Date: Wed, 15 May 1996 20:52:48 GMT
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Subject: World Bank & Indian Coal Sector
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** Topic: WB India coal loan, BD paper 1/2 **
** Written 6:01 AM May 13, 1996 by gn:bwref in cdp:dev.worldbank **
From: (Bretton Woods Project)

From: (Erklaerung von Bern)
Subject: Coal sector projects in India (Berne Declaration position paper)

Mainstreaming Sustainability? The World Bank and the Rehabilitation of the Indian Coal Sector, Pt. 1

Berne Declaration position paper. 13 May, 1996

Executive Summary and Acknowledgements

After the no-harm agenda and the post-Rio boom, the World Bank claims to have reached a "third generation" of environmental reforms. According to the director of its Environment Department, the present reforms are marked by a "major effort (...) to incorporate the environment into sectoral and national strategies". One prominent example is the Bank's new Global Overlays Initiative. This has "as its overriding objective the internalization of global externalities into national environmental planning and the Bank's sector work, operations and dialogue with governments and partners". The World Bank has also identified some strategic priorities which should incorporate lessons from the 1994 bankwide resettlement review.

The Bank has been strongly involved in the Indian coal and thermal power sectors for many decades. It presently prepares two new projects for the financial, technical, social and environmental rehabilitation of coal mining in India. A Coal India Environmental and Social Mitigation Project will be debated by the Executive Board on May 16, 1996.

The new projects do not meet the test of mainstreaming sustainability. Formally, they have incorporated many strategic priorities of the Bank's present resettlement policy. Nevertheless the projects use an approach to the rehabilitation of affected people which so far has not worked in practice. They furthermore externalize all global costs of coal mining. The Bank presently implements a GEF solar power plant in India which entails incremental costs of 27 dollars for every ton of CO2 avoided. At the same time, it does not consider the global costs of contributing to an annual increase of CO2 emissions of about 33 million tons. This paper contains a conceptual critique of the new projects, and puts forward a series of recommendations.

The memorandum is based upon information from Ratnaker Bhengra (Jharkhand Janadhikar Manch), Cindy Buhl (Bank Information Center), Richard Harkinson (Minewatch), Tony Herbert (Prerana Resource Centre), Bineet Mundu (Chotanagpur Adivasi Sewa Simiti), Girish Sant (Prayas) and Kavaljit Singh (Public Interest Research Group). S.V. Chaoji of Coal India Ltd. took the time to meet with the author and answer questions on the coal sector projects. So did many representatives of the World Bank, notably task manager Peter Pollak. All responsibility for errors of substance and judgment rests with the author.

Peter Bosshard, Berne Declaration, April 26, 1996

1. Background: The Indian coal sector and the World Bank

With an annual production of over 250 million tons, India is the fourth biggest coal producer of the world. Her reserves will cover projected demand for the next 250 years. Coal meets about two thirds of India's commercial energy needs, and accounts for about 70 per cent of national power production. More than two thirds of coal production are used for generating thermal power. 90 per cent of the remainder in 1988 was consumed by industry, 7 per cent by the transport sector, and 3 per cent by private households. In 1975, a state-owned enterprise, Coal India Ltd. (CIL), assumed ownership and management of most Indian coal mines. Through seven subsidiary companies and almost 500 mines, CIL controls about 90 per cent of the national coal production. With a staff of almost 700,000, it is one of the largest companies in the world. The Indian government takes all major management decisions, including the pricing and allocation of coal, and finances the investments of Coal India.

Energy is one of the most important sectors of World Bank lending. Until June 1995, the Bank approved power projects in India to the tune of more than 9 billion dollars. For many decades it has played an influential role in shaping Indian energy policies, e.g. by engineering the creation of the National Thermal Power Corporation. Apart from the power sector, the Bank since 1984 has provided three IBRD loans and one IDA credit for a total of 751 million dollars to the Indian coal sector. On May 16, 1996, a 350 million dollar power sector loan for Orissa (with a strong private sector component) and a 63 million dollar IDA coal sector credit are scheduled for presentation to the Bank's Executive Board. A further 500 million dollar coal sector loan is currently being prepared. (Cf. chapter 2.)

According to NGO estimates, thermal power, mine and dam projects in India have uprooted more than 20 million people since the 1950s. Since the 1970s, most of India's coal production has been shifted from underground to opencast mining. From 1980 to 1991 the coal production from opencast mines was increased from 40 to 156 million tons. This caused a great increase in forced resettlement. According to the Operations Research Group (ORG), a consultant of Coal India, such resettlement constitutes "a history of gross violation of human rights", and has caused an "enormous trauma in the country". "Mining activities", a 1995 ORG report reads, "have shattered the equation worked out by man and nature for centuries. Communities which survived on subsistence economy have been pushed to a life of perpetual migration, hunger and deprivation." Coal India (in the Environmental Impact Assessment for the pending coal sector projects) confirms that the victims of resettlement "often end up as exploited contract labourers trapped in perpetual poverty or they simply leave the area, to reappear in the slums of the city or as squatters".

Since the nationalization of the mines in 1971/73, the Indian government has kept coal prices artificially low. Subsidized coal prices were a prerequisite e.g. for keeping the national heavy industries alive. In the 18 years of its existence, Coal India recorded profits in only four years. The recent structural adjustment programs squeezed India's government budget even more, and accordingly the investment capacities of Coal India. Because the subsidies are being phased out, CIL's equipment was not replaced or modernized, and coal quality deteriorated. International financial institutions furthermore called for the commercialization of the whole coal sector. In early 1992, the Indian government and the World Bank agreed to prepare a project for the technical modernization and the financial rehabilitation of the sector. The respective Initial Executive Project Summary (IEPS) was prepared in March 1992. Conflicts over policy conditionalities led to a drawn-out process of negotiations. The appraisal of the project was postponed several times, and in June 1995 the Bank decided to suspend it until after India's national elections of late April and early May 1996. (The tentative Board date is presently set for December 1996.)

The Indian coal mine projects which the World Bank approved in 1985 and 1987 caused grave problems of resettlement and rehabilitation. According to Bank documents, they negatively affected a total of 28,000 people (India Department, June 1993) or 19,000 people respectively (South Asia Region, January 1995). The Region's Resettlement Remedial Action Plan in 1995 rated two of the projects as 3 and one as 2. (3 means "major problems in implementing some or all resettlement activities", and/or "causing or threatening to cause a significant deterioration in the lives of the resettlers"; 2 stands for "some problems in the implementation of the project's resettlement activities".) The Bank's 1985 Jharia coal project was closed in 1992 after less than one fourth of the approved 248 million dollars had been disbursed. In this case, 551 families refused to be resettled unless every person over 18 years received a job with CIL.

Since the late 1980s, NGOs such as Lokayan and the Public Interest Research Group (India), the Berne Declaration (Switzerland), the Environmental Defense Fund (USA) and AidWatch (Australia) have closely monitored the Bank's thermal power projects in India. The difficult record of coal projects, the monitoring by NGOs and the policy conflicts with the Indian government made the new coal sector project potentially very contentious. It was thus submitted to the Bank-Wide Loan Committee in 1995. The Committee and the Indian government decided to split the project into a 500 million dollar IBRD loan for financial rehabilitation, and a 63 million dollar IDA credit for the mitigation of environmental and social impacts. While the former project was put on hold, the latter was moved through the Bank pipeline more rapidly. Board presentation will take place on May 16, 1996.

2. Description of the new coal sector projects

According to the Project Information Document (PID), the Coal India Environmental and Social Mitigation Project ("Mitigation Project") has three objectives: It will support the implementation of Environmental Action Plans, Rehabilitation Action Plans and Indigenous Peoples Development Plans for 25 opencast mines. Ten underground mines were removed from the portfolio during the project's preparation. The project will, secondly, provide technical assistance to Coal India in order to strengthen the institutional capacities for dealing with social and environmental issues. The third component of the project would be the establishment of a social fund of 10 million dollars for the Singrauli area. Since the 1960s, the Singrauli area of Uttar Pradesh and Madhya Pradesh has been ravaged by a big reservoir, eleven opencast coal mines, and five thermal power plants. Several mine and power plant projects were financed by the World Bank, and have been the subject of intense NGO criticisms for many years. According to the November 1995 PID, the total project costs would amount to about 80 million dollars, of which the IDA credit would contribute 65 million dollars.

The India Coal Sector Rehabilitation Project ("Rehabilitation Project"), according to the 1992 IEPS, will consist of a 300 million dollar investment component and a 200 million dollar fast disbursing program component. The loan will cover 500 million dollars out of total project costs of 1,700 million dollars. The project is supposed to go to the Executive Board in December 1996. Its investment component would finance the purchase of mining equipment for the modernization and maintenance of 25 opencast mines. According to the PID, this would increase the total output of the mines from 78.6 million to 104.6 million tons/year. The loan will also contribute to the overall modernization and profitability of Coal India. The Environmental Impact Assessment (EIA) estimates that by the year 2004, the project would thus boost Coal India's annual production to about 320 million tons, as compared to about 240 million tons without the project.

The Rehabilitation Project is linked to policy conditions which would enforce the commercialization of Coal India and the opening of the sector for private investment. More specifically, and according to the IEPS, the loan would be linked to the following conditions:

Coal import duties have in the meantime been reduced to 35 per cent. And in March 1996, the Indian coal minister announced the freeing of the coal prices (except for the coal used by thermal power plants), and the opening of the sector to private companies. The Steel Authority of India Ltd. immediately announced plans to turn to more higher-quality coal from Australia if the prices of Indian coking coal were raised to import levels.

3. Project-specific critique of the coal sector rehabilitation

3.1. Lack of consultation

In April 1994 the World Bank completed a bankwide review of resettlement projects. One of the strategic priorities which the report put forward was to promote "the active participation of would-be resettlers in the preparation, planning, and implementation of resettlement". The 1995 Project Information Document for the Rehabilitation Project confirmed that this was especially warranted for projects in the Indian coal sector. Based on past experience, it warned that "land acquisition (was) difficult unless project-affected people (were) consulted from the outset".

Formally, Coal India and the Bank followed this advice when they prepared the new projects. In March 1995, Coal India sponsored a workshop "on income generation and self-employment alternatives for resettlement and rehabilitation in the coal sector". The event was organized in Calcutta and attended by about 80 representatives of NGOs, state authorities, CIL, and the press. Some of the issues addressed by the workshop were the "virtual absence of meaningful participation by stakeholders in the planning and implementation process" and the "lack of involvement of NGOs". In May 1995 Coal India organized another workshop, again in Calcutta. Here the company discussed the drafts for the sectoral environmental assessment and the mine-specific environmental action plans for the new World Bank projects with NGO representatives. For whatever reasons, no members of Bank staff and management attended the two workshops in India. The task manager of the project did meet representatives of interested Northern NGOs in Washington several times. The Bank also made a wide array of project documents available to interested NGOs which had the capacity to access them.

Participants of the March 1995 workshop complained that no representatives of project-affected people were able to attend, and that such consultations must rather take place in the project areas proper. The responsible Bank representative claims that the consultation process was as inclusive as possible, and that no groups were purposely excluded. Affected NGOs do not agree. The report of the March 1995 workshop lists one group which was excluded because it was "too radical". At least three other grassroot groups reported to Northern NGOs that they had never been consulted and that their letters to Coal India and the World Bank had never been answered, although they had worked with people affected by coal mines for many years. Two of them, the Jharkhand Janadhikar Manch (JJM) and the Chotanagpur Adivasi Sewa Simiti (CASS) from Bihar, prepared detailed, state-of-the-art critiques of Coal India's resettlement and rehabiliation policy and of the new Bank projects.

In their position paper of April 1996, the JJM and the CASS criticized that the scope of possible inputs was too narrowly defined, and predetermined by the World Bank: "It has been suggested to us that we should focus on the search for viable income generating schemes for the PAPs. Who decides the agenda for discussion between PAPs-NGOs and CIL-Bank? (...) If a building design is structurally flawed it is not enough to go ahead and plaster over what are basic structural flaws. They have to be seen and addressed." The JJM also criticized that in Bihar, only "middlemen (which) have stakes in the displacement of the PAPs and shares in the rehabilitation funding" were consulted. A last-minute meeting with the JJM and the CASS was arranged for April 20, 1996, after Northern groups had strongly urged the World Bank to seek this input. It fell through because due to the national elections, World Bank staff were prevented from visiting the mining areas. CASS tried to set up another meeting for May 12, 1996.

India, the "greatest democracy on earth", is a country with an active civil society. In March 1996, the World Bank task manager argued that it was just not possible to consult all interested NGOs in such a country. This excuse is astonishing. The Bank has been ready to spend millions of dollars on studies about the Indian coal sector contracted out to foreign consultants, but is not prepared to handle detailed and comprehensive critiques prepared with great effort by representative groups and project- affected people. The same is true for Coal India. While Northern NGOs appreciate the access to World Bank documents, it is unacceptable that Southern groups (which represent directly affected people) are not treated by the same standards. The history of the coal sector rehabilitation gives the impression that the purpose of consultation for Bank projects is not to allow a bottom-up participatory process, but to comply with institutional criteria and to have official project plans ratified.

The position paper prepared by the JJM and by the CASS in February 1996 contains a detailed critique of the participation standards, and of the new resettlement and rehabilitation policy of Coal India. Much of the following chapter is based on this paper.

3.2. Resettlement and rehabilitation

The EIA of the Coal India projects lists employment opportunities, the access to health care and education, and the provision of facilities like roads, power, water and electricity as the social implications of coal mines. Most of these amenities have never reached project-affected people. The primary social impact of coal mining is of course resettlement. A government committee in 1985 found that less then 35 per cent of all people displaced by coal mines in India had ever been rehabilitated. Lack of proper rehabilitation is a persistent problem of World Bank projects in India as well. The Bank's Operations Evaluation Department (OED) in a report on involuntary resettlement found in 1993 that "in India, the overall record is poor to the extent of being unacceptable". An official report in 1984 had come up with a similar critique. After the bankwide resettlement review of April 1994, the Bank's South Asia Region adopted a comprehensive strategy to improve its R&R performance. The new coal sector projects are a test case for the state of implementation and for the adequacy of this strategy.

Up to the early 1990s, the main approach of Coal India to rehabilitation was to provide jobs to project-affected families. 1973-1993, a total of 33,470 jobs was provided. Presumably, this strategy was in concordance with the World Bank's emphasis on "labour-intensive growth". The move from underground to opencast mining and the strong budgetary pressure undermined this approach. Opencast mines can be operated much more cheaply, in a highly mechanized way with much less labour than underground mines. At the same time they require much more land - and thus resettlement. So the shift towards opencast mining created a need for increased rehabilitation, and at the same time undercut the most important option for it. In spite of its R&R guidelines and its emphasis on labour-intensive growth, the World Bank supports the shift to opencast mining.

The World Bank selected 25 mines for support by its new projects which it considered to be highly profitable, and which can be rehabilitated with a minimum of social and environmental impacts. Directly, the new Rehabilitation Project will negatively affect 18,225 people, of which 10,928 will have to be resettled. Indirectly, the rehabilitation of the coal sector is bound to affect a much larger number of people. 28 per cent of all affected persons are classified as tribal. Coal India and the World Bank took various measures to deal with the problems of rehabilitation. The expansion plans of new mines were reportedly designed in a way to minimize resettlement. In April 1994, Coal India approved a new corporate R&R policy. The policy is based on the formal World Bank principle that "project-affected people improve, or at least regain, their former standard of living". It offers land, self-employment assistance, cash payments or jobs to different categories of affected people. It contains a number of improvements especially for landless homestead owners, sharecroppers, squatters, and tribal people cultivating land under traditional rights. They are all entitled to receiving assistance when looking for self-employment opportunities. In spite of such improvements, the new policy, and the Mitigation Project more generally, have serious shortcomings:

In practice, non-farm self-employment schemes will be the most important approach to rehabilitation under the Mitigation Project. The EIA foresees this option for 62 per cent of all project affected people. According to Coal India's R&R policy, affected people will receive assistance "in developing such options as dairy and poultry production, shops, and petty contracts". In March 1995, the company sponsored a workshop to explore the potential and problems of such options (cf. chapter 3.1.). The workshop report does not mention any positive experiences with self-employment schemes. In a discussion with Northern NGOs, the responsible chief general manager of CIL refered to a successful case involving 20 persons in a silk-weaving cooperative. Self-employment has been the main approach to rehabilitation in the Singrauli region for several years. Mainly due to a lack of markets and of ongoing commitment by the project sponsor, this effort has so far not had any major impact on the situation in Singrauli. The JJM and the CASS also find that "the much vaunted self employment packages are not viable". The groups refer to the 1994 bankwide resettlement review. This report admits that "the Bank's experience with employment generation holds few clear signals on how to produce sustained development for people, especially when many of them have few of the skills needed for off-farm work". "The onus is on CIL and the Bank to find (the possibilities for income generating activities) before the displacement of the people", the JJM and the CASS concluded in April 1996.

Economic livelyhood is the crucial issue of rehabilitation. Yet resettlement also causes cultural shocks and destruction. The JJM and the CASS point out that "mining involves the removal of cultural/religious sites, the scattering of kinship groups, the disruption of informal social and economic networks, the destruction of cultural identity". These problems are not addressed by the Mitigation Project - as is often the case in World Bank projects. They are aggravated by "the particular culture of the coal fields". This culture, the two NGOs elaborate, is marked "by the large amounts of money suddenly being available, inward migration into the area, political patronage, a close nexus between politicians and contractors, illiteracy of the PAPs, (...) unemployment, idleness, caste tensions, breakdown of cultural identity, a wide disparity in living style between those who are CIL employees and those who are out - all against the background of the power of a large public sector company".

The JJM and the CASS extensively documented the flaws of the new R&R policy of Coal India in June 1995, February 1996, and April 1996. Even if the policy framework as such were acceptable, the problem of implementation would still remain. It is quite clear that Coal India agreed to the Mitigation Project because it was a precondition for agreement on the (much larger) Rehabilitation Project. "CIL's business is to produce coal and that they do not have the infrastructure or the experience to get into income generation & community development activities", a statement of a CIL director is recorded in the report on the March 1995 workshop. While understandable, this limitation does not augur well for the implementation of the Mitigation Project. Project implementation has traditionally been a major problem of the World Bank too. As a reaction to the critical resettlement review of 1994, the Bank's India Department created a new staff position for social development at the resident mission in Delhi. Yet it curtailed general supervision outlays as a response to the bankwide budgetary pressure in 1995. The resettlement annex of the Bank's 1994 Report on Portfolio Performance was greatly concerned about a (general) "reduction in resettlement supervision".

In conclusion, land or a sufficient number of jobs are not available for rehabilitation under the Mitigation Project. The option of self-employment alternatives has so far never proven its value in practice. "The logical conclusion", the JJM and the CASS note, "is that the rate of displacement must be radically curtailed." This argument will be further elaborated in chapter 4.

3.3. Local environmental impacts

Robert Goodland of the World Bank's Environment Department ranks coal as eleventh out of twelve possible energy sources on

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