Vedanta’s Aluminum refinery project and Bauxite mining project on Niyamgiri: Environmental and Social Costs of vis-s-vis benefits to Orissa and its people

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I Background

Vedanta Alumina Limited, a subsidiary of M/S Sterlite Industries (India) Limited (SIIL), plans to exploit the Niyamgiri bauxite reserve located on top of Niyamgiri Hill in kalahandi District of Orissa for commercial exploitation of bauxite. This company is going to mine bauxite deposit from the Niyamgiri hills jointly with Orissa Mining Corporation Limited (OMC) as per the lease agreement signed in between VAL (Vedanta Alumina Ltd.) and Orissa Mining Corporation (OMC) in October 2004. Vedanta would set up an Alumina Complex, which includes 1.0 MTPA Alumina Refinery Plant, 3.0 MTPA of bauxite mining and 75 MW Captive Power Plant at Lanjigarh in the disrict of Kalahandi at an aggregate investment of approximately Rs.4000/- crore. For this purpose 723.343 ha of land is required by the Vedanta Alumina Ltd.for its refinery. Another 721.323 ha. of land is required for the bauxite mining on top of the Niyamgiri Hill. Most of this land is categorized as Reserved Forest. The mining lease is to be in the name of the “Orissa Mining Corporation Ltd.”, however, for all purposes the mining and the use of bauxite will be done by Vedanta Alumina Ltd. The area proposed for mining is composed of forest and grasslands ecosystems of extremely high value as wildlife habitat, for biodiversity and from the perspective of water availability in this drought prone area. An attempt has been made in this context to show that the environmental and social costs of the Vedanta’s mining and refinery project far outweigh the benefits to the State.

II Environmental and social costs of Vedanta project in Schedule V area

The Central Empowered Committee of the Supreme Court in their Report on the Lanjigarh Alumina Refinery, have recommended that it is their considered view that that the use of the forest land in an ecologically sensitive area like the Niyamgiri Hills should not be permitted. The CEC further observes that the area is rich in wildlife, has dense forest cover and has been proposed to be notified as a Wildlife Sanctuary in the Working Plan of the area duly approved by the MoEF under the FC Act,1980. It again mentions that the mining is proposed on Niyamgir Hill “which is an important wildlife habitat, part of elephant corridor, a proposed wildlife sanctuary, having dense and virgin forest, residence of an endangered Dongaria Kandha tribe and source of many rivers/rivulets.”

A large number of residents, both tribals and non-tribals from villages in Lanjigarh have submitted affidavits to the Supreme Court expressing their opposition to the Vedanta Project. The main issues raised in these affidavits are that of drying up and pollution of Vamshadhara river by the mining and the refinery, and the fact the local people use the water of this river for various purposes like domestic use, agriculture and for use of domestic animals. Other issues raised are complaints that Vedanta is continuously engaging in clearing the foothills of Niyamgiri which the villagers are trying to protect. They also place their apprehension that the red mud pond and the ash pond shall affect their agricultural land and pollute water sources and air around their villages. It is important to note that the tribals living in the area are totally dependent on the water from the perennial streams of Niyamgiri Hill, and their drying up and pollution will affect their livelihoods and wellbeing very greatly. The apprehensions of the local people, including tribals, have strong basis. The costs of the Vedanta Project to the local people including the scheduled tribes are much higher in the long run than the benefits.

A crude effort is being made below to make an estimate of cost of those environmental externalities which can be calculated for the Niyamgiri mining and the Lanjigarh alumina refinery.

2.1 Valuation of forests: The Ministry of Environment and Forests, Government of India in its handbook laying down guidelines and clarifications says that as a thumb rule, the environmental value of one hectare of fully stocked forest (density 1.0) would be taken as Rs.126.74 lakhs to accrue over a period of 50 years. Approximately 660 ha of forest land will be diverted for the mining project – taking an average density of 0.5, the Net Present Value of environmental value for such forest diversion at this rate will be equal to approximately Rs. 417 crores. Even the non-forest area to the extent of 49 ha to be diverted has good forest cover and therefore shall be covered under the NPV formula, creating an additional cost of Rs. 31.62 crores. Thus the total present value of the environmental cost of forests lost due to bauxite mining is equal to Rs. 448 crores. This costing doesn’t take into account the unique and infinitely valuable ensemble of rare species found in the proposed area.

2.2 Carbon Dioxide Emission: The production of one ton of alumina requires approximately 250 mwh of energy. Thus production of one million tons of alumina from the refinery means a energy consumption of 250 million mwh. Assuming that this energy will be met through the captive coal fired power plant of VAL, one can calculate the production of carbon dioxide produced, and calculate the value of this carbon dioxide. At an conservative estimate, an annual output of 250,000 tons of Carbon dioxide shall be produced from the alumina refinery plant. A recent British Govt. report costs carbon emissions at $56-223 per ton of CO₂ . Taking the lower limit of $56/ton, the total cost of the will be $14 million (Rs. 63 crores) per annum. The present value of the carbon dioxide emission costs over 23 years (project life cycle) equals Rs. 653 crores.

2.3 Other environmental and risk costs: There are other environmental and risk costs. The loss of waterholding capacity of the bauxite deposit implies that the perennial springs flowing from below the escarpment will dry up, specially in the lean season, deeply affecting the availability of water to this drought affected area. The red mud created after refining of alumina contains a cocktail of deadly heavy metals and caustic soda, which can leach into the ground or after drying up are picked up as dust and spread all around. Given that the EIA of the Vedanta Refinery shows that the redmud pond and ash pond is situated on the bank of Vamshadhara river, there is high risk of breach during floods and contamination of the whole river from the redmud. That such a eventuality is not farfetched is upheld by a breach which had taken place in the NALCO ash pond in Angul, leading to loss of life and long term pollution of Brahmani river. The emissions of sulphur dioxide and other gases from the power plant are also major environmental externalities which haven’t been taken into account into the above costing.

2.4 Social and cultural Cost: Apart from the environmental cost, there is huge social cost of displacing tribal and dalits from their lands, and introduction of an alien industry and its related infrastructure into the midst of a remote and backward tribal belt. The ill effects of the construction phase of the industry itself is highly evident already, with HIV cases being reported and large number of illegal liquor vends being opened up. Cases of violence and drunkenness have increased dramatically, and tribal social structures are being broken down in the area. Some of the major conflicts and disruptions have already been described earlier. Apart from this, the Niyamgiri Hill has incalculable religious and cultural value to the PTGs Dongaria Kondhs. Mining of the top of Niyamgiri is akin to sacrilege for this colorful and endangered primitive tribe. Again, these costs which are incalculable, are not being accounted for in this cost benefit analysis.

2.5 Benefits from Vedanta Alumina Project: The total bauxite reserves located in Niyamgiri Hills is 73 million tones. Even though trading in bauxite is almost totally controlled by a few big corporates, leading to an artificially depressed price of bauxite in the World Market, the average rate of bauxite as delivered in US ports was $ 30.80 per ton(USGS Website) and $20.50/- at port of shipment. Thus a lower estimate for international price of bauxite to an alumina producer may be safely taken to be $25 or Rs.1000/tonne. It may also be noted that Orissa’s gibbsitic bauxite deposits are some of the best in the world with lower processing cost, and therefore would have fetched a premium if the market was free.

NALCO’s raising cost of bauxite from its captive mines at Panchapatmali is estimated to be Rs. $5 or Rs.225/- (including royalty and Cess of Rs. 64/- ton). Excluding royalty, the raising cost comes to only Rs. 160/ton of bauxite. The costs for Vedanta to raise the bauxite from Niyamgiri (including the royalty) can be expected to be same or less as it is going to follow the same mode of mining and transportation (by a short conveyor belt). This implies that Vedanta is getting bauxite at a discount of Rs. 840/- ton as compared to market price of Rs. 1000/- tonne. It will pay another Rs.64/- ton as royalty and cess. Given that Niyamgiri has 73 million tons of bauxite, at a net subsidy of Rs. 776/- ton, Vedanta will be getting a subsidy at Orissa’s and India’s cost of over Rs. 6132/- crores on the market price of bauxite itself.

If the Niyamgiri bauxite was sold on open market, it would have resulted in an income of at least Rs. 7300 crores. However, the agreement between the OMC ltd. and Vedanta has a purchase clause which says that Vedanta shall pay only the “royalty” and not the market price of alumina to OMC ltd. The current cess and royalty rates are approximately Rs. 64/- tonne of bauxite. This means that the total value accruing to the State Government out of the exploitation of the whole Niyamgiri bauxite deposit is only Rs. 467.2 crores over a period of 25 years or approximately Rs. 18.6 crores/year. The net present value of this transfer at 8% discount rate is Rs. 192.90 crores only.

The Company plans to employ around three hundred employees. Considering that the manpower cost of NALCO with 7085 staff has a total expenditure of Rs. 290 crores/annum on its manpower (NALCO Annual Report, 2004-2005), it may be assumed that the annual expenditure of Vedanta on local manpower will be around Rs. 15 crores/annum. Again assuming that all this manpower is sourced from within Orissa, the NPV of this inflow through salaries will be approximately Rs. 160 crores over 25 years of the project period.

These figures become useful when one considers the value inherent in the Niyamgiri deposit in terms of the market value of bauxite, alumina and aluminium. As calculated earlier, the market price of bauxite from Niyamgiri is Rs. 7200 crores. Three tonnes of bauxite are processed for one tonne of alumina, whose spot market price is approximately $200/- (Rs. 9000/-) per ton. Thus the value of alumina produced from the Niyamgiri bauxite deposit will be Rs. 23000/- crores at present prices. Two tons of alumina is used to manufacture one ton of aluminum. Thus Niyamgiri Deposit of bauxite is equivalent to approximately 12 million tonnes of aluminum. The current value of aluminum in India is approximately Rs. 130,000 per tonne. This implies that the value of aluminum extracted from Niyamgiri is going to be over Rs.156000 crores to Vedanta.

That there is no doubt that Vedanta would make huge profits from the project is corroborated by the massive profits being made by NALCO from its mines in Panchapatmali, its alumina refinery and its aluminium smelter as shown below (abstracted from NALCOs Annual Reports):

		2004-2005	2003-2004	2002-2003	2001-2002	2000-2001
Royalty and cess paid to GOO	Crore rupees	31.35	24.16
Royalty & Cess / tonne of bauxite	Rupees	64.62	50.16
Total turnover	Crore rupees	4374	3324	2762	2541	2557
Royalty & cess (% of turnover)
Profits before tax	Crore rupees	1870	1052	751	525	843
Profits after tax	Crore rupees	1234	737	520	409	655
Transfers to GOO as % of profit before tax		1.68%	2.29%

The kind of costs of the project to the local tribals is borne out by the experience of NALCO. Barring that a few local people have been given employment by NALCO in its plants, there has been no local benefits to the people affected by the project. However, at the same time, environmetal and social cost of bauxite mining, its refining to alumina and its smelting to Aluminum has been borne by the local people, the tribals of Damanjodi and the peasantry of Angul. In Damanjodi, the mining of Panchpatmali has led to reduction of flow of water from the hill to tribal villages like Kapasiput who were totally dependent on these perennial streams for agriculture. Thus twenty years back Pokamarijhola, Kanranjikhola and Paravajhola.streams originiating from the Panchpatmali used to flow perennially in Kapasiput villages under Bhitargarh Panchayat in Laxmipur block. These streams which originated below the area being mined for bauxite by NALCO have dried up after mining activities, strongly affecting the availability of water for agriculture and other essential needs. The villagers living below the red mud pond have complained of crop failures, skin and other diseases because of the flow of poisonous water. Most important, the siting of this plant in the tribal belt has led to major changes in social composition and social structure of the predominantly tribal communities.

Considering that NALCO is a public sector company, and its dividend goes to the Government of India, one may still consider the costs paid by the Schedule Tribe as a sacrifice made for national interest, specially since aluminium is a highly strategic metal used extensively in defence purpose, even though the scale of benefit at local level as well as Orissa is minimal in comparison to the environmental and mineral value of the Panchpatmali hills, and the environmental and social costs imposed on local people including tribals.

However Vedanta is interested in exploiting Orissa’s bauxite deposits not for meeting India’s demands but for the purposes of export to other countries, either as alumina or aluminium. Given the economics and politics of aluminium production, it is doubtful these FDIs would lead to any gains for the scheduled tribes and other local people, the State of Orissa or even national interest. These investments are being made primarily to grab inordinate profits by multinational mining and aluminum giants, whose record in other developing countries has been also extremely poor.

2.6 Comparing costs and benefits to the Scheduled Tribes of Lanjigarh: Just taking into account the actual cost of forests ecosystems, and carbon dioxide emissions, one comes to environmental costs (at Net Present Value) equal Rs. 1101 crores. These environmental costs will be borne indirectly by the tribals of Lanjigarh as well as the people of Orissa and India. It is to be noted that this loss doesn’t take into account the extremely unique biodiversity and faunal value of Niyamgiri or the social and cultural loss created due to the mining and refinery in this tribal belt. It doesn’t include the opportunity cost and environmental value of 30,000 cum of water which will be lifted from Tel river every day for meeting the needs of Vedanta Alumina Refinery. The opportunity cost of retaining the bauxite deposit for future generations is also not considered, neither is the opportunity cost of the market value of the bauxite deposit is being considered.

In comparison, the benefit to the State of Orissa is Rs. 192 crores at NPV through royalties and cess. Another Rs.160 crores worth of benefit may flow in through wages and salaries. What proportion of this benefit shall go the tribal people of Lanjigarh is anybody’s guess.