MAC: Mines and Communities

Vedanta set to grab further Indian resources - twice over

Published by MAC on 2012-01-16
Source: Economic Times, Nostromo Research

Vedanta's contract with Scottish firm, Cairn Energy, to take a controlling stake in India's most promising new oil field, still isn't a "done deal". See: Vedanta thrashed, as board clashes with shareholders

But the acquisition has now moved one step closer to completion with backing from the Oil ministry - despite  failures to address  the Home Affairs ministry's misgivings about Vedanta's highly dubious human rights, environmental and governance record.

Just as this particular "coup" looks like being ratified by the central government, the company's principal subsidiary, Sterlite Industries, is proposing to purchase what it doesn't yet own of BALCO.

BALCO is Vedanta's principal integrated aluminium subsidiary, notorious for its appalling record in safeguarding workers' health and safety. See: World's "worst" mining company in the dock - again!

Sterlite purchased 51% of BALCO in 2001 in what many critics regarded as a "fire sale" by the government, since the then-100% state-owned enterprise was handed to the private company at far below its real market value.

According to India's Economic Times (9 January 2012), the price soon to be paid by Vedanta for the remaining 49% of BALCO will be negotiated with the government.

A walk over?

India has long abandoned its traditional, post-independence, role as a guardian of publicly-owned industries. Well behind in plans to disinvest more state-owned assets,  the central government is once again likely to "dance to the piper's tune".

Significantly, the Empowered Group of Ministers which has solicited Vedanta/Sterlite's latest offer is reported as not yet having "considered past valuation exercise" for BALCO.

Attempts to set a fair price for the disinvestment were stymied during much of the past six years as Sterlite asserted it had pre-emptive rights to buy the government's 49% stake under the 2001 agreement.

However, trade Unionists and others vigorously contested the company's version of this agreement. They claim that Vedanta has broken virtually all the accompanying social and employment conditions in the years since.

See: On Disinvestments Of BALCO Shares To M/s Sterlite 

Now this issue has apparently been resolved between the government and the company.

If, and when, Anil Agarwal's UK-based enterprise secures full control of BALCO, protests by workers, human rights activists or leftwing politicians, will count for nought.

[Comment by Nostromo Research, 15 January 2011].

Cairn-Vedanta deal: Oil ministry seeks Cabinet's final approval

Economic Times

9 January 2012

NEW DELHI: Cairn and Vedanta Resources may have jumped the gun in concluding the $8.5-billion deal before they received the government's formal approval, but the oil ministry has recommended to the Cabinet that the transaction that was conditionally cleared in June should get the final consent, officials said.

Vedanta has already paid the money to Cairn for acquiring the controlling stake in Cairn India and appointed its nominees on the board.

The home ministry has also cleared the deal, but along with the approval, it has placed on record various environmental, regulatory and human rights issues that Vedanta has faced in recent years.

This triggered discussions between the government and the companies involved in the deal, and the CEOs of Cairn, Cairn India and Vedanta wrote to the oil ministry saying they were aware of the issues raised by the home ministry and that the oil ministry would deal with the matter "as appropriate", a government official said.

The oil ministry was not moved by the home ministry's concerns, and could not see why the deal should be influenced by factors such as Norway's government pension fund selling share of Vedanta, tribal protests in Niyamgiri and Lanjigarh in Orissa and the concerns of the Church of England about the group's human rights record.

The oil ministry has sought the approval of the Cabinet Committee on Economic Affairs to issue security clearance for the deal to Vedanta and said home ministry's concerns about the views of the Church of England and a foreign pension fund had "no bearing whatsoever on the security aspects".

Cairn India's director for corporate affairs, Manu Kapoor, declined comment, while the oil ministry and Vedanta did not respond to ET's queries. Oil ministry officials said that the deal was poised to obtain final clearance but added that companies could not take this for granted.

"Though, both MHA and petroleum ministry have recommended Cabinet Committee on Economic Affairs for granting an unconditional security approval, uncertainty is not yet over till CCEA's verdict is out," one official who did not wish to be identified said.

Officials said that on December 7 Cairn and Vedanta had informed the oil ministry that they had fulfilled all conditions set by the Cabinet and the transactions were being completed. On December 15, the companies informed stock exchanges that the multi-billion acquisition of Cairn India was completed.

Days before the companies informed stock exchanges about completion of the acquisition and subsequently appointment of three Vedanta representatives in its board, the oil ministry officials had cautioned the government about MHA's observations.

In an internal note dated December 12 (reviewed by ET), the oil ministry had said that the ministry could ask companies "to await further instructions from the government before concluding the transaction."

Sterlite Industries ready to pay mutually agreed price for Balco stake

M V Ramsurya

Economic Times

9 January 2012

MUMBAI: Sterlite Industries will offer to buy the government's 49% stake in group company Balco at a mutually agreed price outside of an earlier call option plan, as both parties are keen to resolve stake-sale talks deadlocked for a year.

If Sterlite's proposal is accepted, it will complete the Anil Agarwal promoted company's 100% ownership of Balco besides helping the government meet its disinvestments target for the current fiscal.

The government, which plans to raise Rs 40,000 crore [just under US$ 10 billion] this fiscal by selling stake in public sector enterprises, has managed to raise only a fraction of it so far, hemmed in by an adverse equities market. "The government is now willing to consider a fresh proposal from the company. The company will also examine alternatives that will be outside the call option route," said a person familiar with the development and part of the negotiations.

An Empowered Group of Ministers has asked Sterlite for the fresh offer and has so far not considered past valuation exercises.

Sterlite Industries, a copper maker and part of billionaire Anil Agarwal's Vedanta Resources, had bid for and bought the government's 51% stake in Balco forRs551.50 crore in a high-profile disinvestment exercise in 2001.

The two parties also agreed that the government's remaining stake would be sold by exercising call options after three years. Call option is an agreement that gives the buyer a right to buy part of an asset at a specified price within a specified timeframe.

However, the government later retracted saying the agreed price was too low, prompting protests from Sterlite and pushing the issue into arbitration.

Full ownership of Balco will allow Sterlite the freedom to push its expansion plans in aluminum, which have been restricted in its other subsidiary, Vedanta Aluminum Ltd, which has a refinery and smelter in Odisha, is finding it difficult after the government banned bauxite mining in Niyamgiri, where it has the refinery, forcing it to buy costly bauxite from outside.

Typically, bauxite is refined into alumina and then smelted to make aluminum. The government has also refused permission to Vedanta Aluminum to expand the refinery capacity from 1 million tonnes to 6 million tonnes. "We are keen that our plans in aluminum are carried out.

It's a pity that despite having one of the world's largest bauxite reserves- India has fourth largest deposits- we are still a marginal producer (less than 5% of global production)," a senior group executive said. Vedanta's plan to boost aluminum production comes at a time when globally the industry is facing problems.

On Thursday, Alcoa, the world's leading producer of aluminum, said it would cut output by 12% due to falling prices and slowing demand. Earlier, another leading producer, Rio, said it would shut down a third of its production in Canada due to high costs.

Aluminum prices have dropped about 25% since May to about $2,030 a tonne on the London Metal Exchange. "The industry is in a pincer-grip," said the head of a leading aluminum and copper producer.

"On the one hand, you have metal prices falling and on the other, Brent (oil price) is rising due to geopolitical factors. So, crude-related inputs like coal have also started rising, putting pressure on aluminum operations," he added.

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