South Asia updatePublished by MAC on 2007-02-18
South Asia update
18th February 2007
The Italians are invading India - at least, that's how it must have seemed to some last week, as a top level delegation from the European state arrived in West Bengal to pick whatever lucrative deal it could. Central to the Italian mission is an alliance between Fiat and Tata in delivering the "peoples" car. And central to that is an issue that's had many citizens up in arms over the past year: the designation of special economic zones (SEZs) which seem to overwhelmingly favour industry over needs of the rural poor.
In the biggest Indian foreign takeover to date, the country's leading aluminium producer, Hindalco, has taken over Novelis - the US company spun off from a merger between Alcan and Pechiney in 2005. This follows swiftly on the heels of Tata's takeover of the UK-Dutch steel company, Corus. Doubts have been expressed about the wisdom of the Novelis deal from the Indian point of view. It's also worth noting that Novelis has a major contract to supply rolled aluminium to Coca Cola - long the target of vigorous opposition by Indian organisations for its alleged massive pollution and exhaustion of precious groundwater resources in the country.
Although promoted by the steel industry as a means of reducing energy in steel-making, and hence emissions of CO2, communities living around sponge iron (direct reduction, or DRI) plants beg strongly to differ. It is claimed that these plants, many of which have no proper environmental clearance, have become a major threat to environment and livelihood of people in Chhattisgarh, Orissa, Jharkhand, and other states.
Now, an illuminating , well-illustrated, investigation of the impacts of sponge iron plants in Chhattisgarh - specifically one operated by Jindal , concludes that they should be closed immediately. The report points to significant cancer and non-cancer risks to nearly 200,000 people living within a 10km radius of the plant.
[The report is 7.5 mb, and can be downloaded at:
Depending on the outcome of the next elections, Tata seems to be reviving its previously-suspended takeover plans for Bangladesh. Also waiting in the wings, as the government publishes a "new" coal policy, is the disgraced UK company, Global Coal Management (formerly Asia Energy).
Italy zeroes in on Bengal
The Telgraph, Calcutta
13th February 2007
Italy is betting big on India as it widens its global reach. Bengal, with its focus on SMEs, will play an important role.
There are 160 Italian enterprises in India having a turnover of around 900 million euros. Of these, around 60 per cent are in manufacturing.
"I have visited Tamil Nadu and Karnataka. But these states do not match the cultural ties and friendship we share with Bengal ... As we explore more global markets, India will figure prominently in our plans," Italian Prime Minister Romano Prodi said.
He is leading a 450- strong Italian delegation, which is currently touring the country for business opportunities.
The Italian team has arranged many B2B meetings in the city. A separate trade office of the Italian Trade Commission will also be opened here between September and December, Prodi added.
SIMEST, an organisation that promotes Italian companies abroad, already has an MoU with West Bengal Industrial Development Corporation (WBIDC). It has funded projects worth 300 million euros in India.
Since Bengal is the focus state for SMEs in India, organisations like the SIMEST is focusing on the SME projects through the 300-million-euro Go India fund set up for this purpose.
Italian firms would work with those in Bengal on agri, leather, copper, engineering and mechanical industries, the Italian Prime Minister said after his meeting with Bengal chief minister Buddhadeb Bhattacharjee.
Bhattacharjee earlier asked the Italians to help with their expertise in food processing, leather processing and packaging.
This delegation was first part of this strategy to implement these plans rapidly.
"Indian companies are welcome to Italy and should use the country as a bridge to the huge market of EU. They should also look at Italy as a favourable trade and investment destination with as much enthusiasm to facilitate commercial exchange," Prodi said
Italian SMEs set for big deals in Bengal, look for SEZ slot
Financial Express, Kolkata
11th February 2007
Italian and Indian companies will be signing some big deals here on Monday in energy, power, textiles and food processing, as one of the largest-ever trade teams from Italy chooses to make Kolkata its first halt in a five-city tour of India.
Over 400 Italian entrepreneurs and bankers have laid siege to Kolkata to capitalise on what they see as West Bengal's major advantages --- surplus power, low primary costs and land availability.
Giuseppe Morandini, president of the small industry council of Confindustria, the industry body, said Italian small & medium enterprises (SMEs), the backbone of their industry, are particularly appreciative of West Bengal's renewed focus on industry.
"One thing that is really interesting and moving for us entrepreneurs of the SMEs is the push that you want to give in this area to the manufacturing sector," he said, "because that is the best choice to create new workplaces and also jobs in the service sector."
Morandini has brought the advance party in his first touchdown in India, while prime minister Romano Prodi would be coming here on Tuesday.
Morandini, speaking via an interpreter, declining to name the companies that will be signing the deals, pointed out that ABI, the Italian banks' association, had on Friday announced a Euro 300 million designed specifically for Italian companies investing in India.
Italian companies are also looking at the special economic zones (SEZs) in West Bengal for investments.
West Bengal, Morandini said, is energy-surplus and a "very competitive market". "The situation is particularly favourable from the point of energy," he said. "The primary costs and land costs are also very competitive."
At the moment, only 3% of the 313 Italian companies in India are present in West Bengal.
The team consists mainly of SMEs. Morandini clarified that the European Union definition of an SME is based on number of employees (a maximum of 250) and not turnover or asset size as in India.
Prodi, at a halt in Chennai on Sunday, expressed the hope that bilateral trade between India and Italy would go up from $5.2bn at present to $13bn over the next three years.
On Monday, there will be four technical sessions and over 2000 business-to-business meetings at a programme organised by the Federation of Indian Chambers of Commerce & Industry (Ficci).
Italy's minister for international trade, Emma Bonino, would be addressing one of the sessions.
Prodi, accompanied by three ministers, top officials of the Confindustria --– including its chief Cordero di Montezemolo, who is chairman of carmaker Fiat --- and the ABI, and over 430 businessmen representing 300 companies, would be in India for six days, visiting Mumbai, Chennai, Bangalore and Delhi.
Prodi's goal, according to Italian news agency ANSA, is to make Italy "Europe's door to Asia."
India's special economic zones under fire
Interpress service, NEW DELHI
Faced with energetic and widespread popular protests against special economic zones (SEZs), India has decided to go slow on this particular model of industrialization based on creating export-oriented tax-free enclaves.
India's federal government recently announced a suspension of all land acquisition for establishing new SEZs until a new policy on the rehabilitation of displaced people is announced. This followed an intervention by Sonia Gandhi, president of the Congress party, which leads the ruling United Progressive Alliance (UPA).
Gandhi expressed her concern at the large-scale uprooting of people from agricultural lands and the loss of livelihoods. Popular discontent caused by displacement, many Congress leaders fear, will adversely affect the party's chances in upcoming elections in a number of states including Punjab, Uttar Pradesh and Gujarat.
No less important than this temporary (and probably tactical) move is the announcement by the Marxist chief minister of West Bengal, Buddhadeb Bhattacharya, that no SEZs will be set up in the state unless his allies in all the four parties that comprise the ruling Left Front grant their full consent.
Bhattacharya, who represents the Communist Party of India (Marxist), said: "I will do nothing in violation of what our four left parties decide on SEZs. If necessary, I will step back."
Party general secretary Prakash Karat has since asserted that the SEZ process would be kept in abeyance until the CPM politburo discusses the matter next week and sorts out differences with the other Left Front constituents. The leaders of these, the Communist Party of India, the Revolutionary Socialist Party and the Forward Bloc, oppose the very concept of SEZs as vehicles of industrialization.
Until this week, Bhattacharya was a staunch supporter of SEZs. His government had earmarked as much as 56,660 hectares of land for acquisition from farmers on which to create these zones.
Bhattacharya's announcement is widely seen as an acknowledgement of the growing unpopularity of SEZs. West Bengal witnessed pitched battles over the past two months at Nandigram and Singur, 40-60 kilometers from Kolkata.
Nandigram is the site of a proposed 4,050-hectare SEZ to be developed by Indonesia's Selim Group. Singur is where the Tata business group is planning to build a car factory on 403.5 hectares of land.
On January 6 and 7, six people died in violence at Nandigram. Villagers in the area have erected roadblocks to prevent officials from entering and conducting operations leading to land acquisition.
So fierce was the protest that the Left Front government declared in the second week of January that there would be no land acquisition at Nandigram until the project is properly evaluated. Acquisition and fencing of land, however, are continuing in Singur.
"The fact that Bhattacharya has offered to step back signifies a major change in the West Bengal CPM's thinking on the issue," said Tanika Sarkar, a professor of modern Indian history at Jawaharlal Nehru University, who recently visited West Bengal as part of a citizens' fact-finding team to inquire into displacement and violence. "The CPM's retreat represents a major victory for the people. Hopefully, this will lead to rethinking in the state party on the idea of industrialization at any cost."
West Bengal is not the only, or the leading, state where SEZs are being built. The Indian government has approved 237 SEZs with 34,509 hectares of land. While 63 are already under construction, another 165 SEZs have been approved "in principle", for which nearly 15,000 hectares are to be acquired.
Applications for 300 more SEZs are pending. Most of the big ones among these are in Maharashtra, Uttar Pradesh, Haryana, Gujarat and Punjab.
"What distinguishes West Bengal is the ferocity of protests against forcible land acquisition and the fact that the CPM's own grassroots leaders are deeply divided," argued Ranabir Samaddar, a social scientist attached to the Calcutta Research Group. "The very cadres whom the CPM had educated on land rights and trained in agitational methods are now leading the protests against it."
The Left Front has been continuously in power in West Bengal for three decades, considered a world record. A key to its success is the "Operation Barga" land reform, under which sharecroppers won the right to three-fourths of the produce of the land that they worked, while the absentee rentier-owner received the rest.
SEZs have provoked protests for three reasons. First, they involve forcible procurement of land under the colonial Land Acquisition Act of 1894 and discrimination against underprivileged small landholders. Second, they are seen as a form of "crony capitalism", doling out favors to business through undeserved tax breaks and other concessions at the expense of the public.
And third, SEZs are likely to create few benefits, including jobs, in relation to the number of people they displace.
The 1894 act allows the government to acquire land for a "public purpose". It was originally devised to create a system of irrigation canals and roads. But in recent decades it has been used to buy land from reluctant peasant farmers for private profit.
The farmer has no choice but to sell. The price paid is often well below the market rate. Those who lack clear title to land - thanks to India's Byzantine laws and archaic registration procedures - get just a pittance. Some 70% of India's 1.1 billion people depend on agriculture.
"Even more important than this unequal price bargain is the complete loss of livelihood that separation from land entails," said Amit Bhaduri, an eminent economist currently with the Center for Social Development in Delhi. "A large majority of those who are displaced due to land acquisition are unable to find an equivalent livelihood or other means of survival. Communities get split, families are divided, and large numbers are reduced to penury."
It is estimated that various "development" projects have displaced some 38 million people in India since independence - about double the entire population of such countries as the Netherlands or Australia. Studies show that not even half the number of those displaced get properly resettled or rehabilitated. Some have been displaced more than once.
In recent years, people's movements have drawn up charters for proper rehabilitation prior to displacement. They insist that the government obtain informed consent of the affected people after fully sharing with them all relevant information about the project.
The UPA government led by Prime Minister Manmohan Singh, which came to power in 2004 riding a wave of public anger against a pro-rich, right-wing dispensation, had promised a humane rehabilitation policy and is under growing pressure to formulate one.
"It won't be easy to reconcile the interests of corporations and the people," said Bhaduri. "But the government must act as a regulator and defender of the people's rights and interests."
Supporters of SEZs claim they will accelerate industrialization and generate employment. Another argument is that agriculture can no longer absorb the large numbers entering the workforce, so any kind of industrialization is better than none.
This is contested by economists who point out that there are labor-intensive alternatives such as agriculture-based processing and "town and village enterprises", which were a great success in China long before that country embarked on export-driven growth.
Bhaduri estimates that SEZs will create only one job in place of the four livelihoods they destroy. "This is a grossly unequal bargain. The government must radically rethink its policy if it has any respect for people's rights."
Special Economic Zones: Lessons From China
By Bhaskar Goswami, Countercurrents
13th February 2007
China's record economic growth rate fuelled by the Special Economic Zones (SEZ) is often advocated as the reason for India to adopt this approach. Since the 1980s, China implemented a series of measures and policies with the sole purpose of achieving rapid economic growth. As evidence over the years has shown, this single-minded pursuit of growth has lowered the efficiency and effectiveness of economic policies, besides incurring huge resource and environmental costs. The Chinese experience offers a valuable lesson for India.
Cost of Export-driven Growth
China has to feed 22 percent of the world's population on only 7 percent of land. In July 2005, China's countryside had over 26.1 million people living in absolute poverty and was home to 18 percent of the world's poor, according to Chinese Minister Li Xuju quoted in the People’s Daily. Every year, an additional 10 million people have to be fed.
Despite this daunting target, between 1996-2005, "development" caused diversion of more than 21 percent of arable land to non-agricultural uses, chiefly highways, industries and SEZs. Per capita land holding now stands at a meager 0.094 hectares. In just thirteen years, between 1992 and 2005, twenty million farmers were laid off agriculture due to land acquisition.
As more arable land is taken over for urbanization and industrialisation, issues related to changes in land use have become a major source of dispute between the public and the government. Protests against land acquisition and deprivation have become a common feature of rural life in China, especially in the provinces of Guangdong (south), Sichuan, Hebei (north), and Henan province. Guangdong has been worst affected.
Social instability has become an issue of concern. In 2004, the government admitted to 74,000 riots in the countryside, a seven-fold jump in ten years. Whereas a few years ago, excessive and arbitrary taxation was the peasants' foremost complaint, resentment over the loss of farmland, corruption, worsening pollution and arbitrary evictions by property developers are the main reasons for farmers' unrest now.
While rural China is up in arms against acquisition of land, SEZs like Shenzen in Guangdong showcasing the economic miracle of China, are beset with problems. After growing at a phenomenal rate of around 28 percent for the last 25 years, Shenzen is now paying a huge cost in terms of environment destruction, soaring crime rate and exploitation of its working class, mainly migrants. Foreign investors were lured to Shenzen by cheap land, compliant labour laws and lax or ineffective environmental rules. In 2006, the United Nations Environment Programme designated Shenzen as a 'global environmental hotspot', meaning a region that had suffered rapid environmental destruction.
There's more. According to Howard French, the New York Times bureau chief, most of the year, the Shenzen sky is thick with choking smoke, while the crime rate is almost nine-fold higher than Shanghai. The working class earns US$ 80 every month in the sweatshops and the turnover rate is 10 percent – many turn to prostitution after being laid off. Further, real-estate sharks have stockpiled houses which have caused prices to spiral and have created a new generation of people French calls "mortgage slaves" in an article in the International Herald Tribune on 17 December 2006.
The mindless pursuit of growth following the mode of high input, high consumption and low output has seriously impacted the environment. In 2004, China consumed 4.3 times as much coal and electricity as the United States and 11.5 times as much as Japan to generate each US$1 worth of GNP, according to the The Taipei Times. Some 20 per cent of the population lives in severely polluted areas (Science in Society) and 70 percent of the rivers and lakes are in a grim shape (People’s Daily).
Around 60 per cent of companies that have set up industries in the country violate emission rules. According to the World Bank, environmental problems are the cause of some 300,000 people dying each year. The Chinese government has admitted that pollution costs the country a staggering $200 billion a year - about 10 per cent of its GDP.
While export-driven policy for economic growth has helped China touch record growth figures, the income gap is widening and rapidly approaching the levels of some Latin American countries. Going by a recent report by the Chinese Academy of Social Sciences, China's Gini coefficient – a measure of income distribution where zero means perfect equality and 1 is maximum inequality – touched 0.496 in the year 2006.
In comparison, income inequality figures are 0.33 in India, 0.41 in the US and 0.54 in Brazil. Further, the rural-urban income divide is staggering – annual income of city dwellers in China is around US $1,000 which is more than three times that of their rural counterparts.
It is in this backdrop that India's SEZ thrust must be seen. Following China, India is replicating a similar model where vast tracts of agricultural land are being acquired for creating SEZs and other industries. The September 2005 notification on Environment Impact Assessment is lax for industrial estates, including SEZs, and apprehensions of dirty industries coming up in these zones are quite real. Further, with drastic changes in labour laws favouring industry being considered, the plight of workers in these SEZs will be similar to those in China. Such a mode of development is environmentally unsustainable and socially undesirable.
Further, it is now widely acknowledged that Chinese exports have also been boosted by its undervalued currency, something which Ben Bernanke, chairman of the US Federal Reserve, terms as an "effective subsidy".
This is a luxury that Indian exporters do not enjoy. The argument for setting up SEZs to emulate China's export-led growth is therefore questionable.
Is export-driven growth through SEZs desirable for India?
There is no doubt that exports play a significant role in boosting GDP. However in the case of a country with a sizeable domestic market, the choice lies with the producer to either export or supply to the domestic market. Ila Patnaik of the National Institute for Public Finance and Policy wrote in the The Indian Express in December 2006 that household consumption in India at 68 percent of the GDP is much higher that that of China at 38 percent, Europe at 58 percent and Japan at 55 percent.
This is an important source of strength for the domestic manufacturing industry of India.
Given the high level of consumption of Indian households, it is quite possible that this rush is fuelled not by the desire to export out of the country but by the possibility of exporting from SEZs into the Domestic Tariff Area (DTA). The SEZ Act is also designed to facilitate this. Any unit within the SEZ can export to the DTA, after paying the prevailing duty, as long as it is a net foreign exchange earner for three years. It is therefore a win-win situation for these units.
The sops in a SEZ will reduce the cost of capital while labour reforms will ensure trouble-free operations. Further, given the considerable international pressure to reduce industrial tariffs, SEZs will be able to export to the DTA at highly competitive prices. This does not augur well for units outside the SEZs who will now face unfair competition. As cheaper imports have already played havoc with the livelihoods of artisan sector of the economy, cheaper imports into DTA from SEZs will also adversely affect the domestic industry. No wonder many of them now want to migrate into SEZs.
In a country with 65 percent of the population depending on agriculture as a means of livelihood, industry ought to be complementary to agriculture. Through SEZs however, industry is being promoted at the cost of agriculture. Valuable resources spent to create SEZs will be at the cost of building better infrastructure for the rest of the country, something that will affect both the domestic industry as well as agriculture.
Other lessons India could learn from China: Welfare
While the Chinese experience with export-driven economic growth definitely offers many sobering lessons, there are many other areas where India can learn from China. China has initiated a series of measures to arrest social tensions and rising inequality in rural areas.
In April 2004, the State Council, China's cabinet, halted the ratification of farmland for other uses and started to rectify the national land market. The Minister of Agriculture, Du Quinglin, promised "not to reduce acreage of basic farmland, change its purpose or downgrade its quality".
China also abolished agricultural tax in 2006 and increased subsidy for food grain production by 10 percent. To boost rural income, the selling price of grain was increased by 60 percent in 2005. In 2004, out of a total 900 million farmers in China, 600 million received US$ 1.5 billion (Rs.6,630 crores approximately) as direct subsidies. 52 million of the Chinese farmers have joined in the rural old-age insurance system and 2.2 million received pensions in 2005. More than 80 million farmers had participated in the rural cooperative medical service system by the end of 2004, and 12.57 million rural needy people had drawn allowances guaranteeing the minimum living standard by the end of 2005.
India, on the other hand, either does not have any of these safety nets or is in the process of dismantling the few that exist. There is much to learn as well as unlearn from the Chinese experience. Until that is done, millions of poor across the country will be made to pay an even higher price than the Chinese did for following this flawed approach.##
The writer is with the New Delhi based Forum for Biotechnology and Food Security.Email: firstname.lastname@example.org
Novelis hedges Hindalco against LME price volatility
12th February 2007
The Aditya Birla Group has acquired the entire 100% stake in Atlanta-based aluminium company Novelis for USD 6 billion in an all cash deal. Demerging from global aluminium major Alcan in 2005, Novelis operates in 11 countries and employs 12,500 people.
Managing Director at Hindalco Industries, Debu Bhattacharya believes that the Novelis buy hedges Hindalco against LME price volatility. He further adds that Novelis brings in value-added products and tech support. He also informs the consolidated revenue of the merged entity is seen at USD 13.5-14 billion (proforma). He further states that Novelis' profitability will improve substantially by Jan 2010.
Excerpts from CNBC-TV18's exclusive interview with Debu Bhattacharya:
Q: The market seems to have a few apprehensions about the strategic nature of the move that you have taken. Does it make sense for you to buy a processing company at this end of the cycle?
A: Yes, it does make enormous sense and I will explain why – Hindalco has been primarily the upstream business that is producing alumina and aluminum. We run this business successfully and we have one of the lowest-cost producing units in the world.
However, at the same time, this is exposed to the vagaries of LME. Therefore while the going is good, the profitability will be excellent. But when the LME does come down, it will have certain severe impact on the profitability, which has happened in the past as well. It will happen to the very best in the world, though because of our low cost structure, we will be less affected.
So we have been looking at the possibility of extending it to the value-added product so that we get hedged because that is a value added product business and is, by and large, a complete insulates business from LME. Therefore we have been looking at value-added products and if one would have observed, we were about 43% of the total turnover of Hindalco five years ago and we have been increasing this. We have now come to about 59% in the Q3 of this financial year.
However, there is a limitation as to how much we increase because our total volume around 2,20,000. We do not have the capability or the technology required to get into the premium end of this segment. Therefore, we have been looking at the possibility and evaluating whether we can get something, which will shorten our learning curve and get to the assets and technologies of the high-end products.
One couldn’t get a better target than Novelis, as Novelis is number one in the FRP (flat rolled products) business, which consumes about 40-41% of total aluminum consumed in the world. So the outlet for aluminum is primarily flat rolled product, and in this, Novelis ranks first in the world with 19% market share. Globally too, it is a leader, being number one in Europe, South America and Asia and number two in North America.
Therefore one can see that Novelis straddles between developed market and also the growth market of Asia and South America. Therefore, in my book, based on the detailed due diligence that we have done over the last couple of months by our technical, commercial and finance team, I am convinced that Novelis is, by far, the best target that we can have given.
Q: Can you talk a bit about the financials as well? What sort of combined turnover these two companies will now have?
A: Novelis runs in calendar year terms; '06 results are not published and therefore I would refrain from giving any number for '06 - though I am privy to all the numbers but I cannot quote it.
Their turnover for '05 was about USD 9 billion and currently Hindalco will be about USD 4.5 billion. So Hindalco proforma consolidated will be somewhere around USD 13.5-14 billion and it will grow further as we go along, so it will be a substantial aluminum business by any standard.
Coming to the profitability, Hindalco has done extremely well in this financial year. It had a PAT growth of 92% this quarter over the corresponding quarter last year and I have presented in detail after the quarter was over.
Going back to Novelis, it is going through a bad patch. This patch is not because of any reasons of market or operations but because of a can contract that they are suffering from.
As Pepsi, Coca-Cola and other beverage manufacturers, they buy aluminum cans from can manufacturers; can manufacturers in turn buy the flat roll sheet from companies like Novelis and they supply about 42% of every can that is produced and used in the world.
When these can manufacturers got into contracts, they went for whatever reasons – I am not aware of – there must have been some compulsions of having a can price sealing, which means regardless of whatever the LME is, they will supply can stock at a price not higher than the corresponding price of LME.
So if the LME goes above USD 1,900, Novelis is buying metal at a higher price and subsidizing in the form of fact that it is selling at a price corresponding to no more than USD 1,900 and this because of large can stock contract, it has been a one-time hit. Therefore, the book profit will be significantly lower.
But the good news is that by January 2010, all these contracts will fall off and the profitability will improve substantially. However, I can assure you that operationally, the company is doing well and it is showing substantial improvement YoY.
Role of royalty in Hindalco's Novelis buy
TIMES NEWS NETWORK
14th FEBRUARY 2007
There's much action on the metals front. Hindalco, India's biggest aluminium producer, has wrapped up a $6 billion all-cash deal to acquire the US-based Novelis, which is heavily into downstream products. The move would seat Hindalco at the global high table in aluminium. The biggest Indian takeover in non-ferrous metals ought surely to focus policy attention on a host of incongruities in the sector.
Take for instance the fact that the domestic royalty rate on bauxite ore is far too low and has remained unrevised for years. It is actually a tiny fraction of going international rates and a key reason why there is a general lack of transparency in prospecting, mining and ore evacuation. Also, it needs to be asked why the tariffs on aluminium needs to be higher than that for other metals.
Now, aluminium is labelled the wonder metal. It is malleable, ductile and lightweight and is highly resistant to most forms of corrosion too. Also, aluminium production is the highest among non-ferrous metals, with global annual output put at just over 33 mt. It is also 100% recyclable and its recycling adds another 50% to annual production. The total capacity of the Indian aluminium industry is just over 1 mt, with quite a few brownfield expansion and greenfield projects in the works. Meanwhile, in these times of heady growth global aluminium demand is buoyant.
It is actually projected to grow by as much as 5% this year on the face of strong worldwide demand. Besides, the upside in India is huge. Per capita consumption here is lowly, less than a kilo. Abroad, the usage levels are at least 20 fold higher. But then, when the chips are down, things can only look up! So the outlook is bright and sheeny if we can get the policy environment right to substantially step up aluminium output.
Hindalco is cash rich with strong balance-sheet numbers. It is known to be one of the more efficient, least-cost producers anywhere and with a focus on downstream, value-added products. It has been able to leverage its fast-paced topline and bottomline growth to take over Novelis, which incidentally has sales turnover almost 10 times larger in dollar terms. But then, Novelis is actually in the red and has mounting debts on its books.
And despite its strengths in high-margin, downstream products and large global marketshare estimated at 19%, it has had erosion in margins due to hardening aluminium prices. After the takeover, Hindalco would need to be pro-active and build upon the technological edge and the brand strength of Novelis to make innovative products and so stride the world stage as a truly integrated aluminium major. Novelis would need to access metal and ingots at more reasonable prices to put its finances on sounder footing. This requires stepped up production at Hindalco which calls for revision of royalty rates on bauxite ore and the ironing out of other policy glitches.
India has some of the best bauxite deposits in the world, rich in metal content and estimated at over 3 billion tonnes. But the norms on royalty, cess and other rates on bauxite mining have little changed over the years and remain at rock-bottom levels. The central rule is that the mineral royalty on bauxite accruing to the state would be 0.35% of LME aluminium metal price chargeable on the contained aluminium metal in ore produced. So the effective royalty on bauxite ore would be even lower than 0.35% of LME quotes. This is much too low.
Abroad, royalty rates at 5% of metal prices are an established standard. Now that domestic aluminium prices are very much linked to LME rates, there is no reason why those for royalty should remain an anachronism from the days of autarky, disregarding international prices. Also, given that domestic output would be a small fraction of the world total, ore prices surely need to reflect international scarcity value.
Proper pricing of ore and reasonable royalty rates would incentivise value-addition at home. Since much of the bauxite deposits are concentrated in Orissa, Jharkhand and Chattisgarh with high poverty ratios, revised rates would be welfare enhancing too if there is earmarking of the funds and channelling for the local development. Further, import duties on aluminium need to be no more than 5%, as already the case say for steel. Greater openness does pay.
Controversial coal policy should be reviewed before approval
18th February 2007
The current military-backed caretaker government's suggestion that Asia Energy, a UK-based mining company, works towards building a good relationship with the people of Phulbari in Dinajpur indicates the government's intention to allow Asia Energy to resume its operations there although the open-pit coal mine project that the mining company had proposed was rejected by the people at large and more particularly the local populace at the end of August last year.
The people of Phulbari had risen in spontaneous protest against the project and demanded immediate withdrawal of the company after the police had opened fire n a reasonably peaceful demonstration and killed five people. A general strike was enforced by the locals for several days following which the government was compelled to sign an agreement promising to suspend all activities and operations of the company.
Even the Prime Minister's Office, during the previous political regime under the BNP-led alliance government, directed the relevant departments of the government to implement the agreement.
As reported in New Age on Saturday, the current government, besides being intent on giving a go-ahead to Asia Energy, which has since changed its name to Global Coal Management, is also looking into approving a coal policy, which was not only rejected by a number of experts saying it was threat to national energy security but was also controversial since two significant parties, Asia Energy and the Indian conglomerate Tata, both interested in mining coal , had reportedly intervened in the process to ensure that the policy favoured their interests.
We point out that any decision to allow the mining company to return to Phulbari would be against the popular opinion of the local people and a large section of the nation at large. Such a decision would also be contrary to a government pledge that an earlier administration had made to the people.
As for the energy adviser's comments to allow Asia Energy to compensate for the loss of lives with its investment, we stress that such an investment, which experts and economists have found harmful, must not be entertained simply to compensate for the loss of life or limb. The government should instead ask the company to pay compensations from afar without jeopardising livelihoods of thousands and threatening the ecology of the region that would surely be affected by an open pit mine spread over 17,000 hectares.
The coal policy, being controversial and presumably subjected to persuasive intervention from commercially interested quarters should be opened up for further review through a transparent and inclusive process, which may later be considered for approval. But the current draft cannot suffice as an acceptable policy since several quarters have pointed out that it does not serve national interest and in fact threatens the energy security of Bangladesh.
$3b Investment: Tata ponders step to restart negotiations
The Daily Star
16th February 2007
A top official of India's industrial giant Tata yesterday said they are exploring the possibility of starting off its $3 billion package investment project in Bangladesh through a good conclusion of the final deal.
Tata's package investment proposals include setting up of a 2.4million-tonsteel plant, a fertiliser plant, a 475MW gas-fired power plant and the development of Barapukuria coal mine through open-cast methodology.
The project remained suspended since last July, before the previous government handed over power to the caretaker government.
"We are exploring the possibility of seeing if we can start off again from where we left last time and come to a good conclusion," S Manzer Husain, resident director of Tata Group, told the news agency after meeting with Foreign Affairs Adviser Iftekhar Ahmed Chowdhury.
On the meeting with the adviser, Husain said he apprised him of the Tata projects.
Asked if he got positive response to the project from the adviser, he said, "We just apprised him, and I think, we should give them time to assess the situation."
He, however, said: "Since the benefits of the project are so good, obviously, we hope that they will also be looking at how to take it forward, if possible."
Husain was asked if he feels encouraged about their project after the current caretaker government recently signed a Tk 1033-crore deal with an Indian company for setting up 240MW power plants in Bangladesh. "I think, the best thing is to wait for some time," he said.
The official ruled out the possibility of any delegation of Tata visiting Bangladesh in the near future.
Asked if he thinks the current situation is favourable for foreign investment, Husain said, "Well, every situation is favourable for foreign investment...Only thing, intention should be there. And I think, every well-meaning Bangladeshi will have the good intention of getting foreign investment."