Even as London-based mining and metals major Vedanta Resources struggles to procure bauxite from Niyamgiri in Orissa for its 1-million tonne capacity alumina project in the state, it has managed to find a new source of a slightly lower grade of bauxite in Gujarat.
According to a senior Vedanta executive, the supply of bauxite from Gujarat should start this week. The Orissa alumina project needs about 3 million tonnes of bauxite to run at full capacity.
An estimated 55 per cent of this already comes from Balco in Chhattisgarh and another 25 per cent from Jharkhand, Madhya Pradesh and Andhra Pradesh.
The remaining 20 per cent is expected to be met from Gujarat and in part from Maharashtra, said Mukesh Kumar, chief operating officer for Vedanta Aluminium Ltd in Lanjigarh, Orissa.
The additional source of bauxite will cost Vedanta nearly four times that of procuring it from Orissa.
The cost of bauxite from Orissa would have been Rs 600 a tonne, while the new source will cost company around Rs 2,400 a tonne.
The difference is mainly due to the cost of transportation by sea from the west coast to the east coast and rail freight charges for the last mile by land.
The cost of production, therefore, will escalate, but the company expects this to be only a temporary challenge and hopes to find a new source of bauxite within Orissa.
The company has an agreement with state-owned Orissa Mining Corporation to feed its plant with bauxite ore. "The state is committed to this deal and we hope to resolve it soon," said Kumar.
The bauxite from Gujarat is also of lower quality than what it would have been in Orissa.
The alumina content in the bauxite in Gujarat is around 42 per cent, while the Niyamgiri ore has 44-47 per cent alumina content.
Further, the silica content in the Gujarat ore is 3.5-4.2 per cent, or nearly four times that of the Niyamgiri ore. Every 0.1 per cent of additional silica in the ore means an additional 3-3.5 kg of caustic soda used in processing the bauxite, thus escalating the cost of refining.
It may recalled that the Narendra Modi-led BJP state government had come to the rescue of Tata Motors when the company was unable to build its Nano small car project in Singur in West Bengal. The project was relocated o Sanand in Gujarat in October 2008.
Until recently, the Gujarat government had a stated policy of not allowing bauxite to be shipped outside the state or overseas.
This policy was changed two months ago to allow movement of ore within the country. Gujarat Mining Development Corporation floated three tenders in four months, but could not find buyers due to the lower quality of the state's bauxite.
Vedanta hopes to overcome this problem by mixing the Gujarat bauxite with better quality ores from other sources within the country.
"We will blend it with bauxite from Chhattisgarh and Jharkand," said Kumar.
Like Posco's steel project India, Vedanta is also a victim of the political tussle between the Biju Janata Dal government in Orissa and the Congress-led coalition at the Centre.
The Orissa Mining Corporation, which has sought the Centre's clearance to extract bauxite in the state, is a state government-owned company, with Vedanta only a buyer of the ore.
Orissa has the largest source of bauxite in the country, with reserves in excess of 2,000 million tonnes. Nearly a third of these deposits are within a 40-km radius of Vedanta's refinery. In the last 25 years, only 90 million tonnes of ore has been extracted in the state by central government-owned Nalco.