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IBRD stops $507-m coal sector loan

Badal Sanyal

CALCUTTA, Aug. 13

THE World Bank has decided to stop disbursing a soft loan to help Coal India Ltd (CIL) undertake a coal sector rehabilitation project (CSRP), under which 24 existing opencast projects were to be modernised and expanded to produce 112 million tonnes of co al per year.

Available information suggests that the World Bank (also known as IBRD), in conformity with a mutually agreed formula, has terminated a loan of about $507 millions out of the total sanctioned loan of $1.06 billions. The entire loan was sanctioned directl y to CIL in 1997 jointly with a co-financier, Export-Import Bank of Japan (JEXIM), with the understanding that the loan component will be utilised in two phases within a span of five years.

Prior to sanctioning of the loan by the respective boards of IBRD and JEXIM, it was specified that the Indian coal sector should be totally freed, thereby allowing the sector to operate at par with international coal companies and attract investment from private sources.

Subsequently, IBRD disbursed, under the first phase, a loan of about $523 millions to CIL which was given the authority to onlend the loan proceeds to five of its subsidiaries: Central Coalfields Ltd (CCL), Mahanadi Coalfields Ltd (MCL), Northern Coalfie lds Ltd (NCL), South-Eastern Coalfields Ltd (SECL) and Western Coalfields Ltd (WCL).

The funds received were: CCL - about $39 millions, MCL - $49 millions, NCL - $284 millions, SECL - $112 millions and WCL - $38 millions. Now, in view of IBRD's decision to cancel the loan agreement, the funds that these subsidiaries will not be able to a ccess are: CCL - about $35 millions, MCL - $46 millions, NCL - $230 millions, SECL - $58 millions, WCL - $35 millions, and a sum of $103 millions earmarked for common purposes, which make a total of $507 millions.

Interestingly, CIL and its subsidiaries do not accept that the IBRD has terminated the CSRP loan because the Union Government has failed to honour the terms and conditions imposed while sanctioning the loan.

Coal company sources argue that CIL, in fact, had approached the bank with a request to discontinue disbursement of a further loan because it did not find any logic in injecting borrowed funds to augment coal production when not many independent power pr oducers are showing interest to sign coal supply agreements.

In addition to the restricted demand on commercial terms from the power sector, the state-owned coal companies are believed to have found the IBRD terms too tough to meet. Moreover, the currently favourable debt market is found to be attractive enough to borrow on spot basis. Judging by all counts, CIL was urged by its subsidiaries to decide against taking a further IBRD loan for the second phase of the CSRP.

Informed sources suggest that as the situation is embarrassing for both the IBRD and the Union Government, they are not willing to make public the reasons for the cancellation of the remaining loan of $507 millions. It is thus said: "We have mutually ag reed to terminate the World Bank loan agreement signed for CSRP."

It may be mentioned that in the past IBRD gave three loans to CIL, but all through the Union Government. This was the first time that a direct commercial loan was sanctioned to CIL.

The bank had sanctioned a loan of $151 millions in 1984 for the development of the Dudhichua coal mine in Singrauli, a loan of $248 millions for the development of the Jharia coalfield in 1985 and a loan of $340 millions for the expansion of an opencast mine in the Korba coalfield and construction of an ECL opencast mine in Sonepur-Bazari.