It is Trying to Rebuild Its Image, But Can Vedanta Find its Soul?

Charges of environmental damage and human rights violations are forcing Vedanta group to change. Founder Anil Agarwal has to ensure the changes are more than cosmetic

By Prince Mathews Thomas

Published: Apr 19, 2010 06:55:10 AM IST

Updated: Apr 19, 2010 12:46:02 PM IST

There is a conspiracy theory making rounds in the southern seaside town of Tuticorin, where metals company Sterlite Industries set up its copper smelter 13 years ago, after being driven out of Ratnagiri, Maharashtra, on environmental grounds. Some people claim that Sterlite lets out gallons of effluents into the sea, but not directly. They say it has linked up its drainage pipes to those of another well-known company in the area, which eventually pours the effluents into the sea.

Forbes India asked Vedanta Resources plc, the holding company of London-based billionaire Anil Agarwal’s $6 billion plus group that includes Sterlite, whether there is any truth in the prattle, but got no reply. The Tuticorin plant, which began operations against fierce opposition from local environmentalists, has never been able to fully erase such doubts.

It is a similar problem that surrounds Vedanta’s project in the middle of tribal territory in Orissa to mine for bauxite, the raw material for aluminium. It is part of Agarwal’s most ambitious plan for an integrated aluminium plant. Not everyone is convinced it is a good plan. High profile investors including the Pension Fund of Norway, and the Church of England, sold their shareholding in Vedanta citing environmental concerns and human right violations at the upcoming plant. India’s ministry of forest and environment found the company had violated the rights of forest-dwelling people in pushing through the project. Groups such as Survival International, Amnesty and ActionAid, have pounded the company with similar allegations.

Controversy is not new to Agarwal, a 56-year-old businessman from Patna who started his career bringing together a variety of family businesses nearly 35 years ago. In fact, he thrives on them, having become known more for running some of the world’s lowest cost producers of various metals and minerals than for running eco-friendly plants.

But with his increasingly globalising business now listed on the London Stock Exchange, he is facing more scrutiny outside his homeland where implementation of environmental standards could be lax. At Vedanta’s head office on 16, Berkeley Street in London, however, the reaction to all the criticism is that it is primarily a “perception” problem. As a result, Agarwal and his generals have set out to correct the perception with a counter public relations strategy.

The stakes are getting higher every day. Agarwal still needs an approval from the environment ministry without which his bauxite project would be stalled. A multi-billion dollar fund-raising exercise is on the way. Word is out that a few more investors could pull out of Vedanta, though this remains purely speculative as of now. But more importantly, bad reputation could come in the way of Agarwal’s dream to make Vedanta one of the top five mining companies in the world.

But the big question that Agarwal must ask himself is if all this enhanced criticism he is facing is just an image problem or does his group need soul-searching on the price it pays for chasing ever lower costs of production.

Agarwal School of Business
In a country that celebrates its businessmen and politicians that look like film stars, Anil Agarwal has not been able to make an impression. With his rustic manners that a decade of life in London has not erased, Agarwal doesn’t come across as a sophisticated conversationalist. Group insiders say the perception
problem has a lot to do with the stereotyping of Agarwal. “Anil Agarwal is a misunderstood person. His only fault is lack of articulation,” says a
senior official.

But nobody can question the enormity of his success. Over 35 years, Agarwal’s business empire has grown from less than half a million dollars to $6.5 billion. In the dirt and grime of the mining business, he fought hard and bought old plants to turn them into profitable units. He lobbied with ministers and bureaucrats across four continents to turn hostile situations favourable.

When he shifted base from India to the high-brow circles of London, hardly anyone gave a chance to this Marwari businessman from Bihar speaking halting English. He soon proved his critics wrong achieving the most rapid growth of his career after the shift.

The most incredible thing about Agarwal is that he prospers in conditions where others wither. Wherever a plant or a mine, universally declared unviable, came up for a sale at throwaway price, Agarwal would be there to buy. And months later, the plant would begin to thrive in his hands leaving industry peers incredulous.

Illustration: Malay Karmakar

There is no better example for his tenacity than the Orissa project, where he has already managed to put up the refinery, though the mining project is mired in controversies. This is the location where for 25 years, Indian and international behemoths have tried to set up metal production operations but failed due to local protests and lack of clearances.

But it is also characteristic of him to get sucked into environmental debates, protests and controversies. The long history of his contentious projects (see box) invariably erases the memory of
his successes.

These successes and controversies have divided Vedanta observers into two different camps. One set admires Agarwal for his stupendous success against all odds and for creating wealth for his shareholders. “I have known him for almost two decades and worked with Vedanta officials. Agarwal has been passionate about growth and fast growth. India is a difficult place to make money for a mining company. I defy anyone to show that he is not doing a great job developing his group,” says Michael Rawlinson at the London-based investment bank Liberum Capital, which last month came out with statement terming criticism for Vedanta’s mining project in Orissa “unfair, regrettable.”

The second camp hates him with equal vigour. “Vedanta has not shown any intention to abide by rules. And its ability to carry out projects without bending the rules is suspect. By raising finance in London and operating in India, it is trying to have its way both ways,” says Jo Woodman of Survival International, the London-based non-governmental organisation that has been in the forefront of protests against the bauxite mining project. “Vedanta has got notorious… The Orissa project is the most controversial mining project in the world,” Woodman says.

Corrosion Sets In
In 2007, Norway’s pension fund sold its stake in the company for “environmental and human rights violations.” Sometime later, India’s Supreme Court cleared Vedanta’s bauxite mining project in Orissa and with supportive administrations at Orissa and central governments, Agarwal was assured that the last part of his biggest ever project, the integrated aluminium plant in Orissa, was now in place.

In January this year though, things worsened suddenly when four investors including Church of England and the Joseph Rowntree Charitable Trust sold their shares in Vedanta. Within two months, the Indian environment ministry said blamed Vedanta for “violating forests laws in Orissa.” It looked like Agarwal had begun to lose his magic touch with government dealings.

If more investors pull out of Vedanta, it will put pressure on the environment minister, Jairam Ramesh, on the question of clearance for the mining project. Ramesh is one of the few politicians in India who hasn’t been charmed by Agarwal. Without his clearance, Agarwal will hit a roadblock: His plan to spin off his aluminium business including the Orissa project into a separate listed company will get stalled; Neither will the project get the $20 billion valuation that he expects.

“This is an international conspiracy to stall Vedanta’s progress. It is common knowledge that the mining project will make Vedanta one of the lowest cost producers of aluminium and among the top five in the world,” says Vedanta Aluminium’s CEO Mukesh Kumar, who is heading the Orissa project.

Charm Offensive
Just a few weeks after Church of England and three other investors sold their stakes in Vedanta, Agarwal met Niira Radia, the Delhi-based head of Vaishnavi Corporate Communications, a leading public relations firm that has Tata Group companies and Reliance Industries as its clients. Agarwal wanted Radia to handle Vedanta’s public relations portfolio. “Vaishnavi had successfully handled Vedanta’s affairs when the legal case on the mining project was being held in the Supreme Court. Though Agarwal had not felt the need to continue with Vaishnavi after he won the case, now he wants them back,” says an industry insider.

This marks a milestone in Vedanta. “The group is an entrepreneur-driven enterprise. Almost all the functions are person driven and not process driven,” says an executive. Now, Agarwal expects the professional team to take his message across to the outside world. However, Forbes India’s attempt to benefit from this proved futile: A detailed questionnaire for this story remained unanswered till we went to press.

Another gap that Vedanta is trying to fill is corporate social responsibility (CSR). For long, CSR was largely neglected in the group. A former senior executive who worked at the group’s aluminium plant in Korba, Chhattisgarh, says, “In his talks, the chairman came across as a person who was interested in corporate social responsibility. But one wonders if others below him cared equally. Otherwise, how do you explain that the least performing executives were shunted to CSR positions?”

Illustration: Malay Karmakar

Agarwal sought to set it right and in 2005, created a group head post for CSR. He roped in Ruby Thapar from the Aditya Birla group for the post. “In the last five years, we have set up a system that is process-driven and not people-driven. We have come out with a standard operating manual and a CSR tool kit, which is an ‘internal Bible’,” says Thapar, who claims that Vedanta now has “one of the largest CSR teams in the country with 60 full time professionals.” Interestingly, the CSR activities at high-priority Orissa are still handled by the head of human resources.

For the past two years, the CEOs are graded for their performance on the CSR front and last year, Agarwal started conducting a fortnightly video conference from his London office to check on progress on various CSR initiatives of the Group. Meanwhile, he roped in Mukesh Kumar to replace Sanjeev Anand Zutshi, a “strictly operations man,” to head the operations at Orissa. Kumar was part of the Engineers India team that set up the only other successful project in the area, the refinery and mining plants of National Aluminium Company, or Nalco and is credited to possess “soft skills” along with operations experience.

It will be a tough task for Agarwal to convince that the changes he is making are not cosmetic and imply a fundamental change in culture. International NGOs allege that the public hearings for its controversial projects are “eyewash”.

“Dialogue with the community, including discussion of the full impact of the project and sharing of assessment studies, are a few of the basic practices of a business model based on sustainable development,” says Julia Nelson of Business for Social Responsibility, a US-based consultancy firm that advises companies, including the world’s largest iron ore miner Vale on CSR. International NGOs claim lack of transparency has been one of the fundamental drawbacks of Vedanta Resources’ efforts to find unified local support.

With Vedanta Resources listed on the London Stock Exchange, Agarwal might also face more calls to take initiatives that would have credence in an international audience. This could include “membership of a respected industry responsibility body such as the International Council on Metals and Mining (ICCM),” says Louis Henderson of Church of England.

Interestingly, Aidan Davy of ICMM, which has leading miners such as BHP Billiton and Rio Tinto as its members, admits that a few Indian companies have shown interest in getting its membership but wouldn’t confirm or deny if Vedanta was one of them.

“Members subscribe to 10 principles that they need to integrate with their internal policy. They come out with a report annually and submit to an audit by a third party,” conditions which Davy says have put off many prospective members.

A top Orissa bureaucrat says such initiatives will help Vedanta gain credibility and also change the working culture at the group. “They are too aggressive and this makes them cut corners and commit mistakes. For instance, for their smelter at Jharsguda (in Orissa), they expanded the capacity even before getting the necessary approvals from the government.”

In 2003, Rio Tinto’s Chairman Sir Robert Wilson, took a decisive stand over a controversial uranium mine development in Australia that was being opposed by the Aborigines. He said, ‘We won’t develop it without their consent, full stop.” The conflict between the natives and the company finally ended in 2007 with an amicable agreement and went a long way in enhancing the reputation of Rio Tinto.
Perhaps it is time Agarwal and Vedanta adopted a similar stand of principles and worked in solidarity with the people in its project areas.

(This story appears in the 30 April, 2010 issue of Forbes India. To visit our Archives, click here.)