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Vedanta's future plan may trip on past hurdle

Published by MAC on 2013-10-15
Source: Business Standard

Vedanta's future plan may trip on past hurdle

Business Standard

9 October 2013

Anil Agarwal's Vedanta group's plan to buy the Government of India's residual 29 per cent stake in Hindustan Zinc Ltd (HZL) by December will hit a block with the Central Bureau of Investigation's (CBI's) plans to investigate the company's privatisation by the previous government in 2002.

According to media reports, CBI is looking into the entire process at the then NDA government and has asked for information from the mines ministry. The sale, it is charged, was invalid as the company was incorporated under a statute of the Parliament and needed the latter's approval. A similar sale of government-owned oil marketing companies was stayed by the Supreme Court. The HZL stock was down by one per cent to Rs 130 on news that CBI was looking into the matter.

Vedanta, which owns 65 per cent in cash-rich HZL, had recently said it would buy out the rest of the government's stake in HZL and in Bharat Aluminium (Balco) for close to Rs 17,000 crore. A banker had earlier told this newspaper that Vedanta might sweeten its offer by 10 per cent. The company declined to comment on the issue. With a CBI investigation on, the December deadline will be missed, say bankers.

Vedanta's plan after buying the remaining government stake was to merge HZL with its India holding company, Sesa Sterlite Ltd, by early next financial year. This would have helped HZL repay the $3.5-billion of loans it took to acquire Cairn India, due for repayments over the next three years. The takeover of HZL would give Vedanta access to the company's Rs 21,482 crore of cash and investments. This can be used to repay the new combined entity's debt. Under Vedanta's management, HZL has been turned around successfully, making a profit of Rs 6,899 crore in 2012-13 on a total income of Rs 14,732 crore.

In a complex restructuring announced last year, Vedanta merged its two Indian companies, Sesa Goa and Sterlite, into a combined entity called Sesa Sterlite. The new entity - it got approval from the courts in September - holds stake in all of Vedanta's Indian companies, including in Cairn India and HZL. Vedanta has also transferred its entire dollar debt to Sesa Sterlite, taken to buy Cairn India. With this, Sesa Sterlite had net debt of $6.6 bn as on March this year.

Once Sesa Sterlite buys the government share, bankers say its stake will go up to 95 per cent and, by the rules, will either have to bring this down to 75 per cent or go for delisting. A banking source said Sesa Sterlite will go for delisting the company and then merging it with the parent company, after buying out the minority shareholders.

A legal source said in spite of the Attorney General's view that there were no legal problems in the government selling its stake in HZL and Balco to the Vedanta group, it will still need ratification from the Supreme Court, since the latter had stayed a similar earlier sale by the government. If the government sells HZL's stake to Vedanta, then it needs to take Parliament approval.

With or without Niyamgiri, Vedanta plans to recover all costs at Lanjigarh

The company aims to make Lanjigarh refinery the first zero-based refinery in the world

Business Standard

10 October 2013

Vedanta Aluminium's (VAL) Rs 5,000-crore alumina refinery at Lanjigarh faces trouble over the denial of bauxite from the Niyamgiri hills but that hasn't stopped its technological innovations. The company plans to implement zero-based costing - a method to identify and implement every cost-saving opportunity by cutting ineffencies at every cost centre.

"Our aim is to make Lanjigarh refinery the first zero-based refinery in the world," said Mukesh Kumar, chief executive of VAL.

According to Kumar, the refinery can recover the entire cost of producing alumina by making high-value by-products and also cut down on the pollution load of the plant.

The cost recovery is based on the normal cost of Indian alumina, pegged at $250-260 a tonne. Currently, the company incurs a higher cost of $380 a tonne because, in the absence of access to Niyamgiri resources, it has to bring in bauxite from various parts of the country and abroad.

According to Kumar, bauxite is a rich source of valuable metals such as vanadium, gallium, iron and silica. Add to this the possibilities of recovering a sizeable quantity of caustic soda, a costly input used in alumina-making, and selling of clinkers produced from red mud, a hazardous waste of the plant, the cost of production of alumina could be zero, Kumar added.

However, he pegged the additional investment to separate and extract these items at various stages of the chemical process of producing alumina from bauxite at Rs 500-600 crore.

The company is working with Institute of Minerals and Materials Technology (IMMT), Bhubaneswar and the National Institute of Technology, Rourkela to fine-tune the separation process and build pilot projects.

With inputs from IMMT, the company has built a Rs 1-crore plant, currently producing 250-300 tonnes in a month of vanadium, which sells at Rs 6 lakh a tonne. "We are earning about Rs 2 crore from the plant each month, making the payback period for investment less than one month," Kumar added.

VAL has received offers from Nippon Aluminium in Japan for setting up of a gallium plant at an initial investment of Rs 25 crore with a capacity to produce 50-60 tonnes of this material, a key raw material for electronic and space industry. The annual world production of gallium, which costs Rs 40 lakh a tonne, is only 350 tonnes and India imports 10-15 tonnes of this rare metal for its needs.

Similarly, through mineral beneficiation and high pressure filtering of the slurry, the company intends to separate iron particles (which constitutes 25-32 per cent of bauxite ore) and make pellets.

The firm is working on a project to recover a large amount of caustic soda during high-pressure filtering of slurry after alumina production. This, along with separation of silica during beneficiation, can save the company a substantial cost as with every one per cent increase in silica, the caustic soda consumption goes up by Rs 900 a tonne of alumina.

The removal of iron and silica from the bauxite will also help improve the ore quality, leading to higher productivity, Kumar pointed out. "At Lanjigarh, we are able to produce 0.7-0.8 million tonnes of alumina from a 0.5-million-tonne production line through such innovations."

Besides, the company has set up a pilot project to produce laterite from red mud, a hazardous waste, and sell it to cement industries for use as clinkers. The storage of red mud is a critical issue in alumina industry as it not only takes up large space (sometimes accounting for 60 per cent of a project area), but also has the danger of overflowing the storage pond and contaminating the surrounding agricultural land habitats.

"There is an ever-increasing need of acquiring more land to store red mud with the ageing of the land and expansion of capacity. We want all alumina industries in the world to use the method to put their red mud to gainful use, which is also environment-friendly. Hence, we have not patented the methods," he added.

Vedanta's Jharsuguda aluminium smelter lies idle even without protests

Business Standard

9 October 2013

The woes of Vedanta, which has invested Rs 45,000 crore in the aluminium and power sectors in Odisha, is not limited to the denial of bauxite from the Niyamgiri hills for its Lanjigarh refinery alone.

While all the attention is focused on the agitations against bauxite mining at Niyamgiri, another high-value investment of the company, a 1.25-million-tonne aluminium smelter of Vedanta Aluminium (now Sesa Sterlite Ltd) at Jharsuguda, has suffered for the last two years thanks to the reluctance of the state government to grant it special economic zone (SEZ) benefits.

The work on this smelter, built as an SEZ unit at a cost of Rs 25,000 crore, was completed in 2011.

Sources said the combined loss to the company because of stunted operations of the Lanjigarh refinery due to lack of adequate bauxite and non-operation of the SEZ smelter unit at Jharsuguda stands at a whopping Rs 6,000 to Rs 7,000 crore in the last two years.

Govt's reluctance
The reason for not starting the operation of the smelter is the reluctance of the Odisha government to grant the deemed distribution licensee status to the company according to the provisions of the SEZ Act to enable it to draw and use power from its own power plant at concessional rates.

Without the deemed licensee status, the company would have to spend Rs 2.40 extra for each unit of power it consumes, which it fears, would render the project unviable.

"While the normal tariff for aluminium industries is Rs 4.60 a unit, the same comes down to Rs 2.20 a unit for a deemed distribution licensee," pointed out a senior official of the company.

Section 49 of the SEZ Act, 2005, stipulates that SEZs can act as deemed distribution licensee under the. Electricity Act, 2003. "But when we sought this status from the state government, we were denied the facility", he added.

Interestingly, the Odisha government had recommended the grant of SEZ tag to the unit in 2008, on the basis of which the Centre had accorded it sector-specific SEZ status in February 2009.

When contacted, a senior state official said, "As of now, the aluminium smelter is the only unit in the Vedanta's SEZ complex. So, the energy producer and the consumer being the same entity in this case, the deemed distribution facility cannot be extended to the company." This stand of the state government has also been upheld by the Odisha Electricity Regulatory Commission and the Appellate Tribunal for Electricity when the company approached these for a grievance redressal. The company now plans to move the Odisha High Court on the issue. The Jharsuguda facility, apart from the 1.25-million-tonne aluminium smelter with SEZ tag, houses a 0.5 million tonne aluminium smelter and 1,215 Mw captive power complex and a 2,400-Mw coal-fired power plant with Independent Power Producer (IPP) status.

Meanwhile, the company was mulling to convert its 2,400-Mw IPP into a captive power plant (CPP) of its SEZ smelter to get around the legal hurdle to operate the unit. But this plan has also been thwarted with the Odisha government recently deciding not to allow conversion of IPPs into CPPs.

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