NALCO POWER...!!!

Nalco in search of foreign smelter site, again

Kunal Bose  

January 20, 2014 Last Updated at 22:33 IST

Amid a continuous rise in energy costs, persistent low aluminium prices are leading producers in the US and Europe to mothball high-cost smelters. Some are also reducing the amperage used in smelter pots to restrict metal production.

Despite India sitting on electricity-generating coal resources of 260 billion tonnes, smelters here are not spared the pains of high-energy bills. This is because supplies under 'linkage coal' are irregular on occasions and the quality of the fuel is always subpar.

Coal imports could have been the answer, but for their high costs. Ansuman Das, chairman and managing director of National Aluminium Company (Nalco), says "apart from the stubbornly low aluminium prices on the London Metal Exchange, the unremitting coal crisis poses a serious threat to optimising production at our 460,000-tonne smelter." Das remains focused on mining bauxite at the Panchpatmali hills and alumina production at Damanjodi to take care of the profits, under extreme pressure due to low prices.

Considering the experience of running a smelter at Angul, with linkage coal being far from satisfactory most of the time, Nalco will build a second smelter Sundargarh in Odisha, provided it gets an adequately large coal block to feed the power complex upstream. In contrast to the circumspection that marks Das's approach to building new smelting capacity or optimising the use of capacity Nalco has, he remains bullish about the alumina business.

In creating new alumina refining capacity, too, investment will be conditional on the grant of mining rights to new bauxite deposits or firm commitments to supply bauxite from its own deposits by any host government. Das is ready to walk any distance to get the 75-million-tonne (mt) Pottangi bauxite reserve in Odisha, as his agreeing to spend liberally on corporate social responsibility and abide by "new benefits" from the proposed amendments to the Mines and Minerals Development Act bear out. Nalco is committed to investing Rs 4,571 crore in creating the one-mt fifth 'stream' at the existing alumina refinery at Damanjodi. It will also venture into one-mt alumina refinery construction in Gujarat only on the basis of a fail-safe agreement with the state government for uninterrupted bauxite supply. The company's never-ending worries about coal supplies and the harrowing Vedanta Aluminium experience in bauxite procurement have, no doubt, sensitised Nalco to securing a policy of insurance on the availability of raw material before committing investments in any new project.

Faced with the challenge of improving the "viability" of the Angul smelter and choosing the right direction for growth, Das has decided to revisit Nalco's 'vision 2020 document'. While the revision will take time, the company is looking to expand smelting capacity close to cheap energy sources. "Yes, we have been looking at the option to build a smelter abroad where energy costs will not be a concern. To start, Nalco has zeroed in on five countries in the Gulf and southeast Asia to explore the possibility of building a smelter with a local partner. The company will ask commercial attaches of Indian embassies to hand-hold our officers in assessing the comparative business environment in likely host countries. It will appoint consultants only after receiving exploratory reports from its officers."

Nalco's last-attempted foreign outing, under Das's predecessor, had ended in a fiasco, causing much discomfiture to the mines ministry. Perhaps, this could have been avoided, had the then Nalco management conducted a proper recce of the company that was to supply five mt of coal annually to run a 1,250-Mw power complex upstream of a 500,000-tonne smelter Nalco planned to build in East Kalimantan province, Indonesia, at an investment of $4 billion. The project had to be jettisoned, as the company expected to supply coal avoided signing a formal agreement with Nalco.

The setback in Indonesia happened about a year and a half ago and memories are still raw. The fact, however, remains Nalco will stand to gain more by having a smelter in an energy-cheap foreign destination compared to exporting one mt of alumina a year. Indonesia, rich in bauxite and coal, wants to graduate from being an exporter of mineral to a metals producer. China, heavily dependent on Indonesia for bauxite imports, has correctly read the growing Indonesian dislike of remaining an exporter of resources that deny it the benefits of value addition, specially when it is rich in energy. Seeing the writing on the wall, Shandong Nanshan, China's second-largest aluminium group, is to build a complex in Indonesia, including a 2.1-mt alumina refinery and a 570,000-tonne smelter. As Djakarta may discourage bauxite exports to groups not engaging in value addition, China's Hongqiao group is to commission an alumina refinery in Indonesia in 2015. Nalco is revisiting Indonesia at a time when that country is welcoming foreign investment in the metals sector. But remembering the bitter experience of the past, Das will be making his "moves cautiously. Any tie-up will follow our due diligence of the foreign party and satisfying ourselves that the partner will deliver on its commitments".

http://www.business-standard.com/article/markets/nalco-in-search-of-foreign-smelter-site-again-114012001235_1.html