Indal-bashers have repeatedly pointed out the company's inability and lack of foresight in setting up a captive power plant at its largest aluminium smelting plant at Belgaum in Karnataka. The company, as a result, has been forced to shut down the 73,000 tonne smelter from July 1997 citing frequent power cuts and high power tariff charged by the state electricity board as reasons.

This has had an adverse impact on Indal's bottomline, and a consequent decline in its market capitalisation, prompting takeover aspirant Anil Agarwal of Sterlite to make an open offer for a 20 per cent stake.

Power costs comprise around 30 per cent ofany aluminium company's cost of production. The lower the power cost higher will be the margin. Indal's inability to produce its own metal, that too at a low cost, has made the company rely heavily on outsourcing and, hence, susceptible to price fluctuations.

It is a lapse on the part of the Indal management that the other aluminium companies cannot afford. Both National Aluminium (Nalco) and Hindalco Industries, being primary aluminium producers, have taken steps over the last 15 years to ensure steady supply of low cost power.

In fact, Nalco, which presently has a captive power capacity of 720 mw, has been supplying its excess power to Grid Corporation of Orissa for years. Hindalco, currently in the process of raising its captive power capacity to 575 mw at its integrated plant in Renukoot, Uttar Pradesh, is soon expected to have an excess capacity of around 40 mw. The AV Birla group company has been negotiating with the state electricity board for sale of excess power.

The Indal management has itsanswers as to why they could not avoid the power crisis. Upto August 1992, the capacity utilisation at the 73,000 tonne per year plant was lower than installed capacity due to periodic power cuts from the KEB. In the same year, the company decided to de-energise the potline as the cost of production of aluminium was far outstripping the selling price of metal in both the domestic and international markets.

In December 1994, Indal decided to re-energise the smelter. This was because of the sudden spurt in international prices at that time which touched a high of $2,000 per tonne on the London Metal Exchange. This made it viable to operate the smelter with power from KEB at Rs 2.33 per unit.

Unfortunately for Indal, the situation did not persist for long. After about six months of operation, international metal prices began declining. At the same time, severe power cuts were imposed by KEB. Finally, from July 1996, the company decided to totally de-energise the smelting pots, consequent to the heftyincrease in power tariff to 3.53 per unit. At the current cost of Rs 4.07 per unit, the cost of production at the Belgaum production would be Rs 94,214 per tonne of aluminium against domestic prices of around Rs 72,000 per tonne. The cost of production of Nalco, it has been pointed out is Rs 67,200 per tonne.

The company's move to set up a 100 mw captive power plant is likely to remain a non-starter due to the government's liquid fuel policy. However, it has signed an MoU with Jindal Tractebel to source 50 mw of power at lower than KEB rates with which Indal hopes to energise 25,000 tonne at the Belgaum smelter.