In a setback to Vedanta Ltd, the Orissa High Court on Thursday dismissed the conglomerate’s plea seeking enforcement of a 2004 agreement with the Odisha Mining Corp (OMC) for supply of 150 million tonnes of bauxite at prices linked to production costs and royalty.
The ruling could sharply raise the cost of bauxite for Vedanta’s aluminium business, putting pressure on a key cost advantage for one of India’s largest producers of the metal.
The division bench of the court held that Vedanta could not rely on agreements that had been terminated and had become unworkable following changes in mining law. The petition was filed by undivided Vedanta Ltd. in 2023.
The ruling is significant as bauxite is the key raw material for Vedanta’s Lanjigarh refinery, which supplies alumina to its aluminium smelters. Vedanta had argued that it had made large investments in Odisha based on an assurance from the state government that it would receive long-term bauxite supplies at a stable price.
Vedanta said it had invested more than ₹6,000 crore in setting up its Lanjigarh alumina refinery and had to initially source bauxite from outside because supplies from the proposed mines did not begin. This led to losses of more than ₹3,000 crore, it told the court.
Under the 2004 agreement, OMC had agreed to supply 150 million tonnes of bauxite to Vedanta with pricing linked to the cost of production and a royalty component.
Dispute over bauxite pricing
Vedanta later sought to retain this pricing framework under the state’s 2018 Long Term Linkage (LTL) policy, under which the floor price for auctions was linked to the cost of production plus a 50% margin.
The dispute arose after Odisha changed the pricing mechanism following a 2019 amendment to Rule 45 of the Minerals (Other than Atomic and Hydro Carbons Energy Minerals) Concession Rules. The state directed OMC to use the Average Sale Price method to determine the floor price for bauxite sold through national e-auctions.
Vedanta challenged the move, arguing that the rule was meant for mine auctions and not for commercial sale of already-mined bauxite. The company said the change had substantially increased its raw material cost.
The court rejected the argument, noting that OMC had terminated the earlier joint-venture agreements in September 2015 following changes to the Mines and Minerals (Development and Regulation) Act. Vedanta did not challenge the termination at the time, and it had therefore attained finality, the court said.
“The company is evaluating the order and the legal recourse available to it. The order does not impact the supply of bauxite to Vedanta Aluminium,” a company spokesperson said in an email response.
OMC did not immediately respond to Mint’s queries.
The court has allowed OMC to take further action in accordance with law, including raising demands based on the Average Sale Price methodology. It also vacated interim orders that had protected Vedanta during the proceedings.
Record bid adds to raw-material concerns
The ruling comes as Vedanta’s Bharat Aluminium Co. Ltd (BALCO) has emerged as the highest bidder for the Karlapat bauxite block in Odisha, offering a 175% auction premium. The bid was the highest premium offered for a bauxite block auction in India, Mint reported on 7 August.
“The aluminium producer currently has no operational bauxite mines and has won the Karlapat block at a record premium, which could increase its raw-material costs,” said Suman Kumar, AVP, metals & mining, Phillip Capital India Pvt. Ltd.. “The prolonged legal dispute also risks straining Vedanta’s long-standing relationship with OMC.”
“The real concern for Vedanta is that the Court has rejected its attempt to rely upon the old contractual arrangement and has permitted OMC to take consequential steps for recovery of the differential amounts,” said Sonam Chandwani, Managing Partner KS Legal & Associates.
“The Supreme Court challenge is therefore important, but I would say that Vedanta’s case is not straightforward. The biggest difficulty is the termination of the JV agreements by OMC in September 2015. The Court has placed considerable emphasis on the fact that Vedanta was aware of the termination, did not challenge it at that stage and thereafter participated in the subsequent LTL arrangement, “ said Chandwani.
This gives OMC a strong argument that Vedanta accepted the changed legal and commercial framework and cannot, after several years, seek to revive an arrangement which had already been brought to an end. In my opinion, this is the weakest aspect of Vedanta’s case, Chandwani added.