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Hidden energy exports through primary aluminium remain a concern

Kunal Bose 

Consecutive years of below five per cent economic growth and 0.7 per cent contraction of the manufacturing sector last year ensured a 6.2 per cent fall in the country's primary aluminium use to 1.58 million tonnes (mt) during 2013-14. Even while India is to grow at 5.5 per cent in FY15, aluminium will likely again experience a fall in growth.

This is happening when Vedanta and Hindalco are raising production by a significant amount. Government-owned National Aluminium Company (Nalco), exercising production discipline for the sake of profit improvement, is now engaged in reviewing whether more capacity use at this juncture will prove beneficial. A demand fall for two years in a row has led the Indian aluminium sector to sell the rising surplus abroad. Primary producers' exports climbed 142,322 tonnes to 487,081 tonnes in 2013-14. Exports had reached 523,802 tonnes till mid-December 2014.

  • While India is to grow at 5.5% in FY15, aluminium is likely to again experience fall in demand
  • A demand fall for two years in a row has led the Indian aluminium sector to sell the rising surplus in the world market
  • Selling primary aluminium in the world market amounts to our exporting energy
  • Unlike smelters in West Asia using gas and many, in other places, using hydro power, the ones here draw electricity from coal-fired power plants
  • This is when power shortage remains the Achilles’ heel of the Indian economy
  • Power shortages currently costs India a GDP loss of $68 billion, says Ficci

The question is, when Prime Minister Narendra Modi is campaigning hard for 'conservation of power', should the country be exporting primary aluminium in such large quantities? Production of a tonne of aluminium requires the use of close to 14,800 kilowatt-hours of electricity and that translates into up to 35 per cent of metal smelting cost. In a way, selling primary aluminium in the world market amounts to our exporting energy.

Unlike smelters in West Asia using gas and many, in other places, using hydro power, the ones here draw electricity from coal-fired power plants. In the event of our exporting about 750,000 tonnes of primary aluminium in the current financial year, we end up exporting a large amount of energy. This is when power shortage remains the Achilles' heel of the Indian economy. The country is witnessing a peak power shortage of nine per cent and this being the average. Some states are doing with much less power than others.

The Federation of Indian Chambers of Commerce and Industry says in a report on power transmission that there is a correlation between power consumption and gross domestic product (GDP). "Power shortages currently cost India a GDP loss of $68 billion (0.4 per cent of total GDP)," it says. India has plans to add 88,000 megawatt (Mw) of power generating capacity over a five-year period. Going by the record, there will again be a large gap between the target and capacity commissioned. Environmental groups make the point that aluminium exports finally boil down to carbon dioxide emissions at the point of electricity generation by burning coal.

"Smelting of aluminium from intermediate product alumina requires a lot of coal-fired electricity use. So, in white metal export is embedded considerable energy. You have a chicken and egg situation here. Local industry constituents have in recent periods built smelters and also expanded capacity at existing sites, in anticipation of demand for aluminium growing at more than the GDP growth rate. Economic slowdown put paid to such hopes. "I am sure the worst time for the industry is behind us and incremental demand from principal consumption points like electrical and electronics will take care of much of surplus now exported," says Nalco chairman Ansuman Das. Industrial production growing at a five-month high of 3.8 per cent in November 2014, perhaps marking a turnaround in outlook, and the government's resolve to kick-start major projects requiring a host of official clearances would result in improvement of domestic aluminium demand, says Das. The optimism is widely shared by his industry colleagues.

It can't be otherwise since both Hindalco and Vedanta Aluminium remain engaged in building new smelting capacity with power backup. Acquiring bauxite deposits and then doing the actual mining by overcoming protests by NGO-backed tribals and adivasis, however, remain a major issue for aluminium makers. With the commissioning of two new smelters of 360,000 tonnes each, Hindalco now has capacity of 1.3 mt. Vedanta owns a 500,000-tonne smelter in Odisha's Jharsuguda and another 570,000-tonne unit at Korba in Madhya Pradesh. The Vedanta target is to build aluminium capacity of 2.6 mt by setting up a 1.1 mt smelter at Jharsuguda. Nalco wants to become a million tonne capacity producer by building a 500,000 tonne smelter at Sundargarh in Odisha, for which state-level clearances are in place. But the project, requiring investment of Rs 16,450 crore, will be viable only if Nalco manages to get a large enough coal block to feed the 1,260 Mw power complex in the upstream.

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First Published: Mon, January 19 2015. 22:33 IST