The Telegraph
Since 1st March, 1999
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The Vedanta affair
- The nub of the CEC’s report is the issue of forest land

Businessman Anil Agarwal’s is a rags to riches story come to life. He started out in his late teens as a scrap metal trader from Bihar. Today, he’s a billionaire who has almost achieved his ambition of being a key player in the global metals market. His firm, the $1.8 billion Vedanta Resources, is listed on the London Stock Exchange and Agarwal operates from a swanky office in London’s exclusive Mayfair district.

But in a remote corner of Orissa, in one of India’s most backward regions, Agarwal is facing a firestorm that could derail ' at least temporarily ' his ambitious global gameplan.

Several months ago, Agarwal, who’s better known in India as the hardscrabble businessman who built Sterlite Industries, began working round the clock on an $800 million (Rs 3,657 crore) project that includes a giant aluminium refinery and a bauxite mining unit. Bauxite is the raw material used to make alumina, which in turn is converted into aluminium. Incidentally, bauxite prices are currently at a record high internationally. Some $247 million (Rs 1,129 crore) of the $800-million project, which is scheduled to be completed in 2006, has already been spent, according to Vedanta’s website.

But in September a five-member committee appointed by the Supreme Court, called the centrally empowered committee (CEC), submitted a report to the court recommending that the court revoke the environmental clearance granted for setting up the refinery and that Vedanta be directed to stop further work on the project. A ruling is expected in December.

At stake are thousands of crores and the possibility that the project might become unviable if the Supreme Court rules against Vedanta. Against that is the committee’s position that Vedanta has not quite met environmental regulations.

The CEC is a quasi-judicial body the Supreme Court set up in 2002 to look into forest and environment issues. Biswajit Mohanty of the Wildlife Society of Orissa filed an application before the CEC in November 2004 against Vedanta. Environmentalist Prafulla Samantara and a Delhi-based geologist, R. Sridhar, subsequently filed two other applications. The CEC clubbed them together in December and then sent a fact-finding team 'which was one of the prayers of the litigants ' to the region. The hearings started in February.

In May, Vedanta went to the Supreme Court, asking it to quash the proceedings. But the court ruled that a decision would be taken after the CEC gave its report. The CEC itself visited the area in June this year. It completed and submitted its report in September.

Anil Agarwal is in a piquant position. The refinery’s construction has already begun, but he confronts the prospect of the Supreme Court nixing the project

Vedanta, meanwhile, has not exactly been sitting idle either. Last week, it was set to file a petition in the Supreme Court supporting its position, according to a source at Vedanta subsidiary Sterlite Industries (India).

Among other things, the environmentalists had accused Vedanta of having started work on the projects before environmental clearance had been obtained, something Vedanta has strongly denied. “Some areas of our state which are extremely rich in bio-diversity are sacrosanct and should not be touched. You cannot dig up and mine anywhere you please,” says Biswajit Mohanty, previously known for his campaign to save the endangered Olive Ridley turtles.

Indeed, Anil Agarwal is in a piquant position. The refinery’s construction has already begun. While Sterlite Industries declines to disclose precisely how much money has been spent separately on the bauxite and refinery projects, Agarwal has spent at least 45 per cent of the project’s cost, according to the environmentalists ' and confronts the prospect of the Supreme Court nixing the project. Secondly, the project’s alumina, an intermediate product used to make aluminium, will feed Balco’s expansion (half the alumina will go to the group’s captive aluminium plants and about half would be sold to third parties, Agarwal recently told Vedanta shareholders).

What happens if the Supreme Court rules against Vedanta' The London-based company could look at other bauxite ore deposits elsewhere in the state (Karlapat, Kutrumaili, Sasbahumali and Sijimali, for example) or source bauxite from elsewhere. The company told the CEC that if the mineral from the Lanjigarh mine were not available it would obtain bauxite from other sources. But rivals in the aluminium industry argue that this will push up costs. “In projects such as Vedanta’s, the money is mostly paid in advance to sub-contractors,” says a highly placed source at the government-owned National Aluminium Corporation. “So if the Supreme Court bars the company from digging up the Niyamgiri bauxite reserves and asks it to identify an alternative mine, the cost of production and transportation will shoot up and make the project unviable.” Sterlite Industries officials deny this.

Vedanta’s Orissa projects are being implemented by Indian subsidiary Vedanta Alumina Company and comprise a mine near the Niyamgiri hills ' which boast of a rich deposit of bauxite ' and a refinery at nearby Lanjigarh. The mine area is said to have 150 million tonnes of bauxite, according to the Vedanta web site (75 million tonnes, according to the CEC report) and the project, says the CEC report (a copy of which The Telegraph has), proposes to source three million tonnes of bauxite every year from the mine. As part of the Orissa government’s efforts to develop the region, the state-run Orissa Mining Corporation (OMC) inked a joint venture with Vedanta Alumina for setting up the refinery at Lanjigarh and for the mine. The Vedanta group planned on setting up a 90 MW captive power plant at the site to supply power. The 1.4 million tonnes per annum refinery will initially produce one million tonnes of alumina.

The area is part of Kalahandi, one of India’s poorest districts and infamous across the world for its starvation deaths. Endowed with a green canopy and with fresh-water streams, the unspoilt project area is home to several vulnerable animal species, as many as six of which find a mention in the red data book of the International Union for the Conservation of Nature and Natural Species (IUCN). Besides, a handful of the critically endangered, 6,000-strong Dongaria Kondh tribe live a rudimentary life in the folds of the mountains.

If and when the project gets going, the environmentalists argued before the CEC, it would have many consequences: liquid and gaseous effluent emissions, bright illumination, drilling and the resultant vibration and dust and pollution could affect the flora, fauna, ecology and human population of the area.

The issues involved are complicated, but the nub of the CEC’s report is the issue of forest land ' that the MoEF granted environmental clearance for the project on September 22, 2004, on the assumption that no forest land was involved. But at that time a proposal to use nearly 59 hectares of forest land for the refinery had been pending with the ministry. Another proposal to use over 672 hectares of forest land for the mine project is now pending with the ministry.

Much of the argument is centred on the fact that construction of the Vedanta project required the diversion of the 59 hectares of forest land, comprising about 29 hectares of village forest land and about 30 hectares of reserve forest. Company officials say that the land was part of their earlier calculations, but it was out of “abundant caution” that the refinery was finally proposed to be built entirely on non-forest land. The 30 hectares of reserve forest land were apparently diverted to the mining project, for building conveyors and approach roads, for which forestry clearance is still pending.

But the CEC claimed that Vedanta did not disclose the involvement of forest land in the project. Apparently, in June 2002, the collector of Kalahandi district issued a notice for acquiring land for the alumina refinery project, which showed that 118 acre of village forest land was involved in the project. “That effectively indicates that forest area was very much included in the project even before it kicked off,” says a CEC source.

When Sterlite applied for environmental clearance to the MoEF, it said that no forest land was involved in the project and that there was no reserve forest within a radius of 10 km, the CEC report said. Then, in August 2004, the company ' in seeking forest clearance ' put forward an application for the use of about 59 hectares of forest land. However, the application for the environmental clearance was not modified and was processed on the premises that no forest land was involved.

The MoEF’s actions have been questioned by the CEC as well. “The environmental clearance for the alumina refinery could not have been accorded without taking a decision on the mining component which is an integral part of the project,” notes the report, adding that at the time of granting environmental clearance, “even the proposal under the Forest Clearance Act for the use of forest land for the Niyamgiri bauxite mines had not been filed with the MoEF”. Prodipto Ghosh, secretary, MoEF, refused to comment on the issue, citing its sub-judice status.

Vedanta, in turn, pointed out to the CEC, among other things, that the environmentalists who objected to the project did not attend the public hearings on the projects in February and March 2003 but raised issues after the projects reached a critical state. It also said that it had fully disclosed in documents that forest land lay within a 10 km-radius of the project site, and that it had disclosed that the alumina refinery is located at the foothills of the Niyamgiri hills. “The fact that Niyamgiri hills are reserved forests has been abundantly disclosed in the EIA report,” it said.

The Supreme Court will, undoubtedly, decide on the truth of all these matters. Till then, the man from Bihar who made his millions in Mumbai and now operates out of London’s tony Mayfair will live on the edge.

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