National Aluminium Company Ltd

1. INDUSTRY STRUCTURE AND DEVELOPMENTS

Economies of different countries started recovering after unprecedented sharp fall inFY'09. The recovery has been impressive but burdened with some element of uncertainty. Asa result of FY'09 meltdown most of the producers in Aluminium Industry resorted tostrategies in response to the situation faced such as curtailing production, closures,etc. However, some of these producers considering the improved situation have subsequentlyre-started these facilities.

Alumina & Chemicals

During the year 2009, the world consumption of Alumina was 73.859 million MT againstthe world production of 74.309 million MT thus showing a surplus of 0.45 million MT. Theworld Alumina production and consumption declined by approx. 5.9 % and 5.8% respectivelyduring 2009 as compared to 2008.

In 2009, the spot price of alumina averaged around $249 a tonne. Prices showed signs ofrecovery in Q1, 2010 to an average of $340 a tonne, which reflected the improved outlookfor aluminium. The refinery curtailments during the first half of the year 2009 reducedavailability thereby providing necessary impetus for alumina prices to rise from rockbottom level of $180/tonne. The recovery in aluminium prices triggering smelter restartssaw alumina prices recover to above $300/tonne level. Stronger demand mainly from smelterrestarts and an unprecedented level of curtailments in refining capacity helped the marketto return to balance during the course of the year. Delayed restarts and freshcommissioning of refineries helped in the balancing act of fundamentals.

Alumina demand and supply are expected to be balanced in medium term. Increase inbauxite and freight costs, as well as energy cost is likely to support the alumina pricein medium-term.

Aluminium

During the year 2009, the world consumption of primary Aluminium was 34.341 million MTagainst world supply of 37.781 million MT, showing a surplus of 3.440 million MT. Theworld consumption declined drastically by approximately 8.2% while the supply declined by5.9% respectively during 2009 as compared to 2008.

Aluminium price averaged at $ 1664.8/T in 2009 which is 34% lower than the averageprice in 2008, primarily because of weaker demand for aluminium in major consumingcountries. Lower consumption and a relatively weaker response from global aluminiumproduction resulted in stocks build-up which stood at historical highs of 4.63 milliontonnes at LME by the end of 2009. Analysts expect production to remain around currentlevels for most of 2010.

Strength

Your Company's strength lies in its skilled and committed manpower, good qualitybauxite reserves, efficient technology, various well planned and ideally locatedinfrastructure facilities, efficient operations, production of good quality products atcompetitive cost, excellent customer service and commitment to good Corporate Governancepractices in all facets of its operations.

Weakness

Your Company is affected by the wide fluctuations in the LME prices, exchange ratefluctuation, shortage of coal and limited product range.

Opportunities

Revival of world economy has opened many opportunities for your Company to grow. Grantof Mining Leases over Gudem and KR Konda bauxite blocks in Andhra Pradesh and proposedestablishment of Alumina Refineries in Andhra Pradesh and Odisha will ensure yourCompany's leadership position as one of the leading manufacturer of alumina in the world.

Your Company will have over a million MT of surplus alumina on completion of 2nd PhaseExpansion. Your Company can set up Aluminium Smelter Plants in India and abroad whereenergy costs are cheaper.

Having good experience in operation of power plants will stand in good stead to enterinto the business of Independent Power Producer. Your Company is exploring various optionsincluding Nuclear Power option in this direction.

Nuclear Power is termed as the energy source of the future. Your Company's foray intonuclear power generation will be a significant step in realizing the goal of becoming anIndependent Power Producer.

Threats

Being nearer to the Naxal infested areas could be a threat to your Company's operationsat Mines & Refinery. However, your Company has taken adequate security measures incoordination with the State and Central Governments to address the naxal threat.

Although the State Government is very much supportive for the proposed Bauxite Minesand Alumina Refinery project in Andhra Pradesh, security concerns in view of the threatperception from Naxals may be a major impediment in achieving the target as per schedule.

4. SEGMENT-WISE PERFORMANCE

For the year under review, your Company achieved net profit of 7 814 crore on a totalincome of 7 5,548 crore. The detailed segment wise information is furnished below:

*Internal transfers have been eliminated.

# includes cash balance and capital works in progress.

Domestic Market Outlook

The Indian economy showed strong resilience in FY'09 in withstanding the economiccrisis and staged recovery largely on the back of stimulus packages by the Government.India witnessed a recovery as the GDP grew by approx. 7.4% in FY'10 from about 6.7% inFY'09. A sharp turnaround in the end-user segments of aluminium industry such asautomobiles, industrial & infrastructure and thrust on power sector growth propelledthe industry growth.

The current demand-supply situation for aluminium is largely balanced with consumptionin line with existing production plus imports and a relatively small volume of exports.However, the aluminium sector faces a significant concern of medium-term over-capacity dueto projects pursued by the three major players in the country. Capacity expansion throughplanned projects would almost treble production to 4.4 million tonnes by 2013. Consideringthat all aluminium projects would begin commercial production with expanded capacity asenvisaged, there could be at least two million tonnes of additional capacity for exportsby 2013. India's per capita consumption of aluminium is about 1.3 kg as against about 30kg in the developed world for which the industry need to explore new application areas anduntapped demand potential thereby setting up preference for aluminium in the future.

International Outlook Aluminium

Global aluminium consumption is expected to grow annually around 5% during the nextdecade, supported by continued urbanisation, industrialisation and economic developmentparticularly in developing economies.

Industry experts forecast that 2010 would witness considerable growth of the aluminiummarket generated by rising demand from the automotive and packaging sectors. Aluminiumconsumption is likely to grow by 12% in 2010 over 2009 because of such growth and of lowbase effect.

Alumina

For 2010 as a whole, alumina prices are forecast to average $325 a tonne, which isaround 30 per cent higher than the average for 2009. In the short term, prices areexpected to be supported by higher assumed world economic activity and thus, increaseddemand for aluminium.

Over the medium term, spot alumina prices are projected to ease, as productionincreases following the commissioning of new refining capacity.

6. RISKS & CONCERNS

An important factor to keep in mind over the coming quarters would be the potentialunwinding of some of the stock financing deals in LME. Because of these deals thealuminium market could be more sensitive than other commodities and base metals. Thismight be more of a point to watch for in late 2010or even 2011. Evolving views on thetiming of monetary policy changes, central banks' exit strategies and the associatedtightening of interest rates could impel speculative activity and give direction toAluminium prices.

Risk Management

Your Company continues to believe that managing risk is critical for its growth andsustenance. As such, your Company is constantly monitoring and assessing the internal aswell as external risk factors associated with its day to day business operations andfinancial management and thereby effectively mitigating possible risks associatedtherewith .

Your Company's approved Integrated Approach for Enterprise Risk Management is underimplementation in all process units as well as in operational areas.

7. INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY

Your Company has well established internal control systems commensurate with the natureand size of its operations. Internal audit function of your Company has been entrusted tothree reputed and well experienced external Chartered Accountants' firms .The internalaudit reports submitted by the auditors are discussed at functional directors level in thefirst instance and then submitted to the Audit Committee for its review , analysis andadvice to further strengthen the internal control systems covering all material controls,financial controls, compliance controls and risk management systems . Action taken reportson the observations of Audit Committee on internal audit reports are regularly submittedto the Audit Committee.

8. DISCUSSION ON FINANCIAL PERFORMANCE WITH RESPECT TO OPERATIONAL PERFORMANCE

Details on financial performance with respect to operational performance are given inthe Directors' Report.

9. MATERIAL DEVELOPMENTS IN HUMAN RESOURCES/INDUSTRIAL RELATIONS FRONT INCLUDING NUMBEROF PEOPLE EMPLOYED.

Human Resources

Manpower strength of your Company as on 31.03.2010 was 7,467 as against 7,461 at thelast day of the previous year. The detailed break up is given below:

* Including GETs/MTs/SOTs/JOTs Training & Development

Your Company believes that success of any organization is dependant on its experienced,trained and dedicated employees. To keep the employees abreast of the latest developments,constant efforts are made by your Company for functional and developmental training basedon the needs identified for the individual as well as for the organisation. Emphasis isplaced on specific position related training needs. Training effectiveness evaluation isalso carried out to measure the benefits derived from the training imparted. The trainingstatistics for the year 2009-10 is given below:

10. CORPORATE PLAN AND BUSINESS DEVELOPMENT

The new Corporate Plan and Vision 2020 were adopted by the Company in 2009-10. The newVision Statement of the Company is: 'To be a Reputed Global Company in the Metals andEnergy Sectors' New Mission statement adopted by the Company is:

- to achieve sustainable growth in business through diversification, innovation andglobal competitive edge.

- to continuously develop human resources, create safe working conditions, improveproductivity and quality, and reduce cost and waste.

- to satisfy the customers and shareholders, employees, and all other stakeholders.

- to be a good corporate citizen, protecting and enhancing the environment as well asdischarging social responsibility in order to ensure sustainable growth.

- to intensify R&D for Technology development.

The major thrust will be diversification and capacity addition. The major goalsidentified by your Company are:

- to achieve annual turnover of over Rs. 25,000 crore by 2020.

- to achieve annual production of 1.7 million ton Aluminum and 4 million ton Alumina by2020.

- to transform from being only an aluminum producer to become a metalproducer and energy provider.

- to venture into new fields of activity beyond Aluminum by setting up at least twodiversified projects by 2016.

- to target at least one 1000 MW IPP by 2016.

- to maximize value and long term return to share holders through a strategy of newinvestments, cost competitive mines and business driven by the quality of products andservices.

- to develop long-term relations with domestic and foreign clients and Joint Venturepartners.

- to develop a powerful scientific and technical base. Apart from investments in volumegrowth, the Company shall substantially finance R&D and modernization of facilities,laboratories, achieving improvements in the quality of products and satisfying customerdemands.

- to adopt main strategic priorities aimed at end user orientation.

In line with its Corporate Plan and Vision 2020, your Company is actively consideringthe possibilities of setting up of Aluminium Smelter Plants in other countries, wherepower is cheaply available. Your Company has opened a project office in Jakarta toexpedite pre-project activities in Indonesia. Your Company is also planning to set up asecond aluminium smelter plant in India and preparing mining plan for grant of MiningLease over Gudem and KR Konda blocks in Andhra Pradesh for which the Govt. of India hasaccorded consent for grant of Mining Lease.

Your Company has signed MoU with Nuclear Power Corporation of India Ltd. (NPCIL) forestablishment of a nuclear power plant in Joint Venture (JV). Project identification is inhand. Your Company has signed an MoU with Orissa Industrial Infrastructure DevelopmentCorporation (IDCO) to set up an Aluminium Park at Angul in joint venture. The JV Companynamed Angul Aluminium Park Private Limited' has been incorporated.

Your Company is also exploring various opportunities for securing mineral assetsabroad. In this connection, your Company is in discussion with various firms overseas.

11. COMPUTERIZATION ACTIVITIES INCLUDING ENTERPRISE RESOURCE PLANNING (ERP)

Your Company went live on Enterprise Resource Planning (ERP) with SAP R/3 in stagedmanner since February, 2010 and has covered Materials Management with SupplierRelationship Management (SRM), Finance and HR under the program in staged manner. Othermodules shall follow.

Your Company has strengthened its data pipelines both to the Internet and to the WorksLocations with fault tolerant high bandwidth links, to ensure un-interrupted dataconnectivity. This has also enabled tele-presence activities between Corporate Office andWorks locations. Multi Protocol Label Switching (MPLS) Virtual Private Network (VPN) hasbeen set-up with all Marketing Offices to provide secure and adequate bandwidth for allapplications.

E-governance in your Company is now broadened with the SRM module of ERP. Theapplications implemented earlier like e-tendering, on-line Vigilance complaints, on-lineproperty returns and e-helpline continue to be supported.

12. TOTAL QUALITY MANAGEMENT

All the manufacturing units of your Company have upgraded their Quality ManagementSystem to the latest standard i.e. ISO 9001 : 2008. Recertification audits of AluminaRefinery, Port Facilities and Smelter Plant were successfully completed during thefinancial year while other units successfully underwent Surveillance Audits.

Management continued its thrust on encouraging Quality Circles in the organisation.Thirteen Quality Circles from different units of your Company were selected throughChapter level competitions of QCFI for participating in the National Convention of QualityCircles held at Bangalore in December, 2009. Out of these, four Quality Circles qualifiedfor the highest level of award at the National Convention.

For the 14th year in succession your Company organised the All-Orissa Quality CircleConvention in April, 2009. This Convention is a flagship event in the quality movement inthe State.

13. SAFETY & HEALTH

Your Company has always laid due importance on development on the safety and health ofits employees and peripheral communities for their sustained well being. Proactiveengagement with the interested parties and focus on exceeding in performance beyondstatutory requirements has been the hallmark of your Company's intent towards Safety andHealth. In order to systematically manage the Occupational Health and Safety ManagementSystem, your Company has not only successfully retained the ISO 14001:2004 and OSHAS18001:2007 certification but has been continuously improving upon them.

14. ENVIRONMENTAL PROTECTION AND CONSERVATION, TECHNOLOGICAL CONSERVATION, RENEWABLEENERGY DEVELOPMENT, FOREIGN EXCHANGE CONSERVATION

Environmental Protection & Conservation

Environment Management plays a very important role in any organization for smoothrunning, growing and expanding its business from its existing boundaries to globalboundaries and the same is given utmost importance by your organization to all thesefactors to meet the statutory requirements and improve beyond it.

The main highlights in that direction are detailed below:

- All the Units of your Company are operating with valid 'Consent to Operate' under theAir and Water Acts for the existing capacities.

- All the five major Production Units have valid authorization to handle hazardouswastes.

- Hospitals at Damanjodi and Angul have valid authorization for scientificallyprocessing biomedical wastes.

- In line with its objective of ensuring greater transparency in the Unit's operations,the critical environmental parameters are now being displayed prominently outside theplant gate, as well as uploaded on the Company's website, for information of allinterested parties.

- The Environment Management System of all five operating units is certified as per ISO14001:2004 version. Recertification/Surveillance Audit for all units have been completedand recommended for continuation of certificate.

- For control of emission of suspended particulate matter (SPM), CPP unit has obtainedthe permission for use of Ammonia Flue Gas Conditioning system. The system has beendesigned indigenously & installed in unit I, III, IV & VI. The system issuccessfully working on continuous basis.

- New Sewage Treatment Plant at CISF Colony, Angul has been commissioned & isoperating under trial run. Technological Conservation

Your Company adopted the then latest technology AP-18 of Aluminium Pechiney, France,following technical collaboration with the global leader in Aluminium Refining andSmelting. The Technical Collaboration Agreement was signed with Aluminium Pechiney (AP) in1 981 and was subsequently extended from time to time to avail the Continued TechnicalAssistance (CTA) of AP and implementation of Phase-I and Phase-II expansion projects ofyour Company.

Renewable Energy Development

With steady economic growth, the demand for electric power in the country is alsoincreasing manifold. To power this growth, the use of conventional fossil fuels in boilersis posing high degree of environmental problems apart from the growing concern on the fastdepletion of these non renewable resources. NALCO which operates 10X120 MW coal firedunits also shares this concern as a responsible corporate citizen and is making efforts totap the renewable sources of energy for its own and for commercial sale. In this endeavor,your Company has plans to set up a 50MW Wind Power Plant in any of the wind bearinglocations in India. Global tenders for the same have been invited and the order for theproject is likely to be finalized soon.

Foreign Exchange Conservation

The foreign exchange earnings and foreign exchange outgo of your Company for the yearunder report are Rs. 2,075.04 crore and Rs. 443.23 crore respectively.

15. ANCILLARY DEVELOPMENT

In the direction of development and promotion of ancillary industries, your Company hasawarded Ancillary status to 50 Small Scale Industry (SSI) units till date. Your Companycontinued its efforts to encourage SSI units by placing orders on them for various itemslike liquid Coal Tar Pitch, CP Coke etc. During the year 2009-10 the value of ordersplaced on SSI units was to the tune of 7 50.57 crore.

Your Company also participated in the National Vendor Development Programme(Buyer-Sellers Meet) and Seminar-cum-Exhibition held on 22nd & 23rd of Dec,2009 atExhibition Ground, Bhubaneswar organized by Micro Small & Medium EnterprisesDevelopment Institute(MSME) & Director of Industries, Govt. of Odisha.

16. CORPORATE SOCIAL RESPONSIBILITY

You will be pleased to know that your Board has taken a decision to set up a 'NALCOFoundation' with a vision 'To be an Agent to Engineer Holistic Development' to augment theexisting periphery development activities being undertaken through Rehabilitation &Periphery Development Advisory Committees (RPDACs) as a part of discharging its CorporateSocial Responsibility (CSR).

The Foundation has been registered under the Indian Trusts Act and your Board has takena decision to contribute 1% of Net Profit of your Company every year, in addition to 1% ofnet profit being spent through RPDACs. The Foundation will discharge its responsibilitieswithin the guidelines issued by the Government of India from time to time.

With the setting up a Foundation, your Board is confident that there will be specialattention on CSR activities of your Company, which will generate enough goodwill for theCompany.

The peripheral development activities undertaken during the year under report are:

Mines and Refinery Complex, Damanjodi

• Release of Rs. 11.28 crore, being the balance amount under Periphery DevelopmentProgramme of previous years and 7 3.05 crore towards mobilization advance against the newprojects for the year 2009-10.

• Operation of a mobile health care unit since June, 2009 to reach out to theneedy people living in the nearby villages with medicines. During the year, 297 camps wereorganized in which 23,166 patients were treated.

• Contribution of 7 20 lakhs, double the amount of previous years, to organize'PARAB', a 3-day Tribal Festival of Koraput district by the District Administration.

• Continuation of operation of a Grievance Cell for the land losers and people ofperiphery villages.

Smelter and Power Complex, Angul

• Two Mobile health care services started in November, 2006 continued to beprovided at 38 identified venues in 27 peripheral villages. The teams of doctors,pharmacists and attendants provide medical services and distribute medicines to thepatients. During the year, 809 such camps were organized in which 33,501 patients weretreated.

• A third mobile health care unit has started catering to the needs of villagersin the vicinity of Utkal-E Coal Block Project of your Company.

• Organised 16 animal health camps in the four identified villages in which 3,987animals were treated.

• Organised science exhibition, literary competitions and rural sports among thestudents of 20 Peripheral High Schools.

• Provided financial assistances to different peripheral schools to purchaseeducational kits, furniture and books, as also for organizing cultural functions.

• Provision of drinking water tankers to 23 affected villages.

• Organised Special Camps for physically challanged.

Corporate Office, Bhubaneswar

• Providing 15 PCR vans to Commissionerate of Police, Bhubaneswar to help peoplein need and maintain law and order in the city.

• Contribution to Corpus Fund of National Foundation for Communal Harmony, Govt.of India.

• Contribution to Centurion School of Rural Enterprise Management for purchasingequipment for imparting training to tribal youth.

• Contribution to Directorate of Sports & Youth Services, Govt. of Odisha forNational Youth Festival - 2010.

SPORTS

Your Company continued to play an active role in promotion of sports. In thatdirection, your Company sponsored 'Nalco Cup' Tennis Tournament, Basketball Tournament,Hockey Championship and other games during the year under report. Inter Unit Volleyball,Badminton, Cricket tournaments were also organized at Corporate Office, Angul andDamanjodi Sectors. Your Company also sponsored some rural games organised at differentparts in Odisha.

Your Company's teams participated in All India Public Sector Volleyball Tournament heldat Dehradun and All India Public Sector Football Tournament held at Salt Lake, Kolkata.

You will be pleased to know that Debasis Mohanty of your Company captained All IndiaPublic Sector Cricket Team for Corporate Cup 2009, footballer Sradhanjali Samantaray ofyour Company captained Orissa Women football Team, which participated in NationalChampionship held at Chennai during the year.

Athlet Anuradha Biswal of your Company won silver medals in National AthleticChampionships held at Bhopal and Chennai.

IMPLEMENTATION OF SOCIAL ACCOUNTABILITY STANDARD

Your Company believes and practices transparency and accountability in businesspractices and supply chain to ensure basic human rights in work place.

Keeping the above in mind, your Company has implemented the requirements of SA 8000Standard in all its units. SA 8000 standard (Social Accountability Management System)measures the performance of an organization in eight key areas viz. Child Labour, Forced& Compulsory labour, Health & Safety, Freedom of Association & CollectiveBargaining, Discrimination, Disciplinary Practices, Working Hours and Remuneration.

Implementation of SA 8000 Standard will go a long way in building the brand image ofyour Company and also serves as a measure of implementation of CSR.

IMPLEMENTATION OF THE RTI ACT, 2005

The Company has been complying with the requirements under the Act and providingrequired information to the information seekers that is permissible to be provided underthe Act.

During the year 2009-10, your Company regularly reviewed and updated the pro-activedisclosures published under 17 different templates in the Right to Information segment ofthe Company's website www.nalcoindia.com as required to be published under the Act.

The status of information requests received by the Company at various stages during theyear 2009-10 is given below:

*All the cases pending as on 31.03.2010 have been subsequently disposed off.