Is Vedanta poised on the brink of failure?Published by MAC on 2012-12-27
Source: EPW Weekly (2012-12-22)
For years, Vedanta Resources plc has been thwarted in gaining access to the Nyamgiri bauxite deposit in Orissa; meanwhile it has suspended alumina output from the adjacent Lanjigarh alumina refinery.
The company has consistently failed to persuade Kondh tribal communities that it's acting in the interests of their "development" - an issue taken up by Mihir Srivastava in Open Magazine last week (below).
The final outcome of the battle for Nyamigiri looks like being resolved by India's Supreme Court next month. See: India-UK demonstrators call for closure of Vedanta refinery
Vedanta faces yet another case before the Supreme Court, following its recent purchase of Cairn Energy's stake in Cairn India and thereby gaining access to some of the richest oil wells in the country.
But in this instance it looks like the company will "get its way". For further discussion of the issue, see:
Games Vedanta Plays
Economic & Political Weekly (EPW)
22 December 2012
Why suspend production when bauxite is available outside Odisha?
Is there reason to cheer that the controversial Vedanta Aluminium Limited (VAL) plant in Lanjigarh, Odisha had to suspend operations earlier this month because of non-availability of raw material?
Perhaps, at least half a cheer. Even this small hiccup in what at one time appeared to be a one-sided battle between a multinational giant backed by the state government and a small tribal community is a kind of victory.
For the embattled Dongria Kondh, the primitive tribal group that has lived for thousands of years in the Niyamgiri Hills and who have fought hard to prevent bauxite mining in their fragile environment, this would appear as a glimmer of hope. But the final hurdle against mining in that region is yet to be cleared.
The case filed by the Odisha Mining Corporation (OMC) challenging the Ministry of Environment and Forests' (MoEF) decision to refuse clearance for the second phase of the bauxite mining project and to temporarily withdraw the clearance to the first phase is still pending in the Supreme Court.
The decision in this case will have far-reaching repercussions beyond Odisha and Niyamgiri for it will determine whether the understanding of forest dwellers' rights, as articulated in the path-breaking Scheduled Tribes and Other Traditional Forest Dwellers (Recognition of Forest Rights) Act 2006, is worth the paper on which it is written.
Whatever the outcome of the case, the almost decade-long tussle between environmentalists and the Dongria Kondh on one side and the Government of Odisha and VAL on the other illustrates the central challenges that anchor the future of industry in environmentally fragile and forested areas.
These areas have come increasingly under pressure in many states as forested lands are also repositories of mineral deposits that industry claims are essential for development.
The Odisha government signed a memorandum of understanding with VAL as far back as 1997 with the implicit understanding that the state-owned OMC would guarantee supply of bauxite for the plant.
Odisha has an estimated 1.7 billion tonnes of high-grade bauxite, representing almost two-thirds of the total bauxite reserves in India. The fact that the VAL plant was built close to Niyamgiri clearly indicates that obtaining the mineral from this region was a given.
Yet even as MoEF granted "in principle" environmental clearance to the refinery in 2004 on the condition that its wholly-owned subsidiary Sterlite obtained separate clearance for mining the ore, the project ran into trouble.
In 2005, the Central Empowered Committee (CEC) strongly recommended to the Supreme Court that mining in Niyamgiri should not be permitted. Despite this, when the Court referred the matter back to MoEF, the latter granted "in principle" clearance to the project and within a month construction of the one million tonne refinery commenced.
Two years later, in 2009, MoEF cleared the first phase of the mining project in Niyamgiri even though it involved diverting over 600 hectares of forestland.
Yet a year later, following protracted opposition, it cancelled the second phase of the forest clearance for mining and ultimately suspended the first phase as well when the N C Saxena Committee, constituted to evaluate the impact of mining on the forests and on tribes like the Dongria Kondh, strongly recommended that this be done.
Given this trajectory of developments, it is more than evident that MoEF should never have cleared an alumina refining plant in Lanjigarh without first evaluating the bauxite mining project as the two were interlinked.
Second, the way it has changed its position on the mining project has further muddied the waters. In the interim, the VAL plant had begun functioning, albeit at a lower capacity, with bauxite obtained from mines in Chhattisgarh, Jharkhand, Andhra Pradesh and Gujarat.
Although a great deal will rest upon the final decision of the Supreme Court on the Niyamgiri mining project, the fact of the temporary closure of the VAL plant should not be used as a justification to override other genuine concerns about bauxite mining in the region.
There is talk of the impact on employment, although a majority of those employed come from outside the region and only a handful of local people have found jobs in the plant, that too as temporary labour.
This is a clever game being played by VAL to use the suspension of production as a pressure tactic to ensure that the Odisha government does not back down on its commitment to procure an assured supply of ore for its plant.
Why cannot VAL continue to procure raw material from elsewhere if it is so concerned about loss of jobs?
Few will buy its doublespeak; the affected tribal groups are certainly not willing to accept it.
They have already begun agitating that the plant be dismantled and are well within their rights to demand this since the existence of such a plant will be a constant threat, a reminder that even if today there is some concern for the rights of forest dwellers, tomorrow lawmakers could create an exception and allow the exploitation of the wealth that lies buried under their forests.
How Big Business Gets Its Way
Companies like Vedanta are brazenly taking over governance in some parts of India
By Mihir Srivastava
22 December 2012
LANJIGARH, ODISHA - Since late 2009, when transcripts of the Radia Tapes were published in Open, questions of corporate governance and the influence of business houses over government policy have dominated public discussions in India. But as Ratan Tata's statement reveals, the problem only seems to be getting worse.
In this report, we focus on the case of Vedanta, and specifically, on its Lanjigarh refinery in Odisha, where despite reports of problems on the ground and consistent local opposition, the government is going out of its way to ensure that the bauxite refinery's closure is only a temporary setback to the company.
Vedanta Resources, a conglomerate owned by the Patna-born and London-based billionaire Anil Agarwal, has always been controversial. Currently, it is engaged in two cases at the Supreme Court.
One is a case involving its purchase of Cairn Energy's stake in Cairn India, which shares oilwells in Rajasthan with the Government-owned Oil and Natural Gas Corp Ltd.
On this, The Herald of Scotland has reported: ‘Westminster secretly lobbied the Indian government to give the go-ahead to a controversial multi-billion pound deal with a leading Scottish oil company, internal emails passed to the Sunday Herald reveal... UK government officials, briefed ‘over dinner' by Edinburgh-based Cairn Energy, offered to ‘polish' and send a letter drafted by the company.
'At a lunch, they also urged a key Indian government minister to back the deal. The Indian government subsequently gave permission for Cairn's £5.5 billion agreement to sell off the bulk of its Indian oil business to Vedanta...'
The other is a case filed by the state-owned Odisha Mining Corporation (OMC) challenging a decision of the Union Ministry of Environment and Forest (MoEF) to withdraw its clearance for bauxite mining in Niyamgiri, a tribal belt in Kalahandi district of Odisha.
From the very beginning, mining operations here - by OMC to supply Vedanta - have been controversial, with opposition parties in Odisha and at the national level demanding a CBI probe of all mining agreements, alleging that they violate forest laws and the state's mineral policy-a sellout of the state's interests.
The MoEF had cancelled its Niyamgiri forest clearance to the OMC-Vedanta project in 2011, after protests by tribals that got wide media coverage.
The Ministry had also admonished Vedanta for its violation of ecological norms and expanding its refinery-a facility to turn bauxite into alumina, used as raw material to yield aluminium via electrolysis-without a mandatory environmental clearance. But no explanation has yet been offered for the ease with which the MoEF let the project go ahead in the first place.
When Vedanta shut its refinery in Lanjigarh on 5 December, it was a move widely seen as aimed at exerting pressure on the state government.
Deepak Kumar Mohanty, director of mines in the Odisha government, says that ensuring production at the refinery is a priority for the government as per a 2004 agreement signed by the state with Vedanta, by which it was to supply the refinery with bauxite.
"The Karlapat deposit has already been reserved for OMC," he says, "We are trying to identify new sources of bauxite. It will take three to four months for resumption of supplies."
He refuses to comment on the wisdom of signing the 2004 agreement, claiming that the matter is in court. Mohanty is not the only state government official who appears to have made Vedanta's concerns his own. At least he is bound by an agreement.
But other state officials act under no such constraints. From the state police to the environmental authorities, Odisha's administration seems keener on acting in the interests of the UK-based conglomerate than that of its citizens. Days before the refinery shut down, Open visited Lanjigarh to assess the scenaro.
The Myth of Tribal Consent
Vedanta has gone to great lengths to describe the ‘consultative process' that is undertaken with locals ‘to provide comprehensive details about the potential environmental and social ramifications of the proposed project'.
The company claims to have sought the ‘opinion, views and suggestions' of Dongria Konds - the group of tribals affected-on the project. The company also claims to have got an overwhelming response to its overtures to them: ‘Nearly 3,000 people have voluntarily supported the project and have approved its operations by inscribing their signature/thumb impressions.'
The latest of these series of consultations was that of the Gram Sabha of Rengopalli, which took place on 15 March this year. This came some weeks after a serious scuffle on 21 January, in which parts of people's land had forcefully been taken away by Vedanta with the help of the police and local administration.
There had been a protest against the acquisition, but it was squashed by a heavy police force that broke up a human chain formed by tribal men, women and children who were trying to block the way of landmovers on the site.
The scene was captured on video by local journalist Mohammad Aslam. Tehsildar Sushant Petel is seen in the video telling the protestors in Oriya, "This land belongs to the company and there is Section 144 in force [which prohibits gatherings of people]". Force was used to disperse the crowd, and as many as 47 people were arrested and put in jail under Section 307 of the IPC on such charges as attempted murder. They were released after 20 days.
What happened at the 15 March ‘public hearing' has been captured on video by Aslam as well. Operating on a shoestring from a backhouse in his family home in Bhawanipatna, he makes it a point to document such interactions between the state and its people. His video of the ‘public hearing' reveals exactly how local consent is manufactured in this tribal zone.
It has to be seen to be believed. A large tent is set up and snacks are served to officials. Among those who are present are the local Block Development Officer (BDO), Tehsildar and village Sarpanch, and Vedanta's law officer. There is also a big gathering of villagers. The proceedings start with residents of the village asked to put their thumb impressions on blank sheets of paper in a register. This is even before they are told anything, as if this is some sort of roll call for attendance being taken.
The BDO then prompts the Sarpanch to say something. He does not have much to say beyond "You will get jobs". Vedanta's law officer, Nabal Kishore Sharma, has more to say. He speaks of the proposed rehabilitation of those willing to part with their land, and then in Oriya, offers to have all pending criminal cases against the 47 arrested withdrawn if they go along with the company.
District Magistrate Gobind Chandra Sethi, contacted by Open to discuss complaints of locals about police atrocities, non-payment of land compensation and unkept promises of jobs in Vedanta, refuses to comment on any of it. "I am too busy with an assignment from Bhubaneswar," is his brusque response, "[I have] no time to talk on these issues."
Aslam is worried about the fallout of his video. "They may declare me a ‘Maoist sympathiser' one day and put me behind bars. I have no influence or support." It is a valid fear, given what has been happening here.
Criminal Cases as Acts of Coercion
Many tribals opposed to the project have been booked under various sections of the Indian Penal Code, on such charges as theft of scrap iron from construction sites, and put behind bars for months. In villages like Belamba, Turigurha, Boringpada, Chattarpur and Kendiguda, there is hardly anyone left who has not gone to jail on some unproven charge or the other.
Chattarpur village lies about a kilometre from the Lanjigarh refinery. As we walk into the village, we are soon surrounded by a small crowd of youngsters keen to tell us of their suffering.
All of them have been to jail and are now out on bail. Apart from theft, some have been slapped with charges as serious as dacoity, which can have them sent to prison on life sentences.
Their real crime, they say, is that some of them have been fighting for their due compensation, while others have refused to part with their land for the project. At the time of our visit, four residents of Chattarpur-Senapati Naik, Karuna Naik, Barik Takari and Nilamber Harijan-were still in jail.
Others, such as Nain Majhi, 35, who lost part of his land to the project, have been waiting for compensation since 2003. Majhi was instead sent to jail on another false charge two years ago. Nelkantha Bisal, 40, who has spent 45 days in jail, has no illusions about the state. "The police is with the company," he says, "They will sell us to the company."
Two brothers from the village Bandiguda, Deka and Prapula Majhi, both in their late thirties, have become symbols of local resistance against the company's move to usurp their land. They have refused to part with their plots, which lie along the route of a conveyor belt being built to transport bauxite from Niyamgiri hills to the refinery.
The yawning gap in the conveyor belt is a source of local pride, upset as they are with Vedanta's apparent failure to deliver on its promises of job creation and prosperity in the area.
"The collector and the commissioner and other high officials visited me," says Deka, "They offered money and then when we refused, threatened us." His brother shows us a copy of the police complaint they have made on these threats, a complaint that has not been registered so far. "They will send us to jail and then forcefully take the land," says a fearful Deka, explaining the standard operating procedure used for errant tribals like him.
Despite thousands of complaints filed by locals - of various kinds, though broadly about the pressure being mounted on them by Vedanta - not a single first information report (FIR) has been registered against the company or any of its functionaries.
The Promise of Jobs
By Vedanta's count, 121 families have been relocated, of which 76 have a family member employed by it, while the rest have opted for cash instead. Of the 1,846 project affected people-who lost part of their agriculture land but not homestead-1,372 were provided one-off monetary compensation, 110 of them opted for employment training schemes, and 87 got jobs. The report makes no mention of the other 364.
The case of Manjo Mahapatra is interesting. He is a resident of the village Bandiguda right next to the refinery. From the village's only educated family, he saw merit in the company's campaign that promised jobs and a better life, and became a vocal supporter of the project.
He was not employed by the company, but made money on some contracts it gave him during the project's construction phase. He soon moved to the nearest city Bhawanipatna. But after three years, he found himself at a loose end with no source of income. "No locals who lost their land to the company have got jobs, with the exception of six," he says.
Mahapatra does not direct his ire at the company; he blames the government for misinforming people of Vedanta's real intentions.
He mentions the former District Magistrate of Kalahandi, Sharswat Mishra. "He promised us jobs and other benefits on behalf of the company. I want to ask the district magistrate, have they ever tried to verify how many locals actually got jobs? If so, where is the data, why not make it public?"
He accuses Mishra of working as an agent of the company, something that won him the dubious title of ‘Sterlite Mishra' (Sterlite being a Vedanta group company). As widely reported, Mishra had told locals in Oriya that they had no claim to anything more than a foot deeper than the surface of their land. "What's below that belongs to the state," he had told them.
Mishra, coincidentally, is managing director of OMC, which holds a mining lease for Niyamgiri hills and has an exclusive sale agreement by which it must supply Vedanta bauxite at a preset price. "This issue has been extensively reported by the media all over the world...," he says, "Since the matter is in the apex court, I am not interested in a story at this point of time." He refuses to comment on any specific charges.
The land acquired at Rengopalli - the village featured in Aslam's ‘public hearing' video - was used by Vedanta to construct an extension of the refinery's red mud pond. This pond is used to store about 92 billion litres of toxic residue from the bauxite refining process that reportedly includes some heavy metals and even radioactive traces.
It was subsequently reported that the red mud pond developed a crack on its western side, resulting in the dangerous residue leaking into nearby water bodies-a serious health hazard to the people of Lanjigarh. The matter was investigated by various government agencies of Odisha, including the State Pollution Control Board, whose team was led by member secretary Siddharth Das.
The video footage recorded by Aslam of Das' interaction with the engineers representing Vedanta is revealing.
Das reprimands Vedanta's representatives for raising the height of the embankments of the red mud pond without the required permission. An unidentified man believed to be a representative of Vedanta informs Das that the company hardly ever takes permission.
Work is usually done first and permission taken later, he says, making it sound like a mere formality. He then says that this particular move to raise the height of the embankment was taken on the advice of the Indian Institute of Science (IISc). To this, Das retorts, "Are they the statutory authority to do that?" There is silence. Das then tells them that the company will have to stop work until further orders. They look at him with bewilderment.
But the official record is different. The work never stopped. Das confirms over the telephone that he had inspected the site, and says that he did not find any violation of norms, and that no crack appeared and no leakage occurred. On the question of the embankment's height being raised without permission, Das says, "It was done on the basis of a scientific study by the IISc to seal the pool inwards-so there is no issue."
For Dongria Kond tribals, Vedanta is just 'the company'. They claim the company's writ runs everywhere in the region.
I am accompanied to the Vedanta refinery site by a local journalist called Kailash who works for a local daily. While visiting the villages of Lanjigarh block, I had noticed he was in regular touch with the public relations officer of Vedanta, Sandeep Sethi. Kailash had informed Sethi that someone from Delhi would be talking to people and taking pictures. Kailash, I found, was instructed to get details on the purpose of my visit and to get me to meet him. I declined to do so at Kailash's behest, but called Sethi the same evening and asked for a meeting.
"I exactly know the set of people you met and what they told you," says Sethi when I meet him. It turns out to be untrue. The people of Chattarpur village, he surmises, had complained to me of widespread skin diseases and held the company responsible for their ailments.
They had not; they had actually discussed the false cases against them. Sethi then expresses regret that Kailash was not discreet enough in following his brief, and then justifies the surveillance of outsiders by saying that the media in Delhi and the foreign press are biased against the company, and that its version of events is never reflected in their reports.
For the company's viewpoint, I also track down Dr Mukesh Kumar, president and chief operating officer of Lanjigarh Alumina Refineries . The meeting takes place in the lobby of Bhubaneswar's Hotel Mayfair Lagoon at 11:30 at night.
Kumar launches into a diatribe against what he sees as a campaign against the company designed to "create panic" . He displays little interest in what I have seen or answering my questions.
"We have nothing to hide," he says. "Vedanta meets the highest global environment safety parameters. The Vedanta alumina plant is a zero-discharge plant. Not one drop of treated or untreated effluent mixes with outside water. Not only that, good water management practices have ensured that water consumption of the plant has gone down by 40 per cent." He says that the red mud pond is a place where dry red ash is collected carefully so that it does not mix with the surroundings. "Where is the question of pollution?"
"Why are we in the firing line?" wonders Kumar, "OMC is the project owner and the mining lease owner. We have just entered a sole purchase agreement with OMC at a predetermined price."
In the meantime, Vedanta has come out with a 150-page report titled "The Lanjigarh Development Story: Vedanta's Perspective" that attempts to present a comprehensive counterview.
According to this report, ‘The Lanjigarh project is regarded by the local population as a significant opportunity of progress and growth' in a region that has seen ‘virtually no major development interventions since independence.'
The reality, it appears, is rather different.
Vedanta Aluminium's trials with regulatory approvals continue
20 December 2012
Mumbai - Early this month, billionaire Anil Agarwal-promoted Vedanta Group was forced to shut its one million tonnes per annum alumina refinery at Lanjigarh in Odisha's Kalahandi district due to unavailability of bauxite, 15 years after state-owned Orissa Mining Corporation signed over its rights to mine bauxite in the Niyamgiri Hills to the group firm.
The group has invested Rs 30,000 crore in six years to set up the aluminium business under Vedanta Aluminium, believing it would be able to get approvals for captive bauxite mines by the time the facilities get commissioned. Eventually, it commissioned a 1 mtpa refiner, a 0.5 mtpa smelter and a 1,215 Mw captive power plant, but approval for bauxite mining did not come.
"In such a state of affairs, it would be difficult for the projects to come up," said Mukesh Kumar, CEO of Vedanta Aluminium over phone from Orissa. The company is looking at laying off a substantial number of its 550 direct employees under Section 5 of the Industrial Dispute Act. The closure of the plant has affected 2,500 contractual employees.
In September 2004, the ministry of environment and Forest (MoEF) granted environment clearance for the refinery and in October 2004, Vedanta Aluminum started the construction of the refinery. It was completed in early 2008 and alumina production was started soon after.
The Supreme Court started hearing on the three petitions against bauxite mining at Niyamgiri and granted clearance with conditions on sustainable development. Then, the MoEF granted an in-principle environment clearance for the mining project. In August 2010, it reversed its decision and rejected the forest clearance for the Niyamgiri Mines to OMC under protest from non-government organisations.
This way, Vedanta Aluminium lost its source of captive bauxite. OMC has appealed in the Supreme Court against the MoFE's rejection of forest approval and the next hearing is expected in January. The company struggled for over three months to ensure that sustainable supplies of bauxite from Gujarat and other states before the closure of the plant.
"We believe it is now extremely unlikely that the company will get access to the bauxite in Niyamgiri hills," said Abhijeet Naik, analyst with global brokerage firm CLSA in a recent report. "Given this setback, Vedanta Aluminium is pursuing the government of Orissa for allocation of an alternate source of bauxite for its alumina refinery," he said.
Even if a bauxite mine allocation happens soon, it will have to spend years trying to get various clearances for the new mine, which will be followed by a mine development period. "It seems there would not be any relief on the bauxite mining front over FY13-17," the report said, which added that FY18 is the earliest that the company might benefit from the availability of captive bauxite.
According to industry observers, the days of free mine allocations to the corporate sector are over. Once the mining Bill is passed, metal companies will have to participate in a bidding process to get access to mineral resources. In that case, Vedanta Aluminium will have to participate in a bidding process for any future bauxite mine allotment, which could substantially eat into the economic benefits of having captive bauxite.
This has led to deterioration of Vedanta Aluminium's financial position. According to analysts' estimates, the company is expected to register Ebitda (earnings before interest, tax, depreciation and amortization) of Rs 200- 450 crore over 2012-13 given its high cost structure. This is extremely low in the context of the high level of capital expenditure (Rs 30,000 crore) incurred on the commissioned and un-commissioned facility and the total net debt of Rs 29,500 crore.
How it unfolded
Date - Events
Apr-97 - OMC signed over its rights to mine bauxite in the Niyamgiri Hills to Vedanta Group.
Sep-04 - MoEF's environmental clearance for refinery.
Oct-04 - VAL begins construction of refinery
Nov-04 - Supreme Court (SC) starts hearings on three petitions against bauxite mining at Niyamgiri
Early 2008 - VAL starts alumina production.
Aug-08 - SC clearance to forest diversion proposal for mining, with conditions
Apr-09 - MoEF "in principle" environmental clearance for mining project
Aug-10 - MoEF rejects forest clearance for Niyamgiri mines to OMC
Oct-10 - OMC writ petition in SC against cancellation
Jul-11 - MoEF cancels environmental clearance for OMC
Aug-11 - OMC application in SC against cancellation
Source: Analyst Reports