Hindalco-Essar Risks Minister’s Ire on Mine Consent Claims

Companies owned by billionaires including Kumar Mangalam Birla that plan to develop a coal field in central India risk losing their license on allegations they forced villagers to consent to mining.

Birla-controlled Hindalco Industries Ltd. (HNDL) and Essar Energy Plc (ESSR), run by brothers Shashi and Ravikant Ruia, used strong-arm tactics and forged signatures of the villagers, Tribal Affairs Minister V. Kishore Chandra Deo said in an interview. Ramakant Tiwari, chief executive officer of the Hindalco-Essar mining venture Mahan Coal Ltd. denied the claim.

“I’ve received several allegations about how these companies manipulated the village meetings,” Deo said in New Delhi. “Having cross-checked, I’m convinced they did. I’ve written to the environment minister to cancel the mining lease if they fail to conduct the meetings again under video.”

The agriculture-versus-industry row in India has gained traction as villagers in the eastern state of Odisha stymied plans by South Korean steel giant Posco to build a plant for almost a decade and the tribes of Niyamgiri foiled Vedanta Resources Plc (VED)’s bid to mine bauxite in the remote hills of the state. The growing strife is feeding a rebel movement of Maoist guerillas, who promise to uphold the rights of villagers in India’s biggest mining regions.

The shares of Hindalco fell 1 percent to 102.45 rupees at the close in Mumbai, the lowest since Aug. 28. The benchmark S&P BSE Sensitive Index rose 0.2 percent. London-listed Essar Energy fell as much as 2.9 percent to 55.15 pence and traded at 56.50 pence as of 10:03 a.m. local time.

Tiger Suits

On Jan. 23, members of environmental group Greenpeace dressed in tiger suits scaled the Mumbai headquarters of Essar and unfurled a banner reading “We Kill Forests.”

Mahan Coal’s mining area would eat into more than 1,182 hectares (2,921 acres) of forest land with more than 500,000 trees, according to the government. The company, which secured an initial permit for the project in October 2012, can only start mining after securing final approval.

“We strongly refute any allegation of influencing the gram sabhas,” Tiwari said in an e-mail, referring to village meetings on the project. “The gram sabhas were conducted by government authorities in all the three villages in a fair and transparent manner. We had no role to play in it.”

Output Share

Essar will use 60 percent of Mahan’s annual coal output of 9 million metric tons to help run a 1,200 megawatt power plant, while Hindalco will take the rest for a 900 megawatt plant to run a 359,000 tons-a-year aluminum smelter.

The Mahan coal mines, lying in the cover of forests in the state of Madhya Pradesh, are located around the district of Singrauli, home to some of the nation’s biggest deposits of the fuel. Companies, including Essar, Reliance Power Ltd., NTPC Ltd. and Jaiprakash Associates Ltd., have committed almost $15 billion in investments in the region.

“We have a lot of wasteland and getting land to build a project shouldn’t be a problem if the industry is sensitive to the local population,” said Chandrajit Banerjee, director general at industry group Confederation of Indian Industry. “We’ve formed groups to sensitize the industry about the demands of the local population so both parties can benefit.”

The state government is investigating possible breaches of law in the Mahan village meetings, M. Selvendran, the chief administrator of Singrauli, said by phone. The probe is expected to be completed in a month.

Village Meetings

According to law, companies seeking to build projects in forest land must obtain the permission of villagers living in and around the area through the village meetings. The villagers, mostly tribes, depend on the forest for leaves, fruits, cattle feed, firewood and shelter.

Environment Minister M. Veerappa Moily, who cleared projects worth $24 billion within a month of taking charge at the ministry on Dec. 23, refused clearance to Vedanta after villagers unanimously rejected the proposal.

“We’ll not clear any project that villagers oppose,” he said in a Jan. 14 interview.

The Mahan area is dotted with power plants that have helped create islands of prosperity, even as a majority of the population has struggled to make a living. The region was marked as a no-go zone for coal mining by the ministries of coal and environment in 2009. A panel of ministers reviewing several mining projects in May 2012 approved Mahan Coal’s plans with additional conditions, Tiwari said today in a statement.

Mainstay Mine

The Mahan mine, allotted to the companies in 2006, is the mainstay for an adjoining $2.6 billion aluminum and power complex being planned by Hindalco and a $1.2 billion power plant by Essar. Losing the mine would starve these projects of fuel, prompting them to seek supplies at almost double the cost.

Hindalco and Essar have spent most of their planned capital expenditure for the project and started their power plants and the aluminum smelter using coal from sources other than Mahan.

“These are investments of billions of dollars made on promises of a coal mine, the very reason why the projects are based in the region,” Alex Mathews, head of research at Geojit BNP Paribas Financial Services Ltd., said on Jan. 31. “Even after so much investment, coal mining is not in sight, which means they will have to run their factories from outside coal at higher costs.”

Coal India Ltd. (COAL), India’s monopoly miner, incurs a cost of about 1,200 rupees ($19) to produce a ton. It sells the coal at almost double the price in electronic auctions, a market Hindalco and Essar may tap to secure supplies if mining at Mahan is stopped.

“A feeling has grown with money you can bulldoze anybody,” Deo said, referring to Mahan’s village meetings. “As far as I’m concerned, I can’t bypass the law on basic human conditions.”

To contact the reporters on this story: Rajesh Kumar Singh in New Delhi at rsingh133@bloomberg.net; Abhishek Shanker in Mumbai at ashanker1@bloomberg.net

To contact the editor responsible for this story: Jason Rogers at jrogers73@bloomberg.net

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.