MUMBAI, November 23: Arthur D Little (ADL), the US-based consultancy firm which was asked to prepare a feasibility report for Hindalco's Rs 8,000-crore integrated aluminium project in Orissa, has advised the AV Birla group company against going ahead with the greenfield project. Hindalco, on its part, has rejected the grounds on which ADL has made the assessment and has asked the consultancy firm to prepare a fresh report. The new report is likely to be submitted by March 1998.

Arthur D Little had said that the project was unviable due to high power costs. It examined two scenarios -- one where the company would set up the expensive 650 MW power plant itself, and another where the power facility would be set up separately. Under both options, the cost of power was proving too expensive. At the same time, ADL had also advised that Hindalco tie up with an aluminium company with a multinational presence to facilitate the marketing of surplus capacity in other countries. Going by the capacities that Hindalco has said it will set up, the company is likely to have about five lakh tonnes of surplus alumina which will have to be exported.

However, the Hindalco think-tank has decided not to go by the recommendations laid down in the ADL report and is understood to have apprised the consultancy major why it should prepare a new report. The Hindalco board, it is learnt, is of the opinion that the 650 MW captive power plant must be part of the entire project, as only then will power be substantially cheaper than that sourced from the state grid. Incidentally, Hindalco is one of the lowest cost producers of metal in the world.

According to a UBS report on the sector, Hindalco's cost of production is $1,050 per tonne against a world average of $1,280 per tonne.

The board has also ruled out the possibility of tying up with an aluminium multinational as the greenfield venture must be a division of the company, and not a separate entity. No final decision on the fate of the project has been taken by the board. After ADL tables its final report by March, Hindalco is expected to arrive at a decision by May.

Hindalco's president had, earlier this year, said in an interview with The Financial Express that the company plans to set up the project in phases to facilitate financing.

The company has decided to set up the project in at least two phases. In the first phase, a 100,000 tonne smelter will be set up by 2001. Another 150,000 tonnes will come up later, he said. The project, christened Aditya Aluminium, will be a division of Hindalco. Apart fron a smelter capacity of 250,000 tonnes, it will have an alumina refining capacity of one million tonnes, a bauxite mining capacity of three million tonnes and a 650 mw captive power plant.

While the final ADL report is awaited, Hindalco appears to be going full steam ahead with the project. It has already identified two possible mines in the Ib Valley in Orissa. It has also shortlisted three international aluminium companies -- Pechiney, Norsk Hydro and Reynolds -- as technical collaborators. The proposed debt-equity ratio of the project is 0.9:1. Hindalco's current debt-equity ratio is 0.24, which leaves a lot of scope for leveraging resources.

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.