Essar Oil Limited | Annual Report 2012-13 Positive Moves. Positive Results. CORPORATE INFORMATION BOARD OF DIRECTORS BANKERS (As on August 14, 2013) ICICI Bank Ltd. State Bank of India Prashant Ruia, Chairman IDBI Bank Ltd. Naresh K. Nayyar, Deputy Chairman Punjab National Bank Lalit Kumar Gupta, Managing Director & CEO HDFC Bank Ltd. Chakrapany Manoharan, Director (Refinery) Axis Bank Ltd. Philip Aiken AM Indian Overseas Bank Dilip J. Thakkar Oriental Bank of Commerce K. N. Venkatasubramanian Indian Bank V. S. Jain Central Bank of India Rajiv Pal Singh, Nominee of State Bank of India Bank of India Melwyn Rego, Nominee of IDBI Bank Ltd. State Bank of Patiala Suneet Shukla, Nominee of IFCI Ltd. Yes Bank R. Sudarsan, Nominee of LIC of India Allahabad Bank Syndicate Bank COMPANY SECRETARY Bank of Baroda Sheikh S. Shaffi State Bank of Mysore TRANSFER AGENTS REGISTERED OFFICE M/s. Datamatics Financial Services Ltd. Khambalia Post, Post Box No. 24 Unit: Essar Oil Limited Dist. Jamnagar – 361 305, Gujarat Plot No. B-5, Part B Cross Lane, Tel: +91-2833-661444 MIDC, Andheri (East), Mumbai – 400 093 Fax: +91-2833-662929 Tel: +91-22-66712151 to 66712156 Email: [email protected] Fax: +91-22-66712209 Email: [email protected] CORPORATE OFFICE Website: www.dfssl.com Essar House, Post Box No. 7945 11, Keshavrao Khadye Marg AUDITORS Mahalaxmi, Mumbai – 400034 M/s. Deloitte Haskins & Sells, Ahmedabad Tel: +91-22-66601100 Fax: +91-22-23544281/ 23540450 Website: www.essar.com Contents Company Overview 02 Positive Moves. Positive Results. 03 Highlights 04 Essar Oil at a Glance 06 Chairman’s Message 08 MD & CEO’s Message 12 Profiles of the Board of Directors 16 Senior Management Team 18 Management Discussion and Analysis 40 Sustainability Governance 48 Directors’ Report 59 Corporate Governance Report Financials 70 Independent Auditors’ Report 76 Balance Sheet 77 Statement of Profit & Loss 78 Cash Flow Statement 80 Notes to the Financial Statements 129 Notice Green Belt at Vadinar Cover images: 1 2 1. Gas Gathering Station (GGS) at Raniganj 3 4 2. Vacuum Gas Oil Hydrotreater (VGOHDT) Unit, Charge Heaters and Reactors at the Vadinar Refinery 3. Essar Foundation supported Gujarat Government school enrolment drive (Shala Pravesh Utsav) 4. Company owned and operated retail outlet at Hazira, Gujarat Positive Moves. Positive Results. At Essar Oil, we are moving forward with a consistent focus to deliver stakeholder value, despite growing challenges in an uncertain global economy. Following the completion of the Expansion and Optimisation Projects of the Vadinar Refinery, we have concentrated on operational excellence to set new industry benchmarks. As India continues to be one of the fastest growing major economies in the world, the country’s energy demand will escalate further. We will continue to emphasize on domestic markets to help achieve India’s energy security. Our positive moves during FY 2012-13 helped us to perform better in an adverse operating environment. We have initiated concrete measures to facilitate enhanced refinery operations and dollarisation of the balance sheet leading to reduced cost of debt. Besides, we are taking appropriate measures to ensure workplace safety, reduce environmental impact and give back to the communities we work with. Our positivity and holistic sustainability efforts are creating long-term value for the community and society at large. 2 Annual Report 2012-13 Highlights COMPANY OVERVIEW COMPANY THROUGHPUT (MMT) REVENUE (` crore) MANAGEMENT DISCUSSION AND ANALYSIS 11.95 13.5 14.76 13.5 19.77 41,816 42,402 53,119 63,340 96,797 08-09 09-10 10-11 11-12 12-13 08-09 09-10 10-11 11-12 12-13 EBITDA (` Crore) CP GRM (USD/bbl) SUSTAINABILITY GOVERNANCE 1.6 4.53 4.23 7.96 1,203 1,938 2,779 2,101 3,651 08-09 09-10 10-11 11-12 12-13 09-10 10-11 11-12 12-13 FINANCIALS Essar Oil at a glance 20 MMTPA Capacity Processed 19.8 MMT in FY 2012-13 Vacuum Gas Oil Hydrotreater (VGOHT) Unit at Vadinar With 11.8 complexity: The Vadinar refinery is now amongst most complex refineries in the world Crude diet comprised of 86% heavy & ultra heavy crude Improved product mix with 83% high value light & middle distillates 4 Annual Report 2012-13 5 COMPANY OVERVIEW COMPANY Business Highlights Essar Oil is a fully integrated oil and Fluid Catalytic Cracking Unit (FCCU) gas company with a strong presence at Vadinar across the hydrocarbon value chain – MANAGEMENT DISCUSSION AND ANALYSIS from exploration and production to Delivered refining and oil retail. full benefits The Company’s refinery at Vadinar, Gujarat, is of upgraded refinery India’s second largest single site refinery with an annual capacity of 20 MMTPA, or 405,000 barrels per day, and 11.8 complexity. Essar Oil’s portfolio of five Coal Bed Methane Achieved 100% (CBM) gas blocks with a total of 10 trillion cubic capacity feet (TCF), or about 1.7 billion barrels of oil utilisation within a equivalent, of reserves and prospective resources, quarter post makes it the largest CBM player in the country. expansion On the marketing side, the Company operates a pan-India network of over 1,400 retail outlets, with another 200 in various stages of commissioning. SUSTAINABILITY Improved Credit Rating to BBB+ (from BBB-) GOVERNANCE Completed CDR exit allowing for future operational & financial Approval for full development for the flexibility Raniganj Block received FINANCIALS Currently producing 100,000 scm/day 165 wells drilled USD 481 million Dollarised to create a natural hedge Chairman’s Message PRASHANT RUIA 5.6% CAGR growth in petroleum products in India Dear Shareholders, Economy and industry I am very happy to present The overall growth in our to you the Annual Report for country was constrained FY 2012-13. It was indeed by supply-side bottlenecks, a watershed year for your slowdown in fixed capital Company. Our proactive formation, weakness in attitude contributed largely industrial sector and lack to our significant progress of push on much needed and achievements. Last year, structural reforms. Despite we were at the threshold the challenges faced by a of entering a new phase of slowdown of economic growth, growth. We can be proud both on domestic and global to have realised our dream fronts, your Company sustained of building one of the most its position as the country’s complex world-class refineries second largest private refiner. globally. 6 Annual Report 2012-13 7 We are committed towards delivering superior stakeholder value by unleashing the full potential of our people. COMPANY OVERVIEW COMPANY Global demand for energy the maximum. We continue to Going forward we are continues to grow, especially in focus on domestic markets, committed to delivering developing countries. In India, keeping in mind the increasing superior stakeholder value by overall demand for petroleum domestic demand for energy. unleashing the full potential of products is expected to grow As our country continues on its our people. We stand firm on at a Compound Annual Growth growth trajectory as one of the keeping our entrepreneurial MANAGEMENT DISCUSSION AND ANALYSIS Rate (CAGR) of 5.6% to 194 fastest growing economies in spirit alive among our people MTPA by 2016-17. The oil and the world, there is an increasing and achieve more leadership gas sector in India is a critical need to bridge the demand- milestones during the course component of the country’s supply gap in the energy sector. of our journey. It is this spirit economy, accounting for 15% that has fueled our growth and of the country’s Gross Domestic Your Company is helped us build a successful Product (GDP). Even today, our advantageously positioned to enterprise. country imports almost 80% capitalise on this transformative of crude oil for refining. There change in energy sector in Positive Attitude have been some positive steps the country. We successfully It was a memorable year which taken by the Government to transitioned, from being a showed strong operational revive the sector and accelerate project-focused company and people performance. investments which have to an operational company. This, coupled with excellent contributed positively to the Our Vadinar Refinery was financial performance helped us overall growth in the industry. completed at an investment emerge stronger as world-class of approximately ` 24,000 Despite the concern on integrated energy player post SUSTAINABILITY persistent risks that surround crore. Since June 2012 our stabilisation of Expansion and the industry (lower return on expanded 20 MMTPA facility is Optimisation Projects. While we capital investments in initial fully operational, benchmarked are indeed proud of the several years, fluctuating commodity with a global high complex milestones we achieved during prices and an ambiguous refining capability. This enabled the year, we are confident of regulatory environment for us to demonstrate an excellent displaying a stronger growth in exploration), the changes in operating performance with the coming years to maximise the industry present significant a very strong focus on safety shareholder value. GOVERNANCE opportunities to your Company. and post record Gross Refining Margins (GRM). Between FY Best wishes, Positivity at Essar Oil 2011-12 and FY 2012-13, we Prashant Ruia We derive optimism for our almost doubled our GRMs by Chairman business growth on a few producing more high margin basic fundamentals. Post light and middle distillates and completion of Expansion and processing a higher percentage FINANCIALS Optimisation Projects of Vadinar of lower cost heavy and ultra- Refinery, we have leveraged heavy crude oil. By doing so, our operational expertise to we have showcased the true potential of our assets. MD & CEO’s Message LALIT KUMAR GUPTA 20 MMPTA increase in capacity from second quarter Dear friends, MMTPA rated capacity from the It is a pleasure to present the second quarter of FY 2012-13.