After a long wait of over 12 years, Vedanta’s wait to source local bauxite to feed its Lanjigarh alumina refinery is over. The Odisha government announcing its long-term bauxite linkage policy through its mining entity Odisha Mining Corporation (OMC) has come as a balm to the distressed refinery. The terms of the bauxite linkage policy make it abundantly clear that 70 per cent of OMC’s mined out bauxite would be offered through the linkage route. The residual 30 per cent will be offered at electronic auctions.
The state government had earlier constituted a committee to explore possible ways of arranging alternative bauxite sources for the Lanjigarh refinery. Vedanta has been constantly nudging the government to make alternative arrangements after it comprehensively lost the bid to mine the ecologically fragile Niyamgiri hills in July-August 2013. Tribals nixed the mining plan over the bauxite laden mountain range which promised Vedanta an easy supply to its Lanjigarh refinery set up at the foothills.
Vedanta has always been dependent upon externally sourced bauxite to run the refinery at Lanjigarh ever since it kicked off operations in 2005. It sources bauxite from states like Gujarat and Chhattisgarh and also imports from Guinea. It had a pact with OMC for supply of 150 million tonnes of bauxite. But, the deal never materialised and the pact was ultimately annulled. Due to improved availability of bauxite from domestic sources, the dependence on imported material has come down. But, the refinery when viewed as a standalone business was still incurring losses. In fact, two to three years back, the refinery project was bleeding losses to the tune of Rs 3.5-4 crore each day. The mounting losses forced Vedanta to idle one stream of the refinery then.
After sourcing bauxite from OMC, Vedanta’s losses from the Lanjigarh refinery could be history. Though prices for bauxite sale are yet to be discovered, initial estimates suggest Vedanta can save up to Rs 3000 per tonne on sourcing bauxite from the corporation. The savings can hugely tilt the cost equations in favour of the company’s aluminium business. Currently, Vedanta’s debottlenecked capacity at Lanjigarh is two million tonnes per annum (mtpa). It has applied for clearances to ramp up capacity to six mtpa on visible bauxite sources.
Should the Lanjigarh refinery operate at full capacity, it can offer the entire quantum to Vedanta’s aluminium smelting complex at Jharsuguda. As of now, Vedanta is importing more than one million tonnes of alumina each year, meaning half of its smelter requirement. The surging alumina import bill due to robust international prices is already having a telling impact on Vedanta’s aluminium operations where it has invested over Rs 12,000 crore. The cost of aluminium making during July-September last year had shot beyond $1700 per tonne, visibly worrying the aluminium maker. But, by using its own captive alumina in full, Vedanta can hope to prune its aluminium manufacturing cost significantly. The cost advantage would see Vedanta directly taking on its peers- the state owned National Aluminium Company (Nalco) and Aditya Birla Group controlled Hindalco Industries. In fact, Vedanta in this financial year end aims to be the largest aluminium producer in the country, toppling Hindalco. Vedanta’s current run rate in aluminium making is 1.4 mtpa.
Ramping up aluminium output has other advantages for Vedanta as the company wants to diversify its portfolio of value added products. Vedanta has identified 230 acres land close to its smelter for developing an aluminium downstream park. The cluster has the potential to draw Rs 1000 crore of investments.