Vedanta Resources chairman Anil Agarwal spoke to Chaitanya Kalbag and Suman Layak over almost an hour about his dreams, his plans for the company as well as the problems he faces.
Q: The Sesa and Sterlite merger is about to take place. How is this going to work out within the Vedanta organisation? How will it help?
Anil Agarwal: India has one fifth of the population of the world. Every large country has its own natural resources company. BHP comes out of Australia, Anglo comes out of Africa, Vale comes out of Brazil. It is very important to show the world… everything you cannot depend on the government to do. As Indians we always thought… that to create a natural resource company is an amazing… where you have oil and gas, you have copper, zinc, iron ore - all the metals together. And it is just the tip of the ice berg. India has so much potential. We have always said that the GDP is going to be driven by manufacturing and…
Q: But manufacturing is going very slowly in this country - only about 15 per cent of GDP now and mining is another area that is always full of problems and core regulations and politics and looking at your business empire, why did you decide to go into so many areas that cause so much stress and which are constantly problematic in sorting out. Do you feel you made the right decision going into all these different core areas?
A: No…it is how you look at (it). I think we are the most comfortable company. And if you ask any of the people working in our company how much they enjoy (being with us), there is no stress. It is absolutely win-win. The fulfilment that each of us feels is phenomenal. It looks to people outside…because it is very new. Our business was mostly in the hands of government earlier. Now it is moving forward. We need many more champions to come in and move forward. And it is not only what the government has to do, we all have to move forward. Once we demonstrate people will follow. Twenty years back our sales were $1 million and today our Ebitda will be $10 billion. And we are as fresh (as before) and people working for the company find that they are getting younger and younger. So what else is fulfilment?
Q: One of the things that is said about countries like China is that the government has been a very strong partner of private sector enterprises in terms of apportioning natural resources and infrastructure. You think that the Indian government is giving enough support to what you think you need to do?
A: I think our democracy is under threat. The largest democracy of the world has to work. What we are saying is that democracy won't work, it is under threat and we all have to work for it. The whole world is saying that look you are in the developing world. As a poor country we need two square meals, we need our children to be educated, we need our health. So that's why we have to move on, for what we do, we have to import 80 to 85 per cent of our oil. Only one company produces coal in India, that is Coal India. Energy security is again under threat. You know our geology is the same as Brazil and Australia and (any) other country .... We produce about 30 per cent of the iron ore they produce. Fifty per cent of whatever iron ore we produce - 50 per cent goes to the government. And now it is important for us to produce our own steel. And you know, they have to understand that exploration is most important for India… in a sustainable manner…our Mother Earth where we have to explore. We used to be called 'sone ki chidiya" a golden bird and today if you look at most of the gold of the world, we import it into India. We have so much beautiful geology, we have to put in as much effort for the exploration of gold to produce our own gold. We have tremendous phosphates in the country, yet 33 per cent of the world's fertilisers come to India. We have to produce our own fertiliser. The amount of subsidy that goes into fertiliser.... I think at Vedanta we are focusing on exploration so we can produce more, find more deposits of oil and gas as a security, iron ore as a security, other metals as security…
Q: You mentioned coal. Why have you not gone into coal so far?
A: No, we have gone into coal. We have made an application. The government is going into our application. And they are looking… we have put up our power plant at the pit head where most of the government coal mines are. And we have applied for the coal and we have got some coal blocks and we are working to get the permission to start work on them…I believe the government is going to auction some of the coal blocks - so we will participate.
Q: You mentioned geology. The geographical boundary for India goes beyond Andamans to where the Indonesian oil reserves are. Potentially there is a lot of oil and gas to be found in those parts of the country which are not on shore - have you been paying attention to creating a top quality exploration set up? Are you collecting a lot of experts in the area?
A: Good question. See, we are too small. We are very small. But as you said, from Assam to Kanya Kumari we believe that there are tremendous deposits available of oil and hydrocarbon. The entire Gujarat belt too, Andaman Nicobar, Assam… and it is a question of government policies. There are a lot of other companies but mainly three large… Reliance, Cairn and the government are mainly in oil production. I believe that there should be at least 15 companies producing oil and the next NELP auction should be very healthy where a lot more people can come and do the exploration, produce the oil. Indian entrepreneurs have tremendous… if you look at Indian companies, whenever the government has relied on them they have delivered, be it airports, telecom, highways, steel companies.... I am sure a lot more companies can come.
Q: You have based your parent company out of London. Why was that? How is that helping you in terms of your business strategy in India?
A: No it was a well thought out decision because for any company to move forward, capital is most important and in India capital was not available. For an Indian company to move forward capital was the need. So when we listed abroad… we instantly got in today's terms Rs 5,000 crore. We listed ourselves, we got the money, we brought it back. From then till now we have raised almost $20 billion, brought it back to India, put it in this country.
Q: You are the only Indian company in the FTSE 100 index?
A: Yes, yes.
Q: And you are also trying to go into Africa in a big way. Tell us what your big plan for Africa is. Is that going to complement your strategy in India or are you considering yourself as a global player like BHP Billiton or Anglo? Do you have global ambitions?
A: We are looking for the time to come to expand. But in Africa we are very strong, because we are a huge brand in Africa, because of what we did in Zambia. Yes, we have our largest copper ore body in Zambia and at one time 25 to 30 per cent of (Zambia's) GDP came from our company. We are people who will not do anything unless it helps a particular country. And we really mean that about every state whether we are in India or in Zambia - in Zambia we established ourselves very well and put half a billion dollar in our company, we are very proud of what we created in Zambia and we also got the opportunity to be the largest company in Namibia, which is a beautiful country. We have a zinc company there and then in South Africa again we have a zinc company, and then we are going to Liberia where the government has invited us and we are doing iron ore. Africa is also at the same time underdeveloped, so we are going cautiously. Wherever there is opportunity, we will look at it. I think 25 per cent of our business will be in Africa.
Q: I heard that Cairn is about to make a big discovery in South Africa, is that correct?
A: Yes. Africa is very interesting for hydrocarbons. Cairn - we are very much focussing on India. I have promised the government and the prime minister that, though we are getting a very small part of it. Eighty two per cent of the revenue goes to the government. If you see the numbers - what we have done - it is mindboggling. You can't even digest those numbers. So we are very focussed to develop Rajasthan. In Rajasthan nothing has happened, it is probably the tip of the iceberg and the government is fully supporting us to explore what we have onshore. We have a limited resource and so we will definitely focus on prioritising our resources in India. We have an offshore asset in India, we are prioritising that also and then we have to expand. Growth is very important. We are looking at Africa and we have made some discoveries in Africa. And in Sri Lanka so. This will be a nice oil and gas company that India will be proud of.
Q: Will oil and gas dominate your businesses in the next three to four years?
A: No, there will be balance. We will have aluminium, copper, zinc and oil and gas. May be oil and gas will be 10 per cent more than the others.
Q: Recently you had annual general meetings of all the three companies. Sesa and Sterlite and then Vedanta in London - it's been quite a bit of controversy on the merger. Shareholders from both Sesa and Sterlite have said that possibly they will lose some value as a result of the merger and given your large debt overhang that the merger is designed to create an umbrella organisation that will absorb some of those losses and help you. But you are also sitting on quite a large cash pile. So what is your vision for the Sesa Sterlite merger and why do you think it is going to help the shareholders of your group as a whole?
A: The promoters have not gained anything. Whatever the shares we have appointed the best of agencies. It is for them to decide and we have kept the best and even the two companies have come out - this is the ratio - this is how it should be. Whenever large companies merge, there is always this question. But if you look at - they have gone and they have counted - and we have all the approvals of the majority to go ahead and merge the two companies and that is what we are doing.
Q: You are the first private sector businessman to try and buy into two different public sector undertakings: Balco and HZL. Now you want to try and take your stake higher. In Balco you have 51 per cent and in HZL you have 69 per cent. By running those companies very efficiently you will now have to pay a much higher price for the stakes.
A: No. When we bought these companies there was an understanding that the government has no plan to hold on to their shares. Just to facilitate the buyers… at the same time they believed that they might create some value. If you look at the share purchase agreement, it is very clearly defined, in three years time they want to divest and in fact they have the call option and the put option, both. They have given the market price and this year two valuers are to be appointed. So it is not the question of us looking - because we are in the management - it is not even 30-40 per cent. In BALCO we have 51 and in HZL we have 69 per cent holding. But to clean up the minority - it is our obligation to demonstrate to the shareholder that we have done well and we can move on and the government has contractually agreed - it is very important and it is a question of our Indian progress. When we bought the value was Rs 500 crore and today value is Rs 16,000 crore and in fact it is a huge encouragement for other companies to come in. Today we are not saying divest or anything - but just start the process - decide the process - say this is the way we are going to do it. We will have two valuers and this is the market price and whatever be the price that should be acceptable to everybody.
Q: What is your general feeling about the commodities market? You are sitting in London which is a global centre for commodities trading. There seems to be a commodities glut with China slowing down and India slowing down and then the demand for commodities also slowed worldwide. What do you think?
A: Yes the market has moved down by 25 to 30 per cent and the biggest advantage we have is that we are the lowest cost producers - we produce the lowest-cost copper, we produce the lowest-cost aluminium, we produce the lowest-cost iron ore - we produce oil and gas at the lowest cost. I always say everybody is going to die, but I am going to die last. At the same time beyond the geography of India, if India is going to move forward, there's only one way - if we produce more of our metal to bring more prosperity. The price has come down. It has affected us - but not so much as we are supplying our metal mostly to Indian consumers. Number two, we are the lowest cost producers and going forward it shows that in India without any support of duty or anything we can produce at the lowest cost. But in the long run I think these are the price and demand supply gap is there and in the time to come I think price will be the theme.
Q: You have recently appointed a chief sustainability officer. What was the reason for that move?
A: Very important. I have only three things with me in my company, I say that all the time. For me… any officer we appoint anybody, we empower him… he has full freedom. But I want a guarantee from him. Number one is safety. Safety is very important. Number two is governance and integrity. These two are very important for me and I have appointed a sustainability officer because he has seen the world and would like to bring the best practices from across the world to our company so we can stand up to the world and say look - we are transparent and we care. For us the most important thing is safety.
Q: In Goa for instance, it is a very emotional issue. Mining is becoming a problem in Goa. You run into a nightmare in Goa because of the different problems there in mining and people's attitudes and consequently ecological issues are going to be very important as we go forward.
A: Again what we are doing is only 10 per cent of what Brazil or Australia do. Australia is a green country, Canada is a green country. You know it's a question mark again for our democracy. We allow anybody.... You know we can't remain poor forever, we can't keep on importing forever. We have all the technology to produce these metals in the most environmental friendly manner and I think the way we are doing it in Goa is absolutely (right). The economy depends on this iron ore income.
Q: You started very long ago in Patna. Do you still feel an emotional link to Bihar even now - Bihar is considered one of the states that is trying to improve very rapidly by doing quite a few things correctly in terms of the economy. When you started there many many years back did you ever think where you were going to reach by 2012? What goals did you have at that time, what were your ambitions?
A: You see the mindset has not changed. We still remain the same, simple people. I belong to Bihar. I come from Bihar, I am very proud of my background. It is a beautiful state that is coming up very well - when I was there Jharkhand and Bihar were the same. We always look at Bihar, where we can add value in Bihar in terms of education. We have taken a project there on child care to make sure - how can we can serve the children, give them education and food. I am absolutely from Bihar and am proud to be Bihari. We are very rich in agriculture.
Q: Nitish Kumar is being talked about a future Prime Minister of India. That might help your policies…
A: Whoever comes, India is not going to stop. Nitish Kumar or Manmohan Singh or whoever.... I am in business and I am very bullish that India has a tremendous future and we need more and more businesses and industries to grow. Sometimes our competitors do not want us to grow. I don't know, but I am saying from my heart that it is important to keep the highest technology and the highest environmental policy to move forward.
Q: You mentioned the word democracy a few times and being based in London it might seem that India is now paralysed in terms of policy making and our economy is slowing down very rapidly.
A: But you know I have a feeling that the way the voters are emerging they will choose the right people and they will take the country forward.
Q: What about your family members, your daughter has recently joined the board of Cairn India:
A: It is an institution that is being created. Vedanta is not going to remain a family business. I do not think my children are going to run this company. It is an amazing company. The seed has been sown,. Very powerful, oil and gas company, metals, all that natural material can be found in india, three million tonnes of integrated metals, iron ore we are producing… this is an institution. We make sure we get the best CEO, who has the vision, who has the technical aptitude.
Q: Where do you see the Vedanta Group in 2020?
A: It should emerge as the one of the (big) companies in Africa, in India…
Q: What is your stretch target for your team by 2020?
A: I am definitely not looking at things like that. Our business is a little different. When you hand over something to a geologist, it is like doing so to an artist. He goes and finds oil and he finds more and more oil. But we do not do it for greed. When you are doing something.... It is amazing when you find oil, the fulfilment is phenomenal. You know when you find that you are producing three million tonnes of aluminium and you are going to create 500 companies down the line which will have five per cent of the Indian population working in these factories. I am sure the numbers are important - but numbers are by-products for this company. If we successfully discover more oil, it is a win-win for everybody. If we discover the gas well why should we set a stretch target and make a mistake. It is better to leave it and have competent people. This is how I look at it.
Q: I understand what you are saying. The excitement and passion of discovery. Especially in an area like Rajasthan where there was no oil and then it is suddenly producing so much oil. It is a fantastic story...
A: The fantastic part is that, when we took over the company we were producing 125,000 barrels, with a plan to produce 175,000 barrel by 2014. The same people, we give them a hug, we give them a passion and say you can do more and in no time in three months they started producing 175,000 barrels - reducing our import bill. When we can produce at $3 and we buy at $110 - and our hard earned money is being sent out - it is not acceptable. So let us put more effort, shouldn't we?
Q: Why did you decide to call this company Vedanta?
A: My mother's name is Ved. So one, it was out of respect. Actually, this was (incorporated as) an English company and I thought I would have an English name. Vedanta is not an just an Indian name. It is ultimate knowledge and at that point of time I met somebody at a conference, a Mr Parthasarathi, who gave me his book and that was on Vedanta. At that point it was coincidental and I put that name. And this name has given me so much. I have gone to so many places. I live in London, I have gone to America, I have gone to Tokyo. People say that I take this name and we feel good and peaceful. They may be pleasing me but I hope this is right.