Monday, July 24, 2006
COUNCIL OF MINISTERS CONFIRMS DECISION ON AGREEMENT BETWEEN OMC LTD.
AND M/s VEDANTA ALUMINA LTD.
His Excellency, the Governor of Orissa in a letter to the Chief
Minister had requested that the matter of the agreement between M/s.
OMC Ltd. and M/s Vedanta Alumina Ltd. be placed before the Council
of Ministers for its consideration. Accordingly, this matter was
placed before the 3 rd meeting of the Council of Ministers held
today, dt.29.11.2004. After careful consideration of the issues
raised in the letter of His Excellency, the Governor and detailed
deliberation thereon, the Council of Ministers not only approved the
decision of the Govt. in the Dept. of Steel & Mines, but also
approved the agreement. The issues raised and the brief answers to
the same are provided below:
Issue : Was the MoU of April, 1997 valid when the agreement was
Answer: The MoU of 1997 was renewed from time to time and was valid
on the date of agreement.
Issue : With 26% of equity share, OMC will not have
adequate say in the day-to-day management of the joint venture
Answer : 26% equity share is a controlling interest and the
State Government will be able to ensure that no resolution of the
Board is passed which adversely affects the interest of either OMC
Ltd. or the State Government.
Issue : Government and OMC did not consider going for an open
Answer : The Agreement was to be executed within the framework of
MoU which has been signed in 1997. This MoU did not envisage any
tendering process. The MoU of 1997 clearly promised transfer of
lease of 2 mines namely Lanjigarh and Karlapat by OMC Ltd to M/s
Sterlite Industries (I) Ltd. Introduction of a third party through a
tendering process would have vitiated the understanding. Moreover,
brining in a Page 3 3 third party as raising contractor would have
created serious complications between OMC Ltd. and M/s. Vedanta
Alumina Ltd particularly if the performance of the contractor did
not satisfy the requirement of M/s. Vedanta Alumina Ltd. Therefore,
the question of inviting tenders for raising contractor after more
than 7 years simply does not arise. When a clear assurance has been
provided in the MoU to the party concerned, going back on such an
assurance would not only be a breach of trust, but would also
vitiate the investment climate in the State.
Issue: Foundation stone was laid by Hon’ble Chief Minister, Orissa
without having captive mines.
Answer : The foundation stone laid by the Chief Minister was
independent of the agreement signed on 5 th October, 2004. The
foundation stone was laid for alumina plant and not for the bauxite
mines. The foundation stone laying was done only after the State
Govt. had executed the MoU with M/s Vedanta Alumina Ltd on 7.6.2003
through the Industries Department.
Issue : Government and OMC did not consider export of bauxite.
Answer : The unequivocal policy of the State Government is to add
value to minerals within the State as far as possible. Hence export
of bauxite ore outside the State by a third party was not envisaged.
Issue: Why did OMC agree for a price of approximately Rs.250/- per
metric tonne when the market price is much higher ?
Answer: In fact, bauxite is not sold in the open market. The major
companies such as NALCO and HINDALCO have captive deposits and use
the bauxite for their alumina plants. It has been ascertained that
the pithead price of bauxite for NALCO is Rs.168/- per metric tonne.
At the international level, the bauxite is sold at 16-17 US$ or say
Rs.782/- per metric Page 5 5 tonne. But this price is the FOB price
which includes cost of transportation from mines to port, loading
and unloading charges, chemical analysis, port charges etc. If this
price is analysed, it would be seen that the actual cost of the
bauxite itself would be to the tune of approximately Rs.230/- per
tonne at the pithead (apportioned cost of machine used in mining
plus cost of labour plus the chemical analysis charges Rs.168/- plus
royalty of Rs.60/- = Rs.228/- say Rs.230/-). Hence the approximate
price of Rs.250/- per metric tonne being paid by M/s Vedanta Alumina
Ltd to OMC Ltd is very much in tune with the prevailing price. Also,
there is only one exporter in India which is exporting bauxite in
very small quantities at 16-17 US$. But this is also FOB price. Here
too, the cost of bauxite itself works out to approximately Rs.200/-
per metric tonne.
Issue : Setting up of an aluminium smelter was made optional for M/s
Vedanta Alumina Ltd.
Answer: M/s Vedanta Alumina Ltd have resolved in a Board meeting
held on 18.11.2004 that they will set up the aluminium smelter in
Orissa and are agreeable for due amendment to the agreement.
Issue: The agreement was not approved by the Board of OMC Ltd.
Answer: The agreement was approved by the 345 th meeting of the
Board of OMC Ltd held on 26.06.2004 and 27.06.2004.
OMC's share in the joint co: 26% and the minister catagorically states that this is a controlling interest - interesting.
Royalty of Tonne of Ore: Rs. 60/tonne
Chemical Analysis cost: Rs. 168/tonne
OMC's price fixed at Rs. 250
(No provision for escalation)
NALCO's Raising cost at pit head estimated: Rs. 168
Do you agree?
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