Companies

Sourcing troubles for Hindalco's greenfield project

Adarsh Gopalakrishnan BL Research Bureau | Updated on November 12, 2017

12Hindalco.eps

Environment Ministry non-committal about allowing mining in Singrauli fields

The Hindalco stock shed 4.4 per cent on Monday on the Ministry of Environment's tough stance on mining in no-go areas and its decision to pass the buck to the Group of Ministers (GoM).

The Ministry has refused to take a decision on allowing the Hindalco-Essar Power combine to mine in the Singrauli fields in Madhya Pradesh. Delays on this count could impact Hindalco's timely access to the much needed captive coal mines in the region essential for the completion of its greenfield aluminium project by this fiscal.

Hindalco and Essar Power each hold 50 per cent stake in Mahan Power which is seeking the final nod to mine coal in Singrauli. The coal is expected to fuel Hindalco's 650 MW captive power plant in Bargwan.

Captive power generation is crucial for its intended aluminium smelter in the vicinity, which is proposed to add 3.60 lakh tonnes per annum (tpa) to Hindalco's current aluminium smelting capacity of 5 lakh tpa.

Power, a critical input

Power is a critical input to aluminium smelting and accounts for a third of the cost for producing aluminium metal. Thus, captive mines and power plants are integral to Hindalco's efforts to boost margins and justify the high cost of setting up greenfield capacity.

Purchasing coal from spot markets could also prove to be a far more expensive proposition than the cost of operating captive mines. Buying power from external sources is an even pricier proposition, which could cost thrice as much as that procured from captive generation. In 2009-10, Hindalco incurred Rs 1.3 per unit for producing power captively compared to the Rs 4.4 it paid to purchase power.

With this development creating uncertainty around the timely completion of the company's greenfield capacity additions, the company will hope that GoM rules in its favour, and that the plant is commissioned by the end of the current calendar year.

The plant will be the first of three major greenfield plants the company hopes to commission over the next three years, which will then help treble its aluminium smelting capacity.

Published on July 11, 2011

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