Look before you leap

Many of Vedanta’s problems in India are self-inflicted and largely caused by poor due diligence, argues Ngangom Junior Luwang

The controversy surrounding British mining company Vedanta and its business ventures in India holds important lessons for infrastructure investors. The company’s plans to source bauxite from the Niyamgiri Hills for its alumina refinery at Lanjigarh, Orissa, have met with disapproval, largely because if permitted, the activities would endanger the livelihoods of the Dongria Kondh and Kutia Kondh tribes in the eastern state. In 2008, the Supreme Court granted forest clearance permits to Orissa Mining Corporation (OMC) for bauxite mining in the Niyamgiri Hills to meet the requirements of Vedanta’s alumina refinery at Lanjigarh. However, the NC Saxena Committee, set up by the Ministry of Environment & Forests, has recommended that the request for forest clearance be rejected and Jairam Ramesh, India’s minister for environment and forests, has gone on record, saying that “There has been a very serious violation of the Environment Protection Act, the Forest Conservation Act and the Forest Rights Act.”

To avoid such ignominy, Vedanta ought to have conducted comprehensive legal due diligence instead of blindly banking on OMC’s assurances. The Indian government’s rejection of the proposed mining activities appears to indicate its commitment to protect the country’s environment and its indigenous tribes. At the same time, the government’s stance suggests that compliance with India’s environmental laws may be a bigger stumbling block than many infrastructure, oil and gas and mining companies imagined.

Vedanta has invited further problems by failing to obtain a forest clearance permit for the expansion of its alumina refinery at Lanjigarh. The planned expansion has come under severe criticism as it involves the unauthorized clearing of more than 26 hectares of forest land. Perhaps Vedanta had proceeded on the premise that the forest clearance permits it received earlier would be valid for the expansion. They are not. The company has clearly been caught on the wrong foot, a situation that could have been avoided with sound legal advice.

Ngangom Junior Luwang is a partner at Kochhar & Co.