Vedanta gets another rebuffPublished by MAC on 2007-12-31
Vedanta gets another rebuff
31st December 2007
Vedanta Resources plc - the most diversified mining company in India - has suffered yet another blow to its scheming, this time to become India's biggest aluminium producer and a world-class producer of the metal.
Surprisingly, it was India's Ministry of Environment and Forest (MoEF) which delivered the judgment. (The MoEF backed the company in its battle to secure the bauxite-rich hills of Nyamgiri in Orissa, despite massive opposition.)
In an October 2007 report which has only just been unearthed, the MoEF hammers Vedanta's subsidiary, Balco, for its "deplorably callous and casual attitude" to environmental appraisal of the consequences of expanding bauxite mining in Chhattisgarh state.
Further, says the MoEF, the company showed "no inclination" to devise gainful economic activities on a sustained basis for families that the company knew - well in advance - would be shifted when the proposed mining activities commenced.
The Ministry has therefore rejected Vedanta/Balco's expansion plans.
Meanwhile, in an interview with the Times News Network, Mr Agarwal showed his true colours by expressing the opinion that "the whole of India is like a vast construction site."
But not for him - at least not in Chhattisgarh, as things currently stand.
Govt rejects Balco expansion plans
Environment & forests ministry calls company deplorably callous in responding to concerns; Balco plans to reapply
Padmaparna Ghosh, Livemint, Delhi
31st December 2007
New Delhi: The environment and forests ministry has rejected a fourfold expansion of bauxite mining capacity in Chhattisgarh sought by Bharat Aluminium Co. Ltd, or Balco, severely castigating the firm for what it describes as a "deplorably callous and casual attitude" in addressing concerns the ministry had raised earlier.
Balco, which is 51% owned by Sterlite Industries (India) Ltd and is the third largest aluminium producer in India, says it will reapply. Sterlite Industries is a wholly owned subsidiary of London-based Vedanta Resources Plc.
Anil Agarwal, chairman of Vedanta Resources Plc. Sterlite Industries, which owns 51% of Balco, is the wholly-owned subsidiary of Vedanta
The rejection, which took place following a 12 October meeting at the ministry, is only now coming to light.
"We were quite taken aback at the committee's stern words as well, but our person in the presentation was not able to convince the committee. We shall go back in a month's time and we are hopeful that we will get clearance," maintained Pramod Suri, chief executive officer of Balco.
Mining leases in India have to be cleared by the environment ministry on the basis of an environmental impact assessment, or EIA, which studies and determines the environmental and social impact of such a project.
Balco had filed applications to expand its mining capacity in Sarguja, from 0.45 million tonnes per annum, or mtpa, to 0.75 mtpa, and in Kabirdham, from 0.3 mtpa to 1.25 mtpa.
The expert appraisal committee, the internal panel in the ministry that decides on an EIA, in its 12 October report, the minutes of which have been reviewed by Mint, said:
"The project proponent (Balco) has been in an unusual hurry in responding to the issues raised by the Expert Appraisal Committee in its meeting dated 18.7.2007 and, in the process, it has shown a deplorably callous and casual attitude in its replies, which are either incomplete or inappropriate and, on few vital issues, the replies have been in the form of assurances to give the details on an uncertain future date."
Balco, which ceased to be a public sector undertaking in 2001, has expanded its aluminium production capacity from 0.13mt to 0.36mt. Balco has ambitious expansion plans in the pipeline, with a new 0.65mt smelter estimated at $2 billion and a 1,200MW power plant in Chhattisgarh.
Expansion of its mining capacities in Chhattisgarh would significantly boost Balco's ability to source more quantities of bauxite domestically.
In its rejection of Balco's Kabirdham proposal, the appraisal committee said: "The status of compliance to the specific conditions to environmental clearance was accorded in 2003 is far from satisfactory."
The committee noted that Balco had not shown any "inclination" to think of a scheme to provide gainful economic activities on a sustained basis for these families that the company knew-well in advance-would have to be shifted when the proposed mining activities commence.
In a telephone conversation with Mint, Balco's Suri said: "Flora, fauna, tribes or whosoever is there, we shall take care. We are committed to that."
Suri insisted that the ministry's rejection of its mining plans will not impact Balco's ability to get adequate raw materials.
Balco obtains a little less than one-third of the raw material, alumina, from its Lanjigarh refinery in Orissa and the rest, some 0.5mt, are imported by the company.
Though he agreed that there are risks, especially of rising prices, associated with the dependence on imports, Suri says the price of alumina depends on the negotiated long-term contracts.
A senior ministry official, who did not wish to be identified, explained that the ministry approves expansion plans only after it has reviewed a company's compliance with social and environmental obligations that it had already undertaken.
"In case the company has not been abiding by the previous regulations, expansion proposal should be rejected," said the senior ministry official, explaining why Balco's plans were rejected.
"There are key issues surrounding mining approvals, and it's a significant risk factor, especially because there are only a few aluminium producers in India," said Naveen Vohra, an analyst with Ernst and Young. He wasn't talking specifically about the Balco case.
"If you compare India to other countries, such as Australia, on environmental benchmarks, India's performance is abysmal," Vohra said.
"Ensuring environmental compliance is costly and the process needs to be transparent, which lacks in India and given the increasing importance of the environment, there are bound to be rejections."
Balco's Suri put it somewhat differently. "Definitely the way we have to go through the clearances in India is long drawn and tedious," he complained. "There is no single window clearance. We hope it will improve with liberalization, so that so much time is not wasted.
First, we have to get environmental clearances from state and then the Centre, then land acquisition and then rehabilitation. We have one-fifth of the world's best bauxite reserves but produce only 3% of world's aluminium."
Another Vedanta affiliate also ran into unrelated legal and environmental issues in 2007.
"The idea is to be in basic industries"
Intervew with Anil Agarwal of Vedanta Resources plc
by TNN (Times News Network, India)
18th December 2007
Vedanta Resources' aluminium business in India is set to reach one million tonnes, double the size of the nearest competitor, while in zinc, the group is making money hand over fist thanks to the spurt in commodity prices. Anil Agarwal , founder chairman, Vedanta Resources, is now preparing to foray into power and steel and expand the newly-acquired iron ore mining business Sesa Goa. In a chat, Mr Agarwal speaks of his plans.
* You have often got into trouble with governments and non-governmental organisations. The latest is the Supreme Court directive on the Orissa project....
It would be wrong to say that we have got into trouble with state governments. We have always had a very good relationship with state governments wherever we have worked. NGOs have opposed our project but as far as governments are concerned, we have done tremendous welfare work in all the states we are in. For example, in Kalahandi, Orissa, we have built a big heart hospital and a girls college where over 3,000 students are studying. We are doing similar work in Rajasthan where the state government has helped us a lot. Without the Rajasthan government, we would not have been able to implement our plans.
* What do you think of the apex court [Supreme Court] directive on the bauxite mine issue? Isn't that a setback?
We will follow the supreme court's directive on the issue. But our operations will not be affected as we have already started alumina production by buying bauxite from outside. Next year, the aluminium metal plant will also be up and running.
* A lot of people seem to think that the commodity cycle is peaking. As a big commodity player, do you think the era of super profits for the metal and mining industry is nearing its end?
Our medium-term outlook is that prices will remain strong. There is tremendous growth and opportunity in India and China which is driving demand and will continue to drive demand. The whole of India is like a vast construction site. China is also growing fast. We are increasing our capacities across the board. We want to have a one million tonne capacity in all our businesses.
* The mining and metals industry is seeing an M&A wave. Do you see Vedanta playing a part in the consolidation exercise?
We will play a part but we will do it with a purpose. If there is anything that fits our strategy and our plans we will definitely do it. We are interested in Africa where there is abundance of natural resources and where we think we can play a big role. But we understand India the best. There are opportunities here and we want to exploit it. We are also growing organically. Capacity expansion is going on in our aluminium business in all the three companies. Zinc's capacity is also being expanded. Over the years, our profitability and competitive position has only been strengthened. Zinc import duties have come down drastically but our growth has been uninterrupted.
* Your corporate structure is quite complicated, with more than one company doing the same line of business. Are you likely to change that?
We are in five main businesses: aluminium, copper, zinc, iron ore and power. They are all independent and run by professionals. Vedanta is just a holding company. Our aim is to create world-class assets. We have no plans to tinker with the corporate structure.
* What happened to your plans of buying out the government's residual stake in Hindustan Zinc and Balco?
We are proceeding with that plan. There is a mediation process going on for Balco with the government. We hope to complete that by the end of this financial year. Same with Hindustan Zinc. Once that is done, we will increase our stake.
* Why have you entered the power sector? You are known as a non-ferrous metals player.
Power is an essential sector in India. There is tremendous opportunity and growth here. Just look at the power deficit scenario. We already have captive power plants. Our new plants will be merchant power plants and will be located at pithead coal mines. We are looking to build a world class power company. It will be an independent business. Basically, it is like a bulk commodity business.
* Power in India has always been a stop and go affair. Despite major reforms, not much investment has happened in power. Why would you take that risk?
There is a huge shortage of power looming. The demand supply gap is enormous. We have an appetite for the business and we will do well.
* What about iron ore? You bought out Sesa Goa earlier this year. Are you looking to integrate forward into the steel business?
We have our plans for Sesa Goa. Iron ore is a mining business. We are big players in the mining business worldwide and India has the third-largest reserves of iron ore in the world. All the big mining giants BHP, Rio Tinto are all into the mining business worldwide. We are also interested as it is like any other bulk commodity. As far as steel is concerned, that is not our core area. We have an MoU with the Orissa government for a steel project. We will probably partner with somebody who will implement the steel project. We will hold a stake and supply iron ore.
The idea is to be in basic industries, which are essential for any country's growth. For India to grow, huge steel, copper and aluminium plants are required. The technology and manpower skills are easily available. Investment is required.