CORPORATE CITIZENSHIP REPORT ON STERLITE INDUSTRIES INDIA LIMITED

BHARANI SHANKAR ANGAMUTHUBHUPESH VERMABHASKAR DAS

Page 1

Smelter, Refinery and Copper Rod Plant at TuticorinRefinery and two copper rod plant at SilvassaMt Lyell copper mine in Tasmania

Copper

Mines in Rajasthan (Hindustan Zinc Ltd)Zinc smelters in Chanderiya and Debari in RajasthanZinc Ingot & Casting planst at Haridwar

Zinc & Lead

2400 MW power project in Jharsugudha (UC)1980 MW thermal power plant at Talwandi Sabo (UC) Captive Power Plants

Bauxite Mines, Captive Power Plants, Smelting and refining facilities at Korba (BALCO)Alumina refinery at Lanjigarh owned by Vedanta Aluminium. Aluminium smelter and Captive Power Plants in Jharsuguda by Vedanta Aluminium.

Aluminium

OVERVIEWSterlite Industries India Limited (SIIL), established in 1986, is the principal subsidiary of Vedanta Resources plc, a diversified and integrated metals and mining company, with principal operations located in India and Australia. Sterlite’s principal operating companies comprise of Hindustan Zinc Limited (HZL) for its fully integrated zinc and lead operations; Sterlite Industries India Limited (Sterlite) and Copper Mines of Tasmania Pty Limited (CMT) for its copper operations in India/Australia; and Bharat Aluminium Company (BALCO), for its aluminium and alumina operations and Sterlite Energy for its commercial power generation business. Sterlite is India's largest non-ferrous metals and mining company and is one of the fastest growing private sector companies. Sterlite is listed on BSE, NSE and NYSE. It was the first Indian Metals & Mining Company to list on the New York Stock Exchange.i

The consolidated turnover for 2009-10 was Rs 24410 crores, with a net profit of 5409 crores. The four verticals of Sterlite industries is as follows -

The group’s Executive Chairman, Anil Agarwal, is the group original promoter and founder having built the group from its inception in 1976 and holds over 34.76 % stake in SIIL, via Twin Star Holding Ltd.

CORPORATE CITIZENSHIP Though the primary responsibility of an organization is delivering maximum profits to the shareholders, they have now understood the importance of contributing to society based on their business activities, social investments. This change has been brought about by the unrelenting focus over the past few decades on the environment, health and safety of the community and there is pressure on companies to assess and report their social and economic impact. As a result, investors, customers and employees want to be involved with companies who value these factors. Companies that believe in the philosophy of good corporate citizenship should cover the following principles –

Good Corporate Governance Environmental considerations impact decision making. Social and Economic considerations which contribute to sustainable development

Page 2

Fair work place relations

"Corporate social responsibility is a hard-edged business decision. Not because it is a nice thing to do or because people are forcing us to do it... because it is good for our business" - Niall Fitzerald, Former CEO, Unileverii

The reward companies are reaping for sustained investments in ethical business practices, philanthropy, natural resource conservation, proactive environmental policy is in form having reputation as a good corporate citizen. This translates to increased market share, better customer retention, improved employee morale, increased ability to attract top employees and enhanced company image.iii

PURPOSE OF THE STUDYGiven that corporate citizenship takes into account the impact of the company on the society and environment in which it operates, in addition to the economic impact, this study examines the corporate citizenship practices of Sterlite Industries. The report focuses on Sterlite’s performance on categories like Corporate Governance, Environment, Community Engagement and Employee Relations.

CORPORATE GOVERNANCESterlite’s Corporate Governance report states that the company perceives good corporate practices as a key to sustainable corporate growth and long term shareholder value creation. Also all actions and strategic plans are directed towards delivering value to all the stakeholders, as well as conform to the highest standards of corporate behaviour.iv

However the history of the company indicates otherwise. Sterlite and its parent, Vedanta, are involved in numerous controversies involving labor disputes, share price manipulation, unlicensed factories and production, and the takeover of public sector undertakings at throw-away prices. The company’s reputation also took a beating for environmental violations in its various plants and the human rights violation during land acquisition for new projects. There was wide spread unrest in most of the company’s greenfield ventures and takeovers, due to improper rehabilitation and negative impact on the local tribal population.

In 1998 Sterlite along with two other Indian companies was banned by SEBI from accessing the market for two years, in response to an investigation for insider trading.

Sterlite’s takeover of the state owned Bharat Aluminium Company (BALCO) in 2001 sparked the next controversy, as the sale was made for a paltry 551 crores for a 51% stake. There were accusations of kickbacks against the company, as BALCO was a profit making PSU with substantial cash reserves and a captive power plantv.

Sterlite was involved in evading massive tax liabilities in 2003, when three investment companies, wholly owned by Twin Star, which held shares in Sterlite and Malco, expressed intent to liquidate and transfer the assets to their parent, Twin Star. The company was indicted by the Bombay High Court, that the transfer was done in bad faith to evade taxes and ordered authorities to recover the taxes.

In 2006, Sterlite was one companies included in a list of major excise duty evadersvi. A judgment passed by the Delhi High Court, indicted the directors of Sterlite /Vedanta which was the

result of a case following an investigation of Sterlite's earlier foreign transactions. The Enforcement Directorate (ED) concluded that the promoters (Agrawal family) illegally acquired and transferred foreign currency amounting to 208 crore rupees without permission from the Reserve Bank of Indiavii.

Page 3

Many international shareholders (the Church of England, Pension fund of Norway, Martin Currie investments, BP’s pension fund and various trustsviii) in the parent company Vedanta, disinvested from the company citing ethical grounds and human rights violation.

“I understand the Indian psychology. That's my biggest advantage. In India you must have patience; everything will come through” – Anil Agrawal

ENVIRONMENTAL ISSUESThe company states that it is reaffirming its commitment of zero environmental impact through practical solutions. The main concern and the challenges for the company are gaseous emissions (GHG), solid waste, consumption of energy and water. Sterlite Industries (India) Limited has won a few awards like The Greentech Gold Award (2005 & 2006) and Golden Peacock Award (2008) for the Environment Management. In 2009 company carried out Carbon inventorisation study for the plant in Tuticorin and Silvassa plant. In another initiative it has established a core CDM (Clean Development Mechanism) cell at plant, with 17 employees from different departments to facilitate identification of potential projects and to facilitate and incentivize more employee involvement in identifying various energy efficiency/potential CDM projects. Three projects under this scheme - power generation from waste gas, LPG reduction in anode casting plant and steam generation from waste heat recovery from sulphuric acid plant were implemented.The company has invested in Reverse Osmosis (RO) plant, rain water harvesting and zero effluent units to minimizing the consumption from fresh water resources. For waste management the company has a fully developed secured landfill facility approved by the statutory body for safe storage of hazardous solid wastes. One initiative in the field of waste management is to use the copper slag for road construction after the assent of National Highway Authority of India Ltd. The company has also taken some steps to reduce the gaseous pollutantsix. The ground reality is altogether different. Sterlite has been charged with serious environmental disregards and handling of hazardous waste. The hazardous waste management and illegal emission contaminated the soil, air and ground water and adverse health effects in local population. The company has been involved in various controversies.

Sterlite’s mining plans in 2008 in Niyamgiri, Orissa raised some serious questions on the integrity of the company and its policy. Experts from the Wildlife Institute of India have also concluded that this mining operation will cause ‘irreversible’ changes to the local environment. The mining process would also affect the thick forest and its habitat which can also cause drying up the water resourcesx.

The company operated the Tuticorin copper smelter plant at higher than permitted capacity and setup unapproved plants within the complex, thereby endangering the health, safety and environmental conditions of the factory and the immediate community.

Another group concern Konkola Copper Mines, Zambia is accused of severe charges for pollution and environmental changes. In November 2006 spill from the plant caused the contamination of the single water source for 50,000 people and left them with no alternative sourcexi.

As per recommendation of Tamil Nadu pollution control board the Tuticorin unit of SIIL should be established at least 25 km away from the National Park (Gulf of Mannar) but the company did not comply. The company did not pay any heed to the recommendation regarding development of a 25 meter green belt around the plant which acts as a buffer. Also the company did not conduct any environment impact survey as prescribed by law. The assessment made by the National Environmental

Page 4

Engineering Research Institute (NEERI) declared the facility as “totally inadequate in addressing the issue” in its 1998 report for violating fifteen environmental requirements. As a result, the plant has been closed down on 23rd Nov 2008 after court intervention but started after one month on experimental basis which also shows the nexus of the company officials with the government system. A July 2005 finding of the committee says that the Tuticorin unit is completely in violation of hazardous waste rules.

The charges against MALCO were on the disposal of red mud, which is a residual product of bauxite refining. This unit has caused considerable environmental impact and health burden on the local populationxii.

“The allegations leveled at the company regarding environmental damage and complicity in human rights violations, including abuse and forced eviction of tribal peoples, are well founded. They indicate a pattern in the company's practices where such violations are accepted and make up an established part of its business activities. Such a pattern of conduct constitutes an unacceptable risk that the company's unethical practices will continue in the future." – The Government Pension Fund (Norway) Council on Ethics xiii

COMMUNITY ENGAGEMENT AND EMPLOYEE RELATIONSSIIL’s sustainability report states that its community initiatives are aligned with the goals of United Nation's Millennium Development Programme and the principles of the Global Compact and are in the following areas:

Sterlite runs evening study centres, adult education centres and offers scholarships to economically disadvantaged students in Tuticorin.

Sterlite organizes pulse polio immunization programmes, blood donation camps and AIDS awareness campaigns. It has setup rural health clinics offering primary healthcare in Tuticorin and Silvassa.

Sterlite has contributed to the coastal livelihood project (aimed at providing alternate employment opportunities to the youth), school renovation, sanitation and drainage network construction projects in Tuticorin.

With regards to workplace safety, SIIL states that it takes a systematic approach to managing safety and preventing incidents - such as spills, fires and accidents. It has developed a multiple-pronged strategy of 5’E’s viz. Engineering, Education, Enforcement, Enthusiasm, and Examples to ensure that there are no accidents.

A closer look at the figures (in terms of the amount spent) reveals a different picture.

Particulars 2006-07 (in Rs cr) 2007-08 (in Rs cr) 2008-09 (in Rs cr)

Community Development Initiatives 0.61 0.83 1.83

A substantial amount (in 2008-09) was used in two major activities: Paediatric Block in the Government hospital built a cost of Rs. 39.26 lakhs 'Save A Child Heart' Programme for treating poor children ailing with heart diseases - Rs. 37.5 lakhs.

The total amount of Rs 1.83 crores is miniscule (less than 0.05% of its net profit) in comparison to its peers in mining and metals industry. Also this pales in compaision with the amount contributed by Sterlite to political parties, as donations (http://www.livemint.com/2008/06/27000316/Political-bet-Parties-get-big.html)

Sterlite has been accused of land grabbing for many of its projects.

Page 5

Niyamgiri Hills are the traditional lands of the Dongria Kondh, an indigenous community which is considered endangered. The hills are rich in bauxite and SIIL wanted to mine the bauxite and refine it at the Lanjigarh refinery. Both the company and government failed to assess the impact of the project on local communities who live very close to the mine. The tribal communities were not invited to public hearings on the proposed mine.

During the expansion of the refinery at Lanjigarh 118 families from 7 villages were evicted to make way for the refinery, and 1236 families belonging to 27 villages have lost lands to the project without any adequate support from the company. The company has also abused its power by manipulating facts and communicating the wrong message in media.

Hindustan Zinc Ltd completed a dam on the Joi and Wakal rivers in a scheduled area, where lands cannot be acquired without making provisions for rehabilitating. The company connived with the police and the local politicians to forcibly acquire the land affecting more than 13500 people across 23 villages.

BALCO has been accused of forcibly evicting the tribal communities in the vicinity of the bauxite mines at Manipat and Bodai-Daldali in Chattisgarh. By February 2007, 3 (Kesra, Sapnadar and Bareema) of the 4 villages were taken over by BALCO. Of the 112 individuals who lost their land, only 50 have received compensation (of Rs 12,000 per acre) from the company.

Hindustan Zinc Ltd has not adequately compensated villagers in Rampura Aguncha, Rajasthan for one of its expansion projects. There were several incidences like dust problems, contamination of the ground water and blasting which caused cracks or demolition of few buildings in the villages.

With regards to employee relations, the attitude of the company has not been very good.

Trade unions resorted to a 67-day strike (citing undervaluation of BALCO’s assets) after SIIL bought BALCO in 2001. The court mediated settlement guaranteed no retrenchments, no retaliation against the strikers, and back pay for the two month strike period. The company did not keep up on its commitments and within 2 days it laid-off 2,000 contract workers citing that their contracts had expired. While it paid two months' wages, it claimed that it was an advance and not the back pay.

There have been allegations of hazardous working conditions and that SIIL employs contract labourers who are not adequately trained and are cheap. Four accidents resulting in the death of 14 contract workers have happened since SIIL’s takeover of BALCO.

On 23 September, 2009, a chimney that was under construction at a coal-fired thermal power plant at BALCO's facility in Korba, Chattisgarh, collapsed over 100 workers. At least 22 people were crushed to death.

In 15 incidents between 1996 and 2004, at least 139 people were reportedly injured and 13 died. Only three of the 15 incidents have sparked the legally mandated inquiries. Most of the incidents and fatalities are not even reported, according to workers. Company management denies these allegations.

CONCLUSIONSterlite and its parent company Vedanta, attribute a lot of the controversies to a ‘perception’ problem. Also the company has been attempting to build up on its corporate social responsibility programxiv. However the examples cited above illustrate how a company with economic and political clout can defy the laws of the land with impunity, infringe upon the rights of the indigenous people with illegal mining and maximize profits by blatant environmental violations. Indulging in price rigging and insider trading, trampling upon the rights of the employees, taking over public properties at throwaway prices; Sterlite has absolutely no value for ethics and fair

Page 6

business practices. It is an example of a company where the CSR initiatives are a mask for all the unethical activities.

Page 7

Page 8

ISOURCES

Company Overview - http://sterlite-industries.com/about_us/Company_Overview.aspx

ii http://www.interpraxis.com/quotes.htm

iii BusinessWeek – Corporate Citizenship on the Rise

iv Sterlite Corporate Governance Report 2009-10

v http://www.macroscan.com/cur/feb01/cur220201BALCO_Fiasco_1.htm

vi http://www.domain-b.com/companies/companies_r/reliance_industries/20070209_industries.htm

vii Was Sterlite involved in a money laundering racket? by Paranjoy Guha Thakurta in Current magazine

viii http://news.in.msn.com/business/article.aspx?cp-documentid=3610604

ix http://www.sterlite-industries.com

x http://www.survivalinternational.org/news/3305

xi http://www.crocodyl.org/wiki/sterlite_industries_india_limited

xii Norwegian council of ethics recommendation

xiii http://www.regjeringen.no/Upload/FIN/Statens%20pensjonsfond/RecommendationVedanta.pdf

xiv http://business.in.com/article/boardroom/it-is-trying-to-rebuild-its-image-but-can-vedanta-find-its-soul/12382/1