Power is the new buzz word for aluminium manufacturers in India. In a bid to protect the bottom line from the fluctuating price movement of the metal in the international market, companies like National Aluminium Company (Nalco), Vedanta Aluminium among others, are all set to emerge as independent power producers.
This will also help them get cheap power, whose rising prices are putting pressure on the manufacturing cost of the metal.
“Our intention behind entering into power production is to protect the bottom line of the company from fluctuating London Metal Exchange prices,” A K Sharma, director (production), Nalco said.
Aluminium prices have witnessed major swings in the last three years. At the peak of global economic activity, prices of the metal had reached an all time high of $3,400 a tonne in 2008 which dropped 47 per cent to reach at $1,800 a tonne in August 2009.
On the back of tangible improvement in the economy, the metal is now hovering around $2,400 a tonne, up 30 per cent from the price in August 2009.
These fluctuations have their reflection in the annual result of companies like Nalco which posted a 36 per cent drop in net profit to Rs 814.22 crore during FY10, as compared to Rs 1,272.27 crore in the previous financial year.
Talking about entering power production, Sharma said, “We feel that the power deficit scenario in India is going to continue for next 10-15 years, which prompts us to enter into independent power production space. As rates for merchant power is higher, we will be able to fetch higher price for the power produced from our IPP,” he said.
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Nalco is one of the bidders of the proposed 4,000 Mw capacity ultra-mega power plant (UMPP) in Orissa , he added.
The company is also mulling to build an independent power project in Orissa in collaboration with one of the state power agencies along with wind mill projects.
“We have received bids to set up wind mills to produce power. These units will be strictly on build-operate-transfer basis and will be constructed by third parties,” Sharma said.
It is not only Nalco that is betting big on power production segment, Vedanta Aluminium, a subsidiary of London-listed Vedanta Resources Plc has also entered into power production segment with setting up of 2,400 Mw independent power plant at Jharsuguda in Orissa with the first unit of 600 Mw commencing operation recently.
“We need enough power to feed our existing smelter along with future requirement of power that will arise with our expansion plan,” Mukesh Kumar, chief operating officer of Vedanta Aluminium said.
He also said that though company’s Jharsuguda unit was basically for trading power, but would draw power to its smelter in case of any deficit.
“We will sell power to our aluminium smelter which has some cost advantage due to saving on transmission charges and other costs,” Kumar added.
“We may consider transferring some power to smelter during severe power deficit. But, that will be strictly for a short-period,” Sharma said.
Referring to this matter, an analyst with a Mumbai-based brokerage firm said that rising power deficit in the country along with uncertainty over coal block allocation for captive use were some of the factors driving this diversification.