Expanding businesses in India, Africa: Vedanta Group

Plagued by different controversies at the same time, it has been a tough year for Vedanta group in India. The chairman of the metals conglomerate, Anil Agarwal, however, remains unfazed by the storm.

Speaking to CNBC-TV18's Shereen Bhan, Agarwal said, "One thing is we are completely fearless and we have feet on the ground, we have no arrogance and we believe in transparency. I have given instruction to my people that governance is the topmost priority so is the safety of our people. I believe that the largest democracy of the world is under threat and it has to work, I believe it will work."
Despite the difficulties, Agarwal remains confident of expanding his businesses in India and Africa. "We will be very well placed, we are expanding our business in India and we are expanding our business in Africa. I can only say that we should do not ignore our natural resource because the entire world does not want us to progress." Below is an edited transcript of the interview. Q: According to our sources in the government, the government is looking at the possibility of going the IPO route for Balco. This suggestion was made to you in 2008. At that point in time, you had unambiguously opposed the move to go for an IPO for Balco. Where do you stand on that today?
A: As long as the process is clear and practical, it's fine. We have 70 per cent stake in the company. We are running the company and we have to cough up a lot of money. If it is practical, we will accept it. Q: Are you in favour of the proposal by the mines ministry where the government and you offload 5 per cent each, and then you go in for an IPO for Balco, which will, perhaps, be the best method of price discovery?
A: No, it is not a question of favour or not in favour. It is a question of whether it is practical. Q: Is it practical?
A: If it is a practical, we will do it. Q: Do you believe it is practical?
A: I have not looked at it, but if it is practical, we will do it. The whole intention is that the government and we are not two entities. We are looking to take the country forward, and in this process, they are looking forward to divest. We are ready to support the divestment. It is large money. We are holding that money for a long time. We need an independent good process. Q: Even if that were to mean taking the IPO route for Balco, will you accept it?
A: We will definitely look at it. Q: The offer that you had earlier made to the government in January 2012 didn’t really do much for the government. Now you have gone back to your shareholders. You have sought an enabling resolution to sweeten your offer. In US dollar terms, it is almost 20 per cent increase over what you had earlier proposed to the government. In rupee terms, it is almost 25 per cent increase over your earlier proposal to the government. Why haven’t you communicated this to the government?
A: You have misunderstood it. The point is that, this is not our company. We need to take shareholders consent and we cannot do it all the time. We have taken the enabling power in our hands, whereby if the negotiation goes on, and the government is willing to go ahead, we should have something in our hand. It is not a question of more money or less money. It has to be the right money. Q: It is very clear, the fact that you have sought an enabling resolution from your shareholders to be able to negotiate all the way up to a maximum of 25 per cent over and above what you had proposed to the government, seems to suggest that, that is the window that you are looking at?
A: It is not a question of more or less. The government is not a private party to say it wants USD 100,000. They have to go through the process. It has to be seen that the process was right. Q: Does this mean there is a possibility of it being more if the valuation were to actually work out more than you have currently estimated?
A: Yes, that can be. We can always withdraw if it is not acceptable or they can withdraw; anything can happen. But we have to run the process. Q: Today, you are saying that the government and you are one. But you have actually been battling with the government to be able to get this residual stake in both these companies for years now. You have gone through a long arbitration process; you are now fighting in court. The next hearing on the matter is coming up on October 16.You have, of course, proposed to the government that if they were to agree to your proposal, you will drop all litigations as well?
A: Of course. The world is seeing how we behave. We can’t put all our energy doing this. Q: You have been sending a lot of letters to the Prime Minister through the year on various matters including the issue of HZL and Balco, and matters related to Cairn, where you have told the Prime Minister that you will encourage Cairn India to hike its production to 500,000 barrels per day. By when do you actually hope to touch that figure given the current regulatory environment? You are currently at 175,000 barrels, your next milestone is 190,000. We don’t know when you will be able to do 190,000. Where does 500,000 come into play?
A: We have an import bill. The total import bill may be USD 300 billion. Out of that, two third is gold. We import 85% oil. We import all fertilizers. This bill itself should be USD 175 billion. Exploration is fundamental. Exploration should be given the same importance just as you give to infrastructure. Q: There is a degree of frustration with how slowly things are moving in terms of getting clearances, in terms of approvals from the DGH. Are you beginning to feel frustrated? You are a new entrant into the market here in India. Are you beginning to feel frustrated already?
A: I am in this business for the last 20 years with the government. Every time we have to have patience. In India, there are only three companies, either the government, Reliance or us. With a population of two billion people and 85% import of oil bill, we will always remain poor. For that, we have to create 10-15 more companies. Oil and gas companies should come in, and for that proper policy, it is a simple policy revenue model to be created. Q: Going from 175,000 to 190,000 bpd, which is what you have stated that you will be doing, and then encouraging Cairn to go to 500,000 bpd. By when do you actually hope to touch 190,000 bpd because you have already got clearances for that?
A: We will definitely try to do 190,000 bpd next year.
_PAGEBREAK_ Q: What can we expect from Cairn India? When can we finally expect that dividend because there was a lot of confusion on whether there will be a one-time special dividend? What is the situation because shareholders have been waiting to hear more on that?
A: We need some clearance from the government for giving that dividend, we needed some company to be merged. The court has given approval for a small thing; the bureaucracy has taken little more time to give us a clearance. I believe that will happen in a couple of days, and then we will move forward. Q: There are question marks being raised about Rahul Dhir's exit. It wasn't just Rahul Dhir's exit, there were a lot of exits around Rahul Dhir from the Cairn senior management. There seems to be a perception that there is an issue of cultural difference that the new management hasn't really been able to take along the management that was running Cairn. How do you respond to that?
A: This is a very small matter. It's a world class company. There are not many companies like Cairn India. You will not believe but there are many people from across the world, right from the world’s largest company Exxon to down the line companies, vying to fill in the position of Cairn India’s CEO. Q: When do you hope to identify the successor?
A: It's a process again and it may take time. The existing people are doing extremely good work. We have not touched this company at all. We have only motivated them; we have only taken away their difficulties and see what they have done.
They are producing 125,000 tonne and they have a plan to produce 175,000 tonne in two years, which they produced this year. How can they do it? If they were supposed to do it, they could have done it themselves. We just came in and supported them, and they are doing it. Q: What about the fact that Cairn PLC is actually looking at off loading further stake? They have just off loaded another 8 per cent in the latest tranche that they sold; they continue to hold about 10 per cent in the company. If they were to divest that anytime soon, would you be looking at picking it up?
A: I would buy anytime but I have my hands tied. I have to go through the process, I have no window open. They want to sell because there are a lot of bad perceptions about India, people want to exit. They thought this is a very good price that they are selling it at. But as far as I am concerned, this is the phenomenal price. Once the merger to this company is complete, we will move on, and probably go ahead and do some buyback or whatever is required.
But my focus is to create independent security of oil and gas. I am not here to look at small things here and there. I am looking if I can open up this sector. Q: Do you get the feeling at this point in time that that is easier said than done. Given the kind of difficulties, given the kind of regulatory hurdles that this sector is faced with?
A: I have met the prime minister, petroleum minister and petroleum secretary and they all believe that we have huge reserve from Assam to the South. When we take the next NELP auction, we will be the ambassadors. We will make sure that 10 more companies will come and do investment. Q: As regards the coal sector, you are part of the Navabharat block, which is surrounded by controversy. An FIR has actually been filed against that. You are one of the five players who were part of that block. Now that the government is talking about the possibility of auctioning de-allocated blocks, how serious will your efforts be as far as coal auctions are concerned?
A: Whether it is coal, iron ore, bauxite, oil & gas, it’s again a question of our natural resources. We have to be independent. We have to have a clear cut policy. Q: Do you believe auctions are the best way?
A: Of course. If you see, almost 60 per cent of the money goes to the government; we get only 30 per cent. In oil, we get only 12 per cent; in that, we have to pay salaries, we have to give dividend and we have to put all the investment. It is a win-win situation to create a job today.
If you look at the aluminum sector, aluminum is the natural material for India. We have the third largest bauxite reserve. Q: But you can’t mine?
A: This is the point. China produces 20 million tonne of aluminum, we only produce 2 million. If we can produce 20 million, we can have at least 7 per cent of our people to be involved into the manufacturing. Q: Goa now has been shut down on mining for at least the next two months. Nobody including you can mine in Goa at this point in time. There continues to be allegations whether it is from the state government or it is the Shah commission that all companies that operated in Goa were in violation of their agreement. How do you respond to that?
A: It's again the fundamentals. I always say, have a self declaration policy where you say these are the environmental norms and India Inc will follow that. You should catch those companies which are involved in illegal mining happening. Q: What is making you stay on in India because on every front, you are faced with problems. I want to ask you about Lanjigarh because once again, your plans there are stuck, there continues to be no clarity on whether you will actually be able to mine bauxite there or not, whether you will be given an alternate location to Niyamgiri or not; those question marks prevail so what holds Anil Agarwal back in India?
A: We will be very well placed, we are expanding our business in India and we are expanding our business in Africa. I can only say that we should do not ignore our natural resource because the entire world does not want us to progress. Q: Do you believe that there is a conspiracy against India?
A: It has to be. In the sense, China does not have these natural resources. They have progressed so much. We have amazing natural resources with us. Since independence to now, we have not done anything. If we don’t bring this and keep our policy on the basis of import, we will always be in debt. The government has to sit down and find a solution. Q: The government has to sit down and find a solution. But your shareholders will also ask you that you are faced with controversy after controversy, and state after state. There is no clarity on Goa, there is some degree of relief as far as Karnataka is concerned. There continues to be a question mark on Orissa. How do you respond to shareholders? Shareholders are not going to be satisfied with saying that the government will find a solution.
A: We are talking. I fully agree that illegal mines have to be stopped. We pay 60-70% of revenue. The money goes to the government. If something illegal is happening, I am fully supporting the government; they have to find a solution where they completely separate it. Q: But as far as Orissa is concerned, how much will you wait? There is still no clarity on whether you will be given alternate source for bauxite or not. What happens then to Lanjigargh if you don't get an alternate source?
A: Like an Indian daughter-in-law, we are already married what can we do? Q: So you will suffer and stay on?
A: We are suffering; people believe what is happening is a win-win for everything. What will you do just sitting with bauxite? Q: What happens in Lanjigargh or Goa now is beyond your control. It really depends on what the government decides to do but what is in your control is restructuring exercise. You embarked on a very ambitious restructuring exercise a few months ago. Are you done with it or there could be perhaps something more?
A: BHP is very proud to be an Australian company, if you look at Anglo, it is very proud to be an African company; they do global business. If you look at Vale from Brazil, they do business all over. So, I thought from India, a natural resource company which has copper, aluminium, zinc, iron ore, lead and silver, oil and gas, we can do global business. The whole world is looking at it and said it was a great move.
This country with a population of 1.2 billion people is rich in natural resources. To create a company like this, I am very confident because intentions are right whether it’s the government or the public. We all want this thing to happen because this is the money spinner for the government. We created this company. I think we are on the last leg and everybody is supporting us, we should be through this year. Q: You are facing so many different controversies at the same time, this has been a tough year across your various business specifically here in India, how do you deal with it? How do you get yourself up, keep your confidence, keep the optimism going?
A: One thing is we are completely fearless and we have feet on the ground, we have no arrogance and we believe in transparency. I have given instruction to my people that governance is the topmost priority so is the safety of our people. I believe that the largest democracy of the world is under threat and it has to work, I believe it will work. Q: Do you believe there is perception problem that you are faced with that you may believe in governance, you may believe in transparency, you may operate with complete transparency but people don't seem to believe that?
A: I agree there is a huge perception problem but it is a democratic country, it doesn't belong to somebody, it belongs to me too and somebody has to take the lead. Everywhere we have delivered and the government understands that. I am looking at the process to be faster; we should sit on one side of the table and look at how we take the country forward. We will work with the government, and in whatever way the government wants, we will work to make sure we will take it forward.