Vedanta may pay high costs to transport bauxite from Kodingamali mines to Lanjigarh

Vedanta, a global diversified metals and mining company, plans to sign a long-term contract with Odisha Mining Corporation (OMC) to haul bauxite for its Lanjigarh (Kalahandi district) alumina refinery. However, the company is perplexed about the escalation of the transport cost of procuring raw material from OMC’s recently opened mine on the Kodingamali plateau.

The estimated transport cost is INR 1000 to INR 1200 per tonne because of the absence of direct rail route between Lanjigarh alumina refinery and Kodingamali mines. This may lead to bauxite price rise by more than 100 per cent within the time it reaches Lanjigarh plant.

“Logistics is an issue. In a competitive market, when companies like Nalco and Hindalco have refineries next to their captive mines, and have the advantage of carrying bauxite to their plants at negligible cost through a conveyer system, paying higher cost to haul bauxite from a distance to our plant makes a big difference,” said a senior official of Vedanta.

Even Vedanta had a hope to secure bauxite from the hilltop at the minimal cost through a conveyer system when they had built the alumina refinery at Lanjigarh, on the foothills of Niyamgiri. But later on, the project got cancelled due to local political disputes and environmental issues and had to relocate at an alternative bauxite source in the same vicinity of the refinery.

Odisha Mining Corporation, on the other hand, intends to sell 30 per cent of its bauxite production from Kodingamali mines to end-user companies through auction and the rest 70 per cent to alumina makers on a long-term contract, at a price discovered through auction. The base price for auction would be the cost of raising bauxite plus a 50 per cent margin. Apart from Vedanta and Hindalco, Anrak Aluminium, with an alumina refinery in Andhra Pradesh is keen to buy from OMC.

“We expect the auction to be fair and rivals to not get into a bidding race to jack up the bauxite price unrealistically,” said the Vedanta official. “If the price discovery in the auction process remains fair and realistic, Vedanta can still get bauxite at Lanjigarh Rs 300-400 a tonne cheaper as compared to the current cost of procuring it from outside the state, despite high charges towards transportation.”

Now, to keep the Lanjigarh refinery going, Vedanta is procuring bauxite from various sources within India and from the West African state Guinea. The plant, with an installed capacity of 2 million tonnes of alumina output a year, is operating at about 50 per cent capacity.