Could be more resourceful

tauringhuang.

Aug 14th 2008 | DELHI
From The Economist print edition

A young multinational mining giant gets a taste of multinational criticism

ActionAid Photo LibraryONCE a princely game reserve, the Niyamgiri hills (pictured) in Orissa, one of India’s poorest states, are now known for a richer quarry: bauxite, from which aluminium is made. On August 8th, after a 22-month delay, India’s Supreme Court gave the Indian arm of Vedanta Resources, a metals and minerals giant, permission to mine the ore, which will feed the firm’s alumina refinery nearby. The decision was condemned by international campaigning groups which say the project will rob tribal people of their way of life. As Vedanta has found, these groups can mine a controversy with the same determination as the firm can mine a hilltop.

Vedanta has its roots in India, where its founder was born and raised and where most of its operations remain. But it has turned itself into a global company, listed on the London Stock Exchange, with a spot in the FTSE 100 index. Its new reach allows it to tap investors in one part of the world and mineral deposits in another. But it also exposes it to critics from Orissa to Oslo.

Even as the company prevails in the trench warfare of India’s courts, it is faring less well in the asymmetric battle for public approval. Its Niyamgiri venture has attracted intrepid journalists and passionate photographers, such as Jason Taylor and Sanjit Das, who mounted an exhibition of tribal portraits in Delhi in July. Critics have also travelled in the other direction: angry villagers from Orissa were flown to Vedanta’s annual general meeting (AGM) in London on July 31st.

Vedanta’s response has been muted. It answers queries about the project, but it has not met every accusation with a rebuttal or riposte. This is perhaps because companies from the developing world find it harder to take foreign critics seriously. Why should they listen to outsiders, who live thousands of miles from the places they talk about? C.V. Krishnan of Vedanta says the firm would rather concentrate on winning the support of people near the site.

The company has also preferred to leave the matter to the courts, promising to abide by their decisions. But the courts are not deaf to the campaign. Last year, for example, Norway’s sovereign-wealth fund sold its Vedanta shares (worth $13m at the end of 2006), after its ethics council raised qualms about the company. Those misgivings were then cited by India’s Supreme Court when it refused to approve Vedanta’s venture in November.

In the past Western resource giants mounted similarly “legalistic” responses to controversies, says Daniel Litvin, a former correspondent for The Economist who now runs Critical Resource, a consultancy which advises energy and mining firms on their social and environmental policies. But they now aim to appease their critics, instead of ignoring or attacking them. Firms try to pre-empt critics’ concerns, by talking to them as early as possible, long before the first tree is felled or the first villager displaced. And they go out of their way to demonstrate their sensitivity to the social and environmental upheaval big mines inevitably bring. Such an approach can forestall the fiercest criticisms, Mr Litvin argues. For example, Rio Tinto’s ilmenite mine in Madagascar has proven less controversial than expected.

In India the Supreme Court eventually cleared Vedanta’s project on the condition that it join a special-purpose vehicle with the state government and the state-owned Orissa Mining Corporation. This joint venture will spend 100m rupees ($2.4m) a year, or 5% of its operating profits (whichever is greater), on fighting poverty in the area, and further sums on protecting wildlife and tribal people. Mr Krishnan calls this a “beautiful idea”. Perhaps the company should have thought of it first.

It should be some consolation to campaigners that nothing Vedanta now does in Orissa will escape notice. Of greater concern are the smaller, more obscure firms which have no reputation to protect. The developing world’s global giants now endure global scrutiny. But not every polluter has upstanding Norwegians investing in it, or holds its AGM in London.