Nalco's rush to put an end to its smelter troubles

The long search of an ideal site for building a new 500,000-tonne smelter by National Aluminium Company (Nalco) is a statement of the many hurdles to be overcome to make good use of available natural resources in Orissa. The point not to be missed here is the experience of a company, 87.15 per cent owned by the government of India and claims to enjoy the confidence of the local Orissa administration. For any aluminium maker, Orissa, endowed as it is with rich bauxite (1.7 billion tonnes) and coal (62 billion tonnes) deposits, is the ideal centre to run a smelter. As for Nalco, it is deeply anchored in the state, with every part of its integrated operation from bauxite mining to aluminium smelting to value addition to the metal done there. Moreover, for the citizens of the state not having seen much industrialisation in spite of all the brouhaha, Nalco remains their badge of honour.

It is, therefore, no surprise that even though the state government has denied permission to Nalco to build a smelter at Jharsuguda on environmental grounds, Chairman B L Bagra has not given up hopes on finding an alternative site within the state. Jharsuguda, according to an expert body, could accommodate 2 million tonnes of smelting capacity without disturbing the environment. Ahead of Nalco, Vedanta, Hindalco and the proposed Dubal-L&T joint venture had pre-empt smelting capacity that Jharsuguda could support. Of the alternative sites for Nalco’s second smelter, unarguably the most inviting is Sundargarh, being close to Ib Valley, where coal is available in plenty.

Bagra has made it a condition that wherever Nalco builds the smelter, preferably within Orissa, though a non-Orissa site is not ruled out, “it will have to have a captive coal mine. We are finding it to our cost, mines linkages, as we now have to Bharatpur mine for our Angul smelter, don’t really work. Ideally, we should have a 500,000-tonne smelter. But the actual size will depend on what amount of water allocation we get from the state. There, however, will not be any compromise on what has come to be accepted as the minimum economic size of a new smelter”. Incidentally, all the three new smelters of Hindalco will each have capacity of 360,000 tonnes. This could be taken as the cut-off point.

Not to speak of the monsoon when coal supplies from Bharatpur mine will go haywire, Nalco’s 1,200 Mw power complex, the lifeline for the 460,000-tonne smelter in its proximity, has to make good round the year coal supply shortfall by resorting to e-auction procurement and imports. The disturbing feature of e-auction is that coal that is delivered will be at a big discount to the quality mentioned in bid document. In fact, the Nalco experience is that in terms of calorific value, e-auction coal turns out to be three times more expensive than imported coal. All this boils down to coal linkages hurting Nalco in two ways: perennial supply shortfall from the designated mine and high fuel bill on e-auction purchases. A point not to be missed is that during 2010-11, power and fuel alone constituted 39 per cent of the company’s total expenditure.

A fact buried in history which the present management does not want to recall as courtesy to those who gave shape to Nalco is that Bharatpur with estimated deposits of 200 million tonnes was offered to the company as a captive source of fuel. But whatever might have been the considerations some 30 years ago, the company did not find the proposal exciting and instead settled for coal linkages. It is now paying the price of an act of omission in the past. The wheel will now, however, turn full circle when in June next year, Nalco commissions a mine in Utkal E Block with an estimated reserve of 70 million tonnes. Coal from this mine will be used to support 240 Mw capacity added to the power complex in the second phase of expansion across all Nalco facilities.

Commercial director Ansuman Das says Nalco as it continues the search for a suitable smelter site, it has the option to consider locating the plant close to a port in Orissa. The idea is to take advantage of running the smelter linked power complex with low ash imported coal. A good idea no doubt, specially in the context of the recent commissioning of Dhamra port. Pursuit of a smelter project in Indonesia has given Nalco a good exposure to that country’s coal industry. Bagra gives us to understand that he is close to finalising a “long-term supply arrangement” with two Indonesian coal mining firms for the proposed smelter’s captive power complex. Why should he not be using his knowledge of Indonesia for sourcing coal for a shore based smelter in India as Das is recommending? If Nalco manages to pull off two smelters – one here and one offshore – then it will be able to live down the image of being left miles behind by Vedanta to become a 2.5 million tonne aluminium group and Hindalco which is ramping up capacity to 1.7 million tonnes.