FOR OFFICIAL USE ONLY REPORT AND REC(IM4ENDATION OF THE PRESIDENT OF THE TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO INDIA FOR THE

Transcription

1 Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Document of c tt1r tpyt 1 The World Bank FOR OFFICIAL USE ONLY REPORT AND REC(IM4ENDATION OF THE PRESIDENT OF THE Report No. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO INDIA FOR THE SECOND RAMAGUNDAM THERMAL POWER PROWECT November 30, 1981 P-3164-IN This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.

2 CURRENCY EQUIVALENTS (as of November 18, 1981) US$1 = Rs Rs l = US$ Rs l million = US$108,500 The US Dollar/Rupee exchange rate is subject to change. Conversions in the Staff Appraisal Report were made at US$1.00 to Rs 8.0, which represents the projected average exchange rate over the disbursement period. FISCAL YEAR April 1 - March 31 ABBREVIATIONS AND ACRONYMS USED IN THIS REPORT ARDC - Agricultural Refinance and Development Corporation BHEL - Bharat Heavy Electricals Ltd. CEA - Central Electricity Authority GOI - Government of India KWU - Kraftwerk Union NHPC - National Hydro Power Corporation NTPC - National Thermal Power Corporation OPEC - Organization of Petroleum Exporting Countries REB - Regional Electricity Board REC - Rural Electrification Corporation SEB - State Electricity Board kv - kilovolt = 1,000 volts kwh - kilowatt-hour = 1,000 watt-hours MW - megawatt = 1,000 kilowatts, km - kilometer

3 FOR OFFICIAL USE ONLY INDIA SECOND RAMAGU2NDAM THERMAL POWER PROJECT LOAN AND PROJECT SUMMARY Borrower: India, acting by its President. Beneficiary: National Thermal Power Corporation Limited (NTPC). Amount: Terms: On-Lending Terms: US$300 million. Repayment over 20 years, including five years' grace, at 11.6% interest per annum. From GOI to NTPC, with repayment over 20 years, including 5 years' grace, at an interest rate of 11.75% per annum. Project Installation of three 500 MW generating units, together with Description: ancillary equipment and related facilities, at the Ramagundam thermal power station in the State of Andhra Pradesh, and construction of about 1,400 km of associated 400 kv transmission lines. One risk is the possibility of slippage in the implementation schedule, which could give rise to delayed commissioning of plant with consequent loss of revenues. Careful coordination and supervision during construction and attention to the manufacturers' abilities to meet delivery schedules should keep implementation delays to a minimum. This document has a restricted distribution and may be used by recipients only in the performance of their ofqficial duties. Its contents may not otherwise be disclosed without World Bank authorization. _~~~~~~~~

4 -ii- Estimated Cost: (US$ millions) Item Local Foreign Total Preliminary Works Civil Works Electrical and Mechanical Plant Coal Handling and Transportation Power Transmission Sub-total Physical Contingencies Price Contingencies Consultants' and Engineering Services Administration Project Cost (excluding taxes and duties) ,413.5 Taxes and Duties Total Project Cost 1, ,567.5 Interest During Construction Total Financing Requirement 1, ,650.4 Financing Plan: (US$ millions) Local Foreign Total IBRD Loan Federal Republic of Germany OPEC Fund GOI Loans and Equity 1, ,087.5 Total 1, ,567.5

5 -iii- Estimated (US$ millions) Disbursements: IBRD FY FY83 FY84 FY85 FY86 FY87 FY88 Rate of Return: 15% Annual Cumulative Appraisal Report: No. 3608b-IN, dated November 30, 1981.

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7 INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO THE GOVERNMENT OF INDIA FOR THE SECOND RAMAGUNDAM THERMAL POWER PROJECT 1. I submit the following report and recommendation on a proposed loan to India in an amount equivalent to US$300 million to help finance a project for the construction of the second stage of the proposed 2,100 MW thermal power station at Ramagundam in Andhra Pradesh. Amortization would be over 20 years, including five years' grace, at an interest rate of 11.6% per annum. The proceeds of the loan would be onlent by the GovernLment to the National Thermal Power Corporation Limited (NTPC) for 20 years, including five years' grace, at an interest rate of 11.75% per annum. Additional financing for the project, in an amount equivalent to about US$180 million, is expected to be provided by the Federal Republic of Germany (US$150 million) and the OPEC Fund (US$30 million). The exchange risk for the proposed loan would be borne by the Government of India (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 Directors on April 16, 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 force. 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 significantly 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 % 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 1/ Parts I and II of the report are substantially the same as Parts I and II of the President's Reports for the Kanpur Urban Development Project (No. P-3125-IN), dated September 30, 1981.

8 -2- 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 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 little emphasis on exports and has tended to pursue a strategy of import substitution. The volume growth of exports between 1950/51 and 1979/80 averaged only 3.6% per annum, about the same as the volume growth of imports over the same period. Between 1970 and 1977, however, India's terms of trade, which had remained roughly constant during the 1960s, deteriorated sharply. In response, the Government introduced various policy measures designed to stimulate 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 in recent years, due in large part to domestic supply constraints, this experience demonstrates that sustained rapid growth is possible. While expanding world markets, particularly in the nearby Middle East, contributed to this growth, liberalized access to imported inputs and more effective export incentives played a major role. Recent Trends 6. Over the period 1975/76 to 1978/79, growth in real GDP (at factor cost), agricultural value-added and industrial value-added averaged 5.4%, 3.1% and 7.9% per annum, respectively. These trends represent a substantially better growth performance than the historical 30-year trends (paragraph 4). However, GDP declined by about 4.5% in 1979/80 due both to the severe drought which reduced agricultural production and to input constraints in other sectors. Agricultural output fell by about 16% in 1979/80. Industrial production stagnated, largely due to shortfalls in the production of major inputs such as coal, steel and cement, as well as infrastructural constraints, notably in power and transportation. As a consequence of these developments, the remarkable price stability that India had enjoyed after 1975 came to an abrupt end at the close of fiscal year 1978/79, with prices increasing 21% during 1979/ In 1980/81, the economy recovered substantially, so that real GDP growth for the year was about 6%-7%. During the summer and fall of 1980 foodgrain prices rose, but more slowly than other prices and more slowly than the drop in production in 1979/80 would have suggested. This was made possible through the drawdown of substantial buffer stocks built up by the Government in years of good harvests. These stocks ensured adequate supplies of grain to low-income groups in urban areas through the public distribution system and also provided resources for a large-scale drought relief employment program for low-income groups in rural areas. Aided by a normal monsoon in the summer of 1980, agricultural production rose by about 17%-19%. The industrial sector recovered more slowly, with production in 1980/81 rising only about 4% above the average for 1979/80, but output increased substantially during the year so that production in April 1981 was about 9% higher than in April The rise in prices slowed during the second half of 1980/81 so that by March 1981 the wholesale price index was 15.7% above its level a year earlier.

9 -3-8. In agriculture the positive results of large investments and appropriate policies in the past years are becoming increasingly apparent. The rate of expansion of irrigation has increased significantly from 1.3 million 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, more than double 1974/75 levels. Over the decade before 1979/80, foodgrain production grew at about 2.75% per annum -- sufficient to meet consumer demand, to eliminate imports (which had averaged nearly 5 million tons per year for the 15 years preceding 1976), and to reduce real foodgrain prices for consumers. At the same time, India was able to build up substantial foodgrain buffer stocks which made it possible to limit the effects of the 1979/80 drought, and to export a modest amount of grain in While the management of the foodgrain economy after the drought was a significant achievement, the effect of the drought on production re-emphasized the continued importance of the monsoon in India's agriculture. The normal monsoon of 1980/81 brought foodgrain production back to around 130 million tons. While the performance of the recent past and the probable future trends suggest that on average foodgrain supplies will exceed demand, the balance remains delicate and the need for foodgrain imports to maintain consumer supplies or adequate buffer stocks could arise from time to time. For example, some wheat imports are likely in 1981/82 to ensure adequate build up of stocks. Programs to expand irrigation, strengthen extension and encourage the efficient use of other agricultural inputs continue to receive high priority. 9. The Indian economy has shifted back from a situation of resource surplus, which had been a temporary phenomenon of the late 1970s, to one of resource scarcity. Investment has again overtaken domestic savings, and the scope for further increases in the latter appears limited. Marginal savings rates have recently been well above 30% in the household sector. Future increases in savings will depend heavily upon the enhanced profitability of public sector enterprises. Impending resource scarcity is even more apparent in the foreign sector. Between 1975/76 and 1978/79, India's current account deficit had remained comfortably small in relation both to GDP and to a growing pipeline of aid commitments. This was due to favorable terms of trade movements after 1977 and to rapidly growing workers' remittances as well as to the growth of exports. In 1980/81, however, the balance of payments deteriorated sharply, with the current account deficit rising from US$850 million in 1979/80 to nearly US$3.4 billion in 1980/81. In part this was due to unique events during the year, such as the disruption of oil production in the Northeast, which, though the flows resumed again in February 1981, alone added over US$1 billion to the oil import bill. Combined with unprecedented oil price increases, this caused the oil import bill to rise by over 75%, to a level equivalent to three-fourths of India's merchandise export earnings. The deficit on current account rose to 2% of GDP. India was able to finance this gap through a substantial drawing on IMF resources (the Trust Fund and the Compensatory Financing Facility), and through an increase in aid disbursements and a modest drawdown in foreign exchange reserves. 10. The trends in the volume and terms of India's trade indicate that significant adjustments will need to be made in the economy to bring India's external accounts into balance at a reasonable level of growth. In an effort to make these adjustments, the Government has developed an investment program for the Sixth Plan period and implemented a number of policy measures which

10 -4- are designed to bring the economy closer to external equilibrium. These measures recognize the need to increase the growth of exports, to increase production of commodities such as fertilizer, cement and steel which India can 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 and other infrastructural facilities which are retarding growth in a wide range of activities, including exports. It is encouraging that, in response to the present 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 improvements in 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 of SDR 5.0 billion on November 9, Over the next three years, this facility will provide India with a significant share of the external resources required to bring about the necessary changes in the structure of the economy 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 industrial sector is small compared to the size of the economy, it nevertheless is large in absolute terms and has a highly diversified structure, capable of manufacturing 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 institutional infrastructure for development. Finally, India has an extensive natural resource base in terms of land, water, and minerals (primarily coal and ferrous ores, but also gas and oil). With good economic policies and sufficient 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 ( ) was approved in February The new Plan continues to assign priority to agriculture and power. Furthermore, the Plan reflects the Government's efforts to bring about the necessary adjustments in the economy by emphasizing several priority areas. These include: (i) expansion of exports and an investment program to support increased 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 resources; (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

11 -5- past may not materialize unless these input bottlenecks are alleviated. In the case of coal, steel and cement, domestic production appears to be clearly justified on grounds of comparative advantage, indicating an a priori case for policies to promote further investment. In 1980/81 these commodities were not imported in sufficient amounts to eliminate the shortages; increased short-term reliance on imports may be necessary to alleviate slowdowns and dislocation in user industries. In the case of sectors in which there is little scope to import the final product -- power and transportation -- the planning of capacity expansion becomes even more crucial. Although there is scope for improvement in the short-run performance of these sectors, major investments in balancing and modernization programs as well as in new capacity are essential for adequate growth in the medium term. 14. Despite the relatively large investment programs for the development of domestic energy resources such as coal and hydroelectricity, and the recent development of offshore petroleum resources, India has not been able to eliminate the gap between its total energy demand and domestic production. During the past year, India continued to face power and coal shortages, but the situation improved substantially during the year so that power generation in June 1981 was around 20% higher than a year earlier. India is entering the Sixth Plan period with an ambitious energy production program backed by substantial financial commitment. In the oil sector, GOI is now accelerating its oil exploration capabilities and is opening up prospective areas for exploration by foreign firms. Prices of petroleum products were raised substantially in 1980 and again in July 1981 to bring domestic prices into line with world market prices, to raise resources for further oil and gas development and to encourage efficient use of energy. India is now committed to an expanded power program that emphasizes exploitation of its large hydro potential and development of its transmission and distribution system. In the coal sector, a policy decision in favor of mechanization has been made in order to achieve more rapid growth of coal production. 15. Agricultural policies, development programs and secular trends all seem favorable for sustaining the past agricultural growth during the 1980s. India ended 1980 with grain stocks of about 12 million tons, without having imported foodgrains during the year. This reflects the trends of the last decade which point to an improvement in foodgrain availability in the economy. Growing output, combined with the projected fall in the population growth rate, suggest favorable long-run prospects for foodgrain supply and demand balances. An occasional need to import grains, particularly wheat, could arise, but if the efforts to develop agriculture over the past decade are sustained and intensified, as suggested in the new Plan, persistent shortage seems unlikely. This development could give rise to a range of policy options including a slowly falling real price of foodgrains to increase the affordability of foodgrains to low-income families, foodgrain exports, and diversification to the production of other, higher-value crops. 16. Foreign exchange reserves are providing a cushion that helps the Government 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 first time since A much larger decline in the reserve level would have been necessary in 1980/81 had IMF Trust Fund and Compensatory Financing Facilities, amounting to over US$1 billion, not been available. India's reserves provide some limited scope for narrowing the financing gap over the

12 -6- 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 in price 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 are large 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 financing, 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. Considerable progress 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 a difficult burden on those implementing India's Sixth Five-Year Plan. The primary focus must be on the implementation of appropriate domestic adjustment 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 population 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 substantially higher 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 to live five years longer than they did a decade ago. This no doubt reflects improved availability of food and health services. This implies, however, an even greater need to reduce the birth rate to bring about the needed reduction 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 which can provide the full variety of available birth prevention methods. The new Plan 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 imply a 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 economic growth. 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 laborers and 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 US$132 per capita per year for rural and urban areas, respectively). Improvements in the living standards of the poor will depend to a large extent on the overall growth of the economy; the circumstances require increases in agricultural production and employment, in non-farm rural

13 -7- employment, and also in employment opportunities in urban areas. These developments will have to stem in large part from market forces which, however, must be encouraged and reinforced by appropriate Government policies and the strengthening of basic services and infrastructure. The declining trend in real foodgrain prices between 1970 and 1979 reflects such developments. There is also a role for direct Government action in faster implementation of land reform (though the scope for significant reduction in poverty through land redistribution is quite limited in India), in increasing the supply of credit available to small farmers and rural artisans, and finally in broadening the provision of those services which enhance the human capital of the poor and improve living standards. Many of the latter are elements of the Minimum Needs Program, which has been an integral part of Indian planning for the past decade. Progress has been slow but steady in the expansion of primary education, the extension of rural health facilities and the provision of secure village water supplies. Innovations such as the community health volunteer program and the national adult literacy campaign provide encouraging evidence that well-targetted, relatively low-cost programs can lead to enhanced prospects for India's poor. PART II - BANK GROUP OPERATIONS IN INDIA 20. Since 1949, the Bank Group has made 61 loans and 141 development credits to India totalling US$2,833 million and US$9,323 million (both net of cancellation), respectively. Of these amounts, US$1,168 million had been repaid, and US$4,494 million was still undisbursed as of June 30, Bank Group disbursements to India in fiscal year 1981 totalled US$962 million, representing an increase of about 32% over the previous year. Annex II contains a summary statement of disbursements as of June 30, 1981, and notes on the execution of ongoing projects. 21. Since 1959, IFC has made 24 commitments in India totalling US$148.7 million, of which US$22.2 million has been repaid, US$27.7 million sold and US$7.5 million cancelled. Of the balance of US$91.3 million, US$82.3 million represents loans and US$9.0 million equity. A summary statement of IFC operations as of June 30, 1981, is also included in Annex II (page 4). 22. In recent years, Bank Group lending has emphasized agriculture. The Bank Group has been particularly active in supporting minor irrigation and other on-farm investments through agricultural credit operations and in providing direct support to major and medium irrigation. Marketing, seed development, agricultural extension, dairying, and forestry are other agricultural activities supported by the Bank Group. Also, the Bank Group has been active in financing the expansion of output in the fertilizer sector and, through its sizeable assistance to development finance institutions, in a wide range of geographically scattered medium- and small-scale industrial enterprises. The Bank Group has also been active in supporting infrastructure development for power, telecommunications, and railways. Family planning, water supply development, urban investments and the development of oil and natural gas have also received Bank Group support in recent years. 23. The direction of assistance under the Bank/IDA program has been consistent with India's needs and the Government's priorities. The emphasis of the program on agriculture, power, water supply and other infrastructure sectors remains highly relevant. Projects designed to foster agricultural production through the provision of essential inputs, particularly water and credit for on-farm investments, will continue to receive emphasis. Improved

14 -8- water management and intensification and streamlining of extension systems form an important institution-building aspect of the Bank Group's program for the next several years. Special emphasis will be given to projects benefitting small farmers. The Bank Group's continuing role in the fertilizer 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 will focus 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 of Bank economic reports and of the discussions within the India Consortium. Thanks in part to the response of the aid community, India successfully adjusted to the changed world price situation of the mid-1970s. However, there is now a need for increased foreign assistance to adjust to an even greater 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 financing of local expenditures. India imports relatively few capital goods because of the capacity and competitiveness of the domestic capital goods industry. Consequently, the foreign exchange component tends to be small in most projects. This is particularly the case in such high-priority sectors 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 can reasonably be allocated to India remains small in relation to India's needs for external support. Therefore, India should be eligible and regarded as creditworthy 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 to remain below 20% through 1995/96. As of June 30, 1981, outstanding loans to India held by the Bank totalled US$1,742 million, of which US$874 million remain to be disbursed, leaving a net amount outstanding of US$868 million. 26. Of the external assistance received by India, the proportion contributed by the Bank Group has grown significantly. In 1969/70, the Bank Group accounted for 34% of total commitments, 13% of gross disbursements, and 12% of net disbursements as compared with 49%, 36% and 44%, respectively, in 1980/81. 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, about 18.0% of India's total debt service payments were to the Bank Group.

15 -9- PART III - THE POWER SECTOR Background 27. The performance of the Indian power supply industry and the economy as a whole are closely related, and economic growth and improvement of the standard of living depend to a large degree on the development of the power sector. Since alternative sources of energy are not readily available in the amounts needed, shortage of power has an immediate impact on virtually all activities of the economy. Indeed, the direct loss of value added to the economy attributed to power shortages has been estimated at about 3% of GDP. 1/ In recent years, energy matters have been receiving top priority consideration in Central and State Government policy planning, and the power sector now takes the largest share of India's public investment resources (12% of the Sixth Five-Year Plan outlay). In spite of this emphasis, demand for power has continued to outstrip supply. Power Supply and Demand - India-Wide 28. In the 1950s and 1960s, installed capacity and power generation managed to keep pace with the nation's demand for power, both growing at an average annual rate of 10-12%. Since 1970, the situation has deteriorated: delays in commissioning new power projects, operating and maintenance problems, and insufficient investment under severe budget constraints have led to a critical situation in which demand for power consistently outstrips supply. This situation was exacerbated by below-average monsoon rains (particularly in the early 1970s and in 1979) which affected hydro-electric power generation, and an unstable coal supply caused by disruptions in coal mining and transport, as well as the poor quality of the coal itself. Between 1970/71 and 1974/75, growth in power generation averaged only 5% annually. The situation improved considerably over the period 1975/76 through 1979/80, with growth in both generation and capacity averaging 7-9% annually. This improvement was brought about as the result of successive good monsoons in 1975/76 and 1976/77, improved coal supply, and a concerted effort to improve project implementation, thermal capacity utilization and overall power system management. In 1979/80, however, generation increased by only about 2% in spite of a 7% increase in capacity, due mainly to lower hydro plant availability than normal and longer periods required for commissioning new plants. Data for 1980/81 indicate an increase of about 6.5% over the previous year for both power generation and capacity. Power shortages have persisted in many parts of the country, particularly in the Eastern Region. Total installed generating capacity as of March 1981 was about 33,000 MW, including non-utility plant. Of this total generating capacity, about 62% was conventional thermal, 36% hydro, and the 2% balance nuclear. Although additional new utility generating capacity of 1/ India: Economic Issues in the Power Sector (World Bank Report No IN, April 1979).

16 -10- about 3,212 MW is expected to be commissioned in 1981/82, power shortages will continue. 29. Industry consumes about 60% of all electricity sold, while agriculture (mainly irrigation) accounts for another 17%, and domestic use for only about 11%. As a result of accelerated agricultural development programs, there has been a marked growth of power consumption in the rural areas where more than 80% of India's population live. The number of electrified villages, for example, grew from just over 3,000 in 1950/51 to some 263,000, or about 46% of all the villages in India, by January CEA projections indicate that during the ten-year period 1980/ /90, new utility generating capacity will grow at an annual rate of just under 11% to total some 79,000 MW, of which about 46,000 MW (58%) would be thermal, 31,000 MW (40%) hydro and 1,800 MW (2%) nuclear. The construction of an additional 15,000 km of 400 kv transmission is planned for this period to distribute the power output through integrated grid transmission systems, Power Supply and Demand - Southern Region 30. The Southern Region comprises the States of Andhra Pradesh, Karnataka, Kerala and Tamil Nadu. These States, together with the Union Territory of Pondicherry, will be served by the proposed project. The total installed capacity in the region as of March 1981 was about 7,650 MW, of which about 37% was thermal and 63% hydro. Andhra Pradesh is the only State in the region with greater than 50% thermal capacity; Karnataka and Kerala have solely hydro. While installed capacity grew at about 6.5% per annum in the period , available capacity at peak grew at a rate of about 7.5% per annum, indicating a significant improvement in power availability. 1/ Unconstrained peak demand in the Region is expected to grow at about 9% per annum until 1990, whereas the rate of growth of installed capacity is estimated at about 10.5% per annum. As a result, the present estimated overall capacity shortage of about 6% of potential demand will be reduced to 2-3% in the late 1980s, and almost eliminated by 1990, provided the ambitious investment program can be adhered to. Despite this encouraging prediction, the supply/demand situation in the region will be precariously balanced. The addition of the proposed project's 1,500 MW by 1989, representing about 13% of regional peak demand, may make the difference between balance and shortage toward the end of the decade 1/ 'Installed capacity' in reference to a power generating unit is the manufacturer's rating of the unit, usually specified in KW. This rating indicates the rate at which the generator will produce electricity under certain specified conditions. 'Available capacity' is the actual rate at which electricity can be generated, taking into account electricity required for scheduled maintenance and the generation process itself, for example, for fuel pumps and other auxiliary purposes.

17 -1 1- Sector Institutions 31. The institutional strtucture of the Indian power sector is complex. Under the Indian Constitution, the responsibility for supplying power is shared between the Central Government and the State Governments, and full agreement between the Center and the States is required for the implementation of most actions. With the rapid expansion of the power sector, there has been an increasing need to coordinate the activities in the power industry beyond State boundaries, and various agencies have been established with a view to promoting integrated power development in the country. The principal agencies in the sector are: (i) the State Electricity Boards (SEBs); (ii) the Regional Electricity Boards (REBs); (iii) the Central Electricity Authority (CEA); (iv) the two Central power corporations - the National Thermal Power Corporation (NTPC) and the National Hydro Power Corporation (NHPC); and (v) the Rural Electrification Corporation (REC). 32. State and Regional Electricity Boards (SEBs and REBs). The SEBs were established by the State Governments under the Electricity (Supply) Act, Their major task at the time of establishment was to bring together the small, privately-owned power plants and facilities within their respective States. The SEBs continue to promote the coordinated development of the generation, supply and distribution of power within their respective States and to control and regulate other power supply undertakings which are private licensees. At the present time, the States own or control over 90% of India's electricity supply facilities. While the SEBs are corporate entities in their own right and enjoy basic autonomy in the management of their day-to-day operations, they are under the effective control of their State Governments in such policy matters as capital investment, finance, tariff changes and personnel. As a means of improving collaboration between the SEBs and establishing power systems on a broader regional basis, four Regional Electricity Boards were established between 1964 and 1966 to help develop integrated power systems in their respective regions, and thus prepare for the transition from separate power systems at State level to regional systems and finally to an interconnected national grid. The chairmanship of each REB is assumed in rotation by the Chairman of the SEBs in the region, and the REBs are staffed by engineers seconded from the constituent SEBs. At present, the REBs function in an advisory capacity for coordination of maintenance programs, generation schedules, interstate power transfer and pricing. The potential role of the REBs in the light of the progressive integration of Indian power sector operations is being reviewed by the Government of India. 33. Central Electricity Authority (CEA). The CEA was set up in 1950 to be responsible for developing a national policy for power development, and to coordinate the activities of the various planning agencies involved in electricity supply. As a result of the amendments to the general provisions of the Electricity (Supply) Act, which became effective in November 1976, the scope of the CEA's functions was expanded. In addition to the general responsibility outlined above, CEA was made responsible for the formation of power development plans, optimization of investments in the power sector, training of personnel, interconnected system operations, and research and development. The SEBs are required to submit their

18 -12- investment proposals to the CEA for technical and economic appraisal. With the rapid growth of the power sector, greater emphasis is now being placed on regional planning, with the ultimate objective of developing an integrated national planning system. 34. National Thermal Power Corporation (NTPC) and National Hydro Power Corporation (NHPC). In order to cope with the persistent inadequacy of power supply to meet the growing demand, GOI has undertaken to supplement the efforts of the States by constructing large-scale, Centrally-owned thermal power stations at coal fields and hydro stations in four regions, as well as associated high-voltage transmission lines - a step to interconnect the systems beyond State boundaries. This would lead ultimately to an integrated national power grid. Accordingly, the National Thermal Power Corporation and the National Hydro Power Corporation were established in November 1975 under the Companies Act, 1956, as public corporations wholly owned by GOI, with authority to design, construct, own and operate generating and associated transmission facilities and supply power in bulk to the States. The Centrally-owned generating stations, including the Ramagundam plant, are designed to supplement the States' activities and add new power generation capacity effectively within the shortest period of time. These stations will be integrated in the national power system and will initially supply bulk power to the States within the regions in which they are located. 35. Rural Electrification Corporation (REC). To help SEBs undertake the task of rural electrification, the REC was established in 1969 under the Companies Act, 1956, as a public corporation wholly owned by GOI. Its main institutional objective is to finance rural electrification schemes prepared by SEBs throughout India, functioning as a financial intermediary with technical expertise, and ensuring the efficient on-lending of funds drawn primarily from GOI. In undertaking the task, REC is directed to coordinate its lending operations with the activities of other agencies, such as the Agricultural Refinance and Development Corporation (ARDC), which provide financing for rural development. Although the amount of REC financial support is small in relation to total SEB operations in the power sector, REC today finances more than half of total rural electrification expenditures, and supervises schemes accounting for about 70% of the total expenditures. Bank Group Operations in the Power Sector 36. Since 1954, the Bank has made ten loans to India for power projects amounting to US$358.5 million and IDA fifteen credits totalling US$2,096 million. Of these amounts, US$1,820 million is for generating plant; US$23 million for construction equipment for the Beas hydro-electric project; US$380 million for the provision of high voltage transmission; and US$232 million for the support of rural electrification schemes. Fourteen loans and credits have been completed: nine for generating plant, the Beas Project, the first three Power Transmission Projects, and the First Rural Electrification Project. The Fourth Power Transmission (Credit 604-IN of January 1976), First Singrauli (Credit 685-IN of April 1977), First Korba (Credit 793-IN of May 1978), Third Trombay (Loan 1549-IN of June 1978), and First Ramagundam (Credit 874-IN and Loan 1648-IN of February 1979) Thermal Power Projects, and the Second

19 -13- Rural Electrification Project (Credit 911-IN of June 1979), are in an advanced stage of implementation. The credit for the Second Singrauli Thermal Power Project (Credit 1027-IN) and the credit/loan for the first stage of the Farakka Thermal Power Project (Credit 1053-IN and Loan 1887-IN) were approved in May and June 1980, respectively. The credit for the second stage of the Korba Thermal Power Project was approved in July A Third Rural Electrification Project has been appraised and is currently being processed. The First and Second Singrauli, First Korba, and Trombay projects are on schedule. The Farakka and Ramagundam projects and the Fourth Power Transmission Project are proceeding satisfactorily after initial delays. 37. A project performance audit was conducted in 1980 for the Second Power Transmission Project (Credit 242-IN). The project was considered to have been successful in assisting the nine beneficiary SEBs in extending their transmission systems to help meet their growing power requirements. Utilization of generating capacity in these SEBs exceeded the appraisal forecast. Institutional objectives mainly concerned the rehabilitation of the finances of the SEBs, and this improvement effort is continuing under subsequent projects. In 1979/80, seven of the nine SEBs reached their target rate of return of 9.5%. The audit also highlighted the difficulties of adequately supervising a project of this nature which consisted of many wide-scattered sub-projects, and the absence of a close working relationship between the Bank Group and the beneficiary SEBs, which complicated the process of effecting institutional improvements. With the assumption of increased responsibilities by the CEA in the power sector, a considerably more effective relationship with the SEBs is envisaged. Bank Group Strategy in the Power Sector 38. The Bank Group has had a continuing dialogue with the Government in seeking solutions to a number of complex and politically sensitive problems which have confronted the Indian electricity supply industry since Independence. The sensitivity of Center-State relations and the political constraints arising from the fact that electricity supply is within the concurrent jurisdiction of the Central and State Governments (para. 31) have dictated a policy of seeking progress through cooperation. More specifically, the Bank Group's main objectives in its lending operations in the Indian power sector are: (a) accelerating the installation of generating and transmission capacity to eliminate power shortages and promoting measures to improve the technical levels of operation and maintenance of existing plant; (b) fostering development of comprehensive long-range regional and national system plans which would assure implementation of a least-cost power development program; (c) strengthening of key sector institutions, their organization, and training capabilities; and (d) strengthening of the finances of the institutions involved in the sector, particularly of the SEBs. 39. Some noteworthy results have been achieved, which include: (a) the establishment of the REBs and later of the Centrally-owned power companies (NTPC and NHPC), which mark the first important steps towards nationwide power operation; (b) amendment of the Electricity (Supply) Act in 1976, to strengthen the role of the CEA; (c) amendments to the financial provisions

20 -14- of the Electricity (Supply) Act, 1948, which provide for the development of SEBs on a more commercial basis, with the objective of financing from internal sources a reasonable proportion of their investments; (d) implementation of action plans by a number of SEBs, which were designed to improve their financial performance through tariff increases, rationalization of manpower requirements, improved maintenance management, and the introduction of other cost-effective measures; (e) tariff studies by a number of SEBs with a view to reassessing tariff policies; (f) satisfactory progress of NTPC's generation/transmission construction program with Bank Group assistance; and (g) establishment of the Committee on Power to review all aspects of the power sector (para. 42). 40. Considerable progress has been made in the sector in the recent past, particularly over the last 2-3 years, and more is projected for the medium term. Thermal generation increased by about 15% during the period October 1980-March 1981 as compared to the same period of the previous year, while installed capacity increased by only 6.5%, indicating improved capacity utilization. Energy shortages dropped from about 16% of demand in 1979/80 to an estimated 10% in 1981/82. Hydro power capacity, which has typically accounted for about 38% of total installed capacity, is expected to grow from about 11,800 MW in 1980/81 to 31,200 MW in 1989/90. This, too, will be a comnmendable achievement in view of the heavy initial investments and long gestation periods for hydro development. Central Government involvement in the power sector has also increased and now represents about 12% of installed capacity; it is projected to grow to 16% by 1984/85 and to 26% by 1989/90. The Central Government share in high-voltage transmission is projected to rise from nil at present to 56% and 62% by 1984/85 and 1989/90, respectively. In view of the success to date of the Central Government (especially NTPC) in implementing projects, sectoral targets appear more likely to be met in the future than they have been in the past. In the financial area, the Government recognizes that reliable feedback on financial performance requires reform of the SEBs' accounting practices, and steps to introduce a standardized system of commercial accounting are now underway. Further improvements will also necessitate an entirely new approach to financial management by the SEBs, including the establishment of new financial objectives and policies for their implementation, and on the evolution of a clear tariff policy. 41. Two areas of specific concern to the Bank Group in the past have been the lack of a nationwide long-range plan for power development, and the weak financial position of some SEBs. With regard to the first of these, a long-range national power development study designed to prepare a least-cost power development program is now underway and is scheduled to be completed by April The status of progress of this study was reviewed during the course of negotiations for this project and was found satisfactory. GOI is confident that the study will be completed by the scheduled date. With regard to the financial performance of the SEBs, there has been considerable improvement in the overall performance during 1978/79 and 1979/80 (para. 61). GOI is keen to maintain the rehabilitation effort and further improve performance through the introduction of financial policies that would enable the SEBs to operate more along commercial lines and enhance their self-financing capability. Improved

21 -15- monitoring systems for measuring both the technical and financial performance of the sector in a more comprehensive and consolidated manner are being developed by GOI and NTPC, and the introduction of these was also discussed during project negotiations. Beginning with fiscal year 1981/82, GOI will provide to the Bank annual reports on these aspects of power sector performance. 42. In 1978 the Indian authorities recognized that all aspects of the sector needed to be reviewed in depth and that satisfactory solutions had to be found for outstanding sector development problems. Consequently, GO established in November 1978 a Committee on Power whose purpose was to examine all aspects of the power industry and make recommendations for improvements. The Committee completed its task and submitted its conclusions to GOI in September These conclusions refer to all major aspects of the power sector - power planning, project formulation and implementation, operation and maintenance, organization and management, finance, financial management and tariffs, rural electrification, and research and development. Implementation of some of the Committee's recommendations is already underway: for example, better planning procedures and improved operations and maintenance management, such as plant breakdown procedure and spare parts procurement. However, other important measures require due deliberation by GOI and the State Governments and their joint agreement before they can be implemented. These measures include sector development, organizational structure, and sector finances. 43. The Bank considers that there are a number of areas in which actions to accelerate improvement are of particularly high priority. These include: (a) improving the performance of thermal power plants; (b) coordinating power development with the development of other sectors of the economy; (c) intensifying hydro-electric power development; (d) strengthening the role of the Central sector in power generation and transmission; and (e) establishing appropriate financial objectives and policies. The concern of the Bank Group in these areas is also reflected in the recommendations of the Committee on Power. In view of the importance of achieving improvements in these high-priority areas for the successful long-term development of the power sector, GOI and the Association reached an understanding during negotiations for the Second Korba Thermal Power Project on the need for an implementation plan and schedule outlining the steps to be taken in each of the areas towards meeting this objective. Such a plan and schedule is currently in preparation by GOI and is expected to be completed by April 1982, to coincide with the completion of the national power development study (para. 41). Suggested items for inclusion in the plan were reviewed and discussed during negotiations for the proposed project; these items had been identified earlier from the Bank's own review of power sector improvement needs. In addition, early implementation of improvements to the financial operations and performance of the SEBs is being discussed in the context of the processing of a proposed Third Rural Electrification Project, for which the SEBs, under the general supervision of the REC, are the implementing agencies.

22 -16- PART IV - THE PROJECT 44. The project was appraised in January/February A Staff Appraisal Report is being distributed separately to the Executive Directors. Negotiations were held in Washington in November GOI and NTPC were represented by a delegation with Mr. S. C. Jain as coordinator. A Supplementary Project Data Sheet is attached as Annex III. Project Description 45. The proposed project represents the second stage of the development of the Ramagundam thermal power station in the State of Andhra Pradesh. The first stage, financed in part under the first Ramagundam Thermal Power Project (Loan 1648-IN and Credit 874-IN), and consisting of three 200 MW generating units and associated transmission facilities, is presently under construction with commissioning of the three units scheduled at six-month intervals between February 1, 1984 and February 1, The second stage, comprising three 500 MW units, ancillary equipment and related works, together with about 1,400 km of 400 kv transmission lines, will bring the power plant to its final installed capacity of 2,100 MW by September The first 500 MW unit is expected to be commissioned by September 1, 1987, with the commissioning of the remaining two 500 MW units following at one-year intervals. Bulk power generated by the plant will be conveyed to SEBs in Andhra Pradesh, Karnataka, Kerala, and Tamil Nadu, and the Electricity Departments of the Union Territories of Goa and Pondicherry. The principal components of the project include: civil works; three 500 MW turbo-generator units and three boilers, complete with all auxiliaries; ancillary electrical and mechanical equipment; coal handling and transportation equipment; about 1,400 km of 400 kv transmission lines; and technical assistance. The project also provides for the purchase of a small airplane to be used for supervisory missions of NTPC's power plants across the country; this item will be financed from GOI's own (non-bank) resources. 46. In the interests of spreading the proposed loan commitment for this project over a period of years, consideration was given during and subsequent to project appraisal to the possibility of segmenting the proposed project into smaller sub-projects, which would enable the loan to be made as separate tranches. This approach was discussed extensively within the Bank and with GOI. However, both the Bank and GOI concluded that for a number of reasons, the approach would be impractical. First, the project includes, in addition to the turbo-generators, a number of components such as the water treatment and cooling water plants and the coal handling equipment that are essential to the efficietil operation of the entire plant, and not just the individual turbo-generator units. These components do not lend themselves conveniently to any form of segmentation or phased implementation, since they need to be available as soon as the first of the turbo-generators becomes operational. Second, the procurement of the three turbo-generators under a single contract results in a more favorable unit price than would be obtained if they were procured separately. Third, acquisition of the turbo-generators on an individual basis, possibly from different manufacturers, introduces the risk of compatibility problems, which could affect plant operations and

23 -17- maintenance, spare parts provision, and the training of operations and maintenance personnel. For these reasons, the Bank considered that the presentation of a single project of the scope originally proposed would provide the most efficient solution to meet the project's objectives. Project Implementation 47. The National Thermal Power Corporation will implement the project as part of its ongoing power development program. NTPC has a Board of Directors, which presently consists of six members, some of whom are part time. A new Chairman and Managing Director has recently been appointed, and he is expected to continue the good progress achieved under the previous chairmanship in building up NTPC's organization and manpower. As a growing organization, NTPC places special importance on the training of engineers, supervisors and operating staff as well as managerial and administrative staff, and is implementing an acceptable training program covering spheres of activity such as planning, design, construction and operations start-up. 48. The project comprises a number of major works which must be carefully coordinated to ensure efficient progress. NTPC has prepared a master plan for project implementation and preparatory civil works have already begun at the plant site. The detailed engineering and design work carried out for the ongoing Bank Group-assisted thermal power projects, comprising 200 MW and 500 MW units, is also applicable to the proposed project. In the course of its involvement with thermal power plant construction, NTPC has acquired considerable expertise in the design and engineering of 200 MW thermal power units, fifteen of which are under construction by NTPC at this time. This expertise will also be relevant for the proposed project, since technical problems posed by 500 MW units are similar to those associated with 200 MW units. NTPC has also developed comprehensive project management systems which provide for efficient program coordination and supervision of power station construction. Consultants financed under the First Ramagundam Thermal Power Project (Credit 874-IN and Loan 1648-IN) have been appointed to review these systems and their initial implementation. The review was begun in January 1981 and is expected to be completed before the end of the year. The basic engineering and design work for the project will be carried out by local engineering staff. However, consultants with broad experience in major construction programs of this nature will be appointed to review these aspects of the project, and provide assistance in the more complex design areas (Section 2.02 of the Project Agreement). The engineering consultancy requirements for these activities are estimated at about 90 man-months, costing approximately US$1.2 million. Supervisory services for erection and commissioning of the main equipment, such as turbo-alternator units and steam generators, will be provided by the manufacturers of the equipment. 49. The Ramagundam development is being constructed in the Karimnagar district of Andhra Pradesh, in the vicinity of the Godavari coalfields. Coal for the plant will be provided by the South Godavari field adjacent to the plant. Extractable reserves of coal from this field would be sufficient to cover the coal consumption capacity of a 2,100 MW power plant for about 50 years. The coal requirements for the Ramagundam plant will amount to about 6.4 million tons annually at full development in

24 /93. The thirteen mines in the South Godavari field that will provide coal for the plant are expected to achieve an output of about 7.5 million tons by 1988/89. As with previous Bank Group-assisted thermal power plant development in India, the Government will take all necessary steps to ensure that adequate coal supplies for the final installed capacity of the plant are available (Section 3.03 of the Loan Agreement). No problem is foreseen with regard to the availability of adequate quantities for the proposed station. Transportation of coal from the mines to the station would be handled by a 'merry-go-round' railway system constructed as part of the first-stage project. Cooling water arrangements are adequate. 50. In line with NTPC's other Bank Group-assisted thermal power projects, GOI intends to allocate at least 85% of the power output of the proposed project to the States in the region in which the project is located; the remaining 15% would be sold in accordance with priorities to be determined by CEA to States with the greatest need. Accordingly, GOI has obtained undertakings from the recipient Southern Region SEBs in the States of Andhra Pradesh, Karnataka and Tamil Nadu, duly endorsed by their State Governments, to purchase at least 85% of the output from the final installed capacity of the Ramagundam plant. Similar undertakings from the Kerala SEB and the Electricity Department of the Union Territory of Pondicherry will be made available shortly. 51. As in previous Bank Group lending operations, NTPC has undertaken to sell at least 85% of the project's output of power under bulk supply contracts with terms and conditions satisfactory to the Bank (Section 3.05 of the Project Agreement). NTPC intends to complete all the necessary commercial arrangements prior to the sale of energy from each power station. Accordingly, NTPC will provide to the Bank a final draft of the bulk supply contract for the sale of energy from the Ramagundam station by August 1, 1983, about six months before the first sales from that station are made. The final draft contract in respect of the Singrauli station, which is due to be commissioned in February 1982, was provided to the Bank in September The document was reviewed in detail during project negotiations and was found satisfactory. 52. Adequate measures will be taken to minimize potential adverse ecological effects of the project in accordance with environmental quality standards prescribed by the National Committee on Environmental Planning and Coordination (Section 2.09 of the Project Agreement), which have been reviewed and are acceptable. The measures include stack emission control by electrostatic precipitators, appropriate ash disposal, and effluent neutralization and discharge facilities. The approval of the Committee for the final installed capacity of 2,100 MW has been obtained, and appropriate occupational safety standards will be strictly enforced. Project Costs and Financing 53. The total cost of the total 2,100 MW Ramagundam power station development program, including associated transmission facilities, duties and taxes, and interest during construction, is estimated at US$2.5 billion. The project cost, including contingencies but excluding about US$154 million equivalent in taxes and duties, is estimated at US$1,414 million equivalent, of which about US$489 million (35%) represents the

25 -19- foreign exchange costs. Interest during construction adds about US$83 million to the financing required. The proposed loan of US$300 million would finance about 21% of the total project costs net of taxes and duties, or about 61% of the total foreign exchange cost of US$489 million. The Federal Republic of Germany intends to provide about US$150 million equivalent towards financing the three 500 MW turbo-generator units and associated equipment. The OPEC Fund is also expected to provide about US$30 million of the project financing. These amounts together would finance about 37% of the foreign exchange costs, or about 13% of the total project costs net of taxes and duties. The balance of the funds required, aggregating about US$1,170 million equivalent (including about US$9 million in foreign exchange and about US$83 million interest during construction), would be provided by GOI in the form of loans and equity share capital. However, GOI has agreed to ensure that NTPC is provided with the required resources to complete the project in the event that the foreign loans fail to materialize. 54. The proposed Bank loan would be made to GOI, which would onlend it to NTPC under a subsidiary loan agreement to be entered into between GOI and NTPC. Execution of the subsidiary loan agreement will be a condition of effectiveness for the loan (Section 6.01(b) of the Loan Agreement). The funds will be channelled through GOI to NTPC at an interest rate of 11.75% per annum with repayment over 20 years, including five years' grace. This interest rate is the standard rate currently used by GOI in lending to industrial and commercial undertakings in the public sector. The exchange risk will be borne by the Government. Inflation in India over the past five years has averaged less than 8% per annum. The average annual inflation rate over the next five years is not expected to exceed 8%. The onlending rate of 11.75% per annum to NTPC would therefore be positive in real terms. Procurement and Disbursement 55. All equipment financed under the proposed loan will be procured through international competitive bidding in accordance with the Bank's guidelines. Indian manufacturers competing under international competitive bidding will be granted a preference margin of 15% or the current rate of import duty, whichever is less. It is expected that local manufacturers of equipment and machinery will submit the lowest bids for most of the items financed under the loan. All work not financed from the proposed loan or from the expected loans from the Federal Republic of Germany and the OPEC Fund will be subject to NTPC's procurement procedures, which are satisfactory. The 500 MW turbines and generators will be built by an Indian company, Bharat Heavy Electricals Ltd. (BHEL) under license from Kraftwerk Union (KWU) of Germary. BHEL will progressively take over the manufacture of these units, although critical components will be manufactured in Germany by KWU. Financing for the components manufactured by KWU would be provided by the Federal Republic of Germany. The proceeds of the loan will be disbursed over a six-year period (FY ) against 100% of the c.i.f. or ex-factory cost of equipment items (boilers and auxiliaries; electrical, mechanical, and transmission equipment) and 100% of the cost of technical advisory services by consultants.

26 NTPC Finances 56. NTPC is currently in the sixth year of an investment program in which it expects to construct and coission four large-scale thermal power stations with an aggregate generating capacity of 8,300 MW (three 2,100 MW stations -- at Ramagundam in Andhra Pradesh, at Korba in Madhya Pradesh, and at Farakka in West Bengal -- together with one 2,000 MW station at Singrauli in Uttar Pradesh). In addition, about 7,000 km of 400 kv transmission lines are slated for construction. The Government's investment in this development has undergone continuous review during the past five years. As a result, the original investment program, which was designed to provide a generating capacity of 7,300 MW and about 6,000 km of 400 kv transmission lines, has been extended by three years through 1990/91 and increased by about US$3,246 million to about US$8,371 million equivalent. This increase will finance an additional 1,000 MW (two 500 MW units) of generating capacity at Farakka, additional transmission facilities at Singrauli, Ramagundam and Farakka, the rescheduling of commissioning dates for individual generating plants, and expected increases in equipment costs. Finance for the increased investment program will come from NTPC's increased internal resources accruing during the three-year period of the extended construction program, and from GOI in the form of long-term loans and equity share capital. 57. NTPC is expected to commence comercial operations in February 1982 when commissioning of the first 200 MW generating unit under the First Singrauli project (Credit 685-IN) is scheduled. NTPC's earnings have been projected on the assumption of a bulk supply tariff sufficient to achieve a 9.5% rate of return on net fixed assets. This was agreed under previous lending operations and is to be achieved from 1990/91, when NTPC's sales are forecast to reach about 90% of the projected total output of the four thermal power plants. Furthermore, NTPC has agreed to fix the average bulk supply tariff from the conrmencement of its commercial operations at the level required to achieve the 9.5% rate of return target in 1990/91 (Section 4.03 of the Project Agreement). This will result in a lower rate of return in the earlier years but, in view of the high initial capital investment in the early stages of NTPC's power development and the time involved in commissioning generating capacity, t:his approach to tariff setting is appropriate. 58. Projected annual revenues for each year from 1981/82 through 1991/92 are based on a forecast 1990/91 average bulk supply price for power of 31.8 paise (US cents 4.0) per kwh, excludin,g fuel surcharge. This price level compares with 29.1 paise (US cents 3.6) per kwh calculated at the last revision of the invest:ment program in March 1980 for the appraisal of the Farakka project (Credit 1053-IN/Loan 1887-IN). Minor losses in 1981/82 and 1982/83 are anticipated, but these are acceptable as part of NTPC's development program. NTPC will become profitable in 1983/84 and, following the rapid commissioning of Dlant from 1983/84 through 1990/91, earnings will rise rapidly to an 11.8% rate of return in 1993/94 when all generating units are operating ful]y. 59. The overall investment cost for the years 1976/77 through 1990/91 is estimated to amount to about US$8,371 million equivalent. The Government will provide funds, through a combination of long-term loans and

27 -21- equity capital, in amounts such that NTPC's debt/equity ratio will not exceed 1:1. As in the case of NTPC's previous Bank Group-assisted thermal power projects, NTPC will inform the Bank of any proposal to modify existing limitations on its borrowing powers prior to its consideration by NTPC's shareholders (Section 3.03 of the Project Agreement). 60. NTPC's capitalization as of March 31, 1982, when NTPC begins to earn revenues, is expected to be about US$1,437 million, divided between GOI loans (including the onlending of Bank Group finance) and equity capital in a ratio of 20/80. In March 1990, after the completion of the proposed project, total capitalization will be about US$7,736 million, with a debt/equity ratio of 45/55. No new debt is forecast after 1989/90 following the commissioning of the last generating unit in the investment program, and this, combined with a significant increase in internal cash generation, will reduce the debt/equity ratio to 42/58 by 1990/91. NTPC's authorized share capital will be raised progressively during this period from a current level of about US$1,875 million to US$4,375 million in 1986/87. Financial Performance of SEBs 61. The Bank Group, under previous lending operations, has sought to improve the financial performance of the SEBs by requiring them to achieve an annual rate of return of 9.5% on net fixed assets. While the financial performance of some SEBs in achieving this rate of return has been marginal in the past, considerable overall improvement has been made in recent years. In 1979/80, 13 SEBs (out of a total of 16 major SEBs) reached or exceeded the target rate of return, compared with 6 in 1977/78. The implementation of action programs designed to restore or maintain the target rates of return has proved effective in most cases. Overall, the SEBs performance in 1980/81 is expected to have been maintained at least at the 1979/80 level. 62. Special attention was given during appraisal to the SEBs of the Southern Region and the Electricity Department of the Union Territory of Pondicherry, the recipients of the Ramagundam power output. Five-year projections through 1984/85 prepared by CEA indicate that the 9.5% rate of return for these SEBs and the Pondicherry Electricity Department should be either maintained or exceeded. Project Justification and Risks 63. The proposed project is justified as the least-cost solution to meet part of the projected base load demand in the Southern Region from 1987/88 onwards. The Ramagundam development offers economies of scale and of relatively low fuel costs due to its location at the coal pithead. Compared to the only practical alternative -- advancing the implementation of smaller coal-fired stations that would be constructed by individual SEBs in the absence of the project -- the proposed project has the lowest present value cost. The economic rate of return of the project, using tariff revenues and quantifiable consumers' surplus as benefit proxies for consumers' willingness to pay for continuous power supply, is 15%. This must be regarded as well below the true economic rate of return on the proposed expansion of power generation capacity, since additional benefits

28 -22- expected from the project but whose quantification is difficult -- for example, the maintenance of industrial, agricultural and commercial output made possible by the reduction in power shortages -- are not included. 64. Project risks are no greater than can normally be expected with operations of this type. A potential risk is the possibility of schedule slippage which could give rise to delays in the commissioning of plant and a consequent loss of revenues. However, NTPC has developed effective project management systems (para. 48) and has sound experience in power station construction. Project implementation progress will be closely monitored and construction carefully coordinated and supervised. Particular attention will be paid to the ability of manufacturers to meet the required delivery schedules. The use of experienced consultants by NTPC should also help minimize engineering and design problems, and the fact that a number of large generating units will have been in operation for some years by the time the project is commissioned should reduce the possibility of operational difficulties during start-up and the early stages of operation. PART V - LEGAL INSTRUMENTS AND AUTHORITY 65. The draft Loan Agreement between India and the Bank, the draft Project Agreement between the Bank and NTPC, and the Recommendation of the Committee provided for in Article III, Section 4(iii) of the Articles of Agreement of the Bank are being distributed to the Executive Directors separately. 66. Special conditions of the project are listed in Section III of Annex III. The execution of the Subsidiary Loan Agreement between India and NTPC has been made an additional condition of loan effectiveness (Section 6.01(b) of the Loan Agreement). 67. I am satisfied that the proposed loan would comply with the Articles of Agreement of the Bank. PART VI - RECOMMENDATION 68. I recommend that the Executive Directors approve the proposed loan. A. W. Clausen President November 3D, 1981

29 TABLE 3A INDIA - SOCIAL INDICATORS DATA SHEET ANNEX I Page 1 of 5 INDIA REFERENCE GROUPS (WEIGHTED AVIRAGES LAND AREA (THOUSAND SQ. KM. ) MOST RECENT ESTIMATE- TOTAL MOST RECENT LOW INCOSE MIDDLE INTOE AGRICULTURAL /b 1970 /b EST1MATE /b ASIA & PACIFIC ASIA & PACIFIC GNP PER CAPITA (US$) ENERGY CONSUMPTION PER CAPITA (KILOGRAMS OF COAL EQUIVALENT) POPULATION AND VITAL STATISTICS POPULATION, MID-YEAR (THOUS.) URBAN POPULATION (PERCENT OF TOTAL) POPULATION PROJECTIONS POPULATION IN YEAR 2000 (MILLIONS) STATIONARY POPULATION (MILLIONS) YEAR STATIONARY POPULATION IS REACHED 2115 POPULATION DENSITY PER SQ. KM PER SQ. KM. AGRICULTURAL LAND POPULATION AGE STRUCTURE (PERCENT) 0-14 YRS YRS YRS. AND ABOVE POPULATION GROWTH RATE (PERCENT) TOTAL URBAN CRUDE BIRTH RATE (PER THOUSAND) CRUDE DEATH RATE (PER THOUSAND) GROSS REPRODUCTION RATE FAMILY PLANNING ACCEPTORS, ANNUAL (THOUSANDS) USERS (PERCENT OF MARRIED WOMEN) FOOD AND NUTRITION INDEX OF FOOD PRODUCTION PER CAPITA ( ) PER CAPITA SUPPLY OF CALORIES (PERCENT OF REQUIREMENTS) PROTEINS (GRAMS PER DAY) OF WHICH ANIMAL AND PULSE CHILD (AGES 1-4) MORTALITY RATE HEALTH LIFE EXPECTANCY AT BIRTH (YEARS) INFANT MORTALITY RATE (PER THOUSAND) ACCESS TO SAFE WATER (PERCENT OF POPULATION) TOTAL URBAN RURAL ACCESS TO EXCRETA DISPOSAL (PERCENT OF POPULATION) TOTAL URBAN,, RURAL POPULATION PER PHYSICLAN /c POPULATION PER NURSING PERSON c POPULATION PER HOSPITAL BED TOTAL /d URBAN RURAL ADMISSIONS PER HOSPITAL BED.... HOUSING AVERAGE SIZE OF HOUSEHOLD TOTAL URBAN RURAL AVERAGE NUMIER OF PERSONS PER ROOM TOTAL URSAN RURAL ACCESS TO ELECTRICITY (PERCENT OF DWELLINGS) TOTAL.... URBAN..... RURAL....

30 TABLE 3A INDIA - SOCIAL INDICATORS DATA SHEET ANNEX I Page 2 of 5 INDIA REFERENCE GROUPS (WEIGHTED AVE AGES - MOST RECENT ESTIMATE)- MOST RECENT LOW INCOME MIDDLE INCOME 1960 /b 1970 /b ESTIMATE /b ASIA & PACIFIC ASIA & PACIFIC EDUCATION ADJUSTED ENROLLMENT RATIOS PRIMARY: TOTAL MALE FEMALE SECONDARY: TOTAL /aa 53.5 MALE / 58.4 FEHALE /aa 48.6 VOCATIONAL ENROL. (1 OF SECONDARY) PUPIL-TEAChER RATIO PRIMARY SECONDARY ADULT LITERACY RATE (PERCENT) CONSUMPTION PASSENGER CARS PER THOUSAND POPULATION RADIO RECEIVERS PER THOUSAND POPULATION TV RECEIVERS PER THOUSAND POPULATION NEWSPAPER ("DAILY GENERAL INTEREST") CIRCULATION PER THOUSAND POPULATION CINEMA ANNUAL ATTENDANCE PER CAPITA LABOR FORCE TOTAL LABOR FORCE (THOUSANDS) FEMALE (PERCENT) AGRICULTURE (PERCENT) INDUSTRY (PERCENT) PARTICIPATION RATE (PERCENT) TOTAL MALE FEMALE ECONOMIC DEPENDENCY RATIO INCOME DISTRIBUITION PERCENT OF PRIVATE INCOME RECEIVED BY highest 5 PERCENT OF HOUSEHOLDS /e 22.2 HIGHEST 20 PERCENT OF HOUSEHOLDS /e 49.4 LOWEST 20 PERCENT OF HOUSEHOLDS e 7.0 LOWEST 40 PERCENT OF HOUSEHOLDS e 16.2 POVERTY TARGET GROUPS ESTIMATED ABSOLUTE POVERTY INCOME LEVEL (US$ PEE CAPITA) URBAN RURAL ESTIMATED RELATIVE POVERTY INCOME LEVEL (US PER CAPITA) URBAN RURAL ESTIMATED POPULATION BELOW ABSOLUTE POVERTY INCOME LEVEL (PERCENT) URBAN RURAL Not available Not applicable. NOTES /a The group averages for each indicator are population-weighted arithmetic means. Coverage of countries an-ofg the indicators depends on availability of data and is not uniform. faa China incladed in total only. /b Unless otherwise noted, data for 1960 refer to any year betweer 1959 and 1961; for 1970, between 1969 and 1971; and for Most Recent Estimate, betwee and Ic 1962; /d 1958; /e May, 1981

31 OEFINIT IONS OP SOCIA CCTI ANNEX I Page 3 of 5 Notes: Although the data ate drawn troe Io'tle.generally judged the roaauhrial e cliable, it hbowid fet be noted than Ottey way ot be ittetnat tonally coaprable h.ca.ee of the ako atanardeeddftinit... a. ooet sd by dlffysuth te ite I.Ianleottg the data. The dat at,noe mcttrtoh rue r 1 the sueotnoy grop of cha euhb ar -ounty awd (2ll...a..try stou with eshat high.en co-tge iwns than the country.. of the tujouutr:otp ft'aca Sur:Iplus Oill Ewport-et droop oh-t 'Mitddla I-nt North Afrioa and Midetc" hsn I eas fsrne rp plhuchd., d.rncltit erocplolithcoolcoar, odton. PpottonItha Anrdcultura naoe ia ofi sodyr hrecalyee hosllad -' Edct farcitnl eprrl o rnno yaa a dat genra.cd o to coa,mcoes aro AlIIictogudeoutotnfle,ctIta patftsuo,ttt1s to ce et -ilnsntiploanetlyatafa and p h.l rltdbwae cn-rto srhdon.o...naato nel 11, n sadna catt no ia pbesaenl -P tafe byi a physicfr(u byda 101 ud10.o.. IedOca- assatodt, nuoa. s-d-nife ott.f abi..otter.tnpatotnneo andzilintb -anoh.oa- oriw, ooo a t ydc,co a alc--androts] oepi _1-dlana onruts1 hospitals and e ita ad. l haerlty Pros basriolafdroldbdbyhthe noset of beda PIPTIaf Idol I. IR_TISTiCS Asof ;gfil 197yd,nod Totl PpultIo, Id-rottlonans ub lt79 go-ltitti, -1I tt h pt Poualo nsor201-bod tcatn roevco r undo 11 ero erneyn ostoaloro.en ua ocpedcneo oo asongrouninlet; Poenlanlon , ypnitctlorr and hoerassnoeber tho household of HI.pter1awe fini 19)9 data. etat960t197toal.duo9o9ee. ra tws-ntl uraniad url- oeag 0 ioto pouakoi yorln.etolgof ctalyed orlvynnnidflita esetnly tsllaecid o-prnen totoe n d.- to aoeer oortlocveca mn ter_t acuudpta Insli Irh 0 Icrna npctacyor ogric ronny po cylt lcow Ices 1 hleotric le Irarvene of dolh na)- on uba, n tta feawatt T- nr fr eriit-y.rain- olso.. la'einhree A 1a 60l 1e970ng dcild tn9 Hof lt rbn n orldel oarap ey Strt -ryipo- cln ,- n0 et 9tnu9 pouaio, hrei rnr clov. h..r soel f- ttl saeao asl Coe oal ae o oottonotat. hu o ahieedonl afyr rrrltn ono..on too.i. no risr coo -t popuonont,nroll -nned1 childre ag. dh-il nect level. Oduoallonroqtlrto ut boot loot yearn ofy.upprocodpprioouty i...rtoifod; Lea oonontovoultitoittrli-~ -Th yurohn ta tnoy oplo to Iocor gnnoo ccolool. r ea-o ealfoiouv 0r000Ioh,pl orl; 16d 1970l an-d. 191 dota.ctorc-oreolovlntwo r -i-i i_ l, eodr d]tort nodi Pouolh othmt(eoet -oe]-pouirnv aetn ot]rd too...cetof of- onnu othc op ouoo -y000ai ne 1.50-hf, Thantoct'for -_0ijuvd i I Poonotat(otcooo nua Oor:r cwwrdo hact odyow nv0 lhtst youafo GrPh.uo(e..r.-.a-nna 000 arto chrprt trtdn pre 010th Inerohoce Id) tna Iehnh e hoooo of 0yourcor -evv Idr o 090poot rvoo htovtdhaoon poyclanlon; fool, loll, nod 1079 data, onfrlolno.~~~~~~~~~~~p. all Itary ihtan)-bool ado aaoroiorhth. Cdo0thhv(per el priono--o ldyo orlroo 01rce frrnoeofr uu ppailoch: E191. lo no hl 010 at IcooodconnalpulIhpr honpdpf op,jcoc;00 bd o 00P: -otttodcrooiad-oeaancceofdutth lpannrvecr froocro 1od CooooP-detttnttonfodv lr rano Iv lhul oe 19 hi atn t-otahfly foeya oogsedc nlol 90 n 99 00ooore tolle unot PoloIwnn-orpoo.owltbuade-.oaluYtcacpoo Teoienoeto1v2 conlo)t rooet obnoott ofhlrhrorrl nnyro ecoe o oda fnt latig rnoo. rerl rouoo tpuavco orido17b ooedtbevtfe tn 1970at -nno 1979 tro- ocv-tioco dll gifo olre -teteryec roe nprolu _1-d - Ib.v.olocvccOrolfposoll - c_p-bd o eoefnf-voalcno I loo-dot fil 00 StItIIO.f.t.apoo to9bedolly leas ist fou bcenwi prdoro o l fodi ydtt.yootoaclda d edadfa nictooe wldll dil- tb er nldngaotln o000-r le 0P a19eag yrdo,pro97gbi 91-O 01,dand91979fob. Tovo Lahogn PonceOrlooohs l p-...olelyacot oton Ovodn Per caiarnl folcloiovo freonnot Opuo our too -odio.. o_deno 0. rsuedhorondoeyoo bocoy lo peeda.p nlahetoy uoio-on d19t60l prducion laocr lowo- not. Mr-aabl- 19Al97lo OO ao warn "tsr-ar- b- 0 Pl huwe on_yllgoloowfrnro vo-ieiga oonneo os abrfre 91 90ad17 oa Iowtol rol;195ia"171 Ind190dano 19100ond-9791d79u alloconro gpaen ofroyal ofhi proleo per day ad 20 gowno f uno..n. In06.lll', p-d 1979dat.dTh t re booed. on b pu -,d TcV yoa roeo ofidb-, ghir (10 g4oy_nvo -h. be- anis proel. h-e - -hoeotod relo oaeaneurc trol atn,adln toted tnenodjtotf eoalarvoolonnlooooon uteoeoerlnnot t5taeonla etea ponl o fr h ocnedbyp0 Pcono g den a oaog wrl. o beihi Y_lr-. h.r. ofpooloo-o- e 1 ad 5on co Pvnedorta. Ifnolofod Iro I al..lt.1o nod. 007 Pa. of ho..on...dk. halt I _p,_y.. d.. PO~~~di l,kic10011 blipgsdi i_ ari.. birh; ood. dovo -,h; 910 LL- andd199 olcobdbe d nterretd ool r i-11yabpvo p of q ISe-pe tiusod110 lrh. holn oooy non rcti tn tcerlco oo bch0odta tosf Iuerlaco o"if c_oyoal oditar dorplte_efia.o_fodroe _ trsnld f o -tl,uran no PIoa otto- Ioo bp o y _lo(otl. oh aol_ reel... ouent blaofennwff ofo_dbir roneldondrohetug ithtorooworaho oonso o thurboon.inb rlorweeonldpplv OrIo Abooe croinoono -- Leon~ boetoe I ':."IbloocoooolAOrld.otbhfneofcoonoroly _lcehllonruac Ponheon ofccolonloob-of--tdnow197ooo"ahtololo. doencrocr ofo,,0boog doooncnooocd y h and by nonto-ooneo ounor-hoone wyneono 00 Ibodecof~pb- y19vocoo0ad fdl t1979n nddoril b. "It ioon(0co f 60 -A ~~~~~~~~~~~~~~~~~~f b.1 (ol nd rcioo2c qoolfledfpnea tedoul r.o.or "lloerotly lanel. I - lr InsbePFA onn Peo -Ppooio tlddb phwothiord Pooo-oipnd of t.uleiodftouletpudo9ontno9r7w-ot. yoavrlrinloopopale,-urddoottoudt65ocdwit.

32 Annex I Page 4 of 5 ECONO(MIC DEVELOPHENT DATA GNP PER CAPITA IN 1979 US$190 GROSS NATIONAL PRODUCT IN 1979/80 / ANNUAL RATE OF GRNLTH (7., constant Prices) v US$ BID / / / / / / /79 GNP at Market Prices Gross Domestic I-vestment Gross National Saving Current Account Ba1a..e A/ OUTPUT. LABOR FORCE AND PRODUCTIVITY IN 1978 Value Added (at factor cost) Labor Force V.A. Per Worker US$ Bln. 7. Mil. 7. US 7. of National Avercae Agriculture Industry Services Tot.l/v-ra.g GOVERNMENT FINANCE General Government Central Governrnt Re. Bln. 7. of GDP Ns of GDP 1979/8O 1979/ / / /NO 1975/ Current Receipt Current Expenditures Current Surplus/Deficit Capital E.penditures f/ Ettern.1 Assistance (net) d/ MONEY. CREIT AND PRICES 1970/ / / / /77 L /79 1i79/80 Deember 1979 Decembr 1960 (R. Billion outstnding at end of period) M.oney and Quasi.on.y Bark Credit to Government (net) Bank Credit to Cercial Sector , (PercentaRe or Index Numbers) Aeril-D"c 1979 April-De 190 Money and Quas.i Money as 7. of GDP Wholesale Price Inde. (1970/71-100) Annual percentage changes in: Wholesale Price Inden Bank Credit to Government (nec) A/ 31.2 M B-ak Credit to Cercial Sector / 14.0 h/ a/ The per capit. GNP estimte is at arket prices, calculated by the converion technique used in the World Baak Atlas, All other conversion, ~J Quick Esti..tes. to dollars in tbis table are at the average exchange rate prevailing during the period covered. c/ Computed from trend line of UNP at factor cost series, including one observation before first year and one observation after last year of. listed period. d/ World Bank estiatea; not necessarily coneistent eith official figurea. e/ Transfers between Centre and States have been netted out. E/ All loans and advances to third parties have been netted out. 2J Percentage change from end-dece-ber 1978 to end-dece.ber J Percentage change from end-december 1979 to end-decmber 1980.

33 Annex I Page 5 of 5 BALANCE OF PAYMENTS 1977/ / / /81 MERCHANDISE EXPORTS (AVERAGE 1976/ ) US$ KIn. z Exports of Goods 6,315 6,978 7,958 8,998 Engineering Goods 768 J 11 Imports of Goods -7,188-8,519-11,249-15,624 Tea Trade Balance ,541-3,291-6,626 Gems NFS (net) Clothing Leather and Leather Resource Balance Products Jute Hanufactures Interest Payments (net) i/ Iron Ore Other Factor Payments (net) Cotton Textiles Net Transfers i/ 1,077 1,216 1,458 2,462 Sugar Others 3, Balance on Current Account Total Official Aid Disbursements 1,628 1,695 1,891 2,389 EXTERNAL DEBT, MAIGI 31, 1980 Amortization USS billion Transactions with D4F ,035 Outstanding and Disbursed 15.6 All Other Items Undisbursed 5.7 Outstanding, including 21.3 Increase in Reserves () -2,076-1, Undisbursed Gross Reserves (end year) 5,823 7,357 7,579 7,031 Net 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 LlIDD8, DECDSE Imports 1,811 2,043 3,977 7,012 USS million of which: Petroleum 1,811 2,043 3,977 7,012 IERD IDi Exports n.a. Outstanding and Disbursed 806 4,895 Undisbursed 572 3,547 Outstanding, including 1,378 8,442 Undisbursed RATE OF EXCHANGE June 1966 to mid-december 1971 US$ Re 7.5 Re US$ Mid-December 1971 to end-june 1972 US$ Rs Re US$ After end-june 1972 Floating Rate Spot Rate end-december 1979 US$ Rs Re US$ Spot Rate end-decenber 1980 US$ Rs Re US$0.126 h/ Estimated. i/ Figures given cover all investment income (net). Major paments 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 IPW credit. j/ Figure for 1979/80 is estimated. A/ mortization and interest payments on foreign loans as a percentage of exports of goods and services. ApriL 1981

34 ANNEX II Page 1 of 18 THE STATUS OF BANK GROUP OPERATIONS IN INDIA A. STATEMENT OF BANK LOANS AND IDA CREDITS (As of June 30, 1981) US$ million Loan or (Net of Cancellations) Credit No. Year Borrower Purpose Bank IDA Undisbursed 44 Loans/ 1, Credits fully disbursed - 4, IN 1972 India Education IN 1973 India Karnataka Agricultural Markets IN 1974 India HP Apple Processing & Marketing IN 1974 India Chambal (Rajasthan) CAD IN 1974 India Karnataka Dairy IN 1974 India Rajasthan Canal CAD IN 1974 India Rajasthan Dairy IN 1974 India Madhya Pradesh Dairy IN 1975 ICICI Industry DFC XI IN 1975 India West Bengal Agric. Development IN 1975 India Uttar Pradesh Water Supply IN 1975 India Fertilizer Industry IN 1976 India Power Transmission IV IN 1976 India Madhya Pradesh Forestry T.A IN 1976 India Integrated Cotton Development IN 1976 India Andhra Pradesh Irrigation IN 1976 India IDBI II IN 1976 India National Seeds I IN 1976 India Telecommunications VI IN 1976 India Bombay Urban Transport IN 1977 India Kerala Agric. Development IN 1977 India Orissa Agric. Development IN 1977 India Singrauli Thermal Power IN 1977 India Madras Urban Development IN 1977 India WB Agric. Extension & Research IN 1977 India Gujarat Fisheries IN 1977 India Madhya Pradesh Agric. Development IN 1977 India Periyar Vaigai Irrigation IN 1977 India Assam Agricultural Development IN 1977 India Maharashtra Irrigation IN 1977 India Rajasthan Agric. Extension IN 1977 India Orissa Irrigation IN 1977 ICICI Industry DFC XII

35 ANNEX II Page 2 of 18 US$ million Loan or (Net of Cancellations) Credit No. Year Borrower Purpose Bank IDA Undisbursed 747-IN 1978 India Second Foodgrain Storage IN 1978 India Calcutta Urban Development II IN 1978 India Bihar Agric. Extension & Research IN 1978 India IDBI Joint/Public Sector IN 1978 TEC Third Trombay Thermal Power IN 1978 India Karnataka Irrigation IN 1978 India Korba Thermal Power IN 1978 India Jammu-Kashmir Horticulture IN 1978 India Gujarat Irrigation IN 1978 India Andhra Pradesh Fisheries IN 1978 India National Seeds II IN 1978 India Telecommunications VII IN 1978 India National Dairy IN 1979 India Bombay Water Supply II IN 1979 India Haryana Irrigation IN 1979 India Railway Modernization & Maintenance IN 1979 India Punjab Water Supply & Sewerage IN 1979 India National Agricultural Research IN 1979 India Composite Agricultural Extension IN 1979 India NCDC IN 1979 India Ramagundam Thermal Power IN 1979 India Ramagundam Thermal Power IN 1979 India Punjab Irrigation IN 1979 India Maharashtra Water Supply IN 1979 India Rural Electrification Corp. II IN 1979 India Uttar Pradesh Social Forestry IN 1979 India ARDC III IN 1979 India Inland Fisheries IN 1979 India Maharashtra Irrigation II IN 1979 India Gujarat Community Forestry IN 1003-IN 1980 India 1980 India Population II Tamil Nadu Nutrition IN 1011-IN 1980 India U.P. Tubewells 1980 India Gujarat Irrigation II IN 1980 India Singrauli Thermal II IN 1980 India Cashewnut IN 1980 India Kerala Agricultural Extension IN 1980 India Calcutta Urban Transport IN 1980 India Karnataka Sericulture IN 1980 India Rajasthan Water Supply

36 ANNEX II Page 3 of 18 US$ million Loan or (Net of Cancellations) Credit No. Year Borrower Purpose Bank IDA Undisbursed and Sewerage IN 1980 ICICI Industry DFC XIII IN 1980 India Farakka Thermal Power IN 1980 India Farakka Thermal Power IN 1980 India Kandi Watershed and Area Development IN 1980 India Bihar Rural Roads IN 1980 India Mahanadi Barrages IN 1980 India Bombay High Offshore Development IN 1981 India Madras Urban Dev. II IN 1981 India M.P. Medium Irrigation IN 1981 India Telecommunications VIII IN 1981 India Karnataka Tank Irrigation IN* 1981 India Maharashtra Agr. Extension IN* 1981 India Tamil Nadu Agr. Extension IN* 1981 India Madhya Pradesh Agr. Extension II IN* 1981 India NCDC II Total 2, ,322.7 of which has been repaid 1, Total now outstanding Amount Sold of which has been repaid Total now held by Bank and IDA 1/ 1, ,245.0 Total undisbursed (excluding*) , / Prior to exchange adjustment. * Not yet effective.

37 ANNEX II rage 4 of 18 B. STATEMENT OF IFC INVESTMENTS (As of June 30, 1981) Amount (US$ million) Year Company Loan Equity Total 1959 Republic Forge Company Ltd Kirloskar Oil Engines Ltd Assam Sillimanite Ltd K.S.B. Pumps Ltd Precision Bearings India Ltd Fort Gloster Industries Ltd Mahindra Ugine Steel Co. Ltd Lakshmi Machine Works Ltd Jayshree Chemicals Ltd Indian Explosives Ltd Zuari Agro-Chemicals Ltd Escorts Limited Housing Development Finance Corporation Deepak Fertilizer and Petrochemicals Corporation Ltd Coromandel Fertilizers Limited Tata Iron and Steel Company Ltd Mahindra, Mahindra Limited Nagarjuna Coated Tubes Ltd Nagarjuna Signode Limited Nagarjuna Steels Limited TOTAL GROSS COMMITMENTS Less: Sold Repaid Cancelled Now Held Undisbursed

38 ANNEX II Page 5 of 18 C. PROJECTS IN EXECUTION I/ Generally, the implementation of projects has been proceeding reasonably well. Details on the execution of individual projects are below. The level of disbursements was US$962 million in FY81, compared to US$729 million in the previous year, representing an increase of about 32%. The undisbursed pipeline of US$4,494 million as of June 30, 1981, reflects the lead time which would be expected given the mix of fast- and slow-disbursing projects in the India program. Ln. No Eleventh Industrial Credit and Investment Corporation of India Project; US$100.0 million loan of April 2, 1975; Effective Date: July 1, 1975; Closing Date: June 30, 1981 Ln. No Twelfth Industrial Credit and Investment Corporation of India Project; US$80.0 million loan of July 22, 1977; Effective Date: October 4, 1977; Closing Date: March 31, 1983 Ln. No Thirteenth Industrial Credit and Investment Corporation of India Project; US$100.0 million loan of May 16, 1980; Effective Date: June 27, 1980; Closing Date: December 31, 1985 These loans are supporting industrial development in India through a well-established development finance company and are designed to finance the foreign exchange cost of industrial projects. ICICI continues to be a well-managed and efficient development bank financing medium- and large-scale industries, which often employ high technology and are export-oriented. Disbursements under both loans 1475 and 1843 are ahead of schedule. Loan No 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 IDBI Joint/Public Sector Project; US$25.0 million loan of March 1, 1978; Effective Date: May 31, 1978; Closing Date: March 31, 1983 Loan 1260 is designed to assist the Industrial Development Bank of India in promoting small- and medium-scale industries and in strengthening the State Financial Corporations involved. Loan 1511 is designed to encourage the pooling of private and public capital in medium-scale joint ventures. The project also assists IDBI in carrying out industrial sector 1/ These notes are designed to inform the Executive Directors regarding the progress of projects in execution, and in particular to report any problems which are being encountered and the action being taken to remedy them. They should be read in this sense and with the understanding that they do not purport to present a balanced evaluation of strengths and weaknesses in project execution.

39 ANNEX II Page 6 of 18 investment studies and in strengthening the financial institutions dealing with the state joint/public sector. Cr. No. 947 Third Agricultural Refinance and Development Corporation (ARDC) Project; US$250.0 million credit of August 20, 1979; Effective Date: January 2, 1980; Closing Date: June 30, 1982 Refinancing of lending to farmers has been progressing very well. Cr. No. 747 Second Foodgrain Storage Project; US$107.0 million credit of January 6, 1978; Effective Date: May 17, 1978; Closing Date: June 30, 1982 Satisfactory progress is being made in the construction of bag storage warehouses, despite problems of land acquisition at some sites. However, construction of flat bulk warehouses and port silos is not expected to be completed until 1984, as a result of delays in the employment of consultants and the longer time required for the preparation of technical specifications and tenders and the construction itself. In view of the high increases in bulk storage construction costs, the Government is proposing to reduce the bulk storage component of the project in favor of additional bag storage capacity; this proposal is currently under consideration by the Association. Cr. No. 456 Himachal Pradesh Apple Processing and Marketing Project; US$13.0 million credit of January 22, 1974; Effective Date: September 26, 1974; Closing Date: December 31, 1981 The project encountered prolonged initial delays due to managerial and technical problems. These problems have been largely resolved, but construction progress remains slow due to material shortages and severe winter conditions. Initial packing house operations were undertaken in the last two seasons with favorable response from farmers. The project is scheduled for completion by December Cr. No. 806 Jammu-Kashmir Horticulture Project; US$14.0 million credit of July 17, 1978; Effective Date: January 16, 1979; Closing Date: June 30, 1984 The principal executing agency, J&K Horticulture Produce Marketing and Processing Corporation, is under strong management and rapid progress has been made in start-up operations with only minor slippage. The project's research activities, however, are behind the original schedule due to poor organization. Ln. No Telecommunications VI Project; US$80.0 million loan of July 22, 1976; Effective Date: September 14, 1916 Closing Date: March 31, 1982 Ln. No Telecommunications VII Project; US$120.0 million loan of June 19, 1978; Effective Date: October 30, 1978; Closing Date: March 31, 1982

40 ANNEX II Page 7 of 18 Cr. No Telecommunications VIII Project; US$314 million credit of March 26, 1981; Effective Date: June 24, 1981; Closing Date: December 31, 1984 Loans 1313 and 1592 are progressing satisfactorily, although as of June 1981, when they were last reviewed, imports of electronic switching equipment for the projects were behind schedule, resulting in a reduced growth rate for the installation of direct exchange lines. Institutional improvements envisaged under the projects have been achieved, and the financial situation of the Posts and Telegraphs Department remains sound. Credit 1112, which became effective in June 1981, provides for the continued expansion, over a three-year period, of the Indian telecommunications network, particularly in rural areas. It also provides for the modernization and upgrading of three existing telecommunications equipment factories, and the establishment of three additional ones. Initial implementation and procurement actions are proceeding on schedule. Cr. No. 598 Fertilizer Industry Project; US$105.0 million credit of December 31, 1975; Effective Date: March 1, 1976; Closing Date: June 30, 1982 Credit 598 is designed to increase the utilization of existing fertilizer production capacity. The project has encountered delays in sub-project preparation and investment approvals by the Government. Further, some of the sub-projects identified earlier have not materialized because of reconsideration by the Central and State governments. IDA has agreed to a list of sub-projects to replace the ones that have been dropped. Because of the above, the project completion date has been delayed. Cr. No. 342 Agricultural Universities Project; US$12.0 million credit of November 10, 1972; Effective Date: June 8, 1973; Closing Date: December 31, 1981 The project involves the development of the agricultural universities in Assam and Bihar. The primary aim of the AUs project is to improve the quality and practical training of undergraduates and so the spectrum of their employment opportunities; and to strengthen university structure to enable it to give an impetus to agricultural and rural development. Considerable progress has been made in achieving the latter objective; but achieving educational objectives is more slowly attainable, constrained by traditional attitudes and structures where consistent effective leadership falters. Changes to a more functional orientation are now planned. The Project Director and others responsible are aware of the constraints and are supporting efforts to remove them. Cr. No. 842 Cr. No. 848 Second Bombay Water Supply and Sewerage Project; US$196.0 million credit of November 13, 1978; Effective Date: June 12, 1979; Closing Date: March 31, 1985 Punjab Water Supply and Sewerage Project; US$38.0 million credit of October 27, 1978; Effective Date: January 25, 1979; Closing Date: March 31, 1983

41 ANNEX II Page 8 of 18 Cr. No. 899 Maharashtra Water Supply and Sewerage Project; US$48.0 million credit of June 21, 1979; Effective Date: November 9, 1979; Closing Date: June 30, 1984 Cr. No Rajasthan Water Supply and Sewerage Project; US$80 million credit of June 25, 1980; Effective Date: August 5, 1980; Closing Date: September 31, 1985 Implementation of Credit 842, a second stage of the recently completed first Bombay Water Supply and Sewerage Project (Credit 390), is proceeding to schedule. Preliminary work in connection with implementation of Credit 848 has been completed but subsequent procurement delays and slow release of construction funds are likely to delay the project by about 12 months and result in cost increases. Physical progress under Credit 899 is satisfactory. Initial delays in implemention of institutional arrangements and tariff measures proposed for the project are now being overcome. Project progress in this area is being closely monitored. Implementation of Credit 1046 is proceeding satisfactorily. Detailed construction programs have been prepared for rural schemes, and preparation of tender documents for urban schemes have been completed. Cr. No. 585 Uttar Pradesh Water Supply and Sewerage Project; US$40.0 million credit 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 of technical reports for regional and local water authorities and in the engagement of consultants. While improvements have been made in the physical execution, other aspects of project implementation continue to lag so that disbursements under the Credit have fallen short of estimates at the time of appraisal. In order to improve the situation, arrangements have been made to closely supervise and coordinate implementation. Cr. No. 756 Second Calcutta Urban Development Project; US$87.0 million credit 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 of country-wide materials shortages and serious Statewide electric power shortages. Procurement is generally on schedule for equipment and consultants' services, though somewhat behind for larger civil works contracts. Staff shortages in some of the implementing agencies continue, although more extensive use of consultants has to a great degree alleviated this problem. Cr. No. 687 Madras Urban Development Project; US$24.0 million credit of April 1, 1977; Effective Date: June 30, 1977; Closing Date: September 30, 1981 With respect to the first Madras project, physical progress is generally satisfactory and costs are within appraisal estimates on most components. However, land acquisition problems and consequent delays in construction on one of the three sites and service areas will result in about 15 months delay in the completion of the final sections of these areas.

42 ANNEX II Page 9 of 18 Increased attention should be turned to the financial analysis and marketing strategies required to ensure that anticipated cost recovery in the sites and services and slum upgrading components and thus replicability is actually achieved. Technical assistance is being sought to strengthen financial management and analysis. Cr. No Second Madras Urban Development Project; US$42.0 credit of January 14, 1981; Effectiveness Date: March 2, 1981; Closing Date: March 31, With respect to the second project, only recently signed and declared effective, early project implementation is proceeding satisfactorily, with evidence that the lessons learned under the first project are being heeded. Cr. No. 482 Karnataka Dairy Development Project; US$30.0 million credit of June 19, 1974; Effective Date: December 23, 1974; Closing Date: September 30, 1982 Cr. No. 521 Cr. No. 522 Rajasthan Dairy Development Project; US$27.7 million credit of December 18, 1974; Effective Date: August 8, 1975; Closing Date: December 31, 1982 Madhya Pradesh Dairy Development Project; US$16.4 million credit of December 18, 1974; Effective Date: July 23, 1975; Closing Date: 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 dairy development projects organized along the lines of the successful AMUL dairy cooperative scheme in Gujarat State. More than 2,100 dairy cooperative societies (DCS) have been established under the three state projects (Karnataka-923, Rajasthan-926, Madhya Pradesh-272). Farmer response has been excellent and project authorities are under considerable producer pressure to speed up the establishment of DCS. Profitability in almost all of the DCS is good and construction of dairy and feed plants is now proceeding at a satisfactory pace. Limited milk processing capacity has been the major constraint to DCS formation in all three projects. Under the National Dairy Project, three subprojects with an estimated total cost of approximately Rs 1,000 million have been appraised by the Indian Dairy Corporation and a further eight subprojects are in various stages of preparation and appraisal. Advance procurement of dairy equipment is well underway though disbursements have been slow, mainly as a result in the start of project operations. Ln. No Chambal (Rajasthan) Command Area Development Project; US$52.0 mi ion loan of June 19, 1974; Effective Date: December 12, 1974; Closing Date: June 30, 1982

43 ANNEX II Page 10 of 18 Cr. No. 502 Rajasthan Canal Command Area Development Project; US$83.0 mi1lion credit of July 31, 1974; Effective Date: December 12, 1974; Closing Date: June 30, 1981 Ln. No 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; Closing Date: December 31, 1982 Cr. No. 720 Cr. No. 736 Periyar Vaigai Irrigation Project; US$23.0 million credit of June 30, 1977; Effective Date: September 30, 1977; Closing Date: March 31, 1983 Maharashtra Irrigation Project; US$70.0 million credit of October 11, 1977; Effective Date: January 13, 1978; Closing Date: 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 of May 12, 1978; Effective Date: August 10, 1978; Closing Date: 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 of August 16, 1978; Effective Date: December 14, 1978; Closing Date: 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 of April 14, 1980; Effective Date: June 6, 1980; Closing Date: December 31, 1985 Cr. No Second Gujarat Irrigation Project; US$175 million credit of May 12, 1980; Effective Date: June 27, 1980; Closing Date: April 30, 1986 Cr. No Mahanadi Barrages Project; US$83 million credit of December 5, 1980; Effective Date: February 11, 1981; Closing Date: March 31, 1987 Cr. No Madhya Pradesh Medium Irrigation Project; US$140 million credit of March 26, 1981; Effective Date: May 13, 1981; Closing Date: March 31, 1987 These projects, based on existing large irrigation systems, are designed to improve the efficiency of water utilization and, where possible,

44 ANNEX II Page ll of 18 to use water savings for bringing additional areas under irrigation. Canal lining and other irrigation infrastructure, drainage, and land shaping are prominent components of these projects. In addition, provisions have been made to increase agricultural production and marketing by reforming and upgrading agricultural extension services and by providing processing and storage facilities and village access roads. Progress of these projects is generally satisfactory. Cr. No. 682 Cr. No. 690 Cr. No. 712 Cr. No. 728 Cr. No. 737 Cr. No. 761 Cr. No. 862 Orissa Agricultural Development Project; US$20.0 million credit of April 1, 1977; Effective Date: June 28, 1977; Closing Date: December 31, 1983 West Bengal Agricultural Extension and Research Project; US$12.0 million credit of June 1, 1977; Effective Date: August 30, 1977; Closing Date: September 30, 1982 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 Assam Agricultural Development Project; US$8.0 million credit of June 30, 1977; Effective Date: September 30, 1977; Closing Date: March 31, 1983 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 Bihar Agricultural Extension and Research Project; US$8.0 million credit of January 6, 1978; Effective Date: May 2, 1978; Closing Date: October 31, 1983 Composite Agricultural Extension Project, US$25.0 million credit of February 16, 1979; Effective Date: December 14, 1979; Closing Date: December 31, 1984 Cr. No Kerala Agricultural Extension Project; US$10 million credit of June 25, 1980; Effective Date: August 18, 1980; Closing Date: June 30, 1986 Cr. No Tamil Nadu Agricultural Extension Project; US$28 million credit of May 7, 1981; Effective Date: July 22, 1981; Closing Date: June 30, 1987 Cr. No Maharashtra Agricultural Extension Project; US$23 million credit of May 7, 1981; Effective Date: July 22, 1981; Closing Date: June_2 3,- 1987

45 ANNEX II Page 12 of 18 Cr. No Madhya Pradesh Agricultural Extension Project; US$23 million credit of May 7, 1981; Effective Date: July 22, 1981; Closing Date: June 30, 1987 These eleven credits finance the reorganization and strengthening of agricultural extension services and the development of adaptive research capabilities in twelve States in India. In areas where the reformed extension system is in full operation, field results have been very good, both in terms of adoption of new agricultural techniques and of increased crop yields. In Rajasthan, Assam, Madhya Pradesh and Orissa, in particular, significant gains have been made under the projects. In West Bengal, where a change in government brought a review of the organizational principles underlying the new extension system and an accompanying hiatus in project implementation, a Cabinet decision has reaffirmed the State Government's commitment to the project, revised implementation plans have been prepared, and project activities are resuming. In Bihar, staff shortages, particularly in supervisory and managerial posts, have hampered project implementation, although progress in areas where regular extension visits are being made attests to the efficacy of the system itself. In Gujarat, Haryana and Karnataka, all covered under the Composite Agricultural Extension Project, important early administrative and financial steps have been taken to pave the way for effective operation of the reorganized extension system and field work is off to a good start. In Kerala, project implementation has begun in three of eleven districts after some initial start-up delays. Early progress on civil works and initiation of the program in the remaining eight districts will be required to regain the initial implementation schedule. In Tamil Nadu and Maharashtra, project implementation has just begun, as these credits became effective only recently. Early project review missions are scheduled to assist in project initiation. Cr. No. 855 National Agriculture Research Project; US$27.0 million credit of December 7, 1978; Effective Date: January 22, 1979; Closing Date: September 30, 1983 While the initial sanctioning of research subprojects under this project was somewhat slower than expected, due to staff shortages in the Project Unit, the pace has picked up considerably in recent months. Commitment of funds to research subprojects is proceeding satisfactorily, although corresponding disbursements may lag somewhat behind the original estimates. Additions to the staff of the Project Unit have been made to expedite further progress under the project. Cr. No. 526 Drought Prone Areas Project; US$35.0 million credit of January 24, 1975; Effective Date: June 9, 1975; Closing Date: June 30, 1981 Overall progress of this project continues to be satisfactory. Implementation of most components is proceeding well. Dairying and dryland farming components show particular promise for the drought-prone areas.

46 ANNEX II Page 13 of 18 Cr. No. 680 Kerala Agricultural Development Project; US$30.0 million credit of April 1, 1977; Effective Date: June 29, 1977; Closing Date: March 31, 1985 Project implementation started slowly due to initial staffing and funding delays. The project has now gained momentum and the planting operations, which were one season behind original schedule, have been rephased to make up for lost time. 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 Second National Cooperative Development Corporation (NCDC) Project; US$125 million credit of July 21, 1981; Effective Date (expected): October 21, 1981; Closing Date: June 30, 1987 As of October 1980, when Credit 871 was last reviewed, and according to quarterly reports through March 1981, construction of godowns was progressing well in the States of Haryana and Uttar Pradesh, although some delays had occurred in the State of Orissa. Consultants had been recruited to assist NCDC and State Cooperative Banks in strengthening their institutions, although some consultants were yet to be recruited in Haryana. Disbursements have been progressing well and are ahead of the appraisal targets. Credit 1146, which was signed in July 1981, provides credit for the construction of cooperative godowns and cold-storage and marketing facilities to support the pre- and post-harvest supply and markting requirements in nine States; promote the development of cooperative institutions in these States; and expand cooperative subproject preparation and appraisal activities within the cooperative sector. Preparatory implementation work is well advanced in most of the participating States. Cr. No. 844 Railway Modernization and Maintenance Project; US$190.0 million credit of November 13, 1978; Effective Date: January 10, 1979; Closing Date: December 31, 1984 Credit 844 was designed to help the Indian Railways reduce manufacturing and maintenance costs of locomotives and rolling stock and to improve their 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, 1981 A feasibility study financed under this Credit and completed in November 1979 has recommended the establishment of two mills, one for sawnwood and one for pulp, as the basis of the development of a forest-based industry in Bastar district. Cr. No. 925 Uttar Pradesh Social Forestry Project; US$23.0 million credit of June 21, 1979; Effective Date: January 3, 1980; Closing Date: December 31, 1984

47 ANNEX II Page 14 of 18 Cr. No. 961 Gujarat Community Forestry Project; US$37 million credit of April 14, 1980; Effective Date: June 24, 1980; Closing Date: December 31, 1985 These projects, designed to expand the social forestry program in Uttar Pradesh and Gujarat, to provide a source of energy to the villages, and to supply raw materials to cottage industries, are proceeding well. The projects provide for large-scale tree plantations on public lands, primarily along roads, rails and canals, on village common lands and on degraded forest reserves. Cr. No. 610 Integrated Cotton Development Project; US$18.0 million credit of February 26, 1976; Effective Date: November 30, 1976; Closing Date: December 31, 1981 The project's progress remained very disappointing in all areas until the 1978 season, resulting in negligible disbursements. Due to renewed interests from GOI and the States, the project has now started to progress well. Short-term credits are increasing significantly, new processing units are being established in Haryana and Maharashtra, and plant protection activities have started progressing well. Ln. No National Seed Project; US$25.0 million loan of June 10, 1976; Effective Date; October 8, 1976; Closing Date: June 30, 1981 Cr. No. 816 Second National Seed Project; US$16.0 million credit of July 17, 1978; Effective Date: December 20, 1978; Closing Date: Closing Date: December 31, 1984 These projects were designed to increase the availability of high quality agricultural seed, and cover nine States (four by Ln IN and five by Cr. 816-IN). The first project started slowly due to organizational difficulties and is almost two years behind schedule. Progress in the second project States is more satisfactory. The role of various organizations (National and State) in the production and processing of seed is being reviewed. Ln. No Bombay Urban Transport Project; US$25.0 million loan of December 20, 1976; Effective Date: March 10, 1977; Closing Date: June 30, 1983 Cr. No Calcutta Urban Transport Project; US$56 million credit of October 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 bodies having been ordered and 672 already in service. Total fleet strength has increased from 1,530 buses at the inception of the project to 1,935 buses in September 1980, in accordance with appraisal estimates. Depot capacity expansion has lagged somewhat behind fleet expansion, but caught up in November However, delays in construction of new workshop facilities have been more substantial and will not be fully recoverable. As a result, the

48 ANNEX II Page 15 of 18 loan closing date has been extended by three years. Traffic management civil works are also somewhat behind schedule, although now proceeding satisfactorily. Implementation of works under Cr is proceeding satisfactorily, a good start having been made on the important early procurement steps. However, fnancial and managerial performance is lagging somewhat behing expectations and must now receive project authorities' full attention if physical and financial performance targets are to be achieved. Cr. No Bihar Rural Roads Project; US$35.0 million credit of December 5, 1980; Effective Date: January 15, 1981; Closing Date: June 30, Bids have been invited for the first year program of rural road construction to allow work to start following the monsoon. The whole project aims to construct or rehabilitate 700 km of rural roads and to improve maintenance of the rural road network in Bihar as part of the State's overall rural development efforts. Equipment has been ordered and is starting to arrive. Ln. No 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 of June 19, 1978; Effective Date: October 31, 1978; Closing Date: September 30, 1984 As of October 1980 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 supplies had been overcome. In Andhra Pradesh, the harbor works at Visakhapatnam, Kakinada and Nizampatnam are progressing satisfactorily following the resolution of design problems. The road component is also progressing satisfactorily. Cr. No. 963 Inland Fisheries Project; US$20 million credit of January 18, 1980; Effective Date: May 5, 1980; Closing Date: September 30, 1985 This project, which is the first of its kind in India, is designed to 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 the establishment of training centers. The project became effective in May The initial implementation tasks, primarily involving the establishment of State Fish Seed Development Corporations and Central and State project monitoring units, are progressing satisfactorily. However, hatchery planning has been delayed as a result of a delay in the establishment of the engineering cell within the Central Project Unit. Cr. No. 685 Singrauli Thermal Power Project; US$150.0 million credit of April 1, 1977; Effective Date: June 28, 1977; Closing Date: December 31, 1983

49 ANNEX II Page 16 of 18 Cr. No. 793 Korba Thermal Power Project; US$200.0 million credit of May 12, 1T/8; Effective Date: August 14, 1978; Closing Date: March 31, 1985 Ln. No 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 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 of January 22, 1976; Effective Date: October 22, 1976; Closing Date: December 31, 1982 Cr. No Second Singrauli Thermal Power Project; US$300 million credit of June 5, 1980; Effective Date: July 30, 1980; Closing Date: March 31, 1988 Ln. No Farakka Thermal Power Project; US$25 million loan and and US$225 million credit of July 11, 1980; Effective Date: Cr. No December 10, 1980; Closing Date: March 31, 1987 Credits 685 and 1027 assist in financing the 2,000 MW Singrauli development, which is the first of four power stations in the Government's program for the development of large central thermal power stations feeding power into an interconnected grid. Credit 793 supports the construction of the 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. The National Thermal Power Corporation (NTPC) has been carrying out construction and operation of these power stations. Loan 1549 is supporting the construction of a 500 MW extension of the Tata Electric Companies' station at Trombay, in order to help meet the forecast load growth in the Bombay area. All these large-scale thermal power projects are progressing satisfactorily. For Singrauli and Korba, construction works are on or ahead of schedule, although some slippage has occurred in the implementation schedule for the Ramagundam project. Cr. No. 911 Rural Electrification Corporation II Project; US$175.0 million credit of June 21, 1979; Effective Date: October 17, 1979; Closing Date: March 31, 1984 The project is progressing satisfactorily. Ln. No Second Bombay High Offshore Development Project; US$400.0 million loan of December 11, 1980; Effective Date: February 24, 1981 Closing Date: March 31, 1984 The project is progressing satisfactorily.

50 ANNEX II Page 17 of 18 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 and child mortality and morbidity, the improvement in the health status of mothers and children and the lowering of fertility. Implementation works have started in both project States--Andhra Pradesh and Uttar Pradesh. Cr. No Cashewnut Project; US$22 million credit of June 10, 1980; Effective Date: September 3, 1980; Closing Date: September 30, 1985 Implementation has started on this project which is designed to expand cashewnut production in the States of Kerala, Karnataka, Andhra Pradesh and Orissa. Cr. No Tamil Nadu Nutrition Project; US$32 million credit of May 12, 1980; Effective Date: August 5, 1980; Closing Date: March 31, 1987 to First year's implementation in one test block is proceeding according schedule. Cr. No Uttar Pradesh Public Tubewells Project; US$18 million credit of May 12, 1980; Effective Date: June 27, 1980; Closing Date: March 31, 1983 Initial procurement delays having now been overcome, implementation is proceeding satisfactorily on this project. However, project completion will likely be delayed by approximately six months due to the initial delays. Ln. No Kandi Watershed and Area Development Project; US$30.0 million loan of September 12, 1980; Effective Date: November 18, 1980; Closing Date: March 31, Contract for the construction of Dholbaha dam has been awarded. Progress in other components are satisfactory. Cr. No Karnataka Sericulture Project; US$54 million credit of October 27, 1980; Effective Date: December 18, 1980 Closing Date: December 31, 1985 Overall progress in project implementation is satisfactory. Minor start up delays in staffing are being corrected.

51 ANNEX II Page 18 of 18 Cr. No Karnataka Tank Irrigation Project; US$54 million credit of March 26, 1981; Effective Date: May 5, 1981; Closing Date: March 31, 1986 The project is designed to finance the construction, over a four-year period, of about 160 tank irrigation schemes throughout the State of Karnataka. Start-up activities have commenced.

52 ANNEX III Page I of 2 INDIA SECOND RAMAGUNDAM THERMAL POWER PROJECT SUPPLEMENTARY PROJECT DATA SHEET Section I: (a) Time taken by the country to prepare the project The project represents the second stage of the third Centrally-owned large-scale power station in India. Preparation of the present project was part of a continuing process. (b) The agencies which have prepared the project National Thermal Power Corporation; Ministry of Energy; Central Electricity Authority. (c) Date of first presentation to the Bank and date of the first mission to consider the project Preliminary feasibility report became available in October The scope of the project was discussed at the time of the appraisal of the first stage of the Ramagundam development in April (d) Date of departure of appraisal mission January 20, (e) Date of completion of negotiations November 19, (f) Planned date of effectiveness April Section II: Special Bank Implementation Actions None. Section III: Special Conditions (a) GOI to ensure adequate coal supplies (para 49);

53 ANNEX III Page 2 of 2 (b) NTPC to inform the Bank of any proposal to modify existing limitations on its borrowing powers (para 59); (c) NTPC to achieve and maintain a rate of return of 9.5% by 1990/91, and to set tariffs from the time of commissioning of its first generating unit at levels necessary to achieve this rate of return (para 57); (d) NTPC to sell at least 85% of the output of power from the project under satisfactory bulk supply contracts (para 51); and (e) GOI to conclude a Subsidiary Loan Agreement with NTPC (condition of loan effectiveness, para 54).

54

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