The resources sector is currently in the
midst of a correction, with an extended
period of lower and volatile commodity
prices impacting earnings, balance sheets
and investor perceptions. Our businesses
are also exposed to a variety of risks, which
are inherent to a global natural resources
organisation. It is therefore essential to have
in place necessary systems to manage these
risks, while balancing the relative risk reward
equation demanded by our stakeholders.
Our management systems, organisational
structures, processes, standards, code
of conduct together form the system
of internal control that governs how we
conduct the Group's business and manage
the associated risks. Our risk management
framework is designed to be simple,
consistent and clear for managing and
reporting risks from the Group's businesses
to the Board.
Risk management is embedded in our critical
business activities, functions and processes.
It helps Vedanta meet its objectives through
aligning operating controls with mission and
vision. The effective management of risk is
critical to support the delivery of the Group's
strategic objectives. The framework helps
the organisation meet its objectives through
alignment of operating controls to the
mission and vision of the Group.
We have a multi-layered risk management
framework aimed at effectively mitigating
the various risks, which our businesses are
exposed to in the course of their operations
as well as in their strategic actions. We
identify risk at the individual business
level for existing operations, as well as for
ongoing projects through a consistently
Formal discussion on risk management
happens in business level review meetings
at least once in a quarter. The respective businesses review the risks, change in the
nature and extent of the major risks since
the last assessment, control measures
established for the risk and further action
plans. The control measures stated in the
risk matrix are also periodically reviewed by
the business management teams to verify
Ensuring effective tone at the top is vital for
the risk management process to function
effectively. These meetings are chaired
by business CEOs and attended by CXOs,
senior management and concerned
functional heads. Risk officers have
been formally nominated at all operating
businesses as well as Group level whose
role is to create awareness on risks at senior
management level and to develop and
nurture a risk management culture within the
businesses. Risk mitigation plans form an
integral part of performance management
process. Structured discussion on risk
management also happens at SBU levels on
their respective risk matrix and mitigation
plans. Governance of risk management
framework in the businesses is anchored
with their leadership team.
The Board of Directors has the ultimate
responsibility for management of risks
and for ensuring the effectiveness of
internal control systems. Such a system
is designed to manage rather than
eliminate the risk of failure to achieve
business objectives, and can only provide
reasonable and not absolute assurance
against material misstatement or loss. The
Audit Committee aids the Board in this
process by identification and assessment
of any changes in risk exposure, review of
risk control measures and by approval of
remedial actions, where appropriate.
The Audit Committee is in turn supported
by the Group Level Risk Management
Committee which helps the Audit
Committee in evaluating the design and
operating effectiveness of the risk mitigation
programme and the control systems. Group
Risk Management Committee (GRMC)
comprising of Group CEO, Group CFO,
Director Finance, Director - Management
Assurance and Group Head – HSE meets
every quarter. GRMC discusses key events impacting the risk profile, emerging risks and
progress against the planned actions apart
from other things.
Materiality and tolerance for risk are key
considerations in our decision-making. The
responsibility for identifying and managing
risk lies with all the managers and business
leaders in the Group.
Operations at Jharsuguda
standards, code of
form the system
of internal control
that governs how
we conduct the
and manage the
The Group's approach to risk management,
elaborated in its risk policy and the risk
charter, is aimed at embedding a risk aware
culture in all decision making process.
Accountability for risk management is
clear throughout the Group and is a key
performance area for line managers.
As stated above, every business division in the
Group has developed its own risk matrix of
top 20 risks, which get reviewed at business
management committee/business ExCo
chaired by the CEO. In addition, business
divisions have also developed their own risk
registers depending on the size of operations
and number of SBUs / locations. These risks
get reviewed in SBU level meetings.
The order in which these risks appear in
the section below does not necessarily
reflect the likelihood of their occurrence
or the relative magnitude of their impact
on our business. Risk direction of each
risk was reviewed based on events,
economic conditions, changes in business
environment and regulatory changes. While
our risk management framework is designed to help the organisation meet its objectives,
there can be no guarantee that our risk
management activities will mitigate or
prevent these or other risks from occurring.
In addition to the above structure, other key
risk governance and oversight committees
include the following:
- CFO Committee has an oversight on the
treasury related risks. This committee
comprises of Group CFO, Deputy CFO,
business CFOs, Group Treasury Head
and Treasury Heads at respective
- Group Capex Sub-Committee which
evaluates the risks while reviewing any
capital investment decisions as well as
institutes a risk management framework
in expansion projects
- Vedanta Board Level Sustainability
Committee looks at sustainability related
risks. This Committee is headed by a non-
Executive Director and has Group CEO
and other business leaders as
- The Board with the assistance of
management has carried out a robust
assessment of the principal risks and
uncertainties of the Group (including
those that threaten the business model,
future performance, solvency or liquidity)
and tested the financial plans for the
Group for each of the principal risks and
uncertainties mentioned below.
Access to capital
The Group may not be able to meet
its payment obligations when due
or be unable to borrow funds in the
market at an acceptable price to fund
actual or proposed commitments. A
sustained adverse economic downturn
and/or suspension of its operation in
any business, effecting revenue and
free cash flow generation, may cause
stress on the Company's financing and
covenant compliance and its ability to
raise financing at competitive terms. Any
constraints on upstreaming of funds from
the subsidiaries to the Group may affect
the liquidity position at the Group level.
- The team is working on completing the near-term
refinancing, reducing cost of borrowing, extending
maturity profile and deleveraging the balance sheet.
The Group also has a track record of good relations
with banks and of raising borrowings in last few years.
- Structured ramp-up of facilities will give better margins
and help in loan repayments / interest servicing.
Regular discussions are going on with rating agencies.
- The lending banks at Vedanta have consented to
certain changes requested by the Company to its
covenants under the terms of the relevant debt
facilities effective from March 31, 2016 until the
period ending September 30, 2018.
- The Group also generates healthy cash flows from its
current operations which, together with the available
cash and cash equivalents and liquid financial asset
investments, provide liquidity both in the short term as
well as in the long-term.
Some of our projects have been
completed (pending commissioning) and
may be subject to number of challenges
during operationalisation phase. These
may include challenges around sourcing
raw material materials.
- We are in the process of commencing
operationalisation of these facilities. We have received
approval to convert 3 units at Jharsuguda from IPP to
CPP effective April 2016. Ramp-up of the first line of
1.25 mt Jharsuguda-II smelter commenced from April
2016. The remaining two units of BALCO power plant
have been commissioned recently. Third unit of TSPL
was also synchronised in Q4 FY 2015-16. Pot ramp up
activities commenced at Korba II smelter in April 2016.
- We continue our efforts to secure key raw material
linkages for our alumina / aluminium business. Various
infrastructures related challenges are being addressed.
- A strong management team is in place and continues
to work towards sustainable low cost of production,
operational excellence and securing key raw material
- Further details in this connection are included in the
Aluminium business section.
growth of Iron
While Goa iron ore production resumed
in FY 2015-16, risk around the lifting of
existing mining caps remains.
- We have resumed operations at our major mines. All
mining plans have been approved by Indian Bureau of
Mines and the state government allocations of mining
cap is in line with Supreme Court directive.
- We continue to actively pursue the lifting of mining
caps and additional allocation of production from the
of Cairn beyond
2020 or extension
at less favourable
Cairn India has 70% participating interest
in Rajasthan Block. The production
sharing contract (PSC) of Rajasthan Block
runs till 2020. Challenges in extension
of production sharing contract of Cairn
(beyond 2020) or extension at less
favourable terms may have implications.
- We are in continuous dialogue with the Indian
Government and relevant stakeholders. The
Production-Sharing Contract has certain in-built
options for extension; Cairn has already applied for
an extension and the matter is being pursued with all
The increased production rates from
our growth oriented operations places
demand on exploration and prospecting
initiatives to replace reserves and
resources at a pace faster than depletion.
A failure in our ability to discover new
reserves, enhance existing reserves or
develop new operations in sufficient
quantities to maintain or grow the current
level of our reserves could negatively
affect our prospects. There are numerous
uncertainties inherent in estimating ore
and oil & gas reserves, and geological,
technical and economic assumptions that
are valid at the time of estimation. These
may change significantly when new
information becomes available.
- Our strategic priority is to add to our reserves and
resources by extending resources at a faster rate than
we deplete them, through continuous focus on drilling
and exploration programme.
- In order to achieve this we have developed an
appropriate organisation and allocated adequate
financial resources for exploration. International
technical experts and agencies are working closely
with our exploration team to build on this target.
- We continue to work towards long-term supply
contracts with mines to secure additional reserves for
zinc and lead
from open pit
Our zinc and lead mining operations in
India are transitioning from an open pit
mining operation to an underground
mining operation. Difficulties in managing
this transition may result in challenges in
achieving stated business milestones.
- A strong separate empowered organisation is working
towards ensuring a smooth transition from open
pit to under-ground mining. We are working with
internationally renowned engineering and technology
partners on this project. There is strong focus on safety
aspects in the project.
- Technical audits are being carried out by independent
- Reputed contractors have been engaged to ensure
completion of the project on indicated time lines.
These mines will be developed using best in class
technology and equipment and ensuring the highest
level of productivity and safety.
- We have inducted employees / contractors in our
system having underground mining expertise. We are
also sending our employees to overseas underground
mines for skill development.
- Stage gate process to review risks and remedy at
multiple stages on the way. Robust quality control
procedures have also been implemented to check
safety and quality of services / design / actual physical
- Further, additional output from stage V as well as ramp
up from some of the mines is expected to smoothen
out this transition.
Prices and demand for the Group's
products are expected to remain volatile/
uncertain and strongly influenced by
global economic conditions. Volatility
in commodity prices and demand may
adversely affect our earnings, cash flow
- In order to mitigate the impact of falling commodity
prices, a cost reduction programme is being pursued.
Optimisation of operations to drive efficiencies, and
product mix optimisation is also being pursued.
Structured cost reduction programme delivering
transformational improvements will reset our cost base
to the lowest possible level. We continue to focus on
manpower rationalisation and deriving value out of
procurement synergies across locations.
- The Group has a well-diversified portfolio which
acts as a hedge against fluctuations in commodities
and delivers cash flows through the cycle. Vedanta
considers exposure to commodity price fluctuations to
be an integral part of the Group's business and its usual
policy is to sell its products at prevailing market prices
and not to enter into price hedging arrangements other
than for businesses of custom smelting and purchased
alumina, where back-to-back hedging is used to
mitigate pricing risks. In exceptional circumstances we
may enter into strategic hedging but only with prior
approval of the Executive Committee.
- The Group monitors the commodity markets closely
to determine the effect of price fluctuations on
earnings, capital expenditure and cash flows. The CFO
Committee reviews all commodity-related risks and
suggests necessary courses of action as needed by
business divisions. Our focus is on cost control and
Our assets, earnings and cash flows are
influenced by a variety of currencies due
to the diversity of the countries in which
we operate. Fluctuations in exchange
rates of those currencies may have an
impact on our financials.
Although the majority of the Group's
revenue is tied to commodity prices
that are typically priced by reference
to the US dollar, a significant part of its
expenses are incurred and paid in local
currency. Moreover Group borrowings
are significantly denominated in US
dollars while a large percentage of
cash and liquid investments are held in
other currencies, mainly in the Indian
rupee. Any material fluctuations of these
currencies against the US dollar could
result in lower profitability or in higher
cash outflows towards debt obligations.
- Vedanta does not speculate in forex. We have
developed robust controls in forex management to
hedge currency risk liabilities on a back-to-back basis.
The CFO Committee reviews our forex-related matters
periodically and suggests necessary courses of action
as may be needed by businesses from time to time,
and within the overall framework of our forex policy.
We seek to mitigate the impact of short-term
movements in currency on the businesses by hedging
short-term exposures progressively based on their
maturity. However, large or prolonged movements in
exchange rates may have a material adverse effect on
the Group's businesses, operating results, financial
condition and/or prospects.
At the time of borrowing decisions, appropriate
sensitivity analysis is carried out for domestic
borrowings vis-à-vis overseas borrowings
Notes to financial statements in Annual Report give
details of accounting policy followed in computation
of currency translation impact. We continue to monitor
the currency translation impact and highlight this
separately in financials to give appropriate perspective.
Our businesses are in a tax regime
and change in any tax structure or any
tax related litigations may impact our
- Vedanta has a robust organisation in place at business
and Group level to handle tax-related matters. We
engage, consult and take opinion from reputed tax
consulting firms. Reliance is placed on appropriate
legal opinion and precedence.
- We continue to take appropriate legal opinions and
actions on the tax matters to mitigate the impact of
these actions on the Group and its subsidiaries.
Like many other global organisations,
our reliance on computers and network
technology is increasing. These
systems could be subject to security
breaches resulting in theft, disclosure or
corruption of key/ strategic information.
Security breaches could also result in
misappropriation of funds or disruptions
to our business operations. A cyber
security breach could have an impact on
- Appropriate organisation is in place at respective
businesses for information and IT security.
- At group level, Chief Information Security Officer
(CISO) focuses on formulating necessary frameworks,
policies, procedures and for leading any agreed group
wide initiatives to mitigate risks. Various initiatives have
been taken up to beef up IT / cybersecurity controls.
- We seek to manage cyber security risk through
increased standards, ongoing monitoring of threats
and awareness initiatives throughout the organisation.
An IT system is in place to monitor logical access
controls. We continue to carry out IT security reviews
by experts periodically and improve IT security
Political, legal and
We have operations in many countries
around the globe, which have varying
degrees of political and commercial
stability. The political, legal and regulatory
regimes in the countries we operate in
may result in higher operating costs,
restrictions such as the imposition or
increase in royalties or taxation rates,
export duty, impact on mining rights/
ban and change in legislation pertaining
to repatriation of money. We may
also be affected by the political acts
of governments including resource
nationalisation and legal cases in these
countries over which we have no control.
- The Company and its business divisions monitor
regulatory and political developments on continuous
basis. Our focus has been to communicate
our responsible mining credentials through
representations to government and industry
We continue to demonstrate the Group's commitment
to sustainability by proactive environmental, safety and
CSR practices. We continue to actively engage with
local community / media / NGOs on these matters.
We are SOX and SEC related compliant organisations.
We have an online portal for compliance monitoring.
Appropriate escalation and review mechanisms are
in place. Competent in-house legal organisation
exists at all the businesses and the legal teams
have been strengthened with induction of senior
legal professionals at all businesses. SOP has been
implemented across businesses for compliance
Contract management framework has been
strengthened with issue of boiler plate clauses across
the Group which will form part of all contracts. All
key contract types standardised. Involvement of
legal in decision making process is being reinforced.
A Framework for monitoring against Anti Bribery &
Corruption guidelines is also in place.
The continued success of our existing
operations and future projects are in part
dependent upon broad support and a
healthy relationship with the respective
local communities. Failure to identify and
manage local concerns and expectations
can have a negative impact on relations
with local communities and therefore
affect the organisation's reputation and
social licence to operate and grow.
- Establishing and maintaining close links with stake
holders an essential part of our journey as a sustainable
CSR approach to community programmes is governed
by two key considerations: the needs of the local
people and the development plan in line with the SDGs
and also CSR National Voluntary Guidelines of Ministry
of Corporate Affairs, Government of India as well as
Section 135 of companies act in India. We integrate
CSR objectives with Sustainable Development Goals
Our business leadership teams have periodic
engagements with the local communities to establish
relations based on trust and mutual beneﬁt. Our
businesses seeks to identify and minimise any
potentially negative operational impacts and risks
through responsible behaviour – acting transparently
and ethically, promoting dialogue and complying with
commitments to stakeholders.
Establishing and maintaining close links with
stakeholders an essential part of our journey
as a sustainable business. There are structured
programmes on reducing Water, Energy and Carbon
Our focus is on local consent prior to accessing
resources. Structured community development
programmes continue to operate at various locations.
Board level Corporate Social Responsibility Committee
decides the focus areas of CSR activities, budget
and programmes to be undertaken by businesses.
We help communities identify their priorities through
need assessment programmes and then work closely
with them to design programmes that seek to make
progress towards improvement in quality of life of the
Further details of the Group's CSR activities are
included in the Sustainability section.
The resources sector is subject
to extensive health, safety, and
environmental laws, regulations and
standards. Evolving regulations,
standards and stakeholder expectations
could result in increased cost, litigation
or threaten the viability of operations in
- Health, Safety and Environment (HSE) is a high priority
area for the organisation. Compliance with international
and local regulations and standards, protecting our
people, communities and the environment from harm
and our operations from business interruptions are our
key focus areas.
Vedanta Board level Sustainability Committee chaired
by a Non-Executive Director and includes the CEO
as its member meets periodically to discuss HSE
We have appropriate policies and standards in place
to mitigate and minimise any HSE related occurrences.
Structured monitoring and a review mechanism and
system of positive compliance reporting is in place.
The Company has implemented a set of standards
to align its sustainability framework in line with
international practices. A structured sustainability
assurance programme continues to operate in the
business divisions covering environment, health,
safety, community relations and human rights aspects
and to embed our commitment at the operational level.
HSE experts are also inducted from reputed Indian and
global organisations to bring in best-in-class practices.
The businesses have an appropriate policy in place
for occupational health related matters supported by
structured processes, controls and technology. Our
operations ensure the issue of operational health and
consequential potential risk/obligations are carefully
handled. Depending on the nature of the exposure and
surrounding risk, our operations have different levels
of processes, controls and monitoring mechanisms.
There is a strong focus on safety during project
planning / execution with adequate thrust on contract
- Fatal accidents and injury rates have declined. We are
implementing programmes to eliminate fatalities and
control injuries. Our leadership remains focused on a
Zero-Harm culture across the organisation. Consistent
application of ‘Life-Saving’ performance standards,
introduction of making better risk decisions concept,
quantitative risk assessments for critical risks and the
formal identification of process safety risks with the
focus on the implementation of controls are central to
our improvement program. We continue to improve
on our safety investigations and follow-up processes.
Further details of our HSE related activities are
included in the Sustainability section.
The Company’s efforts to continue its
growth and efficient operations will place
significant demand on its management
resources. Our highly skilled workforce
and experienced management
team is critical to maintaining its
current operations, implementing its
development projects and achieving
longer-term growth. Any significant loss
or diminution in the collective pool of
Vedanta’s executive management or
other key team members could have
a material effect on its businesses,
operating results and future prospects.
- We continue to invest in initiatives to widen our talent
pool. This is a priority area for the Group. Our senior
leadership is actively involved in development of talent
pool. We have a talent management system in place
to identify and develop internal candidates for critical
management positions and processes to identify
suitable external candidates.
Our performance management system is designed
to provide reward and remuneration structures and
personal development opportunities to attract and
retain key employees. A structured programme maps
critical positions and ensures all such positions are
filled with competent resources.
Our progressive HR policies and strong HR leadership
have ensured that career progression, job rotation and
job enrichment are focus areas for our businesses.
We have established the Mining Academy in Rajasthan
to develop an employee pool with enhanced
underground mining skills. We also have a structured
programme to develop a technically proficient
Loss of assets
or profit due to
Our operations may be subject to a
number of circumstances not wholly
within the Group’s control. These include
damage to or breakdown of equipment
or infrastructure, unexpected geological
variations or technical issues, extreme
weather conditions and natural disasters,
any of which could adversely affect
production and/or costs.
- Vedanta has taken appropriate Group insurance cover
to mitigate this risk. We have appointed an external
agency to review the risk portfolio and adequacy of
this cover and to assist us in our insurance portfolio.
Our underwriters are reputed institutions and have
capacity to underwrite our risk. There is an established
mechanism of periodic insurance review in place at all
However, any occurrence not fully covered by
insurance could have an adverse effect on the Group’s
We continue to focus on the capability building within
affected by the
The change in carrying value of assets
depends on various assumptions. The
change in any of those assumptions may
impact the useful life and its carrying
- We maintain a close watch on various business drivers
that could impact impairment assessment. There is
continuous focus, monitoring and periodic review of
We also periodically review the assumptions, carry out
testing and reassess the useful life of these assets with
the help of reputed firms.
Vedanta reviews the carrying value of its assets and
long-term price assumptions in light of the recent
weakness in commodity & oil prices. Any impact of
changes to these assumptions on the carrying values
will be a non-cash charge reflected in the results for
FY 2015-16. This non-cash charge do not affect the
cash generation capability of the business. With the
completion of this review and subsequent decisions
being taken as a fallout of the same, we expect this risk
to be mitigated to a large extent.