Mahanadi Coalfields aluminium project to cost Rs 34,000 crore; company seeks equity limit exemption

Mahanadi Coalfields Ltd (MCL), a subsidiary of Coal India Ltd (CIL), is seeking government approval to invest Rs 34,072 crore in an integrated greenfield aluminium project in Odisha comprising a two-million-tonne alumina refinery, a 0.5-million-tonne aluminium smelter and a 1,400-megawatt captive power plant.

The planned investment in aluminium complex includes acquiring a bauxite block at Sijimali or Kutrumali in Odisha to mine six million tonnes of bauxite per annum. Initially, the end-product would be primary aluminium ingots with value-added products introduced later.

Since MCL plans to pump in Rs 10,222 crore as equity considering a debt-equity mix of 70:30 for the project, it has sought an exemption from the investment limit fixed by the Department of Public Enterprises, which stipulates that a Miniratna can only invest 15 per cent of its net worth in a project — limited to Rs 500 crore, with an overall investment cap of 30 per cent of net worth in all projects put together.

With net worth after dividend estimated at Rs 9,716 crore, 30 per cent would be a paltry Rs 2,914.8 crore as permissible equity. Crossing this limit requires the approval of the Department of Investment and Public Asset Management (DIPAM), which administers all matters pertaining to capital structure or net worth of a central public sector undertaking, said an official.

Initially, Coal India had planned a joint venture along with National Aluminium Corp Ltd (NALCO), wherein MCL would hold 74 per cent and NALCO the rest. However, the joint venture plan was dropped in August 2022 and the MCL board decided last January to form a special purpose vehicle for the project complex.

MCL’s new venture comes amidst India’s commitment in COP-26 at Glasgow to make the country Net-Zero Carbon Emissions by 2070 after which Coal India decided to shift from its current core business of coal mining to embark on the process of diversification into non-fossil fuel areas to ensure a sustainable source of income from other businesses.

Since coal and alumina are critical inputs in the production of aluminium, the project was a natural choice for forward integration, the official said.

Moreover, India’s demand for aluminium has grown at a CAGR of 10 per cent in the last five years driven by strong growth of the automobile, construction and power sectors. MCL’s feasibility study showed that domestic demand presented a vast opportunity to set up an aluminium smelter as there would be an expected demand-supply gap of about 2.25 million tonnes in 2030 by when the project would be up and running.

The project is also aimed at realising the goal of ‘Atmanirbhar Bharat’ by encouraging domestic manufacturing, reducing import dependence, increasing exports with investment in backward area of the country. The entire complex is expected to generate an employment of 5,000 with direct employment pegged at 1,600.

Coal India is the world’s largest coal mining company and accounts for more than 80 per cent of India’s coal production.