Government Apathy Hits Nalco Expansion Plans

The expansion programmes of National Aluminium Company (Nalco) have been jeopardised by government apathy and delays due to vested interests.

In 1991, Nalco had submitted a plan for expansion of its alumina refinery from 800000 tpa to 1.5 million tonnes, and bauxite mining from 2.4 million to 4.8 million tonnes.

Similarly, the smelter capacity was to be expanded from 230000 tonnes to 345000 tonnes and power capacity from 720 mw to 900 mw.

Based on the 1990 prices, the total cost of these expansions was to be Rs 2,402 crore.

However, the government has so far cleared only the alumina refinery and bauxite mining expansion plans.

 

The cost of these was put at Rs 1,665 crore.

The smelter and power plant expansions are yet to be approved.

In fact, Nalco has been asked to re-submit its plan, but this portion will now cost Rs 2,500 crore. Overall, the Nalco expansion will cost Rs 4,165 crore, an whopping increase of Rs 1,763 crore over the original cost Rs 2,402 crore.

In the meantime, six years have been lost and in the process, the world aluminium prices have fallen and profits have been squeezed.

But, despite adverse market conditions, Nalco has held its own during April/September 1996 and has performed well.

During the boom years, Hindalco raised $200 million in GDR issues to fund its expansion and Indal raised $80 million to repay its high interest debt. But Nalco could not do anything, thanks to the stranglehold of the existing system on public sector units.

Meanwhile, Nalco will have an important role to play in the growth of the aluminium industry.

It is learnt that three new greenfield smelters--one each by Hindalco, Indal and Sterlite--are being set up.

According to Antony Bird Associates, the average cash cost for producing aluminium metal in the west is at $1200 per tonne, while the average cost in Europe is higher at $1341 per tonne.

The fall in aluminium prices from a high of $340 per tonne in 1995 to a low of $150 in mid-1996 helped the smelters in Europe.

Also, the linking of power tariff to the cost of metal price on LME helped.

Now, the European smelter industry as a whole is on the decline. In Japan, only 17000 tonnes capacity is in operation.

Today, aluminium smelters are being planned in low energy cost countries such as South Africa, Venezuela and also in the Gulf region, where power costs are likely be remain steady in the long run. South African power utility ESKOM offers 10-year power rates linked to aluminium prices on the London Metal Exchange.

Whether the future smelters can compete with world low-cost producers remains to be seen.

In India, bauxite, alumina and labour are cheap.

Where the power plants are captive to the smelters, as is the case with Hindalco and Nalco and to some extent with Indal, the cost of power is also competitive as Indian coal is one of the cheapest in the world.

According to a study by Barclays BZW, the Indian aluminium producers have an average per tonne cost of $1034, against the western world average of $1230 a tonne, the eastern bloc average of $1183 a tonne and the global average of $1230 a tonne.

The study says that the greenfield smelter is likely to be operative before 2002 in India and therefore the shortage of aluminium, which is at 55000 tonnes now, is likely to touch 160,000 tonnes by the year 2000. To meet this shortage, the expansion schemes in hand are adequate.

The present expansions include Hindalco's from 210000 tpa to 240000 tpa, Nalco's from 215,000 tpa to 230,000 tpa and Indal's from 42000 tpa to 76000 tpa.

In addition, Indal may put up a captive power plant at Belgium and make the 74000 smelter fully operative,

Besides, Nalco has chalked out a fresh expansion of 115,000 tonnes, while Hindalco, Indal and Sterlite may go in for greenfield smelters, adding 500,000 tonnes.

The best alternative is to allow Nalco to add 115,000 tonnes at the earliest and then the market forces will, to some extent, decide whether there is scope for more smelters.

However, whether the government will permit the expansion to take place on time is the big question mark.