Vedanta - the panto! A London Calling special - January 10 2004Published by MAC on 2004-01-10
A London Calling Special - January 10 2004
Vedanta, the panto!
A cast of thousands, a huge pot of metals, three ugly brothers and a grasping baron. This is the show that has it all - and it's coming to a village near you! (But where's the handsome young princess, set to save the commons and its local dependents?)
This bumper issue of London Calling scrutinises the mining conglomerate, Vedanta Resources, launched late last year on the London Stock Exchange. Beneath the hype is a tortuous history of shadowy deals, gross deception, statutory violations, contempt for workers, environment. And that's just for starters
Sleeping Booty awakes!
The good business burghers of London are bolstering a newly launched enterprise with a distinctly shady recent past. The Vedanta mining company began trading on the Stock Exchange in December, its shares deliberately priced to the middle of the market. It was Britain's second biggest public float of the year and a first for any Indian-based company. The initial response was pretty impressive. True, the key buying seemed to be by hedge funds (slightly more US-based than British) and these are as swift to offload stock as to acquire it. Although the shares were placed with some 350 institutions, just 30 of these were believed to account for 70% of the uptake.
One or two commentators expressed misgivings. First, Vedanta is ostensibly controlled by Sterlite Industries, a major Indian conglomerate which is the holding company for Anil Agarwal, an NRI (Non-Resident Indian) based in London. Last year, Agarwal tried to de-list his company from the Mumbai (Bombay) stock exchange then buy back its shares at only half the book value. The Indian authorities firmly told Agarwal where he couldn't go. Second, Agarwal was recently found guilty of unfairly sacking a former senior employee, hired to work on Sterlite's mergers and acquisitions.
Rajat Bhatia had dared express his belief that Sterlite's proposed dilution of equity in an Australian company contrary to an existing understanding, would breach Australian rules. Agarwal literally threw his digital diary at Bhatia and threatened to "destroy him", understandably prompting the startled guy to resign. The British Employment Tribunal awarded Mr Bhatia £805,000 damages - the highest amount it's ordered in the past year.
But the majority of London's brokers scarcely blinked at Mr. Bhatia's plight, nor the growing indication that Anil Agarwal might have lots more skeletons in his corporate cupboard. After all there's no better time than the Xmas silly season (with office booze flowing as freely as the Thames), to bring off a massive confidence trick. The London "Times" on December 10th quoted a London stock exchange source confirming that Vedanta's listing had succeeded "only after a 'quiet word in many ears'". One wonders how many brains between those ears were truly attentive at the time.
What London investors did baulk at, however, was a nifty trick which Vedanta pulled at the thirteenth hour: a characteristic Sterlite gambit. Shares had closed on December 5th significantly below their initial price. The "Times" thought the sharp fall "reflected concerns that shareholders would receive a smaller slice of the company than they were previously led to believe."
Vedanta then suddenly increased the size of its offering by nearly a fifth. One major finance institution accused the company and its lead bankers, JP Morgan and HSBC, of "straightforward greed". A prominent fund manager called the offering " very badly handled", claiming "it could take months for the share price to recover". One leading shareholder described the company's debut as "the worst flotation of its size since...early 2001", while an analyst at Numis Securities revealed that "a lot of the institutions are very angry at the sheer size of the new issue. It looks as if the investment banks are trying to get extra fee income".
In addition to JP Morgan and HSBC, the other jackdaws picking over Vedanta's pearls are Cazenove (ironically dumped by HSBC as its own house broker back in September); Citigroup, the world's biggest financial services company; Australia's Macquarie Bank; and India's homegrown ICICI Securities. Between them, they're expected to reap about thirteen million pounds in fees.
By mid December the new mining company had already sold more than half a billion pounds worth of new shares, giving it a market capitalisation of well over a billion and ensuring a high position in the FTSE 250 index. Agarwal and his family now control nearly 54% of Vedanta and Agarwal himself boasts it will soon become the biggest non-ferrous metals producer anywhere. (More modestly the Financial Times reckons Vedanta may fill the investment gap between the Big Global Three - BHPBilliton, Rio Tinto, Anglo American - and smaller companies which exploit a single commodity.)
Brian and the Beanstalk
It's all seemed uncannily like the Xstrata play in 2002: an obscure outfit with its golden share (or poison pill?) controlled by a private trader, bursts onto the London scene and leaps into a pole position among global miners, in a dizzyingly short space of time.
Except that Xstrata/Glencore didn't enjoy the backing of one of mining's highest-profile and most aggressive resource grabbers. This is the multi-millionaire Brian Gilbertson, architect of the biggest-ever mining merger, between Billiton and BHP in June 2001. As Vedanta's non-executive chair he receives a "modest" salary of £350,000 a year and got Vedanta shares worth around £7 million at today's prices. Mind you, he's since had to sell half these to meet his UK tax and national insurance obligations. But this will hardly bother the man who, over the past year, became the highest paid mining executive anywhere. When Brian got bounced from BHPBilliton his payoffs were valued at twenty five million pounds.
That Agarwal needs Gilbertson, and vice versa, is self-evident. The Indian magnate gets exposure on the most generous mining equity market in the world; the South African gets to stomp around the planet, gloating over the breadth of his portfolio. Both men have abrasive, over-weaning egos. Like Tweedledum and Tweedledee they will either buttress each other or eventually fall out. Foreseeing this possibility, Gilbertson has locked Agarwal into a contract which precludes his dismissal from Vedanta, at least until next July's London Annual General Meeting.
You might have assumed that the ex-CEO of BHPBilliton has been languishing in the wilderness since his unceremonious departure from the world's biggest mining company in 2002. In fact he was quickly adopted as a consultant by Lonmin, the London platinum company whose critical stake in Ashanti Goldfields gained it a comfortable pay-off from Anglo American as the latter looked like taking over Ghana's biggest private enterprise last year. During this period, Gilbertson was also building on his credibility among stockbrokers in his natal South Africa.
Indeed (and surely not by sheer coincidence), just a few days after Gilbertson's pivotal role in Vedanta was confirmed, Lonmin announced he was also to take charge of a new South African mining conglomerate dubbed Incwala. This will bring together Gilbertson's Lonmin clients with Impala Platinum and is intended to launch soon on the Johannesburg Stock Exchange.
Incwala is a "Black Empowerment Company" pledged to give jobs and half its capital to Historically Disadvantaged Black South Africans (HDSA): those designated by the South African government as suffering grievously under apartheid. The new enterprise promises to represent not only the needs of black men but also women.
The prospect of this bluff, white, gold-digger piloting a major resource company devoted to poverty alleviation among blacks surely deserves the award of "corporate mining anomaly of the year". Gencor, formerly headed by Gilbertson, was arguably the most aggressive anti-black company in the whole of apartheid South Africa.
In 1985, Gilbertson's company was responsible for the worst mining accident in the country's history, when 177 workers died after Gencor lowered its safety standards at the Kinross mine. And, as the South African National Union of Mineworkers sought to assert basic human rights, many of the deaths and injuries suffered by trade unionists from police brutality occurred at Gencor's operations.
During the same period, the biggest attrition rates in asbestos poisoning were registered at Gencor's two subsidiaries, Gefco and Msaulit Asbes Bpk. It's only in the past year that victims and their families have secured anything approaching realistic compensation for the deaths and illnesses they suffered.
Meanwhile, Gilbertson was not too wrapped up in his South African intrigues to fail to be attracted to Anil Agarwal and India's mineral potential. The two men may not exactly be "birds of the same feather", but they're certainly cyclists on the same route. It was Agarwal who first approached Gilbertson and they apparently really got to know each while peddling (cycles) between Oxford and London.
Gilbertson has enormous kudos and credibility which, for Agarwal, is in short supply. Other mining executives (not least at BHPBilliton) may now be chafing at the bit to get into China. But the Indian subcontinent and its upwardly thrusting middle classes still have a lot to offer, a great deal to purchase - and they speak good English too. What a diversified portfolio Sterlite seems to possess: let's hear it from Gilbertson's own mouth.
"[T]o be quite honest, I had never thought of India as a resource country at all" he naively told Mineweb last month in a broadcast interview. "I went along and found to my surprise that there is actually a great deal happening the country is very rich in resources. For example, it's the sixth-largest reserve in the world of bauxite. And then it also has the fourth - or fifth - largest reserves of iron ore in the world and those two commodities are kind of like the holy grail of mining at this time, because the markets have been so strong for the past two or three years".
Gilbertson could hardly rate Sterlite/Vedanta's opportunities any higher, or the pretended pliability of Indian citizens, despite their government's "bureaucracy". Says he: "[I]t's always easier for people in the country to develop deposits, undertake the challenges. India, I guess, is reputedly a very bureaucratic country and some countries (sic) have battled for a long time to get deposits developed and have been unsuccessful."
But what excites the burly South African is the prospect of exploiting a "very highly educated" workforce which " . is paid a fraction of what Westerners would be paid, and I'm very happy to work with those wages."
Read that statement again: it comes from the most grotesquely over-imbursed mining executive on the planet.
Anil in Wonderland
So just what is Vedanta? As a holding company it's been widely regarded as the trojan horse which Anil Agarwal is using to re-capitalise Sterlite Industries and its various businesses. It could also be seen as a sort of reverse buy-out, since Vedanta will own the majority of Sterlite, even as Agarwal seeks to expand his own dominions. And what impressive enclaves these are! They encompass copper, bauxite/aluminium, zinc, lead, and gold exploits, not only across India but also in Australia, Armenia (where it operates two mines), Mexico and Russia. (Until 2000 its subsidiary Sterlite Gold Ltd, registered on the Toronto Stock Exchange, also held mineral rights in Burma).
Let the statistics tell their own tale: in 2002 Sterlite/Vedanta apparently controlled just under half (42%) of the Indian market in copper; nearly a quarter (21%) of the country's aluminium output, and a whopping 62% of its trade in zinc. Gilbertson has described Vedanta's London listing as "a ground-floor entry into the Indian economic boom". More accurately it's a subversive basement plunder of some of the country's most valuable mineral resources.
Last year Sterlite also won the bid to "develop" the Konkola Deeps, part of Zambia's Konkola Copper Mines (KCM) which Anglo American relinquished when it couldn't raise the capital to modernise the operations. In the light of Sterlite's appalling history of bidding for projects or companies, then beating down the price, or reneging on its obligations, a Vedanta acquisition of KCM is a bad augury for any community and worker-based revival of Zambia's copper sector. Characteristically, Agarwal has provided no detail of how much he intends to inject into buying 51% of the Deeps. Anglo American had already done a secret deal with the Zambian government to forgo payment of proper compensation to workers and clean up the toxic site. In a recent interview with Mineweb, Agarwal appeared to be backing out of the deal at least for the near future. But who really knows?
Across the board, Agarwal and Glbertson plan to spend over $2bn "to expand current operations and drive down unit costs, and to develop a portfolio of attractive greenfield projects". But the biggest chunk of cash is reserved for Sterlite's aluminium operations in India; more than tripling capacity at Balco's smelters; boosting output from its Madras Aluminium subsidiary and building a one million tonnes a year refinery in Orissa at Lanjigarh.
Remember the name Lanjigarh: as we'll see it encapsulates one of the worst impending corporate assaults on Indigenous land and constitutional tribal rights in India - indeed anywhere in Asia.
Sterlite started life as a minor business, delivering copper cables for telecommunications companies in India. From 1988, as IT became the subcontinent's millennial mantra, so Sterlite's supreme opportunist was close behind. But Anil Agarwal was also determined to own and control the raw materials on which the boom depended, processing them for striking profit by using the cheapened labour and quiescent permitting for which his home country is (rightly or wrongly) renowned. He set a course from which he has never deviated except that, as his greed grew, so did the ambit of his ambitions and the scandals of his stock play.
By the time the Vedanta listing had been devised, Sterlite was already an estimable global player. This would not have been possible without the acquiescence to privatisation and foreign control promoted by the Indian government after 1993. And, as India is dragged deeper into the WTO whirlpool, failing to protect its homegrown products against even cheaper imports, so Agarwal has fixed his sights on export markets to an extent unprecedented in the country's history. This is not to say that Sterlite fails to "serve" its host country in some respects. Like any putative mining mogul Agarwal can point to a modest employment roster in India, while retaining some value to the land of his birth.
However this all seems like mere icing on a distinctly alien sponge, when compared with the reliance Agarwal places on exports, the manipulations - verging on chicanery - of his market manipulations within India, and the degree to which he has risked the lives of workers and filched the resources of India's indigenous peoples.
Shri Agarwal is perhaps the best example of a homegrown capitalist betraying the ideals on which his country's independence was predicated. At the same time (and, for some critics an even worse sin) he's fishing for the pearls while throwing his net far away from home, comfortably insulated against further domestic scrutiny.
If this sounds like idle rhetoric reflect on this: in the first quarter of 2003, Sterlite's sales rose 14%. Its export turnover grew threefold (by 201%) while its domestic turnover fell by nearly a quarter. The company's tax provision tumbled by 84%, to a large extent because the increase in exports enabled the company to benefit from tax breaks on export profits.
The domestic scrutinies started more than a decade ago when Sterlite tried locating a copper smelter in the state of Maharashtra. Many local people vigorously opposed the project and they won the day. In October 1994, and with Tamil Nadu state backing, Sterlite brought the smelter on-stream at Tuticorin, on India's southernmost tip.
Environmentalists accused the company of issuing the Tuticorin Environmental Impact Assessment (EIA) even before all the data was in - then changing its parameters after the event. Greenpeace's Dave Santillo in 1995 declared the EIA "one of the most shoddy pieces of work I have ever seen": it omitted critical references to suspended particulates and heavy metals in the smelter discharges. Coastal protection regulations were ignored, even as the plant emitted large quantities of arsenic, sulphur dioxide, lead, cadmium, antimony and bismuth.
The unions were also hopping mad, claiming that Sterlite repeatedly violated basic safety standards at the Tuticorin plant and exploited ill-trained contract workers. Warnings of a likely disaster were ignored until, in mid 1997, the top of the rotary kiln exploded causing molten metal to shower down upon the workforce, maiming two men and reducing two others to charred bone. Finally, in 1999, following a short enforced closure, the plant was allowed to re-open, though Sterlite was instructed it must submit a new environmental management plan, particularly because the smelter lay only 25 kms from the ecologically fragile Gulf of Manna. In mid-2001 the plant secured an ISO 14001 classification.
Meanwhile, in 1998, the Securities Bureau of India (Sebi) condemned Sterlite, and two other private Indian companies, for insider trading - a decision "Frontline" columnist, Praful Bidwai, called "the greatest indictment by any statutory body yet of corporate malfeasance in the stock market". Sterlite was banned from accessing the market for two years; thirty four brokers on Bombay's Stock Exchange (BSE) were also found guilty of collusion in the scam.
Agarwal had collaborated in the share price rigging with a "promoter" called Harshad Mehta. Six years earlier, in April 1992, Mehta had been found guilty of helping himself to a cool five billion rupees from the State Bank of India, by making a receipt "vanish". This hadn't prevented him from later launching a web site to dispense stock tips and analyse market trends. Nor did it deter various newspapers from publishing his gobbets of wisdom. Mehta also offered his dubious services to companies of precarious financial standing. Among these was Sterlite.
Investigations by Sebi showed that, between April and June 1998, Sterlite's scrip price moved up 41 per cent, just before the company made a bid for the Indal Alumininum company although the actual conversion price was one the company couldn't afford.
Despite limited access to funds, Mehta had set up a large network of front companies. Known collectively as the Damayanti Group, this soon acquired a hefty chunk of Sterlite's floating stock, 30,000 shares of which were provided by Sterlite as a loan, through its associate Madras Aluminium. Faced with problems in repayment, Damayanti began "rolling over" its positions from one bourse (stock exchange) to another, transferring positions among brokers though a system of credit notes.
Since there was little money to call upon, Harshad Mehta inevitably went broke. When Sebi tried to identify the front companies and link them back to him, so his cronies fudged their answers and tried covering their tracks. Finally, by tracing telephone bills, payments to lawyers and traffic with various brokers. Sebi managed to lift the corporate veil. The bureau discovered that the companies had lent Harshad funds in order to build up his concentrated position, leading to an artificial market boom and eventual implosion of the investments. In some respects, this was an earlier, Indian, version of the "Enron scam".
The key to Mehta's market manipulations were his dealings with three Indian companies, BPL, Videocon and Sterlite. They were barred from accessing the capital market for four, three and two years respectively.
Agarwalla goes to the Balco"The [Balco] deal is economically irrational, politically deplorable, legally unsustainable and environmentally unsound it violates a fundamental rights verdict of the [Indian] Supreme Court in the landmark Samatha case, which vests ownership of Adivasi land in tribal people " Praful Bidwai, in Frontline, May 12-25, 2001
Sterlite's 2001 takeover of state-owned Balco (Bharat Aluminium Company) provoked one of the major political controversies of that year. (Sterlite's further acquisition of a 65.9 % controlling stake in Hindustan Zinc was less remarked upon at the time. Last week, however, a challenge was mounted in India's Supreme Court to the legality of the government's sale).
This wasn't the first time Agarwal had tried appropriating an Indian aluminium major. As we have just seen, he bid for Indal by soliciting shares from its investors but then couldn't pay. It took an order from the Delhi High Court, four years later, to force him to cough up. Indal is now owned by the Birlas, through Hindalco, and is the largest shareholder in the Utkal alumina joint venture, UAIL (of which more below)...
Of course India isn't the only nation of late to sell off one of its most profitable national minerals enterprises to the private sector. The Brazilian government did it with CVRD; Bolivia with Comibol; Peru did so wholesale under its now-disgraced former president Alberto Fujimori. First past the post in implementing this key tenet of neo-liberal orthodoxy was Britain's "Iron Lady", Margaret Thatcher. She reified her splenetic hatred of the leftwing National Mineworkers Union into policy by crippling and stripping the world's longest-surviving state-owned coal industry.
But, even among this sorry bunch of betrayals, the abject surrender of Balco - let alone to an outfit like Sterlite - stinks of unprecedented expediency and under-handedness. This hasty sale of 51% of India's third biggest aluminium company (brokered by Jardine Fleming of Hong Kong) was seen by some as a "pre budget manoeuvre" to balance the government's shaky books. There are allegations that India's rightwing central administration deliberately prevented Balco from modernising on its own terms and with its own funds. In any event, the company was grossly undervalued: according to some estimates, Sterlite secured assets worth up to ten times what it paid for them.
Another critical issue (though seemingly since lost in the shuffle) was raised at this time by the Kolkota (Calcutta)-based "Telegraph". The newspaper claimed there were documents showing that Balco produced special lightweight aluminium alloys used in India's Prithvi and Agni series of intermediate nuclear missiles and rocket components; Balco allegedly supplied the casings for India's nuclear tests of 1998. The company was "bound by a supply-and-production agreement with the Department of Defence Supplies to keep this technology secret".
The agreement (S. NO 1(3)/90/T(SI)/CPO(VG)-1645) also bound to secrecy, not only metallurgists who helped develop the alloys, but also "all scientists, engineers, other officers and technical hands who came to know about the technology, its use or manufacture." An obvious fear was that by, selling the company to Sterlite, details of the technology might be leaked to outsiders.
The most immediate putative victims of the Balco "fire sale" were members of its workforce, threatened by redundancies and loss of benefits. Seven thousand workers in the newly-formed "indigenous" state of Chhattisgarh came out on a lengthy strike and Mr A M Ansari, the working president of the Bharat Aluminium Employees Union (a member of CITU), was summarily dismissed by Sterlite's management on the pretext of his bad behaviour some three years before.
Over the longer term those who stand to suffer worst are the Adivasi (tribal) communities of Orissa, whose rights to prohibit mining on their scheduled territory under the historic 1997 Samatha ruling, have been flagrantly violated. Indeed, Agarwal told the "Times of India" in early 2001 that he had "no idea [about the Samatha judgment]".
For many decades, India's bauxite has attracted attention from the large, integrated, aluminium producers. The country hosts the fifth (or sixth) largest global reserves, nearly two thirds of which are in Orissa and neighbouring Andhra Pradesh. When the central government tried to auction off the National Aluminium Company (NALCO) during 2002 and early 2003, almost every major manufacturer of the miracle metal put in a bid, or considered doing so.
Fortunately union-led opposition to yet another surrender of national patrimony, backed by various politicians and civil society organisations, has scuppered the scheme - at least for the time being. As a result, BHPBilliton's enthusiasm for sourcing alumina from India appears to have dimmed, while Rio Tinto seems somewhat jaundiced by Orissa anyway.
However, Pechiney of France already has a long involvement in India and is sure to remain; its newfound global partner, Alcan, has been there since 1944. Russian, and especially Chinese, appetites for alumina are growing at an alarming rate. China's demand is expected to double this year alone, with the increase dependent on imports. The international scramble for India's bauxite may have only just begun.
It's not surprising then that, after grabbing Balco, Sterlite didn't wait long before securing the bauxite resources around Lanjigarh in south-western Orissa. These are located just to the north of the Baphlimali concession held by Utkal Alumina International Ltd (UAIL).
The latter's exploits have already sparked an outcry around the world, not least when police murdered three community protestors at an unarmed community demonstration in Maikanch, during December 2000. Yet, so far, Balco/Sterlite's own exploits in the region have gone virtually unnoticed by the outside world. Until last year such apathy could be explained by the fact that UAIL was dominated by two high-profile global companies - Alcan of Canada and (until its belated withdrawal) Norway's premier corporate enterprise, Norsk Hydro. Now that Vedanta is based in London ignorance is no longer an excuse.
In fact Sterlite/Vedanta has gone much further than UAIL, arguably with an even more cavalier disregard for local people . Thanks to the billion or more pounds of new investment on which it can now call, Sterlite now has the wherewithal to boost Balco's throughput to a level matching (or even surpassing) its rivals.
The proposed million tonnes a year alumina plant at Lanjigarh will refine bauxite from the Nyamgiri hills (5km south of the village) which contains reserves of over 70 million tonnes. The local government in mid-2002 estimated that twelve villages would be negatively impacted by the project, sixty families would need to be "relocated" and five times as many would be adversely affected by land acquisition. According to Sterlite, 1073.4 hectares (2683.5 acres) of land is required, but the company seems to have neglected to produce an exact figure of those likely to be uprooted.
It is notoriously difficult in India (and indeed many other countries) to make accurate assessments of those who'll be "affected" by an extractive project, and to what extent. Often surveys will not include many who are dependent on the land but lack clear title to it. The project's proponents will ignore or underestimate the nature of impacts: for example, the degree to which women, especially mothers, will become further deprived; whether even more families will be shifted as the project advances; the degree to which exhaustion or pollution of water supplies and curtailment of market access increase endemic poverty. One can nonetheless be sure that figures currently cited in the Balco case are highly conservative.
You'll be forgiven if you're not aware of the resistance to Balco in Orissa which predates the Sterlite takeover. Villagers successfully spiked the company's plans to trespass on another bauxite deposit, in the Sasuobohumali area of Kashipur. As an example of Gandhian satyagraha it deserves more than just a footnote to any decent history of non-violent community self-determination.
Last April the opposition to Balco in Lanjigarh was stepped up. A local leader, Lingaraj Azad now found himself under attack. The following (abridged) report, by an Indian civil liberties organisation, describes what happened.
On 2nd April 2003, Lingaraj was arrested in Lanjigarh apparently for speaking out against the Sterlite plans. Nearly 250 unarmed people, including 150 women and children, set out for Lanjigarh Police Station to ask why. But, before reaching it, they were attacked by around a hundred people with lathis (staves), cricket bats and stumps. The villagers are sure their attackers belonged to a "youth club" (Yubak Sangha) that's funded by Balco. On trying to flee the protestors were chased to Basantpada village where their assailants started attacking houses, destroying cooking utensils and food grains, breaking doors and damaging roofs. Shortly afterwards, two representatives of the affected villagers asked the Peoples Union for Civil Liberties (PUCL) to send in a fact- finding team - which it did.
The team visited several villages in the project area and recorded injuries visible on peoples' bodies. The inhabitants admitted that they hadn't lodged any complaint with the police since they were scared they would be beaten again; in any case they considered the police to be "hand in glove" with their attackers.
The majority of the population in the villages visited by PUCL belongs to the Kutia Kandh tribe, which depends on agriculture and the collection of forest produce. Farming is totally rain-fed and, during years of drought (as in 2003), villagers have to leave their homes in search of work, or else depend on forest gathering. (By contrast, lack of water seems of much less little concern to Vedanta/Sterlite. The company intends to construct a weir across the river Bansadhara at Bilatipadar, thus assuring a year-round supply to its alumina refinery).
Local people had first become aware of Balco's specific plans when the Kalahandi district collector served notice for acquisition of land in June 6 2002 and "invited" them to register their opinions (or complaints) about the project. Despite a woeful lack of notice (by comparison those affected by World Bank/IFC project are given an initial 90 days breathing space), nearly one thousand people reportedly assembled at the Revenue Office on June 22nd and submitted a memorandum opposing the project, for forwarding to Orissa's Chief Minister, Navin Patnaik. Close on two hundred individual protest petitions were also filed. Four days later, another gathering in Batelima was dominated by villagers calling for complete cancellation of the project.
From mid 2002 Indian government officials reportedly paid many visits to dissident villages in a largely fruitless attempt to persuade inhabitants to quit their land on promise of compensation. Towards the end of March 2003 seven residents of Turigada, arrested by police, were freed when women gheraoed (blockaded) the vehicle carrying them. Soon afterwards villagers at Basantpada were said to have snatched instruments used by a company-commissioned survey team and issued threats against its members. On April 1st, Lingaraj Azad went to Lanjigarh in an attempt to persuade pro-company residents that they should also fight the project. Instead, the villagers took him to the police station where - based on the surveyors' complaints - he was arrested, sent to court and bailed the following day.
Disturbingly Lingaraj later told the PUCL that, while in police lock-up, he overheard the officer in charge telephoning instructions to pro-Sterlite "youth club" members in Lanjigarh to "beat up men and women with cricket bats and stumps". And, indeed, this is what occurred the following day.
PUCL concluded that the police and the administration were, at best, dismissive of local peoples' fears and, at worst, complicit in attacks made upon them. "It is hard to believe that [the area] is a part of the same India that the elite continuously brags about having catapulted into twenty-first century. [It is] a tribal-dominated area, but very few welfare-schemes meant for their development, seem to have reached them. The level of awareness, particularly about their fundamental rights, is distressingly low. The condition of these people is a great reflection on the 'developmental' priorities of our government The government has to share responsibility for these people's deplorable living condition. But instead, it appears hell-bent upon handing over these mineral-rich areas to the private companies like Sterlite, at the cost of total destitution of these hapless people".
"The people are terrorized, and believe (perhaps rightly) that their attackers enjoy the support of the police. This apprehension of the people is reinforced by the fact that the attackers admit in public that they have attacked the agitating villagers...Now they are scared even to enter Lanjigarh village".
The investigators conceded that "[t]here is a division within the local people about the Sterlite Project. [It] seems to have caught the imagination of some people, particularly non-tribal youths and the local elites, that it would be the harbinger for development, growth and employment in this backward region. (Kalahandi district has almost become a metaphor for backwardness and starvation deaths) [U]nless attended to in a proper way, this division might take an ethnic character in the future i.e. tribals vs. non-tribals as in some other areas of the state."
As PUCL concluded: "The government, instead of displacing people....in the name of development, should take measures to augment the local resource base - like constructing irrigation projects in the area to supplement peoples' livelihood."
Over the succeeding months, PUCL's fears were partially borne out. In June, 2003 thirty protestors, belonging to an organisation called Nyamgiri Surakshya Samiti (by then active for a year) damaged the project's foundation stone soon after it was laid by Patnaik. Three hundred Adivasis, wanting to submit a memorandum to the Chief Minister, condemning the planned destruction of the Nyamgiri hills, were prevented from doing so by the police.
Shortly afterwards, Anil Agarwal - accompanied by representatives of BHPBilliton and the JP Morgan bank - urged Patnaik to "speed up" Orissa's mineral development. A representative of the Lokshakti Abhiyan movement, Prafula Samantra, confirmed that the project was a direct violation of the Samatha Judgment, prohibiting the alienation of tribal lands.
Two years earlier Agarwal had confessed ignorance of the Samata ruling. Now both he and Gilbertson have no excuse.
"We three kings of the Orient are - following the Twin Star?"
By now you may agree there's more than enough evidence to assert that, by accepting Vedanta/Sterlite so uncritically into its bosom, the London Stock Exchange has betrayed any pretence of promoting "transparency" or "corporate social responsibility".
But the LSE may also have failed to carry out its less irksome routine duty of a thorough "due diligence" study into the company's chain of ownership. This is not, of course, the same as a "chain of command" - at the top of which Agarwal and Gilberston are quite clearly perched...
It was in September 2003 that Agarwal publicly announced he intended to resurrect Sterlite as Vedanta on the LSE. The regulatory authorities delayed the launch for two months, ostensibly to investigate the new company's murky financial attributes. Unravelling the cat's cradle was - as one city broker described it last November - "a bit of a nightmare". Indeed, if the British regulators now know exactly what holding Agarwal and other Indian opportunists, have in Sterlite Industries, they're more astute than Indians who've been trying to untie the knots for quite a while. As Lex, the Financial Times' columnist, enigmatically commented in early December "[Sterlite[ has a complicated structure and a chequered corporate governance history"
At the root of this "complicated structure" is an outfit called Twin Star Holdings, located in the tax haven of Mauritius. Up until last year, this was widely assumed to be Agarwal's own holding company with a majority ownership of Sterlite Industries. In 1998 Twin Star made its first major move towards an offshore company when it agreed a major equity investment in Canada's First Dynasty Mines, founded by that illustrious mining renegade, Robert "Toxic Bob" Friedland.
Through Twin Star, Sterlite agreed to invest US$7.5 million in First Dynasty, entitling the Indian company to appoint three of its own directors and eventually ending up with about 43% of the Canadian-based company. Agarwal's main objective was to ease Sterlite into First Dynasty's Zod gold project in Armenia (fortuitously named as the "country of the year" at the 2003 World Congress on Mines and Money held in London). In February 1999, Agarwal and two of his colleagues did indeed join First Dynasty's board whose top dog was Marcus Randolph, hot foot from a stint as one of Rio Tinto's senior managers. Soon after, Twin Star's investment in First Dynasty was completed.
Little was then heard about Twin Star until 2003 when the company confirmed it held 55% of Sterlite stock, with another 7.13 per cent owned by Sterlite's Madras Aluminium Company which, it claimed, was owned 80% by Twin Star. Perhaps little remarkable there. However, in October - just as the Vedanta elephant was being paraded for its first public inspection - Twin Star announced it wanted to raise its stake in Sterlite to 75%. The Indian authorities feared that Balco and Hindustan Zinc might now pass to a new owner: such a transfer had been specifically proscribed when Sterlite took over the companies. (A separate, but related, fear was that, by going overseas to accrue new investment for Sterlite, Agarwal might reduce the Indian government's remaining interest in Balco and Hindustan Zinc to less than 26 per cent. This is the minimum equity required for India to block any board resolution).
As the Indian authorities tried coping with these dilemmas, the Finance ministry's foreign investment unit revealed that the real owner of Twin Star wasn't Agarwal after all but a Mr Vinod Shah. Yet another Non-resident Indian based in London, Shah had acquired a 100% stake in Twin Star through his holding company Volcan Investments Ltd. It wasn't clear then whether the provisions of Sebi's "Substantial Acquisition of Shares and Takeovers (SAST)" regulations had been violated and, to our knowledge, it still isn't clear.
That Anil Agarwal may not control most of Vedanta's share capital is clearly an important point at issue. But, much more worrying, is the prospect that - come rain or come shine (Agarwal or Shah) - what's left of Indian control of two major, formerly publicly-owned companies, may diminish into impotence. This must be of overwhelming concern, especially to the workers, Indigenous peoples and politicians who vociferously opposed these unwarranted sell-offs in the first place.
Alas many others - whether inside India or out of it - won't lose an ounce of sleep over these matters. In a mere ten years, between 1990 and 2000, Sterlite's turnover increased a monstrous 83-fold (sic) while its net value rose 4,000%.
For the bountiful brokers, acquisitory analysts, and indiscriminate investors of London who toasted Agarwal and Gilbertson a month ago, this seems to be the only bottom line that counts.
[Sources: Launch of Vedanta IPO: Financial Times (FT) 5/12/2003; Hedge funds buying Vedanta: FT 6-7/12/2003; Anger at share issue: The Times (London) 6/12/2003; Background to Sterlite: Vedanta brochure 5/11/1003; Mineweb 6/11/2003; Vedanta's share of the Indian market: Mining Journal 14/11/2003; Chequered corporate governance history of Sterlite: FT 2/12/2003; HSBC dumps Cazenove: FT 28/9/2003; Vedanta cools on Konkola: Mineweb 10/12/2003; Vedanta position in market: FT 5/11/1003; Unfair dismissal of Rajat Bhatia: Independent 4/12/2003; Public Concern at Work (PCaW) - Whistleblowing Case Summaries: http://www.pcaw.co.uk, 30/4/2003; London Times quotes: 10/12/2003
London Calling December 1 2003; Vedanta's future Indian play: Mineweb 10/12/2003; Gilbertson joins Sterlite: Mining News 28/8/2003; Gilbertson's role in Vedanta: FT 6/11/03; Gilbertson's "tax nightmare", Mineweb 11/12/2003; Gilbertson interview with Mineweb: 5/12/2003; Sterlite Gold in Burma: SGL corporate information 7/12/2003;
Kinross disaster: Engineering and Mining Journal, USA, October 1986; police brutality at Gencor: Gullver File; London 1991; Agarwal's export ploys: www.domain-b.com (India) 20/10/2003; Sterlite's profits from export orientation: Capital Market News (www.sharekhan.com) 5/5/2003; Tuticorin smelter: EIA violations: Frontline 17-30/3/2001; poisonous smelter emissions: Frontline 12-26/5/2001; explosion at smelter: Frontline 3/10/1997; re-opening of the smelter: Indian Express 24/2/1999; ISO "award": www.Indiainfo.com 30/8/2003; 1998 share price manipulation: eStart news site 2001; links between Harshad Mehta, the Damayanti group and Sterlite: www.rediff.com India Ltd 2001; attempted takeover of Indal and refusal to pay shareholders: Economic Times, India, 30/6/2002; 2004 challenge to Sterlite's control over Hindustan Zinc: MiningNews, 5/1/2004; Balco as profit maker: Macroscan website, New Delhi, 2/2/2001; Jardine Fleming's role in privatisation of Balco and Samatha judgment: Frontline 12-25/5/200, see also Frontline 21-7-3/8/2001; Agarwal on the Samatha judgment: Times of India 25/2/2001; dismissal of Bharat Aluminium trade union leader: People's Democracy (Weekly Organ of the Communist Party of India (Marxist) Vol. XXV No. 18 6/5/2001; "The sale of KCM to Sterlite": Zambia Advocacy Network 11/11/2003; Bauxite resources/reserves in India: FT 5/11/2003; Nalco privatisation dumped: Frontline 18-21/1/2003; Russian and Chinese alumina boom: Mineweb 1/12/2003; Balco's plans in Orissa: Projects Monitor (India) 14/12/2003, Financial Times, 5/11/2003; Balco as strategic supplier to India's nuclear industry: Telegraph, Calcutta, 2/3/2001; Report on resistance to Balco at Lanjigarh: People's Union for Civil Liberties - Raygada & Bhubaneswar Units "A Fact-finding Report on physical attack on the villagers agitating against their displacement due to the proposed Sterlite Alumina Project in Lanjigarh Block of Kalahandi district" April 2003; see also "The Samaj" 9/4/2003; destruction of Sterlite foundation stone, Hindustan Times 13/6/2003, Statesman News Service, Calcutta (Kolkota) 13/6/2003; Tribals prevented from attending foundation ceremony and Agarwal/BHPBilliton/JP Morgan meeting with Patnaik: Statesman News Service 8/6/2003; statement on illegality of Sterlite's Lanjigarh project, Statesman News Service 16/7/2003; Twinstar and Friedland: Mining Journal 27/11/1998; Twinstar inside First Dynasty: Sterlite Gold Ltd web site news; 3/2/1999; 8/2/1999; Vinod Shah and Sterlite: The Telegraph, Calcutta, 29/1/0/2003; rise in Sterlite's recent value: Frontline 17/3/2001, Financial Daily (published by The Hindu) 18/7/2003]
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