Vedanta's Rs 50,000-cr Odisha investment: How not to go about executing a mega project in India
The Vedanta group has almost everything to make aluminium. Just one problem: it doesn't have the raw material, bauxite, and now has little hope of getting it. y KP Narayana Kumar
It would be difficult to imagine how a cash pile of Rs 50,000 crore would compare with the tallest mountains in the Niyamgiri Hills ofOdisha. However, the money's worth is reflected in a sprawling alumina refinery established by the Vedanta Group here a few years ago.
Surrounded by verdant mountains, the factory, with its giant chimneys towering over tiny cottages in small-town Lanjigarh, is proof of London-based billionaire Anil Agarwal's avowed ambition of turning Vedanta into a mining giant that would be comparable with the world's largest, the Australian BHP Billiton.
Vedanta Resources, based out of London, has revenues in excess of $14 billion with operations in Namibia, Zambia, Ireland, Liberia, South Africa and Australia, apart from India.
In order to raise his game, Agarwal spotted an opportunity in mining bauxite in Niyamgiri and refining it in the vicinity, a move that was expected to result in one of the most economical operations in the global aluminium industry.
The move was an entrepreneurial masterstroke given that the plant was to come up around the time when there was — and still is — a scorching demand for aluminium. Moreover, although Odisha is known to have substantial deposits of bauxite — an estimated 2,000 million tonnes as against the country's total deposit of 3,000 million — it has never been substantially mined on account of local resistance.
Vedanta decided to move with speed and aggression and built its infrastructure even before it had got the clearances required to mine Niyamgiri. Bad move, in hindsight. After all, the tribals in these parts had resisted the company's presence in the region for years and much of the land Vedanta Aluminium Ltd (VAL) — the associate company set up for the project — required was forest land, and hence required clearances.
In 2004, Vedanta entered into a memorandum of understanding (MoU) with the Odisha government for bauxite supplies; according to the agreement, roughly half the assured offtake of the total 150 million tonnes was to come from Niyamgiri.
Two years later, a 1 million tonne per annum (tpa) alumina refinery plant went on stream in Lanjigarh, roughly 15 km from the Niyamgiri Hills. Cost: Rs 5,000 crore. Another Rs 35,000 was invested in a 0.5 million tpa aluminum smelter and a 1,215 MW captive power plant at Jharsuguda in Orissa. Add to this an investment of nearly Rs 10,000 crore in a 2,400 MW independent power plant that group company Sterlite Energy has put up, which has linkages with the aluminum project. The short point: Vedanta has spent roughly Rs 50,000 crore on putting up the infrastructure to make aluminum without getting access to the raw material needed.
It doesn't look like that access is going to come about in a hurry.
It would be difficult to imagine how a cash pile of Rs 50,000 crore would compare with the tallest mountains in the Niyamgiri Hills ofOdisha. However, the money's worth is reflected in a sprawling alumina refinery established by the Vedanta Group here a few years ago.
Surrounded by verdant mountains, the factory, with its giant chimneys towering over tiny cottages in small-town Lanjigarh, is proof of London-based billionaire Anil Agarwal's avowed ambition of turning Vedanta into a mining giant that would be comparable with the world's largest, the Australian BHP Billiton.
Vedanta Resources, based out of London, has revenues in excess of $14 billion with operations in Namibia, Zambia, Ireland, Liberia, South Africa and Australia, apart from India.
In order to raise his game, Agarwal spotted an opportunity in mining bauxite in Niyamgiri and refining it in the vicinity, a move that was expected to result in one of the most economical operations in the global aluminium industry.
The move was an entrepreneurial masterstroke given that the plant was to come up around the time when there was — and still is — a scorching demand for aluminium. Moreover, although Odisha is known to have substantial deposits of bauxite — an estimated 2,000 million tonnes as against the country's total deposit of 3,000 million — it has never been substantially mined on account of local resistance.
Vedanta decided to move with speed and aggression and built its infrastructure even before it had got the clearances required to mine Niyamgiri. Bad move, in hindsight. After all, the tribals in these parts had resisted the company's presence in the region for years and much of the land Vedanta Aluminium Ltd (VAL) — the associate company set up for the project — required was forest land, and hence required clearances.
In 2004, Vedanta entered into a memorandum of understanding (MoU) with the Odisha government for bauxite supplies; according to the agreement, roughly half the assured offtake of the total 150 million tonnes was to come from Niyamgiri.
Two years later, a 1 million tonne per annum (tpa) alumina refinery plant went on stream in Lanjigarh, roughly 15 km from the Niyamgiri Hills. Cost: Rs 5,000 crore. Another Rs 35,000 was invested in a 0.5 million tpa aluminum smelter and a 1,215 MW captive power plant at Jharsuguda in Orissa. Add to this an investment of nearly Rs 10,000 crore in a 2,400 MW independent power plant that group company Sterlite Energy has put up, which has linkages with the aluminum project. The short point: Vedanta has spent roughly Rs 50,000 crore on putting up the infrastructure to make aluminum without getting access to the raw material needed.
It doesn't look like that access is going to come about in a hurry.
Open, and Shut
Metaphorically, the earthquake struck just around the time when the house had been built. Hardly had the project come on stream than it had to shut it down in December last year on account of multiple blows. The environment ministry denied forest clearance for the mining project in 2010 and the Odisha Mining Corporation (OMC) — with which the company had signed an MoU for bauxite supply — challenged the decision in the Supreme Court.
The apex court, in April, directed the tribal gram sabhas of Rayagada and Kalahandi districts to decide where they stood on the proposed mining project. The court also directed the Ministry of Environment and Forests (MoEF) to take a final decision on expansion plans of the company after the report from the gram sabhas was received.
By the second week of August, as many as 11 out of the 12 palli sabhas — the tribal panchayats — had said they did not want the mountain range to be mined, which means the company would have to scout elsewhere for bauxite. It is almost a foregone conclusion that the last village too would give a decision on similar lines (the last palli sabha is due to meet on August 19).
"Remember, Anil Agarwal started off as a scrap dealer. And soon he will have to sell off this factory in scrap and leave the hills," thunders an activist associated with the NiyamgiriSuraksha Samiti, a movement that is aimed at driving Vedanta out of the region.
That may sound over the top, but the reality is indeed grim: without access to bauxite, the smelter and the refinery constitute the proverbial millstone around the neck of Agarwal. After having invested such a huge capital, Vedanta needs to come up with a Plan B — or C or D — fast to justify its huge investments in Odisha. Niyamgiri, as of today, looks a lost cause.
However, Pinaki Mishra, a BJD MP, told a TV channel recently that the ruling party in Odisha is "committed" to providing Vedanta bauxite, although there has been no official assurance.
The Long-drawn Agitation
The 10-year-old agitation against Vedanta in Niyamgiri Hills has been spearheaded by the local tribals who are supported by activists based in India as well as in other parts of the world. The company had to first deal with the angry Dongria Kondh tribals who live in the mountains and a group of local activists who never let go. Then it had to face the ire of international campaigners such as Bianca Jagger and Arundhati Roy. Soon, the Church of England sold its stake worth £3.8-million stake in the group.
Somewhere along the way, James Cameron released Avatar, a futuristic movie based on the attempts of a big mining company to gain access to the mountains occupied by a mythological tribe. Inevitably, as the global campaign against Vedanta's project in Niyamgiri gathered steam, the international press labelled the Kondhs as the Avatar tribe.
But even as Vedanta's annual general meetings were gate-crashed by activists and even as Agarwal had to deal with tribal leaders travelling all the way to London to issue a warning to him in person, the company was unshaken in its belief that Niyamgiri would happen. (Vedanta sympathisers also hint darkly at this being an international conspiracy to prevent India from becoming one of the world's top aluminium-producing nations.) This was until the Supreme Court gave its decision in April asking the tribals to decide on the issue.
Metaphorically, the earthquake struck just around the time when the house had been built. Hardly had the project come on stream than it had to shut it down in December last year on account of multiple blows. The environment ministry denied forest clearance for the mining project in 2010 and the Odisha Mining Corporation (OMC) — with which the company had signed an MoU for bauxite supply — challenged the decision in the Supreme Court.
The apex court, in April, directed the tribal gram sabhas of Rayagada and Kalahandi districts to decide where they stood on the proposed mining project. The court also directed the Ministry of Environment and Forests (MoEF) to take a final decision on expansion plans of the company after the report from the gram sabhas was received.
By the second week of August, as many as 11 out of the 12 palli sabhas — the tribal panchayats — had said they did not want the mountain range to be mined, which means the company would have to scout elsewhere for bauxite. It is almost a foregone conclusion that the last village too would give a decision on similar lines (the last palli sabha is due to meet on August 19).
"Remember, Anil Agarwal started off as a scrap dealer. And soon he will have to sell off this factory in scrap and leave the hills," thunders an activist associated with the NiyamgiriSuraksha Samiti, a movement that is aimed at driving Vedanta out of the region.
That may sound over the top, but the reality is indeed grim: without access to bauxite, the smelter and the refinery constitute the proverbial millstone around the neck of Agarwal. After having invested such a huge capital, Vedanta needs to come up with a Plan B — or C or D — fast to justify its huge investments in Odisha. Niyamgiri, as of today, looks a lost cause.
However, Pinaki Mishra, a BJD MP, told a TV channel recently that the ruling party in Odisha is "committed" to providing Vedanta bauxite, although there has been no official assurance.
The Long-drawn Agitation
The 10-year-old agitation against Vedanta in Niyamgiri Hills has been spearheaded by the local tribals who are supported by activists based in India as well as in other parts of the world. The company had to first deal with the angry Dongria Kondh tribals who live in the mountains and a group of local activists who never let go. Then it had to face the ire of international campaigners such as Bianca Jagger and Arundhati Roy. Soon, the Church of England sold its stake worth £3.8-million stake in the group.
Somewhere along the way, James Cameron released Avatar, a futuristic movie based on the attempts of a big mining company to gain access to the mountains occupied by a mythological tribe. Inevitably, as the global campaign against Vedanta's project in Niyamgiri gathered steam, the international press labelled the Kondhs as the Avatar tribe.
But even as Vedanta's annual general meetings were gate-crashed by activists and even as Agarwal had to deal with tribal leaders travelling all the way to London to issue a warning to him in person, the company was unshaken in its belief that Niyamgiri would happen. (Vedanta sympathisers also hint darkly at this being an international conspiracy to prevent India from becoming one of the world's top aluminium-producing nations.) This was until the Supreme Court gave its decision in April asking the tribals to decide on the issue.
When ET Magazine asked VAL managing director SK Roongta — in light of the decision taken by the palli sabhas — on the chances of the company getting access to bauxite in Odisha, he said that Vedanta was "hopeful" that the government would provide access to the mineral.
This magazine also asked Roongta whether he thinks, in hindsight, the company should have first secured access to the bauxite mine and only then invested in the infrastructure. The former chairman of SAIL answered: "The investment in the plant was rightly made on the basis of assured supply of bauxite in the form of an MoU with the Odisha government and through an agreement with OMC."
Roongta did not take up questions on whether the company had any alternative sites in mind and whether they were in discussions with the state government about the same.
Monumental Blunder
Basant Poddar, vice-president of the Federation of Indian Mineral Industries, dubs Vedanta's predicament as a "monumental blunder". "They [Vedanta] took it for granted that they would get the bauxite, given the size of their investment," says Poddar who emphasises that mining companies must always secure access to the mineral before setting up such projects.
Poddar feels Vedanta may have been betrayed by the system since the state had assured them of giving access to the mine. "But since the clearance wasn't in hand yet, they should have waited," he adds, describing the situation as "catastrophic" for Vedanta.
Malay Mukherjee, a steel industry veteran, and once a chief operating officer at a Lakshmi Mittal company, points out such episodes make it even more difficult for India Inc to get land for mining. "Getting land for mining has become difficult because of a lack of credibility around the corporate sector on proper rehabilitation.
Mukherjee also advocates a bottom-up approach. "The decisions on large projects are usually taken after a meeting between a CEO and a chief minister. Instead it should start from the ground level after discussions with the people. If that was done, a lot of money would not have gone to waste."
Inside Niyamgiri
At ground zero in the Niyamgiri Hills, cries of jubilation as well as latent anger rent the air. ET Magazine visited Lakhpadar, the 10th village where the palli sabha met, to record the views of the Kondhs. The village is around two hours away on foot from the nearest motorable road and a winding uphill mud path takes people to a cluster of huts situated by the side of a clear stream.
The village does not have electricity and access to healthcare or education. The tribals survive by slope cultivation, growing vegetables and fruits. The only materials that they buy from the market are salt, oil and garments.
The children help their parents with farming and minding the animals that include goats, hens, cows, buffaloes and dogs. Most tribals have never been to a cinema theatre although some of them do visit Lanjigarh and other towns to sell their produce. The Kondhs are fiercely attached to the mountains and their way of life. This explains why despite several overtures, the tribals continue to oppose Vedanta in one voice.
This magazine also asked Roongta whether he thinks, in hindsight, the company should have first secured access to the bauxite mine and only then invested in the infrastructure. The former chairman of SAIL answered: "The investment in the plant was rightly made on the basis of assured supply of bauxite in the form of an MoU with the Odisha government and through an agreement with OMC."
Roongta did not take up questions on whether the company had any alternative sites in mind and whether they were in discussions with the state government about the same.
Monumental Blunder
Basant Poddar, vice-president of the Federation of Indian Mineral Industries, dubs Vedanta's predicament as a "monumental blunder". "They [Vedanta] took it for granted that they would get the bauxite, given the size of their investment," says Poddar who emphasises that mining companies must always secure access to the mineral before setting up such projects.
Poddar feels Vedanta may have been betrayed by the system since the state had assured them of giving access to the mine. "But since the clearance wasn't in hand yet, they should have waited," he adds, describing the situation as "catastrophic" for Vedanta.
Malay Mukherjee, a steel industry veteran, and once a chief operating officer at a Lakshmi Mittal company, points out such episodes make it even more difficult for India Inc to get land for mining. "Getting land for mining has become difficult because of a lack of credibility around the corporate sector on proper rehabilitation.
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There are grievances about promises that have not been kept. Secondly, there is not good example of a good rehabilitation. A good example would be not just alternative land for the displaced people but also creating a base for future earnings, making use of their skills and experience," says the former managing director of Essar Steel.
Mukherjee's prescription: "Before you take up land for mining you should develop 100 acres of non-forest land as an example of rehabilitation. If thousands of crores are going to be invested, the first bit should go into this."
Mukherjee also advocates a bottom-up approach. "The decisions on large projects are usually taken after a meeting between a CEO and a chief minister. Instead it should start from the ground level after discussions with the people. If that was done, a lot of money would not have gone to waste."
Inside Niyamgiri
At ground zero in the Niyamgiri Hills, cries of jubilation as well as latent anger rent the air. ET Magazine visited Lakhpadar, the 10th village where the palli sabha met, to record the views of the Kondhs. The village is around two hours away on foot from the nearest motorable road and a winding uphill mud path takes people to a cluster of huts situated by the side of a clear stream.
The village does not have electricity and access to healthcare or education. The tribals survive by slope cultivation, growing vegetables and fruits. The only materials that they buy from the market are salt, oil and garments.
The children help their parents with farming and minding the animals that include goats, hens, cows, buffaloes and dogs. Most tribals have never been to a cinema theatre although some of them do visit Lanjigarh and other towns to sell their produce. The Kondhs are fiercely attached to the mountains and their way of life. This explains why despite several overtures, the tribals continue to oppose Vedanta in one voice.
Mohammad Ashlam, an activist who has been campaigning against the mining project for years, says the government needs to look at the tribals as citizens first and empower them through education and healthcare. "Then you can engage with them on what kind of development needs to happen here. That is the ideal way instead of merely eyeing the bauxite available here," he says.
The mood in the village is festive, although tension is palpable. They are festive because the palli sabhas have become an occasion for the Kondhs — the Dongrias who are the mountain tribe and their cousins, the Kutias who live on the plains — to get together. The Kondhs say they believe that the entire mountain range is sacred and they worship Niyam Raja, who they believe attends to their needs through the mountain and provides them with food, water and a way of life.
Speaking in One Voice
In its order, the Supreme Court has said that if the bauxite mining project "...in any way affects their religious rights, especially their right to worship their deity, known as Niyam Raja, in the hill top of the Niyamgiri range of hills, that right has to be preserved and protected."
On the morning of the palli sabha, residents of Lakhpadar village welcome tribals from the surrounding villages. By around nine in the morning, hundreds of tribal people arrive, walking single file along the narrow path. The women sport colourful beaded jewellery, circular nose-rings and a variety of slides on their hair, while the Kondh men wear their hair long. As they wait for the proceedings to begin outside a row of huts in the village, wet umbrellas are rested against walls and beedis lit as the locals talk shop. A tent had been erected the previous evening at the entrance of the village for the Palli Sabha.
The atmosphere suddenly turns tense as hundreds of gun-totting CRPF men walk around the village to take their positions. The Lakhpadar village is caught in the crossfire between Maoists and the para military. The tribals say they have been subjected to cruelty by the CRPF men. "They storm into our villages and then search our homes. They beat up people asking us about Maoists. A few months ago, during a raid, they beat me up and my son, who saw the incident, is still in shock," says Sikaka Sani, a resident of Lakhpadar.
Soon the district judge arrives and the tribals crowd inside the tent to make their submissions. One after the other, tribal men and women declare that their way of life is non-negotiable and that they cannot survive away from Niyamgriri. The tribals say their life is guided by Niyam Raja, their god, whose spirit is manifested by the mountain range.
Bearded, his curly long hair tied into a braid, Sikaka Dodi is normally an affable man. But at the palli sabha he speaks with anger. "Our forefathers have lived here; why can't we? Our gods and goddesses are here. Niyamgiri gives us everything and that's why we worship the mountain. There was a time when we had to deal with tigers and bears and at that time no government came to our rescue. Now why have they come here with guns? At this place, we get vegetables, medicines and everything we need. The government has not given us anything."
The mood in the village is festive, although tension is palpable. They are festive because the palli sabhas have become an occasion for the Kondhs — the Dongrias who are the mountain tribe and their cousins, the Kutias who live on the plains — to get together. The Kondhs say they believe that the entire mountain range is sacred and they worship Niyam Raja, who they believe attends to their needs through the mountain and provides them with food, water and a way of life.
Speaking in One Voice
In its order, the Supreme Court has said that if the bauxite mining project "...in any way affects their religious rights, especially their right to worship their deity, known as Niyam Raja, in the hill top of the Niyamgiri range of hills, that right has to be preserved and protected."
On the morning of the palli sabha, residents of Lakhpadar village welcome tribals from the surrounding villages. By around nine in the morning, hundreds of tribal people arrive, walking single file along the narrow path. The women sport colourful beaded jewellery, circular nose-rings and a variety of slides on their hair, while the Kondh men wear their hair long. As they wait for the proceedings to begin outside a row of huts in the village, wet umbrellas are rested against walls and beedis lit as the locals talk shop. A tent had been erected the previous evening at the entrance of the village for the Palli Sabha.
The atmosphere suddenly turns tense as hundreds of gun-totting CRPF men walk around the village to take their positions. The Lakhpadar village is caught in the crossfire between Maoists and the para military. The tribals say they have been subjected to cruelty by the CRPF men. "They storm into our villages and then search our homes. They beat up people asking us about Maoists. A few months ago, during a raid, they beat me up and my son, who saw the incident, is still in shock," says Sikaka Sani, a resident of Lakhpadar.
Soon the district judge arrives and the tribals crowd inside the tent to make their submissions. One after the other, tribal men and women declare that their way of life is non-negotiable and that they cannot survive away from Niyamgriri. The tribals say their life is guided by Niyam Raja, their god, whose spirit is manifested by the mountain range.
Bearded, his curly long hair tied into a braid, Sikaka Dodi is normally an affable man. But at the palli sabha he speaks with anger. "Our forefathers have lived here; why can't we? Our gods and goddesses are here. Niyamgiri gives us everything and that's why we worship the mountain. There was a time when we had to deal with tigers and bears and at that time no government came to our rescue. Now why have they come here with guns? At this place, we get vegetables, medicines and everything we need. The government has not given us anything."
 Sikaka Dodi makes it amply clear that the Kondhs are ready to die for the mountain. "Two rivers run through these mountains. If they take a fistful of land, blood will flow through both of them," he says. The leaders of the movement are Lado Sikaka, a mountain tribal, and Kumti Majhi who is from the plains. Sixty-five year old Majhi had travelled to London with the help of activists to take on Agarwal. Majhi remembers telling Agarwal that "your plan is to empty resources from Niyamgiriand leave. I will never allow that and you will never get hold of that land." Lado Sikaka, who is in his 30s, says he has lost respect for the idea of school education in the past decade after he saw how the educated were able to see only the economic potential of the mountain, choosing to overlook that the mountains were also a habitat for several rare species of flora and fauna. Litany of Troubles "We are not educated but we have the knowledge needed to live wholesome lives and we are not fools. But if we get educated, we will also become like others and live merely obeying orders and in the process may lose our bond with the land and the mountain." Sikaka clarifies that he is not against children going to schools. But there is a precondition. "Only after Vedanta goes back." That's ironical because on its website VAL talks about projects for "sustained socio-economic and cultural development of local communities adjoining the plant site" including midday meals for school-going children, establishment of anganwadi centres (preschools) and health camps...The firm focuses on education, health and sanitation programmes..." However, for Vedanta, the ambitious project in Odisha has thrown up one challenge after the other. Recently, Reuters reported that Aviva, one of the largest investors on the London market, criticised Vedanta's "lack of focus" on social issues and slow progress which it warned was holding back the stock price. It is this apparent lack of focus that has contributed to make Anil Agarwal's Rs 50,000-crore blueprint a case study in how not to go about executing a mega project in India.
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By ET Bureau | 18 Aug, 2013, 06.57AM IST
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