Odisha nixes JVs with Rio Tinto, Sesa Sterlite, Hindalco

Dealing a body blow to the hopes of Rio Tinto, Vedanta Group firm Sesa Sterlite and Aditya Birla Group's Hindalco Industries, the Odisha government has decided to scrap joint ventures (JV) formed by these firms with its Odisha Mining Corporation (OMC), for iron ore and bauxite. The government's decision to wind up the three JVs is set to have wide ramifications across the mining spectrum and upset the equations of companies which had banked on assured raw material supply to run end-use plants, where they've committed big investment.

In the standalone mining space, the government has scrapped OMC's JV with Anglo Australian mining major Rio Tinto. This comes more than two years after the state-run miner announced its intent not to pursue the JV project, in September 2012. Now, the state government has sealed the fate of the $1-billion project, billed as one of the biggest bits of foreign direct investment in the sector.

OMC's reluctance to revive the JV project stemmed from the changed dynamics in iron ore mining. When the JV was signed in 1995, the demand for ore in the domestic market was tepid and OMC was a cash-strapped undertaking. This has changed, with OMC in possession of a cash surplus of around Rs 5,000 crore. Also, with growing demand for iron ore within the country, OMC is being envisioned as a long-term supplier.

Rio Tinto had entered into a JV with OMC on February 24, 1995, to develop the Gandhamardhan and Malangtoli iron ore deposits in Keonjhar and Sundergarh districts, with a mining capacity of 25 million tonnes per annum. However, the project hardly showed any sign of taking off the ground. It ran into rough weather due to intractable differences between the partners. Rio Tinto was keen to export half the ore mined, while OMC emphasised on meeting the raw material needs of local industries.

This led OMC to later seek an end to the JV, as advised by the Solicitor General of India, sparking a legal battle. OMC had filed a case at the high court here in 2003, to end the agreement. Rio Tinto had approached the Company Law Board to contest this.

OMC has also initiated the process to annul JVs with Sesa Sterlite and Hindalco. “We have sent showcause notices. They have been asked to send their replies within two weeks,” said Girish S N, managing director of OMC. Notices were sent to the two firms earlier this month. OMC had formed South West Bauxite Mining Company (Pvt) Ltd, a JV with 26 per cent equity of Sterlite Industries India Ltd in 2009 for supply of bauxite from deposits in Kalahandi and Rayagada districts to feed the aluminium refinery of Vedanta Aluminium (now Sesa Sterlite).

Similarly, East Coast Bauxite Mining Company (Pvt) Ltd was formed in 2005 with 26:74 equity holding between OMC and Hindalco Industries. It was for development of the Kodingamali bauxite mines (estimated reserve of 85 million tonnes) in Koraput district and supplying it to the alumina refinery of Hindalco.

Both the bauxite JV projects failed to take off due to stiff protests from locals. Sesa Sterlite has invested about Rs 50,000 crore on its projects and Hindalco’s investments in the state are pegged at Rs 21,000 crore.