Utkal Alumina Secures Approval for Doubling Capacity of Refinery to 3 Million Tons

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Researched by Industrial Info Resources (Sugar Land, Texas)--Utkal Alumina International Limited (UAIL) (Rayagada, Orissa), a wholly owned subsidiary of India's aluminum and copper major Hindalco Industries Limited (BSE:500440) (Mumbai), has received the necessary environmental clearance to double the capacity of its greenfield, 1.5 million-ton-per-year alumina refinery, which is being set up near Kasipur in the Rayagada district of Orissa. "We went to the environment ministry for an approval for the expansion, and we have got it," said Managing Director Debu Bhattacharya. Hindalco is the flagship metals company of the diversified Aditya Birla Group (Mumbai).

Under the current development plan, the $1.5 billion refinery is scheduled to be operational from 2012. Orders for all major equipment already have been placed. The project includes a 90-megawatt (MW) captive power plant. Part of the project cost will be covered by a $1.05 billion loan secured by Hindalco in July 2010 from a group of 28 banks. The equity portion of the project funds also has been arranged.

UAIL will source its bauxite from the group's own mines at Baphlimali and Kodingamali in the Rayagada and Kalahandi districts, respectively. The two mines are estimated to have a combined bauxite reserve of 200 million tons. The alumina produced will be used as raw material for the group's two 359,000-ton-per-year aluminum smelters, at Mahan in Madhya Pradesh and Lapanga in Orissa. Both smelters are under development and are slated to begin operations in 2012.

UAIL's earlier plan was to mine 4.5 million tons of bauxite per year for its refinery, but with the expansion project approved, the company is likely to begin mining 8.5 million tons per year of bauxite when the capacity expansion project is completed. The expansion is expected to begin alongside that of the greenfield project and should be completed as per schedule. A senior company official said, "Since there is no hurdle for bauxite mining, we hope to start production from the next year."

The UAIL project originally was announced in 1992, but made no progress because of protests by local residents and environmental activists.

Expanding the capacity of its alumina refineries is an integral part of a metal company's supply chain, as it affords the company a higher capacity for aluminum production, leading to higher opportunities for profitability. The clearance for expansion obtained by UAIL sets it marginally ahead of rival Vedanta Resources plc (LSE:VED) (London, England), which recently was forced to cancel a similar expansion project in Orissa. Vedanta Resources currently owns a 1 million-ton-per-year alumina facility at Lanjigarh in Orissa, and the company began work on an expansion project that targeted a production capacity of 6 million tons per year. However, the government of India put a stop to the project, on the grounds that Vedanta Resources had not sought prior approval for the expansion project.

During the recently concluded 51st Annual General Meeting of Hindalco, Chairman Kumar Mangalam Birla said that the company would invest more than $8.5 billion during 2012-14 on the company's greenfield expansion projects for alumina and aluminum. The projects included are the Aditya Alumina and Aluminium Project in Orissa, the Jharkhand Aluminium Project, the Mahan Aluminium Project, and the Utkal Alumina Project, all of which are scheduled for completion between 2012 and 2014. The ongoing (2010-11) and next (2011-12) financial years would see investments of about $2.1 billion and $2.4 billion, respectively, on the ongoing expansion projects. Chairman Birla said that the capital expenditure amounts would be raised through debt. "The robust growth prospects of the aluminum industry in India made investment in Hindalco attractive," he said.

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