"With the commencement of coal production from Utkal-D and Utkal-E blocks, the power cost will plunge which will make the aluminium business more profitable. We are hopeful that the production from Utkal-D block will start in two years", T K Chand, chairman cum managing director of Nalco told Business Standard.
Power cost accounts for 40 per cent of aluminium production. Despite being the lowest cost producer of alumina in the world, steep power cost was constraining Nalco's ability to be cost effective in aluminium production. Nalco's production cost of the hot metal hovers around $1,450 per tonne. On the contrary, Nalco's private sector rival Vedanta reported an average aluminium production cost of $1,429 per tonne with its Jharsuguda smelter achieving even a lower production cost of $1,388 a tonne. Vedanta, despite the absence of captive lease and lack of captive bauxite sources, had succeeded in containing its aluminium making cost on the back of cost optimization measures and availability of power from group company owned power plant in the vicinity of its aluminium smelting complex at Jharsuguda.
Nalco is expanding its aluminium production through both, brownfield and greenfield routes. At its existing smelter at Angul which has a nameplate capacity of 0.46 million tonne per annum (mtpa), Nalco is adding 0.5 million tonne capacity per annum. The navratna company is also going for a new greenfield aluminium smelting unit at Kamakhyanagar in Dhenkanal district. The smelter with a proposed capacity of 0.6 mtpa is being pursued at an investment of Rs 12,000 crore.
To secure power supplies for the smelter, Nalco has entered into a joint venture agreement with NTPC Ltd for a coal-fired power project with a capacity of 2,400 Mw with an investment of Rs 14,000 crore. The location chosen for this power plant is Gajmara, some 45 km from Kamakhyanagar, the site of the proposed smelting unit. Nalco has agreed to buy 80 per cent of the power from the 2,400 Mw project.
At present, alumina, mainly alumina exports by Nalco have been the key driver of its profitability. Last year, Nalco raked in export earnings of Rs 2,200 crore through alumina exports. Since aluminium making in the country was dearer for Nalco due to the steep electricity cost, the company chose to export the surplus alumina. Every year, Nalco produces about two million tonne of alumina of which nearly the half is exported. But, with Nalco opting for more value addition, its focus would be on conserving more alumina and limiting exports. In 2017-18, Nalco has aimed to augment aluminium output by 12 per cent as aluminium prices have firmed up and LME prices of the metal have touched multi-year highs. LME aluminium prices for the cash buyer were ruling at $1,850 per tonne (as on March 14, 2017).