MEMORANDUM OF UNDERSTANDING

BETWEEN

NATIONAL ALUMINIUM COMPANY LIMITED

NALCO BHAWAN, P-1, NAYAPALLI
BHUBANESWAR-13

AND

MINISTRY OF MINES
GOVT. OF INDIA
SHASTRI BHAWAN, NEW DELHI

FOR THE YEAR 2007-2008

Ministry MOU 07-08

 CONTENT

PAGE NO.

INDEX 1

PART-I 2

PART-II 3

PART-III 4

PART-IV 8

PART-V 9

ANNEXURE - I 10

Ministry MOU 07-08

1.0 INDEX

1.1 This MOU consists of the following five parts:

Part – I MISSION & OBJECTIVES OF THE COMPANY.

Part-II EXERCISE OF ENHANCED AUTONOMY & DELEGATION OF

FINANCIAL POWERS.

Part – III PERFORMANCE EVALUATION PARAMETERS & TARGETS.

Part-IV COMMITMENTS/ASSISTANCE FROM GOVERNMENT.

Part-V ACTION PLAN FOR IMPLEMENTATION & MONITORING OF

MOU.

Frequency of Monitoring and Information flow etc.

Ministry MOU 07-08

1
 PART - I
2.1 MISSION OF NALCO

TO ACHIEVE GROWTH IN BUSINESS WITH A GLOBAL COMPETITIVE EDGE

PROVIDING SATISFACTION TO THE CUSTOMERS, EMPLOYEES, SHARE HOLDERS
AND COMMUNITY AT LARGE.

2.2 OBJECTIVES OF NALCO

1. To maximise capacity utilisation, optimise operational efficiency and

productivity.

2. To maintain the highest international standards of excellence in product

quality, cost efficiency, customer service and provide steady growth in
business by technology up-gradation, expansion and diversification.

3. To have global presence and earn foreign exchange through export turnover
of 50% of total sales and to have around 1/3rd domestic market share.

4. To continue to remain the lowest cost producer of Alumina in the world and to
strive to become low cost aluminium producing Global Company in five years
time.

5. To become the 6th largest Company in the world in Alumina production.

6. To complete 2nd phase Expansion within 50 months from the Zero Date.

7. To promote a result-oriented organisational ethos and work culture that

empowers employees and helps realisation of individual and organisational
goals and maximise internal customer satisfaction.

8. To foster high standards of health, safety and environment-friendly products

and to develop a strong R&D base and increase business development
activities.

9. To strive for production of value added down stream products.

10. To participate in peripheral development of the area.

Ministry MOU 07-08 2

 PART - II
3.1 EXERCISE OF ENHANCED AUTONOMY & DELEGATION OF FINANCIAL
POWERS.

A. Independence in deciding on business/ training visits abroad for Directors.

Ministry MOU 07-08 3

 PART – III
Performance evaluation criteria along with related weightages are given in table:
PART – A :
Grade value in five points Budg Budget
et for for
Items
Unit Wtg. Very 2007- 2006-
Excel. Good Fair Poor 2008 2007
Good
(BE) (BE)
I. STATIC FINANCIAL PARAMETERS (WEIGHTAGE – 50)
a. FINANCIAL PERFORMANCE INDICATORS
i) Gross Margin /
% 2 32.48 32.13 30.44 28.76 27.05 23.21 21.07
Gross Block
ii) Net Profit/ Net
% 10 19.61 19.41 18.49 17.54 16.56 14.27 16.49
worth
iii) Gross Profit/
% 10 37.02 36.68 34.94 33.27 31.51 27.45 25.71
Capital Employed
b. FINANCIAL INDICATORS – SIZE :
i) Gross Margin Rs. Crs 08 2951.53 2919.17 2765.81 2613.16 2457.57 2109.13 1919.70
ii) Gross Sales Rs. Crs 04 5721.75 5687.74 5446.38 5217.67 4983.17 4798.46 4612.40
c. FINANCIAL RETURNS – LABOUR PRODUCTIVITY & TOTAL FACTOR PRODUCTIVITY
i) PBDIT/ Total Rs.
07 38.84 38.41 36.39 34.38 32.34 27.75 26.85
Employment ** lakhs
ii) Added value/
% 09 39.01 38.71 37.76 36.68 35.49 30.12 28.03
Gross sales

II. DYNAMIC PARAMETERS (WEIGHTAGE – 28)

i) Quality (2)
a. Implementation of SA 8000 International standards for Corporate Social Responsibility
Assesment/Trg./
Release of Date 1 Dec’07 Jan’08 Feb’08 Mar’08
documents
Internalisation of Quality
b. Quality (Purity) of
% 1 99.72 99.71 99.60 99.50 99.40 - -
Aluminium
ii) Customer Satisfaction (1)
(Customer Orientation-Strategic Business Unit wise/ product wise)
Customer
satisfaction index % 1 90 85 80 75 70 - -
of target 0.6
** No. of Employees (projected): 7600

Ministry MOU 07-08 4

 Grade value in five points 2007- 2006
Items
Unit Wtg 08 -07
Very (BE) (BE)
Excel. Good Fair Poor
Good
iii) CORPORATE PLAN (2)
Preparation of Corporate Plan
Appointment of
Date 2 Dec’07 Jan’08 Feb’08 Mar’08 -- - -
Consultant
iv) R&D for sustained & continuous innovation (4)
R&D investment as
percentage of sales % 4 0.085 0.08 0.075 0.070 0.065
Turn over
v) Project Implementation-Modernisation & Expansion ( 07 )
MINES & REFINERY COMPLEX
Distribution Transformer- 12th 27th 12th 27th 12th
a. Date 0.5 Apr’07 Apr’07 May’07 May’07 June’07
placement of order
Instrumentation work - Date 9
th
24
th 9th 24th 9th
b. award of contract 0.5 Nov’07 Nov’07 Dec’07 Dec’07 Jan’08
th rd th rd th
Air compressor – receive Date 18 3 Dec 18 Dec 3 Jan 18 Jan
c. 0.5 Nov’07 07 07 08 08
at site
Date 4th 19th
Vibrating Screen- – 19th Jan 4th Feb 19th Feb
d. 0.5 08 08 08
March March
receive at site 08 08
Inter stage Cooler- – Date 20th Feb 5th March 20th
e. 0.5 08 08 March 08
- -
receive at site
Security Filter - receive at 16th 31st
f. Date 0.5 Mar. 08 March 08
- - -
site
SMELTER & POWER COMPLEX

HT Cable – Order Date 19th Apr 04th 19th 4th 19th

a. 1.0 07 may’07 May’07 Jun’07 Jun’07
placement
Construction of Alumina Date 23rd 9th 23rd 9th 23rd
b. Silos 0.5 Sep’07 Oct’07 Oct’07 Nov’07 Nov’07
Pot Room Building- Date 06th 21st
c. completion of construction 0.5 Mar’08 Mar’08
- - -

220KV Conversion Date 16th 31st

d. S/Station-Supply(part) at 1.0 Mar’08 Mar’08
- - -
Site (Smelter)
Shell Construction of RCC Date 12
th
27
th
12
th
27
th
12
th
e Chimney-CPP 0.5 Aug’07 Aug’07 Sep’07 Sep’07 Oct’07
220KV Switchyard Erection Date 15th 30th 15th 30th 15th
f – CPP (Part) 0.5 Nov’07 Nov’07 Dec’07 Dec’07 Jan’08

vi) Capital Expenditure/ Greenfield investment/joint Ventures (12)

Capital Expenditure on
Projects
90
a. % 1 95 85 80 75
(Mar’08)
(BE Rs. 1401 Crores.
b UTKAL – E COAL BLOCK (2)
Approval of DPR by
i) Board Date 1 Apr’07 May’ 07 June’07 Jul’ 07

Ministry MOU 07-08 5

 Unit Wtg Grade value in five points

2007-
Items Very 08 2006-07
Excel. Good Fair Poor (BE) (BE)
Good

Holding of public Dat

ii) 1 May’ 07 June’07 Jul’ 07 Aug’07 Sep’07
hearing e
c. Backward Integration: DFR study for setting up of a Caustic Soda Plant (1)
Submission of final
Dat
i) DPR by the 1 May’ 07 June’07 Jul’ 07 Aug’07 Sep’07
Consultant e
d. Joint Venture for Green Field Smelter (Indonesia/3rd Country/India) (2)
Submission of Pre-
i) Feasibility Report
Date 2 Aug’07 Sep’07 Oct’07 Nov’07 Dec’07 - -

New Mining Lease (4)

e.
Preparatory work for a new mining lease in Orissa
Preparation of Pre-
i) Feasibility Report. Date 4 Jan’08 Feb.’08 Mar.’08 -- -- - -

f. Auto sector (2)

Market survey /
i) preparation of Date 2 Feb.’08 Mar.’08 -- -- --
Feasibility Report

PART – B :
I. SECTOR SPECIFIC PARAMETERS (WEIGHTAGE – 10)
Capacity Utilisation
a. of Smelter
% 4 102 101 99 98 97 100 -
Capacity Utilisation
b. of Alumina Refinery
% 3 101 100 98 97 96 100 -
Metal Export %
c. realisation as %age 3 101 100 99 98 97 - -
of LME.
II. ENTERPRISE SPECIFIC & EFFICIENCY PARAMETERS (WEIGHTAGE – 12)
i) DC power
consumption
KWH
(excluding start up 2 13860 13870 13880 14000 14010 - -
/ MT
power & wedge
drop)
ii) CP Coke KG/
2 381 385 395 405 415 - -
consumption MT
iii) C.T. Pitch KG/
2 100 102 106 111 116 - -
consumption MT
iv) Aluminium Fluoride KG/
1 22 23 24 25 26 - -
consumption MT
v) Caustic Soda KG/
1 76 79 82 85 88
Consumption MT

Ministry MOU 07-08 6

 Grade value in five points Budget Budget
for for
Items
Unit Wtg. Very 2007- 2006-
Excel. Good Fair Poor 2008 2007
Good
(BE) (BE)
vi) Mines:
Output/Man- MT 1 41 40 39 38 37 - -
shift(OMS)
vii) Refinery:
Alumina
% 1 96.0 95.5 95.0 94.5 94.0 - -
Extraction
efficiency
viii) Smelter: MT/Pot
/Day 1 1.33 1.32 1.315 1.31 1.305 - -
Pot productivity
ix) CPP:
% 1 78 76 73 72 71 - -
PLF

FOOT-NOTES :

Financial efficiency related criteria are worked out considering the following.

Sale prices:- (Per MT)

Alumina Export (FOB) : US $ 240.00
Cast Metal : US $ 2622.00
Aluminium Domestic (Ex works) : Rs.122,000.00
Zeolite : Rs.17,200.00
Rolled Product : US $ 2722.00
Cost of Production including input material cost at current price level.
Exchange rate of US $ =Rs.44.50
For change in average sale price by (+) 5%, the financial indicator may change
accordingly.

Gross Profit Rs 2632.47 Crores

Net Profit Rs.1737.39 Crores
Net Worth Rs 8949.23 Crores
Capital Employed ** Rs 7176.26 Crores
Gross Block : Rs 9086.22 Crores
Added value: Rs. 2201.54 Crores

** Capital employed has been considered based on RE 06-07, which may undergo
change as per actual performance.

Ministry MOU 07-08 7

 PART - IV

COMMITMENTS / ASSISTANCE FROM GOVERNMENT:

The Ministry of Mines Agrees to Assist in :

a) Govt. to accord Navaratna Status to NALCO.

b) Appointment of independent directors to comply with the requirement of Clause 49
of Listing Agreement with stock exchanges.
c) Issues pertaining to conditions of Govt. of Orissa for allotment of Pottangi bauxite
deposit.
d) Enhancement of coal linkage to 5.5 million metric ton through Long Term Linkage
Committee.

Orissa State Govt. Issues :

e) Withdrawal of electricity duty on auxiliary consumption.

f) Withdrawal of enhancement of electricity duty from 12 paisa per unit to 20 paisa
per unit.
g) Withdrawal of entry tax.
h) Allotment of Bauxite Mines at Kodingamali and Gandhamardan in favour of
NALCO.
i) Issues pertaining to stock transfer to NALCO’s stockyards situated outside the
State.

Ministry MOU 07-08 8

 PART - V

6.0 ACTION PLAN FOR IMPLEMENTATION & MONITORING OF MOU.

Ministry of Mines will conduct reviews every quarter and the CMD of Company with
Functional Director every month.

CHAIRMAN-CUM-MANAGING DIRECTOR SECRETARY

NATIONAL ALUMINIUM COMPANY LIMITED
NALCO BHAVAN, BHUBANESWAR MINISTRY OF MINES,
GOVT. OF INDIA,
SHASTRI BHAWAN, NEW DELHI.

Date : /03 /2007

Place : New Delhi.

Ministry MOU 07-08 9

 Annexure-I

PERFORMANCE FOR LAST FIVE YEARS

06-07
Items Units 01-02 02-03 03-04 04-05 05-06
RE
I. STATIC FINANCIAL PARAMETERS
a. FINANCIAL PERFORMANCE INDICATORS
i) Gross Margin /
% 15.21 16.32 19.8 27.20 24.98 40.30
Gross Block
ii) Net Profit/ Net
% 12.69 15.74 19.63 26.29 22.01 29.04
worth
iii) Gross Profit/
Capital % 19.40 23.12 28.69 37.54 31.07 45.03
Employed
b. FINANCIAL INDICATORS – SIZE :
i) Gross Margin Rs. Crs 955.58 1217.24 1602.44 2389.59 2811.24 3631.62
ii) Gross Sales Rs. Crs 2385.42 2739.67 3348.57 4420.14 5324.16 6224.59
c. FINANCIAL RETURNS – LABOUR PRODUCTIVITY & TOTAL FACTOR PRODUCTIVITY
i) PBDIT/ Total Rs.
Employment 14.37 18.29 23.91 33.73 31.57 48.42
Lakhs
ii) Added value/
% 15.07 20.07 26.27 32.97 34.55 46.47
Gross sales
II. DYNAMIC PARAMETERS (WEIGHTAGE – 30)

i) Quality
ISO Certification No. of
(ISO – 9001) 4 4 4 4 4 4
units
Quality:
% 99.71 99.71 99.72 99.75 99.75 99.75
Aluminium Purity
ii) Customer Satisfaction
Customer
Satisfaction - 91 91
Index (CSI)
iii) HRD
Training Man-
Days 2.53 1.68 2.46 2.23 2.68 2.6
Days / Employee
iv) R&D
R&D investment
as percentage of % 0.07 0.11 0.08 0.06 0.08 -
sales Turn over
v) Project
Implementation

10
 06-07
Items Unit 01-02 02-03 03-04 04-05 05-06
(Prov)
vi) Extent of Globalisation
a) Inventory of stores &
spares as % of Annual % 226.0 179.0 152.0 145.37 117.3 -
consumption
b) Imported spares vs. total
% 37.75 36.0 38.13 27.17 29.36 -
spares consumption
PART
SECTOR SPECIFIC PARAMETERS
–B:
i) Capacity Utilisation of
% 100.73 102.65 103.7 104.79 104.04 101
Smelter
ii) Capacity Utilisation of
% 105.55 95.02 98.8 100.03 101.00 93
Alumina Refinery
iii) Metal Export realisation
% 100.23 102.2 100.92 103.53 102.89 101
as %age of LME.
II. ENTERPRISE SPECIFIC & EFFICIENCY PARAMETERS
i) DC power consumption KWH/
14129 13876 13833 13799.4 13678 13665
in Smelter MT
ii) CP Coke consumption KG/MT 391 393 385 384 381 382
iii) C.T. Pitch consumption KG/MT 107.6 104 102 100 99 98
iv) Aluminium Fluoride
KG/MT 27.23 25.42 23.51 21.25 23.33 25
consumption
v) Caustic Soda
KG/MT 69.97 74.21 76.56 73.93 74.98 84.00
Consumption
vi) Mines : (OMS)
MT 33.39 46.7 46.9 42.42 42.25 38
Output/Man-shift
vii) Refinery:
Alumina Extraction % 94.86 90.54 91.72 96.36 96.70 96.7
efficiency.
viii) Smelter:
MT/PD 1.345 1.367 1.37 1.37 1.38 1.38
Pot productivity
ix) CPP: PLF
% 70.06 75.15 76.47 74.76 75.67 78

11