Document of FILE CopyThe World Bank

FOR OFFICIAL USE ONLY

Report No. P-3229-IN

REPORT AND RECOMMENDATION

OF THE

PRESIDENT

OF THE

INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT

TO THE EXECUTIVE DIRECTORS

ON A

PROPOSED LOAN

TO INDIA

FOR THE

REFINERIES RATIONALIZATION PROJECT

March 8, 1982

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

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CURRENCY EQUIVALENTS(as of March 1, 1982)

US$1 = Rs 9.246049

Rs 1 = US$0.108154Rs 1 million = US$108,154

The US Dollar/Rupee exchange rate is subject to change.Conversions in the Staff Appraisal Report were made atUS$1.00 to Rs 8.5, which represents the projectedaverage exchange rate over the disbursement period.

FISCAL YEAR

April 1 - March 31

ABBREVIATIONS AND ACRONYMS

BPCL - Bharat Petroleum Corporation Ltd.CRL - Cochin Refineries Ltd.EIL - Engineers India Ltd.FCC - Fluid Catalytic CrackerHPCL - Hindustan Petroleum Corporation Ltd.IOC - Indian Oil CorporationGOI - Government of IndiaMRL - Madras Refineries Ltd.ONGC - Oil and Natural Gas CommissionOIL - Oil India Ltd.tpy - tons per yearUOP - Universal Oil Products Co. (USA)

FOR OFFICIAL USZ ONLY

ISDIA

REFINERIES RATIONALIZATION PROJECT

LOAN AND PROJECT SUMARY

Borrower: India, acting by its President.

Beneficiary: Bharat Petroleum Corporation Ltd., Hindustan PetroleumCorporation Ltd., Madras Refineries Ltd., Cochin Refineries Ltd.,and several other Indian refinery companies.

Amount: US$200 million.,

Terms: Repayment over twenty years, including five years ofgrace, at 11.6% per annum.

Relending Maturities not to exceed 15 years, including four years ofTerms: grace, at 12% per annum. GOI would bear the foreign

exchange risk.

Project The project would assist the Government to redress theDescription: imbalance between domestic demand for and supply of

petroleum products, and to improve energy efficiency inthe sector. Its main components include: (a) instalationat four refineries of additional capacity and secondaryprocessing facilities to convert fuel oil intohigher-value products; (b) additions to petroleum tankageand distribution facilities; (c) facilities to reduceenergy requirements; (d) pollution control facilities.The project faces only limited risks in that it involvesprimarily the expansion and rationalization of existingfacilities, using conmercially proven technology.

This docta t has a resuicted distribution and may be used by recipients only in the performance of |lthsi official duties Its contents may not otherwie be disclosed without World Bank authorization.

Estimated Cost:

Refineries Conversion and (US$ millions)

Expansion Component Local Foreign Total

Equipment, Materials and Spares 106.0 210.3 316.3

Freight, Duties and Taxesl/ 83.7 9.7 93.4

Licensing, Engineering andProject Management Services 32.2 3.9 36.1

Civil Works 49.0 5.4 54.4Erection 52.9 3.9 56.8Pre-operating and

Commissioning Charges 13.3 2.0 15.3

Sub-total 317.1 23.

Energy Efficiency andPollution Control Component

Equipment, Materials and Spares 31.5 18.9 50.4Freight, Taxes and Dutiesl/ 13.2 1.6 14.8

Licensing, Engineering and -Project Management Services 4.1 0.1 4.2

Civil Works 3.2 0.4 3.6

Erection 4.5 0.2 4.7

Pre-operating andCommissioning Charges 1.2 0.4 1.6

Sub-total 57.7 21.6 79.3

Base Cost Estimates 394.8 256.8 651.6

Physical Contingencies 36.3 25.3 61.6

Price Contingencies 71.3 45.8 117.1

Total Installed Cost 502.4 327.9 830.3

Working Capital 18.9 106.9 125.8

Interest During Construction 96.4 33.2 129.6

Total Financing Required 617.7 468.0 1,085.7

1/ Of which, duties and taxes total US$93.2 million.

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Financing Plan:

kLSf millions)Local Foreign Total

Equity 111.7 268.0 379.7GOI Loan 506.0 - 506.0IBRD Loan - 200.0 200.0

Total 617.7 468.0 1,085.7

Estimated (US$ millions)Disbursements: FY82 FY83 FY84 FY85 FY86

Annual 5.0 59.0 64.0 48.6 23.4Cumulative 5.0 64.0 128.0 176.6 200.0

Rate of Return: Over 80%.

Appraisal Report: No. 3645-IN, dated March 2, 1982.

INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENTKEPUKr AND ECUMMhNUAriONU ut iRE rKuSiLhNT-TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN

TO INDIA FOR THEREFINERIES RATIONALIZATION PROJECT

1. I submit the following report and recommendation for a proposed

loan in an amount equivalent to US$200 million to India (GOI) to help finance

the foreign exchange costs of a refineries rationalization project. Amor-

tization would be over 20 years, including five years of grace, at an inter-

est rate of 11.6% per annum. The proceeds of the loan would be onlent to

various Indian refinery companies at 12% per annum, with maturities not

exceeding 15 years, including four years of grace. The exchange risk would

be borne by GOI.

PART I - THE ECONOMY 1/

2. An economic report, "Economic Situation and Prospects of India"

(3401-IN, dated April 15, 1981), was distributed to the Executive Directorson April 16, 1981. Country data sheets are attached as Annex I.

Background

3. India is a large and diverse country with a population of about 688

million (in mid-1981) and an annual per capita income of US$190. Agriculture

continues to dominate India's economy, employing over two-thirds of the labor

fo _e. However, the land base is not sufficient to provide an adequate

livelihood to all those engaged in agricultural activities, especially the

landless or nearly landless who have only an insecure grasp on the means of

existence. Over the past 30 years, the share of agriculture in GDP at factor

cost (measured in 1970/71 prices) has declined from 60% to about 40%, while

the share of industry has increased from 15% to about 24%. But

industrialization has not been rapid enough to absorb the growing labor

force, nor to bring about the economic transformation that has led to sig-

nificantly higher productivity in some other developing countries.

4. Economic growth has been slow in the past, averaging about 3.5% per

annum over the past 30 years. Slow growth of value-added in agriculture --

2.1% per annum over the three decades -- has constrained overall growth, not

only because of the high share of agriculture in GDP but also because scarce

foreign exchange has often been required to import food. Industrial

value-added has grown more rapidly, at 5.4% per annum between 1950/51 and

1979/80. Over the same period, gross domestic savings more than doubled from

10% of GDP to 21.2%, while gross domestic investment rose from 10% of GDP to

just over 21.8%. Foreign savings have never financed a large portion of

domestic investment: a peak of about 20% was reached during the early 1960s;

by the end of the 1970s, the proportion had returned to below 3%. External

1/ Parts I and II of the report are substantially the same as Parts I and II

of the President's Report for the Fourth Agricultural Refinance and

Development Corporation Credit Project (No. P-3196-IN), dated

February 1, 1982.

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assistance has been low both as a percentage of GDP and in per capita terms.Net external assistance has never risen above 3% of GDP, and was less than 1%at the end of the 1970s.

5. Over the past 30 years as a whole, India has placed relatively littleemphasis on exports and has tended to pursue a strategy of import substitu-tion. The volume growth of exports between 1950/51 and 1979/80 averaged only3.6% per annum, about the same as the volume growth of imports over the sameperiod. Between 1970 and 1977, however, India's terms of trade, which hadremained roughly constant during the 1960s, deteriorated sharply. Inresponse, the Government introduced various policy measures designed tostimulate exports. The volume of India's exports grew on average about 9%per annum between 1971/72 and 1976/77. Although export growth has slowed inrecent years, due in large part to domestic supply constraints, thisexperience demonstrates that sustained rapid growth is possible. Whileexpanding world markets, particularly in the nearby Middle East, contributedto this growth, liberalized access to imported inputs and more effectiveexport incentives played a major role.

Recent Trends

6. Over the period 1975/76 to 1978/79, growth in real GDP (at factorcost), agricultural value-added and industrial value-added averaged 5.4%,3.1% and 7.9% per annum, respectively. These trends represent a substan-tially better growth performance than the historical 30-year trends(paragraph 4). However, GDP declined by about 4.5% in 1979/80 due both tothe severe drought which reduced agricultural production and to input con-straints in other sectors. Agricultural output fell by about 16% in 1979/80.Industrial production stagnated, largely due to shortfalls in the productionof major inputs such as coal, steel and cement, as well as infrastructuralconstraints, notably in power and transportation. As a consequence of thesedevelopments, the remarkable price stability that India had enjoyed after1975 came to an abrupt end at the close of fiscal year 1978/79, with pricesincreasing 21% during 1979/80.

7. In 1980/81, the economy recovered substantially, so that real GDPgrowth for the year was about 6%-7%. During the summer and fall of 1980foodgrain prices rose, but more slowly than other prices and more slowly thanthe drop in production in 1979/80 would have suggested. This was made pos-sible through the drawdown of substantial buffer stocks built up by theGovernment in years of good harvests. These stocks ensured adequate suppliesof grain to low-income groups in urban areas through the public distributionsystem and also provided resources for a large-scale drought relief employ-ment program for low-income groups in rural areas. Aided by a normal monsoonin the summer of 1980, agricultural production rose by about 17%-19%. Theindustrial sector recovered more slowly, with production in 1980/81 risingonly about 4% above the average for 1979/80, but output increased substan-tially during the year so that production in April 1981 was about 9% higherthan in April 1980. The rise in prices slowed during the second half of1980/81 so that by March 1981 the wholesale price index was 15.7% above itslevel a year earlier.

8. In agriculture the positive results of large investments andappropriate policies in the past years are becoming increasingly apparent.

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The rate of expansion of irrigation has increased significantly from 1.3 mil-lion ha per year in the early 1970s to about 2.3 million ha in 1980/81.Fertilizer use reached about 5.6 million tons of nutrients in 1980/81, morethan double 1974/75 levels. Over the decade before 1979/80, foodgrainproduction grew at about 2.75% per annum -- sufficient to meet consumerdemand, to eliminate imports (which had averaged nearly 5 million tons peryear for the 15 years preceding 1976), and to reduce real foodgrain pricesfor consumers. At the same time, India was able to build up substantialfoodgrain buffer stocks which made it possible to limit the effects of the1979/80 drought, and to export a modest amount of grain in 1980. While themanagement of the foodgrain economy after the drought was a significantachievement, the effect of the drought on production re-emphasized the con-tinued importance of the monsoon in India's agriculture. The normal monsoonof 1980/81 brought foodgrain production back to around 130 million tons.While the performance of the recent past and the probable future trendssuggest that on average foodgrain supplies will exceed demand, the balanceremains delicate and the need for foodgrain imports to maintain consumersupplies or adequate buffer stocks could arise from time to time. Forexample, some wheat imports are likely in 1981/82 to ensure adequate build upof stocks. Programs to expand irrigation, strengthen extension and encouragethe efficient use of other agricultural inputs continue to receive highpriority.

9. The Indian economy has shifted back from a situation of resourcesurplus, which had been a temporary phenomenon of the late 1970s, to one ofresource scarcity. Investment has again overtaken domestic savings, and thescope for further increases in the latter appears limited. Marginal savingsrates have recently been well above 30% in the household sector. Futureincreases in savings will depend heavily upon the enhanced profitability ofpublic sector enterprises. Impending resource scarcity is even more apparentin the foreign sector. Between 1975/76 and 1978/79, India's current accountdeficit had remained comfortably small in relation both to GDP and to agrowing pipeline of aid commitments. This was due to favorable terms oftrade movements after 1977 and to rapidly growing workers' remittances aswell as to the growth of exports. In 1980/81, however, the balance of pay-ments deteriorated sharply, with the current account deficit rising fromUS$850 million in 1979/80 to nearly US$3.4 billion in 1980/81. In part thiswas due to unique events during the year, such as the disruption of oilproduction in the Northeast, which, though the flows resumed again inFebruary 1981, alone added over US$1 billion to the oil import bill. Com-bined with unprecedented oil price increases, this caused the oil import billto rise by over 75%, to a level equivalent to three-fourths of India's mer-chandise export earnings. The deficit on current account rose to 2% of GDP.India was able to finance this gap through a substantial drawing on IMFresources (the Trust Fund and the Compensatory Financing Facility), andthrough an increase in aid disbursements and a modest drawdown in foreignexchange reserves.

10. The trends in the volume and terms of India's trade indicate thatsignificant adjustments will need to be made in the economy to bring India'sexternal accounts into balance at a reasonable level of growth. In an effortto make these adjustments, the Government has developed an investment programfor the Sixth Plan period and implenented a number of policy measures whichare designed to bring the economy closer to external equilibrium. These

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measures recognize the need to increase the growth of exports, to increase

production of commodities such as fertilizer, cement and steel which Indiacan produce efficiently in order to reduce imports of these items, to

moderate the rise in oil imports through greater domestic production and

slower demand growth, and to reduce the constraints in transportation andother infrastructural facilities which are retarding growth in a wide range

of activities, including exports. It is encouraging that, in response to thepresent balance of payments difficulties, the Government has not reacted by

placing more stringent controls on imports, but rather has left in place the

more liberal policies evolved in the past several years. Recent improvementsin the availability of power, a major constraint facing exporters, and the

adoption of several new export policy measures have improved the prospects

for accelerating export growth. To assist the Government in its adjustment

effort, the IMF approved an Extended Fund Facility for India forSDR 5.0 billion on November 9, 1981. Over the next three years, this

facility will provide India with a significant share of the external resour-

ces required to bring about the necessary changes in the structure of theeconomy and will substantially increase India's flexibility in dealing with

its external account imbalance.

Development Prospects

11. The experience of recent years illustrates that India does have the

capacity to grow and develop at a more rapid pace. Although the industrialsector is small compared to the size of the economy, it nevertheless is large

in absolute terms and has a highly diversified structure, capable of manufac-

turing a wide variety of consumer and capital goods. Basic infrastructure --

irrigation, railways, telecommunications, the power grid, roads and ports -

is extensive compared to many countries, although there is considerable need

for additional capacity as well as improvement in the utilization of existing

capacity. India is also well-endowed with human resources and with institu-

tional infrastructure for development. Finally, India has an extensivenatural resource base in terms of land, water, and minerals (primarily coal

and ferrous ores, but also gas and oil). With good economic policies andsufficient access to foreign savings, India has the capability for managing

these considerable resources to accelerate its long-term growth.

12. A new Sixth Five-Year Plan (1980-85) was approved in February 1981.

The new Plan continues to assign priority to agriculture and power. Further-more, the Plan reflects the Government's efforts to bring about the necessary

adjustments in the economy by emphasizing several priority areas. Theseinclude: (i) expansion of exports and an investment program to supportincreased production to replace imports of goods such as fertilizer, cement

and steel which India produces competitively; (ii) an investment program

and policy framework for more efficient development and use of energy resour-

ces; (iii) removal of bottlenecks in infrastructure and related constraints

on production of basic industrial inputs; and (iv) continuing emphasis on the

development of agriculture.

13. The higher capital formation rates of the past few years augur well

for future income growth. However, there are signs that the past programs

and policies have led to relatively low growth in certain crucial sectors,namely power, coal, transport services, steel and cement. Potential output

growth in sectors which have benefitted from large investments in the recent

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past may nac materialize unless these input bottlenecks are alleviated. Inthe case of coal, steel and cement, domestic production appears to be clearlyjustified on grounds of comparative advantage, indicating an a priori casefor policies to promote further investment. In 1980/81 these commoditieswere not imported in sufficient amounts to eliminate the shortages; increasedshort-term reliance on imports may be necessary to alleviate slowdowns anddislocation in user industries. In the case of sectors in which there islittle scope to import the final product -- power and transportation -- theplanning of capacity expansion becomes even more crucial. Although there isscope for improvement in the short-run performance of these sectors, majorinvestments in balancing and modernization programs as well as in newcapacity are essential for adequate growth in the medium term.

14. Despite the relatively large investment programs for the develop-ment of domestic energy resources such as coal and hydroelectricity, and therecent development of offshore petroleum resources, India has not been ableto eliminate the gap between its total energy demand and domestic production.During the past year, India continued to face power and coal shortages, butthe situation improved substantially during the year so that power generationin June 1981 was around 20% higher than a year earlier. India is enteringthe Sixth Plan period with an ambitious energy production program backed bysubstantial financial commitment. In the oil sector, GOI is now acceleratingits oil exploration capabilities and is opening up prospective areas forexploration by foreign firms. Prices of petroleum products were raisedsubstantially in 1980 and again in July 1981 to bring domestic prices intolir with world market prices, to raise resources for further oil and gasdevelopment and to encourage efficient use of energy. India is now committedto an expanded power program that emphasizes exploitation of its large hydropotential and development of its transmission and distribution system. Inthe coal sector, a policy decision in favor of mechanization has been made inorder to achieve more rapid growth of coal production.

15. Agricultural policies, development programs and secular trends allseem favorable for sustaining the past agricultural growth during the 1980s.India ended 1980 with grain stocks of about 12 million tons, without havingimported foodgrains during the year. This reflects the trends of the lastdecade which point to an improvement in foodgrain availability in theeconomy. Growing output, combined with the projected fall in the populationgrowth rate, suggest favorable long-run prospects for foodgrain supply anddemand balances. An occasional need to import grains, particularly wheat,could arise, but if the efforts to develop agriculture over the past decadeare sustained and intensified, as suggested in the new Plan, persistentshortage seems unlikely. This development could give rise to a range ofpolicy options including a slowly falling real price of foodgrains toincrease the affordability of foodgrains to low-income families, foodgrainexports, and diversification to the production of other, higher-value crops.

16. Foreign exchange reserves are providing a cushion that helps theGovernment of India in short-term supply management. In March 1981, however,gross reserves were $320 million lower than the level of a year earlier and,in terms of import coverage, fell below the six-month level for the firsttime since 1977. A much larger decline in the reserve level would have beennecessary in 1980/81 had IMF Trust Fund and Compensatory FinancingFacilities, amounting to over US$1 billion, not been available. India's

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reserves provide some limited scope for narrowing the financing gap over the

next few years, but successful management of the balance of payments will

depend mainly on improved export performance, on import replacement, on the

maintenance of aid flows and workers' remittances, and on a moderation inprice increases for oil imports. While India's current account balance of

payments deficits are not expected to be large relative to the size of the

economy (e.g., on the order of two percent of GDP), the absolute amounts arelarge and will necessitate external borrowing beyond levels expected to be

available from normal concessional sources. Accordingly, over the past year

India has begun to make judicious use of a mix of sources of external financ-

ing, including borrowing from financial markets of about US$1 billion and,

most recently, the SDR 5 billion Extended Fund Facility.

17. India's medium-term development prospects are mixed. Considerableprogress continues to be made, particularly in agriculture, but the economy

faces a period of difficult adjustments in the coming years. Investments

required to relieve short-term supply constraints must compete with

longer-term programs to accelerate growth and to develop India's considerable

physical and human resources. The balancing of these objectives will place adifficult burden on those implementing India's Sixth Five-Year Plan. The

primary focus must be on the implementation of appropriate domestic adjust-

ment policies, although the aid community can and should play an important

role in ensuring that India's efforts do not fail due to inadequate foreign

resources.

18. Preliminary results from the March 1, 1981 Census, combined with

1971 Census figures adjusted for under-enumeration, suggest that the popula-

tion growth rate declined from 2.3% p.a. in the late 1960s to about 2% at

present. The rate of increase of population is expected to continue falling

to around 1.8% by the first half of the 1990s. While the growth rate appears

to be declining slowly, the 1981 Census population estimate was substantiallyhigher than previous Government projections. The 1981 Census data are still

incomplete but preliminary reports indicate that the rise in life expectancy

was more than anticipated, suggesting that, on average, Indians can expect tolive five years longer than they did a decade ago. This no doubt reflectsimproved availability of food and health services. This implies, however, an

even greater need to reduce the birth rate to bring about the needed reduc-

tion in the rate of-growth of population. The Census results, therefore,re-emphasize the need for continuing efforts to strengthen a broad range of

family planning activities to develop a wider clientele and to provide that

clientele with a professional, technically competent advisory service whichcan provide the full variety of available birth prevention methods. The newPlan continues the high priority given to these efforts in earlier Plans.

The ambition of its targets - implying a rise in the proportion of protected

couples in the reproductive age group from its present estimated level of

about 23% to over 35% by 1984/85 - seems fully justified. Such targets implya serious long term commitment to moderating the population growth rate

through an improved family planning program.

19. Reduction of poverty remains the central goal of Indian economicgrowth. More than one-third of the world's poor live in India, and more than

80% of the Indian poor belong to the rural households of landless laborersand small farmers. About 51% of the rural population and 38% of the urban

population subsist below the poverty line (estimated at about US$114 and

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US$132 per capita per year for rural and urban areas, respectively).Improvements in the living standards of the poor will depend to a largeextent on the overall growth of the economy; the circumstances requireincreases in agricultural production and employment, in non-farm ruralemployment, and also in employment opportunities in urban areas. Thesedevelopments will have to stem in large part from market forces which,however, must be encouraged and reinforced by appropriate Government policiesand the strengthening of basic services and infrastructure. The decliningtrend in real foodgrain prices between 1970 and 1979 reflects such develop-ments. There is also a role for direct Government action in faster implemen-tation of land reform (though the scope for significant reduction in povertythrough land redistribution is quite limited in India), in increasing thesupply of credit available to small farmers and rural artisans, and finallyin broadening the provision of those services which enhance the human capitalof the poor and improve living standards. Many of the latter are elements ofthe Minimum Needs Program, which has been an integral part of Indian planningfor the past decade. Progress has been slow but steady in the expansion ofprimary education, the extension of rural health facilities and the provisionof secure village water supplies. Innovations such as the community healthvolunteer program and the national adult literacy campaign provide encourag-ing evidence that well-targetted, relatively low-cost programs can lead toenhanced prospects for India's poor.

PART II - BANK GROUP OPERATIONS IN INDIA

20. Since 1949, the Bank Group has made 62 loans and 144 developmentcredits to India totalling US$2,931 million and US$10,283 million (both netof cancellation), respectively. Of these amounts, US$1,188 million had beenrepaid, and US$4,408 million was still undisbursed as of September 30, 1981.Bank Group disbursements to India in 1980/81 totalled US$962 million, repre-senting an increase of about 32 percent over the previous year. Annex IIcontains a summary statement of disbursements as of September 30, 1981, andnotes on the execution of ongoing projects.

21. Since 1959, IFC has made 24 commitments in India totalling US$148.6million, of which US$22.6 million has been repaid, US$27.7 million sold andUS$7.5 million cancelled. Of the balance of US$90.8 million, US$81.9 millionrepresents loans and US$8.9 million equity. A summary statement of IFCoperations as of September 30, 1981, is also included in Annex II (page 4).

22. In recent years, Bank Group lending has emphasized agriculture. TheBank Group has been particularly active in supporting minor irrigation andother on-farm investments through agricultural credit operations and inproviding direct support to major and medium irrigation. Marketing, seeddevelopment, agricultural extension, dairying, and forestry are otheragricultural activities supported by the Bank Group. Also, the Bank Grouphas been active in financing the expansion of output in the fertilizer sectorand, through its sizeable assistance to development finance institutions, ina wide range of geographically scattered medium- and small-scale industrialenterprises. The Bank Group has also been active in supporting infrastruc-ture development for power, telecommunications, and railways. Family plan-ning, water supply development, urban investments and the development of oiland natural gas have also received Bank Group support in recent years.

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23. The direction of assistance under the Bank/IDA program has been

consistent with India's needs and the Government's priorities. The emphasisof the program on agriculture, power, water supply and other infrastructure

sectors remains highly relevant. Projects designed to foster agriculturalproduction through the provision of essential inputs, particularly water and

credit for on-farm investments, will continue to receive emphasis. Improved

water management and intensification and streamlining of extension systemsform an important institution-building aspect of the Bank Group's program

for the next several years. Special emphasis will be given to projectsbenefitting small farmers. The Bank Group's continuing role in the fer-

tilizer sector assists India in the more efficient provision of another key

input in the agricultural growth process. Projects supporting water supply,sewerage, urban development and investments in the petroleum sector also form

an integral part of the Bank's lending strategy to India for the next several

years. Lending in support of infrastructure and industrial investments willfocus on those subsectors which have recently emerged as key constraints on

India's overall growth, primarily power and transportation.

24. The need for a substantial net transfer of external resources in

support of the development of India's economy has been a recurrent theme ofBank economic reports and of the discussions within the India Consortium.

Thanks in part to the response of the aid community, India successfullyadjusted to the changed world price situation of the mid-1970s. However,

there is now a need for increased foreign assistance to adjust to an evengreater deterioration in balance of payments anticipated during the 1980s by

augmenting domestic resources and stimulating investment. As in the past,Bank Group assistance for projects in India should aim to include the financ-

ing of local expenditures. India imports relatively few capital goods

because of the capacity and competitiveness of the domestic capital goodsindustry. Consequently, the foreign exchange component tends to be small

in most projects. This is particularly the case in such high-priority sec-

tors as agriculture, irrigation, and water supply.

25. India's poverty and needs are such that whenever possible, external

capital requirements should be provided on concessionary terms. Accordingly,the bulk of the Bank Group assistance to India has been, and should continue

to be, provided from IDA. However, the amount of IDA funds that canreasonably be allocated to India remains small in relation to India's needs

for external support. Therefore, India should be eligible and regarded ascreditworthy for some supplemental Bank lending. The ratio of India's debt

service to the level of exports was about 10% in 1980/81 and is projected toremain below 20% through 1995/96. As of September 30, 1981, outstandingloans to India held by the Bank totalled US$1,828 million, of which US$819

million remain to be disbursed, leaving a net amount outstanding of US$1,009million.

26. Of the external assistance received by India, the proportion con-

tributed by the Bank Group has grown significantly. In 1969/70, the BankGroup accounted for 34% of total commitments, 13% of gross disbursements, and12% of net disbursements as compared with 49%, 36% and 44%, respectively, in1980/81. On March 31, 1981, India's outstanding and disbursed external

public debt was about US$17 billion, of which the Bank Group's share was

US$6.2 billion or 36% (IDA's US$5.3 billion and IBRD's US$0.9 billion).Because Bank Group assistance to India is predominantly in the form of IDA

credits, debt service to the Bank Group will rise slowly. In 1980/81, about18.0% of India's total debt service payments were to the Bank Group.

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PART III - THE ENERGY SECTOR

General

27. Commercial primary energy (coal, oil, gas, hydro and nuclear)

accounts for about 47% of total energy consumption in India, with the

balance (53%) being derived from non-commercial sources such as firewood

and agricultural and animal wastes. Over the past ten years, the growth

of energy consumption in India has averaged 4% per annum, but this has not

been sufficiently rapid to raise per capita consumption above 410 kg of

coal equivalent, which is average for developing countries. The share ofoil products in total and commercial energy consumption is growing rapidlyand in 1979/80 accounted for 23% of commercial energy consumption.

Electricity consumption has shown the sharpest growth and accounts for 43%

of total commercial energy consumption followed by coal (34%). Firewood

is the most widely consumed fuel in India, accounting for about 65% of

total non-commercial energy consumption. Other non-commercial sources of

fuel, such as vegetable and animal wastes, account for the remaining 35%

of consumption.

28. Inadequate supplies of energy have been a major constraint

hindering India's economic growth. Although considerable indigenous

resources of energy exist, their development has not kept pace with

consumption demand. In November 1979, a high-level Working Group on

Energy Policy recommended measures to reduce energy demand. Prominent

among the recommendations were improvement in the efficiency of energy

use, introduction of fuel-efficient technologies, reduction of

transportation demand, reduction of the energy intensity of industrialinvestment, and inter-fuel substitution from commercial to non-commercial

and renewable energy resources. In addition to containing the demand for

petroleum products to the extent feasible, India has made concertedefforts to explore and develop its domestic energy resources. The Sixth

Five-Year Plan contains significant policy measures and investments to

achieve a better balance of supply and demand, although energy shortfalls

are likely to persist in the medium term.

29. Coal remains the primary domestic source of commercial energy

in India. Coal production has risen from about 78 million tons in 1973/74

to 107 million tons in 1980/81. Coal production has been constrained by

power shortages, delays in commissioning new mines, labor difficulties and

transportation bottlenecks, and shortages have resulted. Installed

electric generating capacity in 1980/81 is estimated at 33,000 MW, of

which hydroelectric plants account for about 33%. Potential demand forpower has consistently exceeded supply in recent years. The estimated

deficit (calculated as actual supply compared to potential unrestricted

demand) widened to 12.6% in 1980/81. Faced with sharp increases in demand

for electricity, generation has been constrained by low capacity

utilization and delays in completing planned thermal generation capacity.

In 1980, a Government Committee recommended broad-ranging reform of the

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power sector. Measures are underway to improve efficiency of thermalpower plants, improve the coordination of power planning, strengthen therole of the Center in power development, intensify hydroelectricgeneration and improve the finances of State Electricity Boards. Naturalgas has assumed considerable importance in the Indian economy with thedevelopment of the Bombay High and Bassein offshore fields which provideboth associated and non-associated gas. Gas reserves in 1978 wereestimated at 344 billion cubic meters. The gas is intended for use mainly

as feedstock for fertilizers and petrochemicals, with the heavierfractions being sold as bottled gas to substitute for kerosene and otherfuels.

Petroleum

30. Crude oil production from domestic reserves has increasedsteadily over the past 20 years from as little as 0.45 million tons in1960/61 to almost 7 million tons in 1970/71 and an estimated 10.6 milliontons in 1980/81. India's total hydrocarbon reserves have recently beenestimated at 6.5 billion tons, of which about two-thirds were offshore.Commercial production is confined to two fields, one in the northeasternstates centering in Assam, the other in the offshore Bombay High fields.The Government has initiated efforts to expand oil exploration activitiesand has offered selected blocks to foreign firms under production-sharingarrangements. Discussions are underway with interested foreign firms.

31. Consumption of crude oil, which has been growing at over 7% inrecent years, is currently estimated at 34.7 million tons. By the end ofthe Plan period (1984/85), consumption is expected to reach about 42million tons. This would exceed expected domestic production by over 22million tons on current estimates. The import bill for crude oil andpetroleum products has risen to US$6.7 billion in 1980/81, representing42% of total merchandise imports and 78% of India's merchandise exportearnings. Although there are good prospects for increasing productionfrom existing fields, which are being pursued by the Government,significant efforts will be needed in oil exploration and development ifIndia is to achieve a better balance between energy demand and supply.

Sector Institutions.

32. The Ministry of Petroleum, Chemicals and Fertilizers is charged

with policy-making in the petroleum sector. Together with the PlanningCommission, it approves all investments and the budgets of publiccompanies operating in the sector. The Oil and Natural Gas Commission(ONGC) and Oil India Limited (OIL), both public sector undertakings, areengaged in the exploration and development of hydrocarbon resources.Indian Oil Corporation (IOC) handles all of India's crude oil imports.The Oil Industry Development Board is a financial institution whichobtains funds through a cess levied on domestic crude production andprovides financing for organizations engaged in oil development. Asmentioned above, India has invited foreign private oil companies to helpexplore for oil, both onshore and offshore.

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Refining in India

33. Six companies operate eleven petroleum refineries in thecountry. Four of these companies are wholly-owned by GOI, viz, Indian OilCorporation (I0C), Bharat Petroleum Corporation Ltd. (BPCL), HindustanPetroleum Corporation Ltd. (HPCL), and Bongaigaon Refinery andPetrochemicals Ltd. (BRPL). Of the two companies in the joint sector,Cochin Refineries Ltd. (CRL) is owned by GOI, Phillips Petroleum Company(USA) and other Indian public and private shareholders and the MadrasRefineries Ltd. (MRL) is owned by GOI, the National Iranian Oil CompanyLtd. and Amoco (USA). In both cases, the Government is the majorityshareholder. The largest refinery company is I0C, which operates fourrefineries and is also responsible for the country's import of crude oiland petroleum products. Marketing and distribution are mainly in thehands of IOC, HPCL and BPCL. All other companies rely on I0C for themarketing and distribution of their products. Retail outlets are operatedalmost completely by private dealers. The existing refineries have simpleconfigurations with only a few having secondary processing facilities.This results in sub-optimum crude throughput and limited production ofmiddle distillates (kerosene and diesel oil) which are in substantialdemand and need to be imported.

34. In 1980/81, India's total production of refinery products was 24million tons per year (tpy).l/ Capacity utilization in the industry is thehighest among process industries in India, averaging 86% in the late1970s, which is satisfactory by international standards. Capacityutilization fell to 81% in 1980/81, due to a shortage of crude causedpartly by the Iran/Iraq war and disruptions in supply from Assam. SinceMarch 1981, these problems have been contained and, under normalconditions of crude availability, it is expected that on average capacityutilization could be sustained at or near 90% in future.

35. Over the past decade, refinery production did not keep pace withdemand, particularly in the period 1975-81 when significant amounts ofkerosene and high-speed diesel oil had to be imported. Consumption ofrefined products grew at 5.6% per annum to almost 31 million tons in1980/81. Demand *for petroleum products is expected to reach 60 milliontpy by 1989/90. There is relatively limited scope for curtailingconsumption, given that consumption levels are already low and overallpetroleum prices are high by international standards, and that the demandfor most products is relatively inelastic since they are used principallyin the transport and agricultural sectors for productive purposes. Lowlevels of energy consumption, high prices and supply constraints of otherfuel sources (firewood, coal and electric power) combine to limit furtherpossibilities for inter-fuel substitution.

1/ In addition to the eleven refineries currently in operation, a newrefinery of 6.0 million tpy at Mathura is now under construction andis expected to be commissioned in mid-1982.

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36. In addition to the Mathura refinery mentioned in the footnoteabove, the Sixth Five-Year Plan includes major investments totalling overUS$2.6 billion to (i) increase installed refining capacity by 55% to 58.7million tpy; (ii) add 5.5 million tpy of conversion capacity; and (iii)improve the energy efficiency of existing refineries. Investments arealso planned to increase product storage capacity, to extend the oilpipeline from Mathura in Uttar Pradesh into the Punjab and to mitigatepollution. These investments will substantially narrow the current gapbetween supply and demand of refined products, but domestic productionwould reach only about 50 million tpy, and meet only 80-85% of projectedproduct requirements, in 1989/90. The supply gap, applying particularlyto middle distillates, would have to be met through imports.

Product Pricing

37. Given the high rate of growth of petroleum products, GOI istaking several measures to control future demand growth, including effortsto channel some demand into other domestic sources, such as coal andhydroelectric power, which are relatively plentiful in the country.Another measure is to shift goods and passenger traffic from diesel motorvehicles to railways, and provide the railway with electrificationcapacity. As mentioned, however, the structure of petroleum consumptionin India is such that the scope for significant inter-fuel substitution islimited. Therefore, the most important tool being used by GOI as aconservation measure is to set petroleum prices at levels which willreduce the energy intensity of the economy.

38. In July 1981, GOI, continuing a practice of passing on toconsumers increased prices of imported crude oil, further increasedpetroleum prices substantially. The prices for gasoline, high speeddiesel and fuel oil are significantly above comparable CIF prices, as canbe seen below.

India - Retail Prices of Petroleum Products(in US$ per gallon)

CurrentPrices Prices asBefore Import % ofJuly Current CIF Bombay Import1981 Prices Price a/ Prices

Gasoline 2.45 2.70 1.04 260High-Speed Diesel 1.19 1.34 1.10 122Kerosene 0.73 0.81 1.10 74Fuel Oil 1.11 1.24 0.72 172

a/ Based on crude oil at US$34 per barrel, and recent ratios of crude oilprices to product prices in the Far East.

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Kerosene prices were also increased, but they still remain below CIFprices; this gap, however, is more than compensated by the higher pricesfor other products. The price of kerosene is kept low by GOI principallyfor social reasons. Kerosene is used by households in urban areas as theprincipal fuel for cooking, and for cooking and lighting in rural areas,where it substitutes in part for scarce fuels such as firewood and cowdung. Low kerosene prices are not likely to result in significantdiversion of kerosene to other uses. The supply of kerosene, consideredas an essential commodity, is closely monitored by GOI, in that it isreleased only in small quantities and through fair price shops, primarilyto restrain diversion to uses other than essential household needs. TheGovernment's allocative mechanism is effective in restraining demand andreducing diversion. Kerosene consumption presently represents only 14% oftotal petroleum product consumption (which is lower than in manydeveloping countries), and in the decade from 1970 to 1980 consumption ofkerosene has grown at a low rate of 2.5% per annum. Despite relativelylow kerosene prices, the average price level for petroleum products inIndia, among the highest in developing countries, is satisfactorily aboveaverage CIF import prices. GOI periodically reviews petroleum prices andgenerally raises them at least once a year to reflect changes ininternational conditions. Domestic crude prices were also increasedsubstantially in July 1981,1/ and provide adequate cash flow and rate ofreturn to oil producing companies. At the present time, both the levelsand the structure of petroleum prices in India are considered appropriate.

39. The Government sets retention prices for refinery companies toallow each to earn a reasonable return2/ on investment when operated underdefined efficient operating norms. The current system of settingex-refinery prices is working well, as indicated by the high capacityutilization rates and satisfactory cash generation levels achieved by mostrefineries. On the average, it is based on economic costs and isconsidered satisfactory.

Bank Group Involvement

40. The Bank has made two loans totalling US$550 million for thedevelopment of the offshore Bombay High oil fields. The first loan(Ln 1473-IN) was made in 1977 and financed Phase III of ONGC's Bombay Highdevelopment program. The project was completed in March 1981, about ninemonths behind schedule. The facilities are operating satisfactorily. AProject Performance Audit is under preparation. A second loan for US$400million (Ln 1925-IN) was made in December 1980 to assist in the financingof Phase IV and advanced action on Phase V of the program. Projectimplementation is proceeding satisfactorily.

1/ From US$6.1 per barrel to about US$18.8 per barrel.

2/ The pricing formula would enable a refinery company operating effi-ciently to earn a rate of return of 15% (before tax) on fixed assetsand working capital.

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PART IV - THE PROJECT

41. The project was identified in November 1980 and appraised inJuly 1981. The Staff Appraisal Report (No. 3645-IN, dated March 2, 1982)is being distributed to the Executive Directors separately. ASupplementary Project Data sheet appears as Annex III. Negotiations wereheld in Washington in December 1981. The Borrower was represented byMr. N. Misra of the Department of Economic Affairs, Ministry of Finance,as coordinator of the Indian delegation.

Project Sponsors

42. The principal refinery companies participating in the projectare Bharat Petroleum Corporation Ltd., Hindustan Petroleum CorporationLtd., Madras Refineries Ltd. and Cochin Refineries Ltd. The first twocompanies are wholly Government-owned, while the latter two have partialprivate ownership (see para 33 above).

43. All the companies have experienced, capable management and areorganized on a sound basis to handle their refinery operations, supply anddistribution, marketing and finances. Satisfactory preventive maintenancehas contributed to high rates of capacity utilization. The overallfinancial position of the companies is sound, although each sufferedtemporary setbacks in 1980/81 when rapidly rising imported crude pricesresulted in heavy borrowing by the refining companies. The July 1981 risein prices of domestic crude and petroleum products restored the companies'financial health. All companies have raised a substantial portion oftheir investment requirements from internally generated funds. Thefinancial and cost accounting systems of the companies are modern andeffective. Their auditing requirements and procedures are sound.

Project Objectives and Description

44. The principal thrust of the Government's investment in energy -in projects such as coal, gas and hydropower - has been to substitute forfuel oil. The program could not focus on substituting for higher-valuemiddle distillates (e.g., diesel oil and kerosene) since it is not atpresent economic to do so on a large scale. As a result, middledistillates now comprise about 75% of India's imports of petroleumproducts. The proposed project would be the first Bank Group operation inrefining in India. The main objectives of the project are to expand andmodify refining capacity in order to reduce the imbalance between domesticdemand for and supply of petroleum products in India and complement otherinvestments in energy supply. The proposed project represents a majoreffort by GOI to improve utilization of existing facilities by installingeconomically-sized facilities to increase the yield of middle distillateswhich are currently in deficit. It will substantially reduce India'simport bill through the substitution of crude oil imports, therebyreducing imports of higher value products, namely, diesel oil andkerosene. In addition to the proposed refinery expansions andconversions, the project includes energy saving investments, namely,measures aimed at reducing internal fuel and process heat requirements atthe four refineries (Bombay, Cochin, Madras and Visakh), and energyconservation and pollution control devices in other refineries. By

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supporting this program, the Bank could expect to play a meaningful rolein advising the Government on the optimal design, configuration andlocation of new refineries, in introducing an integrated approach toenergy efficiency, and in assisting in implementation of the projects itfinances.

45. The two major project components are: Ci) a capacity expansionand secondary processing component; and (ii) an energy efficiency andpollution control component. The first component will include: (a) atthe Cochin Refinery of CRL, expansion of crude processing capacity fromthe present 3.3 million metric tons per year (tpy) to 4.5 million tpy witha new fluid catalytic cracker (FCC) facility of 1.0 million tpy; (b) atthe Madras Refinery of MRL, doubling the crude processing capacity fromthe present 2.8 million tpy to 5.6 million tpy with a new FCC facility of0.6 million tpy capacity; (c) at the Visakh refinery of HindustanPetroleum Corporation Ltd., expansion of crude processing capacity from1.5 million tpy to 4.5 million tpy with a new FCC facility of 0.6 milliontpy capacity; (d) at the Bombay refinery of Bharat Petroleum CorporationLtd., revamping and restoring the crude processing capacity to 6 milliontpy and installing a new FCC unit of 0.6 million tpy capacity; and (e) atthe Bombay Refinery of Hindustan Petroleum Corporation Ltd., installationof a sulfur recovery unit. All the above sub-projects will also includemodifications and additions to power utilities generation, tankage,distribution and other infrastructural facilities to the extent necessaryto achieve sustained operation at the enhanced capacities.

46. The energy efficiency and pollution control component consistsof priority investments in several refineries in the country. Theinvestments proposed for improving the energy efficiency of the refineriesinvolve (i) the complete replacement or modification of low-efficiencycrude distillation and cracking furnaces (to increase efficiency fromabout 50% to 90%); (ii) installation of air preheaters and waste heatboilers; and (iii) installation of sulfur recovery units and pollutioncontrol devices. Many, though not all the energy efficiency and pollutioncontrol investments have been identified. After all have been identifiedbut before Bank financing will become available, each investment will besubject to detailed techno-economic evaluation by GOI, to be submitted tothe Bank prior to December 31, 1982. Approval by the Bank will beaccorded to those investments in energy efficiency which yieldsatisfactory economic returns. Investment proposals in pollution controlwill be based on least cost solutions to meet agreed environmentalstandards (Section 3.03 of draft Loan Agreement). Subsidiary LoanAgreements between benefitting companies and GOI will contain appropriateprovisions.

Project Execution

47. Technologies for secondary processing, for liquid petroleum gasand distillate treatment and sulfur recovery have been selected andagreements have been concluded with process licensors for supplying thetechnology. These arrangements are considered satisfactory.

48. Although there are no atmospheric pollution control standards inIndia, the air quality and emission standards and practices required in

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the US have prevailed in all refinery projects engineered in India sincethe mid-1970s. Similar design standards will be applied under theproject. For liquid effluents control, either the Indian StandardSpecifications or local Government standards, both of which aresatisfactory, will be applied. The refinery companies will design, buildand operate facilities constructed under the project with due regard forsatisfactory environmental and safety norms (Sections 2.09 and 3.01(b)of draft Project Agreement).

49. An international firm, Universal Oil Products Company (UOP) ofthe US, which is experienced in the refineries and petrochemicalsindustry, will provide basic engineering for the fluid catalytic crackers(FCC) and the Merox liquid petroleum gas and distillate treatment plants,and detailed engineering for critical sections of the FCC, together withnecessary technical assistance during engineering, construction andstart-up. UOP was selected after an evaluation and comparison of itsoffer with those of two other experienced international firms. A localengineering firm, Engineers India Ltd. (EIL), with considerableexperience in engineering and project management, will provide all basicand detailed engineering not required to be provided by UOP, procurementservices for equipment and materials, and construction supervision andmanagement. These engineering arrangements are satisfactory. Contractsbetween each company and the engineering firms have been reviewed and aresatisfactory.

50. EIL's Manager of Projects (Refineries), who has substantialprior experience in the job, will have overall responsibility forcoordinating project implementation. He will be assisted by a separateproject manager for each of the refinery projects who in turn will beassisted by a task force of core personnel (coordinators) seconded fromEIL's central departments dealing with various disciplines of engineering,procurement, construction, accounting and finance. Under the overallsupervision of the EIL project manager, the task force personnel will beresponsible for supervising the jobs pertaining to their respectivespecialties. All such personnel are in place. During the siteconstruction phase, EIL will establish at the project sites full-time taskforces under resident construction managers, who will report to theconcerned project manager. The site task force will be responsible on aday-to-day basis until plant start-up, for field engineering, constructionquality control, construction supervision, stores management, timescheduling and cost control.

51. The organizational set-up in each of the project sponsoringcompanies consists of a full-time company project manager who reports tothe Managing Director. These project managers have all been appointed andare responsible for coordination among the various concerned agencies,including the company's technical divisions, the process licensors, EIL,the Central and State Governments and other statutory bodies. The companyproject managers have been delegated adequate authority to approvepurchase and work contract awards. Where decisions are required inmatters which exceed the project manager's or Managing Director'sauthorities, Board subcommittees can be constituted and meet at shortnotice to provide quick decisions on issues pertaining to projectexecution. Each refinery will place a small resident team at EIL's

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offices to participate in, and expedite decisions concerning, engineering,procurement and works contracting.

52. The additional staff and training requirements of the projectare limited, since the project involves primarily rehabilitation of andadditions to existing facilities. Most training of additional operatorsand maintenance staff will be carried out under existing training programsin the refineries. A limited number of selected personnel will be trainedabroad, provision for which has been made in the cost estimates.Satisfactory arrangements will be made for the provision of utilities andtransport infrastructure facilities (Section 3.04 of draft ProjectAgreement).

Project Costs and Financing

53. The total financing requirements of the project, includingcontingencies, escalation, working capital and interest duringconstruction, are estimated at US$1,086 million, of which about US$618million represents foreign exchange costs. Taxes and duties are estimatedat US$93.2 million.

54. The proposed Bank loan of US$200 million would provide about27% of the total installed cost (net of taxes and duties), and 43% of theforeign exchange requirement. The proposed Bank loan will be utilized asfollows: US$45 million for the BPCL refinery, US$45 million for theVisakh and Bombay refineries of HPCL, US$45 million for the Madrasrefinery, US$35 million for the Cochin refinery and US$30 million for theet rgy efficiency and pollution control investments. The Government willprovide US$506.0 million. The sponsoring companies will contributeUS$379.7 million from internally-generated funds. On the basis ofexisting prices, the companies are expected to be able to mobilize thesefunds during project implementation. Should they fail to do so, GOI willprovide funds promptly to cover any financing gap, as well as any costoverruns that may develop (Section 3.02 of draft Loan Agreement). TheGovernment will also maintain prices at levels which permit the companies,under conditions of efficient operation, to meet all their expenses,service their debt and earn a reasonable rate of return on investedcapital (Section 4.02 of the draft Loan Agreement). The Bank loan wouldbe made to GOI for 20 years, including 5 years of grace at an interestrate of 11.6% per annum. The proceeds of the loan will be onlent inrupees to the sponsoring companies at 12% per annum for 15 years,including 4 years of grace, the standard rate for industrial andcommercial undertakings in the public sector. Execution of two subsidiaryloan agreements is a condition of effectiveness of the Bank loan, whileexecution of the other subsidiary loan agreements on terms satisfactory tothe Bank would be conditions of disbursement for the relevant componentsof the project (Section 6.01 and Schedule 1, paragraphs 4(b) and (c) ofdraft Loan Agreement). The exchange risk will be borne by the Government.Inflation in India over the past five years has averaged about 9.5% perannum, although this reflects the unusual conditions prevailing after the1979 drought (see paras 6 and 7). The rate of inflation has fallensharply during 1981/82, so that the average annual inflation rate over thenext five years is not expected to exceed 8%. The on-lending rate of 12%is, therefore, considerably above the expected rate of inflation.

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Procurement and Disbursement

55. Equipment financed under the loan will be procured byinternational competitive bidding (ICB) in accordance with the Bank'sguidelines, except for equipment proprietary to the process design, itemswhose timely supply is critical to efficient project execution, and smallitems estimated to cost less than US$200,000 each. These would beprocured after limited international tendering from qualified suppliersfrom at least three Bank member countries, provided that the aggregatevalue of such contracts does not exceed US$30 million equivalent. For thepurposes of bid evaluation under ICB, qualified local suppliers willreceive a margin of preference of 15% or the applicable duty, whichever islower. The Bank loan will also be used to finance the licenses andservices provided by foreign and local engineering firms. The basicengineering work is well-advanced and detailed engineering is currentlyunderway.

56. The proposed loan would be disbursed against 100% of foreignexpenditures, 100% of local expenditures ex-factory and 70% of other localexpenditures on equipment, materials, and spare parts eligible for Bankfinancing and 100% of the total costs of engineering services andlicensing. Of the US$200 million Bank loan, it is expected that US$90million will be used to finance imported equipment, US$80 million tofinance local equipment procured after international competitive biddingunder Bank guidelines, and US$30 million to finance licenses andengineering services. It is recommended that the Bank loan retroactivelyfinance up to US$20 million of eligible expenditures incurred afterJuly 1, 1981 on engineering services and downpayments on criticalequipment. The payments were made to avoid delays in project execution.The Bank loan is expected to be completely disbursed by June 30, 1986.

Financial Evaluation

57. The project will have a major positive impact on the financialsituation of the sponsoring companies. Madras Refinery Limited wouldincrease its net income from Rs 47 million in 1982 to Rs 283 million in1986, the first year of operation. Internal cash generation wouldincrease from Rs 68 million to Rs 492 million in the same period; theminimum debt service is projected at a satisfactory level of 1.8, and thecurrent ratio at 1.1 after 1982. In the case of Hindustan Petroleum, netincome is projected to increase from Rs 145 million to Rs 498 million andinternal cash generation from Rs 297 million to Rs 984 million betweenFY82 and FY86; the minimum debt service ratio and the current ratio arecalculated at 1.5 and 1.1, respectively. For Bharat Petroleum, net incomeis calculated to increase from Rs 160 million in FY82 to Rs 728 million inFY86 and cash generation from Rs 334 million to Rs 1,119 million duringthe same period; minimum debt service ratio is calculated at 1.8 and thecurrent ratio at 1.3, indicating comfortable liquidity situationsthroughout. Cochin Refinery is projected to almost triple net income fromRs 47 million in FY82 to Rs 127 million in FY86 and also to increase cashgeneration from Rs 61 million to Rs 282 million. While its debt servicesituation in 1982 will be tight, thereafter it will improve significantly.Overall, all companies are projected to maintain and improve their

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financial performance as a result of the project. The financial rates ofreturn are calculated at 9% and 14% for the projects sponsored by the fourrefinery companies. These financial rates of return are moderate andbelow the economic rate of return for the projects, due to the fact thatthe retention price formula for petroleum products is designed to allowthe refineries to earn a 15% rate of return on invested assets. Domesticprices for petroleum products, however, are high, and the differencebetween domestic and refinery prices accrues to the Government.Nevertheless, the financial rates of return are sufficient to provide thecompanies with reasonable profits and positive cash flow in each case,beginning in the first year of operation.

58. In order to ensure a continued satisfactory financialperformance, the sponsoring companies will: (i) maintain at all times along-term debt to equity ratio of 65:35, except for CRL and MRL which willmaintain this ratio after December 31, 1987; (ii) maintain a current ratioof at least 1.1 until December 31, 1985 and at least 1.2 thereafter; (iii)not incur additional debt in any fiscal year if by so doing the projecteddebt service coverage ratio (as agreed with the Bank) would fall below1.4; (iv) not take any action, such as prepayment of debt or distributionof dividends, if these actions would reduce the current ratio below 1.3;and (v) not make, during implementation of the project, any investments infixed assets (other than the project or for on-going or already plannedworks and for maintenance purposes) in excess of US$10 million for eachrefinery in any year without approval of the Bank (Section 4.03 of draftProject Agreement). The companies will submit periodic progress reportson the project components (Section 2.05(b) of draft Project Agreement).Annual audited reports will be submitted to the Bank within six months ofthe close of their fiscal year (Section 4.02 of draft ProjectAgreement) .1/

Benefits and Risks

59. The economic rates of return for the four expansion andconversion components and the sulfur recovery unit have been calculatedseparately; the rate of return of the project as a whole has also beencalculated. Rates of return of individual components range from 52% tonearly 100% and for the project overall the return is about 84%. Thereturns are high because the investments are primarily in expansion andconversion facilities and require limited supplemental infrastructure.Also, they result from the conversion of low-value fuel oil tohigher-value middle distillates. The rates of return are affected in onlyminor respects by adverse changes in assumptions about increased capitalcosts, decreased capacity utilization and lower revenues.

60. The net foreign exchange savings that would be generated by theproject amount to more than US$10 billion over the expected 12-year lifeof the project, on the assumption that crude oil is imported.

1/ Those companies which are not parties to the Project Agreement willmeet similar reporting requirements, to be specified in SubsidiaryLoan Agreements between the companies and GOI.

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61. The project would result in the additional employment of about5,000 persons during the construction phase and 760 persons once theproject components go into production. Through the provision of storageand tankage facilities, the project will also enable the country toincrease its reserves of petroleum products and thereby minimize risk ofpetroleum supply interruptions. EIL, the local engineering firm, will getvaluable experience in design and implementation of large refineryprojects, which should prove beneficial for future projects that may beimplemented by Indian refinery companies.

62. The project faces only limited technical risks since (i) thetechnologies to be used are commercially proven and will be supplied byqualified and experienced firms, and (ii) the project involves expansionand rationalization of existing facilities at sites which are alreadydeveloped and with adequate infrastructure. The sustained performance ofthe refineries at the projected operating levels will depend on the timelyavailability of adequate amounts of crude feedstock, either from domesticsources or from imports. International oil supplies are not within thecontrol of GOI. However, measures being taken to increase substantiallysupplies of domestic crude should help reduce uncertainties of overallsupplies. Marketing risks are also minimal, since the output from theproject facilities will principally substitute for imports, which arecurrently marketed and distributed through existing channels. GOI'spricing policy is expected to be adequate to protect the project from anyfinancial risk in that it has agreed to administer petroleum prices in amanner that will permit the benefitting refinery companies to earn areasonable return on their capital (Section 4.02 of the draft LoanAgreement).

PART V - LEGAL INSTRUMENTS AND AUTHORITY

63. The draft Loan Agreement between India and the Bank, the draftProject Agreement with BPCL, CRL, HPCL and MRL and the Report of theCommittee provided for in Article III, Section 4 (iii) of the Articles ofAgreement are being distributed to the Executive Directors separately.

64. Special conditions of the project are listed in Section III ofAnnex III. The signing of two of the Subsidiary Loan Agreements betweenGOI and the Refinery Companies would be an additional condition ofeffectiveness of the loan (Section 6.01 of draft Loan Agreement). Signingof the remaining Subsidiary Loan Agreements would be conditions ofdisbursement for the remaining Project components (Schedule 1, Part 4(b)and (c), of the draft Loan Agreement).

65. I am satisfied that the proposed loan would comply with theArticles of Agreement of the Bank.

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PART VI - RECOMMENDATION

66. I recommend that the Executive Directors approve the proposedloan.

A.W. ClausenPresident

By

Moeen A. Qureshi

March 8, 1982

ANNEX I

TABLE 3A Page 1 of 5INDIA - SOCIAL INDICATORS DATA SHEET

INDIA REFERENCE GROUPS (WEIGHTED AVERACESLAND AREA (THOUSAND SQ. KM.) MST RECENT ESTIMATEI

TOTAL 3281.6 MOST RECENT LOW INCOME MIDDLE INCOIEAGRICULTURAL 1809.5 1960 /b 1970 lb ESTIMATE /b ASIA & PACIFIC ASIA & PACIFIC

GNP PER CAPITA (US$) 60.0 100.0 190.0 232.3 1136.1

ENERGY CONSUMPTION PER CAPITA(KILOGRAMS OF COAL EQUIVALENT) 111.1 152.5 241.8 499.4 1150.6

POPULATION AND VITAL STATISTICSPOPULATION, MID-YEAR (TPOUS.) 434850.0 547569.0 659217.0URBAN POPULATION (PERCENT OF TOTAL) 17.9 19.7 22.0 17.3 40.8

POPULATION PROJECTIONSPOPULATION IN YEAR 2000 (MILLIONS) 974.7STATIONARY POPULATION (MILLIONS) 1621.0YEAR STATIONARY POPULATION IS REACHED 2115

POPULATION DENSITYPER SQ. 1M. 132.3 166.6 200.5 153.6 373.1PER SQ. KM. AGRICULTURAL LAND 246.7 308.0 355.8 360.3 2382.8

POPULATION AGE STRUCTURE (PERCENT)0-14 YRS. 40.1 42.4 41.1 37.4 39.8

15-64 YRS. 56.8 54.7 56.0 59.2 56.765 YRS. AND ABOVE 3.1 2.9 2.9 3.5 3.5

POPULATION GROWTH RATE (PERCENT)TOTAL 1.8 2.3 2.1 2.1 2.3URBAN 2.5 3.3 3.3 3.4 3.8

CRUDE BIRTH RATE (PER THOUSAND) 44.2 40.3 34.0 27.7 29.7CRUDE DEATH RATE (PER THOUSAND) 22.7 17.4 13.5 10.2 7.5GROSS REPRODUCTION RATE 3.1 2.8 2.3 2.5 1.9FAMILY PLANNING

ACCEPTORS, ANNUAL (THOUSANDS) 64.0 3782.0 5619.0USERS (PERCENT OF MARRIED WOMEN) .. 12.0 22.6 20.4 44.1

FOOD AND NUTRITIONINDEX OF FOOD PRODUCTION

PER CAPITA (1969-71-100) 98.0 102.0 93.0 107.1 123.7

PER CAPITA SUPPLY OFCALORIES (PERCENT OF

REQUIREMENTS) 93.0 92.0 91.0 98.6 112.6PROTEINS (GRAMS PER DAY) 52.0 51.0 50.0 56.9 62.5

OF WHICH ANIMAL AND PULSE 17.0 15.0 13.0 14.2 19.7

CHILD (AGES 1-4) MORTALITY RATE 27.1 20.4 14.8 14.6 4.8

HEALTHLIFE EXPECTANCY AT BIRTH (YEARS) 42.2 47.5 51.9 57.7 64.0INFANT MORTALITY RATE (PERTHOUSAND) .. 134.0 125.0 89.1 50.2

ACCESS TO SAFE WATER (PERCENT OFPOPULATION)

TOTAL 17.0 33.0 30.1 45.9URBAN .. 60.0 83.0 65.8 68.0RURAL .. 6.0 20.0 20.1 34.4

ACCESS TO EXCRETA DISPOSAL (PERCENTOF POPULATION)

TOTAL .. 18.0 20.0 17.6 53.4URBAN .. 85.0 87.0 71.0 71.0RURAL .. 1.0 2.0 4.8 42.4

POPDULATION PER PHYSICIAN 4

850.4

/c 4889.0 3617.4 3857.7 4428.7POPULATION PER NURSING PERSON 9630.o7;T 8296.5 6429.4 6411.8 2229.7POPULATION PER HOSPITAL BED

TOTAL 2149.0/d 1612.9 1311.1 1132.8 588.5URUAN .. .. 363.5 322.3 579.6RURAL .. .. 10429.1 5600.5 1138.5

ADMISSIONS PER HOSPITAL BED .. ..

HOUSINGAVERAGE SIZE OF HOUSEHOLD

TOTAL 5.2 5.6 5.2URBAN 5.2 5.6 4.8RURAL 5.2 5.6 5.3

AVERAGE NUMBER OF PERSONS PER ROOMTOTAL 2.6 2.8URBAN 2.6 2.8RURAL 2.6 2.8

ACCESS TO ELECTRICITY (PERCENTOF DWELLINGS)

TOTAL .. ..URBAN .. ..RURAL .. . -

ANNEX IPage 2 of 5

TABLE 3AINDIA - SOCIAL INDICATORS DATA SHEET

INDIA REFERENCE GROUPS (WEIGHTED AVE MES- MOST RECENT ESTIMATE)-

MOST RECENT LOW INCOME MIDDLE INCOME1960 /b 1970 /b ESTIMATE /b ASIA 6 PACIFIC ASIA & PACIFIC

EDUCATIONADUSTED ENROLLMENT RATIOS

PRIMARY: TOTAL 61.0 73.0 79.0 85.9 99.8MALE 80.0 90.0 94.0 94.4 100.6FEMALE 40.0 56.0 63.0 64.5 98.8

SECONDARY: TOTAL 20.0 26.0 28.0 38.0/as 53.5MALE 30.0 36.0 37.0 34.6/as 58.4FEMALE 10.0 15.0 18.0 18.0/as 48.6

VOCATIONAL ENROL. (2 OF SECONDARY) 8.0 1.0 1.0 3.8 21.1

PUPIL-TEAChER RATIOPRIMARY 29.0 41.0 41.0 32.8 34.2SECONDARY 16.0 21.0 .. 19.9 31.7

ADULT LITERACY RATE (PERCENT) 28.0 33.4 36.0 52.8 86.5

CONSUMPTIONPASSE NGER CARS PER THOUSAND

POPULATIUN 0.7 1.1 1.3 1.7 12.7RADIO RECEIVERS PER THOUSAND

POPULATION 4.9 21.5 32.5 35.3 174.1TV RECEIVERS PER THOUSAND

POPULAT1ON 0.0 0.0 1.0 3.7 50.6NEWSPAPER ("DAILY GENERALINTEREST") CIRCULATION PERTROUSAND POPULATION 11.0 16.0 16.9 14.6 106.8CINEMA ANNUAL ATTENDANCE PER CAPITA 4.0 6.3 3.8 3.4 4.3

LABOR FORCETOTAL LABOR FORCE (THOUSANDS) 189761.4 220670.5 256699.4

FEMALE (PERCENT) 31.2 32.4 31.9 29.3 37.4AGRICULTURE (PERCENT) 74.0 74.0 71.D 69.8 50.2INDUSTRY (PERCENT) 11.0 11.0 11.0 14.1 21.9

PARTICIPATION RATE (PERCENT)TOTAL 43.6 40.3 38.9 39.7 40.2MALE 58.0 52.6 51.3 51.5 49.8FEMALE 28.2 27.1 25.7 23.3 31.1

ECONOMIC DEPENDENCY RATIO 1.0 1.1 1.1 1.1 1.1

INCOME DISTRIBUTIONPERCENT OF PRIVATE INCOMERECEIVED BY

HIGhEST 5 PERCENT OF HOUSEHOLDS 26.7 26.3/e 22.2HIGHEST 20 PERCENT OF HOUSEHOLDS 51.7 48.9/e 49.4LOWEST 20 PERCENT OF HOUSEHOLDS 4.1 6./77l 7.0LOWEST 40 PERCENT OF HOUSEHOLDS 13.6 17.27e 16.2

POVERTY TARGET GROUPSESTIMATED ABSOLUTE POVERTY INCOMELEVEL (US$ PER CAPITA)

URBAN .. .. 132.0 134.1 248.6RURAL . . 114.0 111.6 193.7

ESTIMATED RELATIVE POVERTY INCOMELEVEL (US$ PER CAPITA)

URBAN .. .. .. .. 249.8RURAL .. .. .. .. 234.3

ESTIMATED POPULATION BELOW ABSOLUTEPOVERTY INCOME LEVEL (PERCENT)

URBAN .. .. 40.3 41.7 21.2RURAL .. .. 50.7 51.7 32.2

Not availableNot applicable.

NOTES

/a The group averages for each indicator are population-weighted ar-ithetic means. Coverage of countriesamong the indicators depends on availability of data and is not uniform.

laa China included in total only.

/b Unless otherwise noted, data fur 1960 refer to any year between 1959 and 1961; for 1970, between 1969and 1971; and for Host Recent Estimate, between 1976 and 1979.

/c 1962; /d 1958; /e 1964-65.

May, 1981

ANNEX IPage 3 of 5

IfIINITIONt OF _SOCIALINI, ttATgeS

Not.: Although the date err don ro ac -te geerlY Judged the -otauh-itt-i- an -sIiable, it shold also be noted that they may not ha ne-

eett YtalotoPeeahbteb he.oe of the took of aadtdtddeti~ln i..o and ..t..t nsed bIly dtff.tsnt nt-nrti- te so111lleetg h data. The dets st, oe

st1ins,, uestn to f de..e te. cetr of megeltode lndte- toted., ted thas _etee -soaf eaje differs...nse .hates o ieoe..

The I ..eeoc .t.npe are Ill the -ome coote getp ft the.o .. je- unr n ()nneo gosee soe.ho, hn hee -o-tge moo- then the c..nnecy g..ap

of th aut ect coety (eneps oo 'tpota -hpo t eote"gop hc eol ee,fet Afes nd tftddls tEst" S. cheese hsosoae of...eono-oolorl afitiee) shocfee Sutgco d.t. the .......- e pletotoighead site?-oat teems feest eitteadsee nyom

sa tSy fth ousta ot eoprit oe o to ldletc.Snc heeneag f oetla segte eItcosdeedso tenetehltyo dtand etotelfoe. ootle aun to noecned o toottooneogas f et it etrc nte. he nrpeeao lydstid -t h.-ato they h-neo

LOOt ASIA lehooaeoftq.jco.)did, -th- Th_ e hsle _ad - _fn,ohr n ua o.100 tt

ToalTta.tofotnoncnpf tstedocnardtotd ner nbm,sd oal lodd_yshe repotnn he lhope 1sdoetoloru lemee fagiolurl to ne meorylyorpomot lyetclha n ult adgooesgeeotae aalatedhopIatedht

LADoRE tryt pe ce,nehrad loeego1aeort-toflee 98 aa Petttato sensiate fopnleaeseatadt emaetye e

T ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~~~h 5' astoe hytoatltaebler-ed pe-ddm ptellllcuecoe E 101 It)-IP e ote nOntae toot nIoocon al tl aeae e elue.fta heptte osne,seld hst

oftte hyeS cnrlcmto eOt0ec te 17-9hea hs n ete etr menpataenlyetffd Sc sJ p :Ita (hupt, hy

tolt1 try) in Itoeee of oca nuln les peek Aellt; 1977. 1970..and 1979 , teese ISpetistee _ep l aretl tecffdd ony cedar' total. y

data.ldddmtsastoin .en Ioetlfd-Ttltte f dlaoeSo shro

data. IObeeArane..t..' 1-,RYCOSNTdt. . Ple -of dhusehldiferorera honishld- -oe. ra, o ma7

Ichas PenIeS Io (pecorttf rorel - mobof uphe SoSotpyuntn henesheld onabsae agr of p tnd.l'nd enHO lis eho share - hlyogtoote,

tn1960nr.ee;1919191,and199 ec, he9oca9ldfe dnmelolPrcese d

Pdplaoo Poetln Aretace nether of rerde-om -raco -tote cohensod pua- heg h ue,

PPLTIOtN ANpD et VITL T egoIC an c ndIo_ortlt e iefltty atn.diatlgd bepStey.th lnaitmeenlofbdsnccreeeertre

nn eIeep re_o a lrt Screcoo 0ccretoy'aHrc..t..bo hecaden...enmtole..oence, of .dee hin de - t tet. uha, d eud -,

ted,rb fml lfrnL.,rct Rtoohlll lb-og no 7.. yenta.. ly en nnenoe eiloent 1eetiyI ttnte h-rtr at"l .

ferclcoyeooodcngto roon 'ne oopay fn p dioe dicehrfdoreasrAbe- d.l- -- .tb f..ddi

tot occc t then, 1970lged 1979 ofthmeson ohIctln o ecclff 1110f

enfcooeanct ThI toorhloed ufy fterferllty moo deole c preiynhotag ppoctoc;ooeol enlde hlden dd1

the arop,loorsp-nboo of~ -doeoreocoosao.ee enothegrnerecular u edutedfedff- n oeteo rrayfonrc.

ofonrrptrtittleorty. Thattloeyyycoeooteoc rceoln..h...o.ldrcoo"tolteoriroortO p0'0

retneced c thehatleof oo pruerco oh acotertrlo of to porenolo anor toe yoile oe hI tn coohtco sheoffurol thyoi ne.icchyor c,cdnennfelroferltcotoplr-Socoyohc-oa,nlnd onrIeorncuoc rcdr

ceot locol. eduoet~~~~~~~~~~torqleo uaobs nc t yrcrpcmcynoooloYone moeluc-d f u: tno o.enrhd 11,-e ry theilienr cO 7r. yonoltaTh. Folloro prce gesroly.ot0O 0 rre ociolo coatortope oo-ori

only 191, 170 od 176 are-. . h. .... hi. -ril-Steeh ratI - c ltec cod fncncfer -.. Total ntdto otu""cI1

r ,hc.nc Aite ste-oor Iq-1erothe I - Ih ldoo (-t yenc . oeki.g-eg 01$tor.cc an. e goono tosl decIdedy I-eor of onoho c .olo "

th1eref Th csdrtee -(hpare-d -ceofran fertrilitdnecfeod-yantcopr roecetpyolhog ....es...eyleld,dil- g,1

Pooohetoo d -rois b-ern f er hec - ocol- Aore tonlenof oct0 eofai -l.-en ppc peilg of tbsl dot b- co ethc aged It y-h-e .end0.

Icotce fr 199-00 190-70.e ccd 97-79h. Poteeseh oon (erito-yed Ifpo.. ioc) -..h -Igli"aofucyr "Ill'o

Pecd elot teen be-tPnenod)- perca leon keehope so- er- o sld-y-eac ~ onresenIn -ea11OS- ecghtd yoson -Rrodary -no noose. ..... na.nod

coptatoc 1960, 1970 cod 1979 dnoc. a.lt dar -ehrle-n idr 1 hrp... hRdl.di -d

oc1yolot96o 196.170, ne 1 1979 dd n.hrodeenegornlptit oelhid o of pepota- Ion; tooIeeon

Omen coroduitos nts-ueccge Cehiludcunteceaoeay cf...r plElmyee d r --icea IoIuelfesoditd bynn-b-hreoelescoofhdc

d d Iy ata 6atotisyeas. aneuft -ecdfg tri 90l 90 n 99 noes-e- tprdire 1h-ihe trs gPenIl PlnolonAoceTon .. ca (td_ ne nul ohro oetc 701 leolce-re ( rateoan cp-c-)-Llcob - 1 doncecceot ect hoocdtell 00

ofh 1hocso; enoeude nyoeo aioo ell locn oge. eea pht inroecdpplstc tdon rlroe V rnoc

Fealty Fnoslro-oocs (ororet o -,cA.' noneol.- -Pceog of saite-d- lneooce-agd In yent nhlo prpglteoc- ofd 00 te-ts -s offer.

ofoll-ooct f (54 yna(oo e brh-ctoldols c encre locc In(crhce7dcola on 7bn ttcceo

Indele. i,l c.I Pon PooduorShl.n coodoyls A--9~l= 0If b-h pore fppalooulItenlsa nodnnyr Incise.no So dr-Se d cc th.one Io

Isen 60odo yn hol.I97d0troeeptnc,od (e.g.1eugar-co andlnohlye-hite..leseedofaugol hlt et dihie ande.ocoo Itr ctrlo .. e.gl. offidry Alopsdf-i e d

meolocol anoraso 970 prcc de potor delht- 1950,17,cd17 ae uatbhrPre(t-nf ccolnl rceprct ol

eh, im o rhettesetok schcpplotoIdoo l feePdifient-on, - ilpecet f-reai d tehofr --oro ...a -pe r-eg of t-s-blloh boor

hocenhun lend 196ly1-05 90 o 1977. -dic.g 1970 en90 d 91d ... t79e daab.-dl...S

deeep iofo .p..e. so.y.efodnncfse ont

se. p ail-trneofecou,d etnl,at,eodIclI'llyrca

octiocetot of0 rn ftslpoesprdondt os fcblad10. 1970, ns-f 197 dote Theseeaoedo SLe yocoptoca

anlel pccecsencmee.I Icr'y ohs nc If yh oae ho60 in sh TId IceeeTpsdny. &so - ald -lPoputeilo ShArs 17hes hIrud 0000

todd 00

u uror. 101-65 1970 csd 1977ido-c. sopthe rdru-eInhoo foerPee osof So ceo sccn tocole fria acirul.....d cot en-Proerlo supply of fcod de-

CIld. (nn F-cl P frdallt- Per (pc hcoo1(-10 Anul.d-eh per shoono. I....nerleso-o oApoord -oo-e C(hioD 0 roYea ri - ..d: -. thc oc - o

Igegcourl-)ynnce,coch.ltfdtnootoi_cnfeeduy;drtimk-eseoldego:tp (prh.to yecO error picondit, yero-sl...fpcornri 00i prorcoc

roe codeecd) Agroom gcf tnhcn:lOh, 1970 .. l 1 ..d970 arn IAOf hOusEhls

or ahith;190 1970 nodC1979 dcn- nd Idoul heItcrrd I_ t rooideRah.. tao-o.:

-f-geyeIhoon o lto..Amteponerelsooelea...st ..cec .i.ir .....r...omstoo000m t S t Oor feroc o ocueroo- or),crce od urat- eecirltnely drcop ie po_nncsOc co-cu rqucoooe e o

her ofperyl (sotl, usco. od Oi ul... recblnoicorone so. na. ifffoofctte'iP.,rendylyA lalooon nrplentdnrcr-p eSr uocd eeocd r dhroosci SnmccteoI ttcf-llslr reb ; I7cmlrclIl ocpic-chnor-ot

cato....hcth-g-foot p-crehrk otoole,pli e.dldg. .-cId e e1atlr-o-oryrebllf-n(o-r 1b. f,-

i _ntl cner idyc -t 1 ...c.co eoro Stun 1- enorr d- hcib a- ho pernoing Inom of-l olson tf.. .rha toieS In fe..rA tsrco e

OnnOIc' S corro rondo- ~ ~ ~ ~ ~ ~ ~ r. r g. e ...-d0 - di .. to: o i-syo.l p,noo 'flo,j. 1i g -r'o rotor. cod coccI -. dir- Me

..he ofd peopl 9ccc, Oror, 1rdror7 netoe hy 70000S Oloned a

the roteotun and napcrcl, mlh on lthouStroosesieo hunrot- en trocoec- asI SorIl.. Dor to-oii

1cr Isninl I'll P"ertusmPIPoculos-c co I.,olo-Poun .1cc dfdlOnd by oUnDer. - dpsfrtru p0r--0crdfs

Fotlooo pr OoncgForur- opl ttcoAbde ho-i o aeho of Scrccocfn

mnlccdfrnoegondnorrioent,poncorel itans.nndE-neittoetnsrent.

Page 4 of 5

ECONOMIC DEVELOPMENT DATA

ONP PER CAPITA IN 1979 USS190

GROSS NATIONAL PRODUCT IN 1979180 ANNUAL RATE OF GROWTH M7.. cnsotsnt Prices)

US$ Bln. 7. 1955/56-1959/60 1960/61-1964/65 1965/66-1969/70 1970/71-1974/75 1975176-1978/79

GNP at Macket Prices 134.16 100.0 3.7 3.6 3.6 2.8 4.5Gross Do-estic Investment 29.24 21,8Gross Nat-onal S-ving 78.55 21.3Currect Account Balance d/ -0.85 - 0.6

OUTPUT. LABOR FORCE AND PRODUCTIVITY IN 197/

Value Added (at factor .o.tl Labor Force V.A. Per WorkerUS$ Bln. % mil. T US$ E of Nation.l Averse

Agriculture 39, 39.6 181.J 71 220 56Industry 25.5 25.3 28.1 11 9C6 230Services 35.3 35.1 46.0 18 767 195Total/average 30. 6 L00.3 255.4 ino 394 lo0

GOVERNMENT FINANCEGeneral Government Central Geverment

Ra. RIn., 7 of GDP Rs. Bln. 76 of GOP1979/80 1979/80 1975176-1979O6 1979/80 1979/80 1975/76-1979180

Correct Receipts 208.18 19.2 18.9 108.96 10.0 10.6Correct Eopeedit-res 206.44 19.0 17,7 117.67 10.8 10.6Correct Surplus/Deficit 1.74 0.2 1.2 - 8.71 - 0.8 -Capital E.pondit.res f/ 51.81 7.5 7.4 56.93 5.2 5.1Enternal Assistanc- (net) d/ 7.97 0.7 0.9 7.97 0.7 0.9

MONEY, CREDIT AND PRICES 1970/71 1973/74 1974/75 1975/76 1976/77 1977/78 1978/79 1979180 December 1979 December 1980(R. Billion Ou.ttanding at end of period)

Money and Qual Mhoney 109.6 175.7 194.6 222.9 272.8 329.1 398.9 468.2 448.3 521.7Bank Credit to Government (net) 52.6 87.3 95.3 101.1 110.2 134.7 153.9 192.2 176.4 231.4Bank Credit to Cosmerial Sector 64.6 107.0 126.7 153.9 185.0 212.2 253.5 306.5 294.7 335.9

(Percentage or I.den Number-) April-Dec 1979 April-De, 1980

M.oney and Qooni M.oney as E of GDP 27.2 29.8 27.9 30.2 34.0 36.5 40.8 43.1Whholesale Price Index

(1970/71 = 100) 100.0 139.7 174.9 173.0 176.6 185.8 185.8 217.6 212.2 253.5

Annual percentage changek in:

Wholesale Price Index 7.7 20.2 25.2 - 1.1 2.1 5.2 - 17.1 14.6 19.5R.nk Credit to Government (net) 10.8 12.3 9.2 6.1 9.0 22.2 14.3 24.9 24.9 jM/ 31.2 h/Bank Credit to Co-seroial Sectcr 19.4 22.6 18.4 21.5 20.2 14.7 19.5 20.9 17.5 I/ 14.0 h/

I/ The por capita GNP estimate is at market prices, calclated by the conversion te-hnique osed in the World Beek Atlas, 1979.All other conveesioes to dollars in thin table are at the aversge -change rate prevailing during tho period covered.

t/ Qocck Estimates.*/ Computed from trend line of GNP at factor cost series, including one observ-tion before first year and one observation

After last year of listed period.d/ World BRnk .. ti-ateO; not necessarily con.sitent with offiai.l figure-.e/ Transfers between Centre and States have been netted oct.f/ All loans end advances to third parties have beec netted out.1/ Percentage change from end-December 1978 fo eod-December 1979.h/ Percentage change from end-December 1979 to end-December 1980.

Annex I

Page 5 of 5

BALANCE OF PAmENTS 1977/78 1978/79 1979/80 1980/81 MERCHANDISE EXPORTS (AVERAGE 1976/77 - 1979/80)US$ Mln. 7.

Exports of Goods 6,315 6,978 7,958 8,998 Engineering Goods 768 I/ 11Imports of Goods -7,188 -8,519 -11,249 -15,624 Tea 462 7Trade Balance - 873 -1,541 - 3,291 - 6,626 Gems 605 9NFS (net) 691 773 633 463 Clothing 460 7

Leather and LeatherResource Balance 182 - 768 - 2,658 - 6.163 Products 425 6

Jute Manufactures 284 4Interest Payments (net) i/ - 89 - 35 350 303 Iron Ore 298 5Other Factor Payments (net) - - - - Cotton Textiles 289 4Net Transfers 1/ 1,077 1,216 1,458 2,462 Sugar 132 2

Others 3,028 45Balance on Current Account 806 413 - 850 -3.398

Total 6a.751 100Official Aid

Disbursements 1,628 1,695 1,891 2,389 EXTERNAL DEBT, MARCH 31. 1980Amortization - 645 - 702 - 676 - 707 USS billion

Transactions with DMF - 330 - 158 _ 1,035 Outstanding and Disbursed 15.6All Other Items 617 286 - 143 133 Undisbursed 5.7

Outstanding, including 21.3Increase in Reserves () -2,076 -1,534 - 222 548 UndisbursedGross Reserves (end year) 5,823 7,357 7,579 7,031Net Reserves (end year) / 5,668 7,357 7,579 6,691 DEBT SERVICE RATIO FOR 1979/80 10.4 per cent

Fuel and Related Materials IBRD/IDA LENDING. DECD(BER 31. 1980

Imports 1,811 2,043 3,977 7,012 US$ millionof which: Petroleum 1,811 2,043 3,977 7,012 IBRD IDA

Exports 32 24 26 n.a. Outstanding and Disbursed 806 4,895Undisbursed 572 3,547Outstanding, including 1,378 8,442

UndisbursedRATE OF EXCHANGE

June 1966 to mid-December 1971 US$1.00 -- Rs 7.5Re 1.00 - US$0.133333

Mid-December 1971 to end-June 1972 US$1.00 - Rs 7.27927Re 1.00 - USS0.137376

After end-June 1972 Floating RateSpot Rate end-December 1979 US$1.00 - Rs 7.907

Re 1.00 - US$0.126

Spot Rate end-December 1980 US$1.00 - Rs 7.930Re 1.00 - US$0.126

_/ Estimated.i/ Figures given cover all investment income (net). Major payents are interest on foreign loans

and charges paid to IMF, and major receipt is interest earned on foreign assets.J/ Figures given include workers' remittances but exclude official grant assistance, which is

included within official aid disbursements.t/ Excludes net use of IMF credit.1/ Figure for 1979/80 is estimated./ Amortization and interest payments on foreign loans as a percentage of exports of goods and services.

Apri L 1981

ANNEX II

Page 1 of 17

THE STATUS OF BANK GROUP OPERATIONS IN INDIA

A. STATEMENT OF BANK LOANS AND IDA CREDITS

(As of September 30, 1981) 1/

US$ million(Net of Cancellations)

Loan or Fiscal IDA IDACredit Year of (US$ (SDR

No. Approval Purpose Bank Credits) Credits) Undisbursed

45 Loans/ 1,515.98 -72 Credits fully disbursed - 4,065.4

342-IN 1973 Education - 12.0 2.42456-IN 1974 HP Apple Processing & Marketing - 13.0 5.011011-IN 1974 Chambal (Rajasthan) CAD 52.0 - 9.15482-IN 1974 Karnataka Dairy - 30.0 15.80502-IN 1975 Rajasthan Canal CAD - 83.0 28.16521-IN 1975 Rajasthan Dairy - 27.7 12.37522-IN 1975 Madhya Pradesh Dairy - 16.4 4.70585-IN 1976 Uttar Pradesh Water Supply - 40.0 13.47598-IN 1976 Fertilizer Industry - 105.0 17.09604-IN 1976 Power Transmission IV - 150.0 40.11609-IN 1976 Madhya Pradesh Forestry T.A. - 4.0 1.46610-IN 1976 Integrated Cotton Development - 18.0 10.231251-IN 1976 Andhra Pradesh Irrigation 145.0 - 74.581260-IN 1976 IDBI II 40.0 - 10.771273-IN 1976 National Seeds I 25.0 - 21.591313-IN 1977 Telecommunications VI 80.0 - 16.091335-IN 1977 Bombay Urban Transport 25.0 - 7.36680-IN 1977 Kerala Agric. Development - 30.0 22.06682-IN 1977 Orissa Agric. Development - 20.0 6.98685-IN 1977 Singrauli Thermal Power - 150.0 36.81687-IN 1977 Madras Urban Development - 24.0 4.08690-IN 1977 WB Agric. Extension & Research - 12.0 12.001394-IN 1977 Gujarat Fisheries 14.0 - 7.23712-IN 1977 M.P. Agric. Development - 10.0 5.10720-IN 1977 Periyar Vaigai Irrigation - 23.0 13.49728-IN 1977 Assam Agricultural Development - 8.0 5.46736-IN 1978 Maharashtra Irrigation - 70.0 28.83737-IN 1978 Rajasthan Agric. Extension - 13.0 6.84740-IN 1978 Orissa Irrigation - 58.0 25.711475-IN 1978 Industry DFC XII 79.2 - 7.81747-IN 1978 Second Foodgrain Storage - 107.0 77.58756-IN 1978 Calcutta Urban Development II - 87.0 19.11

ANNEX IIPage 2 of 17

US$ million(Net of Cancellations)

Loan or Fiscal IDA IDACredit Year of (US$ (SDRNo. Approval Purpose Bank Credits) Credits) Undisbursed

761-IN 1978 Bihar Agric. Extension &Research - 8.0 6.81

1511-IN 1978 IDBI Joint/Public Sector 25.0 - 12.871549-IN 1978 Third Trombay Thermal Power 105.0 - 53.99788-IN 1978 Karnataka Irrigation - 117.6 76.35793-IN 1978 Korba Thermal Power - 200.0 126.45806-IN 1978 Jammu-Kashmir Horticulture - 14.0 13.75808-IN 1978 Gujarat Irrigation - 85.0 62.96815-IN 1978 Andhra Pradesh Fisheries - 17.5 13.97816-IN 1978 National Seeds II - 16.0 14.971592-IN 1978 Telecommunications VII 120.0 - 46.76824-IN 1978 National Dairy - 150.0 130.60842-IN 1979 Bombay Water Supply II - 196.0 182.09843-IN 1979 Haryana Irrigation - 111.0 39.98844-IN 1979 Railway Modernization

& Maintenance - 190.0 145.84848-IN 1979 Punjab Water Supply & Sewerage - 38.0 20.17855-IN 1979 National Agricultural Research - 27.0 24.82862-IN 1979 Composite Agricultural Extension - 25.0 15.86871-IN 1979 NCDC - 30.0 15.551648-IN 1979 Ramagundam Thermal Power 50.0 - 50.00874-IN 1979 Ramagundam Thermal Power - 200.0 170.31889-IN 1979 Punjab Irrigation - 129.0 98.57899-IN 1979 Maharashtra Water Supply - 48.0 44.06911-IN 1979 Rural Electrification Corp. II - 175.0 95.54925-IN 1979 Uttar Pradesh Social Forestry - 23.0 18.39947-IN 1980 ARDC III - 250.0 23.24963-IN 1980 Inland Fisheries - 20.0 19.52954-IN 1980 Maharashtra Irrigation II - 210.0 170.70961-IN 1980 Gujarat Community Forestry - 37.0 29.62981-IN 1980 Population II - 46.0 45.221003-IN 1980 Tamil Nadu Nutrition - 32.0 30.441004-IN 1980 U.P. Tubewells - 18.0 16.561011-IN 1980 Gujarat Irrigation II - 175.0 164.421027-IN 1980 Singrauli Thermal II - 300.0 278.361012-IN 1980 Cashewnut - 22.0 21.651028-IN 1980 Kerala Agricultural Extension - 10.0 9.811033-IN 1980 Calcutta Urban Transport - 56.0 53.711034-IN 1980 Karnataka Sericulture - 54.0 52.38

ANNEX IIPage 3 f 17

US$ million

(Net of Cancellations)Loan or Fiscal IDA IDA

Credit Year of (US$ (SDR

No. Approval Purpose Bank Credits) Credits) Undisbursed

1046-IN 1980 Rajasthan Water Supply

and Sewerage - 80.0 76.65

1843-IN 1980 Industry DFC XIII 100.0 - 66.71

1887-IN 1980 Farakka Thermal Power 25.0 - 25.00

1053-IN 1980 Farakka Thermal Power - 225.0 201.16

1897-IN 1981 Kandi Watershed andArea Development 30.0 - 28.92

1925-IN 1981 Bombay High OffshoreDevelopment 400.0 - 379.77

2050-IN* 1982 Tamil Nadu Newsprint 100.0 - 100.0

1072-IN 1981 Bihar Rural Roads - - 30.6 29.8

1078-IN 1981 Mahanadi Barrages - - 72.4 72.4

1082-IN 1981 Madras Urban Development II - - 37.3 37.3

1108-IN 1981 M.P. Medium Irrigation - - 128.9 128.9

1112-IN 1981 Telecommunications VIII - - 288.9 263.6

1116-IN 1981 Karnataka Tank Irrigation - - 49.8 49.8

1125-IN*+ 1981 Hazira Fertilizer Project - - 368.0 368.0

1135-IN 1981 Maharashtra Agricultural Ext. - - 21.6 21.6

1137-IN 1981 Tamil Nadu Agricultural Ext. - - 26.2 26.2

1138-IN 1981 M.P. Agricultural Ext. II - - 34.7 34.7

1146-IN* 1981 National CooperativeDevelopment Corp. II - - 116.5 116.5

1172-IN*+ 1982 Korba Thermal Power Project - II - - 372.7 372.7

1177-IN*+ 1982 Madhya Pradesh Major Irrigation - - 223.4 223.4

Total 2,931.2 8,511.6 1,771.0

of which has been repaid 1,103.4 84.6 -

Total now outstanding 1,T7T8 ,4727.0 T,771.0

Amount Sold 133.8

of which has been repaid 133.3 0.5 -

Total now held by Bank and IDA 1/ 1,827.4 8,427.0 1,771.0

Total undisbursed (excluding *) 818.6 2,925.3 664.3

1/ Prior to exchange adjustment.

* Not yet effective.

+ Net yet signed.

ANNEX IIPage 4 of 17

B. STATEMENT OF IFC INVESTMENTS(As of September 30, 1981)

Amount (US$ million)Year Company Loan Equity Total

1959 Republic Forge Company Ltd. 1.5 1.51959 Kirloskar Oil Engines Ltd. 0.9 - 0.91960 Assam Sillimanite Ltd. 1.4 - 1.41961 K.S.B. Pumps Ltd. 0.2 - 0.21963-66 Precision Bearings India Ltd. 0.6 0.4 1.01964 Fort Gloster Industries Ltd. 0.8 0.4 1.21964-75-79 Mahindra Ugine Steel Co. Ltd. 11.8 1.3 13.11964 Lakshmi Machine Works Ltd. 1.0 0.3 1.31967 Jayshree Chemicals Ltd. 1.1 0.1 1.21967 Indian Explosives Ltd. 8.6 2.9 11.51969-70 Zuari Agro-Chemicals Ltd. 15.1 3.8 18.91976 Escorts Limited 6.6 - 6.61978 Housing Development Finance

Corporation 4.0 1.2 5.21980 Deepak Fertilizer and

Petrochemicals Corporation Ltd. 7.5 1.0 8.61981 Coromandel Fertilizers Limited 15.9 15.91981 Tata Iron and Steel Company Ltd. 38.0 - 38.01981 Mahindra, Mahindra Limited 15.0 - 15.01981 Nagarjuna Coated Tubes Ltd. 2.9 0.3 3.21981 Nagarjuna Signode Limited 2.3 - 2.31981 Nagarjuna Steels Limited 1.5 0.2 1.8

TOTAL GROSS COMMITMENTS 136.7 11.9 148.6

Less: Sold 26.0 1.7 27.7

Repaid 22.6 - 22.6

Cancelled - 1.3 7.5

Now Held 81.9 8.9 90.8

Undisbursed 66.1 1.5 67.6

ANNEX IIPage 5 of 17

C. PROJECTS IN EXECUTION 1/(As of September 30, 1981)

Generally, the implementation of projects has been proceedingreasonably well. Brief notes on the execution of individual projects arebelow. The level of disbursements was US$962 million in FY81, compared toUS$729 million in the previous year. Disbursements in the current fiscalyear through September 30, 1981 totalled US$164 million, representing anincrease of about 6% over the same period last year. The undisbursedpipeline Of US$4,408 million as of September 30, 1981, reflects the lead timewhich would be expected given the mix of fast- and slow-disbursing projectsin the India program.

Ln. No. 1475 Twelfth Industrial Credit and Investment Corporation of IndiaProject; US$80.0 million loan of July 22, 1977; EffectiveDate: October 4, 1977; Closing Date: March 31, 1983

Ln. No. 1843 Thirteenth Industrial Credit and Investment Corporation ofIndia Project; US$100.0 million loan of May 16, 1980; EffectiveDate: June 27, 1980; Closing Date: December 31, 1985

These loans are supporting industrial development in India througha well-established development finance company and are designed to financethe foreign exchange cost of industrial projects. ICICI continues to be awell-managed and efficient development bank financing medium- and large-scaleindustries, which often employ high technology and are export-oriented.Disbursements under both loans 1475 and 1843 are ahead of schedule.

Loan No. 1260 Second Industrial Development Bank of India Project;US$40.0 million loan of June 10, 1976; Effective Date:August 10, 1976; Closing Date: March 31, 1983

Loan No. 1511 IDBI Joint/Public Sector Project; US$25.0 million loan ofMarch 1, 1978; Effective Date: May 31, 1978; Closing Date:March 31, 1983

Loan 1260 is designed to assist the Industrial Development Bank ofIndia in promoting small- and medium-scale industries and in strengtheningthe State Financial Corporations involved. Loan 1511 is designed toencourage the pooling of private and public capital in medium-scale jointventures. The project also assists IDBI in carrying out industrial sector

1/ These notes are designed to inform the Executive Directors regarding theprogress of projects in execution, and in particular to report anyproblems which are being encountered and the action being taken to remedythem. They should be read in this sense and with the understanding thatthey do not purport to present a balanced evaluation of strengths andweaknesses in project execution.

ANNEX IIPage 6 of 17

investment studies and in strengthening the financial institutions dealingwith the state joint/public sector.

Cr. No. 747 Second Foodgrain Storage Project; US$107.0 million credit ofJanuary 6, 1978; Effective Date: May 17, 1978; Closing Date:June 30, 1982

Satisfactory progress is being made in the construction of bagstorage warehouses, despite problems of land acquisition at some sites.However, construction of flat bulk warehouses and port silos is not expectedto be completed until 1984, as a result of delays in the employment of con-sultants and the longer time required for the preparation of technicalspecifications and tenders and the construction itself. In view of the highincreases in bulk storage construction costs, the Government is proposing toreduce the bulk storage component of the project in favor of additional bagstorage capacity; this proposal is currently under consideration by theAssociation.

Cr. No. 806 Jammu-Kashmir Horticulture Project; US$14.0 million credit ofJuly 17, 1978; Effective Date: January 16, 1979;Closing Date: June 30, 1984

The principal executing agency, J&K Horticulture Produce Marketingand Processing Corporation, is making good progress, but project facilitieswill have to be reduced due to cost escalations. The project's researchactivities, however, are behind the original schedule due to difficulties inobtaining technical assistance.

Ln. No. 1313 Telecommunications VI Project; US$80.0 million loan ofJuly 22, 1976; Effective Date: September 14, 19/6Closing Date: March 31, 1983

Ln. No. 1592 Telecommunications VII Project; US$120.0 million loan ofJune 19, 1978; Effective Date: October 30, 1978; ClosingDate: December 31, 1983

Cr. No. 1112 Telecommunications VIII Project; US$314 million credit ofMarch 26, 1981; Effective Date: June 24, 1981;Closing Date: December 31, 1984

Loans 1313 and 1592 are progressing satisfactorily, although as ofJune 1981, when they were last reviewed, imports of electronic switchingequipment for the projects were behind schedule, resulting in a reducedgrowth rate for the installation of direct exchange lines. Institutionalimprovements envisaged under the projects have been achieved, and the finan-cial situation of the Posts and Telegraphs Department remains sound.Credit 1112, which became effective in June 1981, provides for the continuedexpansion, over a three-year period, of the Indian telecommunications net-work, particularly in rural areas. It also provides for the modernizationand upgrading of three existing telecommunications equipment factories, andthe establishment of three additional ones. Initial implementation andprocurement actions are proceeding on schedule.

ANNEX IIPage 7 of 17

Cr. No. 598 Fertilizer Industry Project; US$105.0 million credit ofDecember 31, 1975; Effective Date: March 1, 1976; ClosingDate: June 30, 1982

Cr. No. 1125 Hazira Fertilizer Project; US$400.0 million credit ofOctober 28, 1981; Effective Date: January 21, 1982; ClosingDate: June 30, 1986

Credit 598 is designed to increase the utilization of existing fer-tilizer production capacity. The project has encountered delays insub-project preparation and investment approvals by the Government. Further,some of the sub-projects identified earlier have not materialized because ofreconsideration by the Central and State governments. IDA has agreed to alist of sub-projects to replace the ones that have been dropped. Because ofthe above, the project completion date has been delayed. Credit 1125 isproceeding satisfactorily with initial implementation and procurement actionsproceeding to schedule.

Cr. No. 342 Agricultural Universities Project; US$12.0 million credit ofNovember 10, 1972; Effective Date: June 8, 1973; ClosingDate: December 31, 1982

The project involves the development of the agricultural universitiesin Assam and Bihar. The primary aim of the AUs project is to improve thequality and practical training of undergraduates and so the spectrum of theiremployment opportunities; and to strengthen university structure to enableit to give an impetus to agricultural and rural development. Considerableprogress has been made in achieving the latter objective; but achievingeducational objectives is more slowly attainable, constrained by traditionalattitudes and structures where consistent effective leadership falters.Changes to a more functional orientation are now planned. The Project Direc-tor and others responsible are aware of the constraints and are supportingefforts to remove them.

Cr. No. 842 Second Bombay Water Supply and Sewerage Project; US$196.0million credit of November 13, 1978; Effective Date: June 12,1979; Closing Date: March 31, 1985

Cr. No. 848 Punjab Water Supply and Sewerage Project; US$38.0 million creditof October 27, 1978; Effective Date: January 25, 1979;Closing Date: March 31, 1983

Cr. No. 899 Maharashtra Water Supply and Sewerage Project; US$48.0 millioncredit of June 21, 1979; Effective Date: November 9, 1979;Closing Date: June 30, 1984

Cr. No. 1046 Rajasthan Water Supply and Sewerage Project; US$80 millioncredit of June 25, 1980; Effective Date: August 5, 1980;Closing Date: September 31, 1985

Implementation of Credit 842, a second stage of the recently com-pleted first Bombay Water Supply and Sewerage Project (Credit 390), isproceeding to schedule. Preliminary work in connection with implementation

ANNEX IIPage 8 of 17

of Credit 848 has been completed but subsequent procurement delays and slowrelease of construction funds are likely to delay the project by about 12months and result in cost increases. Physical progress under Credit 899 issatisfactory. Initial delays in implementation of institutional arrangementsand tariff measures proposed for the project are now being overcome. Projectprogress in this area is being closely monitored. Implementation of Credit1046 is proceeding satisfactorily. Detailed construction programs have beenprepared for rural schemes, and preparation of tender documents for urbanschemes have been completed.

Cr. No. 585 Uttar Pradesh Water Supply and Sewerage Project; US$40.0 millioncredit of September 25, 1975; Effective Date: February 6, 1976;Closing Date: December 31, 1982

The Project has had a slow start due to delays in the preparation oftechnical reports for regional and local water authorities and in the engage-ment of consultants. While improvements have been made in the physicalexecution, other aspects of project implementation continue to lag so thatdisbursements under the Credit have fallen short of estimates at the timeof appraisal. In order to improve the situation, arrangements have been madeto closely supervise and coordinate implementation.

Cr. No. 756 Second Calcutta Urban Development Project; US$87.0 millioncredit of January 6, 1978; Effective Date: April 7, 1978;Closing Date: March 31, 1983

The project is proceeding quite well in most sectors, in spite ofcountry-wide materials shortages and serious Statewide electric powershortages. Procurement is generally on schedule for equipment and consult-ants' services, though somewhat behind for larger civil works contracts.Staff shortages in some of the implementing agencies continue, although moreextensive use of consultants has to a great degree alleviated this problem.

Cr. No. 687 Madras Urban Development Project; US$24.0 million credit ofApril 1, 1977; Effective Date: June 30, 1977; ClosingDate: September 30, 1981

With respect to the first Madras project, physical progress isgenerally satisfactory and costs are within appraisal estimates on mostcomponents. However, land acquisition problems and consequent delays inconstruction on one of the three sites and service areas will result in about15 months delay in the completion of the final sections of these areas.Increased attention should be turned to the financial analysis and marketingstrategies required to ensure that anticipated cost recovery in the sites andservices and slum upgrading components and thus replicability is actuallyachieved. Technical assistance is being sought to strengthen financialmanagement and analysis.

Cr. No. 1082 Second Madras Urban Development Project; US$42.0 credit ofJanuary 14, 1981; Effecztiveness Date: March 2, 1981;Closing Date: March 31, 1986.

ANNEX IIPage 9 of 17

With respect to the second project, early project implementa-tion is proceeding satisfactorily, with evidence that the lessons learnedunder the first project are being heeded.

Cr. No. 482 Karnataka Dairy Development Project; US$30.0 million creditof June 19, 1974; Effective Date: December 23, 1974; ClosingDate: September 30, 1982

Cr. No. 521 Rajasthan Dairy Development Project; US$27.7 million credit ofDecember 18, 1974; Effective Date: August 8, 1975; ClosingDate: December 31, 1982

Cr. No. 522 Madhya Pradesh Dairy Development Project; US$16.4 million creditof December 18, 1974; Effective Date: July 23, 1975; ClosingDate: June 30, 1982

Cr. No. 824 National Dairy Project; US$150.0 million credit of June 19,1978; Effective Date: December 20, 1978; Closing Date:December 31, 1985

These four credits, totalling US$224.1 million, support dairydevelopment projects organized along the lines of the successful AMUL dairycooperative scheme in Gujarat State. More than 2,100 dairy cooperativesocieties (DCS) have been established under the three state projects (Kar-nataka-923, Rajasthan-926, Madhya Pradesh-272). Farmer response has beenexcellent and project authorities are under considerable producer pressure tospeed up the establishment of DCS. Profitability in almost all DCSis good and construction of dairy and feed plants is now proceeding at asatisfactory pace. Limited milk processing capacity has been the majorconstraint to DCS formation in all three projects. Under the National DairyProject, thirteen subprojects have been appraised by the Indian Dairy Cor-poration and a further five subprojects are in various stages of preparationand appraisal. Advance procurement of dairy equipment is well underwaythough disbursements have been slow, mainly as a result in the start ofproject operations.

Ln. No. 1011 Chambal (Rajasthan) Command Area Development Project; US$52.0million loan of June 19, 1974; Effective Date: December 12, 1974;Closing Date: June 30, 1982

Cr. No. 502 Rajasthan Canal Command Area Development Project; US$83.0million credit of July 31, 1974; Effective Date: December 12,1974; Closing Date: June 30, 1982

Ln. No. 1251 Andhra Pradesh Irrigation and Command Area Development(TW) Composite Project; US$145.0 million loan (Third Window) of

June 10, 1976; Effective Date: September 7, 1976; ClosingDate: December 31, 1982

Cr. No. 720 Periyar Vaigai Irrigation Project; US$23.0 million credit ofJune 30, 1977; Effective Date: September 30, 1977; ClosingDate: March 31, 1983

ANNEX IIPage 10 of 17

Cr. No. 736 Maharashtra Irrigation Project; US$70.0 million credit ofOctober 11, 1977; Effective Date: January 13, 1978; ClosingDate: March 31, 1983

Cr. No. 740 Orissa Irrigation Project; US$58.0 million of October 11, 1977;Effective Date: January 16, 1978; Closing date: October 31, 1983

Cr. No. 788 Karnataka Irrigation Project; US$126.0 million credit ofMay 12, 1978; Effective Date: August 10, 1978; ClosingDate: March 31, 1984

Cr. No. 808 Gujarat Irrigation Project; US$85.0 million credit of July 17,1978; Effective Date: October 31, 1978; Closing Date: June 30,1984

Cr. No. 843 Haryana Irrigation Project; US$111.0 million credit ofAugust 16, 1978; Effective Date: December 14, 1978; ClosingDate: August 31, 1983

Cr. No. 889 Punjab Irrigation Project; US$120.0 million credit of March 30,1979; Effective Date: June 20, 1979; Closing Date: June 30, 1985

Cr. No. 954 Second Maharashtra Irrigation Project; US$210 million credit ofApril 14, 1980; Effective Date: June 6, 1980; ClosingDate: December 31, 1985

Cr. No. 1011 Second Gujarat Irrigation Project; US$175 million credit ofMay 12, 1980; Effective Date: June 27, 1980; Closing Date:April 30, 1986 -

Cr. No. 1078 Mahanadi Barrages Project; US$83 million credit of December 5,1980; Effective Date: February 11, 1981; Closing Date: March 31,1987

Cr. No. 1108 Madhya Pradesh Medium Irrigation Project; US$140 million creditof March 26, 1981; Effective Date: May 13, 1981; Closing Date:March 31, 1987

These projects, based on existing large irrigation systems, aredesigned to improve the efficiency of water utilization and, where possible,to use water savings for bringing additional areas under irrigation. Canallining and other irrigation infrastructure, drainage, and land shaping areprominent components of these projects. In addition, provisions have beenmade to increase agricultural production and marketing by reforming andupgrading agricultural extension services and by providing processing andstorage facilities and village access roads. Progress of these projects isgenerally satisfactory.

Cr. No. 682 Orissa Agricultural Development Project; US$20.0 million creditof April 1, 1977; Effective Date: June 28, 1977; Closing Date:December 31, 1983

ANNEX IIPage 11 of 17

Cr. No. 690 West Bengal Agricultural Extension and Research Project;US$12.0 million credit of June 1, 1977; Effective Date:August 30, 1977; Closing Date: September 3U, _l"2

Cr. No. 712 Madhya Pradesh Agricultural Extension and Research Project;

US$10.0 million credit of June 1, 1977; Effective Date:September 2, 1977; Closing Date: September 30, 1983

Cr. No. 728 Assam Agricultural Development Project; US$8.0 million creditof June 30, 1977; Effective Date: September 30, 1977; ClosingDate: March 31, 1983

Cr. No. 737 Rajasthan Agricultural Extension and Research Project;US$13.0 million credit of November 14, 1977; Effective Date:February 6, 1978; Closing Date: June 30, 1983

Cr. No. 761 Bihar Agricultural Extension and Research Project; US$8.0 millioncredit of January 6, 1978; Effective Date: May 2, 1978;

Closing Date: October 31, 1983

Cr. No. 862 Composite Agricultural Extension Project, US$25.0 million creditof February 16, 1979; Effective Date: December 14, 1979; ClosingDate: December 31, 1984

Cr. No. 1028 Kerala Agricultural Extension Project; US$10 million credit ofJune 25, 1980; Effective Date: August 18, 1980; Closing Date:June 30, 1986

Cr. No. 1137 Tamil Nadu Agricultural Extension Project; US$28 million creditof May 7, 1981; Effective Date: July 22, 1981; Closing Date:June 30, 1987

Cr. No. 1135 Maharashtra Agricultural Extension Project; US$23 million credit

of May 7, 1981; Effective Date: July 22, 1981; Closing Date:June 30, 1987

Cr. No. 1138 Second Madhya Pradesh Agricultural Extension Project; US$23 million

credit of May 7, 1981; Effective Date: July 22, 1981; ClosingDate: June 30, 1987

These eleven credits finance the reorganization and strengthening ofagricultural extension services and the development of adaptive researchcapabilities in twelve States in India. In areas where the reformed exten-

sion system is in operation, field results have been very good, both in termsof adoption of new agricultural techniques and of increased crop yields. InRajasthan, Assam, Madhya Pradesh and Orissa, in particular, significant gainshave been made under the projects. In West Bengal, where a change in govern-

ment brought a review of the organizational principles underlying the newextension system and an accompanying hiatus in project implementation, aCabinet decision has reaffirmed the State Government's commitment to theproject, revised implementation plans have been prepared, and project

activities are resuming. In Bihar, staff shortages, particularly in key

ANNEX IIPage 12 of 17

supervisory and managerial posts, are severely hampering project implementa-tion; a review is underway to reassess whether the project can be implementedas intended. In Gujarat, Haryana and Karnataka, all covered under the Com-posite Agricultural Extension Project, field work is off to a good start.In Kerala, project implementation began in three of eleven districts aftersome initial start-up delays. Early progress on civil works and initiationof the program in the remaining eight districts will be required to regainthe initial implementation schedule. In Tamil Nadu and Maharashtra, projectimplementation is encouraging. Project review missions are helping sustainproject momentum.

Cr. No. 855 National Agriculture Research Project; US$27.0 million creditof December 7, 1978; Effective Date: January 22, 1979; ClosingDate: September 30, 1983

While the initial sanctioning of research subprojects under thisproject was somewhat slower than expected, due to staff shortages in theProject Unit, the pace has picked up considerably in recent months. Commit-ment of funds to research subprojects is proceeding satisfactorily, althoughcorresponding disbursements may lag somewhat behind the original estimates.Additions to the staff of the Project Unit have been made to expedite furtherprogress under the project.

Cr. No. 680 Kerala Agricultural Development Project; US$30.0 million creditof April 1, 1977; Effective Date: June 29, 1977; Closing Date:March 31, 1985

Project implementation started slowly due to initial staffing andfunding delays. The project has now gained momentum and the planting opera-tions, which were one season behind original schedule, have been rephasedto make up for lost time. Some of the coconut rehabilitation areas are beingchanged based on the demand of credit from the farmers.

Cr. No. 871 National Cooperative Development Corporation (NCDC) Project;US$30.0 million credit of February 2, 1979; Effective Date:May 3, 1979; Closing date: December 31, 1984

Cr. No. 1146 Second National Cooperative Development Corporation (NCDC)Project; US$125 million credit of July 21, 1981; EffectiveDate: November 11, 1981; Closing Date: June 30, 1987

As of December 1981, when Credit 871 was last reviewed, the construc-tion program has progressed slightly more slowly than anticipated due toshortages in supplies of steel and cement. Disbursements have been progress-ing well and are ahead of the appraisal targets. Credit 1146, which wassigned in July 1981, provides credit for the construction of cooperativegodowns and cold-storage and marketing facilities to support the pre- andpost-harvest supply and marketing requirements in nine States; promote thedevelopment of cooperative institutions in these States; and expand coopera-tive subproject preparation and appraisal activities within the cooperativesector. Project implementation has been slower than anticipated, and disbur-sements as of December 1981 are considerably less than projected at

ANNEX IIPage 13 of 17

appraisal. NCDC is taking steps to ensure that adequate preparatory work isdone in all nine participating States.

Cr. No. 844 Railway Modernization and Maintenance Project; US$190.0 millioncredit of November 13, 1978; Effective Date: January 10, 19/9;Closing Date: December 31, 1984

Credit 844 was designed to help the Indian Railways reduce manufac-turing and maintenance costs of locomotives and rolling stock and to improvetheir performance and availability. Project implementation is satisfactory.

Cr. No. 609 Madhya Pradesh Forestry Technical Assistance Project;US$4.0 million credit of February 26, 1976; Effective Date:May 17, 1976; Closing Date: December 31, 1982

A study financed under this Credit and completed in November 1979established the technical feasibility of setting up two mills, one forsawnwood and one for pulp, as the basis of the development of a forest-basedindustry in Bastar district. Further studies are underway to assess thesocio-economic impact of such investments.

Cr. No. 925 Uttar Pradesh Social Forestry Project; US$23.0 million creditof June 21, 1979; Effective Date: January 3, 1980; ClosingDate: December 31, 1984

Cr. No. 961 Gujarat Community Forestry Project; US$37 million credit ofApril 14, 1980; Effective Date: June 24, 1980; Closing Date:December 31, 1985

These projects, designed to expand the social forestry program inUttar Pradesh and Gujarat, to provide a source of energy to the villages, andto supply raw materials to cottage industries, are proceeding well. Theprojects provide for large-scale tree plantations on public lands, primarilyalong roads, rails and canals, on village common lands and on degraded forestreserves.

Cr. No. 610 Integrated Cotton Development Project; US$18.0 million credit ofFebruary 26, 1976; Effective Date: November 30, 1976; ClosingDate: December 31, 1981

The project's progress remained very disappointing in all areas untilthe 1978 season, resulting in negligible disbursements. Due to renewedinterests from GOI and the States, the project has now started to progresswell. Short-term credits are increasing significantly, new processing unitsare being established in Haryana and Maharashtra, and plant protectionactivities are progressing well.

Ln. No. 1273 National Seed Project; US$25.0 million loan of June 10, 1976;Effective Date: October 8, 1976; Closing Date: June 30, 1984

Cr. No. 816 Second National Seed Project; US$16.0 million credit of July 17,1978; Effective Date: December 20, 1978; Closing Date:December 31, 1984

ANNEX IIPage 14 of 17

These projects were designed to increase the availability of highquality agricultural seed, and cover nine States (four by Ln. 1273-IN andfive by Cr. 816-IN). Project implementation has been slow because of initialproblems in coordination and monitoring particularly at the national level.Although the projects are generally about three years behind appraisal tar-gets, their implementation has gained greater momentum since 1980 and thestage is now set for all infrastructure and investments planned under theprojects to be completed by June 1984.

Ln. No. 1335 Bombay Urban Transport Project; US$25.0 million loan ofDecember 20, 1976; Effective Date: March 10, 1977;Closing Date: June 30, 1983

Cr. No. 1033 Calcutta Urban Transport Project; US$56 million credit ofOctober 27, 1980; Effective Date: December 18, 1980;Closing Date: December 31, 1984

The bus procurement program supported by the Bombay project(Ln. 1335) has proceeded on schedule, with all 700 bus chassis and bodiesfinanced and delivered in service. Total fleet strength has increased from1,530 buses at the inception of the project to nearly 2,000 buses, in accord-ance with appraisal estimates. Depot capacity expansion has lagged somewhatbehind fleet expansion, but caught up in November 1980. However, delays inconstruction of new workshop facilities have been more substantial and willno- be fully recoverable. As a result, the loan closing date has beenextended by three years. Traffic management civil works are also somewhat behindschedule, although now proceeding satisfactorily. Implementation of worksunder Cr. 1033 is proceeding satisfactorily, a good start having been made onthe important early procurement steps. However, financial and managerialperformance is lagging behind expectations and must now receive projectauthorities' full attention if physical and financial performance targets areto be achieved.

Cr. No. 1072 Bihar Rural Roads Project; US$35.0 million credit of December 5,1980; Effective Date: January 15, 1981; Closing Date:June 30, 1986.

The first year program of rural road construction is underway. Thewhole project aims to construct or rehabilitate 700 km of rural roads and toimprove maintenance of the rural road network in Bihar as part of the State'soverall rural development efforts. Equipment has been ordered and is beingdelivered.

Ln. No. 1394 Gujarat Fisheries Project; US$14.0 million loan and US$4.0(TW) and million credit of April 22, 1977; Effective date: July 19, 1977;Cr. No. 695 Closing Date: June 30, 1983

Cr. No. 815 Andhra Pradesh Fisheries Project; US$17.5 million credit ofJune 19, 1978; Effective Date: October 31, 1978; Closing Date:September 30, 1984

ANNEX IIPage 15 of 17

As of July 1981 when the first of these projects was last reviewed,the harbor construction works at Mangrol and Veraval in Gujarat had

encountered delays, although the problem with shortages of cement supplieshad been overcome. In Andhra Pradesh, the harbor works at Visakhapatnam,

Kakinada and Nizampatnam are progressing satisfactorily following the resolu-tion of design problems. The road component is also progressing satisfac-

torily.

Cr. No. 963 Inland Fisheries Project; US$20 million credit of Jarnuary 18,

1980; Effective Date: May 5, 1980; Closing Date: September 30,1985

This project, which is the first of its kind in India, is designedto increase carp production in five states--West Bengal, Bihar, Orissa,Madhya Pradesh, and Uttar Pradesh--through the construction of hatcheries,

improvements to fish ponds, strengthening of extension services, and theestablishment of training centers. The project became effective in May 1980.The initial implementation tasks, primarily involving the establishment of

State Fish Seed Development Corporations and Central and State projectmonitoring units, are progressing satisfactorily. However, hatchery planninghas been delayed as a result of a delay in the establishment of the engineer-

ing cell within the Central Project Unit.

Cr. No. 685 Singrauli Thermal Power Project; US$150.0 million credit ofApril 1, 1977; Effective Date: June 28, 1977; Closing Date:December 31, 1983

Cr. No. 793 Korba Thermal Power Project; US$200.0 million credit of May 12,1978; Effective Date: August 14, 1978; Closing Date: March 31,1985

Ln. No. 1549 Third Trombay Thermal Power Project; US$105.0 million loan of

June 19, 1978; Effective Date: February 8, 1979; Closing Date:March 31, 1984

Ln. No. 1648 Ramagundam Thermal Power Project; US$50.0 million loan and

and Cr. 874 US$200 million credit of February 2, 1979; Effective Date:May 22, 1979; Closing Date: December 31, 1985

Cr. No. 604 Power Transmission IV Project; US$150 million credit ofJanuary 22, 1976; Effective Date: October 22, 1976;Closing Date: December 31, 1982

Cr. No. 1027 Second Singrauli Thermal Power Project; US$300 million creditof June 5, 1980; Effective Date: July 30, 1980; Closing Date:

March 31, 1988

Ln. No. 1887 Farakka Thermal Power Project; US$25 million loan andand US$225 million credit of July 11, 1980; Effective Date:

Cr. No. 1053 December 10, 1980; Closing Date: March 31, 1987

ANNEX IIPage 16 of 17

Ln. No. 2076 Second Ramagundam Thermal Power Project; US$300 million loan ofJanuary 6, 1982; Effective Date (expected): April 6, 1982;Closing Date: June 30, 1988

Credits 685 and 1027 assist in financing the 2,000 MW Singraulidevelopment, which is the first of four power stations in the Government'sprogram for the development of large central thermal power stations feedingpower into an interconnected grid. Credit 793 supports the construction ofthe first three 200 MW generating units at the second such station, at Korba,together with related facilities and associated transmission. Loan 1648/Credit 874 support similar investments at Ramagundam, and Loan 1887/Credit 1053, at Farakka. Loan 2076 supports the development of the secondstage of the Ramagundam plant, involving the construction of three 500 MWgenerating units. The National Thermal Power Corporation (NTPC) has beencarrying out construction and operation of these power stations. Loan 1549is supporting the construction of a 500 MW extension of the Tata ElectricCompanies' station at Trombay, in order to help meet the forecast load growthin the Bombay area. All these large-scale thermal power projects areprogressing satisfactorily. For Singrauli and Korba, construction works areon or ahead of schedule, although some slippage has occurred in the implemen-tation schedule for the Ramagundam project.

Cr. No. 911 Rural Electrification Corporation II Project; US$175.0 millioncredit of June 21, 1979; Effective Date: October 17, 1979;Closing Date: March 31, 1984

The project is progressing satisfactorily.

Ln. No. 1925 Second Bombay High Offshore Development Project; US$400.0 millionloan of December 11, 1980; Effective Date: February 24, 1981Closing Date: March 31, 1984

The project is progressing satisfactorily.

Cr. No. 981 Second Population Project; US$46 million credit of April 14,1980; Effective Date: June 26, 1980; Closing Date: December 31,1985

The project has as its major objectives the lowering of infant andchild mortality and morbidity, the improvement in the health status ofmothers and children and the lowering of fertility. Implementation proceed-ing satisfactorily in both project States--Andhra Pradesh and UttarPradesh--in all major components except construction activities which remainabout 18 months behind appraisal targets.

Cr. No. 1012 Cashewnut Project; US$22 million credit of June 10, 1980;Effective Date: September 3, 1980; Closing Date: September 30,1985

This project is designed to expand cashewnut production in the Statesof Kerala, Karnataka, Andhra Pradesh and Orissa. The progress in cashewplantations as well as other components is satisfactory.

ANNEX IIPage 17 of 17

Cr. No. 1003 Tamil Nadu Nutrition Project; US$32 million credit of May 12,1980; Effective Date: August 5, 1980; Closing Date: March 31,1987

First year's implementation in one test block is proceeding accordingto schedule.

Cr. No. 1004 Uttar Pradesh Public Tubewells Project; US$18 million creditof May 12, 1980; Effective Date: June 27, 1980; Closing Date:March 31, 1983

Initial procurement delays having now been overcome, implementationis proceeding satisfactorily on this project. However, project completionwill likely be delayed by approximately six months due to the initial delays.

Ln. No. 1897 Kandi Watershed and Area Development Project; US$30.0 millionloan of September 12, 1980; Effective Date: November 18, 1980;Closing Date: March 31, 1986.

Contract for the construction of Dholbaha dam has been awarded, andconsultants are preparing feasibility reports of other watershed schemes.Progress in other components are satisfactory.

Cr. No. 1034 Karnataka Sericulture Project; US$54 million credit ofOctober 27, 1980; Effective Date: December 18, 1980Closing Date: December 31, 1985

Overall progress in project implementation is satisfactory. Minorstart up delays in staffing are being corrected.

Cr. No. 1116 Karnataka Tank Irrigation Project; US$54 million credit ofMarch 26, 1981; Effective Date: May 5, 1981; Closing Date:March 31, 1986

The project is designed to finance the construction, over a four-yearperiod, of about 160 tank irrigation schemes throughout the State of Kar-nataka. Start-up activities have commenced.

Ln. No. 2050 Tamil Nadu Newsprint Project; US$100 million loan ofSeptember 23, 1981; Effective Date: March 22, 1982; ClosingDate: August 31, 1985

Loan not yet effective. Tendering for major equipment is underway.

ANNEX IIIPage 1 of 2

INDIA

REFINERIES RATIONALIZATION PROJECT

SUPPLEMENTARY PROJECT DATA SHEET

Section I: (a) Time taken by the country to prepare the project

About 2 years.

(b) The agencies which have prepared the project

GOI (Ministry of Petroleum), EIL and the Refinery Companies.

(c) Date of first presentation to the Bank and date ofthe first mission to consider the project

November 1980.

(d) Date of departure of appraisal mission

July 1981.

(e) Date of completion of negotiations

December 15, 1981.

(f) Planned date of effectiveness

June 30, 1982.

Section II: Special IDA Implementation Actions

None.

Section III: Special Conditions

(a) GOI will evaluate each proposed investment in energy

efficiency and pollution control facilities andsubmit to Bank for concurrence (para 46).

(b) The Government and the Refinery Companies will design,build and operate facilities constructed under theproject with due regard for satisfactory environmentaland safety norms (para 48).

ANNEX IIIPage 2 of 2

(c) The Government will provide any funds required to covercost overruns (para 54).

(d) The Government will maintain prices at levels whichpermit the Refinery Companies under conditions ofefficient operations to meet all their expenses, servicetheir debt and earn a reasonable return on investedcapital (para 54).

IBRD 1594770 X- T > ,>, /¢, Es 9r1 ECEMRER S9Bi t

DEM. REP. OF JAMMU INDIA

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