Vedanta kicks off process to shut Lanjigarh refinery

Non-availability of bauxite from Odisha and the prevailing turmoil in global aluminium prices have forced Vedanta to initiate the process of shutting down its one-million tonne a year alumina refinery at Lanjigarh.

“We ran this unit with all commitment for nearly a decade, despite heavy odds. But with the current market turmoil, which is not likely to improve soon, and in the absence of access to bauxite from within the state, the plant is operating with a daily loss of Rs 3 crore. Hence, we are forced to initiate the process of gradual closure,” said K K Dave, chief operating officer, Vedanta.

Dave had a meeting with the employees and other stakeholders on Tuesday including  representatives of local communities. He said the refinery’s closure would impact nearly 10,000 people directly and the region at large, as the company’s corporate social responsibility initiatives included mid-day meal in 187 schools and the Vedanta Lanjigarh Hospital that provides free medical treatment.

The refinery’s closure is bound to affect Vedanta's smelter operations at Jharsuguda.  “In the absence of bauxite supply from Odisha, the current market dynamic has threatened our very survival. With a heavy heart, we are bound to take some steps which are going to be painful,” said Abhijit Pati, CEO (aluminium), Vedanta.

Although Vedanta has not spelt a timeline for the refinery’s closure, it is expected to take 15-20 days to complete the formalities. Vedanta had gone for a shutdown of the unit on December 5, 2012 ,amid lack of assured supply of bauxite. It, however, resumed the unit in July 2013.

“We are going to apprise the district administration very shortly of our plans to shut the Lanjigarh refinery. Then, we would inform government departments like industries and labour. We would ensure all legal steps are taken before the unit is actually shut,” said a company source.

The operational viability of the Vedanta smelter is also at stake due to the increase in input costs and record fall in the London Metal Exchange (LME) aluminium prices from $2,200 a tonne to $1,620 a tonne in the past year. More recently, LME aluminium prices have plummeted to a six-year low of $1,523 a tonne.

Vedanta has invested Rs 4,500 crore on the refinery alone, while the group's combined investments on its various projects in the Odisha- smelter plant, aluminium special economic zone and 2,400-Mw thermal power plant have exceeded Rs 50,000 crore.

Operating without any captive bauxite lease or ore linkages, Vedanta's Lanjigarh refinery was completely dependent on external supplies from states such as Andhra Pradesh, Gujarat and Chhatttisgarh and also imports from New Guinea.

Alumina production cost from the Lanjigarh refinery stood at $340-350 a tonne compared to the average global market price of $290-300 a tonne. With a price differential of $60 a tonne, it was getting increasingly unviable for Vedanta to run the refinery by incurring a loss of Rs 3 crore every day. Besides, bauxite procurement accounted for 35 per cent of alumina production cost for the company.