New Delhi: The Supreme Court on Friday rejected Vedanta Alumina Ltd’s (VAL) bauxite mining project, located in the Niyamgiri hills in eastern Orissa, in its present form, but allowed a group company to proceed with the project provided it undertook environmental and local development costs.

The ruling could set a precedent in approvals for major industrial projects in India facing similar challenges.

VAL, like Sterlite Industries India Ltd (SIIL), is a wholly owned subsidiary of London-based Vedanta Resources Plc., controlled by Indian billionaire Anil Agarwal.

In its judgment, a three-judge bench led by Chief Justice K.G. Balakrishnan, granted SIIL an option to file a fresh application to start mining operations, provided it was willing to underwrite the costs of social and environmental safeguards.


Responding to the order, SIIL said it was considering filing a fresh application.

Under the agreement with Orissa Mining Corp. (OMC), a state public sector undertaking, VAL would have been allowed to mine alumina while the state government would continue to own the mines. Bauxite from the open cast mines in Niyamgiri would have fed VAL’s 1-million-tonne aluminium refinery. The refinery, along with a smelter plant and a 100MW power plant, are estimated to cost Rs4,000 crore.

The three-judge bench observed that “VAL is not a subsidiary" of SIIL “but an associate company". It, therefore, argued that it would not take the risk of handing over an important national asset to VAL, an unlisted firm. The court said that, if in future, SIIL was allowed to continue its mining operations, it would be subject to the setting up of a so-called special purpose vehicle or SPV, comprising SIIL, Orissa government and OMC.

Justice S.H. Kapadia, part of the bench, noted that if SIIL were to back out in the future, the state would have to undertake responsibilty for the project and its impact. Reacting to the judgement, C.V. Krishnan, head of business development at SIIL, said: “The court is saying development is good for Orissa, keeping in mind the principles of sustainable development. We will strictly abide by the judgment."

He added that the financial undertaking, which the court had suggested, was “as per the mining policy of the state government and as per the court’s direction".

Krishnan said the project would create 2,500 jobs out of which 40-50% would be for people belonging to scheduled castes and scheduled tribes in Niyamgiri region.

On 26 October, Mint had reported the Supreme Court’s suggestion that SIIL undertake rehabilitation and commit to pay Rs50 crore as security to the court; agree to pay 5% of the net profit from mining activities or Rs10 crore, whichever was greater, towards tribal development and environmental safeguards; and present a report on potential for jobs.

On Friday, the court reiterated such undertakings would have to be taken up by SIIL and the firm would have to contribute Rs50.5 crore to wil-dlife management and Rs12.5 crore for tribal development.

Referring to newspaper reports, the court noted that the $350-billion Norwegian Pension Fund had shed its stake in Vedanta Resources, citing “environmental and human rights violations" by the firm.

Mint had reported on 8 November that the fund’s decision was prompted by the rejection of the ministry of environment and forests environmental clearance to the project by the Central Empowered Committee report.

“This is definitely a new model to deal with an environment versus development issue. But, we will have to see how it pans out and how the company reacts to the SPV model. This is the first time a percentage of the profits will be paid towards environmental safeguards and tribal development. Though the Samata judgement recommended 20% of profits, that has never been implemented," said an environmental lawyer, who preferred anonymity.

The Samata judgement in 1997—in a case of Samata, a non-profit organization, versus Andhra Pradesh—said a private miner operating in a Schedule V area set aside a fifth of its profits for tribal development. Niyamgiri is a Schedule V area, defined as one dominated by tribals.

Environmental and tribal activists were euphoric. The rider on the judgement, however, sank in later. “If the court considers mining as sustainable development as long as the conditions for payments are met, then we have clearly lost.

This sets a precedent for any company to mine anywhere, not regarding biodiversity or tribals’ concerns," said a lawyer, who did not wish to be identified.

Shares of SIIL rose by 4.64% to Rs871.10 on the Bombay Stock Exchange, whose benchmark Sensex expanded 1.76%. At 8.30pm, on the London Stock Exchange, the shares of Vedanta Resources surged 7.3% to £20.28.