63.6) (34.7) (60.7) (36.3) 7.1 156.5 Kalyanpur : Banjari 0.2 10.4 (55.0) (42.7) (52.5) (231.6) IDCOL: Bargarh 23.9 105.3 261.2 6.4 (49.1) (261.1) Chettinad: Karur 65.1 123.9 125.8 101.0 200.1 313.1 Indian Rayon: Mulkhed 295.3 322.4 256.9 355.4 609.0 1282.9 5The third unit at Rajashree cement at Mulkhed with a capacity of 1.2 million TPY was commissioned 25 months after ground breaking. 30 4.12 It is anticipated that the profitability of these plants will be somewhat reduced during fiscal 1996-97 because of a relative down turn in the construction activities in the summer and autumn months of 1996. Assuming that the Indian economic policy remains on track and the economy grows at levels already achieved during the last few years (6-7 percent per annum), there is an enormous potential for the growth of cement consumption in India which, at nearly 75 kilograms per capita, remains amongst the lowest in the developing countries. Market prices for cement have not only responded to the supply and demand situation, but have now gradually approached international levels. In fact, the export prices for Indian cement are very close to ex- works realization prices for the exporting companies. On the cost side, it appears that the recent rapid increases in the price of fuel and power are now over and a period of relative stability is at hand (fuel and power prices are also very close to international levels). 4.13 The ERR for each major subproject has been recalculated on the basis of general assumptions given in Annex X and specific assumptions for the production trend in each plant. These results are shown in Table 5 below: Table 5 - ERR Reestimation for Conversion Subprojects ACC: Madukkarai 14.8% Birla: Satna 15.8% Indian Cement: Sankarnagan 13.2% KCP: Macherla 11.5% Kalyanpur: Banjari 7.4% IDCOL: Bargarh 5.3% Combined Weighted 11.0% It should be noted that due to implementation delays and the decline in international price of cement in real terms,6 the reestimated ERRs are lower than those anticipated at appraisal. Moreover, the Kalyanpur and IDCOL plants have both suffered not only from large cost overruns and delays in commissioning, but also their inability to quickly reach high production levels. Despite the poor results at these two plants, the outcome of the project is rated as satisfactory given that the reestimated combined weighted ERR for the six subprojects is at around 11 percent. Institutional Development 4.14 This project has resulted in substantial institutional development. Through an extensive training program and the introduction of new technology combined with attention to quality control, preventative maintenance and environmental concerns, the entities benefiting from the Bank's financing have become efficient enterprises capable of running their business profitably in a highly competitive environment. An important aspect of this development is the speed with which new plants can now be constructed in India and brought to full capacity operation. 6International prices of cement have remained around US$50-54 per ton in nominal terms over the last 10 years. 31 Another is the technical expertise that has allowed many plants to operate at above nameplate capacity. The achievement of ISO 9002 certification at practically all the entities is a testimony to a quantum jump in the technical management of the Indian cement industry. Sustainability 4.15 Cement production in India is an efficient economic activity. It is based on the availability of large and good quality limestone resources and other additives such as gypsum, laterite, bauxite, etc. For many decades, the Indian market has been familiar with Pozzolana Portland cement and Slag Portland cement that permit the mixing of fly ash (available from coal burning power stations) and blast furnace slag with limestone clinker (around 10-15 percent).7 The industry is currently utilizing the most modem clinkerization and milling technologies in most of its plants. Through modem maintenance practices and the use of electronic monitoring and control devices, the energy consumption in most modem plants has approached levels obtaining in the more efficient plants around the world. The industry has used the opportunity of the capacity growth to install pollution control devices that have cleaned the environment around the plants and brought the atmospheric dust content down to acceptable levels. All in all, this is a picture of a healthy industry. 4.16 The industry is also operating within a liberalized, deregulated and competitive environment that rewards initiative and punishes inefficiency. With no government interferences or undue protection in recent years, the industry has managed to resolve some of its problems on its own (e.g. the power shortage) and is making headways in resolving others. Given the anticipated rapid increase in consumption and the prospects for a balance between supply and demand, the subproject plants are expected to flourish in the liberalized environment. While the financial future of at least the four stabilized plants (Madukkarai, Satna, Macherla and Sankamagar) may be assured, both Kalyanpur and IDCOL plants would need to undergo financial restructuring, even if their technical problems are quickly resolved. Against this background the sustainability of the proJect is rated as likely. Bank/Borrower Performance 4.17 The Bank has had a major role in steering India's cement industry towards more competitiveness and self-sufficiency. By steadfastly arguing for a deregulated environment and staying the course before giving assistance and support, the Bank helped bring about an environment which was conducive to the rapid development of the industry, especially by allowing the private sector to take the lead in increasing capacity and eliminating the shortages for cement in the market. Once a meeting of the minds was reached, the GOI and the intermediary financial institutions played a very positive role in supporting the project and guiding it to its successful completion. 7This practice allows a larger output from a plant limited by its clinker producing capacity. 32 4.18 Although the project was well prepared (practically all large subprojects had been pre appraised), the mid-course abandonment of the three subprojects (ACC's Shahabad, CCI's Mandhar and SDC's Sikka) created a pressure for speedy identification and appraisal of other plants for conversion from wet to dry process. It is now clear that both plants-Kalyanput and IDCOL-did not possess strong and experienced project management teams and the choice of some equipment, especially the vertical roller mill for slag grinding was ill-advised.8 Moreover, the financial intermediary institutions should probably have become more involved in resolving the problems that arose between the suppliers of equipment and the cement companies. 4.19 However, this does not diminish the major direct and indirect achievements of the project, especially the complete deregulation of the cement industry by the GOI and the continued introduction of the most up-to-date technology as well as training facilities. The success of this project owes much to the close collaboration among the Bank, the Government of India, the financial intermediaries and the sub-project entities. Given the above background, the performance of the Bank and the Borrower is rated as satisfactory. The Borrower/executing agencies complied with the loan covenants in all material respects. This piece of equipment, though highly effective for grinding the raw feed, coal and clinker, had not had much track record in grinding blast furnace slag. 33 5. Conclusions and Lessons Learned 5.1 Since the Bank started the study of various industrial sectors in India, it has supported a variety of projects not only in the cement subsector, but also in the electronics, petrochemical and steel subsectors as well as industrial pollution control and technology development. Over the last one and a half decades, the Bank and the Indian authorities have developed a constructive dialogue, addressing the issues in the industrial sector, particularly the manner in which further reforms can be introduced in the economy in order to enhance competitiveness and provide inducement for investment by the private sector. While a financial and foreign exchange crisis provided the catalyst for a change of policy and introduction of reforms in the early 1990s, the success of the cement industry liberalization and deregulation efforts also provided a clear example of what can be achieved in other sectors. The major lesson of this project is a reaffirmation of the notion that successful restructuring cannot be achieved in a highly distorted economic and sector setting. What is required, at the very least, is the establishment of domestic competition under a liberalized investment environment. 5.2 In addition to the policy and reform issues, the competitiveness and long-term sustainability of any industry in the developing countries depend of the quick access to know- how and modem technology to solve operational problems and to reduce down time. In this regard, the rapid development of the consultancy and engineering capability along with high quality equipment manufacturing has provided the critical support needed by the cement industry. It is not merely happenstance that the industry can now complete a new cement project in less than thirty months. 5.3 While the Kalyanpur and IDCOL plants are on their way to resolving their technical problems, they will need financial restructuring through the injection of funds (Kalyanpur) and/or privatization (IDCOL). In both cases, efforts should be primarily focussed on stabilizing the plants at the nominal capacity and then optimizing performance. At the national level, however, steps need to be taken to remove the operational constraints facing the industry. Although the cement industry has proved to be imaginative and resourceful in partially overcoming the problems associated with the power shortage, the quality and availability of Indian coal and the difficulties in the transportation system, a more radical and long-lasting solution to these problems is urgent. For this to happen, the onus falls both on the Government and the private sector. 5.4 This said, this project also reemphasizes four well established lessons that: a) project implementation often comes to grief when the project executing team is inexperienced and disorganized. The unsatisfacatory results at the Kalyanpur and IDCOL plants can be directly traced to the wakness in project management; and, b) the introduction of unproven technology with little track record should be avoided, even though the gains may initially appear to be large. For instance, there were recurrent problems with the vertical press slag grinders at all plants using this piece 34 of machinery (Kalyanpur, IDCOL and Chettinad). The rectification of these problems was both costly and time consuming. This also means that the developing countries should not become the testing grounds unless the equipment manufacturers are prepared to shoulder all contingent losses; c) liberalization of other sectors can lead to important benefits and externalities country-wide. For example, liberalizing the importation of coal and changing systems and methods in the Indian Railways would be critical for the efficient development of other sectors; d) beneficiary ownership of project concepts and institutions is crucial for success. The beneficiaries in this project quickly saw the benefits of the training facilities which were set up with their close involvement and participation. 35 Annex A Basic Data Sheet CEMENT INDUSTRY PROJECT (LOANS 2660-IN AND 2661-IN) Key Project Data (amounts in US$ million) As ofMarch 18, 1997 Original Disbursed Cancelled Repaid Outstanding 2660-IN 165.0 161.53 3.47 59.87 101.66 2661-IN 35.0 34.96 0.04 12.8 22.1 Cumulative Estimated and Actual Disbursements FY86 FY87 FY88 FY89 FY90 FY91 FY92 FY93 FY94 FY95 Appraisal Estimate 6.5 53.2 127.8 175.6 193.1 198.8 200.0 200.0 200.0 200.0 Actual 0 2.6 22.1 71.5 81.5 90.5 112.5 157.9 183.6 196.5 Actual as % of estimate 0 4.9 17.3 40.7 42.2 45.5 56.3 79.0 91.8 98.2 Date of final disbursement: November 16, 1994 36 Annex A Project Dates Original Actual Identification December, 1982 December, 1982 Preparation April, 1983 April, 1983 Appraisal I Sept. -Oct., 1983 Nov. -Dec., 1983 Post Appraisal - March 1-12, 1984 Reappraisal9 May-June, 1985 Negotiations November, 1985 December, 1985 Board Presentation December 15, 1985 March 20, 1986 Signing - July 7, 1986 Effectiveness - October 11, 1986 Project Completion June 30, 1992 March 31, 1995 Loan Closing June 30, 1992 June 30, 1994 Staff Inputs (staff weeks) Planned Weeks Revised Weeks Actual Weeks Through Appraisal 100 206.1 Appraisal - Board 30 11.7 Board - Effectiveness 5 - 4.5 Supervision 56 82.6 151.0 Completion 72 14 16.0 Total 203 - 389.3 9 Project processing halted because of unresolved issues with the Government of India. Project reappraised after the Government agreed to grant decontrol of cement prices and a revised tariff on imported equipment making ICB acceptable to subproject borrowers. Annex A Supervision Mission Data Date No. of Staff days in Specializations Implementation Development (month/year) persons field represented Status Objectives Types of Problems 11/86 3 7 ECN, EGR, FNA 1 1 10/87 3 17 ECN, EGR, FNA 1 1 03/88 2 6 FNA, ECN 1 1 10/88 2 16 FNA, EGR 1 1 04/89 2 20 FNA, EGR, 1 1 07/89 3 15 FNA, EGR,TRG 1 1 01/90 2 15 FNA, EGR 1 1 08/90 3 25 FNA, EGR, ECN 1 1 03/91 2 7 FNA, TGR 1 1 11/91 2 18 EGR, TRG 1 1 02/92 2 13 EGR, ECN 2 2 Delay in implementation due to local cost financing issues in IDCOL project; and procurement delays in Kalyanpur project. 01/93 2 25 EGR 2 2 -do- 07/93 2 25 EGR 2 1 -do- 01/94 2 29 EGR 2 1 -do- 07/94 3 32 EGR, CON 2 1 IDCOL: Project Completion delayed to March 1995; Kalyanpur Financial Restructuring to be done. Other Project Data FOLLOW-ON OPERATIONS Borrower/Executing Agency: Government of India/IDBI and ICICI Amount Operation Loan No. (US$ million) Board date India Cement Industry Restructuring Project 3196-IN 300 May 1990  39 Annex I The Associated Cement Companies Ltd. (ACC) A Profile The Associated Cement Companies Ltd. is one of the oldest and a leading Indian cement manufacturer with 12 manufacturing plants scattered throughout India. Its first plant at Lakheri (Rajasthan) came into production in 1917. With a total capacity of around 11 million TPY, ACC is capable of manufacturing a wide variety of ordinary and specialty products such as: Portland Pozzolana, Slag, blended. low alkali, sulfate resisting and oilwell cements. ACC was the first company in India to convert one of its wet process plants at Madukkarai to semi-wet technology. ACC has been continuously expanding and modernizing its facilities and has recently developed two franchisee grinding units at Goa and Cochin where clinker is converted to cement and marketed under ACC brand name. ACC has its own research and consultancy subsidiaries and has, in recent years, entered many other manufacturing fields such as refractories, glass, electroceramics and high quality alloy steel castings. As of the end of October 1996, out of a total of 14845 employees, 1924 were management staff, 3375 were non- management staff and the remaining 8546 were skilled, semi-skilled and unskilled operators. Production Performance and Income Statement The production performance and income statement of ACC is shown in the following table. Production Revenue Million Expenses Profit Million Million Tons Rupees Million Rupees Rupees 1981-82 6.2 3560 3240 320 1982-83 6.5 5020 4620 400 1983-84 7.2 6080 5870 210 1984-85 7.4 7090 6960 130 1985-86 7.9 7530 7440 90 1986-87 7.9 7600 7600 --- 1987-88 7.8 7980 7910 70 1988-89 (8 Months) 5.3 5540 5510 30 1989-90 7.4 9910 9680 230 1990-91 7.4 11760 10550 1210 1991-92 7.7 14510 13150 1360 1992-93 7.5 15630 14930 700 1993-94 7.7 16840 16270 570 1994-95 8.5 21220 19780 1440 1995-96 8.9 24140 22010 2130 40 Annex I It can be seen from the above table that ACC's profitability has been greatly enhanced since 1989-90 when the cement industry was finally liberalized by the Government of India. Production of cement also increased appreciably in the wake of conversion and expansion programs. Utilization of the World Bank's financing Originally, two ACC plants at Madukkarai and Shahabad were preappraised for wet to dry process conversion. Soon after effectiveness of the loan, ACC began to change the scope of the Shahabad project and while the appraisal of the modified project was in progress, it decided to sell the plant. Instead of the Shahabad subprojects ACC proposed two subprojects for consideration: (a) a Balancing/Modernization/Retrofitting (BMR) subproject at Gagal Cement plant in Himachal Pradesh; and (b) a Mines Modernization and Energy Savings subproject for operational improvement including reduction of manpower and at various cement plants owned by ACC as enumerated below. Loan 2660-IN Disbursed Amount ACC Madukkarai 12.57 ACC Gagal BMR 7.48 Mines Modernization and Energy Saving 7.24 Results At Madukkarai, the company controls two limestone deposits which are difficult to mine and produce a considerable quantity of rejects. The bulk of the sorted limestone still needs benefication to produce kiln quality feed containing 83 percent limestone and 17 percent silica. The project employed a novel process of dewatering the kiln feed (vacuum filteration) to allow utilization of a preheater/procalciner kiln. The new semi-dry process aimed at increasing the annual capacity of the plant from 380,000 to 700,000 TPY. The actual performance of the plant including the technical indicators is given in the following tables. In recent years the ACC Madukkarai Plant has satisfied part of its coal requirements from imports. Its experience with both the Australian and South African coal has been satisfactory. With ash content at below 15 percent, these coal supplies have not proven unduly expensive, even though the cost of imported coal plus import duty and freight from the port amounts to around Rupees 2700 per ton, considerably above the price of indigenous coal delivered at Madukkarai. Production Performance - ACC Madukkarai Clinker Portland Cement Portland Pozzalana Total Cement Heat Electric Energy Production Production Cement Production Consumption Consumption Year Thousand Tons Thousand Tons Thousand Tons Thousand Tons Kcal/kgclinker KwH/Ton Cement 1986-87 377 70 363 433 NA NA 1987-88 380 63 384 447 NA NA 1988-89 260 40 257 297 NA NA 1989-90 466 193 357 550 NA NA 1990-91 466 151 386 537 1069 116 1991-92 525 174 443 617 987 108 1992-93 545 152 472 624 966 103 1993-94 590 227 490 717 964 103 1994-95 634 209 578 787 971 102 I 1995-96 661 152 678 830 NA NA Annex I 42 Production Performance - ACC Gagal Year Total Cement Production Thousand Tons 1986-87 665 1987-88 699 1988-89 499 1989-90 766 1990-91 747 1991-92 916 1992-93 872 1993-94 855 1994-95 868 1995-96 663 At Gagal Plant, the BMR subproject was completed in March 1993. As a result of this investment clinker production capacity has increased from 1850 to 2700 tons per day and cement grinding capacity rose to 180 from 130 tons per hour. Fuel consumption also dropped from 905 to 850 kilocalories per kilogram of clinker. Environmental Protection At both Gagal and Madukkarai plants, the closed circuiting including the existence of bag filters and electrostatic separators ensure that the source emissions remain below the standard hitherto applied by the State Pollution Control Board (SPCB)-1 50 milligrams of particulates per normal cubic meter. Recently the Himachal Pradesh SPCB has revised the standard downward to 100 milligrams per normal cubic meter. To achieve the revised source emission, the bag filters and electrostatic precipitators have been modified and upgraded. Profitability and Economic Rate of Return The following tables show the income statement for the ACC Madukkarai and Gagal Plants. Income Statement: ACC Madukkarai (Million Rupees) 87-88 89-90 90-91 91-92 92-93 93-94 94-95 95-96 Sales (Thousand Tons) 446.2 549.7 529.3 614.3 609.3 725.2 798.6 829.3 Revenue 458.1 634.2 746.5 950.3 1076.6 1343.6 1659.1 1982.1 Costs Variable 341.8 444.1 457.6 575.5 673.5 823.7 997.3 1151.1 Fixed 44.3 62.8 67.6 82.3 100.7 96.5 111.6 126.4 Administration Expenses 3.8 6.3 7.0 8.9 11.0 9.2 10.0 16.0 Selling and Other Expenses 8.5 21.9 5.3 16.7 18.1 38.3 49.9 64.9 Depreciation 9.1 56.3 59.5 62.5 65.0 43.7 46.0 48.7 Financial Changes 10.2 68.7 67.9 70.2 71.1 75.9 67.6 66.8 Total Costs 417.5 660.1 664.8 816.3 940.2 1087.4 1283.4 1474.0 Profit 40.6 (25.9) 81.7 134.0 136.4 256.2 375.7 508.1 Income Statement: ACC Gagal (Million Rupees) 87-88 89-90 90-91 91-92 92-93 93-94 94-95 95-96 Revenue 746.4 961.0 1086.6 1536.6 1492.4 1418.9 1472.9 1299.2 Costs Variable 436.2 526.0 567.6 749.5 869.2 890.0 943.9 807.6 Fixed 36.0 46.3 42.4 64.5 85.8 87.7 85.9 105.0 Administration Expenses 5.6 7.0 7.7 9.7 12.0 16.6 19.5 20.6 Selling and Other Expenses 6.7 12.4 3.9 7.3 9.6 11.6 5.1 4.5 Depreciation 68.5 73.9 72.1 73.8 75.2 61.7 59.0 59.0 Financial Changes 53.6 61.4 45.8 63.4 90.3 122.5 128.4 86.6 Total Costs 606.7 727.0 739.8 968.2 1142.1 1190.2 1241.8 1083.4 Profit 139.7 234.0 347.0 568.4 350.3 228.7 231.1 215.8 ACC Madukkarai - ERR Calculation Capital Cost Production Wet Production Dry Incremental Incremental Net Benefit Million Rupees Process Thousand Process Thousand Production Cost Revenue Million Million Rupees Tons Tons Million Rupees Rupees 1986-87 214 -214 1987-88 476 -476 1988-89 209 440 -209 1989-90 440 550 306 182 -124 1990-91 440 537 220 274 54 1991-92 440 617 316 323 7 1992-93 440 624 356 440 84 1993-94 440 717 482 667 185 1994-95 440 787 574 857 283 1995-96 440 830 645 1024 379 1996-97 440 830 645 1024 379 1997-98 440 830 645 1024 379 1998-99 440 830 645 1024 379 1999-2000 440 830 645 1024 379 2000-01 440 830 645 1024 379 2001-02 440 830 645 1024 379 2002-03 440 830 645 1024 379 2003-04 440 830 645 1024 379 2004-05 440 830 645 1024 379 ERR=14.8 Percent  47 Annex H Birla Jute Industries Ltd. A Profile The Birla Group is the largest cement producer in India commanding a capacity of some 23.65 million tons in 1995-96 or 26.8 percent of the total cement producing capacity of 88.25 million tons for the entire India. There are several independent companies in the Group of which Birla Jute Industries is one. From originally processing jute, Birla Jute Industries has diversified into manufacturing polyester and viscose blended yawn, cement, calcium carbide, oxygen and acetylene gases and steel castings. Utilization of World bank Financing The company borrowed twice from the Loan 2660-IN. The first borrowing was for one of the preappraised subprojects: the Satna Cement Works located in Madhya Pradesh. At the time of the preappraisal, this company had limestone reserves sufficient for 26 years of production at the expanded capacity of 870 thousand TPY-up from 580,000 TPY existing in 1986. The project called for some quarry equipment, dry process raw mill and a new dry kiln with high efficiency collecting and packaging machines. The total cost of this subproject was US$39.4 million, some 20 percent below the estimated cost at appraisal. The subproject utilized US$20.06 million from the financing provided through Loan 2660-IN. When three of the initial preappraised projects were dropped during 1987 and 1988, the Birla Jute and Industries Ltd. applied for a second loan for its Birla and Chittor Cement Works at Chittorgarh (Rajasthan). These plants were to be modernized by upgrading all two stage to five stage preheaters/ precalciners. The modernization scheme also included the replacement and installation of new equipment in order to increase production and reduce energy consumption. This subproject which utilized US$19.4 million from the Loan 2660-IN was completed under appraisal estimates (US$29.8 million against US$34.1 million). Results The wet to dry conversion at Satna was completed by early 1990-91 and the plant gradually approached capacity utilization in the following years. The modification and modernization subprojects at Birla and Chittor Cement Works (both located at Chittorgarh) were also completed during 1991-92 and 1992-93 respectively. The production performance of these plants is shown in the following table. (1000 Tons) Satna Cement Complex Chittor Cement Complex Satna Cement Works Birla Vikas Cement Birla Cement Works Chittor Cement Works F Clinker Cement Clinker Cement Clinker Cement Clinker Cement 1986-87 523 506 783 777 1987-88 474 411 810 770 1988-89 460 426 786 747 1989-90 314 432 789 744 1990-91 649 631 757 750 1991-92 709 625 732 687 226 432 770 1992-93 778 598 722 655 487 461 724 620 1993-94 836 798 758 792 490 500 823 821 1994-95 801 792 803 709 518 526 853 861 1995-96 820 760 795 765 581 614 818 943 I I I I II 100 49 Annex II Human Resource Development As of the end of Fiscal 95-96, the Satna and Chittorgarh cement producing complexes were manned by 2261 and 2050 persons, respectively, as shown below. Satna Complex Chittorgarh Complex Officers and Staff 496 600 Skilled and Semi-Skilled Operators 1429 1000 Unskilled Workers 336 450 Total 2261 2050 The company has been running extensive training programs at all its plants not only for its plant operators, but also for its senior and middle level executives. The training courses have focused on quality control, optimum use of machinery and plant, pollution control and energy saving. Quality control has been receiving continuous and increased attention, not only because of the company's quest to receive ISO 9000 certification, but also because of the general improvement in quality from other cement manufacturers and the pressures from the construction industry and the market. Environmental Protection At Birla Satna and Vikas cement works some 13 electrostatic precipitators, 45 bag filters and 50 pocket filters are installed in various parts of the plant (stocks, transfer points in packing plants and storage silos) in order to control the stack and other fugitive particle emissions. The kiln and cooler electrostatic separators are equipped with modem electronic instruments and opacity meters for the monitoring and control of dust emissions. A separate environmental department has been established for monitoring and supervision of all environmental activities. Extensive reforestation and tree planting have been carried out around the factory, the housing area and the limestone quarries. Environmental audit reports are regularly submitted to the State and Central Control Boards, while the plant's pollution control system is periodically checked by Control Board inspectors. The activities of the environmental department is included in ISO 9002 monitoring and certification. Over the last three years, the source emissions have been consistently lower than the state standard at 150 milligram per normal cubic meter. A similar system is operational at Chittor cement plant. In this complex, a total of 11 electrostatic precipitators, 52 bag dust collectors and 11 pocket filters are installed in the two cement plants and the thermal power plant. Regular ambient air and stack monitoring is carried out in line with the company practice and as a requirement of the SPCB. The ambient air quality is monitored at 3 locations inside the plant and one location in the surrounding housing area. A total of 16 stacks are monitored for their particulate emissions. Records indicate that the emissions remain within the specified norms of 150 milligram per normal cubic meter for the stack emission and 200 microgram per normal cubic meter for the housing area. Again a green belt development program in and around the plant, ensures that propagation fugitive gas and noise pollution is attenuated while the scenic and aesthetic aspects are strengthened. Annex II 50 Profitability and ERR The income statement of the two cement complexes are given in the following tables. Income Statement - Satna Complex (Million Rupees) 1989-90 1990-91 1991-92 1992-93 1993-94 1994-95 1995-96 Revenue 2078.5 2467.7 2314.0 2675.3 2862.8 3438.5 Expenses Raw Material 56.8 61.0 59.8 88.1 91.6 98.8 Manufacturing Expenses 786.7 955.6 1035.4 1157.0 1274.9 1370.1 Wages and Salaries 92.1 112.4 139.9 152.0 160.2 189.7 Other Expenses 657.9 696.4 816.8 1036.2 1021.9 1243.6 Financial Charges 109.5 99.6 112.1 124.1 121.6 130.7 Depreciation 164.3 195.8 133.3 127.9 80.9 99.9 Total Expenditure 1870 2125.4 2302.6 2695.9 2758.1 3141.3 Profit 208.4 342.3 11.4 (20.7) 104.6 297.2 Income Statement - Chittor Complex (Million Rupees) 1990-91 1991-92 1992-93 1993-94 1994-95 1995-96 Revenue 1049.6 1973.9 1976.1 2308.8 2661.9 3516.2 Expenses Raw Materials 9.3 25.7 22.9 44.7 35.5 46.0 Manufacturing Expenses 454.6 696.4 830.7 946.8 1064.5 1260.3 Wages and Salaries 56.4 72.2 85.4 96.5 103.7 127.5 Other Expenses 319.9 586.6 694.6 862.7 1005.2 1366.2 Financial Charges 51.6 58.3 102.1 152.1 174.8 159.4 Depreciation 96.5 127.9 181.5 278.5 94.3 102.9 Total Expenditure 988.3 1567.2 1917.3 2381.5 2478.1 3062.3 Profit 61.3 406.7 58.8 (72.7) 183.8 453.9 ERR Calculation - Birla Satna - (Constant 1995-96 Rupees) Production Wet Production Dry Incremental Capital Cost Process Thousand Process Thousand Incremental Cost Revenue Million Net Benefit Million Rupees Tons Tons Million Rupees Rupees Million Rupees 1987-88 210 -210 1988-89 756 -756 1989-90 213 430 -213 1990-91 430 631 334 712 378 1991-92 430 625 327 870 543 1992-93 430 698 336 288 -48 1993-94 430 798 624 496 -128 1994-95 430 792 448 429 19 kn 1995-96 430 780 560 721 161 1996-97 430 800 600 952 352 1997-98 430 800 640 984 344 1998-99 430 800 640 984 344 1999-2000 430 800 640 984 344 2000-01 430 800 640 984 344 2001-02 430 800 640 984 344 2002-03 430 800 640 984 344 2003-04 430 800 640 984 344 2004-05 430 800 720 984 344 ERR = 15.8 per cent M  53 Annex III India Cements Ltd. A Profile This is one of the larger producers of cement in India with plants in Tamil Nadu and Andhra Pradesh with a total capacity of 3.15 million tons as follows. Plant Capacity Chilamkur (Andhra Pradesh) 1 million tons Talaiyuthu (Tamil Nadu) 1.1 million tons Sankamagar (Tamil Nadu) 1.05 million tons The company came sixth among the Indian cement producers in 1995-96 with a production of 2.59 million tons (some 10 percent above the 1994-95 production). The Sankamagar plant of the India Cements Ltd. is one of the oldest cement plants in Tamil Nadu, commencing production in 1948 with a licensed capacity of 400 thousand tons per annum and steadily increasing the capacity to 700 thousand tons using the wet process technology. After converting the Sankarnagar plant from the wet to dry process, all the company's plant now utilize modem dry process technology. Utilization of World Bank Financing One of the preappraised project, this plant consisted of 5 wet process clinker kilns with a total capacity of around 2200 tons per day corresponding to nearly 726,000 TPY. Though not one of the least energy efficient plants in India, the coal consumption per ton of clinker, nevertheless, amounted to 338 kilogram (1430 kilocalories per kilogram of clinker). The project consisted of the complete dismantling of the wet raw mills, slurry storage and kilns including the clinker coolers and dust collection equipment and four of the six coal mills and replacing them with new equipment comprising primary limestone crusher, limestone and coal preblending, storage and reclamation system, raw grinding and drying system, 3000 tons per day preheater- precalciner kiln and clinker cooler, electrostatic precipitator for cleaning kiln and raw mill exhaust gases, a 35-40 ton per hour coal mill with electrostatic dust collectors, one rotary cement packing machine and a diesel generator. To carry out this conversion/expansion project, which nearly constituted the installation of a complete one million ton plant, the company borrowed US$35.24 million from the Bank's financing. Annex III 54 Results The conversion project that started in 1986-87 was completed within 4 years in August 1990. There was a delay of some 21 months in the commissioning of the plant (from October 1988 to July 1990) due generally to delayed procurement and receipt of equipment. Once the dry kiln went into commercial operation, the capacity utilization picked up rapidly as indicated in the following table. India Cement Ltd. - Production Performance (thousand tons) Ordinary Portland Pozzalana Portland Total Cement Cement Cement Production 1986-87 36 712 748 1987-88 18 624 642 1988-89 26 571 597 1989-90 19 562 581 1990-91 38 688 727 1991-92 141 683 824 1992-93 222 788 1010 1993-94 230 798 1028 1994-95 251 809 1060 1995-96 166 895 1061 Human Resource Development As of the end of fiscal 1995-96, the workforce profile at this plant was as follows. Factory Mines Total (persons) (persons) (persons) Managerial 73 27 100 Clerical 118 28 146 Supervisory/Technical 95 39 134 Skilled Operators 317 224 541 Semi-Skilled Operators 249 I11 368 Unskilled 397 93 498 Total 1249 522 1771 The company has consistently reduced its workforce bringing it down from 2098 persons in 1989-90 to 1771 persons in 1995-96. The company had conducted an extensive training program, especially since the new conversion project was commenced. In 1995-96 alone the following training programs were completed. 55 Annex III External Training ersn Managers 53 Operators 44 In-Home Training Managers 98 Operators 501 Disciplines and Topics Covered - Number of Courses Process 24 Engineering 34 Mining 27 Safety 12 Security 5 Others 37 The company has made ample use of the RTCs for its training purposes and has had satisfactory experience. Environmental Protection The company has introduced extensive measures to reduce dust pollution and to protect environment. In addition to afforestation in the quarries and around the plant, the limestone crusher is equipped with water spray and dust extractor with wet scrubber. In the limestone stacking and reclaiming area, 9 insertable dust filters with fans reduce particle emission. There are four bag filters and one electrostatic precipitator in the raw material grinding plant. Two suction filters are installed over the blending storage and the kiln feed sections. Over the kiln grate cooler area, high efficiency air-to-air heat exchangers dust collecting hoppers and a large bag house are installed. These six bag filters installed at every transfer point in the clinker transportation system. In the coal handling area, there is one dust collector at Raw Coal Bunker and an electrostatic precipitator. In addition, four multicyclones and cyclone separators reduce dust emissions from the coal handling plant. In the cement grinding section the company has installed one electrostatic precipitator and three bag filters in the new mill (all the old cement mills are maintained as stand by and are equipped with bag filters and two electrostatic separators). In the packing plant there are three bag filters for the three Mechamical Rotary Packers. The company utilizes its own monitoring equipment to measure air quality at various locations in the plant. The Tamil Nadu Pollution Control Board inspectors make periodic visits to the plant to check on the condition of the bag filters and ESPs and to make measurement of the stack emission gases as well as the air quality in the plant. These regular measurements indicate that the dust emissions in various parts of the plant are well within the norms established by the Pollution Control Board (150 milligrams per normal cubic meter). The average suspended particle content in the air within a radius of one kilometer from the plant is shown in the following table. Annex III 56 Air Quality Measurement -suspended dust particles Standard - 200 microgram/normal cubic meter North West South East 0.8 Km 0. 7 Km 0. 75 Km 2.7 Km June 91 88 21 90 88 December 91 28 107 102 53 February 93 129 192 94 68 September 93 106 82 66 189 March 94 117 140 180 104 October 94 182 111 105 70 February 95 100 192 95 64 December 95 51 192 96 132 June 96 168 61 134 84 Profitability and Economic Rate of Return The income statement of the Sankamagar plant is shown in the following table. Income Statement - India Cements Ltd., Sankarnagar (Million Rupees) 1990-91 1991-92 1992-93 1993-94 1994-95 1995-96 Revenue 974.6 1221.3 1551.9 1690.1 2019.5 2268.4 Expenditure Variable Fuel & Power 336.2 362.2 417.4 500.4 561.7 661.9 Other 223.5 286.9 415.1 497.3 580.3 580.1 Fixed 147.3 181.8 224.3 259.4 293.3 326.5 Interest 103.7 160.1 188.2 189.7 179.6 155.0 Depreciation 78.7 105.5 101.8 56.3 55.2 60.2 Total Cost 889.4 1096.5 1346.8 1503.1 1670.1 1783.6 Profit 85.2 124.8 205.1 187.0 349.4 484.8 ERR Calculation - Sankarnagar Plant (Constant 1995-96 Rupees) Capital Production Wet Production Dry Incremental Cost Incremental Net Benefit Investment Process Thousand Process Thousand Million Rupees Revenue Million Million Rupees Million Rupees Tons Tons Rupees 1986-87 0.3 -0.3 1987-88 229.3 -229.3 1988-89 873.1 -873.1 1989-90 673.4 581 -673.4 1990-91 9.7 581 727 302.0 417 105.3 1991-92 2.0 581 824 428.0 584 154.0 1992-93 0.5 581 1010 583.0 824 240.5 1993-94 3.6 581 1028 651.5 853 197.9 1994-95 0.5 581 1060 661.0 1018 356.5 1995-96 581 1061 617.6 1077 459.4 1996-97 581 1060 617.6 1077 459.4 1997-98 581 1060 617.6 1077 459.4 1998-99 581 1060 617.6 1077 459.4 1999-2000 581 1060 617.6 1077 459.4 2000-01 581 1060 617.6 1077 459.4 2001-02 581 1060 617.6 1077 459.4 2002-03 581 1060 617.6 1077 459.4 2003-04 581 1060 617.6 1077 459.4 2004-05 581 1060 677.6 1077 459.4 ERR=13.2 Percent. M  59 Annex IV The KCP Ltd. A Profile KCP was initially an engineering and machinery manufacturing company specializing in cement plants. In the early 1980s, the company began expanding into other activities such as sugar refinery (2 units since 1987-88) and distillery operation. In collaboration with reputable foreign machinery manufacturers, the company continues to manufacture cement, sugar and other equipment both for the Indian market as well as exports. Recently KCP, along with its technical collaborators, has decided to exit from contracting work, concentrating more on the supply of equipment to the cement and other industry. The cement plant, situated in Andhra Pradesh, is close to two quarries each with around 9 million tons of reserves sufficient for thirty years of operation. The mining is open-cast with the run of the mine at around 83 percent limestone. Currently low grade limestone (below 69 percent) is rejected into dumps that are progressively reforested. Ore grades between 69 percent and 80 percent, are dumped and collected in special areas for possible future use, should new technologies be developed to permit their use. The output of the quarry is transported to crushers and a loading station where cable cars, each with a capacity of 1.2 tons, are loaded for a 2 1/2 kilometer journey to the plant. Utilization of World Bank Financing This was one of the preappraised subprojects which was designed to convert the plant from using wet to dry process. In addition to the steps taken to reduce costs, enhance competitiveness, introduce new operating technology and maintain a high level of capacity utilization, the subproject also aimed at reducing the dust level and improving the environmental performance of the plant. The subproject utilized US$6.3 million from loan 2660-IN for a total investment cost of US$25.8 million. The plant which consisted of two kilns, one wet and one dry, had a capacity of 250 thousand tons of clinker per year. Through a complete conversion to one dry kiln using vertical roller mills for both limestone and coal grinding with blending and storage silo, the design called for a capacity increase to 400,000 tons of clinker per year (around 425,000 tons of cement). The kiln was to be equipped with a five stage preheater/precalciner and the raw material delivery system from the mine was also to be upgraded to match the increased quantity of limestone inputs. Results The project was commissioned in December 1989 and the plant stabilized over the following two years. However, it was not until three years later that the plant reached capacity production during 1994-95. This was partly because of the market conditions and partly due to the slow fine-tuning of various equipment in the production chain. While the two older kilns are being dismantled and removed (the old dry kiln was the first introduced in India) efforts are being concentrated to further reduce the dust pollution and to balance the plant. The production performance of the plant is given in the following table. Annex IV 60 KCP Macherla Plant. Productuion Performance and Energy Consumption Indicators CeenCal PoweT Lb= Consumption Production Consumption Consumption Kilocalories/Kilogr Thousand ton/ton KwH/ton am Clinker tons cement cement 1983-84 277.5 0.36 126.0 NA 1984-85 262.5 0.40 132.0 NA 1985-86 257.8 0.41 139.0 NA 1986-87 247.8 0.36 128.0 NA 1987-88 192.9 0.40 131.0 NA 1988-89 137.7 0.39 142.0 NA 1989-90 144.3 0.31 152.0 NA 1990-91 209.9 0.25 147.0 NA 1991-92 324.1 0.24 133.0 NA 1992-93 330.3 0.25 126.0 NA 1993-94 375.3 0.22 124.0 832 1994-95 433.4 0.20 117.0 753 1995-96 474.9 0.21 120.0 759 1996-97(First 8 months) 284.0 0.20 110.0 747 As the above figures indicate the plant's technical indicators have improved dramatically since the modification project. Despite this apparent saving in fuel and power consumption the ratio of these costs to total variable cost has increased from 47 percent in 1983-84 to 64 percent in 1995-96. While the fuel and power cost constituted 37 percent of the total cost of production in 1983-84, this ratio had moved to 46 percent by 1995-96, highlighting the significance of these items in the total cost structure and the justification for the modification projects. Human Resource Development and Quality Control The company has a comprehensive human resource development plan that strives to upgrade skills and increase labor productivity. It has been fairly successful in its drive to operate the quarry and the plant with a decreasing level of employment, thereby effecting considerable savings. Over the last ten years, the number of permanent employees for the whole operation has declined by nearly 25 percent as shown in the table below: 61 Annex IV Date Number of Employees Year End (Fiscal) 1987 619 1988 586 1989 579 1990 575 1991 544 1992 524 1993 505 1994 480 1995 502 1996 480 Dec. 1996 464 The company also uses around 200 persons as contract labor for cement loading to trucks, coal/raw material unloading, cement loading to wagons, security and the dismantling of old plants. During December 1996, workforce consisted of 60 officers, 87 staff and 317 workman for a total of 464. Officers of the company are mostly holders of degrees or diplomas with many years of experience. The skilled workmen had graduated from industrial training schools or equivalent centers of learning. Among the total permanent employees, there were some 50 unskilled workers. Through training and the use of equipped laboratories and on line controls, the company has been able to increase the plant's productivity and capacity utilization. Unlike many other plants, KCP only produces ordinary Portland Cement. Other companies usually enjoy a leverage from their clinker production by adding significant percentage of slag or fly ash to produce Slag Portland Cement or Pozzolano Portland Cement. Environmental Protection Along with capacity expansion and energy saving through process conversion, another primary objective of this subproject was to reduce the dust level in the plant, thereby enhancing working environment. This was achieved by making the necessary investment in installing bag filters and electrostatic precipitators in all dust generating location and process circuits with the result that emission levels have dropped significantly and are now below the levels prescribed by the State Pollution Control Board. During a 30 months period between April 1994 and November 1996, the stack dust emissions were below 115 milligrams per normal cubic meter (in 75 percent of measurements, the records show only a maximum of 100 milligram/cubic meter). In the residential areas around the plant, the air quality has met the SPCB standard of remaining below 200 micrograms per normal cubic meter. These measurements are made once a week in three locations. Profitability and ERR The income statement of the plant is given in the following table. KCP Machala Plant - Income Statement (Million Rupees) 1986-87 1987-88 1988-89 1989-90 1990-91 1991-92 1992-93 1993-94 1994-95 1995-96 Revenue 220.0 180.6 118.6 147.9 245.9 420.9 473.1 515.0 722.4 876.6 Expenses Raw Material 18.3 17.6 11.6 13.4 17.0 25.2 36.1 43.2 67.2 65.0 Power & Fuel 71.1 67.8 48.1 158.8 106.9 149.9 176.7 203.2 301.6 267.0 Wages & Salaries 14.4 14.5 11.5 17.5 18.6 20.5 28.6 28.7 34.5 41.7 Other Expenses 104.2 75.7 46.6 76.3 75.8 164.4 197.3 213.1 253.2 289.6 Depreciation 9.8 3.9 5.4 24.1 45.8 45.7 45.7 23.2 24.3 24.4 Financial Changes .8 .7 2.2 10.0 45.5 49.9 49.4 39.8 34.5 32.4 Total Expenses 218.6 180.2 125.4 200.1 309.6 455.6 533.8 551.2 715.3 720.1 Profit 1.4 .4 (6.8) (52.2) (63.6) (34.7) (60.7) (36.3) 7.1 156.5 ERR Calculation - KCP Macherla Constant 1995-96 Rupees Production Production Incremental Incremental Net Benefit Wet Process Dry Process Production Cost Revenue Million Capital Cost Million Thousand Thousand Million Rupees Million Rupees Rupees Rupees Tons Tons 1986-87 104 -104 1987-88 416 -416 1988-89 166 -166 1989-90 77 144 -77 1990-91 18 144 210 118.8 139.8 3 1991-92 144 324 279.3 345.8 66.5 1992-93 144 330 317.4 348.5 31.1 1993-94 144 375 321.9 356.7 34.8 1994-95 144 433 439.5 524.4 84.9 1995-96 144 475 379.2 610.6 231.4 1996-97 144 475 379.2 610.6 231.4 1997-98 144 475 379.2 610.6 231.4 1998-99 144 475 379.2 610.6 231.4 1999-2000 144 475 379.2 610.6 231.4 2000-01 144 475 379.2 610.6 231.4 2001-02 144 475 379.2 610.6 231.4 2002-03 144 475 379.2 610.6 231.4 2003-04 144 475 379.2 610.6 231.4 2004-05 144 475 379.2 610.6 231.4 ERR = 11.5 Percent x  65 Annex V Kalyanpur Cement Ltd. A Profile Located at Banjari in the State of Bihar, Kalyanpur cement plant commenced operation in 1946 with a capacity of 40 thousand tons per annum. The capacity was expanded in several stages to reach 400 thousand TPY by 1980. The company remained profitable until 1971 when the Government's pricing policy along with the fall in capacity utilization triggered a period of losses accumulating to a total of Rps 75.8 million by the end of 1981. While the partial decontrol of prices helped the company until 1986-87, the company remained severely handicapped by its size and old technology (wet process) vis-a-vis the new large and much more efficient plants that were being constructed. With capacity utilization again falling due to technical and maintenance problems, the company began to make losses in the latter part of the 1980s despite the relative buoyancy of the cement market. The main reason was the company's high cost of production, given its small capacity and low capacity utilization. Utilization of Financing from the World Bank Loan Against the above background, the company decided to implement a modernization and expansion project in 1989, converting the plant from the wet to the dry process. Given the fact that three of the original preappraisal subprojects had been cancelled, IDBI appraised this project for inclusion in the World Bank financing thought Loan 2660-IN. Through this modernization/expansion project the company aimed at increasing the capacity from 400 thousand to one million TPY. The cost of the project was US$69.3 for which the company borrowed US$26 million from the World Bank financing. Results This project encountered serious implementation problems that resulted in a delay of nearly 2 years in the commissioning of the plant. On the one hand, the financial weakness of the company, and, on the other, the failure of the machinery and equipment supplies marred the progress of implementation. Even after commissioning in September 1994, capacity utilization remained low for more than a year, due to continued technical problems. At times major modifications, involving complete replacement of some equipment, had to be made to sections of the plant to correct the capacity constraints. For example, the original cement packaging plant had to be completely replaced by another plant of a different make and design while the slag vertical roller mill has yet to reach capacity. The plant's performance is shown in the following table. Annex V 66 Electric Production Energy Energy Capacity of Cement Capacity Consumption Consumption Thousand Thousand Utilizatio Kilocalories/kg KwH/Ton Tons Tons n % Clinker Cement 1986-87 400 340 85 1450 132.5 1987-88 400 320 80 1558 130.5 1988-89 400 281 70 1460 128.3 1989-90 400 251 63 1450 131.7 1990-91 400 242 60 1350 134.4 1991-92 (9 Months) 300 169 56 1380 152.7 1992-93 400 241 60 1427 136.2 1993-94 400 233 58 1480 125.7 April-August 1994 167 119 71 1382 (1994-95) Sept. 1994-Oct. 1995 1167 537 46 Nov. 1995-Mar. 1996 415 283 68 764 (1995-96) April-Sept. 1996 500 300 60 The plant's performance, though erratic, has been gradually improving since it was stabilized in October of 1995. The clinker section has performed reasonably well achieving a capacity utilization of around 87 percent for the period between November of 1995 and September 1996. The cement production has, however, lagged because of the problems with the slag vertical mill as well as the conditions in the market and the slow movement of cement dispatches from the plant. As a result, the cement capacity utilization has only reached around 64 percent during the same 11 months (November 1995 to September 1996). Of late, the new packaging plant has been operating satisfactorily and its capacity will be expanded to 140 tons per hour. But the slag vertical grinding mill has yet to reach its capacity of 60 tons per hour. There are other minor problems with the elevator chutes and some other auxiliaries that should have, by now, been resolved. As shown in the above table, the energy consumption per kilogram of clinker has dropped significantly to around 764 kilocalories, a performance that is better than the specification demanded from the cement kiln designers and manufacturers (860 kilocalories per kilogram of clinker). It should also be noted that before conversion to dry process, energy consumption in this plant was somewhat above the Indian cement plant norms. Human Resource Development The Kalyanpur Cement Company has 2000 employees with the following profile. Persons Managers/Executives 56 Supervisors 192 Staff/Workmen Skilled 719 Semi-Skilled and Unskilled 1033 67 Annex V The company runs courses in induction training, cement production practice, on the job training and supervisor development programs for new entrants, depending on the prior education and experience. The managers and supervisors are afforded in house and external programs on both technical and management subjects. This includes attendance at seminars and conferences in India and occasionally abroad. The managers and supervisors are periodically sent to cement specific courses that are held at various institutes such as the cement industry Regional Training Centers. As for the staff/workmen, training programs include general awareness programs, in house program by suppliers, skill enhancement programs and visit to other cement plants. Environmental Protection The conversion/expansion project has been accompanied with the sizeable investment (150 million rupees) in pollution control equipment in this plant. In addition to the existing electrostatic precipitator at the cement grinding mill, 26 bag filters and 2 electrostatic separators have been installed in various parts of the plant in order to remove dust from the stack emissions and transfer points. This has already brought down stack particulate emissions to around the prescribed limits in the State of Bihar (165 milligram per cubic meter against the norm of 150 milligrams per cubic meter). To further improve the air quality around the plant and to achieve the State Pollution Control Board's requirements, the company plans to install a further 8 bag filters in other locations for enhanced dust removal. Profitability and ERR As noted earlier, this company has been facing serious financial problems on account of the delay in completing the modernization/expansion project, the technical difficulties encountered since the new dry process plant was commissioned in September 1994 and the market downturn since the middle part of 1996. Located some distance from the railways, this plant is dependent on road transportation which can be erratic at times. In the last few years the company has focused on exports to Bangladesh and Nepal where it enjoys transportation cost savings vis-a-vis other cement producers located farther south in Madhya Pradesh and Andhra Pradesh. On the whole, these exports, especially those to Nepal, have resulted in a higher. realization price for the company. The following table shows the income statement and the profitability of the Kalyanpur Cement Plant. Kalyanpur Cement - Income Statement (Million Rupees) 1991-92 1994-95 1995-96 9 Months 1992-93 15 Months 18 Months 1989-90 1990-91 July-March April-March 1993-94 April-June July-Dec. Total Income 238.1 275.7 244.2 257.4 230.5 603.0 1485.3 Expenditure Raw Materials 42.7 47.2 44.7 64.9 51.1 147.9 418.1 Power and Fuel 99.9 98.0 82.6 102.4 120.2 192.2 385.4 Wages and Salaries 23.1 25.7 22.0 30.6 14.2 40.6 88.5 0 Other Expenses* 54.7 72.4 56.4 73.5 51.4 139.7 277.7 Financial Charges 17.1 20.1 19.1 23.2 24.3 85.7 400.7 Depreciation 10.1 12.1 9.0 17.8 12.0 49.4 146.5 Total Expenditure 247.6 275.5 233.8 312.4 273.2 655.5 1716.9 Profit (9.5) 0.2 10.4 (55.0) (42.7) (52.5) (231.6) *Other expenses include stores, spares and repairs that have been relatively high in recent years because of the problems encountered with some machinery and equipment. ERR Calculation - Kalyanpur Cement Production: Production: Incremental Incremental Capital Cost Wet Process Dry Process Production Cost Revenue Net Benefit Million Rupees Thousand Tons Thousand Tons Million Rupees Million Rupees Million Rupees 1990-91 120.2 -120.2 1991-92 404.9 -404.9 1992-93 1115.2 -1115.2 1993-94 484.4 -484.4 1994-95 327.7 389 -327.7 1995-96 192.9 389 551 421.5 380.8 -233.6 1996-97 389 750 465.0 693.0 228 1997-98 389 900 580.0 928.0 348 1998-99 389 1000 657.0 1085.0 428 1999-2000 389 1000 657.0 1085.0 428 2000-01 389 1000 657.0 1085.0 428 2001-02 389 1000 657.0 1085.0 428 2002-03 389 1000 657.0 1085.0 428 2003-04 389 1000 657.0 1085.0 428 2004-05 389 1000 657.0 1085.0 428 2005-06 389 1000 657.0 1085.0 428 2006-07 389 1000 657.0 1085.0 428 2007-08 389 1000 657.0 1085.0 428 2008-09 389 1000 657.0 1085.0 428 2009-10 389 1000 657.0 1085.0 428 ERR= 7.4 Percent  71 Annex VI IDCOL Cements Ltd. A Profile IDCOL Cements Ltd. is a subsidiary of Industrial Development Corporation of Orissa Ltd. (IDCOL). It was founded in February 1993 to operate the erstwhile Hira Cement Works which started producing cement in 1968 (wet process) and was taken over by IDCOL in the latter part of the 1980s. Located at Bargarh, at a distance of 7 kilometers from the railway sidings at Sambalpur, Western Orissa. The company has access to five quarries, three of which are located within 30-50 kilometers from the plant. The total reserves of the five quarries amount to nearly 60 million tons. Limestone is transported to the plant by both road and a company owned rail system, the plant had a capacity of 400 thousand TPY. With availability of slag in large quantities from the Bhilai and Visakh Steel Plants the company switched over to the production of Portland Slag cement in 1988-89 and discontinued producing Portland Pozzolana cement. After reaching a peak production of 457 thousand tons in 1988-89, the plant's output gradually declined as competitors began claiming a larger market share both in Orissa and the surrounding States. The production performance of the plant is shown in the table below. Ordinary Portland Slag Portland Total Cement Portland Cement Cement Pozzolana Production Thousand Tons Thousand Tons Cement Thousand Tons Thousand Tons 1983-84 88.5 - 317.9 406.4 1984-85 74.8 - 314.5 389.3 1985-86 83.9 .4 344.5 429.1 1986-87 104.8 18.4 295.2 418.5 1987-88 277.7 1.6 133.0 412.3 1988-89 304.5 152.8 .2 457.5 1989-90 212.0 198.4 - 410.4 1990-91 179.0 207.4 - 386.4 1991-92 175.7 194.9 - 370.6 1992-93 200.4 157.7 - 358.1 1993-94 163.1 185.7 - 348.8 1994-95 126.2 215.4 - 341.6 1995-96 191.4 227.8 - 419.2 Utilization of World Bank Financing In the face of competition coming from the new plants all using the dry process, and in view of the continuously rising prices for coal and electricity, the company decided to implement a modernization/expansion of the plant increasing the capacity from 400 thousand tons to 960 thousand TPY of slag cement. The modernization project consisted of installing: (i) secondary crusher and auxiliary equipment at the quarry; (ii) a new limestone grinding and storage section Annex VI 72 with a capacity of 3400 tons per day; (iii) a clinker kiln equipped with a 5 stage preheater/ precalciner with a capacity of 1800 tons per day; (iv) a new slag grinding section using high pressure vertical roller mills; (v) a new clinker grinding section using high pressure vertical roller mills; (vi) a new ground clinker and slag mixing section with a capacity of 4000 tons per day; (vii) a new coal handling and grinding section (using vertical roller mills) with a capacity of 420 tons per day; (viii) a new track loading conveyor; and (ix) a new rotary packing machine (10 spouts twin discharge) with a capacity of 120 tons per hour. Except for utilizing some of the existing infrastructure, this modernization constituted the installation of a practically new plant at the site. The cost of the project in 1990 was estimated at 1010 million rupees with financing coming from the Government of Orissa, ICICI, IDBI, IFCI and a loan of US$27 million from the World Bank line of credit. Results Although the new plant was to be commissioned by July 1994, a series of problems postponed the full commissioning until much later. Most problems were associated with the delays in the supply of machinery and equipment by the main suppliers, mismatch in equipment parts necessitating replacement and reassembly, wrong specification requiring modifications and delay by civil and mechanical contractors. While the clinker producing section of the plant was operational by February 1995 and the clinker grinding was commissioned in December 1995, the slag grinding vertical roller mills developed several problems including metal failure of the surface of the rollers which took a long time to resolve. In addition, the new electronic packaging machines supplied from abroad have undergone periodic breakdowns especially because of the failure of slowing bearings due to faulty design. These problems are similar to those experienced at Kalyanpur where the management decided to scrap the new packing plant and replace it with another unit manufactured in India. Since the new Clinker plant went into operation in February 1995, the old plant has gradually been taken out of operation with total stoppage coming in July 1995. The performance of the plant during the last two years is given below: Portland Total Clinker Clinker Total Portland Slag Cement Old Plant New Plant Clinker Cement Cement Production Capacity Thousand Thousand Thousand Thousand Thousand Thousand Utilization Tons Tons Tons Tons Tons Tons % 1995-96 65.8 272.4 338.2 N/A N/A 419.2 68 April-Sept. 96 - 215.1 215.1 75.1 146.2 221.3 77 As shown above, the plant was working at a capacity of 77 percent during the first six months of the 1996-97 campaigns. Because of the build up of inventories and continued technical problems, the plant operated at 12 and 80 percent capacity utilization during October and November of 1996, respectively. 73 Annex VI Human Resource Development and Technical Indicators The plant is currently manned with 1088 persons in the following categories. Executives 130 Staff 270 Operators and Others 688 In addition, the quarries employ around 1000 workers as contract labor. Since the company is in the process of introducing increased mechanization at the quarries, this number is likely to be drastically reduced. Before the start up of the new dry process plant, much of the training was concentrated on this new technology. Courses were attended by all supervisors and operators at the Regional Training Centers as well as the training institutes of other large cement manufacturers such as ACC. These training courses encompassed different subjects such as: raw mix design, kiln operation and process control, automation and quality assurance, kiln repair and maintenance, maintenance of vertical roller mills and gear boxes and cooler operation and maintenance. In addition, in-plant trainings were carried out with the help of consultants. On the job training was also conducted especially whenever the engineers from the main machinery suppliers visited the plant. There has already been a noticeable improvement in the energy consumption indicators of the plant as given below: Heat Consumption Electrical Energy Consumption Kilocalories/Kg Clinker KwH/Ton Cement 1988-89 1697.0 107 1989-90 1505.0 108.6 1990-91 1548.0 106.9 1991-92 1537.0 113.3 1992-93 1500.0 113.7 1993-94 1482.0 111.6 1994-95 1478.0 112.7 1995-96 802.0 137.1 1996-97 (First six months) 738.0 113.5 Annex VI 74 As noted earlier the change over to dry process took place in 1995-96 during which because of the trial runs and the teething problems, electrical energy consumption was higher than anticipated. Coal consumption per ton of clinker has, however, dropped significantly and the kiln performance appears to be even better than specified in the design (845 kilocalories per kilogram). Profitability and ERR Calculation During the early 1980s when the plant was operating at near capacity and the price of fuel and power remained low, the company was profitable even under the old administered price regime. As fuel and power costs began to escalate in mid-1980s and sharply rise in 1988-89 and 1989-90, the company began to make losses which could not be covered by its increased realizations. For the first four years after the start of modernization/expansion program, the company remained profitable as prices and ex-works realizations improved considerably. Further increases in fuel and power costs combined with higher interest expenses and lower capacity utilization resulted in the loss for the company during 1994-95 (the last year when the plant was still on the wet process). The income statement of IDCOL Cements Ltd. is shown in the following table. IIDCOL Cements - Income Statements (Million Rupees) 1987-88 1988-89 1989-90 1990-91 1991-92 1992-93 1993-94 1994-95 1995-96 Income 323 371.6 385.3 429.6 523.3 735.6* 504.9 501.0 657.3 Expenditure Raw Materials 65.5 78.2 81.6 85.8 104.2 121.7 123.2 97.1 138.4 Power and Fuels 106.4 136.1 136.1 148.6 140.3 142.7 166.9 185.1 213.1 Other Expenses 129.2 147.4 154.6 157.6 153.2 182.6 190.7 213.1 259.0 Depreciation 7.5 8.0 8.0 7.7 13.8 13.7 5.9 23.8 78.9 Financial Charges 9.5 10.9 7.1 6.9 6.5 13.6 11.8 31.0 229.0 k.n Total Expenditure 318.1 380.6 387.4 405.7 418.0 474.3 498.5 550.9 918.4 Profit 5.2 (9.0) (2.1) 23.9 105.3 261 6.4 (49.1) (261.1) *During 1992-93 there was a large earning from the sale of some assets. The profit from the operations in that year would be around Rp 60 million if the asset sale is netted out. CD M ERR Calculation -IDCOL Plant - Contstant 1995-96 Rupees Capital Cost Production Production Incremental Incremental Net Benefit Million Rupees Wet Process Dry Process Production Cost Revenue Million Million Rupees Thousand Tons Thousand Tons Million Rupees Rupees 1991-92 110 - -110 1992-93 662 - -662 1993-94 862 - -862 1994-95 200 - - - - -200 1995-96 368 342 420 264 137 -127 1996-97 342 500 334 277 -57 1997-98 342 650 501 539 .38 1998-99 342 780 643 767 124 1999-2000 342 860 643 907 264 -2001 342 860 643 907 264 -2002 342 860 643 907 264 -2003 342 860 643 907 264 -2004 342 860 643 907 264 -2005 342 860 643 907 264 -2006 342 860 643 907 264 -2007 342 860 643 907 264 -2008 342 860 643 907 264 -2009 342 860 643 907 264 -2010 342 860 643 907 264 ERR= 5.3 Percent 77 Annex VII Subprojects Financed By Loan 2661-IN This line of credit, which was intermediated through ICICI, aimed at improving operating efficiency, product quality, energy conservation and pollution control in the cement industry. Targeting smaller projects, ICICI developed a set of criteria for the consideration of modernization subprojects, generally in four areas: balancing and debottlenecking; energy savings, process improvement; and transfer of technology. This line of credit provided financing for 18 such subprojects as follows: Balancing and Debottlenecking 4 Energy Savings 6 Process Improvement 6 Transfer of Technology 2 In most subprojects, the line of credit was used for partial financing of a normally larger modernization effort and for those equipment and machinery that needed to be imported into India. A. Century Textiles and Industries Ltd. A part of the Birla Group, Century Textiles and Industries Ltd. is a conglomerate involved in the manufacture of rayon, cotton yarns and textiles, minerals and chemicals, pulp and paper and cement (at three locations). The company carried out partial modernization of its existing cement plants at both Maihar, Madhya Pradesh and Manikgarh, Maharashtra. At Maihar, the company installed two electronic cement packing units, modified the electrostatic precipitators and converted two of its cement mills to chamber mills by adding high quality liners. In addition, the company erected a new cement silo for special cements. The company borrowed US$3.837 million from this line of credit for the procurement of mining equipment and machinery for its Maihar cement unit. The expansion project was completed early in 1996 and production was approaching capacity (1 million TPY) by October 1996 as indicated in the table below. 78 Annex VII Clinker Production Tons Cement Production Tons March 1996 47000 41795 April 1996 32965 43051 May 1996 61440 48196 June 1996 72080 72273 July 1996 76380 71265 August 1996 66250 69108 September 1996 52925 62710 October 1996 80970 85031 At Manikgarh, the subproject consisted of the importation and installation of equipment to close circuit the cement mill so that the plant could grind finer particles and produce high quality portland cement. This subproject utilized US$2.29 million from the World Bank line of credit. B. Indian Rayon and Industries Ltd. Another member of the Birla Group, this company is also a conglomerate engaged in the manufacture of rayon, carbon black, flax and worsted yarn, cotton and synthetic textiles, electrical insulators, argon gas, seawater magnesia, fertilizers, petrochemicals, polyester yam, portland and white cements, as well as the generation of electric power and provision of a cellular phone system. The company has one cement manufacturing plant at Malkhed in Karnataka (Rajashree Cement) consisting of three cement kilns with a total capacity of around 3.15 million tons per annum. The most recent addition which was completed in August 1995 (unit 3 - 1.2 million ton capacity) is a modem plant using the most up-to-date technology with the dry process. This plant is located next to an extremely prolific quarry, containing in excess of 480 million tons of limestone. The company has currently obtained rights to a surface lease of 633 acres with an estimated remaining reserves of 117 million tons (to the depth of only 30 meters), sufficient to meet the requirements of the plant for nearly 30 years. Some of the plant's performance indicators are shown in the following table. Indian Rayon - Rajashre Cement Clinker Cement Limestone Coal Fuel Power Total Sales Operating Production Production Consumed Consumed Consumption Consumption Rp Million Profit Thousand Thousand Thousand Thousand Kcal/Kg KwH/Ton Rp Million Tons tons Tons Tons 1986-87 554.8 598.7 831.9 121.8 NA NA 616.0 117.1 1987-88 431.0 458.7 641.7 96.4 NA NA 485.0 76.1 1988-89 480.0 521.9 716.1 105.0 NA 142.3 558.3 70.3 1989-90 656.1 663.1 981.9 141.9 NA 129.4 790.0 106.1 1990-91 985.5 865.5 1397.6 215.0 NA 136.2 1196.4 295.3 1991-92 1265.1 1222.3 1831.9 280.7 NA 121.0 2036.5 322.4 1992-93 1089.1 1100.1 1537.0 235.8 NA 114.9 1846.9 286.9 1993-94 1651.8 1612.3 2324.2 337.9 784 115.5 2761.3 355.4 1994-95 1763.8 1679.8 2518.6 396.3 788 112.5 3386.5 609.0 1995-96 2217.6 2361.7 3081.6 469.0 792 115.5 5235.6 1282.9 1996-97 (6 Months) 1359.7 1430.3 1881.9 277.9 772 NA 3366.3 831.0 '-4 Annex VII 80 The company utilized the line of credit for financing four subprojects: two for balancing and debottlenecking, one for process improvement and one for energy saving as follows: (US$ million) Installation of wagon tippler for coal unloading 0.876 Installation of wagon/truck loader, electronic packer 2.329 Installation of captive thermal plant 0.953 Installation of roller press for raw mill 0.906 Total 5.064 C. Birla Jute and Industries Ltd. A third member of the Birla Group, this conglomerate applied for three loans from the line of credit in the total amount of US$10.6 million as follows: (US$ million) Coal Beneficiation 2.000 Dust Separators 6.105 Mining Equipment 2.510 Total 10.615 The first subproject was the procurement of a coal benefication plant at Chittorgarh in order to upgrade high ash coal received from Coal India Ltd. and to reduce energy consumption. This subproject also aimed at modifying the clinker cooling table at Chittorgarh, Rajasthan. The second subproject was intended for energy conservation by installing 15 special high efficiency separator units on raw and cement grinding mills at Satna, Chattorgarh as well as at Durgapur Cement Works (West Bengal). With the third financing the company procured earth moving equipment and a shunting diesel locomotive for its cement units at Satna, Madhya Pradesh and Chittorgarh. The mining equipment consisted of one hydraulic excavator, nine 32 ton dumpers, one blast hole drill, two hydraulic rock breakers and two heavy duty bulldozers. These equipment were needed to increase mine capacity and as replacement for old machinery. D. Chettinad Cement Corporation Ltd. A Proffle The company received a license for the manufacturing of 400 thousand tons of cement in the Tamil Nadu State during 1963. Two kilns each with a capacity of 600 tons per day using the wet process were commissioned in 1968 and 1970, respectively. The plant remained at this capacity for the next 16 years with cement production reaching 451 thousand tons in 1985-86. The modernization project started in 1986 and the new dry kiln with a daily capacity of 1700 tons (3.8 meters diameter and 58 meters long) was commissioned in march 1989. The new process consisted of vertical roller mills (VRM) for grinding limestone, a five stage preheater/procalciner kiln and lignite drying and grinding equipment. For environmental protection and dust control, 7 electrostatic precipitators and 20 bag filters were also installed. 81 Annex VII Utilization of World Bank Financing The Chettinad Cement Corporation was the beneficiary of a small amount of financing from the line of credit. Depending primarily on its own resource generation for investment and relying on the Indian market for the procurement of cement machinery and equipment, this company borrowed only US$1.335 million from the line of credit (Loan 2661-IN). Its main lenders were, however, the Industrial Finance corporation of India (IFCI) who along with IDBI, ICICI and the Unit Trust of India provided the main part of the funds for the wet to dry process conversion and other modification facilities. Results After the commissioning in 1989, the plant could not reach capacity production because of the problems with both the coal and the lignite mills. These problems arose with raw material vertical roller mills. Even though the life of the rollers were guaranteed for 5000 hours of service, they would deteriorate quickly and had to be changed. Moreover, the mill would not reach its rated capacity of 170 tons per hour. After extensive discussion, the company reached an agreement with the manufacturers of VRM for the transfer of automatic welding technology in order for the company to repair and harden the rollers on the site. With the completion of modifications and repairs on all the mills, the plant reached capacity production in 1990-91 as shown in the table below. Chettinad: Production Performance - Thousand Tons Portland Clinker Portland Pozzolano Year Production Cement Cement Other Types Total 1985-86 390.3 28.8 407.6 14.4 450.8 1986-87 418.7 43.6 311.4 12.1 467.1 1987-88 367.9 68.2 365.5 12.4 446.1 1988-89 (9 months) 288.8 49.3 248.7 2.6 300.6 1989-90 328.6 143.1 231.9 1.1 376.1 1990-91 533.8 239.8 347.6 - 587.4 1991-92 658.5 234.7 466.0 - 700.7 1992-93 659.0 186.2 546.3 - 732.5 1993-94 643.2 180.7 534.3 - 715.0 1994-95 710.0 229.0 616.5 - 845.5 1995-96 783.0 218.3 696.2 - 914.5 Once the production of the kiln was stabilized during 1990-91, further investments were made in the plant and the raw material rail delivery system was repaired and modified to increase the capacity from 22 to 36 wagons per convoy. The installation of a stacker/reclaimer at the plant reduced the variation in the quality of the raw material. Currently, the plant continues its gradual approach toward higher productivity from the existing kiln. A vertical roller mill is scheduled to come on stream during December 1997 for cement grinding. This is expected to reduce power consumption from 40 to 25 KwH per ton of cement. Simultaneously, the plant is Annex VII 82 modifying its clinker cooling bed to controlled flow gates for better and more uniform cooling of clinker. With these modifications, the company expects to reach a capacity of around 2700 tons per day. Already in 1995-96, the plant produced at 152 percent of its capacity by fine tuning the various parts of the plant and removing bottlenecks. During the first 8 months of the 1996-97 campaign, the clinker production had reached 516,000 ton, matching the previous year's performance. Human Resource Development and Quality Control The company currently employs 1095 persons: 134 are executives; 145 are staff; and, 816 are regular and contract operators. Executives and staff are mostly graduates of technical and commercial colleges and institutes. The skilled operators usually possess technical certificates or certificates of competence from accredited institutions. All the categories of personnel undergo periodic external and internal training. Some fifty training courses have been offered in recent years ranging from energy audit to instrumentation, process control automation, major repair of the rotary kiln and environmental management. Next to the Control Room at the plant, the company has set up a highly equipped quality control laboratory including the latest x- ray and laser analyzers. Such quality control equipment are necessary for continuous checks on variables and process modifications. With the high quality of its products, the company has already received ISO 9002 certification. Technical Performance Indicators With continuous fine training and upgrading of equipment, the plant's performance has improved every year since 1990-91. Some of the technical indicators are shown in the following table. 1990-91 1991-92 1992-93 1993-94 1994-95 1995-96 Roty Kiln No. of Days Running in Year 285.0 308.0 308.0 307.0 328.0 339.0 Output tons per hour 78.2 87.4 89.2 87.3 90.3 96.3 Operating efficiency % 95.2 117.4 117.5 114.7 126.6 139.6 Fuel consumption ton coal per ton clinker 0.201 0.201 0.207 0.205 0.189 0.175 Cament Capacity Utilization% 97.9 116.8 122.1 119.2 140.9 152.4 Power consumption KwH/ton cement 122.4 113.3 114.1 118.0 111.6 102.5 Profitabilt The following Table shows the income statement of the company since 1986-87. Chettinad Cement - Income Statement (Rupees million) 1986-87 1989-90 1990-91 1991-92 1992-93 1993-94 1994-95 1995-96 Net Sales 328.7 437.4 861.7 1096.7 1334.8 1382.4 1789.5 2166.5 Other income 2.5 4.6 4.2 10.5 5.8 8.0 11.9 121.7 Total Revenue 331.2 442.0 865.9 1107.2 1340.6 1390.4 1801.4 2288.2 Expenditures 282.4 381.5 590.3 768.5 1009.7 1106.0 1407.1 1472.1 Depreciation 16.8 88.5 91.6 96.4 101.0 98.8 118.2 171.3 Financial Charges 7.5 108.5 118.9 118.4 104.1 84.6 76.0 131.7 Total Expenditure 306.7 578.5 800.8 983.3 1214.8 1289.4 1601.3 1975.1 Profit 24.5 (136.5) 65.1 123.9 125.8 101.0 200.1 313.1 Annex VII 84 E J.K. Udaipur Udyog Ltd. Originally this plant, located in Rajasthan, was owned by Bajaj Hindustan Ltd.. At that time an expansion plan was carried out increasing the capacity from 400 to 800 thousand TPY. In December 1993, this plant was purchased by the new owners who managed to stabilize the plant and produce at around 67 percent of capacity in the first three months of 1994. The plant was further expanded to a capacity of 900 thousand tons by the end of 1994. Ever since, the plant has been operating at near capacity and the company has turned the corner financially and become profitable during 1995-96 fiscal year. The operational performance of this company and the technical indicators of the plant are given in the following table. Coal Electricity Capacity Production Capacity Consumption Consumption Thousand Thousand Utilization Total Sales Profit Rp Kg/Ton of KwH/ton tons Tons % Rp Million Million Cement Cement 1993-94 (3 Months) 200 134.1 67.0 212.6 (22.1) 229 118.6 1994-95 825 757.1 91.8 1375.1 (35.1) 222 117.3 1995-96 900 781.2 86.8 1680.4 57.2 231 120.1 This subproject utilized US$692 thousand from the line of credit in order to finance a portion of cost of installing a precalciner needed to increase capacity from 400 to 800 thousand tons. F. Associated Cement Industries Ltd. As indicated in Annex I above, the Associated Cement Companies Ltd. is the second largest producer of cement in India, placed after the Birla Group. ACC received three loans from the World Bank financing under Loan 2660-IN. It also presented two subprojects to ICICI and received financing as follows: US$ Million ACC Madukkarai 1.069 ACC Research and Consultancy Directorate .860 Total 1.929 At Madukkarai, the funds helped partly to defray the cost of imported equipment and machinery associated with the conversion of wet process into filter process technology. ACC's Research and Consultancy Directorate has a Central Research Station located at Thane, Maharashtra. It offers a range of consultancy services including project conceptualization, engineering design, contracting and construction and eventual management of not only cement plants, but also other process industries. In addition to project consultancy and turn key services, the Directorate's 85 Annex VII research activities cover pilot plant studies in diverse fields such as development of oil well cement, refractories, molecular sieves, adsorbents and catalysts, specialty chemicals and new high purity compounds. The Directorate has also carried out consultancy assignments abroad: environment management and energy conservation in China, mini-cement plants in Yeman and capacity increase for Yaubu Cement Company in Saudi Arabia (ACC also had a long-lasting management contract with this company). The funds from the line of credit was used for the purchase of new laboratory equipment for ACC's research center. G. J. K. Synthetics Ltd. This company is engaged in the manufacturing of synthetic fibers (nylon filament yarn, polyester staple fiber and yam and acrylic staple fiber), nylon tire cord, portland and white cement and plastic tubes. The company's portland cement plant at Nimbahera, Rajasthan, has a capacity of 1.54 million tons, but it has been operating at above capacity in recent years as shown below: Electric Heat Energy Capacity Production Consumption Consumption Thousand Thousand Capacity Kcal/Kg KwH/Ton Tons Tons Utilization % Clinker Cement 1986-87 1140 900.0 79 1987-88 1140 1161.3 102 1988-89 1540 1225.2 79 938 135 1989-90 1540 1545.2 100 877 132 1990-91 1540 1612.7 105 868 127 1991-92 1540 1572.0 102 875 123 1992-93 1540 1590.1 103 845 118 1993-94 1540 1628.7 106 858 121 1994-95 1540 1758.8 114 850 120 The company borrowed US$2.245 million from the World Bank line of credit in order to procure and install a precalciner and other balancing equipment on one of the kilns at Nimbahera and raise the capacity of the plant from 1.14 to 1.54 million tons. This modernization and expansion was completed in 1987-88 and soon thereafter the plant reached capacity production in 1989-90. Ever since the plant has been consistently producing above the rated capacity with steady improvement in the technical indicators, especially energy consumption per ton of clinker produced. H. Mangalam Cement Ltd. Located at Morak, Rajasthan, the company belongs to the B.K. Birla Group. It undertook the construction of a new cement unit in order to increase capacity from 400 thousand tons to 1.09 million tons per annum. The expansion consisted of 2000 ton per day dry process kiln, a five stage preheater and precalciner with the associated equipment. The project cost was around 1,530 million Rupees for which the company received financing in the amount of US$3.369 million from the World Bank line of credit. While the plant was completed during the first half of 1996, the production had not yet stabilized in November of 1996. Annex VII 86 I. 3. K. Corp Ltd. (Formerly known as Shaw Products Ltd.) In 1988, Laksmi Cement (a division of J. K. Corp Ltd.) located at Sirohi Rd., Rajasthan, undertook a balancing/modernization and energy conservation scheme at a total cost of Rs 105 million for which it borrowed US$.739 million from the line of credit. By implementing this subproject, the plant achieved around 3-5 per cent savings in energy consumption as well as enhanced productivity. The company also borrowed US$1.453 million from the line of credit to defray the cost of technical services provided by an expatriate company. In March 1991, Laksmi Cement undertook a brand new projec to increase capacity by 0.9 million tons. This latter project received financing under the Bank's second loan (3196-IN). 87 Annex VIII A. Project Costs (Million US$ Dollars) Loan 2660-IN Appraisal Estimates Actual/Latest Estimates Item Local Foreign Total Local Foreign* Total Costs Costs Costs Costs Original 1. ACC Madukkarai 21.00 13.00 34.00 21.99 12.57 34.57 2. Birla Jute/Satna 23.90 24.70 48.60 19.31 20.06 39.37 3. India Cement 34.30 38.60 72.90 35.29 35.29 70.57 4. KCP Cement 13.80 4.70 18.50 19.50 6.30 25.80 Later Substitutions 5. IDCOL Cement 37.12 26.00 63.13 26.23 27.00 53.23 6. Kalyanpur Cement 36.28 27.00 63.28 43.31 26.01 69.32 7. Birla Chittorgarh 14.27 19.85 34.12 10.41 19.43 29.84 8. Gagal Modernizing 8.14 7.92 16.06 5.66 7.48 13.14 9. Mines Modernizing & Energy Saving 6.16 7.78 13.94 6.98 7.24 14.22 Total 194.97 169.55 364.52 188.67 161.39 350.06 Loan 2661-IN Various improvements 52.30 36.50 88.80 40.00 35.00 75.00 18 plants From Loan 2660-IN, GOI retained $1.5 millon for training for the industry B: Project Financing Loan 2660-IN Appraisal Estimates Actual/Latest Estimates Item Local Foreign Total Local Foreign* Total Costs Costs Costs Costs 1. IBRD 165.00 165.00 161.39 161.39 2. IDBI/ICICI 122.40 122.4 93.25 93.45 3. Equity/Internal Cas 77.12 77.12 95.42 95.42 Total 199.52 165.00 364.52 188.67 161.39 350.06 Loan 2661-IN 1. IBRD 35.00 35.00 34.50 34.50 2. ICICI 18.30 18.30 20.64 3. Equity/Internal Cas 35.50 35.50 19.86 19.86 Total 53.8 35.00 88.80 40.50 34.50 75.00 *Foreign Costs strictly represent financing required for purchases under ICB.  89 Annex IX Geographical Distribution of Cement Producing Capacity in India (Capacity million tons) Northem RegiQn O35 Union Territory of Delhi .50 Haryana .58 Himachal Pradesh 2.65 Punjab 1.05 Rajasthan 10.29 Uttar Pradesh 3.09 Other .20 Eastemn Region 238 Bihar 4.35 Orissa 1.76 West Bengal .87 Assam .20 Meghalay .5 Southen Region 23.91 Tamil Nadu 11.72 Karnataka 6.77 Kerala 0.42 Westem Region 386Q Maharashtra 6.71 Gujarat 8.28 Madhya Pradesh 23.61 Total 324  91 Annex X Assumption for ERR Calculations 1. Future production of ACC's Madukkarai, Birla's Satna, Indian Cement's Sankarnagar and KCP's Macherla plants will remain at the level aachieved in 1995/96. 2. The Kalyanpur plant will reach full capaacity production of one million tons in 1998-99 as follows: 1995/96 550 Thousand Tons 1996/97 750 1997/98 900 1998/99 1000 3. IDCOL plant will need full capacity of 860 thousand tons per year by 1999-2000 in the following steps: 1995/96 470 Thousand Tons 1996/97 500 1997/98 650 1998/99 780 1999/2000 860 4. There will be no further abrupt escalation of the coal and power prices. All unit variable costs will remain at the 1995/96 level in real terms. 5. Over the next ten years the investment for capacity retention will be minimal. 6. Ex-work prices will remain at the international price level for cement (US$50 per ton). 7. Technical efficiency of the plants will remain at the levels achieved in 1995/96. IMAGING Report No.: 18OU Type: PPAR