‘Mining ban harsh on companies with best practices’

The former Rio Tinto Chief Executive, Tom Albanese, has taken over as Chief Executive Officer of Vedanta Resources Plc at a time when the Group’s mining business in India and overseas is facing its share of government, local, and environmental hurdles. A self-confessed optimist, Albanese says India has the geological endowment to be part of the global success story where Sesa Sterlite-Vedanta will be seen as the premier natural resource company. In conversation with Business Line , he said the Group is mindful of opportunities that come along, including acquisitions. Edited Excerpts:

How do you assess India’s mining business environment? What kind of policy decisions do you expect?

It is important to recognise that to be successful in this business you have to take a long-term perspective – properly navigate the regulatory and legal challenges. Sometimes there are many overlapping rules, policies, court opinions. Over the past five years, we have had difficulties in the mining sector, which has restricted the industry’s growth.

In India, we are in an unusual situation. India is blessed with some of the largest coal reserves in the world, but it is also the largest importer.

Recently, with iron ore, too, despite having huge reserves, India is increasingly becoming a net importer. These are signs that there is need for a strong policy.

Is banning an option?

Mining bans are more punitive to the companies that adopt best practices and are investing capital than to the businesses that are operating illegally.

What are your priority areas?

I have told the Vedanta Board that the investments we have made need to come into production.

We have made significant investments in aluminium smelting and refining, which are not yet generating returns for shareholders.

We have been able to operate Lanjigarh at one million tonne annually at a cost which justifies running the business, but not to the true potential – which would be much higher if we source bauxite domestically. Currently, we buy both coal and bauxite from international markets.

Our target is to develop 2 mtpa of aluminium smelting capacity with indigenous bauxite and coal.

How are you tackling local politics and environmental concerns?

With the mining sector, the public perception is driven more by local sentiments which could be based on some of the worst practices seen in the business. I think the Government should encourage best practices and take to task those not doing following these.

By when do you expect to start mining in Goa? Have you resolved pending issues in Karnataka?

We hoped all the issues will be resolved at the earliest (by the end of the monsoon season). There has to be a certainty in policy so that companies can reinvest and mining resumed. We have not been investing in the iron ore sector in Goa.

Mining in Karnataka is taking place at a modest production level due to the constraints that exist. Even our investment is somewhat modest in the State.

Under the ban there is a lot of road congestion which is limiting the evacuation from the mines, including our own. The business will only achieve its potential when the congestion is reduced by building new roads or railway infrastructure.

How do you explain the recent controversy over Cairn extending a loan to Sesa Sterlite?

Cairn is a very successful business generating strong cash flows and cash balance. Even with the best of plans of increasing productions, it has cash balances that are higher than its expected future requirements. A portion of that was loaned to Sesa Sterlite in accordance with the rules and regulations of the Companies Act.

It has been done in a manner which would give Cairn shareholders greater returns than it would have through overseas deposits.

The buzz is that Vedanta may be de-listed. What is the true picture?

Anil Agarwal has himself said that the continued listing in the London Stock Exchange is an important part of Vedanta’s business strategy.

Have you started exporting from Liberia? What is the status on Zambia?

We have been working constructively with the Government of Liberia. There is a lack of port and rail capacity in the country for iron ore shipments. In Zambia, we are in a difficult fiscal environment.

We are working with the Zambian Government on resumption of the back payments we have made to them, so that we can use it for reinvestment for enhancing production there.