Nalco union stands in way of Vedanta tie-up

In what would have been a win-win situation, Nalco could have channelled its surplus alumina to Anil Agarwal’s Vedanta Aluminium, which is starved of the input to make aluminium, and in the process improved its earnings as well. But severe resistance from the state-owned company’s employees’ union, opposed to supplying to a private sector competitor, has prevented the management from taking a decision.

Currently, Vedanta’s 1-million-tonne (mt) alumina plant at Lanjigarh in Orissa is operating at 50% capacity because it has to procure costly bauxite from Gujarat and Chhattisgarh as mining at Niyamgiri in Orissa has got bogged down due to tribal rights issues. About a year ago, Vedanta had proposed that Nalco to supply it the surplus, exportable alumina on which it was ready to pay a 5-10% premium over the export realisation. By supplying alumina to Vedanta, Nalco would also have saved transportation and port handling charges of around $25-30 a tonne.

However, under pressure from its employees’ union, the state-owned undertaking has deferred a decision. Nalco sources confirmed having received such a proposal from Vedanta a year back but the ‘ union opposed it on the grounds that the latter, being a competitor, could sell the finished product aluminium at lower prices in the market. “The union even threatened to call a strike on the issue,” a Nalco official said. When contacted, Nalco chairman and managing director Anshuman Das declined to comment.

Nalco has a 2.1-mtpa alumina refinery at Damanjodi in Orissa. It sources bauxite for the plant from its mine at Panchpatimali in the state. The company’s requirement of alumina for its aluminium plant is of around 0.7 mt and it exports the balance. It is this surplus that Vedanta proposed to buy at a premium of 5-10% over what it would have got in the overseas market.

According to Vedanta sources, supplying the surplus alumina to Vedanta would have been attractive for Nalco even from the logistics point of view. While it produces alumina at Damanjodi, but has to transport it to Visakhapatnam in Andhra Pradesh, the closest port, for exports. This entails a cost of around $25-30 per tonne in transportation, and handling, loading and unloading charges at the port. Had the company agreed to supply alumina to Vedanta, it would have saved on this cost since the latter would pick up the material from Nalco’s factory at Damanjodi.