1. Considering the size of its economy, India is poorly endowed with energy resources. It has only modest reserves of oil and gas which will only last for a few decades unless major oil or gas deposits are discovered. India has, however, coal resources that are sufficiently large to meet the bulk of its energy needs for the next 250 years. To meet part of its energy needs through imports would require large investments in transport infrastructure. Since these investments are unlikely to materialize over the short and medium term, indigenous coal will remain the least cost source of energy for most uses.
2. Currently, more than two-thirds of India’s energy needs are met by coal in one form or another. About 70% of India’s coal production is converted into electric power, the remaining 30% is used for a large number of industrial purposes. About 70% of India’s coal comes from large, highly mechanized opencast operations. These operations require little labor, can be implemented quickly and involve considerably lower production costs than underground mines. Productivity in opencast mines is generally high.
3. As a result of a budget crisis in 1991, the Government began to phase out its financial support to Coal India Ltd. Faced with a serious financial crisis, Coal India’s management decided to restructure the company’s operations by phasing out loss-making mines, reducing surplus labor and tightening its financial management. In the short term, Coal India’s main objective is to remain financially viable while implementing its investment program without further budgetary support. In 1992, the company requested the Bank’s assistance in these efforts. Coal India and the Bank agreed that the most effective way to assist Coal India would be for the Bank to contribute to the drafting of a reform program for the coal industry and to finance a time-slice of Coal India’s investments (Coal Sector Rehabilitation Project).
4. The objective of this project is to assist Coal India in its effort to commercialize its operations since the Government has phased out all subsidies to the coal industry. To achieve this objective will take time. As a first step, this project would assist Coal India in meeting its short-term financial objectives through financial support investments in highly profitable mines that have no major environmental problems and require the least number of people to be resettled. In parallel, the project would support the implementation of a reform program for the coal industry.
5. The total costs of this project are estimated at about US$1.9 billion. US$500 million of the financing requirements would be met through a Bank loan, another US$500 million would come from a loan from JEXIM and the rest would be financed out of internal resources and some local borrowing by Coal India.
6. Under the Coal Sector Rehabilitation Project, as it was originally proposed, Coal India would also have received IDA financing for remedial and mitigating environmental and social actions to bring the selected mines in line with the requirements of Indian laws and regulations and the Bank’s Operational Directives.
7. In November 1995, agreement was reached with the Government and Coal India to package the environmental and social components of the Coal Sector Rehabilitation Project as a separate project. This decision made it possible to assist Coal India in the implementation of high priority environmental and social mitigation programs, while providing the Government with the time to take the necessary legal steps for the implementation of reforms. (The Coal Sector Rehabilitation Project will remain linked to the environmental and social mitigation project through cross-conditionality.)
8. The environmental and social mitigation project has three objectives:
• to enhance Coal India’s capacity to deal more effectively with environmental and social issues;
• to assist Coal India in the implementation of appropriate policies for environmental and social mitigation (its revised Resettlement and Rehabilitation Policy, its Community Development Policy and its Corporate Environmental Policy); and
• to test the effectiveness of these policies in 25 coal mines. (These are the mines that would receive financial support under the Coal Sector Rehabilitation Project).
9. Coal India is seeking the Bank’s assistance in an effort to change its approach to environmental and social mitigation because it faces increasing difficulties in the expansion of its mining operations, particularly its opencast mines. Much of what is contained in its environmental and social mitigation policies represents enhancements of past policies and the experiences with similar policies in other countries. The Bank was able to contribute to these policies. As such the Environmental and Social Mitigation Project supports a pilot effort that permits Coal India to experiment with novel approaches to social mitigation at a time when it faces increasing resource constraints (after the Government has phased out all subsidies to the coal industry) and can no longer provide automatically jobs to project-affected people. It is important to keep in mind that what Coal India is doing is a process. Like all change, this process involves some experimentation.
10. We are supporting this process because of Coal India’s commitment to making coal production environmentally and socially sustainable. Up to now Coal India has spent more than US$3 million in the preparation of the mitigation and rehabilitation projects. It has taken the Bank’s advice in the revision of its social and environmental mitigation policies and made every effort to meet the Bank’s concerns.
1. Does the conditionality associated with the Coal Sector Rehabilitation Project involve the closure of loss-making mines and the retrenchment of miners? (Bosshard: para 13)
The Government, Coal India and the Bank agreed on a reform program that would provide Coal India with the necessary incentives and provisions to commercialize its operations, and at the same time, make sure that coal mining would be environmentally and socially sustainable.
Coal India and its seven subsidiary coal companies operate 496 coal mines. Of these, 359 are underground and 137 are opencast mines. While the bulk of Coal India’s production comes from opencast mines, employment is concentrated in underground mines. In 1995/96 Coal India produced 243 million tons of coal, of which 186 million tons (76.5%) came from opencast mines and 57 million tons (23.5%) from underground mines. In the same year, Coal India employed 550,000 coal miners. Of these, 435,000 (79.1%) were employed in underground mines and 115,000 (20.9%) in opencast mines. On average, labor productivity in underground mines is only one-seventh of that in opencast mines. Considering further that the wages of coal miners are relatively high (about 8-10 times the minimum wage), underground mines account for most of Coal India’s financial losses.
While the closure of mines and the retrenchment of miners are not part of the agreed reform program for the coal sector, Coal India’s financial viability will to a large extent depend on its ability to phase out loss-making operations and to retrench surplus labor. Both the closure of mines and the retrenchment of labor are politically quite sensitive, particularly in Bihar and West Bengal where most of Coal India’s loss-making operations are concentrated. In order to attain its commercial objectives, Coal India has, with the support of the Government and labor unions, introduced a ‘Voluntary Retirement Scheme’ under which it pays volunteers above a certain age about 2.5 years of wages. This amount usually suffices to provide these volunteers with an income until they reach their legal retirement age. The retirement scheme is financed through grants from the Government and has been, at least in part, financially supported through a Bank loan to the National Renewal Fund.
Participation in this retirement scheme is voluntary. In the case of mine closures, it is Coal India’s policy to reassign miners to other coal mines. Retrenchment of surplus labor is dealt with through attrition and the ‘Voluntary Retirement Scheme’. According to projections prepared by Coal India, these two mechanisms will suffice to eliminate the current and projected surplus labor over a 7-10 year period.
Project critics claim that the need for retrenchment of surplus labor would primarily affect the female labor force. Employment statistics do not support this. At the time the coal industry was nationalized, the coal industry employed 30,000 women. By 1992, this number had increased to 43,700, and continued to rise in subsequent years (43,900 in March 1993 and 44,100 in March 1994).
2. Why does the Bank support Coal India’s shift to opencast mining, although the Bank’s guidelines for resettlement and rehabilitation emphasize “labour-intensive growth”? (Bosshard: para 22)
Project critics argue that up to the early 1990s Coal India’s main approach to rehabilitation was to provide jobs to project-affected families, and that this strategy was in accordance with the World Bank’s emphasis on “labour-intensive growth”. The shift from underground to opencast mining and the cut of subsidies to the coal industry have undermined this approach. Their main point is that “in spite of its R&R guidelines and its emphasis on labour-intensive growth, the World Bank supports the shift to opencast mining.” They point out that “underground mining requires much less land and provides more jobs than opencast mining; the internalization of social and environmental costs might in some cases reverse the present advantage of opencast over underground mining; and switching back to more underground mining would ideally fulfill the formal World Bank requirement that resettlement should be minimized in Bank projects.”
The decision of whether to mine certain coal deposits through opencast or underground mining is driven by technical and commercial considerations. Opencast mining is almost always cheaper and more efficient than underground mining for deposits that are close to the surface. Below a depth of 100 meters underground mining is the only option. What makes underground mining relatively more expensive is that it can extract only a fraction (30-50%) of the coal reserves. In traditional ‘bord and pillar’ mining, the technique used in India, large blocks of coal deposits remain unextracted to hold up the roofs over roadways and working areas. In addition, while thick coal seams are a definite advantage in opencast mines, they represent a serious challenge in underground mines. Finally, the rapid growth in demand for coal in India can be better met by developing opencast mines, because they take less time to construct than underground mines. In sum, opencast mines are generally more efficient than underground mines in extracting coal. One opencast mine produces on average as much coal as 6-8 underground mines. Thus, the land requirements of underground mines (for mine infrastructure and protection against mine subsidence) are no less than for an opencast mine producing the same amount of coal. The main difference is that the environmental and social problems associated with land acquisition are concentrated in a relatively small area surrounding the opencast mine, whereas they are spread over a large area covering a number of underground mines.
3. Critics of the Coal Sector Rehabilitation Project argue that the social and environmental cost of coal production should be internalized. This would raise the prices of coal and power beyond the levels achieved through deregulation of prices. While poor consumers would be hit hardest by such price hikes, higher coal and power prices would favor the development of renewable energy sources and would make demand-side measures even more attractive. The additional burden on the poor could be alleviated through “targeted subsidies”. (Bosshard: para 42)
We agree that the environmental and social cost of a project need to be taken into account in the assessment of its economic viability. We have done so in our preliminary economic evaluation of the 25 mines included under the Coal Sector Rehabilitation Project, which has yet to be appraised. We found, and this has been confirmed by some of our critics, that ‘internalizing’ the environmental and social mitigation actions has only a marginal affect on the cost of coal production.
We agree with Mr. Bosshard’s assertion that “demand-side measures are preferable over coal and power not only on environmental, but also on social grounds” and his conclusion that “... higher coal prices alone will not foster a major conservation of energy.” As he points out correctly, the demand for coal in India is highly price inelastic. Thus, even a drastic increase in coal prices would have only a small impact on the overall use of coal. Steady increase in freight rates by the Indian Railways, which transport almost 70% of the coal produced by Coal India and the cesses and royalties levied by State Governments on the use of coal attest to the fact to the fact that they are very much aware of the inelastic demand for coal (and take full advantage of it). India’s relatively high price elasticity for the demand of coal reflects the limited opportunities of fuel substitution and the low level of energy consumption.
Direct income subsidies to the poor or any other population group in India are difficult and expensive to administer. In the energy sector, as well as in many other sectors, the Indian Government takes the concerns of the poor into account by keeping the prices of commodities, that play an important role in the cost of living of the poor, well below import parities. An example would be the pricing of kerosene.
4. Demand-side measures are the least-cost option to meet India’s energy demand. Why does the Bank continue to support the Government’s energy strategy that rests on coal-based thermal power generation. (Bosshard: para 42)
We fully agree with Mr. Bosshard on the importance of demand-side management. The record of our assistance to the Indian energy sector shows that we strongly support efforts to use energy efficiently. The Bank’s lending to the Indian energy sector reflects this. The bulk of the Bank’s lending went to improving the efficiency of power generation and transmissions (and thus reducing transmission losses), and more recently the distribution of power. In parallel, the Bank supported several projects aimed at expanding the use of renewable energy. In the oil and gas sector the Bank supported a major effort to reduce the wasteful flaring of natural gas. The main thrust of the Bank’s involvement in the energy sector is to support pricing reform to provide users with the correct signals for using energy efficiently.
However, demand-side management alone is not going to meet India’s energy needs. India’s per capita energy demand is among the lowest in the world. Indians consume on average the equivalent of one fourth of a ton of oil a year. Chinese consume more than twice as much, and consumers in industrial countries use about 20 times as much. While there is no doubt that a considerable amount of energy is wasted, only a fraction of India’s demand for energy can be met through demand-side measures. Bank staff estimate that even an extremely successful national demand-side management program could reduce energy consumption by no more than 2% a year. Demand-side management measures complement the sectoral reforms supported by the Bank through the power and coal projects, but they are no substitute for these reforms. Experience with reforms in China, the former Soviet Union and OECD countries have clearly shown that sector reforms have a far larger impact on energy use than specific technical efficiency improvements.
5. The unqualified enforcement of liberalization and free-trade principles rules out the full internalization of social and environmental costs. The World Bank should draw conceptual lessons from the fact that in the case of the Indian coal sector , its standard economic policies contradict the social and environmental agenda of mainstreaming the environment, incorporating global overlays, and implementing its own R&R policy. (Bosshard: para 44)
As indicated above (Question #3), the cost of project-specific environmental and social mitigation are fully taken into account in the design and economic evaluation of the Coal Sector Rehabilitation Project. What has not been done so far is to consider the economic cost of the potential effect of CO2 emissions from the use of the coal that will be produced in the 25 coal mines included under the Coal Sector Rehabilitation Project. Conceptually, consideration of the cost of CO2 emissions would need to be based on the combined costs and benefits of coal mining/imported coal and power generation. To allocate the costs only to coal production is simply incorrect. The efficiency with which coal is burnt in power generation has a significant bearing on the amount of CO2 emissions.
At present there are no reliable estimates of the economic cost of CO2 emissions. Mr. Bosshard refers to an estimate made by GEF based on a solar thermal power project in India, which would indicate a cost of US$27 per ton of CO2. The Bank’s staff puts the cost of carbon at US$20 per ton. Taking into account the respective molecular weights of carbon (12) and oxygen (16), the cost of one ton of CO2 (=12 divided by [12+32] times the cost of carbon) would only come to US$5.45.
OP10.04 (Economic Evaluation of Investment Operations) requires that a project’s global externalities are considered in the economic analysis when projects or project components are financed by the Global Environment Facility (OP10.04 para 8). While neither condition would apply to the Coal Sector Rehabilitation Project, preliminary calculations indicate that the project would have an economic net present value of more than US$6 billion. According to Mr. Bosshard’s calculations the economic cost of the direct increase of coal production under the Coal Sector Rehabilitation Project would be US$288.9 million annually. Assuming that the equipment financed under the project has an economic lifetime of around 10 years, the economic net present value would more than cover the estimated cost of CO2 emissions.
6. A colonial land acquisition act that forcibly takes land at deflated prices and the Bank’s proposal for deregulation of coal prices for a ‘free market mechanism’ are contradictor. (Bosshard: para 41)
Coal India acquires land under the Land Acquisition Act of 1904 and the Coal Bearing Areas Act of 1957. Most of the land is acquired using the provisions of the Land Acquisition Act which has been amended several times, the last time in 1984, since its adoption in 1904. Because land acquisition through private negotiations with land owners lacks transparency there is always the risk of allegations of corruption. Coal India officials, therefore, shy away from acquiring land through direct negotiations. The Coal Bearing Areas Act gives the Ministry of Coal the power to acquire land without involving the State Governments. This has led to friction with State Government authorities and Coal India uses this Act only in exceptional cases.
Under the Land Acquisition Act, land owners receive the market value of their property, payment of 12% per annum interest on the market value from the date of preliminary notification to the date of award and a solatium of 30% of the market value since the acquisition of land was compulsory. The District Collector decides about the amount of compensation taking into account the claims of land owners and other evidence, such as the sales of similar land in the recent past. The sale of land is subject to taxation. To reduce their tax liability, landowners frequently report a sale price that is substantially lower than the actual price. District collectors use the reported prices of recent land sales as a guide in determining the market value of land. This results in the ‘deflated prices’ for land referred to by project critics. However, there is a process of judicial appeal regarding compensation payments and courts have routinely enhanced compensation that was found to be inadequate.
7. Project critics argue that even if landowners would receive a price for their land that would reflect its market value in the recent past, it is doubtful that they would be able to purchase an identical plot of land nearby, since the demand for land for mining purposes would have driven up land prices. How will Coal India compensate landowners for these losses. (Bosshard: para 23)
The argument is essentially correct. Compensation for land under the Land Acquisition Act is frequently below the replacement cost. However, compensation for homestead land and houses is based on actual replacement cost. Coal India has in the past compensated landowners for this loss by offering employment, usually one job for two acres of irrigated land or three acres of unirrigated land. Since wages in the coal industry are about 8-10 times the minimum wage, offers of employment have been accepted by almost all project-affected families.
This practice has contributed to the serious overstaffing in all mines with unskilled laborers. With the phasing out of budgetary support to the coal industry, Coal India had to look for other ways to compensate project-affected people. In its revised policy for resettlement and rehabilitation, which is based on extensive consultations with the Bank, Coal India provides three alternative options to compensate for losses due the assessment of land values ‘on the basis of prevailing legal norms’:
(a) if feasible, employment with the coal company;
(b) purchase of equivalent replacement land with the help of the coal company; project-affected people would identify the land and pay for it with the compensation they have received for the land they sold to the coal company;
(c) assistance for the establishment of non-farm self-employment; or
(d) for project-affected persons from whom the coal company acquires less than two acres and whose income from other sources does not exceed Rs12,000 a year, the coal company would provide a subsistence allowance or an equivalent grant to be used for productive purposes. (The subsistence allowance is based on the so-called ‘Gulla’ package under which project-affected people receive Rs 500 /acre/month for 20 years.)
Coal India has agreed that option (d) can be combined (as an annuity or lumpsum) with options (b) and (c). This would provide project-affected people with additional funds for the purchase of replacement land, under option (b), or as ‘seed money’ for the start of non-farm self-employment. In addition, the revised Resettlement and Rehabilitation Policy provides for rehabilitation of adult individuals and not households as was the case before. Thus, a household stands to gain from the changes in this policy.
Coal India’s revised resettlement and rehabilitation policy reflects an effort to raise the efficiency of mining operations and at the same time protect the livelihood of project-affected people. After the phasing out of budgetary subsidies, Coal India can no longer afford to offer expensive jobs in the coal industry. Alternative ways had to be found to safeguard and improve the livelihood of project-affected people. The revised resettlement and rehabilitation policy represents a new approach, whose outcome will be carefully observed, not only by the Bank, but also by an independent panel of experts and a third party project supervision team, under the Environmental and Social Mitigation Project. If the revised policy does not yield the desired results, Coal India is committed to make appropriate changes.
Under the Environmental and Social Mitigation Project, Coal India has provided the Bank with a resettlement and rehabilitation policy that clearly shows the intent to meet the Bank’s operational directive on involuntary resettlement, in particular the requirement to re-establish and, where feasible, raise the standard of living of project-affected people. In following through with the expensive and time-consuming process of preparing this project, Coal India has also provided the Bank with a clear indication that it is committed to implement this policy. Coal India is aware that disbursements under the Coal Sector Rehabilitation Project are linked to the satisfactory implementation of the environmental and social mitigating actions. It would make absolutely no sense for Coal India to incur the expense of changing its policies for environmental and social mitigation and to prepare the Environmental and Social Mitigation Project, unless it is committed to implement these policies as well as the project.
As far as the Coal Sector Rehabilitation Project is concerned, all land acquisition and payment of compensation for the selected 25 coal mines has been completed, except for a few cases where the ownership of the land is in legal dispute.
8. Since Coal India has stated that their business is to produce coal and that they didn’t have the experience or infrastructure to get involved in income generation and community development activities, how will the project be implemented? (Bosshard: para 26)
Coal India has sought the Association’s assistance in dealing more effectively with environmental and social mitigation because it recognizes that it faces growing opposition to the expansion of coal mining operations. As a coal company, it is only natural that Coal India sees its primary mission as producing coal. However, Coal India would not have incurred the effort and expense of revising/adopting appropriate environmental and social mitigation policies and preparing the Environmental and Social Mitigation and the Coal Sector Rehabilitation Projects if it did not see the need to produce coal in an environmentally and socially sustainable manner.
While Coal India has been extensively involved in resettlement and rehabilitation and community development activities ever since its establishment in 1975, it is now enhancing its capacity to deal more effectively with environmental and social issues. Coal India has established a separate World Bank Projects Division at its headquarters whose environmental and resettlement and rehabilitation cells will be responsible for the training and hiring of qualified staff to implement the Corporate Environmental Policy, Community Development Policy and the Resettlement and Rehabilitation Policy in the selected 25 mines. In parallel, Coal India is taking similar steps to implement these policies in other mines. To ensure that the World Bank Projects Division has the necessary capacity to manage the implementation of the social and environmental action plans, Coal India has signed a contract with the Indian Institute of Social Welfare and Business Management for support of the work and training of its staff in the resettlement and rehabilitation cell.
Local NGOs and community based organizations will play a key role in the implementation of Indigenous Peoples Development Plans and the Rehabilitation Action Plans. At negotiations, Coal India agreed to invite proposals from qualified NGOs or specialized local community-based organizations, by September 30, 1996, that would assist Coal India in the implementation of these plans.
9. Will Coal India implement the Environmental and Social Mitigation Project even if the Coal Sector Rehabilitation Project is not approved by the Bank?
As indicated in the response to question #8, Coal India faces increasing opposition from the local population and their representatives in expanding mining operations. Much of Coal India’s reserves lie in densely populated areas. Coal India has therefore a strong incentive to find ways to meet the concerns of the people affected by its mining operations. The main risk is not that Coal India will not take environmental and social mitigating actions, but that without the Bank’s support to the coal sector, Coal India would not implement environmental and social mitigation programs that are as comprehensive and all-encompassing as those slated for implementation under the Environmental and Social Mitigation Project.
10. In his paper on “Mainstreaming Sustainability - The World Bank and the Indian Coal Sector” Mr. Bosshard demands that the specific recommendations for improving the coal sector projects in the position papers of JJM and CASS , two NGOs from Southern Bihar, and the workshop reports of March and May 1995 should be fully taken into account before the Rehabilitation Project is presented to the Executive Board. (Bosshard: para 46)
In March 1995 Coal India organized a two day workshop on Income Generation and Self-Employment Alternatives for Resettlement and Rehabilitation in the Coal Sector in Calcutta, which was attended by 16 NGOs from Orissa, eight NGOs from Bihar, seven NGOs from Madhya Pradesh. The main objective of this workshop and similar workshops at Coal India’s subsidiaries was to seek the views of NGOs and other participants on the various self-employment options. Coal India made it clear in these workshops that it could no longer provide employment beyond the labor requirements of its mines, and invited NGOs “to come forward to help in the search of making this new approach a success.” Coal India hired Operations Research Group, an NGO organization, to prepare a document that summarized the suggestions made by the participants in this workshop. Many of the suggestions were quite useful and will be explored further in the implementation of the Rehabilitation Action Plans and Indigenous Peoples Development Plans. However, not all suggestions made by NGOs are implementable. They often reflect a situation that is specific to a particular area or mine. Coal India’s operations extend over seven States. Ideas and proposals that would meet the needs of project-affected people in one location, may be counterproductive in another one.
The Staff Appraisal Report for Environmental and Social Mitigation Project describes in paragraphs 2.24- 2.26 and Annex 2.6 the scope and process of consultations that has taken place (and will continue to take place) during the preparation and implementation of this project. Consultations with project-affected people took place during the preparation of the social and environmental action plans. For the preparation of these plans, Coal India hired NGOs with staff that spoke the local dialects of the affected people.
For the preparation of the Rehabilitation Action Plans:
• Interviewers visited the household of every project-affected family to prepare the baseline socioeconomic surveys. This provided an opportunity to discuss with project-affected people how the proposed project would affect their lives and the various options for rehabilitation. During the course of these interviews, project-affected people were asked, on the basis of a detailed questionnaire, about their perceptions regarding land acquisition, compensation, the benefits of the project displacing them and the relocation site and host community.
• In addition, most interviewers organized focus group sessions for various groups in the villages, such as women, the landless and tribals. The main purpose of these focus groups was to ensure a broad-based participation of affected people in the resettlement and rehabilitation process.
• In parallel, Coal India conducted a number of workshops on opportunities for self-employment to which it invited representatives of project-affected people, NGOs and rehabilitation experts. To ensure a wide participation of affected persons, Coal India paid the costs of travel and subsistence.
For the preparation of the Environmental Action Plans:
• At each of the mines included under the project, mine managers held meetings with project-affected people in which they explained the program of mitigating actions that would be undertaken in the course of implementation of Environmental Action Plans.
For the preparation of the Indigenous Peoples Development Plans:
• The most extensive effort of consultation was undertaken during the preparation of these plans. Coal India hired NGOs to visit all the villages and settlements in the areas surrounding the selected coal mines. While the consultations focused primarily on ways to improve life in these communities, it provided interviewers with an opportunity to again convey the purpose of the project and to seek opinions on how the local communities perceived its effect on their lives.
Mr. Bosshard lists several suggestions made by an NGO from Southern Bihar (CASS is a part of JJM) that he feels “should be fully taken into account”, such as :
• “Time-bound Rehabilitation Action Plans which are linked with progress in the project’s civil work”. Comment: This is exactly what is being done under the Environmental and Social Mitigation Project. The Rehabilitation Action Plans are time-bound and linked to the progress of mining activities.
• “Comprehensive area-wise EIAs and Rehabilitation Action Plans”. Comment: This idea has been generally accepted by the coal industry. However, it is difficult to implement, without Government support, in areas where the agreement of several entities is required. At the suggestion of the Bank, the Neyveli Lignite Corporation has carried out a regional environmental and social impact assessment for the expansion of its operations in Neyveli. Under the Jharia Mine Fire Control Project IDA funds support the preparation of an environmental management plan for the Jharia coalfield. Coal India has prepared regional environmental impact assessments for most of its larger coalfields. However, in order to be implementable, comprehensive regional environmental and rehabilitation action plans require the full participation of all major industries operating in a specific area. (The implementation of the above mentioned environmental management plans supported by the Bank do not require the cooperation of other industries). Since only State authorities would be in a position to enforce the implementation of such regional plans that involve a number of entities, a first necessary step would be to create the necessary legal basis for such regional action plans.
• “Verification of adequate compensation by an independent agency”. Comment: Under the Environmental and Social Mitigation Project Coal India has agreed to appoint, by October 31, 1996, a Panel of Social and Environmental Experts that will monitor the implementation of the Rehabilitation Action Plans in the selected 25 mines. In addition to the legal avenues open to project-affected people in cases of dispute about compensation under the Land Acquisition Act and the Coal Bearing Areas Act, Coal India’s revised Resettlement and Rehabilitation Policy contains a mechanism for dealing with disputes: “A committee comprising nominee(s) of the State Government, nominee(s) of the project general manager of the subsidiaries, a representative of the PAP and an independent party, such as a respected community leader, a retired judge or principal of a reputed local institution of higher education, will be constituted to examine the grievances of the PAP and propose corrective actions as required. The subsidiaries will make
• “The marketing of coal by cooperatives of project-affected people”. Comment: This idea has been tried, as an experiment, by Coal India in its mining operations in West Bengal, where Eastern Coalfields Ltd. gave 100 tons of high quality coal a month to landless project-affected people as compensation for losing their livelihood due to the expansion of coal mining. In the end, the practice had to be stopped due to claims of corruption. In general, the idea of compensating project-affected people with coal should be definitely considered in the review of Coal India’s Resettlement and Rehabilitation Policy, which is scheduled to take place by December 31, 1997. However, it will only work for the relatively small market for high grade coal, which is mostly supplied from the output of underground mines. About 70% of Coal India’s coal output goes to power stations, which are directly linked to specific coal mines.
• “Lease instead of purchase of land by Coal India”. Comment: Currently Coal India acquires the land for its mining operations and returns it to the respective State Government, after mining operations have been completed and the area has been restored, without being compensated for it. A lease arrangement could be an attractive alternative to Coal India and should be considered in the scheduled review of its Resettlement and Rehabilitation Policy.
• “The attribution of equity shares of coal companies to project-affected people”. Comment: Currently only two of Coal India’s seven coal producing subsidiary companies make significant profits, two make large losses and the remaining three barely break even. Thus the idea of providing project-affected people with shares needs to be applied selectively if it should serve the intended objective to improve the standard of living of project-affected people.
• “Land reclamation by indigenous tree species which should serve as common property resources for affected people”. Comment: Coal India is revegetating most of the mined out areas with indigenous trees. As indicated above, the land is then turned over to the State Government. In the case where forest land is used for mining purposes, Coal India has to acquire additional land of the same size and replant it with trees. The afforestation activities are usually carried out by the State Forest Department(s).The idea to turn this land over to project-affected people would need to be discussed with the State Governments.
11. What is the relationship between the Environmental and Social Mitigation Project and the Coal Sector Rehabilitation Project?
As a result of a budget crisis in 1991, the Government began to phase out its financial support to Coal India Ltd. Faced with a serious financial crisis, Coal India’s management decided to restructure the company’s operations by phasing out loss-making mines, reducing surplus labor and tightening its financial management. In the short term, Coal India’s main objective was to remain financially viable while implementing its investment program without Government support. In 1992, the company requested the Bank’s assistance in these efforts. Coal India and the Bank agreed that the most effective way to assist Coal India would be for the Bank to contribute to the drafting of a reform program for the coal industry and to finance a time-slice of Coal India’s investments (Coal Sector Rehabilitation Project).
In November 1995, agreement was reached with the Government and Coal India to package the environmental and social components of the Coal Sector Rehabilitation Project as a separate project. This decision made it possible to assist Coal India in the implementation of high priority environmental and social mitigation programs, while providing the Government with the time to take the necessary legal steps for the implementation of reforms.
The Coal Sector Rehabilitation Project will remain linked to the Environmental and Social Mitigation Project through cross-conditionality. Under this cross-conditionality disbursements under the Bank’s loan for investments in mines (Coal Sector Rehabilitation Project) would be contingent on the timely and effective implementation of the agreed mine-specific Environmental Action Plans, Rehabilitation Action Plans, and Indigenous Peoples Development Plans. If it is found that any of these plans is not implemented satisfactorily, the Bank would suspend or cancel further disbursements for the mine where implementation is unsatisfactory. Disbursements to other mines and project components would not be affected by this decision.
Before the Indian delegation is invited to negotiations for the Coal Sector Rehabilitation Project, the Bank will carry out a review of the progress of the implementation of the Environmental and Social Mitigation Project. The decision to invite for negotiations will depend, inter alia, on the satisfactory implementation of the Mitigation Project, in particular with regard to the Bank’s operational directives on environmental assessments (OD4.01), involuntary resettlement (OD4.30) and indigenous peoples (OD4.20).
12. Project critics argue that coal mining affects both the local and global environment. While the Environmental and Social Mitigation Project provides support for the mitigation of the adverse effects on the local environment, it fails to internalize the effects on the global environment. Why? (Bosshard: para 28)
Coal mining affects the global environment through the release of coal-bed methane. While coal-bed methane is about 30 times as powerful a greenhouse gas as carbon dioxide, coal mining is a relatively small contributor to methane emissions in India, as the following table shows:
in million metric tons
Source Methane emission
Wet rice agriculture 19.00
Livestock 12.00
Solid wastes 2.30
Coal mining 1.80
Oil and gas production .16
Total 35.26
The table shows that coal mining contributes about 5.1% to India’s total methane emissions, all of it from underground mines. Since the Coal Sector Rehabilitation project provides financial support only to opencast mines, only the mitigation of local environmental effects is included under the Environmental and Social Mitigation Project.
Global methane emissions total 250 million metric tons. India’s methane emissions constitute about 14% of the total global emissions and methane emissions from coal mining in India constitute about .7%.
13. A review of Coal India’s Environmental Management Plans by International Mining Consultants Ltd. (IMCL) revealed that the impact assessments did not include quantitative estimates, the proposed mitigation measures did not include recognizable targets and the cumulative effects of coal mining in a particular area were not assessed. How is the Environmental and Social Mitigation Project addressing these shortcomings? (Bosshard: para 29)
At the request of the Bank, Coal India hired International Mining Consultants to identify, inter alia, any shortcomings in the implementation of its ongoing environmental and social mitigation programs in the mines that would be included under the Coal Sector Rehabilitation Project. Among the issues and shortcomings that would need to be addressed, IMCL found that that the impact assessments did not include quantitative estimates, the proposed mitigation measures did not include recognizable targets and the cumulative effects of coal mining in a particular area were not assessed.
As part of project preparation, Coal India prepared environmental actions plans for the 25 mines that would be eventually included under the Coal Sector Rehabilitation Project, which would bring environmental mitigation in compliance with Indian environmental legislation and standards as well as with OD 4.01. In preparing these plans, Coal India has made an effort to consult with all project-affected people, their representatives and local NGOs. The environmental action plans contain a time-bound action program for environmental mitigation and performance benchmarks to facilitate the monitoring of their implementation; they have been included as an annex to the Environmental Impact Assessment.
To take into account the cumulative environmental effects of coal mining, Coal India has prepared regional environmental impact assessments for coalfields where the expansion of mining operations would result in air and water pollution that exceeds permissible limits. These assessments focus only on mining operations. They do not take into account the expansion (and increase in environmental pollution) of other industrial activities.
Until recently, the analytical tools for evaluating and internalizing the regional impact of acidification from SO2 and NOx due to burning of coal were not available. The Bank has just completed a regional policy integrated assessment model (RAINS-ASIA), which would make it possible to assess (and internalize) the environmental cost of coal use for a whole region.
14. The British NGO Minewatch found that the parameters of the Environmental Management Plans were largely irrelevant or too lax. The report questioned the validity of an Environmental Impact Assessment which was prepared without meaningful public participation; ... severely criticized the lacking environmental capacities of Coal India, and the lack of monitoring of mine projects by the State Pollution Control Boards. (Bosshard: para 31)
In its review of the EMPs for the 25 selected coal projects, the Bank’s staff found that they cover most of the subjects required by OD4.01. Subjects not dealt with in the EMPs, such as environmental policy, environmental law, institutional arrangements, occupational health and safety and public consultation, have been addressed in the Environmental Impact Assessment of the Indian Coal Sector.
Indian regulations provide for public consultations as part of the preparation of Environmental Impact Assessments. It is one of the objectives of the Environmental and Social Mitigation Project to strengthen Coal India’s capacity to deal more effectively with environmental issues including the process of public consultation.
Coal India is using NGOs in implementing the Indigenous Peoples Development Plans under the Environmental and Social Mitigation Project. As mine managers become more familiar with the capabilities of local NGOs, it is quite likely that they will use these NGOs also in the monitoring of environmental impacts.
It is correct that State Pollution Control Boards monitor coal mines relatively infrequently. We have taken two steps to deal with this situation. We are currently in the process of preparing an Environmental Capacity Building Project that will provide support for the strengthening of State Pollution Control Boards whose responsibility it would be to monitor the selected 25 coal projects. In addition, Coal India in its Corporate Environmental Policy has made a commitment to self-police the compliance with environmental laws and regulations.
15. To what extent has OP10.04, which requires that “global externalities are fully assessed (to the extent tools are available) as part of the environment assessment process and taken into account in the project design and selection” (and the Bank’s Global Overlays Initiative) been applied in the operations proposed by the Bank Group for the Indian coal sector? “If all economic costs were internalized in the price of coal, the economic rate of return of the Bank project would probably be negative, and the demand for coal would certainly be much lower than expected. (Bosshard: para 38)
Mr. Bosshard is misinterpreting OP10.04. The OP directs that for projects with a significant global environmental impact, the impact should be fully assessed in physical terms (e.g. in tons of carbon or CO2 equivalent) and taken into account side-by-side with EIRR/NPV justifications in the design of the project. If this information is available for alternative project designs, it is assumed that clients could choose more globally environmentally friendly options as part of their implementation of international commitments under the Framework Convention on Climate Change. GEF financing would be potentially available to cover the so-called ‘incremental costs’ of this choice. The OP directs that the economic value of the global externality would only enter the cost-benefit analysis where there is a demonstrated willingness to pay for externality avoidance: either (i) a GEF grant, or (ii) an international ‘joint implementation’ type investor willing to finance the externality abatement.
Sector work on the environmental effects of power generation in India, which is financed by ODA and will focus, inter alia, on environmental externalities (“global overlay”) is consistent with the guidance for best practice contained in BP2.11
As has been pointed out above, it would be logically incorrect to allocate the environmental ‘cost’ of CO2 emissions solely on the coal sector. They need to be taken into account by combining the cost of coal mining (‘the economic cost of coal’) with the cost of power generation and comparing them to the economic revenues of power generation. Only then can the least environmentally damaging project designs be taken properly into account.
16. The Bank’s 1995 Country Assistance Strategy for India disregarded all global environmental issues. Why? (Bosshard: para 38)
The 1995 CAS is a strategy document, which indicates (in para 70) that the Bank will support India’s Environmental Action Plan and India’s commitments under international agreements on the global environment. In a more expanded version of the Bank’s assistance program it would have been possible to mention the Bank’s support for bio-diversity conservation, phase-out of ozone depleting substances, alternative energy development and coastal and marine area management.
17. How do India’s environmental standards for suspended particulate matter compare with the rest of the world? (Bosshard: para 28)
The following table shows the standards for suspended particulate matter for Indonesia, Thailand, Singapore and India.
Country 24 hour max. (µg/m3) Annual mean (µg/m3) Indonesia 230 90 Thailand 330 100 Singapore 260 75 India 200 130 World Health 150 - 230 60 - 90 Organization
18. 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. Why have most of these amenities never reached project-affected people? (Bosshard: para 21)
Most of Coal India’s mine managers go to great lengths to establish and maintain good relationships with the people living in communities next to their mines, for several reasons. First, a considerable part of the miners come from these communities and, in most cases, still live there. Second, if not treated well, the inhabitants of mining communities will put pressure on Coal India, through NGOs or local politicians, to consider their concerns. (If they feel they are not heard and the coal company is violating the law, they can obtain ‘stay orders’ at the local court to halt mining operations.)
As part of project preparation Coal India has commissioned a study to examine the impact of the construction of coal mines on communities, in particular tribal communities. The study showed that, while the opening of a coal mine improved the standard of living of a small number of people, most people felt that they were worse off. The results of this study provided useful inputs in the revision of Coal India’s Resettlement and Rehabilitation Policy and the drafting of a Community Development Policy.
As a result of these policies, resettlement sites will be provided with basic amenities, such as access roads, schools, health clinics, water supply and electricity (street lights), drains, ponds, community centers, places of worship, grazing land for cattle and play grounds. These facilities would also be provided to host communities near the resettlement site. Similar facilities are provided to all villages within one kilometer of the leasehold of the mine. Under the Environmental and Social Mitigation Project about 190,000 people in 200 villages will benefit from these improvements. This does not take into account all the other villages where Coal India will provide similar facilities. This is a significant and tangible benefit of this project!
19. Why does the Environmental and Social Mitigation Project not support the provision of jobs, since this is by almost all project-affected people regarded as the most desirable rehabilitation option? Is it correct that Coal India has adopted severe restrictions on any new hirings? (Bosshard: para 23)
Until a few years ago, Coal India has provided automatically employment to ‘land losers’, usually one job for two acres of irrigated land or three acres of non-irrigated land. In spite of the fact that miners received wages that are about 8-10 times the minimum wage, Coal India could afford this practice as long as the Government set coal prices on a cost-plus basis, subsidized Coal India’s investments and covered Coal India’s cash losses. As a result of the budget crisis in 1991, the Government began to phase out its subsidies to public sector enterprises including Coal India. While Coal India no longer receives subsidies from the Government, it has now a surplus of expensive mine labor, which it has to finance from its own resources. Employment with the coal industry is generally for life and it is a common practice to pass on jobs to (male) relatives. Under these circumstances, Coal India had to change its policy of offering employment to ‘land losers’ and is exploring other forms of compensation. (See the response to question #7).
20. Why are tribals excluded from the “land-for-land” option? In practice, the EIA does not seem to foresee any land-for-land compensation, why not? (Bosshard: para 23)
Under Coal India’s revised Resettlement and Rehabilitation Policy tribals cultivating land under “traditional rights” are now captured as “project-affected” and entitled to compensation under A(1) of Coal India’s Resettlement and Rehabilitation Policy as well as rehabilitation (self-employment schemes, jobs with contractors), if Coal India acquires their land. They are not excluded from the land-for-land option.
As far as the Environmental and Social Mitigation Project is concerned, most of the land needed for the selected 25 mines had been acquired before the revised Resettlement and Rehabilitation Policy became effective. In the preparation of the Rehabilitation Action Plans, it was found that almost all project-affected people expressed a preference for employment in the coal industry. Few indicated an interest in the ‘land-for land option’.
Since individuals and not households are entitled to rehabilitation, the benefits of rehabilitation may well equal or surpass payment of replacement cost of land. This was not the case before the revision of the Resettlement and Rehabilitation Policy.
21. Non-farm self-employment schemes will be the most important approach to rehabilitation and the Environmental and Social Mitigation Project. What steps will Coal India and the Bank take if this approach fails? (Bosshard: para 24)
In para 7 of the revised Resettlement and Rehabilitation Policy Coal India states clearly its commitment to ensure that project-affected people will “improve, or at least regain, their former standard of living and earning capacity...” Non-farm self-employment is only one of several options provided in the Resettlement and Rehabilitation Policy to achieve this objective. Other options include annuities and lumpsum payments. Coal India is well aware of the difficulties it will face in convincing project-affected people to try non-farm self employment. Most people will insist on a job with the coal company. Because Coal India is severely constrained in providing jobs, it is in the company’s interest to make every effort to ensure that non-farm self-employment turns out to be a viable, attractive alternative to jobs in the coal industry.
This has not been tried on that large a scale, and there is clearly a risk that the effort could fail. Agreement has been reached with Coal India during negotiations to review the lessons learnt from the implementation of the Rehabilitation Action Plans in the Indigenous Peoples Development Plans in the selected 25 mines by December 31, 1997. If it turns out that non-farm self-employment was not a viable option, then Coal India will have to fall back on providing project affected people with annuities or lumpsum payments, unless other more attractive rehabilitation options can be identified.
22. Local NGOs 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. Why does the Environmental and Social mitigation Project not address these issues? (Bosshard: para 25)
During the preparation of this project a review of religious and cultural sites at the 25 selected mines was carried out. No religious or cultural sites of significance were identified in the areas that would be mined or in the villages that would be resettled.
However, the disruption of community life through phased resettlement was recognized as a serious problem, and steps were taken through provisions in the resettlement and rehabilitation policy and the resettlement action plans to minimize any disruptions. These steps include, moving villages or communities, especially tribal communities, as units; providing facilities to meet the special needs of tribal communities and to allow them their unique cultural identity. In parallel, Indigenous Peoples Development Plans assist “indigenous communities in the mine areas to create, revive and maintain relevant and functioning community assets, institutions and services that can improve their choices and living standards in the ‘modern’ world, and maintain and develop traditional ways of living and the social ties of the community.”
23. The report of the March 1995 workshop on income generation lists one group that was excluded because it was “too radical”. Does this not contradict the Bank’s claim that the consultation process was as inclusive as possible? (Bosshard: para 17)
Coal India hired ORG Consultants to facilitate the workshop and to select the participants including the NGOs. ORG’s mandate was to select local and regional NGOs and government agencies with relevant hands-on experience in rural development and income-generating programs. One of the objectives of the workshop was to “give CIL officials a chance to evaluate the capabilities of the participating NGOs as the idea is to ultimately select some NGOs who could be entrusted with the task of actual rehabilitation.” The very objectives of the seminar may have excluded certain advocacy NGOs. To the best of our knowledge, Coal India did not bar any NGOs proposed by ORG from participating in the workshop.
24. It is relatively easy for international NGOs to get access to project- related documents. What is being done to provide local NGOs with the same ease of access to information? (Bosshard: para 19)
Coal India has opened information centers in Calcutta and the headquarters of its subsidiaries where all the project-related information, such as Environmental Management Plans, Rehabilitation Action Plans and Indigenous Peoples Development Plans, the Resettlement and Rehabilitation Policy translated into local languages and baseline socio-economic surveys, is available to interested parties. All the information that is available in the Bank’s information center in Washington DC is also available on microfiche in the information center in the Bank’s New Delhi Resident Mission and Coal India’s Public Information Center in Calcutta.
25. 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. (Bosshard: para 19)
In preparing the Environmental and Social Mitigation Project, the management of Coal India had to take a number of actions that clearly demonstrated that it is committed to changing its approach to managing environmental and social issues. Coal India operates close to 500 coal mines. The policies on resettlement and rehabilitation, community development and environmental management will affect the lives of several hundred thousand people. (It would be impossible for Coal India to implement these policies in the selected 25 mines and not also the neighboring mines.) Many of the changes brought along by these policies, including regular and extensive consultations with project-affected people and their representatives, represent a drastic departure from past practices and often met with resistance from mine managers. Coal India is implementing these changes because it faces increasing difficulties in expanding its mining operations and has become more and more aware of ground realities. The Chairman of Coal India has instructed mine managers to hold monthly meetings with project-affected people, their representatives and local NGOs. Thus consultations with project-affected people is an ongoing process. The consultations that have taken place during project preparation were only a first step.
26. Why did no Bank staff members or Bank management attend the two workshops sponsored by Coal India in Calcutta? (Bosshard: para 16)
The two workshops had very specific objectives: one, to discuss income generation and self-employment alternatives and two, to consult with project-affected people the Environmental Assessment and Environmental Action Plans. The aim of these workshops was to seek the views of NGOs, the project-affected people and their representatives. The Bank was given an opportunity by Coal India to convey its views on these subjects during the preparation of the Environmental and Social Mitigation Project and the Coal Sector Rehabilitation Project.
27. Why were the workshops held in Calcutta and not in the project areas, where more project-affected people could attend? (Bosshard: para 17)
Coal India has organized workshops in Calcutta as well as at the headquarters of some of its subsidiaries. Consultations with project-affected people take place primarily at the mine sites. It is important to keep in mind that the 25 selected projects are spread over five States. The logistics to organize these workshops at each of the 25 mines would be formidable.
28. Three grassroots groups reported that they had never been consulted and that their letters to Coal India and the World Bank haven’t been answered. (Bosshard: para 17)
It is Coal India’s primary concern to consult with the project-affected people, their representatives and local NGOs directly. Coal India informed us that they have consulted extensively with the St. Xavier Institute, which is located in Hazaribag (the same area where the ‘grass roots groups’ referred to by Mr. Bosshard operate) and is well-known for its work with tribals. Coal India has contacted the ‘grass roots groups’ referred to in Mr. Bosshard’s paper and arranged meetings with them.
The letters of these ‘grass roots groups’ contain a number of complaints about Coal India as well as detailed proposals for changes of Coal India’s resettlement and rehabilitation policies. We cannot respond for Coal India on issues that need to be dealt by them. We do, however, discuss these letters with Coal India and urge them to respond to them. Coal India works with an extensive network of NGOs and takes constructive proposals for changes of its policies seriously. (A large number of NGOs will be used in the implementation of Rehabilitation Action Plans and Indigenous Peoples Development Plans).
29. Why were the “regional social cost” not taken into account in the economic evaluation of the coal projects? An internalization of social cost - e.g. by promoting underground mining - should be considered to be in the national interest of India. (Bosshard: para 43)
The preliminary economic evaluation of the investments for the 25 mines included under the Coal Sector Rehabilitation Project includes the mine-specific cost of environmental and social mitigation. It is not clear what Mr. Bosshard means by “regional social cost.” Mr. Bosshard’s comment seems to indicate that he would like to include also the cost of mining the coal reserves through (presumably more expensive) underground mining methods and therefore avoid the cost of resettlement and rehabilitation. As indicated in the response to questions #2, underground mining requires also extensive surface infrastructure and, as such, does not obviate the need for resettlement and rehabilitation.
30. Why was the financial support for the social fund removed from the Environmental and Social Mitigation Project?
Originally, the project included support for establishing a social fund in a major coalfield. This was to be a pilot effort and the aim was to establish similar funds in all major coalfields. These funds would complement the social mitigation programs implemented by Coal India Ltd., the power companies and other industrial enterprises operating in these coalfields. As such, they would concentrate their efforts on raising the incomes of those not captured by these programs. In order for these funds to achieve their objective, a considerable amount of preparation involving the participation of potential beneficiaries would be required. A two-phased approach was envisaged under the proposed project. During the first phase, which was expected to last about 1-2 years, a team of experts would define the specific objectives, organizational structure and governance of such a fund after consulting with potential beneficiaries in a major coal mining area. Based on these findings, the fund would be established and start operations. About US$5 million were allocated for this component.
During negotiations, the Indian delegation informed the Association that in view of the limited support of the concerned State Governments and the lack of support from credible private volunteer organizations and NGOs, the Government decided to postpone the establishment of a social fund in a major coal mining area pending further preparatory efforts. The Indian delegation requested that this component be taken up under a different project and indicated that they would submit a request for support to create an institutional capacity for implementing the first phase of preparatory work for such a fund under an IDF grant.
Peter K. Pollak, Task Manager
May 13, 1996