Sterlite Industries (India) Limited - Sterlite Industries India Ltd.

Market Outlook
Global Aluminum Outlook
According to Brook Hunt, primary aluminum production is expected to decrease by 7.4% between 2007 and 2010. This is due to production
cuts announced by various producers throughout the world which are intended to reduce the supply demand gap created by the global economic
downturn. However, primary aluminum production is expected to decrease by 5.2% from 2009 to 2010.
After six years of strong growth led by China, in 2008 the downturn in the cycle for aluminum production began. In China, growth in the
production of aluminum fell from 34.6% from 2006 to 2007 to 4.7% from 2007 to 2008. By the end of 2008, declining demand for aluminum
from North America, Japan and Europe saw growth in aluminum production stagnate.
At the beginning of 2008, global consumption of aluminum was expected to continue to rise but at a growth rate lower than the 10.4% that
occurred between 2006 and 2007. The decline in consumption is expected to continue in 2009 with global aluminum consumption forecast to
fall 8.3%. Aluminum consumption is expected to increase by 1.8% from 2009 to 2010.
Indian Aluminum Outlook
According to Brook Hunt’s June 2009 report, over the next four to five years, the domestic demand for the aluminum industry is expected to
grow at a compound annual growth rate of 8.5%, primarily driven by expected growth in consumer demand as a result of higher disposable
incomes and investment in infrastructure by the Government of India.
In addition, with the enactment of the Indian Electricity Act, 2003 and the opening up of power markets, the adequacy of transmission
facilities has become a critical point for market efficiency and development. The Government of India’s commitment to “Power for All” by
2012, capacity additions from 9,500 MW to 37,000 MW by 2012 in inter-regional transmission and distribution, and investments of Rs. 2
trillion ($50.0 billion) in transmission and distribution are all expected to translate into a higher consumption of aluminum.
According to Brook Hunt, economic growth in India is less reliant on external demand and as a consequence India is likely to be less
affected by the global downturn than more export-driven economies. Nevertheless, the recession in the world’s mature economies is weighing
on demand for Indian goods and industrial production contracted year on year in December 2008 and in January 2009, at modest declines of
0.6% and 0.5%, respectively. The Government of India has responded to the global downturn with two fiscal stimulus packages and these
should cushion, but not halt, the decline. According to Brook Hunt, industrial production will fall by 1% in 2009 with growth forecast to
resume in 2010. Despite the decline in industrial production, the Indian government’s infrastructure investments will support aluminum
consumption. Following growth of 7% in 2008, India’s primary aluminum consumption is expected to decrease marginally by 1.5% in 2009
before recovering to grow 6.5% in 2010. As the global economy begins to recover, growth is expected to increase to 7.7% in 2011 and 10.9%
in 2012. In the longer term, consumption of aluminum in India is expected to rise from 1.3 million tons in 2008 to 3.4 million tons in 2020,
representing a compound annual growth rate of 8.3%, making India the world’s largest national market, after China and the US. This compares
to world demand for aluminum, which Brook Hunt estimates will grow from 38.0 million tons in 2008 to 57.1 million tons in 2020,
representing a compound annual growth rate of 3.5%.
Commercial Power Generation Business
Industry Overview
The Indian Electricity Act, 2003 was enacted in order to eliminate the multiple legislation governing the electricity generation, transmission
and distribution sectors and to enhance the scope of power sector reforms aimed at addressing systemic deficiencies in the Indian power
industry. The key provisions of the Indian Electricity Act, 2003 allowed for de-licensing of power generation, open access in power
transmission and distribution, unbundling of State Electricity Boards, or SEBs, compulsory metering of all consumers and more stringent
penalties for the theft of electricity. It also included provisions to facilitate captive power plants.
However, the pace of implementation of these reforms varies across states. The Indian Electricity Act, 2003 read with the National Tariff
Policy, or NTP, notified in January 2006 also mandates that all future power purchases by distribution licensees must be based on competitive
bidding to obtain the benefits of reduced capital costs and efficiency of operations through competition.
Installed Capacities
As of March 31, 2009, India’s power system had an installed generation capacity of approximately 147,965 MW. The Central Power Sector
Utilities of India, accounted for approximately 33.1% of total power generation capacity as of March 31, 2009, while the various state entities
and private sector companies accounted for approximately 51.4% and 15.5%, respectively.
MW Central State Private Total Share of Total
(MW)
Thermal 36,259 46,812 10,654 93,725 63.34%
Hydro 8,592 27,056 1,230 36,878 24.92%
Nuclear 4,120 — — 4,120 2.78%
Renewable Energy Source — 2,248 10,995 13,242 8.95%
Total 48,971 76,116 22,879 147,965 100.0%
Source: Central Electricity Authority of India.
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