India - Cement Industry Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. 13920-IN IMPLEMENTATION COMPLETION REPORT INDIA CEMENT INDUSTRY PROJECT (Loan 2660/2661-IN) JANUARY 23, 1995 Industry, Trade & Finance Division Country Operations Department II South Asia Region 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 (in 1985) US$1 = Rs 13.0 Rs 1 = US$0.077 (in 1994) US$1 = Rs 31.0 Rs 1 = US$0.032 FISCAL YEAR OF BORROWER April 1 to March 31 WEIGHT AND MEASURES I metric ton (ton) 1,000 kilograms (kg) = 2,204 pounds 1 milligram (mg) 0.001 gram (gm) = 0.015 grain 1 liter (1) 61.02 cubic inches = 1,057 quarts 1 kilometer (kim) = 1,000 meters = 0.621 mile 1 meter = 1.0936 yards = 39.37 1 cubic meter (m) = 35.31 cubic feet = 264 US gallons I square meter (m2) = 1.196 square yards = 10.76 square feet 1 hectare (ha) = 10,000 square meters = 11.960 square yards 1 MVA = 1,000 KVA 1 MW = 1,000 kW 1 kcal = 1,000 Cal = 0.2519 BTUs 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 Government (GOI) - Government of India ICB - International Competitive Bidding ICICI - Industrial Credit and Investment Corporation of India ICL - India Cements 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 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 FOR OFFICIAL USE ONLY IMPLEMENTATION COMPLETION REPORT INDIA CEMENT INDUSTRY PORJECT (Loan 2660/2661-IN) TABLE OF CONTENTS Preface ............................................................... i Evaluation summary ................................................... ii- vi Part I - PROJECT IMPLEMENTATION ASSESSMENT A . B ackground . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 B. Statement/Evaluation ofObjectives ....................................... 1 C. Achievement of Objectives ............................................ 2 D. Implementation Record and Major Factors Affecting the Project ..................... 4 E . Project Sustainability ................................................ 5 F. Bank Perform ance ................................................. 5 G . Borrower Perform ance ............................................... 6 H . Assessm ent of Outcome .............................................. 6 I. Future O perations . .. . . . . . . .. . .. . . . . .. .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 J. Key Lessons Learned ............................................... 7 Part II - STATISTICAL TABLES Table 1 - Summary ofAssessments......................................... 8 Table 2 - Related Bank Loans. ........................................... 9 Table 3 - ProjectTim etable............................................. 10 Table 4 - Loan Disbursements .......................................... 11 Table 5 - Key Indicators for Project Implementation . ........................... 12 Table 6 - Key Indicators for ProjectOperations. ............................... 13 Table 7 - Studies Included inProject ...................................... 14 Table 8A - ProjectCosts. .............................................. 15 Table 8B - ProjectFinancing ............................................ 15 Table 9 - Economic Costs andBenefits .................................. 16-25 Table 10 - Status of LegalCovenants ...................................... 26 Table 11 - Compliance with Operational Manual Statements ........................ 27 Table 12 - Bank Resources: StaffInputs. ................................... 28 Table 13 - Bank Resources: M issions. ..................................... 29 Appendixes: A. M ission's Aide-M emoire .......................................... 30-43 B. Borrower's Contribution tolCR ...................................... 44-56 C . M ap . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57 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. -i- IMPLEMENTATION COMPLETION REPORT INDIA CEMENT INDUSTRY PORJECT (Loan 2660/2661-IN) Preface This is the Implementation Completion Report (ICR) for the Cement Industry Project in India, for which Loans 2660/2661-IN in the amount of US$200 million equivalent (US$165 million equivalent under Ln. 2660-IN to Republic of India, as borrower, and US$35 million under Ln. 2661-IN, to the Industrial Credit and Investment Corporation of India, Ltd. (ICICI) as borrower), were approved on March 20, 1986 and made effective on November 10, 1986. The loans were closed June 30, 1994, compared with the original closing date of June 30, 1992. Final disbursement took place on November 16, 1994, at which time a balance of US$3.6 million was cancelled. The ICR was prepared by a mission' which visited India in June/July 1994, reviewed by Luis Derbez, Chief, Country Operations, Industry, Trade and Finance Division, and Kazuki Uchimura, Project Adviser, Country Department II, South Asia Region. The borrowers provided comments that are included as appendixes to the ICR. Preparation of this ICR began during the Bank's final supervision mission (June 22-July 24, 1994). It is based on material in the project files. The borrowers assisted on the preparation of the ICR by contributing views reflected in the mission's aide-memoire, preparing their own evaluation of the project's execution and initial preparation, and commenting on the draft ICR. 1/ Consisting of Messrs. Uruj Kirmani (Mission Leader, Task Manager), Mogens Fog (Cement Engineer), P. Venugopal (Consultant). - ii - IMPLEMENTATION COMPLETION REPORT INDIA CEMENT INDUSTRY PORJECT (Loan 2660/2661-IN) EVALUATION SUMMARY Introduction 1. The Bank's involvement in the cement sub-sector of India began in 1979/80 with the issue of a report on the sub-sector. A heavy regulatory regime was prevailing, inhibiting private sector investments and causing cement shortages. The Bank first appraised an expansion project in the public sector, but lack of agreement on the policy issues resulted in the project being dropped. In 1982, the Government announced partial deregulation measures. The consensus in the industry was that decontrol should be done in a gradual manner, and in recognition of the new policy initiatives of the Government, the Project under review was appraised in late 1983, reappraised in May 1985 and approved by the Board in March 1986. The project was designed to benefit primarily the private sector cement plants. Project Objectives 2. The proposed project was to build on the successful dialogue between GOI and the Bank on cement subsector strategy and policy and support broadly the GOI thrust of liberalization of key productive subsectors. It was also to enable the cement industry to modernize its facilities, reduce operating costs, meet acceptable environmental standards, train operating personnel and generally improve its competitiveness in preparation for the intended policy of decontrol of pricing and output by the end of 1989/90. These objectives were well conceived and successfully achieved, ushering in a competitive market economy. Implementation Experience and Results 3. The cement industry was decontrolled from March 1989. As a result, cement capacity increased from 29 million tons in 1981-82 to 69 million tons in 1993-94. 4. Under the project, one component covered six specified private sector and one public sector cement plant for conversion from the inefficient wet process technology to the modern dry process, precalcinator technology. With later substitutions for three of the originally selected plants,2 withdrawn by their project sponsors, finally, six dry process plants have been commissioned. In one public sector plant (different from the originally selected plant), the dry process unit is expected to be commissioned by March 1995. These conversions have led to cost savings in coal and electricity beyond appraisal estimates, production of increased quantity and better quality cement and limiting of particulate emissions well below the maximum prescribed under Government's environmental regulations. 2/ ACC Shahabad, Shree Digjave Cement and CCI Mandhar were withdrawan. - iii - 5. Amendments to Loan Agreement No. 2660-IN facilitated the substitutions as mentioned above, and inclusion of three subprojects for rehabilitation and improvement of energy efficiency in existing plants. Loan Agreement No. 2661-IN had provided a credit line to ICICI for small-scale rehabilitation and modernization investments for improving energy efficiency, productivity and meeting environmental standards. Twenty subprojects were successfully implemented under this line, and their stated objectives were achieved. 6. The training component under Ln. 2660-IN was directly implemented by GOI effectively. Under this component a comprehensive manpower development study was made by an international consultant. The recommendations made in the study led to the setting up of four regional training centers, specially tailored to the requirements of individual plants within the region; and, they provided effective training and earned deep appreciation of the industry. Project Sustainability 7. Prospects for project sustainability are very favorable. Substantial reduction in operating costs has been achieved in the subprojects as commissioned. Cement productivity and production have also gone up with quality improvements. On the demand side, India's per capita consumption of cement is low and is expected to double within a decade. With the increased capacity and improvement in cement quality, India has started exporting cement mainly to neighboring countries and expects to increase it further. Project Cost, Financing, Time Schedules 8. Project Costs under Loan 2660-IN (US$165 million) were estimated at US$365 million during appraisal, and the actual costs are at US$350 million. The savings in costs are primarily due to change in Indian Rupee/US$ Dollar parity as well as due to restructured portfolio under this line of credit. Implementation delays of about two years behind original estimates occurred, partly due to some subprojects having had to be substituted as explained in para 4 and partly because of the slower learning curve of the private sector entities of ICB procurement procedures, delayed delivery of equipment and constraints from governmental regulations while they lasted. 9. Loan 2661-IN (US$ 35 million) was provided to ICICI as a credit line to support operational improvement of small subprojects. ICICI provided subloans, which were substantially utilized to improve the efficiency of twenty subprojects. The closing date for both loans was extended from June 30, 1992 to June 30, 1994 to enable effective project implementation. Under Ln. 2660-IN, out of US$165 million loan, US$161.4 million were disbursed and balance of US$3.6 million were cancelled. Under Ln. 2661- IN, out of US$35 million, US$34.5 million were disbursed and US$0.5 million cancelled). Major Factors Affecting Achievement 10. Two of the participating companies, IDCOL Cement Ltd., in the public sector and Kalyanpur Cement Ltd., in the private sector, have faced capital structure problems. The equity base of IDCOL Cement has been strengthened as an outcome of a dialogue between the Orissa State Government and Bank staff and strong support of the Ministry of Industry (MOI). The problems of Kalyanpur Cement Ltd. have been highlighted to GOI and a resolution thereof through the good offices of GOI is awaited. IDCOL, which is the only company which has not yet commissioned its conversion project, has also had some institutional problems, particularly, due to not taking timely action for training of personnel in the - iv - skills needed for the dry process technology. With Bank staff's intervention, necessary arrangements for training have since been made. 11. Inspite of the fact that a most modern plant has been installed at Kalyanpur, the financial situation of this company is highly unsatisfactory. It has been highlighted by the Bank to GOL IDBI/ICICI are currently working on proposals for financial restructuring of this company in order to strengthen its performance. Bank and Borrower Performance 12. The performance of the Bank and the Borrower is considered "highly satisfactory" in view of the complete fulfillment of the several objectives. The cooperation among the multiple agencies involved, namely the Bank, GOI and the concerned State Governments, IDBI/ICICI and several beneficiary cement companies (mostly wholly in the private sector) was exemplary. The encouraging experience with this project, even in the early stages, led to a follow-on project , "Cement Industry Restructuring Project", approved by the Board on May 15, 1990 which is currently being implemented. Findings, Future Operations and Key Lessons (i) Commitment to a project by the Government and its continuing support in the implementation has proven to be an essential factor contributing to the success of the project. (ii) A well-designed program for policy reforms and incentives for investment led to major capacity increases by the private sector, and the establishment of a freely functioning market. (iii) Regular supervision by Bank staff contributed towards timely resolution of the problems. (iv) Finally, in a project with broad objectives for developing an industry, the participation of financial intermediaries, like IDBI/ICICI, has been of crucial importance. Their interaction with the Bank has been helpful in developing a better perspective for IDBI/ICICI staff on modern technology, environmental and other issues addressed in the beneficiary sub-projects. (v) The project has demonstrated that, if one or two subprojects are appraised by Bank staff, these can serve as a model for the financial intermediaries to appraise other subprojects thus achieving the institution-building objectives of the Bank. The private sector, which initially was skeptical of the Bank's participation, has acknowledged that it has learnt significantly in technical, financial, procurement, institutional and environmental aspects, and it would appreciate catalytic role of the Bank in future projects. (vi) During the ICR mission, future operating plans were prepared by the participating project sponsors and agreed with IDBI/ICICI and the Bank. These plans highlight the future performance of these companies. Financial restructuring plans for IDCOL and Kalyanpur cement are currently under review by IDBI/ICICI. IMPLEMENTATION COMPLETION REPORT INDIA CEMENT INDUSTRY PORJECT (Loan 2660/2661-IN) PART I. PROJECT IMPLEMENTATION ASSESSMENT A. Background 1. The Bank became interested in the cement subsector in India in 1979. It issued a Cement Sub- sector Report in 1980. This report highlighted that a heavy regulatory regime (comprising licensing of plant capacities, price control, freight equalization, distribution quotas etc.), had discouraged the private sector from investing in the sub-sector and the country had suffered through years of cement shortages. GOI accepted the findings of the subsector report. It was agreed that the Bank would consider a capacity expansion project of the Cement Corporation of India (CCI) in the public sector with the objective of achieving possible liberalization of the controls. However, following appraisal of the proposed project, the dialogue with the Government of India (GOI), did not progress to the satisfaction of the Bank and the pursuit of the project was given up just prior to negotiations. In early 1982, GOI announced partial decontrol measures, and subsequently the Cement Industry Project, which was to assist the private sector primarily, was conceived so as to provide much needed foreign exchange to the industry and to substitute polluting and energy-wasting wet-process units by efficient dry-process units. This project was first appraised in late 1983, but a reappraisal for various reasons (explained in para 4) had to be done in May 1985. The Project has been implemented successfully. It has been followed by the Cement Industry Restructuring Project (Ln. 3196-IN), approved by the Bank in May 1990, and is currently under implementation. 2. Indian cement industry capacity increased from 29 million tonnes per annum (MTPA) in 1981-82 to 69 MTPA by the end of 1993. The concept of modernization by process conversion and adoption of the state of the art technology as applied under this loan, resulted in significant increases in productivity, and profitability, and acted as a catalyst for the private sector for further investments in the industry. At the same time, the Indian cement industry has established international contacts, and has become fully aware of new developments in cement manufacturing technology. With the liberalized economic policies and financial reforms, many of the Indian cement companies who have benefited from the Bank loans, have accessed international capital markets and raised funds by Euro equity issues/bonds for expanding/modernizing their plants. B. Statement/Evaluation of Objectives 3. The main objective of the project was rapid development and improving operational efficiency of the cement industry with a view to support GOI policy of liberalization and decontrol. The second objective was to convert to modern dry process technology in seven identified cement plants and selectively upgrade a number of other units to attain of higher energy efficiency and improved pollution control. In 1985, only 42% of the industry was based on outdated inefficient wet process characterized by heavy consumption of coal. The high consumption rate of Indian coal with its high ash content seriously affected the kiln capacity utilization and cement quality. A third objective was to upgrade skills of cement plant personnel through training to enable them to run modern plants efficiently. -2- 4. Looking back, it is clear that these were the right objectives and that the problems of the industry had been well understood when the project was identified and prepared. According to Bank procedures, the major beneficiary units - (seven projects were chosen at that time under Loan 2660-IN) - were individually appraised, and much time was required. Later three of the seven units dropped out after the loan became effective, two decided to defer conversion to the dry process and the third unit dropped out because of change in ownership. Amendment to the Loan Agreement became necessary and the scope of the Project had to be broadened in August 1988 (24 months after Board approval) with consequent delay in the loan closing date, to provide for inclusion of "such other companies as shall be agreed upon between the Bank and ICICI or IDBI to be participating entities" that could acquire "equipment and spares for conversion of their plants with a view to improving operating efficiency, environmental controls, product quality, labor productivity and marketing and distribution systems". Five subprojects were substituted for the three subprojects which were withdrawan by project sponsors. These events suggest that, with well defined project criteria, one or two units only need to be appraised in depth (to serve as models) and latitude then left for other units to be subsequently added. If financial intermediaries and cofinanciers are involved, such as IDBI and ICICI in this project, they may be encouraged to carryout appraisals of other units later under the Bank's supervision, do the ground work and provide all data and other information to the Bank for review of the appraisals. C. Achievement of Objectives Macroeconomic and Sector Policies 5. The rapid development of the Indian cement industry during the nine years since the project appraisal has proven that the chosen strategy and objectives have produced the desired results. Deregulation was carried out in phases and completed by GOI by March 1989. The annual cement capacity has increased from 29 million tons in 1981-82 to 69 million tons in 1992-93. The dry-process operation as a percentage of the total capacity has increased from 42% in 1985 to 84% in 1992-93. The market has become competitive, supply exceeds demand slightly, and India has commenced to export some cement. Physical Objectives and Attainment in the Sub-Proiects 6. The implementation completion mission's aide-memoire dated July 22, 1994, attached as Annex 1 together with the "Operating Plan" attached to it, gives details of the status of the nine major sub-projects and the operating targets achieved and to be achieved. As of October 1994, only one of the nine major sub-projects, i.e. IDCOL Cement Ltd., remains to be physically completed and commissioned (expected in March 1995). In all cases, the targets of savings in coal and power consumption and increases in clinker/cement production have been achieved or would be achieved in the projects under completion. Atmospheric emissions have been or would be reduced well below the norms prescribed by the government. In respect of the twenty small sub-projects under Loan 2661 IN, the set objectives have similarly been achieved. Objectives to be attained had been well defined in the SAR, and later applied in the appraisals carried out by IDBI/ICICI (and reviewed by the Bank) in sub-projects selected subsequent to Board approval. Timely action by GOI, IDBI, ICICI and the Bank in modifying the project scope in the substituted projects (para 4) contributed in achieving the project objectives over a broadened horizon than anticipated in the SAR. -3- Financial Objectives 7. The Project had the specified targets for the original seven sub-projects selected for Bank support under Ln. 2660-IN in the areas of: reduction in cost of production/ton of cement, and acceptable financial and economic rates of return on an incremental basis. Individual financial objectives were not prescribed for the small sub-projects under Ln. 2661-IN, and had also not been identified at appraisal. 8. For the four large plants which were appraised in the SAR and were converted to the dry process, about 23 percent reduction in manufacturing cost per ton of cement on average was achieved. The savings in "Cost of Sales" (See Section III, Table 9A) indicated that in all cases, the savings have exceeded SAR estimates. The FRRs and ERRs, as estimated for the nine subprojects under Ln. 2660-IN, range from 16% to 28% and hence are satisfactory. (See Section III - Tables 9B & 9C). In some cases, e.g. the current FRR and ERR estimates, although satisfactory, are lower than appraisal estimates (Table 9B and C, Section III), e.g. for KCP, FRR is estimated at 20.9% compared with SAR estimate of 37.3%. It is explained by the fact that appraisal estimates were made on the assumption of constant exchange rate of US$1= Rs. 13.0 during the period 1986-94. However, the exchange rate increased to US$1= Rs 31 in a series of uneven steps which affected the costs of sub-projects unevenly, depending upon the respective implementation schedules of the sub-projects. It is to be added that the rates of return for the IDCOL subproject which is to be commissioned in March 1995 only, and for the Kalyanpur cement project may require revisions since the former is not completed and the latter has financial problems to be resolved. Social Obiectives 9. The Project was prepared in 1985 at which time poverty alleviation and gender concerns were not explicitly addressed. Nevertheless, since cement plants are situated in remote areas of the country in proximity to deposits of limestone, the growth of the industry has triggered improvement in the economy in those areas. The owners have provided for the welfare of the employees and their families by providing health care facilities, educational institutions and supporting women's welfare associations, setting up of family camps and promoting educational and employment opportunities for women. Environment 10. Pollution Control Boards in India have specified a maximum of 150 mg/NM3 for atmospheric emissions in protected areas and 250 mg/NM3 in non-protected areas. Bank financed subprojects required all beneficiary plants to control pollution in the stacks and material transfer points through use of electrostatic precipitators, high efficiency separators, cassette filters, bag filters and bag dust collectors, as necessary. The plants regularly monitor stack gases and ambient air quality. Actual emission levels achieved are better than the regulations (all less than 150mg/NM3, some in the 75-100 mg/NM range). 11. All participating cement plants have developed green belts by planting trees. One company, for example, is in the process of planting over 240,000 trees in an area of 600 acres. Tree planting is also part of the government's scheme for replacing trees equivalent to those lost in mining lease granted in forest areas. 12. Most State Governments have introduced regulations for cement plants to submit annual environmental impact statements, reporting on levels of pollutants discharged in water and air, also on disposal of hazardous and solid wastes. The SAR for Ln. 3196-IN took note of these regulations and incorporated standards acceptable to the Bank. -4- Institutional Development 13. An aspect of development which has been of common benefit to the industry has been the establishment of four regional training centers (RTCs) for providing pre-entry, entry and refresher courses, as well as special courses tailored to the needs of individual plants from time to time. A component of Loan 2660-IN was a study on training needs which was undertaken by a well known consultant. The study correctly identified the unique structure of the Indian Cement Industry and its particular needs for training, including both skills and manpower requirements. The study outlined recommendations for a comprehensive training program based on the creation of 4-6 regional, demand driven training centers, with emphasis on 'training of trainers'. The study met with good response from the industry. The recommendations of the consultant were discussed and developed further between the Bank supervision missions and the Development Commissioner of the Cement Industry and implemented with the latter's enthusiastic support. D. Implementation Record and Major Factors Affecting the Project 14. Appraisal reports by the Bank of the original sub-projects for conversion, as well as appraisal reports by IDBI/ICICI of the major sub-projects selected later had assessed project implementation time ranging from 24 to 39 months. But the actual project implementation time ranged between 41 and 51 months. Excluding two of the major sub-projects involved (IDCOL and Kalyanpur which are discussed in the succeeding paragraphs), the most common reasons for the delays were: (i) Private Sector sub- borrowers took more time than anticipated to become familiar with ICB procedures; (ii) GOI regulations (since abolished) for issuing licenses for capacity increases and approvals to import and engage consultants took unduly long time; and (iii) unexpected delays occurred in many cases of foreign suppliers delivering equipment and materials. In regard to project costs, the total costs for the nine major sub- projects (the appraised estimate versus the actual) show decrease in US$ terms, from $365 million to $350 million. This is a result of the exchange rate changes from $1 =Rs. 13 in 1985/86 to the currently prevailing $1= Rs.31. 15. Two project sponsors (IDCOL and Kalyanpur) which are converting to the dry process under Loan 2660-IN needed financial restructuring. Originally, Hira Cement Works was a division of Industrial Development Corporation of Orissa (IDCOL), a Government of Orissa Company. IDCOL had financial problems which until early 1993 affected implementation of HIRA Cement project. Bank missions recommended to the Government of Orissa to establish Hira Cement Works as an autonomous subsidiary company, with infusion of sufficient new equity. It was accepted by the State Government. IDCOL Cement Ltd., was accordingly formed on March 31, 1993, and the Unit Trust of India subscribed to 40% of its equity (Rs.350 million) in January 1994. IDCOL Cement Ltd has now overcome the financial problems. However, its management has to adjust to its new status as an independent company to be run purely on commercial lines. The company has urgent training needs to equip itself for running the new dry-process plant. After extensive dialogues with Bank supervision missions, IDCOL has recently finalized training arrangements including on-the-job training by experts during the commissioning of the plant, expected in March 1995. 16. Kalyanpur Cement Ltd., was a 'sick' unit when the Bank approved ICICI/IDBI's recommendations in April 1990 to make it a beneficiary under Loan 2660 IN and allocated $27 million of the loan proceeds. At that time, the company's share capital of Rs. 18.75 million had been wiped out by carry-forward losses of Rs.52.4 million.The term debt amounted to Rs.400 millions. It was anticipated that the conversion to dry-process with an increase in capacity from 0.4 million TPY to one million TPY -5- would significantly improve its financial performance while meeting a substantial share of the demand in cement deficit areas of Bihar, Bengal and Nepal. GOI had also supported this project through grants from a Cement Development Fund which was to be created for the cement industry, and the Government of Bihar had proposed certain sales tax benefits. However, these measures did not materialize. IDBI and ICICI recommended assisting the company and provided Rs.321 million (equivalent to $20 million at the time). The Bank agreed with IDBI/ICICI and approved the sub-loan. In doing so, the Bank implicitly accorded exemptions with respect to these sub-projects to the financial covenants with IDBI/ICICI regarding current ratio (1.2:1), debt/equity ratio (67:33) and debt service coverage (1.2). 17. Kalyanpur continued to be beset with financial problems, mainly due to implementation delays and the adverse impact of Rupee/US$Dollar parity. IDBI/ICICI are working out financial restructuring plans with Kalyanpur management. The converted plant was commissioned in August 1994, about nine months behind the original schedule. A logistical problem which also requires urgent resolution is the improvement of the 25 km road which leads to the rail head and highways. This road is a bottleneck which impedes truck movement and affects cement production. GOI's pointed attention has been drawn to this problem. 18. On hind-sight, the Bank should have insisted upon financial restructuring as a precondition for approving these subloans for Kalyanpur and IDCOL projects. E. Project Sustainability 19. Technically, renovation and modernization have bestowed a new life on every plant covered by a sub-project. While the project focussed on replacement of the kiln and upgrading of the other plant process areas to assure sustained plant operation at new rated capacities, many of the participating companies have since carried the renovation and modernization further by replacing/ adding cement mills and other auxiliaries. Table 6 (Part II) shows that targets for reduction in coal and power consumption and costs of production have already been achieved by some of the plants in their first years of operation after conversion; the others would achieve these economies soon. The commercial outlook, however, in a free market is not entirely predictable on a year to year basis, though the long term promises to be favorable. The industry, based on historic increases in demand, had expected 1992-93 to be a boom year for demand, but demand stagnated; however, 1993-94 recorded a 6% growth, with exports of 2.8 million tons inclusive of clinker. Capacity utilization for this year was 86%. F. Bank Performance 20. The Bank performance was very satisfactory in identification, preparation, appraisal and supervision. At the identification stage, the Bank correctly diagnosed what was ailing the industry and identified the need to import the latest technology, the need to dismantle government controls etc.. With the Government willing to provide industry incentives on a phased basis, the Bank organized the preparation of a large number of sub-projects. The appraisal dealt with technical, financial, economic, environmental and training aspects. Concurrently, the Bank maintained a lively dialogue with the Government on policy strategies. An important aspect of the appraisal exercise was participation by IDBI/ICICI representatives, giving them exposure to the Bank's appraisal procedures. When some of the original sub-projects had to be dropped later, the appraisal of substitute sub-projects was carried out effectively by IDBI/ICICI. The IDBI/ICICI appraisal reports were reviewed and cleared by the Bank, and the funds were reallocated for these sub-projects. All supervision missions included representatives from IDBI/ICICI. During these missions, Bank staff tended to concentrate on ICB procurement (financed by -6- the Bank) and technical and physical progress, with IDBI/ICICI staff furnishing the supplementary inputs. 21. The Bank mounted supervision missions twice a year, during the early years (a task manager cum financial analyst, a cement expert and a procurement specialist) and two members in the years since 1991 (a task manager cum procurement specialist and a cement expert). The cement expertise has come from the same individual in all the years, from identification to ICR; the present procurement specialist was associated with the project for four years continuously. Their contribution was appreciated by the borrower and the cement companies as reflected in the views expressed in the aide-memoire (paras 7.3 & 7.4 at Annex 1). G. Borrower Performance 22. Various agencies, i.e. GOI, IDBI, ICICI and the subproject sponsors were fully committed to successful implementation of all the sub-projects and, their performance was highly satisfactory. IDBI/ICICI, along with the Bank, instituted monitoring and reporting procedures by sub-borrowers. However, later on, GOI gradually removed all controls and regulations on the cement industry but its officers in the Ministries of Finance and Industry were always keen to exchange views and comments with Bank supervision mission and to remove obstacles. IDBI/ICICI maintained a cordial working relationship with all the cement companies and assisted them in processing their disbursement requests expeditiously. In the initial years (1980-89), project progress was slow due to delay in processing of ICB procurement documents and obtaining clearances/licenses from the government agencies. The participating cement companies, by and large, managed the implementation with due speed and efficiency, except when faced with local problems (e.g. IDCOL's problem of finding local cost financing). Consultants and contractors were generally competent. The study and training aspects, as discussed in para 13, were implemented under the direction of the Ministry of Industry (MOI). H. Assessment of Outcome 23. In the sub-projects covered by Loan 2660 IN, the main performance indicators, are coal consumption, power consumption, clinker and cement output (capacity utilization) and pollution control. Agreements were reached with the beneficiary cement companies on the performance parameters to be maintained. These parameters were met and in some cases exceeded. (The details are given in Annex 2 of the mission aide memoire under "Operating Plan"). 24. The project outcome is rated as 'highly satisfactory'. The objectives of modernization, cost reduction, energy saving, environmental improvements and increases in output of clinker and cement have largely been fulfilled. The implied objective of a free market for cement has also been achieved. Financial and economic rates of return, on present estimates, are seen to be about 20% for the project as a whole. 25. The Bank loan acted as a catalyst for industry-wide investment in modern technology, and the capacity which was 29 MTPA in 1981-82 increased to 69 MTPA in 1992-93. It was also instrumental in turning the county from a cement shortage to cement surplus status by 1992-93, when it exported nearly three million tonnes of cement/clinker. Some companies have obtained ISO-900 certification for quality assurance and are setting up export oriented units. The Indian cement industry has become internationally competitive. -7- I. Future Operations 26. The Bank has an ongoing role in the Indian cement industry through Loan 3196-IN, in which the objective is cement capacity expansion in the deficit regions and the strengthening of four regional training centers and introduction of bulk cement transport technology through a pilot project. Bank missions which supervise that project would continue to monitor performance of the two cement plants involved under Loan 2660-IN; Kalyanpur Cement, and IDCOL Cement (which remained to be commissioned during the visit of the Bank's ICR mission in July 1994). Future investments in the cement subsector are planned to be met entirely by the private sector. However, GOI initiatives and support would be required by investors in the areas of innovative technology, infrastructure improvements and energy conservation. J. Key Lessons Learned 27. This project has demonstrated that: (a) commitment to a project by the Government and its continuing engagement in the implementation is an essential requirement for success. (b) policy reforms to free the market for production and trading are highly rewarding. (c) IBRD could assist in developing the private sector using the right instruments. (d) In a project with broad objectives to develop an industry as such, all sub-projects do not have to be appraised in depth at the SAR stage. Detailed criteria should, however, be formulated and only selected sub-projects need initially be appraised. Appraisal of other sub-projects should be undertaken as they are identified, within a stated period of time after loan approval. Where financial intermediaries are participating, subsequent appraisals could be done by them with the Bank reviewing the reports and ensuring that the appraisals conform to the Bank standards. (e) Financial restructuring of the beneficiary entities should be taken up-front prior to approving the financing of their investments. (f) Supervision by Bank missions must be regular and comprehensive. Trouble shooting, as in the case of IDCOL Cement, naturally falls in the domain of the Bank; traditionally Bank missions have focussed on identifying problems and proposing remedies, which underlines the importance of regular supervision. It is important to include representatives of cofinanciers/financial intermediaries at appraisal and supervision of the projects. mAindia\icr.uk IMPLEMENTATION COMPLETION REPORT INDIA CEMENT INDUSTRY PORJECT (Loan 2660/2661-IN) PART U - STATISTICAL TABLES -8- Table 1: Summary of Assessments A. Achievement of obiectives Not icble Micro, policie 12 D Sector policies 2 O O Financial objectives O O O Intituional developmen OO Physical objectives Poverty reduction5Ell Gender il O O O Other social objectves Environmental objectives 9 O O O Public swctor cangetat E Private sector development 9 O O O Other (specifY) Cl El B. Profect sustainability Lil lrikaly Di MAO O O Ol C. M2&IMStsacoyDficient vV) Vd) Prepairatiostac 2 Appraisal5 Supervision D Preparation 52 M1 Covenant complssse 5mu Opetation (if appaor wl) 5 3 A s ol S O. ad= OO 0d I d S S -9- Table 2: Related Bank Loans/Credits Loan/credit title Purpose Year of approval Status Preceding operations None Following operations India Cement Industry To support cement industry 1990 Under Restructuring Project restructuring and implementation. (Ln. 3196-IN) modernization, capacity expansion in deficit regions. m:\india\icrtbis - 10 - Table 3: Project Timetable Steps in Project Cycle Date Planned Date Actual/ Latest Estimate Identification December 5-11, 1982 December 5-11, 1982 Preparation April 3-30, 1983 April 3-30, 1983 Appraisal I September 20-October 20, 1983 November 13-December 10, 1983 Post Appraisal: March 1-12, 1984 Post Appraisal ' January 28-February 10, 1985 - Reappraisal 2 May 6-June 30, 1985 Post Apptaisal * September 1-15, 1985 September 1-15, 1985 Post Appraisal 4 November 1-15, 1985 3 Negotiations November 15, 1985 December 10, 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 m:\india\icrtbl3 1/ After the first appraisal mission, the ICB procurement issue could not be resolved with GOT during the period January 11, 1984-January 15, 1985. 2/ Reappraisal--After GOI agreed to gradual decontrol of cement prices and revised tariff on imported equipment making ICB procurement acceptable to sub-project entities, project scope was modified and the project was reappraised in May/June 1985. 3/ Post appraisal was made to clarify outstanding issues with GOI. 4/ Post appraisal mission consisting of 2 Training Specialists was made to finalize training component. - 11 - Table 4: Loan Disbursemen'is. Cumulative Estimated and Actual (US$ millions) FY86 FY87 FY88 FY89 FY90 FY91 FY92 FY93 FY94 FY95 Appraisal 6.5 53.2 127.8 175.6 193.1 198.8 200.0 200.0 200.0 200.0 Estimate Actual 0 2.6 22.1 71.5 81.5 90.5 112.5 157.9 183.6 196.5* Actual as % 0 4.9 17.3 40.7 42.2 45.5 56.3 79.0 91.8 98.2 of estimate Date of final disbursement 11/16/94 m:\india\icrtb14 - 12 - Table 5: Key Indicators for Project Implementation 1. Kc% implementations indicators in SAR Ertimated Actual I 1adukkara - last contract November 1985 October 1987 - receipt equipment June 1987 February 1989 - end civil works December 1987 January 1989 - commissioning March 1988 May 1989 implementation months 29 44 - commercial operation May 1988 May 1989 2. Sana - last contract July 1986 December 1988 I receipt equipment December 1988 July 1989 - end civil works January 1988 December 1988 - commissioning January 1989 July 1989 - implementation months 40 57 - commercial operaution June 1989 February 1990 3. Sankarnagar - last contract December 1986 July 1989 - receipt equipment May 1988 July 1993 - end civil works December 1987 April 1990 - commissioning October 1988 July 1990 * implementation months 37 59 * commercial operation June 1990 August 1990 4. KCP - last contract March 1986 March 1989 - receipt equipment January 1988 March 1991 - end civil works January 1988 March 1990 * commissioning January 1988 December 1989 - implementation months 28 52 - commercial operation January 1988 December 1989 I. Modifled indicators 1. [DCOL - last contract Febrary 1992 Sept. 1993 * receipt equipment May 1992 May 1994 * end civil works December 1991 N/A * commissioning June 1993 N/A * implementation months 24 N/A - commercial operation June 1993 NIA 2. Kalyanpur - last contract August 1992 N/A .receipt equipment November 1991 February 1994 - end civil works June 1991 March 1994 - commissioning August 1992 N/A - implementation months 39 N/A - commercial operation December 1992 N/A 3. Gagal BMR - last contract April 1992 April 1992 - receipt equipment April 1992 January 1993 - end civil works May 1992 February 1993 * commissioning June 1992 October 1993 - implementation months 24 27 - commercial operation October 1992 March 1992 4 Chator . last contract March 1991 August 1993 - receipt equipment May 1992 May 1994 - end civil works February 1992 August 1992 - commissioning June 1992 Sept. 1994 - implementation months 22 23 * commercial operation Sept. 1992 March 1993 III Other Indicators N/A - 13 - Table 6: Key Indicators for Project Operations I. Ke, Operating indicalors in SAR Estimated Actual Idukkarai f fuel trTiciencv 1040 995 KC36kg. - power efficiency 120 103 WIAUL cemL - prod. cem. 520 721 1000 tpy 2. Satna - fuel eMTiciency 830 783 KcabAg. - power emciency 119 107 KwiVL CeML - prod. cern. 750 800 1000 tpy 3. Sankarnagar - fuel efficiency 850 826 Kcalkg. - power efficiency 120 119 Kwhi cemL - prod. cem. 1042 1030 1000 epy 4. KCP - fuel efficiency 800 727 Kcal/kg. - power efficiency 120 124 KwhIL cemIL - prod. cen. 375 375 1000 tpy II. Modified indicalors 1. IDCOL - fuel efficiency 810 N/A Kcal/kg. - power efficiency 105 N/A Kwh/L cenL - prod. cem. 1000 N/A 1000 tpy 2. Kalyanput - fuel effciency $20 N/A Kcal/g. * power efficiency 98 N/A KwhL camL - prod. cem. 105 N/A 1000 tpy 3. Gagal BMR - fuel emciency 908 859 Kcal/kg. - power efficiency 95 95 Kwh/L CemL - prod. cen. 1020 1060 1000 tpy 4. Chittor f fuel efficiency 775 737 Kcal/kg. -power efticiency 112 107 Kwh/L cemL - prod. cem. 1400 1470 1000 tpy III Other Indicators N/A - 14 - Table 7: Studies Included in Project Purpose as defined Study at appraisal/redefined Status Impact of study Indian Cement Industry: To establish basis for training Completed Recommendations Study of Manpower & strategy. implemented. Skills Requirements mA\india\imnbis - 15 - India Cement industry Project Appraisal Estimates ($MM Actual/Latest Estimates ($MM Local Foreign Local Foreign' Item Costs Costs Total Costs Costs Total 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 Modernizg } 6.16 7.78 13.94 6.98 7.24 14.22 & Energy Saving Total 194.97 169.55 364.52 188.67 161.39 350.06 Various Improve- ) 52.3 36.5 88.8 40.00 35.00 75.00 ments to 20 plants From Loan 2660-IN, GOI retained $1.5 million for training for the industry. Foreign Costs strictly represent financing required for purchases under ICB purchases. Appraisal Estimates ($MM Actual/Latest Estimates ($MM Local Foreign* Local ForeignI Item Costs Costs Total Costs Costs Total 1 IBRD 165.00 165.00 161.39 161.39 2 IDBI/ICICI 122.40 122.40 93.25 93.25 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 1 IBRD 35.00 35.00 34.50 34.50 2 ICICI 18.30 18.30 20.64 20.64 3 Equity/Internal Cas 35.50 35.50 19.86 19.86 Total 53.80 35.00 88.80 40.50 34.50 75.00 Foreign Costs strictly represent financing required for purchases under ICB purchases. India Cement Industry Project Table 9(i): ACC-MADUKKARAI ERR (1994 RS Const) Rs Million Year' ..& ment -lduco Wetproces ry proces Wet prces Dry pos Wt p1proo D o npost iThousa ndtonn CO* CNk R"Nue lRevenle NetCah NetCash i WtTake Wet tky (Py-wsq, 1986 195.73 -195.73 -195.73 1987 434.73 -434.73 -434.73 1988 191.30 -191.30 -191.30 1989 380 422 490.04 418-01 574.20 637.66 84.16 219.66 135.50 1990 380 551 490.04 545.79 574.20 832.59 84.16 286-80 202.64 1991 380 536 490.04 530.93 574.20 809.92 84.16 278.99 194.83 1992 380 617 490.04 611.16 574.20 932.32 84.16 321.15 237.00 1993 380 624 490.04 618.10 574.20 942.90 84.16 324.80 240.64 1994 380 624 490.04 618.10 574.20 942.90 84.16 324.80 240.64 1995 380 624 490.04 618.10 574.20 942.90 84.16 324.80 240.64 1996 380 624 490.04 618.10 574.20 942.90 84.16 324.80 240.64 1997 380 624 490.04 618.10 574.20 942.90 84.16 324.80 240.64 1998 380 624 490.04 618.10 574.20 942.90 84.16 324.80 240.64 1999 380 624 490.04 618.10 574.20 942.90 84.16 324.80 240.64 2000 380 624 490.04 618.10 574.20 942.90 84.16 324.80 240.64 2001 380 624 490.04 618.10 574.20 942.90 84.16 324.80 240.64 2002 380 624 490.04 618.10 574.20 942.90 84.16 324.80 240.64 2003 380 624 490.04 618.10 574.20 942.90 84.16 324.80 240.64 2004 380 624 490.04 618.10 574.20 942.90 84.16 324.80 240.64 2005 380 624 490.04 618.10 574.20 942.90 84.16 324.80 240.64 ERR 20.2% Soulce: AJ data from ACC. Al duties and taxes exempted and IDc exclded India Cement industry Project Table 9 li): India Cement Ltd. ERR (1994 RS Const.) Yes Ro~du~llon Production Cos Costs Revenue Revenue Net Cath tiet Cash DMeience Costs .kyPo . Wol Pr9a Dry Proe WePm, Dy Pro Wqt pr. Dry PMc wet PrM in Net Cas ALM Ro.M Rr.NIM .R&MM mmu Rs MMy.W FY 1987 27.4 -27.38 0.00 -27.38 1988 197.6 -197.60 0.00 -197.60 1989 760.4 -760.39 0.00 -760.39 1990 495.4 -495.36 0.00 -495.36 1991 81.5 726 562 883 1000 1252 969 287.85 -30.47 318.31 1992 17.5 824 550 1002 978 1421 948 401.74 -29.82 431.55 1993 4.7 1010 546 1228 971 1742 942 509.22 -29.60 538.81 1994 30.1 1028 543 1250 966 1773 936 492.93 -29.44 522.36 1995 5.0 984 543 1196 966 1697 936 495.64 -29.44 525.08 1996 1030 543 1252 966 1776 936 524.04 -29.44 553.48 1997 1030 543 1252 966 1776 936 524.04 -29.44 553.48 1998 1030 543 1252 966 1776 936 524.04 -29.44 553.48 1999 1030 543 1252 966 1776 936 524.04 -29.44 553.48 2000 1030 543 1252 966 1776 936 524.04 -29.44 553.48 2001 1030 543 1252 966 1776 936 524.04 -29.44 553.48 2002 1030 543 1252 966 1776 936 524.04 -29.44 553.48 2003 1030 543 1252 966 1776 936 524.04 -29.44 553.48 2004 1030 543 1252 966 1776 936 524.04 -29 44 553.48 2005 1030 543 1252 966 1776 936 524.04 -29.44 553.48 ERR :_A__data_from_ndia_C_rnent._D26s0% So~~: ABdata from inda C~mnt. Dubes and taxes exempted and IDC exdudd. - India Cement Industry Project Table 9 (iii) Sia Satna- ERR (1994 Rs. Const.) Rs Milion ' Ydar dep*mPrdn. ' e Wegeoo~ 'fjiooces ,tp'roes ' Dyprcos Welproces ' Dyprooes - #eec 4 ~ Past Wt goss Rewue Revnue NetCash Net Cash in Not Ta 1988 173.41 -173.41 -173.41 1989 624.92 -624.92 -624.92 1990 175.91 -175.91 -175.91 1991 580 840 589.98 641.26 580.00 840.00 -9.98 198.74 208.72 1992 580 780 589.98 595.45 580.00 780.00 -9.98 184.55 194.52 1993 580 850 589.98 648.89 580.00 850.00 -9.98 201.11 211.09 1994 580 870 589.98 664.16 580.00 870.00 -9.98 205.84 215.82 1995 580 870 589.98 664.16 580.00 870.00 -9.98 205.84 215.82 1996 580 870 589.98 664.16 580.00 870.00 -9.98 205.84 215.82 1997 580 870 589.98 664.16 580.00 870.00 -9.98 205.84 215.82 1998 580 870 589.98 664.16 580.00 870.00 -9.98 205.84 215.82 1999 580 870 589.98 664.16 580.00 870.00 -9.98 205.84 215.82 2000 580 870 589.98 664.16 580.00 870.00 -9.98 205.84 215.82 2001 580 870 589.98 664.16 580.00 870.00 -9.98 205.84 215.82 2002 580 870 589.98 664.16 580.00 870.00 -9.98 205.84 215.82 2003 580 870 589.98 664.16 580.00 870.00 -9.98 205.84 215.82 2004 580 870 589.96 664.16 580.00 870.00 -9.98 205.84 215.82 2005 580 870 589.98 664.16 580.00 870.00 -9.98 205.84 215.82 ERR 16.7% Source: Sa Jute & Indusries Ltd. except for nwenue. Revenue per ton taken at FOB export price of $50 ($1=Rs.31) less ral freit of Rs.539ton to Kändla (in wagon loads). Taxes, excse duties and IDC excluded. Nota: Chltorga,h sub-project is Idn cal except that t is later in im. No vanance in FRPJERR expected. India Cement Industry Project Table 9(iv) KCP Ltd. ERR (1994 Rs Gonst) Rs. Milion Coat Thoumnd Thousand Costs Costs Revenue RtWnue Nt Cash Net Cash n Net Take --- wet [ Pv-wel) 1987 85.95 -85.95 -85.95 1988 344.04 -344.04 -344.04 1989 137.77 138 138 242.63 177.50 168.09 189.51 -74.54 -125.75 -51.21 1990 63.95 144 144 242.63 185.21 168.09 197.75 -74.54 -51.42 23.12 1991 15.05 144 210 242.63 270.10 168.09 288.39 -74.54 3.23 77.77 1992 144 324 242.63 416.73 168.09 444.95 -74.54 28.21 102.75 1993 144 330 242.63 424.45 168.09 453.19 -74.54 28.73 103.27 1994 144 375 242.63 482.33 168.09 514.98 -74.54 32.65 107.19 1995 144 400 242.63 531.12 177.94 581.50 -64.69 50.38 115.07 1996 144 400 242.63 529.53 177.94 581.50 -64.69 51.97 116.66 1997 144 400 242.63 529.60 177.94 581.50 -64.69 51.90 116.59 1998 144 400 242.63 529.60 177.94 581.50 -64.69 51.90 116.59 1999 144 400 242.63 507.00 177.94 581.50 -64.69 74.50 139.19 2000 144 400 242.63 507.00 177.94 581.50 -64.69 74.50 139.19 2001 144 400 242.63 507.00 177.94 581.50 -64.69 74.50 139.19 2002 144 400 242.63 507.00 177.94 581.50 -64.69 74.50 139.19 2003 144 400 242.63 507.00 177.94 581.50 -64.69 74.50 139.19 2004 144 400 242.63 507.00 177.94 581.50 -64.69 74.50 139.19 2005 144 400 242.63 507.00 177.94 581.50 -64.69 74.50 139.19 ERR 15.7% Soume. KCP Ltd. Dty Cost data used. Wet process costs taken at 20% higherperon, based on savings indicated Safes reenue from wet process decreased by 15% as set off for capital maintenance in continung wet process India Cement Industry Project Table 9 (v) IDCOL Cement LTD.ERR Rs. Milion (1994 Rs.Const) FY Capital Cement Cement Dry poos Net proces Cry proces Net proces Ory pmoes Weproces Diffemenoe Co6t Dr Prodn Wet Proch Cos Cose Revenue Revenue Net Cash Net Cash n Net Take - t - 0 tons 000 okm (Dy-Wel) 1992 94.101 -94.10 -94.10 1993 522.14 -522.14 -522.14 1994 654.87 -654.87 -654.87 1995 49.43 -49.43 -49.43 1996 188,62 720 565 607.98 615.19 956.47 637.72 159.88 22.52 137.36 1997 816 565 684.94 611.79 1072.22 631.05 387.28 19.26 368.02 1998 816 565 762.26 680.85 1198.37 705.29 436.11 24.44 411.67 1999 816 565 764.79 683.11 1198.37 705.29 433.58 22.18 411.40 2000 816 565 767.46 685.49 1198.37 705.29 430.91 19.80 411.11 2001 816 565 770.25 687.99 1198.37 705.29 428.12 17.30 410.81 2002 816 565 773.19 690.61 119837 705.29 425.18 14.68 410.50 2003 816 565 77627 693.36 1198.37 705.29 422.10 11.93 410.17 2004 816 565 779.51 696.25 1198.37 705.29 418.86 9.04 409.83 2005 816 565 782.90 699.29 1198.37 705.29 415.47 6.00 409.46 ERR 16.6% Source: IDCOL Jd.. Dry process costs as estimated. Wet process costs taken 29% higher per ton. Duties, taes and IDC excluded. Sales revenue from wet process decreased by 15% as set off for capital maintenance in continuing wet process India Cement Industry Project Tabk 9(vi): ACC-MADUKKARAI FRR R&. Wion 1986 90.00 -90.00 -9000 1987 227.00 -227.00 -227.00 1988 138.00 -138.00 -138.00 1989 380 422 28880 293.56 318.96 354.21 30.16 60.65 30.49 1990 380 551 329.23 395.79 349.59 506.91 20.36 111.12 90.76 1991 380 536 375.32 428.88 448.32 632.37 73.00 203.49 130.49 1992 380 617 427.87 530.20 490.53 796.46 62.66 266.26 203.60 1993 380 624 487.77 615.69 540.79 888.04 53.02 272 35 219.33 1994 380 624 556.06 618.10 574.36 943.16 18.30 325.07 306.76 1995 380 624 556.06 618.10 574.36 943.16 18.30 325.07 306.76 1996 380 624 556.06 618.10 574.36 943.16 18.30 325.07 306.76 1997 380 624 556.06 618.10 574.36 943.16 18.30 325.07 306.76 1998 380 624 55606 618.10 574.36 943.16 18.30 325.07 306.76 1999 380 624 556.06 618.10 574.36 943.16 18.30 325.07 306.76 2000 380 624 556.06 618.10 574.36 943.16 18.30 325.07 306.76 2001 380 624 556.06 618.10 574.36 943.16 18.30 325.07 306.76 2002 380 624 556.06 618.10 574.36 943.16 18.30 325.07 306.76 2003 380 624 55606 618.10 574.36 943.16 18.30 325.07 306.76 2004 380 624 55606 618.10 574.36 943.16 18.30 325.07 306.76 2005 380 624 556.06 618.10 574.36 943.16 18.30 325.07 306.76 FRR 28.2% Sou:e: Al do km ACC.l d~ sdtxe exempted. India Cement Industry Project Table 9 (vii): India Cement Ltd. FRR t82& ~ w n ds& ~ ''~ I eon. R~eu Nef Cach tjat Cash .frno Dy Proces Wet Proc. ·.y Proces WetPIo Dry Proces Wet Pro". Dry Pro~s Wet Proc n Net Cash Rs MU 00 00 ' Rs.M• Rs.MM RMM Rs.10M Rs.M RsMM (Ory-Wet FY 1987 13.7 -13.7 0 -13.7 1988 109.6 -109.6 0 -109.6 1989 454.9 -454.9 0 -454.9 1990 374.4 -374.4 0 -374.4 1991 58.8 726 562 707 594 975 782 208.8 188.2 20.6 1992 14.1 824 550 831 721 1221 809 376.3 87.8 288.5 1993 4.2 1010 546 1057 846 1552 869 490.9 23.1 467.8 1994 30.1 1028 543 1257 971 1690 942 402.9 -29.6 432.5 1995 5.0 984 543 1342 997 1723 951 375.8 -46.8 422.6 1996 1030 543 1399 1005 1802 951 403.2 -54.5 457.7 1997 1030 543 1399 1005 1802 951 403.2 -54.5 457.7 1998 1030 543 1399 1005 1802 951 403.2 -54.5 457.7 1999 1030 543 1399 1005 1802 951 403.2 -54.5 457.7 2000 1030 543 1399 1005 1802 951 403.2 -54.5 457.7 2001 1030 543 1399 1005 1802 951 403.2 -54.5 457.7 2002 1030 543 1399 1005 1802 951 403.2 -54.5 457.7 2003 1030 543 1399 1005 1802 951 403.2 -54.5 457,7 2004 1030 543 1399 1005 1802 951 403.2 -54.5 457.7 2005 1030 543 1399 1005 1802 951 403.2 -54.5 457.7 FRR 28.0% Souce: AM data from India Cement Dufles and taxes exempted. India Cement Industry Project Table 9(vil) Bida-Satna FRR -__Rs Million Yea Captl Cement Prodn. Wet proces Dry proces Wet proces Dry proces Wat proces Oryproose Dffence Cm Wet Dry Cot CDt Reven Revenue Net Cash- Net Cash n Net Take 000 tonts 000 long. 1988 108.38 -108.38 -108.38 1989 433.26 -433.26 -433.26 1990 180.53 -180.53 -180.53 1991 580 840 589.98 641.26 563.18 815.64 -26.80 174.38 201.18 1992 580 780 589.98 595.45 563.18 757,38 -26.80 161.93 188.72 1993 580 850 589.98 648.89 563.18 825.35 -26,80 176.46 203.26 1994 580 870 589.98 664.16 563.18 844.77 -26.80 180.61 207.41 1995 580 870 589.98 664.16 563.18 844.77 -26.80 180.61 207.41 1996 580 870 589.98 664.16 563.18 844.77 -26.80 180.61 207.41 1997 580 870 589.98 664.16 563.18 844.77 -26.80 18061 207.41 1998 580 870 589.98 664.16 563.18 844.77 -26.80 180.61 207.41 1999 580 870 589.98 664.16 563.18 844.77 -26.80 180.61 207.41 2000 580 870 589.98 664.16 563.18 844.77 -26.80 180.61 207.41 2001 580 870 589.98 664.16 563.18 844.77 -26.80 180.61 207.41 2002 580 870 589.98 664.16 563.18 844.77 -26.80 180.61 207.41 2003 580 870 589.98 664.16 563.18 844.77 -26.80 180.61 207.41 2004 580 870 589.98 664.16 563.18 844.77 -26.80 180.61 207.41 2005 580 870 589.98 664.16 563.18 844.77 -26.80 180.61 207.41 FRR 22.1% Sume: Data from ie Jute & Indusies Ltd. Excise duty on cement excluded in revenue & costs, beng a pass through Hem. India Cement Industry Project Table 9(x) KCP Ltd. FRR Rs. Million year Capita Prodn Prodn Net proces Dry proces Net proes Dry proces Net prooes Dry proces Ddlerenoe Cost Thousand Thousand Costs Costa Revenue Revenue Net Cash Net Cash n Net Take Wet Dry (Dry-Wet 1987 43.01 -43.01 -43.01 1988 192.84 -192.84 -192.84 1989 94.71 138 138 115.75 115.75 118.62 118.62 2.86 -91.85 -94.71 1990 40.50 144 144 163.17 163.17 147.92 147.92 -15.24 -55.74 -40.50 1991 10.86 144 210 196.94 212.09 142.46 244.41 -54.48 21.46 75.94 1992 144 324 219.85 350.31 159.03 420.95 -60.82 70.64 131.47 1993 144 330 242.63 432.27 175.50 473.17 -67.12 40.91 108.03 1994 144 375 232.38 482.33 168.09 514.98 -64.29 32.65 96.94 1995 144 400 245.99 531.12 177.94 581.50 -68.06 50.38 118.43 1996 144 400 245.99 529.53 177.94 581.50 -68.06 51.97 120.03 1997 144 400 245.99 529.60 177.94 581.50 -68.06 51.90 119.96 1998 144 400 245.99 529.60 177.94 581.50 -68.06 51.90 119.96 1999 144 400 245.99 507.00 177.94 581.50 -68.06 74.50 142.56 2000 144 400 245.99 507.00 177.94 581.50 -68.06 74.50 142.56 2001 144 400 245.99 507.00 177.94 581.50 -68.06 74.50 142.56 2002 144 400 245.99 507.00 177.94 581.50 -68.06 74.50 142.56 2003 144 400 245.99 507.00 177.94 581.50 -68.06 74.50 142.56 2004 144 400 245.99 507.00 177.94 581.50 -68.06 74.50 142.56 2005 144 400 245.99 507.00 177.94 581.50 -68.06 74.50 142.56 FRR 20.9% Source: KCP Ltd. Dry Cost data used. Wet process costs taken at 20% higherper ton, based on savings indicated. Sales revenue from wet process decreased by 15% as set off for capital maintenance in continuing wet process India Cement Industry Project Table 9 (x) IDCOL Cement LTD.FRR Rs. Million FY Capita Cement Cement Dry procm et proces Dry prooes Net procas Dry proces Weiproces Diffmnoe C9st Dy Prodn Wet Prodn Coats Costs Revenue Revenue NetCah NetCash nNet Take 000 tons 000 tons (Dry-Wet) 1992 75.83 -75.83 -75.83 1993 479.30 -479.30 -479.30 1994 713.16 -713.16 -713.16 1995 182.66 -182.65 -182.65 1996 189.06 720 565 607.98 615.19 956.47 637.72 159.44 22.52 136.92 1997 816 565 684.94 611.79 1072.22 631.05 387.28 19.26 368.02 1998 816 565 762.26 680.85 1198.37 705.29 436.11 24.44 411.67 1999 816 565 764.79 683.11 1198.37 705.29 433.58 22.18 411.40 2000 816 565 767.46 685.49 1198.37 705.29 430.91 19,80 411.11 2001 816 565 770.25 687.99 1198.37 705.29 428.12 17.30 410.81 2002 816 565 773.19 690.61 1198.37 705.29 425.18 14.68 410.50 2003 816 565 776.27 693.36 1198.37 705.29 422.10 11.93 410.17 2004 816 565 779.51 696.25 1198.37 705.29 418.86 9.04 409.83 2005 816 565 782.90 699.29 1198.37 705.29 415.47 6.00 409.46 FRR 15.4% Source: IDCOL ltd.. Diy process costs as estimated. Wet process costs taken 29% higher per ton. Better qualty in dry process Sales revenue from wet process decreased by 15% as set off for capital maintenance in continuing wet process Table 10: Statue of Legal Covenants INDIA Cement Industry Project (Loan 2660/2661-IN) Original Revised Covenant Present fulfillment fulfillment Agreement Section Type status date dare Description of Covenant Comments LA2661 4.01 1 C The Borrower shall maintain procedures and records adequate to None monitor and record the progress of Part B of the Project. 4.02 1 C The Borrower shall have its accounts and financial statements None audited each fiscal year by independent auditors acceptablc to the Bank and furnish the annual audit report not later than four months after the end of the year. 4.03 1 C The Borrower shall maintain at all times its debt/equity ratio None within the limit referred to in Section 4-04 of the Agreement. 4.04 (a) I C The Borrower shall not incur or permit any subsidiary to incur any None debt if, after incurring such debt, the consolidated debt of the Borrower would be greater than 12 times its consolidated capital and surplus- Further, the Borrower will ensure that at all times its debt service coverage is at least 1.1 times. 4.05 I C The Borrower shall not make any repayment in advance of None maturity . 4.06 I C The Borrower shall take such steps satisfactory to the Bank as None shall be necessary to protect itself against risk of loss resulting from changes in the rates of exchange between the currencies (including Rs.) used in its operations. PA2660 2.04 1 C IDBl/ICICI submit quarterly/biannual progress reports. None 2-06 I C IDBI/ICICI to exchange views on progress performance. None 4.01 (a) I C IDBlICICI to maintain records and accounts in accordance with None sound accounting practices. 4.01 (b) I C IDBICICI submit audited financial statements to the Bank. None 4.01 (c) I C Maintain separate accounts of statement ofexpenditures under the None Loan Account and ensure that such separate accounts are included in the annual audited report and commented on by the auditors. Status. C - Complied with CD - Compliance after Delay NC - Not Complied with SOON - Compliance Expected in Reasonably Shor t Time CP Complied with Partially NYD *Not Yet Due - 27 - Table 11: Compliance with Operational Manual Statements There are no known incidences on non compliance with Operational Manual Statements. m:\india\iCatbIs - 28 - Table 12: Bank Resources: Staff Inputs Stage of Project Cycle Planned Revised Actual Weeks US$ Weeks US$ Weeks US$ 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 m:\india\icrtbl 12 1/ Historical dollar costs of staff inputs are not available for years prior to FY94. - 29 - Table 13: Bank Resources: Missions Stage Performance Rating of Number Days Project Month/ of in Specialized Staff Implementation Development Cycle Year Persons Field Skills Represented Status Objectives Types of Problems 11/86 3 7 ECN,EGR,FNA I I 10/87 3 17 ECN, EGR, FNA 1 1 3/88 2 6 FNA,ECN I I 10/88 2 16 FNA, EGR I I 4/89 2 20 FNA,EGR I 1 7/89 3 15 FNA, EGR, TRG I I 1/90 2 15 FNA,EGR I I 8/90 3 25 FNA,EGR,ECN I I 3/91 2 7 FNA,TRG 1 1 11/91 2 18 EGR,TRG 1 1 5/92 2 13 EGR, ECN 2 2 Delay in implementation due to local cost financing issues in IDCOL project; and procurement delays in Kalyanpur project 1/93 2 25 EGR 2 2 -do- 7/93 2 25 EGR 2 1 -do- 1/94 2 29 EGR 2 1 -do- 7/94 3 32 EGR, CON 2 1 IDCOL: Project Completion delayed to March 1995 Kalyanpur: Financial Restructuring to be done miiIkrAI - 30 - Aide Memoire INDIA CEMENT INDUSTRY PROJECTS SUPERVISION MISSION JUNE-JULY 1994 1. A World Bank Mission comprising Messrs Uruj Kirmani (Mission Leader), Mogens Fog and P. Venugopal (Consultants) visited India from June 22, through July 22, 1994 : (a) To review the progress under Ln 3196 IN- Cement Industry . Restructuring Project. (b) - To prepare Project/Implementation Completion Report (ICR) on closing of Loans 2660 and 2661-IN on June 30, 1994. 2. The aide memoire consists of two parts. Part A reviews the progress under Ln 3196-IN and other issues. Part B highlights the Mission's findings on the projects under Lns 2660/2661-IN, which will later be reflected in the ICR. The findings of the Mission, the agreements reached and recommendations made are summarized in Parts A and B as described above. A formal communication will be sent from Washington DC to confirm or amend the Mission's findings as appropriate. 3. The Mission takes this opportunity to express its gratitude for the excellent cooperation and constructive discussions held with the officials of Department of Economic Affairs (DEA) in the Ministry of Finance (MOF), Department of Industrial Development in the Ministry of Industry (MOI), Industrial Development Bank of India (IDBI), Industrial Credit and Investment Corporation of India (ICICI), Orissa State Government Officials and Hon'ble Chief Minister of Orissa, Mr. Biju Patnaik and executives of sub-project entities. A list of officials met is given in Annex - 1. 4. The Mission visited ACC (Gagal) and Gujarat Ambuja projects under implementation in Himachal Pradesh, IDCOL Cement Limited (ICL) at Bargarh Orissa, India Cement - Sankernagar (Tamil Nadu) and KCP Macherla in Andhra Pradesh and Regional Training Center at Dalmiapuram (Tamil Nadu) and reviewed the project activities with the field staff. 5. Ln 2660-IN (Loan amount US $ 165 million), Ln 2661-IN (Loan amount US $ 35 million) The original loan closing date June 30, 1992 was extended twice to enable the projects under implementation to be completed. These loans have been closed on June 30, 1994. As on June 30, 1994 an amount of US$ 151.8 million has been disbursed under Ln 2660-IN and US $ 31.8 million under Ln 2661-IN. Further disbursements from the loan will be made for withdrawal applications received at the Bank Headquarters or at its New Delhi office by close of business on October 31, 1994 in respect of eligible expenditure incurred on or before the closing date (i.e. Payments made for goods, work and services which have been orovided prior to the closing date). IDBI and ICICI are now working on the final withdrawal applications for disbursement of the remaining amounts. -31 - PART B 7. CEMENT INDUSTRY PROJECT (LOANS 2660 IN & 2661 IN) 7.1 The project was approved by the Bank Board on March 20, 1986 and the loans (borrower GOI for one loan of $165 million with onlending of $163.5 million equivalent to IDBI and ICICI in equal proportions ', and ICICI for the other loan of $35 million) became effective on November 10, 1986. The initial loan closing date was June 30, 1992, but two extensions of one year each became necessary. The loans were finally closed on June 30, 1994 with disbursements as follows- $151 million as of June 30, 1994 under Loan 2660 IN, however with most of the balance of the loan expected to be drawn down during the grace period of 120 days; and $31.8 as of June 30, 1994 under Loan 2661 IN, however with the balance of the loan expected to be drawn down similarly. 7.2 With the enthusiastic cooperation extended to the mission by GOI, IDBI, ICICI and 'the participating companies (ACC, India Cement, Birla Jute, KCP, Kalyanpur Cement and IDCOL among others), the mission decided to initiate processes for preparing an "Implementation Completion Report" (ICR- OP 13.55 of April 1994) in preference to proceeding to prepare a "Project Completion Report" in terms of the guidelines of June 7, 1989. Accordingly, this aide-memoire first presents the views of IDBI/ICICI (both as cofinanciers and as virtual borrowers in terms of the Project Agreement of July 22, 1986) , the participating companies and the mission itself on the implementation of the project and its operation. 7.3 In reverse order, the record of views starts with the participating companies. Nine sub-projects under Loan 2660 IN were involved, in general with modernization of the cement plants and introduction of state of art dry process in place of the out moded wet process/ older dry process. The cement industry in 1985 was controlled by GOI in many respects, prices, distribution, licenses, foreign exchange releases etc. Demand was far in excess of supply, yet the industry was not growing. The Bank stepped in at a critical juncture with a number of goals to be achieved. The dry process to be adopted would result in higher production of cement, it would save substantially on coal and power consumption, allow more consumption of lower grade limestone, improve quality of cement and almost eliminate pollution. All these results have been achieved/are in the process of being achieved. Cost of production was reduced/would be reduced, not only as a consequence of the superior technology adopted, but also due to the governmental exemptions from duties when IBRD loans are availed of, as well as in the government bearing the foreign exchange risks. Steps taken by the government to deregulate partially, then fully in March 1989, also delicense the industry in July 1991, under the Bank's active encouragement, have had salutary effects on cement production, even exports having begun. The participating companies thus believe that the first "line of credit" (loans 2660 IN and 2661 IN) was a watershed in the history of the cement industry 1. Loan 2661 IN assisted 20 small projects to rehabilitate and bring about technical improvements. 1 GOI retained $1.5 million for direct technical assistance to the Cement sector. 2 The views recorded here were universal, but were given more articulate expression by Mr.N.Srinivasan. MD India Cement also the President of the Cement Manufacturers' Association and the Chairman of the Development Council for Cement Industry. - 32 - 7.4 IDBI/ICICI fully endorse the views of the participating companies. When the project was prepared in 1985, loan 2660 IN was intended to cover seven sub- projects, all for conversion from wet to dry process. As it happened, four out of the original seven became beneficiaries under the loan with the other three being dropped. ACC sold off the Shahabad unit, while CCI Mandhar and SDC had financial constraints. The scope of the project was broadened in August 1988 and following that five new sub-projects were appraised and selected for IBRD cum IDBI/ICICI financing. The later induction of these sub-projects required that the loan closing date be extended by two years. Although the loan has closed on June 30, 1994 and disbursements (to the participating companies) effected, two sub- projects remain to be physically completed; Kalyanpur Cement Ltd., (entrant in April 1990) would be commissioning the converted plant in August 1994, with IDCOL (entrant in February 1990) expected to do so in March 1995. All objectives have been or would be met and the project benefits would be sustained over the full life of the plants. 7.5 The mission considers the project a success in the direct and indirect impact it has had on the economy of the country and the environment. Cement capacity reached 71.19 million tons in December 1993 and production in 1993 was 56 million tons. India now ranks fifth among the cement producing countries after China, Russia, Japan and USA. Dry process capacity which was 51k in 1982 of the total rose to 83k in 1993. The Mission was gratified to see during its plant visits how much pollution had been cut down and particulate emissions brought below the norm of 150 mg/Nm3. 7.6 An operation plan was evolved during discussions with the companies concerned. Annex 3 outlines the brief understanding of the mission on the plan. 7.7 The mission also provided advice and support to the borrower for preparing its own contribution to the ICR. IDBI and ICICI have already initiated action to prepare the evaluation report and will complete it in about two months. 8. Further to the above observations, the mission has the following additional comments on some sub-projects. 8.1 Kalyanpur Cement Ltd. (KCL) The company continues to be beset with financial problems. It was a "sick" company in 1990 when Bank authorization was given for onlending by IDBI/ICICI of $27 million under LN.2660 IN, on the basis of a comprehensive financing plan for the sub-project. The project cost at that time was placed at Rs. 720 million (but then under revision to Rs.950 million). The estimate now stands at Rs.1906 million mainly due to delays in supply of imported machinery and equipment, meanwhile the dollar/rupee exchange rate having changed considerably and interest on outstanding loans having accumulated. The critical issue presently is that the company is short of cash and its financial ratios are unsatisfactory. It has a capital restructuring plan (raising more equity) which it has placed before IFCI (letter dated May 30, 1994), which may help it to tide over the problem. This plan calls for immediate attention by ICICI/IDBI/IFCI. ICICI/IDBI should keep in view the financial covenants which they had undertaken to enforce on the participating companies, which Kalyanpur Cement Ltd. has not been complying with. The mission appreciates that the company's financial position will change dramatically when the dry process plant -33 - is commissioned and the additionally produced cement (150% increase in capacity) is marketed, but the effect of this change on the finances of the company will come after a time lag. It is the interim position which has to be handled adequately and effectively. On project implementation, KCL's association with Holderbank (equity participation in KCL, technical assistance etc.) has been of considerable help. Nevertheless, the carefully planned project implementation has been affected by delays in delivery of equipment and unforeseen soil conditions. The kiln was lighted in February 1994, but due to a number of teething problems, commercial production is likely to commence from August 1994 only. 8.2 IDCOL Cement Ltd. IDCOL had financial problems too and was not in a position to bring in its contribution to meet the local cost financing. As suggested by an earlier supervision mission, a solution was found in first setting up a new company IDCOL Cement Ltd., (in place of Hira Cement Works, a division of IDCOL), with effect from March 31, 1993 and second by raising its share capital, with 40% of the equity (equal to Rs.350 million) being subscribed by the Unit Trust of India in January 1994, and the balance 60% being retained by IDCOL. The present problems of IDCOL relate to time slippages in implementation of the project. As of now, mechanical completion is about 65% complete, electrical about 40-45%, and control system installation about 10-15%. Commissioning may not be expected earlier than March 1995. Project management requires tightening up and monitoring closely on critical activities through PERT/CPM charts and aids. A matter of urgent concern is training of key operators for the new processes. Steps being taken by IDCOL with the advice given by the mission, supplementing such other arrangements it had made earlier, have been outlined in para 6.10.3 of Part A. 8.3 Technical Assistance (TA). GOI retained $1.5 million of the loan amount under 2660 IN to provide technical assistance to the cement sub-sector (Part D of Schedule 2 of the Loan Agreement of July 22, 1986) . Study by consultants (Holderbank) seems to have cost $642,324.60 which amount was released by GOI to ICICI who had administered the contract with the consultants. A sum of $0.9 million has been allocated to DCCI for organizing the HRD. To this amount a DANIDA grant of $5.0 million and an amount of $1.5 million from Loan 3196 IN have been added. While the $0.9 million under Loan 2660 IN has been expended, steps have been taken only recently for claiming reimbursement from the Bank. It is necessary that a proper accounting and classification of the amount of $1.5 million allocated to GOI under Loan 2660 IN be taken up by GOI. - 34 - Annex 1 Page 1 of 3 CEMENT INDUSTRY PROJECTS (LN2660/61, 3196-IN) SUPERVISION MISSION (JUNE-JULY 1994) List of Officials Met Government of India Mr. Ajay Nath Deputy Secretary, DEA Mr. B.R. Khurana Under Secretary, DEA Mr. P.C. Chaturvedi Joint Secretary, MOI Mr. Hasmukh Adhia Deputy Secretary, MOI Government -of Orissa Mr. Biju Patnaik Hon'ble Chief Minister Mr. Mahapatra Principal Secretary to the Chief Minister Mr. R.N. Das Chief Secretary Industrial Development Bank of India (IDBI) Mr. S.H. Khan Chairman and Managing Director Mr. G.P. Gupta Executive Director Dr. K.C. Varshney Executive Director Mr. S.K. Chakrabarti General Manager Mr. P.S. Subramanyam General Manager Mr. S. Gajendran Deputy General Manager Mr. M.V. Badrinath Manager Industrial Credit and Investment Corporation of India (ICICI) Mrs. Lalita Gutpe Executive Director Mr. A.P. Singh Assistant General Manager Mr. R.P. Gokhale Assistant Manager DANIDA Mr. Bent Dahl Olsen Counsellor, Danish Embassy Mr. S. Manohar Programme Co-ordinator (HRD) JK Corp. Ltd. Mr. G.A.R. Murthy Vice President (Technical) Mr. S.K. Wali General Manager (Projects) Mr. Y.K. Aggarwal General Manager (Finance) Mr. R.K. Razdan General Manager (Materials Proj.) 35-- Annex 1 Page 2 of 3 Kalyanpur Cements Ltd. Mr. S.P. Sinha Managing Director Mr. Sanjay Sinha Director Birla Jute and Industries Ltd. Mr. A.L. Kapur ED and CEO Mr. N.C. Jain Vice President Guiarat Ambula Cements Ltd. Mr. Narottam Sekhsaria Managing Director Mr. P.B. Kulkarni Vice President (Technical) Mr. Anil Sanghvi General Manager (Finance) ACC Mr. A.R. Shenoy Director (Technical) Mr. P.K. Sinor Director (Materials Management) Mr. K. Ravindran General Manager Mr. H.D.Daftary Senior Manager, Finance Mr. H. Venugopal General Manager (Materials Management) IDCOL Cement Ltd. Mr. S.N. Das Mahapatra Chairman Mr. K.S. Rao Managing Director Mr. Sahu General Manager TISCO Mr. J.C. Kalele Chief Corporate Manager Mr. K.V. Ganesan Executive-in-charge (Cement Div.) India Cements Ltd. Mr. N. Srinivasan Managing Director Mr. N. Swaminathan Vice President (Finance) Mr. R.K. Das Vice President (Oprations) Mr. P.L. Subramaniam Senior General Manager KCP Ltd. Dr. V.L. Dutt Chairman & Managing Director Mr. K. Venkatramaiah General Manager Mr. K.B. Pranesh General Manager & Financial Controller Mr. K. Jayaram Vice President (Western Region) - 36 - Annex 1 Page 3 of 3 Century Textiles & Industries Ltd. (Maihar Cement) Mr. B.L. Jain Senior President Mr. R.M. Shah Technical Advisor Bulk Cement Corporation (India) Ltd. Mr. P.V.S. Kurup Chief Executive Consultants Mr. Batra HOLTEC Mr. Sanjeey Varma HOLTEC Dalmia Cement (Bharat) Ltd. (Regional Training Centre) Mr. N. Gopalaswamy Director Mr. M.R. Srinavasan Deputy General Manager (Training) Fuller KCP Ltd. Mr. S.S. Sidhu President Mr. N. Radhakrishnan General Manager (Procurement Production) ANNEX 2 Page 1 of 7 OPERATING PLAN The participating companies under Loan 2660 IN have indicated the following as their operating plans. (No operating plan for the several mini-projects under Loan 2661 IN is prepared, nor is it necessary.) ACC Madukkarai Unit Madukkarai expansion to 520,000 tons from 380,000 tons/pa of OPC cement has been operational from May 1989. The performance achieved against the SAR estimates has been as follows: Project estimate Achieved Output of kiln 1500 tons/per day 1600 tons/pd Heat consumed 1040 kcal/kg of 959 kcal/kg clinker Power 120 kWh/ton of 103 kWh/ton cement The unit plans to maintain the better than estimate performance , as above, in the coming years. Madukkarai's production of cement during 1989-94 was as follows: 1989-90 1990-91 1991-92 1992-93 1993-94 Production (in 1 tons) 0.551 0.536 0.617 0.624 0.717 Capacity utilization 106% 103% 119% 120% 13B% Madukkarai would thus maintain an above capacity production in the future also. Gacral Modernization & Rehabilitation This sub-project selected subsequent to loan effectiveness went into commercial production in March 1993. The parameters as expected to change and as achieved are as follows: Before Estimate As achieved project after project Clinker production 1850 TPD 2700 TPD >2800 TPD Fuel Consumption 905 kcal/kg of 850 kcal/kg 859 kcal/kg* clinker Cement grinding capacity 130 TPH 180 TPH 180 TPH * Reduction to 850 kcal/kg to be achieved by debugging in next shutdown. ANNEX 2 38- Page 2 of 7 Mines Modernization and Energ Savincrs Scheme The sub-project, a later inclusion, since completed and executed at a cost of Rs.412 million (IBRD share being Rs.278 million) has already resulted in reducing manpower and consumption of stores and spares in nine cement plants owned by ACC. The pay back period is four years and the benefits achieved are permanent. ANNEX 2 39 - Page 3 of 7 This sub-project for modernizing the Macherla plant was completed in December 1989. Cement production in FY89 had been a low 137,749 tons. Following the commissioning of the modernization scheme and introduction of the new dry process, production of cement has been continuously increasing and the energy efficiency parameters registering improvements as follows: FY90 FY91 FY92 FY93 FY94 Prodn of cement/MMT 0.144 0.210 0.324 0.330 0.375 Coal % 31V 25% 25% 24% 20% Power kWh/ton 152 147 133 126 124 SAR estimates of 0.375 MM tons/pa of cement production have been realized and will be maintained. SAR estimates of 800 kcal/kg heat use per ton of clinker (corresponding to coal at 22%), against 1600 kcal/kg in the old plant have been more than fulfilled and will be maintained for the rest of the plant life. Power consumption was forecast at 120 kWh/ton of cement, compared to 133/kWh in the old plant. The present rate of consumption is slightly higher. But a new state-of- the-art cement mill will be installed within 24 months and that will help to reduce the power consumption significantly. The atmospheric and fugitive emissions have been controlled to less than 75 mgm/Mm3 against the statutory norm of 150 mgm/Nm3. This will be maintained. K.C.P Ltd. has instituted a quality assurance system in conformity with ISO 9002. Lloyds Registered Quality Assurance Ltd. certification is expected in August 1994. IDI CEMENTS LI. This sub-project for conversion the Sankarnagar plant from wet to dry process was commissioned in August 1990. It achieved results as follows: SAR -----------Actual---------------- Estimates FY 91 FY92 FY93 FY94 Clinker Capacity MMT 0.99 0.99 0.99 0.99 0.99 Clinker Production MMT 0.64 0.77 0.89 0.86 Cement Prodn MMT 1.04 0.73 0.82 1.01 1.03 Coal consumption 850 kcal/kg 827 kcal/kg of clinker of clinker Power 120 kwh/ton 119 kWh/ton of cement of cement * * The company has ordered a new cement mill which will be operational in October 1995. The new mill will help to reduce power consumption further. The company functions in a fierce competitive environment. It recognizes that its present old fashioned open circuit milling system limits the capability to attain higher fineness of cement. Therefore it has decided to install a modern milling system which will enable it to increase the fineness. -40- ANNX 2 Page 4 of 7 The company expects to maintain and improve on all the parameters in future operations. In financial terms, the reduction in variable costs has been about 20% as between the earlier wet process and the new dry process, which has made the operations profitable, a position which will be maintained. - 41 ANNEX 2 Page 5 of 7 BIRA JUTE AND INDUSTRIES LTD. Satna Cement Works This sub-project of conversion from wet to dry process, originally included in the SAR, was commissioned in February 1990. The results achieved compare with SAR estimates as under. Projections of expectations are also indicated. SAR FY94 FY95 FY96 FY97 Estimates Actual --------Estimates-------- Clinker Capacity MMT 0.82 0.923 0.923 0.923 0.923 Capacity Utilization 90% 111% 104% 108% 108% Production Cement MMT 0.75 0.80 0.80 0.80 0.80 Coal Consumption in % per ton 21 17.7 18 18 18 Power kWh/ton 119 109 109 108 107 The variable cost reduction has been about 25% as between the wet and the dry processes. All improvements will be maintained through the plant life. The plant would have sustained overall losses under the old process, instead of which it has attained a profitability position as a result of the conversion. BIRLA CEMENT WORKS & CHITTOR CEMENT WORKS This sub-project was selected subsequent to loan effectiveness. The plant was to be modernized by upgrading all two stage pre-heaters to five stage pre- heaters, also various balancing equipments were to be installed to reduce thermal energy consumption and to increase production. The sub-project is under commissioning and commercial production will begin in september 1994. The operational parameters are projected as under: ICICI FY95 FY96 FY97 Appraisal Clinker Capacity MMT 1.40 1.35 1.38 1.40 Cement Capacity MMT 1.40 1.40 1.45 1.47 Capacity Utilization V 100 100 104 105 - 42 - ANNEX 2 Page 6 of 7 Coal Consump- tion k/per ton 20 19.5 19 18 Power kWh/ton 112 108 108 107 The old parameters were 0.9 MMT of clinker capacity, 0.9 MM tons of cement capacity, 22% of coal consumption and 120 kWh/ton of power. -43 - ANNEX 2 Page 7 of 7 IDCOL CEMENT LTD. Since the project has not been commissioned, for the present the ICICI/IDBI appraisal targets are expected to be achieved. KALYANPUR CEMENT LTD. Since the project has not been commissioned, for the present the ICICI/IDBI appraisal targets are expected to be achieved. - 44 - Appendix B SUMMARY OF BORROWER'S EVALUATION REPORT INDIA CEMENT INDUSTRY PROJECT LOANS 2660-IN/2661-IN INTRODUCTION 1. Prior to 1980s, due to inadequate production and supply the Indian Cement Industry was subject to price and distribution control. With the GOI bringing about policy changes, the installed capacity grew. However, problems related to high ash coal and poor coal quality were acute in wet process plants. In consultation with GOI, The World Bank decided to support the industry by extending two Lines of Credit Ln 2660-IN and Ln 2661-IN for modernization of wet process plants and expansion of installed capacity in the country. PROJECT OBJECTIVES 2. The project was expected to assist the cement industry in India in improving operating efficiency, environmental controls, product quality, labor productivity and marketing and distribution systems. Plant conversion subprojects were ACC: Madukkarai, Birla Jute: Satna, India Cement: Sankarnagar, KCP: Macherla, Kalyanpur Cements and IDCOL Cement. The modernization subprojects were ACC: Gagal, ACC:Mines modernization, Energy Savings and Coal Washery (MEC), Birla Jute: Chittorgarh. Both Kalyanpur Cements and IDCOL Cement and the modernization subprojects were later included to substitute 3 projects earlier included in the SAR which were withdrawn by project sponsors. PROJECT IMPLEMENTATION 3. All the subprojects have been satisfactorily completed/expected to be completed. In view of the late entry of Kalyanpur Cements and IDCOL Cement in the project portfolio, the implementation period was extended by 2 years necessitating the extension of the closing date of Bank loans by 2 years. ACHIEVEMENT OF OBJECTIVES 4. All the completed projects have achieved and in some cases exceeded the technical and financial parameters set out at the time of appraisal. The projects under implementation - IDCOL Cement and Kalyanpur Cements are also expected to achieve their objectives as estimated. The technical assistance objective has been achieved by completion of study for - 45 - assessing manpower training needs. Implementation of this resulted in setting up of four Regional Training Centers in different parts of the country for imparting training in technical and managerial skills required in the cement industry. The policy liberalization objectives have also been achieved as visualized during appraisal. The cement sector is now deregulated and is now operating under a free market economy. PERFORMANCE OF BORROWER 5. Of the total loan of US$ 165 million, GOI channelled US$ 163.5 million through IDBI/ICICI in equal proportion for onlending to cement projects. An amount of US$ 1.5 million was utilized for training component by GOI. IDBI/ICICI extended all the required assistance and helped the subborrowers in complying with the various requirements of World Bank. PERFORMANCE OF WORLD BANK 6. The initiative taken by the World Bank in extending the first line of credit to the cement sector provided the impetus for quicking the pace of its growth and acted as a catalyst to the private sector for undertaking modernization program using state-of-art technologies and in attaining environmental and social objectives. KEY LESSONS LEARNT 7. IDBI/ICICI as also the subborrowers were able to develop a broader perspective on the proven state-of-art technology in the cement sector as well as better knowledge of environmental policies of the World Bank and pollution control measures and strategies in the cement industry on a global scale. Closer co-ordination between the World Bank, GOI, IDBI/ICICI and subborrowers has resulted in the successful achievement of the objectives. For performance monitoring, regular interaction and joint supervision with the World Bank Missions has proved highly productive. m:\india\summary - 46 - BORROWER'S FINAL EVALUATION REPORT ON INDIA CEMENT INDUSTRY PROJECT LN. 2660-IN/2661-IN I. INTRODUCTION 1.1 Indian Cement Industry The cement industry which had a capacity of 3.8 million tonnes per annum (tpa) in 1950-51 underwent a period of accelerated expansion between 1950-69. The growth of the industry slowed down during the decade of the 1970s as the regulated industrial environment and controls on pricing and distribution acted as deterrant. At the start of the 1980s capacity utilization in. the industry was poor mainly due to power shortage and labor problems. The GOI brought about changes in pricing and distribution policies which stimulated rapid growth of the industry. Installed capacity grew by nearly 10% a year during 1980-85. To counteract the problems caused by interruptions in power supplies, the industry began to install captive power plants, particularly in conjunction with expansion and greenfield plants. However, problems associated with high ash coal and declining coal quality had become more acute in the wet process plants. At the start of seventh Five Year Plan in 1985-86, the total installed capacity was 44.6 million tpa. Only 58% of the total kiln capacity was based on the more energy-efficient dry or semi-dry processes and the rest on wet process technology. 1.2 Involvement of the World Bank The GOI had initial discussions with the World Bank in June 1979 and the Bank mission came in September and November 1979 to study the cement industry in detail. The major recommendations contained in the cement sub-sector project in respect of pricing, output , control and distribution policies and energy conservation and modernization in the industry were adopted by the GOI. Following further discussions with GOI and cement industry representatives, the World Bank decided to support the industry in introducing measures aimed at energy conservation, improvement of the environment and cost reduction. Project appraisal was completed in September 1985. The project was approved by the Bank Board in March 1986 and the loans (borrower GOI for one loan of $165 million with onlending of $163.5 million to IDBI and ICICI in equal proportions, GOI US$ 1.5 million for conducting comprehensive study for skills and manpower requirements in the cement industry and ICICI for the other loan of $35 million) became effective in November 1986. The scope of the project was broadened in August 1988 and following that five new sub projects were appraised against the three projects dropped out and selected for IBRD cum IDBI/ICICI financing. The initial loan closing date was June 30, 1992, but two extensions of one year each became necessary, mainly because of the late entry of two sub-projects. The loan was finally closed on June 30, 1994. - 47 - II. PROJECT DESIGN 2.1 The project consisted of four parts with Part A & C (Ln. 2660-IN) - financing for plant conversion sub-projects and technical assistance, Part B (Ln. 2661-IN) - financing for small scale efficiency improvement projects and Part D (Ln. 2660-IN) - formulation of manpower development strategy. While Part A and C were to be administered by IDBI and ICICI, Part B by ICICI, Part 'D' was administered first by ICICI and then by Development Commissioner for Cement Industry. Part 'D' was provided as a grant by GOI for assessing the training needs for cement industry personnel. A study was conducted by the consultants and its recommendations implemented by formation of 4 regional training centers in the country. LINE 2660-IN III. PROJECT OBJECTIVES & DESCRIPTION 3.1 The objectives of the project were to assist the cement industry in India in improving operating efficiency, environmental controls, product quality, labor productivity and marketing and distribution systems, and to train local personnel in the skills required in the cement industry. 3.2 Plant Conversion subprojects ACC: Madukkarai, Birla Jute: Satna, India Cement: Sankarnagar, KCP: Macherla, Kalyanpur Cement and IDCOL Cement were the subprojects covered for conversion of the wet process kiln with a high capacity dry process kiln with preheater/pre calciner. 3.3 Modernization subprojects ACC Gagal, ACC Mines Modernization, Energy Savings and Coal Washery, (MEC), and Birla Jute: Chittorgarh plants were modernized by installation of energy efficient equipment and also balancing equipment to attain higher levels of production. IV. PROJECT IMPLEMENTATION 4.0 Project Costs The project costs as given below for some of the sub-projects indicate a saving in US Dollar terms primarily due to changes in the Rupee/Dollar parity ( US$=Rupees 13 in 1986 at SAR stage and USS=Rupees 31.3 in 1994). However, in Rupee terms , the cost overruns occurred due to exchange rate as well as increase in local costs (about 30% increase in the costs of indigenous equipment). - 48 - 4.1 ACC: Madukkarai The project was completed in April 1989. Commercial production commenced in May 1989 with a time overrun of 12 months. This was due to time taken to learn ICB procedures as also problems arising out of expiry of rupee payment under bilateral agreement made by the Government. Further operational problems at machinery suppliers resulted in delay in delivery of major pyroprocessing machinery. The completed cost of the project was US$31.80 million (Rs. 455 million) against the SAR estimate of US$32.65 million (Rs. 424 million). The main components of the overrun in rupee terms were increase in cost of plant & machinery, preoperative expenses and finance charges. 4.2 Birla Jute: Satna The commercial production which was slated for May/June 1989 could only be achieved by January/February 1990 due to delay in obtaining import licenses, permission from GOI for engaging consulting services for design, erection and commissioning of the plant. The actual project cost was US$41.91 million (Rs. 722.10 million) as compared to US$48.34 million (Rs. 628.41 million) originally envisaged. The cost overrun in rupee terms was due to increase in the price of steel and other construction materials and inclusion of additional equipment not originally envisaged as also foreign exchange fluctuation. 4.3 India Cement: Sankarnaiar The plant was scheduled for commissioning by October 1988. However, it was actually commissioned in August 1990, i.e. time overrun of 22 months due to delay in obtaining Government approval for appointment of foreign consultants leading to delay in placement of orders. The cost of the project originally envisaged was US$72.51 million (Rs. 942.6 million) while the completed cost was US$60.85 million (Rs. 1064.8 million). The cost overrun in rupee terms was due to time overrun and foreign exchange fluctuation. 4.4. KCP: Macherla The project was scheduled for completion by December 1987 but was delayed by 2 years and finally commissioned in December 1989 due to delays in civil construction, supply of process control and instrumentation system. The cost of the project originally envisaged was US$18.34 million (Rs. 304 million) but the completed cost was US$24.43 million (Rs. 381.91 million) which was mainly due to increased cost of machinery consequent to enhancement in the rate of import duty, additional expenditure on civil works and delay in project implementation. - 49 - 4.5 Kalvanpur Cements : Baniari (KCL) KCL was chronically beset with financial problems. It was, however, included for assistance under the Line because of its location in a cement deficit region and the fact that conversion from wet to dry process would turn the company around. The project cost at the time of sanction was estimated at US$58.43 million (Rs. 950 million) which now stands at US$57.60 million ( Rs. 1800 million). The overrun in rupee terms was mainly due to change in scope of the project, high preoperative expenses as a result of delay in implementation and foreign exchange fluctuation. Delay in implementation of around 17 months occurred as the company was unable to tie up finances and later on delay in the supply of equipment. 4.6 IDCOL Cement : Bargarh Owing to delay in obtaining clearances from various Government bodies, inadequacy of internal generation due to unfavorable market conditions for the cement industry and inability of State Government to provide timely equity support as committed, there was substantial delay in project implementation. The cost of the project was originally estimated at US$63.13 million (Rs. 1010 million) while the present estimate is US$46.46 million (Rs. 1640 million). The cost overrun in rupee terms was mainly on account of foreign exchange fluctuation, increase in prices of equipment and delay in implementation of the project. The project is now expected to be completed in March 1995 i.e. a time overrun of 24 months. 4.7 ACC: GaRal Commercial production commenced in March 1993 when all systems were commissioned except Air Separator and Cement Silo which were completed in September 1993. Project completion was delayed by 5 months which was due to non-availability of labor due to extreme weather conditions and remoteness of site. The cost of the project originally envisaged was US$22.29 million (Rs. 390 million) while the cost of completion was US$12.02 million ( Rs. 378.58 million). 4.8 ACC: MEC The procurement of original mining equipment and installation of the coal washery was on time. Energy saving equipment were installed 3 months after schedule. The original cost of the project was US$13.54 million ( Rs. 237 million) while the completed cost was US$13.08 (Rs. 412 million). in May 1992, IBRD approved the procurement of additional equipment as utilization in US$ terms was low due to exchange fluctuations. - 50 - 4.9 Birla Jute: Chittorgarh The commercial production was originally envisaged in September 1992, but was achieved only in September 1994 about two years behind schedule. The main reason for delay was rebidding of one of the ICB Packages because of unsatisfactory response. The completed cost of the project is estimated at US$29.75 million (Rs. 878 million) as against USS33.14 million (Rs. 580 million) originally envisaged. The cost overrun in rupee terms was on account of foreign exchange fluctuation on imported equipment and increase in local costs. 4.10 Technical Assistance and Training GOI effectively utilized US$ 1.5 million under this loan, for conducting comprehensive study for skills and manpower requirements in Cement Industry. The recommendations emerging from this study led to setting up of four regional training centers with excellent facilities for training of cement plant operators, supervisors and line managers. V. ACHIEVEMENT OF OBJECTIVES 5.1 ACC Madukkarai Clinker production' of 1500 tpd was achieved within 8 weeks of plant commissioning. Presently the plant is producing 0.6 million tonnes per annum of cement . Guaranteed fuel consumption was achieved and fuel consumption is less than 959 kcal/kg. The power consumption has been reduced from 120 kWh/tonne to 103 kWh/tonne. 5.2 Birla Jute :Satna After conversion from wet to dry process the company has been able to raise the clinker production from 1750 tpd to 2350 tpd, reduce coal consumption from 34% to 18% and power consumption from 119 to 109 kWh/tonne of cement. 5.3 India Cement: Sankarnagar The envisaged increase in capacity to one million tonnes per annum of cement has been achieved. The plant has necessary equipment for environmental control to achieve the 1/ One tonne of clinker yields approximately 1.05 tonne of OPC. - 51 - required emission level of 250 mg. per NM' and emission level is well within norms (about 100 mg per NM'. Power consumption has come down from 120 kWh/tonne to 119 kWh/tonne of cement. Fuel consumption is 827 kcal/kg of clinker as against 1419 kcal/kg under the wet process. 5.4 KCP : Macherla With the replacement of wet process kilns the coal consumption dropped from 45% to less than 20% by weight of clinker while the power consumption came down from about 140 to about 124 kWh/tonne of cement. The atmospheric and fugitive emission are controlled to less that 75 mg/NM'. 5.5 Kalyanpur Cements: Baniari The project was completed in August 1994 and is on trial run. The capacity utilization in the year of normal operations has been assumed at 90%. Power consumption is expected to come down to 98 kWh/tonne from 125 kWh/tonne and coal consumption from 36% to 22%. 5.6 IDCOL Cement: Bargarh The project is still under implementation and is expected to be commissioned by March 1995 i.e. time overrun of 24 months. The capacity utilization in the year of normal operations (1996-97) has been assumed at 95%. Power consumption is expected to come down to 100 kWh from 110-115 kWh per tonne of cement. 5.7 ACC: Gapal Production of cement has gone up to 0.86 million tonnes per annum. The output of the 2 cement mills has increased to 90 tph each. The current fuel consumption is 859 kcal/kg. of clinker. 5.8 ACC: MEC The setting up of a coal washery in a cement plant for improving the quality of coal which is beset with high ash content and lots of impurities is first of its kind in India. ACC has achieved reduction in man power from 2065 to 1720 and has realized Rs 40.9 million from sale of old machines. The evaluated benefits for these investments aggregate Rs 113.10 per annum due to energy savings, reduction in man power and cost of stores and spares (Rs. 51.10 million), - 52 - additional cement production (Rs. 60.00 million) and reduction in the loss by way of higher interest burden due to higher inventory holding (Rs. 2.00 million). 5.9 Birla Jute : Chittorgarh After modernization, the company has been able to achieve a coal consumption of 19% as against 22% prior to modernization and power consumption of 110 kWh/tonne as against 120 kWh/tonne earlier. The cement capacity has increased from 0.95 million tpa to 1.40 million tpa. VI. PERFORMANCE OF IDBI/ICICI 6.1 During the loan period extending over 8 years from 1986 to 1994, a lot of changes have taken place at the macro level in the country as also in IDBI/ICICI. The loan being rupee tied, a number of cement units with wet process approached for foreign currency loans under the Line which conferred on them a lot of benefits. IDBI/ICICI on their part, extended all the required assistance and helped the sub-borrowers in observing the ICB procedures for availing assistance. Even earlier, GOI, IDBI and ICICI were seriously thinking of converting the highly polluting and energy inefficient wet process cement plants into dry process plants with modem technology. Right from the stage of appraisal of the project, IDBI/ICICI have been active in sanctioning, disbursing and implementing the projects. When some of the original subprojects included in the Staff Appraisal Report (SAR) did not materialize, IDBI/ICICI identified other substitute subprojects. 6.2 IDBI/ICICI have been co-ordinating the follow-up supervision visits undertaken by the World Bank mission regularly and arranging meetings with the concerned officials in the Ministry of Finance/Ministry of Industry, GOI, the Development Council for Cement Industry, coal authorities, railway authorities as also the Consulate General in the Danish Embassy and sub-borrowers. VII. PERFORMANCE OF WORLD BANK 7.1 The Bank loan was given effect to at a time when foreign exchange for importing machinery was scarce in the country and was highly regulated by GOI. Cement industry was in need of modernization by induction of latest state-of-art technology. Consequently, a number of cement plants operating on wet process were covered under the Line and got converted into energy efficient dry process. This had the demonstration effect since all the new greenfield plants set up thereafter also adopted the modern technology for their plants. Thus the Bank assistance under the loan was a pace setter for dry process plants. As already mentioned in the introduction, the installed capacity of 44 million tpa increased to 65.0 million as on March 31, 1993 marking an increase of 48%. The World Bank acted as a catalyst in removing the control on prices and distribution of cement in India. With free market cement becoming easily available, it has opened channels for exports which have - 53 - picked up considerably. From cement scarcity, India has come to a stage of cement surplus. With the encouraging experience gained in the first Line, the World Bank also extended the Second Line for an enhanced amount of US$300 million. GOI has asked the World Bank to consider extension of another Line for the development of infrastructure and abatement of industrial pollution. VIII. OPERATION EXPERIENCE/KEY LESSONS LEARNED 8.1 The Loan was approved at a time when cement companies were averse to undertake modernization as import of machinery would have exposed them to foreign exchange risks. GOI agreed to bear the foreign exchange risk for assistance under the line of credit. The Line being Rupee-tied, the sub-borrowers availing assistance for import of machinery could repay in rupee. 8.2 The ICB procedure, though perceived as cumbersome by some sub-borrowers, conferred benefits of exemption from import and excise duties to the sub-borrowers. In most of the cases the indigenous machinery manufacturers won the bids , which encouraged them to expand and modernize to become internationally competitive. 8.3 Regular interaction with the sub-borrowers throughout the monitoring and review period enabled IDBI/ICICI to assess the factors that contribute to effective project implementation. 8.4 IDBI/ICICI were able to develop a better perspective on proven state of art technologies in the cement sector as also better knowledge of environmental protection policies of the World Bank and pollution control measures and strategies in cement industry on a global scale. 8.5 Social Objectives With the conversion of wet process into dry process plants, coupled with enhancement of the plant capacity, the profitability of the units assisted under these loans had shown definite improvement. The plants had necessarily to increase the employment which meant alleviation of poverty and in the unskilled sector, employment to the local and tribal people. The modernized plants also developed selfcontained townships with essential amenities like schools, hospitals, banks etc.. All the cement units have grown gardens and taken up afforestation on a massive scale. 8.6 Environmental Protection With the insistence of the World Bank/GOI/IDBI/ICICI the pollution control measures - 54 - have tightened and the guidelines are being scrupulously observed and monitored. Cement plants have become conscious that controlling the particulate emissions increases production of cement in addition to pollution abatement. IX. IMPACT OF PROJECT ON THE INDUSTRY 9.1 The project helped in the development of the cement industry in many ways. 9.2 While the line was in operation, the World Bank could take up with GOI, the case of decontrol of distribution and price of cement. Adoption of the latest state-of-art technology resulted in increased production, cost reduction and improved profitability in addition to pollution control. Though only nine subprojects benefited under the Line, cement plants subsequently set up in the country were all based on dry process only. 9.3 The subborrowers benefited in many ways. Foreign exchange assistance was free from exchange risk. Clearance of licenses etc. for import of machinery was available under one roof. Under the ICB procedure borrowers got the benefit of exemption from excise duty and their gain was around 20-25% of the total machinery cost. Introduction of the Line for cement industry in India and the benefits thereof gave impetus for extending a new line (Ln. 3196-IN) for greenfield projects, which was well received. 9.4 The cement industry has shown remarkable progress in the last few years, with an annual growth rate of about 7% and today India is the fifth largest producer of cement in the World after China, Russia, Japan and USA. As a result of decontrol of prices and distribution of cement, the industry has grown 2 1/2 times in terms of total installed capacity in 1980-81 to 1992-93. Presently, 84% of the total capacity is based on energy efficient and environment friendly dry process technology. The quality of cement produced has improved and the industry is now in a position to meet not only domestic but also the export demand. Many of the quality conscious units have obtained ISO-9000 certifications for quality assurance to be competitive in the global markets. 9.5. The cement industry in India has come to robust health as is evident by a number of cement companies accessing the global capital markets for taking up further projects, with the GOI adopting economic and financial reforms. 9.6 With exports picking up, some of the cement companies are setting up Export Oriented Units. This is a clear indication that Indian cement is of international quality and globally competitive. - 55 - X. OPERATING PLAN 10.1 During the ICR Mission in June/July 1994 , an Operation Plan by the participating companies was prepared and agreed to by IDBI/ICICI and the World Bank mission and the plan became part of the Aide Memoire (Annex 3). Four companies - ACC, Birla Jute, India Cement and KCP which were appraised originally in the SAR and which have completed their projects and are financially sound and profit making companies. They are being regularly monitored by IDBI/ICICI by way of quarterly progress reports, periodical field visits and reports submitted by the Directors nominated by IDBI/ICICI on the Boards of these companies. These reports contain exhaustive details on the companies' performance in respect of production, efficiency parameters and profitability. 10.2 IDCOL Cement This substitute project, approved in August, 1991, has since tied over the local cost financial problems and is in the process of restructuring its management. IDBI/ICICI are closely monitoring compliance with the agreed restructuring program. After implementation of the modernization and expansion scheme in March, 1995, the company's profitability is expected to improve further since its input costs would go down and, being located in a cement deficit region, it sales realization would be higher. 10.3 Kalyanpur Cements This project approved in July, 1988, is beset with financial problems. Notwithstanding the then weak financial position of the company, IDBI/ICICI chose to finance this modem dry process project in the hope of turning around the company and the World Bank agreed to it. With the implementation of expansion cum modernization scheme, based on state-of-art technology, the company is expected to make improved profitability by achieving economies of scale. The Indian cement industry is presently doing well and the project, being located in the cement deficit State of Bihar, would also cater to adjourning large markets of Bengal and Nepal. A plan for capital restructuring of the company including infusion of fresh equity is being worked out. IDBI/ICICI are not only intensively monitoring the operations/performance of the unit but also extending assistance to formulate a restructuring plan for its revival. LINE 2661-IN XI. SMALL SCALE MODERNIZATION PROJECTS 11.1 The Line was directly lent to ICICI for import of equipment to provide support for small scale projects with the exchange fluctuation risks passed on to the subborrowers. However, not many subborrowers were willing to bear the foreign exchange risks and the immediate response to the Line was poor. Hence GOI later agreed to bear the foreign exchange risk and the scope was also widened to cover Rupee expenditure. This led to - 56 - speedy disbursement of funds under this loan. 11.2 Project Benefits Assistance under the Line was extended to 20 subprojects. The funds were mostly used to supplement the ongoing modernization programs of the sub- borrowers for import of latest technical know-how and equipment. All subprojects have been completed. The project sponsors have benefited not only by way of improvement in energy consumption/cost reduction of cement plants but also by installation of coal washeries, improvement in captive power plant, research center equipments, etc. The objective of the Line to provide quick disbursal of funds to a large number of small scale modernization projects was thus achieved. m:\india\report 一 ：魚