 "Abhijit Pati")
For Vedanta, closure of its Balco rolling mill and de-rating of the Lanjigarh refinery capacity were bitter pills to swallow. With its hunt for local bauxite sources still on and weak global aluminium prices impacting viability, Vedanta is rebooting strategies to remain competitive. Chief executive officer of Vedanta's aluminium business Abhijit Pati shares his thoughts on the fate of Lanjigarh refinery, possibility of reviving shut Balco units and plans to trim production cost, in an interview with Jayajit Dash. Edited excerpts:
Vedanta has cut its Lanjigarh refinery capacity and started laying off employees. What is your strategy in the nearterm?
During the last six months, international aluminium prices have crashed by 40 per cent. Absence of bauxite supplies from within Odisha is making our refinery operations unviable and we were making losses of Rs 3 crore a day. De-rating our capacity by 50 per cent and consequential lay-offs ore painful steps to stay afloat.
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We still have faith in the state government that steps will be taken to ensure bauxite from within the state to save the refinery and livelihood of thousands of people. But, it needs to be done quickly. Else, we will be left with no other option but to resort to such painful measures in future.
Do you see the Odisha government making any immediate alternative arrangement to supply bauxite?
We are constantly in discussion with the government for a quick solution. There are a few bauxite deposits which Odisha Mining Corporation (OMC) can zero in on and quickly get the necessary clearances. Under the current regulations, Vedanta will have to take part in the auction process for which we are ready. We hope the state will expedite matters in this regard, so that a crisis is averted sooner than later.
What efforts are you making to maximise domestic sourcing of alumina to cut dependence on imports?
Our first priority is to expedite the process of bauxite linkage within Odisha, so that we can produce alumina on our own. This is the only solution for long-term sustainability of our Lanjigarh refinery. Once this is done, we can quickly ramp up our production level to four million tonne per annum (mtpa) for which most of the investment has already been done. As an alternative, we are in talks with other domestic alumina producers to procure whatever surplus they have. Some positive developments are round the corner.
You have proposed to increase smelting capacity at Jharsuguda. Do you think it is viable?
We are producing around 0.5 million tonnes of aluminium at Jharsuguda. An additional smelting capacity of 1.25 mtpa is idle for the three years, for want of power. The cross-subsidy charged on us for drawing power from our own 2,400 Mw Independent Power Plant (IPP) to run the smelting capacity was making operations economically unviable. However, the regulatory authorities have given interim relief, allowing us to use part of our 2,400 Mw IPP. This will allow us to produce aluminium at a cost that is at par with present market price. Ramping up production with imported alumina is certainly not viable in the long run. Bauxite security is a must for sustainable operations but at present it will provide us an opportunity to sweat our idle assets, put a brake on retrenchments and keep us afloat.
Any plans to revive the shut units of Balco?
Balco was the first public sector dis-investment in India. We took it upon ourselves to turnaround this sick unit and revive its days of glory. However, revival of shut units of Balco completely depends on availability of coal and bauxite. Once we get the required security on both fronts, we will reconsider revival of these two units. Hopefully, this will happen sooner than later.
How do you plan to cut production cost in the backdrop of dipping LME aluminium prices?
In the first phase, we have identified high cost units and are shutting these. Closure of the rolling mill in Balco and de-rating of the Lanjigarh refinery are two such steps. We are now doing a deep dive into our cost structure and taking necessary measures through the reverse engineering methodology. This multi-disciplinary task force, looking at the entire gamut of our activities from mines to marketing. Some positive results have started trickling in and we are confident that we will bring down our cost of production drastically in the coming months and minimise our losses.
How can domestic aluminium producers competitive at a time when cheaper imports from China and West Asia have robbed their market share?
Luckily, our domestic consumption of aluminium is showing a healthy growth trend of around 10 per cent. However, what is completely off-balancing us is the rising trend of imports, especially from China. About 50 per cent of our domestic aluminium demand is being sourced through imports. In the case of steel, imports constitute only around 12 per cent of domestic consumption; yet the industry has got the necessary protection through high import duties and duty safeguards.
This regulatory issue needs to be immediately addressed by the central government in line with what has been done by other countries like Brazil, Russia and US. This will ensure that the Rs 1.3 lakh crore of idle investment in the aluminium sector will start commissioning giving a huge boost to ‘Make in India’ campaign.
The increased availability of domestic metal in turn will kick-start the downstream investment in aluminium parks where end products can be made directly from molten metal leading to huge savings in energy resulting in cost competitive production. Secondly, ensuring raw material linkages - both bauxite and coal, will provide the domestic aluminium producers stability and necessary insulation from international price fluctuations.
