At a Glance
Dear Shareholder
It gives me pleasure to present before you the following significant details of your Corporation :
HOW YOUR CORPORATION PERFORMED : Area of Performance 2005-06 2004-05 Crude Thruput (MMT) 13.82 13.94 Market Sales (MMT) 19.48 20.09 Gross Sales (Rs. Crores) 74,044 64,690 Gross Profit (Rs. Crores) 1,134.07 2,382 Net Profit (Rs. Crores) 405.63 1,277 Dividend (%age) 30 150 Net Worth (Rs. Crores) 8,736 8,441 Earnings Per Share (Rs.) 11.97 37.69
YOUR CORPORATION’S INFRASTRUCTURE :
Refineries at Mumbai & Visakhapatnam Depots - 92 Product Pipelines- ASFs - 13 *Mumbai-Pune Retail Outlets - 7313 *Visakh-Vijayawada-Secunderabad SKO/LDO Dealers - 1648 Regional Office - 85 LPG Distributors - 2202 Terminals/Installations/TOPs - 37 LPG Customers - 2.28 (crores)
CURRENT MAJOR PROJECTS : Upgradation of facilities at Mumbai & Visakh Refineries of an expenditure of Rs. 4000 Crores. New Pipeline between Mundra & Delhi and Extension of Mumbai-Pune Pipeline to Solapur of an expenditure of Rs. 1960 Crores. Upgradation, Automation and New facilities for the Marketing Division to strengthen marketing infrastructure at an expenditure of Rs. 1400 Crores. Expansion and Diversification on own and through ventures and tie-ups.
Important current activities, future plans and detailed overview of HPCL as well as Petroleum Sector have been covered by me separately. Your Corporation would continue to perform strongly and thereby instill confidence in you to continue your association for a long time. M. B. Lal
54th Annual Report 2005-06 1 Recent Events
Hon’ble Minister of Petroleum & Natural Gas, Shri Murli Deora, Hon’ble Chief Minister of Maharashtra, Shri Vilasrao Deshmukh, Secretary - MOP&NG, Shri M.S. Srinivasan, C&MD, HPCL, Shri M.B. Lal, C&MD, BPCL, Shri Ashok Sinha, seen together at a recent industry related meeting.
Hon’ble Minister of Petroleum & Natural Gas, Shri Murli Deora coordinating relief activities for the bomb blast victims at Mumbai
Hon’ble Minister of Petroleum & Natural Gas , Shri Murli Deora is seen inaugurating a renovated garden at Chembur. Also seen in the photograph are Shri Gurudas Kamat, Hon’ble Member of Parliament, Shri M.B. Lal, C&MD, HPCL.
Shri M B Lal C&MD receiving the Honorary Fellowship of The Energy Institute, which is the highest level of professional recognition that the Energy Institute awards. It is reserved for those who have made a notable & distinguished contribution to the Energy Industry in their particular field of expertise.
54th Annual Report 2005-06 2 Contents Chairman‘s Message ...... 04
Our Directors...... 09
Senior Corporate Officers ...... 10
Offices, Auditors & Bankers...... 11
Notice of AGM...... 12
Performance Profile...... 18
Director’s Report...... 28
Annexure to Director’s Report ...... 33
Management Discussion & Analysis Report ...... 45
Special Focus Areas ...... 81
Human Resources Accounting ...... 95
Auditor’s Report ...... 96
Balance Sheet ...... 102
Profit & Loss Account ...... 103
Schedules to Accounts ...... 104
Cash Flow Statement ...... 127
Social Welfare...... 131
C & AG’s Comments ...... 132
Review of Accounts by C & AG ...... 133
Joint Venture Companies ...... 138
Consolidated Financial Statements ...... 139
Corporate Governance Report ...... 156
Annual Report of Guru Gobind Singh Refineries Limited (Subsidiary Company) ...... 185
54th Annual Report 2005-06 3 Chairman’sChairman’s MessageMessage
Dear Shareholder, Your Corporation recorded a net profit of Rs.406 crores for the financial year 2005-06 as against Rs.1277 crores for the earlier year 2004-05. The major factors that impacted the profitability were the steep and unprecedented increase in crude oil prices. The Indian Basket of Crude Oil Prices moved up almost by 25% between March 2005 and March 2006 with continuing under-recoveries on major product lines like Motor Spirit (MS) , High Speed Diesel Oil (HSD), Liquified Petroleum Gas (LPG) and Superior Kerosene Oil (SKO). I must however, hasten to add, that, the Government has contributed in no small measure towards sharing the burden of subsidy in these products. This has helped your company in posting a profit at the end of the year despite the losses in the first three quarters of 2005-06. Your Corporation, however, recorded positive operational performance reflecting its core strengths in Refining and Marketing. These have been covered in the subsequent sections. Though the year 2005-06 was a year of planned turnaround and shut-down for routine maintenance at both Mumbai and Visakh refineries, the refineries achieved 106% of their capacities. Similarly, in Marketing, our main line products like MS and HSD registered the best growth amongst the PSUs in a highly competitive market. The turnover during 2005-06 was Rs.76920 crores as against Rs.65218 crores in 2004-05, registering an increase of 18%. In its drive to achieve operational excellence, the Corporation has been constantly focusing its attention on areas like infrastructure enhancement, productivity improvement, cost reduction, all aimed at achieving enhanced contribution and global standards. The endeavour always has been towards nurturing and developing HPCL as a Company, which is fundamentally strong and transparent in its operations and caring for its “Customers and its Stakeholders”. Your Corporation is also taking several initiatives for sustaining growth by foraying into various revenue streams to meet the challenges in the existing business lines. Some of these include efforts towards matching our refining capacities with marketing requirements, venturing into E&P and Gas Sectors, new / export markets and developing capabilities to enhance the production of value added products. REFINING During 2005-06 our Refineries at Mumbai and Visakh recorded a combined thruput of 13.82 MMT against a capacity of 13 MMT per annum. As already explained, this is only marginally lower than the thruput of last year
54th Annual Report 2005-06 4 Chairman’s Message despite the long turnarounds and other factors mentioned earlier. The strong refinery performance post shutdown can be judged from the thruput achieved during the six months period January – June 2006 which is 8.25 MMT corresponding to an annualized thruput of 16.5 MMT. In pursuit of our goal of delivering best value from our existing assets, concerted efforts were made to enhance the output and contribution from our Refineries. With this objective in mind, steps were taken to de-bottleneck and achieve higher capacities with relatively minor changes in plant operations and capabilities. Not only did we achieve higher thruputs in our plants but also achieved significant enhancements in yields of superior value products such as LPG and MS in Mumbai Refinery. The increase in LPG production has been approx. 25% over the past and that in MS is about 35% from the secondary units. With the refining segment continuing to record positive contributions, steps are also being taken to enhance the current infrastructure of both Mumbai Refinery and Visakh Refinery. Both the Refineries are currently implementing the Green Fuel Projects at a total cost of Rs.4000 crores and which, when completed, would enable them to produce Motor Spirit to meet the new Euro III specifications. The refineries are already producing HSD of Euro III Specifications. In Visakh Refinery, we have been able to increase the proportion of the less expensive High Sulphur crude in the total crude mix by about 20%, which has helped in enhancing gross margins of Refineries. Several Energy efficiency measures have been implemented which has contributed to significant savings in energy consumption. Measures taken for cost efficiency included reduced Specific Fuel Consumption in captive power plants, use of improved catalysts and additives in Secondary Processing Units, optimization of crude freight by use of VLCCs for long haul crude, development of local vendors for import substitution of critical spares, preventive maintenance measures for critical equipment and optimizing consumption of chemicals by implementing low cost improvement schemes. Another significant initiative during the year has been the commencement of Oil Price Risk Management (OPRM). We have imparted technical training to select staff for trading and hedging activities and initiated the process for a hands-on experience. Eventually upon implementation on a full scale, OPRM will help us to manage the Oil Price Risks. MARKETING Lesser product availability due to the major refinery turnarounds resulted in marketing volumes at 19.48 MMT which were marginally lower than the previous year volumes of 20.09 MMT. However, it is heartening to note that, with the renewed focus on the customer, the Corporation has been able to achieve the following : • Highest growth rate amongst PSUs in the highly competitive Retail Sector viz. MS and HSD. • Highest growth in Aviation for the second year in succession. • Highest growth rate in Lube Sales amongst all PSUs. Your Corporation today is known for its high quality products and services and for its commitment to provide “Total Customer & Vehicle Care.” In our continuing efforts to realize our Vision of “Customer Delight”, we have been paying special attention to “Quality & Quantity”(Q&Q) and “Customer-Centric-Approach” in all our endeavours. In fact “Q&Q” assurance has become our guiding philosophy and not just a business or market requirement. In order to fulfill this basic hygiene factor of Q&Q, we have rolled out number of initiatives, many of them first of its kind in the Industry. • HPCL is a leader in the automation of retail outlets. In addition to the 425 retail outlets currently being automated, we have plans to roll out the same to over 1000 outlets by March 2007. • All our 150 company tank trucks are today fitted with Vehicle Management Systems using Global Positioning System(GPS), which facilitate monitoring of the tank trucks right from the moment the tank truck leaves the supply point till it reaches the intended destination. Plans are also under implementation for installing the same on dealer owned as well as contractor tank trucks in a phased manner. • In addition to surprise inspections and sample testing through our mobile Labs and Certification of our outlets through M/S Bureau Veritas, we also have an independent quality control cell that conducts surprise
54th Annual Report 2005-06 5 Chairman’s Message inspections for combating adulteration and ensuring quality of our deliveries. • Improving the customer conveniences and value added propositions, technical support to our major industrial customers and the desire to benchmark our service standards to international levels have been the other major thrust areas. All these initiatives have been very well received in the market and HPCL’s volume growth rates reinforce fully the belief in our brands. These initiatives have started bearing fruit, not only in the form of prestigious awards and recognitions but also as reflected in market share for both MS, HSD, Aviation fuel and Lubes. Business opportunities in the area of “Allied Retail Business” are being constantly explored for generating additional income and meeting customer needs. The Corporation has entered into several strategic alliances with best in class non fuel partners viz. MacDonald’s, Kamath Group of Hotels, Marry Brown, Caffe Coffee Day, US Pizza etc. New Lubes SBU Lubricant is a product which is in the free pricing segment in our business. In fact, lubes was the first segment that was taken out of the Administered Pricing Mechanism. This is a growing market, both at the lower end as well as in the niche segment. Having regard to the fact that the Lubes business line needs a focused attention, it was decided to set up a separate SBU for Lubes. This SBU is endeavouring for blending and marketing high quality lubricants, higher market share from core sectors like Railways, Defence etc., specialized tie-ups with Original Equipment Manufacturers (OEM) and with reputed automobile companies. These steps have already shown positive results and the SBU expects to register an even more improved performance in the year 2006-07. MAJOR ONGOING PROJECTS The Green Fuels Projects under implementation at Mumbai and Visakh Refineries for upgradation of processing facilities at a total cost of Rs.4000 crores are being targeted for completion around the first half of 2007. The two major pipeline Projects one between Mundra and Delhi and the other which is an extension of Mumbai Pune Pipeline (MPPL) up to Solapur are estimated to cost nearly Rs.2000 crores and scheduled for completion by May 2007 and December 2006 respectively The proposed 9 MMTPA grass-root Refinery Project at Bhatinda, in Punjab which is being implemented by our Subsidiary Company Guru Gobind Singh Refineries Limited (GGSRL) is in the process of achieving financial closure. While infrastructure facilities like land, roads, lighting are already in place, the other preliminary activities like selection of process licensors etc. are currently progressing. This project is targeted for completion by 2010. HUMAN RESOURCES We believe that the key to the success of any business strategy lies in an energized and aligned work force, alive to the changing customer needs and requirements. By providing customer delight and satisfaction, organizations can hope to achieve the goal of maximizing shareholder value. In line with this belief, the Organisational Transformation initiative that has been going on for the last two years in a phased manner has almost covered all the main functions. This has resulted in greater coordinated effort and improved focus on common goals such as “Q&Q” and “Customer Service & Conveniences”. One aspect that gets emphasized in all these initiatives has been the need for all Line and Staff Functions to own and appreciate the “Customer Perspective” while discharging their roles and responsibilities in their respective jurisdiction. HR Initiatives like “Competency Mapping” to enhance employee capabilities, “Balanced Scorecard” to fix performance targets and evaluation of performance so as to achieve the strategic intent of the organisation, “Six Sigma approach” for quality improvement are continuing and will cover most of the functions within the Corporation. Today we can all feel proud of the achievements of our colleagues in HPCL, be it in Refining, Marketing or Support Functions and together we aspire with renewed confidence to make HPCL an organization which not
54th Annual Report 2005-06 6 Chairman’s Message only meets, but also exceeds the expectations of its stakeholders arising out of its status as a ‘Navratna’. STRATEGIC INITIATIVES : For continued long term growth, apart from the ongoing projects, several new initiatives are on the anvil. Your Corporation is taking several initiatives in the existing and new business lines for sustaining value and achieving growth. The major projects include: • Green field refinery at Bhatinda of 9 MMTPA capacity integrated with value added petrochemical products • Brownfield expansion of Visakh Refinery to 15 MMTPA Capacity • LOBS upgradation to Group II at Mumbai Refinery • Delayed Coker Unit at Visakh Refinery for upgradation of heavy ends. • Aromatics Projects being developed for implementation at Visakhapatnam. • Production of mixed Xylenes at Mumbai and Visakh Refineries. • Production of Propylene at Mumbai Refinery and enhancement of Propylene production at Visakh Refinery. We are also taking steps to play a lead role in Visakhapatnam and its vicinity as an anchor developer of the location (SEZ) short listed by the Government of Andhra Pradesh for Petrochemical and Petroleum Investment. Entry into E&P and overseas markets through foreign collaborations / tie ups has been yet another major area of thrust for us. Some of the significant development in this area are: • Our Joint Venture Company M/s. Prize Petroleum, having acquired the status of an independent upstream Operator for onshore fields, has been successful in enhancing production in the marginal oil wells of ONGC awarded to it in the State of Gujarat . • HPCL in consortium with M/s. Prize Petroleum and M/s. Trenergy of Malaysia has been awarded cluster 7 off shore marginal field by ONGC. • HPCL has also secured a maiden share in an on-shore oil block in Oman along with other joint bidders. • HPCL has also bid for an off-shore block in Australia in consortium with other partners. • MOUs have been entered into with M/s.OILEX, Australia, and M/s.GAIL(INDIA) LTD., to jointly explore and bid for opportunities in upstream. • MOU has also been signed with Chinese Oil major M/s. Sinopec for jointly exploring opportunities in upstream, R&D, Crude sourcing , product trading and consultancy. Gas is emerging as the fuel of the future and is also eco friendly. Your corporation has taken initiatives to enter in this business line through collaborative partnership with GAIL(India) Limited. Your Corporation is already marketing gas through its joint venture, M/s. Bhagyanagar Gas Limited in the state of AP. A new company, M/s. Aavantika Gas, has been incorporated for gas distribution in the State of MP, (initially at Indore). We are also in discussion to form a JVC for similar business ventures in the State of Rajasthan. Your Corporation has already commissioned one mother station and nine daughter stations at existing retail outlets in Ahmedabad for CNG distribution by sourcing the gas from M/s. GSPCL. Your corporation intends to expand the business in newer high potential markets abroad and as a first step, has signed an MOU with M/s. Petrosen of Senegal for setting up of retail outlets in Senegal. We are noticing positive outcome from the above initiatives. When these projects are scaled up and start contributing, your Corporation would see diverse revenue flows which would balance the current uncertainties. CORPORATE SOCIAL RESPONSIBILITY Your Corporation strongly believes that no business organization can exist in a vacuum without looking at the needs of the larger society in which it exists and from which it derives its sustenance. As in previous years, your Corporation has continued to carry out a number of Welfare / Developmental activities for SC/ST / Weaker Sections of the society and spent over Rupees four crores during 2005-06 for such causes. The activities include support for Primary / Secondary, Graduation and Post Graduation education,
54th Annual Report 2005-06 7 Chairman’s Message Health care, Augmentation of drinking water facilities, Family welfare, Vocational training, Income generating schemes, Rehabilitation of persons with disabilities, Scholarships to students, Provision of computers to Educational Institutes etc. As a measure of our commitment to the society, we have enhanced our outlay and activities for social causes. We have also embarked upon a new initiative as a part of CSR by distinctly identifying Projects touching the various needy sections of the society with a defined target. These projects relate to AIDS prevention, Vocational training for unemployed youth, education of rural children, computer training, education for rural girl children, health care facilities for weaker section of the society etc. In order that these Projects receive continued focus, a ‘HPCL Foundation’ has been set up with a corpus of Rupees seven crores to finance these Projects. The Foundation would also monitor implementation of these schemes. Reputed service organizations and NGOs are co-partnering us in this unique effort. AWARDS/RECOGNITION I am pleased to inform that your Corporation has been a proud recipient of many accolades and awards in all related fields such as Environment, Safety, Innovation, Brand, Customer orientation etc. From the Government side, OISD award from MOP&NG for the best performer in Group III (LPG marketing organization) for the year 2003/04 and in Group VII(Best performer in Lube oil Blending) for the years 2003/04 and 2004/05 and Indira Gandhi Rajbhasha Puraskar for outstanding contribution in usage of Hindi have been received during the year. While the long list of the awards are covered in detail separately, I would like to make a mention of some of the awards viz., “Platts Global energy Awards 2005” – Good fuel promise campaign, “Most Trusted Brand 2006” Platinum Award from Readers Digest and the recent “Awaaz Consumer Award 2006” from CNBC TV for India’s Most Preferred Auto Fuel. You may be pleased to note that all these awards were based on surveys in the market and feed back from customers. I am sure that this will give immense satisfaction to you as our shareholders, as it has given to all of us as employees. THE FUTURE The future is full of challenges and opportunities. The Oil and Energy Sector would continue to witness a dynamic environment in periods to come in all components of the sector viz. Exploration & Production, Gas, Downstream, Refining and Marketing. The impact of unabated surge in the crude prices, the issues involved in gas sourcing / pricing, storage / distribution, the huge investments that are required for Exploration & Production activities are some of the major challenges that we need to address through our strategies. At the same time the integration and globalization of the economies and new technological inventions provide us ample opportunity to grow into the diverse fields highlighted above. In addition, alternate energy sources like Bio-diesel and Wind Power are also areas which would continue to be looked at seriously. Initial steps have been taken on different fronts as explained will be scaled up based on the outcome of such efforts. These will be undertaken either on our own or through JV / Consortium arrangement with known and reputed parties. Your Corporation is looking at the right mix of these options to sustain its growth momentum and profitability. YOUR SUPPORT We are grateful to all our esteemed shareholders, our stakeholders like dealers, customers, vendors, contractors, business associates, employees and all others who have reposed their faith in HPCL. Our Administrative Ministry, Ministry of Petroleum & Natural Gas, has been providing continuous guidance and support in our efforts. We, on our part, would continue to take HPCL further towards growth and profitability by meeting the challenges that we face and on capitalizing the opportunities that arise. We look forward to your continued support in this ongoing journey. Thank you, M.B. LAL
54th Annual Report 2005-06 8 Our Directors
Shri M S Srinivasan Shri M B Lal Shri T L Sankar Director (Till 20.06.05) Chairman & Managing Director Director
Shri P K Sinha Shri Arun Balakrishnan Shri Raja G Kulkarni Director (From 01.03.06) Director - Human Resources Director (Till 02.03.06)
Shri Prabh Das Shri C Ramulu Shri Rajesh V Shah Director (From 03.05.05) Director - Finance Director
Shri C B Singh Shri S Roy Choudhury Shri M Nandagopal Director (Till 28.02.06) Director - Marketing Director
Shri I M Pandey Shri M A Tankiwala Shri D S Mathur Director (From 09.12.05) Director - Refineries (From 01.06.05) Director Refineries (Till 31.05.05)
54th Annual Report 2005-06 9 Senior Corporate Officers
Shri B R Mandal Shri S K Mukherjee Shri K Murali Shri N R Narayanan Shri A K Bhide Chief Vigilance Officer Executive Director - SH&E Executive Director - R & D Company Secretary Executive Director - CF
Shri V Vizia Saradhi Shri K S R Prasad Ms. Nishi Vasudeva Shri B Mukherjee Executive Director - IR Executive Director – IA&JVC Executive Director – IT&ERP Executive Director – HRD
Shri O P Pradhan Shri S P Gupta Shri Sandeep Joseph General Manager – CP&S Financial Controller General Manager - HR (Special Activities)
Shri G Hariharan Shri Rakesh Kumar Shri D M Sabale Shri S T Sathiavageeswaran General Manager - Legal General Manager – Treasury, General Manager – SH&E General Manager – ERP Payroll & Reimbursement
Shri M V Sreeram Shri R Ganesan Shri D K Hota Shri Ajit Singh Shri L M Motwani General Manager – IT General Manager – Tax General Manager – DGM (I/C)- Delhi DGM - PR&CC (Corporate) Project ACE Coordination Office
54th Annual Report 2005-06 10 Offices, Auditors & Bankers
Registered Office & Headquarters Office Zonal Offices
Petroleum House, East Zone 17, Jamshedji Tata Road, 6, Church Lane, Mumbai - 400 020. Post Box No.146, e-mail: [email protected] Kolkata 700 001. website: www.hindustanpetroleum.com West Zone Marketing Headquarters R&C Building, Sir J.J. Road, Byculla, Hindustan Bhavan, Mumbai - 400 008. 8, Shoorji Vallabhdas Marg, Ballard Estate, Mumbai - 400 001. North Zone 6th & 7th floor, Mumbai Refinery Core 1 & 2, North Tower, Scope Minar, B.D. Patil Marg, Chembur, Laxmi Nagar, Mumbai - 400 074. Delhi - 110 092.
Visakh Refinery South Zone Thalamuthu Natarajan Building, Post Box No. 15, 4th Floor, 8,Gandhi Irwin Road, Visakhapatnam - 530 001. Post Box No.3045, Egmore, Chennai - 600 008.
Bankers Statutory Auditors State Bank of India Union Bank of India N.M. Raiji & Co. Punjab National Bank Chartered Accountants Standard Chartered Bank Mumbai Bank of Baroda Bank of India Sudit K. Parekh & Co. Citibank N.A. Chartered Accountants Corporation Bank Mumbai ICICI Bank HDFC Bank Branch Auditors B.V. Rao & Co. Company Secretary Chartered Accountants Shri N. R. Narayanan Visakhapatnam
54th Annual Report 2005-06 11 Notice of Annual General Meeting
HINDUSTAN PETROLEUM CORPORATION LIMITED (A Government of India Enterprise) REGISTERED OFFICE : 17 JAMSHEDJI TATA ROAD, MUMBAI 400 020
NOTICE
NOTICE is hereby given that the 54th ANNUAL GENERAL MEETING of the Members of Hindustan Petroleum Corporation Limited will be held on Thursday, September 14, 2006, at 3.00 P.M. at Y.B. Chavan Auditorium, General Jagannath Bhosale Marg, Next to Sachivalaya Gymkhana, Mumbai 400 021, to transact the following business:
ORDINARY BUSINESS:
1. To receive, consider and adopt the Balance Sheet as on March 31, 2006, Profit and Loss Account for the year ended on that date and Reports of the Board of Directors and Auditors thereon.
2. To declare equity dividend for the financial year 2005-2006.
3. To appoint a Director in place of Shri M. Nandagopal, who retires by rotation and is eligible for reappointment.
4. To appoint a Director in place of Shri Arun Balakrishnan, who retires by rotation and is eligible for reappointment.
5. To appoint a Director in place of Shri S. Roy Choudhury, who retires by rotation and is eligible for reappointment.
6. To approve payment of Rs.13 Lakhs as remuneration to the Statutory Auditors of the Company appointed by the Comptroller & Auditor General of India for auditing the Accounts of the Company for the Financial Year 2006-07.
SPECIAL BUSINESS :
APPOINTMENT OF DIRECTORS :
7. To consider and, if thought fit, to pass, with or without modification(s), the following resolution as an Ordinary Resolution.
“RESOLVED that Shri I.M. Pandey who was appointed as an Additional Director of the Company by the Board of Directors under Article 112 of the Articles of Association of the Company with effect from December 09, 2005 and who holds office under the said Article and pursuant to Section 260 of the Companies Act, 1956 only upto the date of this Annual General Meeting, and who is eligible for re- appointment under the relevant provisions of the Companies Act, 1956, and in respect of whom the Company has received a notice in writing from a member signifying his intention to propose him as a candidate for the office of the Director, be and is hereby appointed as a Director of the Company liable to retire by rotation.”
54th Annual Report 2005-06 12 Notice of Annual General Meeting
8. To consider and, if thought fit, to pass, with or without modification(s), the following resolution as an Ordinary Resolution. “RESOLVED that Shri P.K. Sinha who was appointed as an Additional Director of the Company by the Board of Directors under Article 112 of the Articles of Association of the Company with effect from March 01, 2006 and who holds office under the said Article and pursuant to Section 260 of the Companies Act, 1956 only upto the date of this Annual General Meeting, and who is eligible for re-appointment under the relevant provisions of the Companies Act, 1956, and in respect of whom the Company has received a notice in writing from a member signifying his intention to propose him as a candidate for the office of the Director, be and is hereby appointed as a Director of the Company liable to retire by rotation.” 9. Delisting of shares from Delhi, Kolkatta & Chennai Stock Exchanges: “RESOLVED THAT subject to the provisions of the Companies Act, 1956 (including any statutory modification(s) or re-enactment thereof for the time being in force and as may be enacted hereinafter), The Securities Contracts (Regulations) Act, and the Rules framed thereunder, SEBI Guidelines, Listing Agreements and all other applicable laws, rules, regulations and guidelines and subject to such approvals, permissions and sanctions, as may be necessary and subject to such conditions and modifications as may be prescribed or imposed by any authority while granting such approvals, the approval of the shareholders be and is hereby accorded to delist the equity shares of the Company from The Delhi Stock Exchange Association Limited, Kolkatta Stock Exchange Ltd., and Madras Stock Exchange Ltd.” BY THE ORDER OF THE BOARD N.R.Narayanan Company Secretary Date : 03-08-2006 Regd.Office : 17, Jamshedji Tata Road Churchgate, Mumbai - 400 020 NOTES : 1. A MEMBER ENTITLED TO ATTEND AND VOTE AT THE MEETING IS ENTITLED TO APPOINT A PROXY TO ATTEND AND VOTE INSTEAD OF HIMSELF AND SUCH PROXY NEED NOT BE A MEMBER OF THE COMPANY. Proxies, in order to be effective, must be deposited at the Registered Office of the Company not less than 48 hours before the time of the meeting. 2. The Explanatory Statement made pursuant to Section 173(2) of the Companies Act, 1956 in respect of the item Nos. 6 to 9 of the Notice is annexed herewith. 3. Dividend on Equity Shares as recommended by the Directors for the year ended March 31, 2006, if approved at the meeting, will be payable to those eligible members whose names appear : (1) As Beneficial owners, as on August 21, 2006 as per the list to be furnished by National Securities Depository Ltd. and Central Depository Services (India) Ltd. in respect of shares held in electronic form, and (2) As Members in the Register of Members of the Company after giving effect to all valid share transfers in physical form lodged with the Company on or before August 21, 2006. 4. Members are requested to bring their copies of the Annual Report to the Meeting. Members / Proxies attending the Meeting should bring the Attendance Slip, duly filled, for handing over at the venue of the meeting.
54th Annual Report 2005-06 13 Notice of Annual General Meeting
5. (a) Members are requested to note change in R & T Agents from M/s. MCS Limited to M/s.Intime Spectrum Registry Limited (ISRL). (b) Members holding shares in physical form are requested to advise immediately change in their address, if any, quoting their Folio number(s), to M/s. ISRL, the Registrars at their address given below. (c) Shareholders holding shares in dematerialised form are requested to advise immediately change in address, if any, quoting their respective Client ID / DP ID Nos., to their respective Depository Participants and not to M/s.ISRL or to the Company. 6. (a) Members holding shares in physical form, who have not given the Bank Particulars / Mandate, ECS Mandates earlier or if there is any change in the details, are requested to send the same quoting the Folio number(s), to our Registrars M/s.ISRL on or before August 21, 2006. (b) All Shareholders who are holding shares in Dematerialised form are requested to advise change, if any, in details of their bank account / ECS mandates to their respective Depository Participants immediately to enable the Company to pay the dividend accordingly. 7. Members are hereby informed that Dividends which remain unclaimed / unencashed over a period of 7 years have to be transferred by the Company to Investor Education & Protection Fund constituted by the Central Government under Section 205A and 205C of the Companies Act, 1956. We give below the details of Dividends paid by the Company and their respective due dates of transfer to the Fund of the Central Government if they remain unencashed. Date of declaration Dividend for the year Month & year of of Dividend transfer to the Fund 09.09.1999 1998-1999 Oct.2006 30.03.2000 1999-2000 (Interim) May 2007 08.09.2000 1999-2000 (Final) Oct.2007 28.09.2001 2000-2001 Oct.2008 28.08.2002 2001-02 (Final) Sep.2009 30.01.2003 2002-03 (Interim) Feb.2010 24.09.2003 2002-03 (Final) Oct.2010 22.12.2003 2003-04 (Interim) Jan.2011 09.09.2004 2003-04 (Final) Oct.2011 09.12.2004 2004-05 (Interim) Jan.2012 26.09.2005 2004-05 (Final) Oct. 2012 It may please be noted that no claim can be made by the shareholders for the unclaimed Dividends which have been transferred to the credit of the Investor Education & Protection Fund of the Central Government under the amended provisions of Section 205B of the Companies Act, 1956.
54th Annual Report 2005-06 14 Notice of Annual General Meeting
In view of the above regulation, the shareholders who are yet to encash the dividend are advised to send requests for duplicate dividend warrants in case they have not received the Dividend Warrants for any of the above mentioned financial years and / or revalidation of unencashed Dividend Warrants still held by them to the Registrars and Transfer Agents of the Company so that demand drafts can be sent to the Shareholders. 8. The address of Registrars and Transfer Agents of the Company is as follows : M/s.INTIME SPECTRUM REGISTRY LTD. Unit:HINDUSTAN PETROLEUM CORPORATION LTD. C-13, Pannalal Silk Mills Compound, LBS Marg, Bhandup (West), Mumbai - 400 078 Telephone No.: 022 – 25963838 Fax No.: 022 - 25946969 9. Appointment / Re-appointment of Directors : At the ensuing Annual General Meeting, S / Shri M. Nandagopal, Arun Balakrishnan and S. Roy Choudhury retire by rotation and being eligible, offer themselves for re-appointment.
Shri I.M. Pandey and Shri P.K. Sinha who were appointed as Additional Directors during the year are being recommended for appointment as Directors liable to retire by rotation.
EXPLANATORY STATEMENT IN PURSUANCE OF SECTION 173(2) OF THE COMPANIES ACT, 1956.
6. HPCL is a Government Company within the meaning of Section 617 of the Companies Act, 1956. In terms of the provisions of Section 619 of the Companies Act, 1956, Statutory Auditor/s for a Government Company is/are appointed by the Comptroller & Auditor General of India (C&AG). In terms of Section 224 (8) (aa) of the Companies Act 1956, the remuneration of the Auditors is required to be fixed by the Company in a General Meeting or in such a manner as the Company in a General Meeting may determine.
The Board of Directors of the Company have recommended a remuneration of Rs.13 Lakhs plus out of pocket expenses to the Statutory Auditors (including Joint / Branch Auditors, if any) of the Company appointed by the C&AG for auditing the Accounts of the Company for the Financial Year 2006-07 for the approval of the shareholders.
7. Shri I.M. Pandey was appointed as an Additional Director on the Board effective 09.12.2005. In terms of Section 260 of the Companies Act, 1956 and Article 112 of the Articles of Association of the Company, he holds office upto the date of next Annual General Meeting and is eligible for re-appointment. The Company has received a notice proposing the candidature of Shri I.M. Pandey for the office of a Director in terms of Sections 255 & 257 of the Companies Act, 1956.
Shri I.M. Pandey, is a Professor in the Indian Institute of Management, Ahmedabad. The Board recommends appointment of Shri I.M. Pandey.
None of the Directors other than Shri I.M. Pandey are interested in the Resolution.
54th Annual Report 2005-06 15 Notice of Annual General Meeting
8. Shri P.K. Sinha was appointed as an Additional Director on the Board effective 01.03.2006. In terms of Section 260 of the Companies Act, 1956 and Article 112 of the Articles of Association of the Company, he holds office upto the date of next Annual General Meeting and is eligible for re-appointment. The Company has received a notice proposing the candidature of Shri P.K. Sinha for the office of a Director in terms of Sections 255 & 257 of the Companies Act, 1956.
Shri P.K. Sinha is Joint Secretary & Financial Advisor in the Ministry of Petroleum & Natural Gas, New Delhi. The Board recommends appointment of Shri P.K. Sinha.
None of the Directors other than Shri P.K. Sinha are interested in the Resolution.
9. Delisting of shares from Delhi, Kolkatta & Chennai Stock Exchanges :
Pursuant to the development of extensive networking by the Stock Exchanges of Mumbai and National Stock Exchange by setting up of terminalling facilities across the country, bulk of trading in the equity shares of the Corporation is taking place through these facilities. Compared to this, there is almost marginal / Nil trading in the Stock Exchanges of Delhi, Kolkatta and Madras. The investors located in the regions of Delhi, Kolkatta and Chennai have access to trading of HPCL shares through the Stock Exchange of Mumbai and National Stock Exchange networks.
Keeping in view almost marginal / Nil trading in the Stock Exchanges of Delhi, Kolkatta and Chennai, it is proposed to delist the shares of the Corporation from the Stock Exchanges of Delhi, Kolkatta and Chennai. However, the shares of the company would continue to be listed on the Stock Exchange of Mumbai, which is a Regional Stock Exchange for the Corporation as well as the National Stock Exchange, which would enable investors across the country to trade in the shares of the Company.
None of the Directors are interested in the Resolution.
BY THE ORDER OF THE BOARD
N.R.Narayanan Company Secretary
Date : 03-08-2006 Regd. Office : 17, Jamshedji Tata Road, Churchgate, Mumbai - 400 020.
54th Annual Report 2005-06 16 Notice of Annual General Meeting
ANNEXURE TO ITEMS 3 TO 5 & 7 TO 8 OF THE NOTICE Details of Directors seeking appointment / reappointment at the 54th Annual General Meeting (in pursuance of Clause 49 of the Listing Agreement)
Name of the Director Arun Balakrishnan S.Roy Choudhury M. Nandagopal I.M. Pandey P.K. Sinha Date of Birth 25.07.1950 01.03.1954 09.06.1939 25.08.1947 18.07.1955 Nationality Indian Indian Indian Indian Indian Date of Appointment on the Board 25.01.2002 10.05.2004 21.01.1999 09.12.2005 01.03.2006 Qualifications B.E. (Chem). B.E. (Mech.) B.Sc. (Agriculture) Ph.D in Finance IAS, M.Phil in PGDBM (IIM & Accounting Social Science, Bangalore) from Delhi Master School Diploma in of Economics Public Admn. List of • Petronet • Hindustan • Mohan • Industrial • Indian Oil Directorships India Ltd. Colas Ltd. Breweries Finance Corporation held in other • MRPL • Petronet & Distilleries Corporation Ltd. Companies (MHB) Ltd. Ltd. of India Ltd. • Bharat • Bhagyanagar • Thirumagal • Cochin Petroleum Gas Ltd. Mills Ltd. Shipyard Corporation • MRPL • D1 Mohan Ltd. Ltd. Bio Oils Ltd. • Mohan Meakin Ltd. • Artos Breweries Ltd. • S.V.Sugar Mills Ltd. • Vestas RRB Ltd. • Mira Textiles & Industries (India) Ltd. • Binny Engg. Ltd. • TCP Ltd. • Bhankerpur Distilleries Ltd. • Sagar Sugars &Allied Products Ltd. • Binny Ltd. • Balaji Breweries Ltd.
54th Annual Report 2005-06 17 Performance Profile
Market Sales (Incl. Export)
Turnover
54th Annual Report 2005-06 18 Performance Profile
2005-06 2005-06 2004-05 2003-04 2002-03 2001-02 FINANCIAL US$ Million Rs./ Crores Sales / Income from operations 17,147 76,920.26 65,218.33 57,511.13 54,259.48 44,456.98 Gross Profit 253 1,134.07 2,381.83 3,642.66 3,139.06 2,046.69 Depreciation 154 690.23 659.59 606.58 574.25 529.47 Interest 35 158.74 81.64 55.65 153.02 294.74 Tax (Incl. Def Tax) (29) (131.91) 363.27 1,076.49 874.43 434.50 Provision for Fringe Benefit Tax 3 11.38 -- -- Net Profit 90 405.63 1,277.33 1,903.94 1,537.36 787.98 Dividend 23 101.80 509.00 746.81 678.66 339.33 Tax on Distributed Profits 3 14.28 71.15 95.65 78.26 - Retained Earnings 65 289.55 697.18 1,061.48 780.44 448.65 INTERNAL RESOURCES GENERATED 221 989.47 1,277.44 1,722.10 1,375.76 1,112.56
VALUE ADDED 937 4,201.23 5,208.06 6,061.19 5,115.14 4,101.87 WHAT CORPORATION OWNS Gross Fixed Assets 3,005 13,479.25 12,393.17 11,387.43 10,754.32 10,244.85 Depreciation 1,369 6,141.85 5,449.53 4,809.32 4,319.12 3,759.87 Net Fixed Assets 1,636 7,337.40 6,943.64 6,578.11 6,435.20 6,484.98 Capital Work in Progress 527 2,363.88 786.84 496.14 347.68 304.38 Investments - JVCs & Subsidiary 184 825.76 825.76 817.34 784.14 652.34 - Others 714 3,201.88 931.08 1,231.08 1,231.08 1,481.08 Net Current Assets 681 3,055.09 2,513.63 1,775.02 646.72 1,319.49 Deferred Tax Liability (309) (1,384.44) (1,374.75) (1,454.08) (1,400.04) (1,173.05) Total 3,433 15,399.57 10,626.20 9,443.61 8,044.78 9,069.22 WHAT CORPORATION OWES Net Worth 1,948 8,735.74 8,440.85 7,742.81 6,678.85 5,897.68 Share Capital 76 338.94 338.93 338.90 338.83 338.81 Reserves 1,872 8,396.80 8,101.92 7,403.91 6,340.02 5,558.87 Borrowings 1,485 6,663.83 2,185.35 1,700.80 1,365.93 3,171.54 Total 3,433 15,399.57 10,626.20 9,443.61 8,044.78 9,069.22 PHYSICAL Million Tonnes Crude Thruput 13.82 13.94 13.70 12.93 12.33 - Mumbai Refinery 6.25 6.12 6.11 6.08 5.63 - Visakh Refinery 7.57 7.82 7.59 6.85 6.70 Pipeline Thruput 5.65 6.05 6.14 6.11 6.47 Market Sales 19.48 20.09 19.53 18.84 18.02
Notes: 1. Previous year figures have been regrouped/reclassified wherever necessary 2. 1 US$ = Rs. 44.86 (Exchange Rate as on 31.03.2006)
54th Annual Report 2005-06 19 Performance Profile
Contribution to Exchequer
FY02 FY03 FY04 FY05 FY06
Distribution of Earnings 2005-2006
54th Annual Report 2005-06 20 Performance Profile
2005-06 2005-06 2004-05 2003-04 2002-03 2001-02 FUND FLOW STATEMENT US$ Million Rs./ Crores
Sources of Funds :
Profit after Tax 90 405.63 1,277.33 1,903.94 1,537.36 787.98 Depreciation 154 690.23 659.59 606.58 574.25 529.47 LPG Deposits 28 124.57 175.92 172.12 177.87 272.72 Borrowings (Net) 963 4,322.23 307.37 382.32 - - Share Capital 0 0.01 0.03 0.07 0.02 - Share Premium 0 0.39 0.83 2.41 0.70 1.34 Redemption of Oil bonds 189 850.00 300.00 - 250.00 - Receipt of Capital Grants from OIDB 1 4.94 --- - Redemption/Sale of Investment --- 0.21 9.00 - Provision for Deferred Tax 2 9.69 (79.33) 54.04 226.99 134.44 Adj. on account of sale/ deletion of Assets & Provision for dimunition in Investment 0 1.66 6.81 43.37 7.92 (11.68) Total 1,429 6,409.35 2,648.55 3,165.06 2,784.11 1,714.27 Utilisation of Funds :
Dividend 23 101.80 509.00 746.81 678.66 339.33 Tax on Distributed Profits 3 14.28 71.15 95.65 78.26 - Capital Expenditure 601 2,694.43 1,322.63 941.32 577.58 790.43 Working capital : Increase/ (Decrease) 102 456.75 738.65 1,347.07 699.82 (1,580.42) Repayment of Loans (Net) --- - 640.91 574.20 Investment - JVCs (Incl. Adv. towards Equity & Share app. Money pending allotment) 5 21.29 7.12 34.21 108.88 110.58 Investment - Oil Bonds 696 3,120.80 --- - Investment - Others --- - - 1,481.00 Misc. Exps. (Public Issue exps.) --- - - (0.85) Total 1,429 6,409.35 2,648.55 3,165.06 2,784.11 1,714.27 CONTRIBUTION TO EXCHEQUER Excise Duty 1,305 5,852.34 6,189.05 6,128.99 5,661.39 4,667.00 Customs Duty 317 1,423.52 1,397.73 1,139.70 872.57 768.11 Sales Tax 1,964 8,811.86 7,977.27 6,986.11 6,168.46 5,318.10 Service Tax 2 11.13 6.74 0.15 - - Income Tax (32) (141.49) 629.82 617.70 433.91 493.40 Fringe Benefit Tax 2 11.07 - - - - Total 3,558 15,968.43 16,200.61 14,872.65 13,136.33 11,246.61 RATIOS Gross Profit/Sales ( % ) 1.47 3.65 6.33 5.79 4.60 Net Profit/Sales ( % ) 0.53 1.96 3.31 2.83 1.77 Earnings Per Share (Rs.) 11.97 37.69 56.18 45.37 23.26 Cash Earnings Per Share (Rs.) 32.62 54.81 75.67 62.94 42.85 Avg. Sales/Employee (Rs. Crores) 6.87 6.13 5.08 4.70 3.99 Avg. Net Profit/Employee (Rs. Crores) 0.04 0.12 0.17 0.14 0.07 Debt Equity Ratio (Long term debt to equity) 0.13:1 0.02:1 0.05:1 0.09:1 0.19:1
MANPOWER (NOs.) 10778 10561 11088 11213 11357
54th Annual Report 2005-06 21 Performance Profile
2005-06 2005-06 2004-05 2003-04 2002-03 2001-02 VALUE ADDITION: US$ Million Rs./ Crores
Income : Sales / Income from operations 17,147 76,920.26 65,218.33 57,511.13 54,259.48 44,456.98 Add: Increase/(Decrease) in Inventory 314 1,408.96 34.87 357.50 1,187.90 (258.47) 17,461 78,329.22 65,253.20 57,868.63 55,447.38 44,198.51
Cost of Raw materials:
Raw Material Consumption 5,703 25,582.18 20,576.22 14,940.83 14,366.80 10,719.31 Purchase for resale 9,402 42,178.12 33,842.86 30,304.41 29,936.30 24,379.88 Packages 21 95.99 90.38 79.15 68.60 55.39 Stores & Spares 19 85.84 70.77 67.87 52.88 48.31 Utilities 28 126.52 114.34 104.10 107.40 93.36
15,173 68,068.65 54,694.57 45,496.36 44,531.98 35,296.25
Duties applicable to products: 1,351 6,059.34 5,350.57 6,311.08 5,800.26 4,800.39
Total Value added : 937 4,201.23 5,208.06 6,061.19 5,115.14 4,101.87
Operations Operating & Service Costs 530 2,377.65 2,113.82 1,848.97 1,429.95 1,502.56
Employees’ Benefits 154 689.51 712.41 569.56 546.13 552.62
Providers of Capital Interest on borrowings 35 158.74 81.64 55.65 153.02 294.74 Dividend 26 116.08 580.15 842.46 756.92 339.33
Income Tax/Fringe Benefit Tax (27) (120.53) 363.27 1,076.49 874.43 434.50
Re-deployment in Business Retained Profit 65 289.55 697.18 1,061.48 780.44 448.65 Depreciation 154 690.23 659.59 606.58 574.25 529.47
Total Value distributed 937 4,201.23 5,208.06 6,061.19 5,115.14 4,101.87
54th Annual Report 2005-06 22 Performance Profile
2005-06 2004-05 2003-04 2002-03 2001-02 SALES VOLUME * 000 Tonnes
Light Distillates Liquified Petroleum Gas 2,526.37 2,510.97 2,282.47 2,025.44 1,817.93 Naphtha 1,876.85 2,160.90 2,245.74 1,966.02 1,727.74 Motor Spirit 2,078.61 2,035.96 1,948.79 1,873.63 1,765.62 Hexane 27.40 42.64 44.50 36.28 40.27 Propylene 31.75 32.61 31.58 30.00 21.26 Sub-total 6,540.98 6,783.08 6,553.08 5,931.37 5,372.82 Middle Distillates Mineral Turpentine Oil 41.35 56.74 47.96 47.68 48.86 Aviation Turbine Fuel 504.18 409.34 277.95 224.55 224.01 Superior Kerosene oil 1,732.63 1,766.41 1,792.98 1,840.18 1,920.26 High Speed Diesel 7,353.38 7,632.80 7,453.77 7,539.97 7,508.61 JBO/WO 4.83 6.91 8.50 8.24 7.85 Light Diesel oil 196.27 289.98 309.69 342.78 299.60 Sub-total 9,832.64 10,162.18 9,890.85 10,003.40 10,009.19 Lubes & Greases 347.77 254.25 334.08 329.23 259.67 Heavy Ends Furnace oil 1,685.15 1,726.04 1,429.23 1,425.61 1,389.21 Low Sulphur Heavy Stock 388.03 457.25 554.14 570.86 531.25 Bitumen 543.48 574.31 656.79 506.42 404.30 Others 139.60 131.53 108.00 77.07 54.70 Sub-total 2,756.26 2,889.13 2,748.16 2,579.96 2,379.46 Total 19,477.65 20,088.64 19,526.17 18,843.96 18,021.14
* Including Exports
MARKETING NETWORK Numbers
Regional Offices 85 85 81 76 76 Terminals/Installations/TOPs 37 36 36 35 35 Depots 92 100 89 92 90 LPG Bottling Plants 41 40 40 40 39 ASFs 13 10 10 10 10 Retail Outlets 7313 6667 5502 4863 4729 SKO/LDO Dealers 1648 1648 1647 1644 1638 LPG Distributors 2202 2153 1993 1898 1822 LPG Customers (in crores) 2.28 2.17 1.99 1.77 1.60
54th Annual Report 2005-06 23 Performance Profile
Crude Thruput - MR
5
4
3
2 MMT
1
0 FY02 FY03 FY04 FY05 FY06
Production Volume - MR MMT
FY02 FY03 FY04 FY05 FY06
54th Annual Report 2005-06 24 Performance Profile
2005-06 2004-05 2003-04 2002-03 2001-02
PRODUCTION VOLUME - MUMBAI REFINERY 000 Tonnes
Light Distillates Liquified Petroleum Gas 193.00 172.20 161.50 154.50 164.20 Naphtha 714.90 744.30 695.40 659.80 585.50 Motor Spirit 280.40 308.40 259.00 253.40 263.20 Hexane 35.30 38.90 42.80 36.10 36.90 Propylene - - - - - Solvent 1425 6.10 8.90 11.20 11.20 11.90
Sub-total 1,229.70 1,272.70 1,169.90 1,115.00 1,061.70
Middle Distillates Mineral Turpentine Oil 44.60 54.00 50.80 44.80 44.10 Aviation Turbine Fuel 571.40 492.30 475.70 435.40 412.20 Superior Kerosene oil 279.40 335.90 392.10 491.80 453.20 High Speed Diesel 1,689.80 1,608.90 1,518.70 1,427.30 1,392.70 JBO/WO - - - - - Light Diesel oil 174.40 241.50 287.70 282.70 269.20
Sub-total 2,759.60 2,732.60 2,725.00 2,682.00 2,571.40
LOBS/TOBS 279.70 214.00 277.60 305.50 274.40 Heavy Ends Furnace oil 976.60 933.50 976.20 1,046.70 904.70 Low Sulphur Heavy Stock 96.40 192.60 174.60 202.70 125.30 Bitumen 401.20 324.80 338.30 273.40 246.40 Others (Incl. input of BH Gas) 55.80 49.50 47.10 39.00 42.10
Sub-total 1,530.00 1,500.40 1,536.20 1,561.80 1,318.50 Total 5,799.00 5,719.70 5,708.70 5,664.30 5,226.00
Intermediate Stock Differential 27.10 (3.90) (0.60) (3.20) 21.80 Fuel & Loss 422.50 402.20 400.20 418.20 383.80
Total 6,248.60 6,118.00 6,108.30 6,079.30 5,631.60
54th Annual Report 2005-06 25 Performance Profile
Crude Thruput - VR
7 6 5
4 3
MMT 2 1 0 FY02 FY03 FY04 FY05 FY06
Production Volume - VR
FY02 FY03 FY04 FY05 FY06
54th Annual Report 2005-06 26 Performance Profile
2005-06 2004-05 2003-04 2002-03 2001-02
PRODUCTION VOLUME - VISAKH REFINERY 000 Tonnes
Light Distillates Liquified Petroleum Gas 273.76 296.81 323.55 279.40 293.10 Naphtha 928.74 812.59 845.98 602.70 601.50 Motor Spirit 661.81 677.37 734.83 676.30 715.00 Hexane - - --- Propylene 32.92 32.15 31.66 29.70 22.20 Solvent 1425 - - -- - Sub-total 1,897.23 1,818.92 1,936.02 1,588.10 1,631.80 Middle Distillates Mineral Turpentine Oil - - 1.71 1.10 7.60 Aviation Turbine Fuel 39.40 37.90 94.94 51.70 33.00 Superior Kerosene oil 824.17 715.32 731.81 637.30 676.00 High Speed Diesel 2,975.37 3,226.13 2,729.32 2,742.90 2,784.20 JBO/WO 3.62 5.38 7.75 7.30 8.10 CO 28.05 - - - - Light Diesel oil 63.71 89.21 110.54 113.80 50.50 Sub-total 3,934.32 4,073.94 3,676.07 3,554.10 3,559.40 Heavy Ends Furnace oil 839.31 926.45 848.47 623.00 624.60 Low Sulphur Heavy Stock 290.97 266.50 384.63 388.40 404.10 Bitumen 156.75 240.09 288.51 220.90 106.70 Others 8.78 11.68 11.32 11.10 7.00 Sub-total 1,295.81 1,444.72 1,532.93 1,243.40 1,142.40
Total 7,127.36 7,337.58 7,145.02 6,385.60 6,333.60
Intermediate Stock Differential (6.66) 7.01 (18.86) 58.20 (36.20) Fuel & Loss 453.60 477.59 465.32 407.50 408.90
Total 7,574.30 7,822.18 7,591.48 6,851.30 6,706.30
54th Annual Report 2005-06 27 Directors’ Report
TO THE MEMBERS On behalf of the Board of Directors, I have great pleasure in presenting to you the fifty fourth Annual Report on the working of the Company, together with the Audited Accounts for the year ended 31st March 2006. HIGHLIGHTS FINANCIAL (Rs./Crores) 2005-06 2004-05
Sales/Income from Operation 76,920.26 65,218.33 Profit before Depreciation,Interest and Tax 1,134.07 2,381.83 Depreciation (690.23) (659.59 ) Interest (158.74) (81.64) Profit before Tax 285.10 1,640.60 Provision for Tax ♦ Current Tax (78.45) (589.71) ♦ Deferred Tax (9.69) 79.33 ♦ Taxation of earlier years written back 220.05 147.11 ♦ Fringe Benefit Tax (11.38) - Profit after Tax 405.63 1,277.33 Transfer from Debenture Redemption Reserve - 100.00 Appropriations General Reserve (40.56) (127.73) Proposed Dividend : Interim - (169.67) Final (101.80) (339.33) Tax on distributed profits (14.28) (71.15) Balance carried forward 248.99 669.45 PHYSICAL (Million Tonnes) Market Sales (incl. Exports) 19.48 20.09 Crude Thruput: - Mumbai Refinery 6.25 6.12 - Visakh Refinery 7.57 7.82 SHAREHOLDER VALUE (Rupees) Earnings per Share 11.97 37.69 Cash Earnings per Share 32.62 54.81 Book Value per Share 257.74 249.05 DIVIDEND Your Directors, after taking into account the financial results of the Company during the year, have recommended dividend of 30% for the year 2005-06 as against 150% dividend paid for the year 2004-05 (including interim dividend of 50%). The dividend for 2005-06, including dividend tax provision will absorb Rs. 116.08 crores (2004-05: Rs. 580.15 crores).
54th Annual Report 2005-06 28 Directors’ Report
SALES/INCOME FROM OPERATIONS Your Company has achieved sales/income from operations of Rs. 76,920.26 crores as compared to Rs. 65,218.33 crores in 2004-05. PROFIT Your Company has earned gross profit of Rs.1,134.07 crores as against Rs. 2,381.83 crores in 2004-05 and profit after tax of Rs.405.63 crores as compared to Rs.1,277.33 crores in 2004-05. INTERNAL RESOURCES GENERATION The Internal Resources generated were Rs.989.47 crores as compared to Rs. 1,277.44 crores in 2004-05. CONTRIBUTION TO EX-CHEQUER Your Company has contributed a sum of Rs. 15,968.43 crores to the exchequer by way of duties and taxes, as compared to Rs. 16,200.61 crores in 2004-05. DIRECTORS’ RESPONSIBILITY STATEMENT In terms of Section 217(2AA) of the Companies Act, 1956, your Directors state that: (i) In the preparation of the Annual Accounts, all the applicable Accounting Standards have been followed along with proper explanation relating to material departures. (ii) The Company has selected such Accounting Policies and applied them consistently and made judgments and estimates that are reasonable and prudent so as to give a true and fair view of the State of Affairs of the company as on 31st March 2006 and of the Profit & Loss Account of the company for the year ended on that date. (iii) The Company has taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act, 1956 for safeguarding the assets of the company and for preventing and detecting fraud and other irregularities. (iv) These Accounts have been prepared on a going concern basis. MEMORANDUM OF UNDERSTANDING WITH GOVERNMENT OF INDIA The Corporation has been achieving an all round “Excellent” rating vis-à-vis MOU targets for fourteen
Photograph taken on the occasion of signing of MOU with Govt. of India for the year 2006-07. Seen in the photograph are Shri M.S. Srinivasan, Secretary - MOP&NG, Shri Anil Razdan,Addl. Secretary, MOP&NG, Shri M.B. Lal, C&MD, Shri Arun Balakrishnan, Director (HR) and Shri C. Ramulu, Director (Finance).
54th Annual Report 2005-06 29 Directors’ Report consecutive years upto 2004-05 as a result of the concerted efforts of all the employees. The performance of the Corporation for the year 2005-06 also qualifies for “Excellent” rating basis self assessment. The details of performance vis-à-vis MOU 2005-06 targets are enclosed (Annexure I). REFINERY PERFORMANCE HPCL refineries achieved the combined crude thruput of 13.82 MMT as against 13.94 MMT achieved during 2004-05. Mumbai Refinery achieved a Crude thruput of 6.25 MMT against 6.12 MMT achieved during 2004-05, which corresponds to 113.6% capacity utilization of installed capacity (5.5 MMT). The Fuel and loss at Mumbai Refinery was 6.76%, which is better than the MOU excellent target of 7.00% Visakh Refinery achieved the Crude thruput of 7.57 MMT against 7.82 MMT achieved during 2004-05, which corresponds to 101% capacity utilization of installed capacity (7.5 MMT). The Fuel and loss at Visakh Refinery was 5.98%, which is better than the MOU excellent target of 6.80%. Gross refining margins of Mumbai Refinery averaged at $ 3.22 per barrel as against $ 5.60 per barrel for the year 2004-05. Gross refining margins of Visakh Refinery averaged at $ 2.56 per barrel as against $ 5.06 per barrel for the year 2004-05. Both the refineries have initiated steps to put up new facilities to produce fuels to meet future specifications.
MARKETING PERFORMANCE The market sales (including exports) registered 19.48 MMT corresponding to Rs. 74,044.11 crores during the year as against 20.09 MMT corresponding to Rs.64,689.51 crores during 2004-05.
VIGILANCE During the current year various new initiatives were taken up. This includes substantial increase in surprise checks of the retail outlets for ensuring quality and quantity of the product delivered, reduction in lead time in investigation of complaints, direct interaction with the officers complained against, standard structured checklist for the field vigilance officers to make the inspections more meaningful and transparent, posting of the tenders in the website, opening of tenders in the presence of the tenderers etc. During the vigilance awareness week from 7th to 11th of November 2005, various Shri B.R. Mandal, Chief Vigilance Officer, HPCL seen at a Vigilance Meet
54th Annual Report 2005-06 30 Directors’ Report interactive sessions were conducted across the length and breadth of the country in various offices of HPCL to increase the awareness among the employees and other stakeholders at large about the specific role and functions of vigilance department in the organisation.
INDUSTRIAL RELATIONS The Industrial Relations climate during the year 2005-06 continued to be generally harmonious in the Corporation.
OFFICIAL LANGUAGE IMPLEMENTATION Progressive use of Hindi in the Corporation continues to receive due importance. More details are given under segment “Special Focus Areas”.
SC / ST LIAISON The overall representation of SC / ST employees in the Corporation is 27.69%. During the year, your Corporation has carried out a number of Welfare / Development activities. Further details are given in the Management Discussion & Analysis Report.
CORPORATE GOVERNANCE The Corporation has complied with the various requirements of Corporate Governance. The details in this regard form part of this Annual Report.
MANAGEMENT DISCUSSION & ANALYSIS REPORT This report has been given separately.
PARTICULARS OF EMPLOYEES A statement providing the information as required under Section 217 (2A) of the Companies Act, 1956 is annexed herewith (Annexure IV). The details regarding the number of women employee’s vis-à-vis the total number of employees in each group is also annexed (Annexure V).
DIRECTORS HPCL Board presently comprises of 11 Directors. The Whole-time Directors are S/Shri M.B. Lal, C&MD, Arun Balakrishnan, Director-Human Resources, C. Ramulu, Director-Finance, S. Roy Choudhury, Director-Marketing and M.A. Tankiwala, Director-Refineries. The Part-time Directors are S/Shri P.K. Sinha, Prabh Das, T.L. Sankar, Rajesh V. Shah, M.Nandagopal and I.M. Pandey. The following are the changes in directorships that occurred during the year. Shri M.S. Srinivasan, currently Secretary, MOP&NG who joined the HPCL Board in 13.12.2002 ceased to be Director with effect from 20.06.05. Shri C.B. Singh, currently joint Advisor, MOP&NG who joined the HPCL Board in 03.05.05 ceased to be Director with effect from 01.03.06. Shri Raja G. Kulkarni, who joined the HPCL Board in 21.01.99, resigned on health grounds and has ceased to be Director with effect from 03.03.06.
54th Annual Report 2005-06 31 Directors’ Report
Shri P.K. Sinha, Joint Secretary & Financial Advisor, MOP&NG was appointed as a Director with effect from 01.03.06 who has been co-opted as an Additional Director liable to retire at the next Annual General Meeting and is eligible for reappointment. Shri Prabh Das, Joint Secretary, MOP&NG who joined the HPCL Board in 03.05.05 continues to be ex-officio Part-time Director of the Corporation. Shri I.M. Pandey, Professor, Indian Institute of Management, Ahmedabad has been appointed as a Director with effect from 09.12.05 who has been co-opted as an Additional Director liable to retire at the next Annual General Meeting and is eligible for reappointment. S/Shri T.L. Sankar, Rajesh V. Shah and M. Nandagopal continue to be part-time non-official Directors of the Corporation. S/Shri M.B. Lal, Chairman & Managing Director, Arun Balakrishnan, Director-Human Resources, C. Ramulu, Director-Finance, S. Roy Choudhury, Director-Marketing and M.A. Tankiwala, Director-Refineries continue as the whole time Directors of the Corporation. As per the provisions of Section 256 of the Companies Act, 1956, S/Shri M. Nandagopal, Arun Balakrishnan and S. Roy Choudhury, are the Directors who will retire by rotation at the next AGM and are eligible for reappointment. The Board of Directors place on record their sincere appreciation of the valuable services rendered by S/Shri M.S. Srinivasan, C.B. Singh and Raja G. Kulkarni during their tenure on the Board.
ACKNOWLEDGEMENTS The Directors gratefully acknowledge the valuable guidance and support extended by the Government of India, Ministry of Petroleum and Natural Gas, other Ministries, Petroleum Planning & Analysis Cell and the State Governments. The Directors also acknowledge the contribution made by the large number of dealers and distributors spread all over the country towards improving the service to our valued customers as well as for the overall performance of the Company. The employees of the Company have continued to display their total commitment towards the pursuit of excellence. Your Directors take this opportunity to place on record their appreciation for the valuable contribution made by the employees and look forward to their services with zeal and dedication in the years ahead to enable the Company to scale even greater heights. Your Directors are thankful to the shareholders for their faith and continued support in the endeavours of the Company. For and on behalf of the Board of Directors M. B. LAL Chairman & Managing Director May 25, 2006
54th Annual Report 2005-06 32 Annexure to Directors’ Report
ANNEXURE - I
MOU TARGETS VERSUS ACTUAL PERFORMANCE : 2005-06
CRITERIA UNIT Target Actual “Excellent” Achieved Level COMMON PARAMETERS (A) I. STATIC FINANCIAL PARAMETERS : a) Financial Performance Indicators: i) Gross Margin / Gross Block % 12.01 12.62 ii) Net Profit / Net Worth % 5.59 8.20 iii) Gross Profit / Capital Employed % 9.11 9.73 b) Financial Indicators (size): i) Gross Margin Rs. Crs. 1600 1702 ii) Gross Sales Rs. Crs. 64260 74044 c) Financial Returns: i) PBDIT / Total Employment Rs. Lakhs 14.82 15.79 ii) Added Value / Gross Sales % 1.11 1.03 II. DYNAMIC PARAMETERS : EMPLOYEE TRAINING & MOTIVATION No. of Training Programmes Designed Nos. 5 11 Balanced Score card – Level III Score cards completion % 80 100 Competency Profiling for Officers No. of officers 140 733 Six sigma Projects No. of Projects 46 Learning Organisation Workshops No. of workshops 24 29 (For Non-management Employees) III. CUSTOMER SATISFACTION : Retail % 98 98 LPG % 98 98 Direct Sales % 98 98 Aviation % 98 98 IV. R & D for Sustained & Continuous Innovation : No. of Products launched /R&D efforts Nos. 5 5 Filing of Patents Dates 31-01-2006 01-12-2005
54th Annual Report 2005-06 33 Annexure to Directors’ Report
CRITERIA UNIT Target Actual “Excellent” Achieved Level V. Project Implementation / Modernisation : MR-Green Fuels & Emission Control Project Date of Approval : 16/10/2002, Approved Cost : Rs. 1152 Crs. Procurement of Exchangers (83 Nos.) for Revamp & Treating units Dates Nov-05 Nov-05 Procurement of columns (10 NOs.)/Vessels (20) for Revamp & Treating units Dates 31-Jan-06 Jan-06 Completion of Nitrogen Plant Dates 31-Jan-06 Jan-06
VR-Clean fuels & Emission control Project Date of Approval : 30/4/2003, Approved cost : Rs. 1635 crs Erection of 2nd GTG at site for Captive Power Plant Dates 31-Jan-06 6-Dec-05 Erection of DHDS Reactor in position Dates Sep-05 June-05 Procurement of Exchangers (13 Nos) for non licensed units Dates 31-Jan-06 Jan-06
Loni – Solapur Pipeline Project Date of Approval : 30/1/2004, Approved cost: Rs. 335.17 Crs. Mainline Pumps – Issuance of LOI Dates Aug-05 July-05 Pipeline laying – Status as of 31st March 2006 KMs 100 165
Mundra-Delhi Pipeline Project Date of Approval : 28/7/2004, Approved cost : Rs. 1623.84 Crs. Mainline Pumps – Issuance of LOI Dates Nov-05 Nov-05 Physical Progress: Foundation work- steel structural building at the terminal locations- status as of 31/3/2006 % 90 90 Line Pipes- Issuance of LOI Dates Dec-05 July-05 ERP Implementation (all HPCL locations going live) Month Dec-05 Dec-05
SAFETY PARAMETERS :
Reportable accidents in Refineries Accident/Million 0.40 0.20 Man Hrs. Number of surveillance Safety Audits to be conducted by SH&E Dept. Nos. 24 32
EXTENT OF GLOBALISATION (Internationalisation, Foreign JV’s exports strategic alliances etc.) Infusion of additional Equity into Prize Petroleum through induction of strategic partners Dates 01-Feb-06 Jan-06
54th Annual Report 2005-06 34 Annexure to Directors’ Report
CRITERIA UNIT Target Actual “Excellent” Achieved Level SPECIFIC PARAMETERS (B) I. Sector Specific : Crude Thruput : Mumbai Refinery MMT 6.00 6.25 Visakh Refinery MMT 7.50 7.57 Distillate Yields : Mumbai Refinery Wt% 68.50 71.35 Visakh Refinery Wt% 76.70 76.71 Fuel & Loss : Mumbai Refinery Wt% 7.00 6.76 Visakh Refinery Wt% 6.80 5.98 Market Share: MS - Retail % 25.71 25.38 HSD - Retail % 23.65 23.44 II. Enterprise Specific & Efficiency Parameters : Addition of Retail Outlets % 50 71 Addition of LPG Distributorships % 75 83 Branding of Retail Outlets (Club HP) Nos. 2800 3015 Average Refining cost (Excl. depreciation, turnaround & one time expenses) Rs./MT 381 350 Average Marketing cost (Excluding depreciation) Rs./MT 553 528 Development of Customer Service Index Dates Dec-05 Jan-06
OVERALL RATING (A) + (B) EXCELLENT
54th Annual Report 2005-06 35 Annexure to Directors’ Report
ANNEXURE – II Particulars with respect to Conservation of Energy, Technology Absorption and Foreign Exchange Earning/ Outgo as per Companies (Disclosure of Particulars in the Report of Board of Directors) Rules, 1988. ENERGY CONSERVATION & TECHNOLOGY ABSORPTION I. CONSERVATION OF ENERGY a) Energy Conservation measures undertaken and Additional Investment / proposals for implementation on conservation of energy Mumbai and Visakh Refineries accorded highest priority to energy conservation and have undertaken several Encon measures by operational improvements and implementing Encon projects. Various Encon measures undertaken during 2005-06 are as follows:
Mumbai Refinery i. Replaced CDU & VDU rotary Air Pre-heaters with stationery Air pre- heaters which improved the furnace efficiency by about 3%. ii. Modified / replaced steam traps of Dehydrator & SEU-III fuel oil system, which reduced steam consumption by 2 tons /hr. iii. Applied the state of the art ceramic coating in the radiation section of SEU-II & HGU reformer, which improved furnace efficiency by 2%. iv. Routed DHDS sweet gas to fuel gas header and reduced flare loss by 330 kg/hr. v. Implemented partly Zero Steam Leak Module for minimizing the steam leak through steam traps and achieved steam saving of 1 Ton / hr. vi. Proposals have been developed to Install Secondary seals in 18 nos. of floating roof storage tanks to reduce tank emission losses. vii. Schemes have been developed to convert FRE & LR –VDU natural draft furnace to balance draft. viii. Proposal has been developed to generate approx. 6 tons/hr low pressure flash steam from Light Ends Unit condensate . ix. It has been planned to rout CDU-I & II vacuum column off gas to respective CDU furnaces. x. Organised Oil Conservation Fortnight during January 15 to 31, 2005 to generate mass awareness in public for conservation of petroleum products. During the fortnight, several activities like free PUC check up for vehicles, display of oil conservation posters & slogan/quiz drawing competitions in various schools in Chembur area were conducted
Visakh Refinery i. Commissioned CDU-I condensate recovery system and achieved estimated energy saving worth Rs. 10.15 crores per year. ii. Carried out comprehensive refinery’s air leak survey by engaging an external agency. Survey identified potential energy saving of 1623 SRFT, which amounts to Rs 2.2 crores. iii. It has been planned to route CDU-I and II Hot-Well off gas to respective furnaces, which will save estimated energy of 12600 SRFT, worth Rs 17.8 crores per year. iv. Initiatives have been undertaken to reduce CPP specific Fuel consumption from 0.39 units to 0.38 units, it will save estimated energy of 3828 SRFT, which amounts to Rs 8.33 crores per year.
54th Annual Report 2005-06 36 Annexure to Directors’ Report
v. Proposal has been developed to recover CDU-II and FCC-II condensate which will save estimated energy of 161.7 SRFT, worth Rs 0.23 crore per year. vi. Furnace efficiency Joint survey was carried out by CHT nominated team during the Oil Conservation Fortnight in January 2006. vii. Implemented condensate recovery from steam traps in CDU-I and achieved estimated recovery of 2 Tons / hr. b) Impact of above on energy conservation measures and consequent impact on cost of production of goods. Various measures undertaken during the year 2005-06 would result in estimated energy savings of approx. 37949 SRFT, which is equivalent to Rs 53.87 crores. c) Total energy consumption and energy consumption per unit of production : Please refer Form - A of the Annexure to the Directors’ Report.
II. TECHNOLOGY ABSORPTION, ADAPTATION & INNOVATION a) Efforts made towards technology absorption, adaptation & innovation Information with respect to adaptation & Innovation is given in Form - B b) Imported Technology (Imported during last 5 years): - Absorption Technology Imported Year Whether fully If not absorbed, of Import absorbed Reasons Diesel Hydro De-sulfurisation Unit 2nd Reactor at MR 2004 Yes - Diesel Hydro De-sulfurisation Unit 2nd Reactor at VR 2005 Yes -
III. FOREIGN EXCHANGE EARNING AND OUTGO a) Activities relating to exports: Various initiatives have been taken to increase exports and for development of new Export markets for products and services. Efforts are on to access international Markets and to tap export potential for free trade products and lubricants. b) Total Foreign Exchange used and earned: Please refer Notes to Accounts – Schedule 19 B, Note 10 G, H, I & J
54th Annual Report 2005-06 37 Annexure to Directors’ Report
FORM - A FORM FOR DISCLOSURE OF PARTICULARS WITH RESPECT TO CONSERVATION OF ENERGY MUMBAI REFINERY (A) Power and Fuel Consumption 2005-06 2004-05 1. (a) Electricity Purchased Units (Million KWH) 36.36 10.47 Total Amount (Rs. Crores) 22.12 12.36 Rate Per Unit for energy charges (Rs/KWH) 3.61 3.90 Maximum Demand Charges (Rs. Crores) 9.01 8.28 (b) Own Generation Through Steam Turbine / Generator Units (Million KWH) 257.06 279.89 Units per ton of fuel 2538.11 2636.02 Cost per unit (Rs/KWH) 7.32 5.82 2. Furnace oil / LSHS Quantity (TMT) 165.00 152.37 Total amount (Rs. Crores) 231.50 153.31 Average rate (Rs/ Ton) 14030.00 10062.00 3. Naphtha Quantity (TMT) 130.54 126.70 Total amount (Rs. Crores) 280.28 217.87 Average rate (Rs/Ton) 21471.00 17196.00 4. LPG Quantity (TMT) 2.73 5.08 Total amount (Rs. Crores) 6.21 9.54 Average rate (Rs/ Ton) 22743.00 18777.00 5. Refinery Gas Quantity (TMT) 39.09 41.81 Total amount (Rs. Crores) 54.84 42.06 Average rate (Rs/ Ton) 14030.00 10062.00 6. BH Gas Quantity (TMT) 8.98 9.99 Total amount (Rs. Crores) 3.65 4.35 Average rate (Rs/ Ton) 4066.00 4455.00 7. Coke Quantity (TMT) 21.96 28.70 Total amount (Rs. Crores) 30.81 28.88 Average rate (Rs/ Ton) 14030.00 10062.00 (B) Consumption per Unit of Production Electricity (KWH/Ton of crude) 46.96 47.46 Fuel Oil (Tons/TMT of crude) 47.30 45.61 Gas (Tons/TMT of crude) 8.13 9.30 Coke (Tons/TMT of crude) 3.51 4.69
54th Annual Report 2005-06 38 Annexure to Directors’ Report
VISAKH REFINERY
(A) Power and Fuel Consumption 2005-06 2004-05 1. (a) Electricity purchased Units (Million KWH) 4.57 3.38 Total amount (Rs. Crores) 4.60 4.87 Rate Per Unit (Rs. /KWH) 10.06 14.42 Electricity Exported (Million KWH) 0.01 0.21 Maximum Demand charges ( Rs. crores) 2.43 2.43 (b) Own Generation (CPP) Units (Million KWH) 248.99 252.42 Units Per Ton of Fuel 2558.40 2460.15 Cost Per Unit (Rs./KWH) 4.83 5.26 2. Furnace Oil /LSHS Quantity (TMT) 128.38 140.12 Total amount (Rs. Crores) 182.37 146.26 Average Rate (Rs./Ton) 14205.38 10438.17 3. CPP Fuel Quantity (TMT) 97.32 102.60 Total amount (Rs. Crores) 212.02 199.81 Average Rate (Rs./Ton) 21785.08 19474.05 4. Naphtha (DHDS) Quantity (TMT) 30.53 26.46 Total amount (Rs. Crores) 67.71 51.22 Average Rate (Rs./Ton) 22177.87 19356.54 5. Refinery Gas Quantity (TMT) 89.88 85.63 Total amount (Rs. Crores) 129.41 89.57 Average Rate (Rs./Tons) 14398.35 10460.79 6. Coke Quantity (TMT) 71.59 71.28 Total amount (Rs. Crores) 103.05 74.54 Average Rate (Rs./Ton) 14394.65 10456.34 (B) Consumption per unit of production: Electricity KWH/Ton of Crude 33.90 32.67 Liquid fuel (Tons/TMT of Crude) 33.83 34.41 Gas fuel (Tons/TMT of Crude) 11.87 10.95 Coke Fuel ( Tons / TMT of Crude ) 9.45 9.11
54th Annual Report 2005-06 39 Annexure to Directors’ Report
FORM B FORM FOR DISCLOSURE OF PARTICULARS WITH RESPECT TO ADAPTATION & INNOVATION 1. RESEARCH & DEVELOPMENT (R&D) • COLLABORATIVE R&D PROJECTS MOU have been finalized with Research collaborators for the following projects: a. Energy efficient Deasphalting process using supercritical solvent recovery (With IIP, EIL & CHT) In the energy efficient super-critical approach the solvent recovery in the unit is done under supercritical process conditions, resulting in an overall energy savings of about 20 to 40 percent (mainly in utilities) and lower solvent losses. After incorporating the required hardware modification in the Mumbai Refinery PDA unit, the benefit expected is approx. Rs. 2 crores / annum. A test run under supercritical condition is planned during 2006-07. b. Optimization studies of Hexane manufacturing unit and feasibility study for producing polymer- grade Hexane (With IIP) Study was initiated along with IIP during 2004-05 for optimizing the existing Mumbai Refinery Hexane plant operating conditions to explore the possibility to produce WHO and Polymer grade Hexane, which have more stringent quality specification w.r.t sulfur & benzene content. c. Optimization studies of NMP Lube Extraction Unit (With IIP) Study was initiated along with IIP during 2004-05 to optimize Mumbai Refinery NMP Lube Extraction Unit operating parameters to obtain specific product quality & thruput maximization. Improvement in colour, sulfur and saturates is also expected by increasing severity of hydrofining and thru usage of suitable catalyst. A substantial energy saving is also expected by pinch analysis of heat exchangers in the unit. A controlled test run was conducted during 2005 with the participation of IIP-HPCL personnel. The test run samples are being analyzed by IIP for Physico Chemical Characterization. d. Improvement of Propylene Purity (With IICT Hyderabad) Proposal have been signed with IICT Hyderabad to improve the purity of Propylene through membrane separation. e. Implementation of Advance Process Control technology Visakh refinery has engaged M/s Honeywell to Implement Advance Process Control Technology in all process units. f. Collaborative Research Projects with IIT-Kanpur/ Chevron / ART MOU has been signed between HPCL, Chevron, IIT Kanpur and Advance Refining Technologies for various R&D activities.
54th Annual Report 2005-06 40 Annexure to Directors’ Report
• EXPENDITURE ON R&D : Capital Expenditure : Rs. 0.78 Crores Revenue Expenditure: Rs. 0.71 Crores 2. UPGRADATION INITIATIVES MUMBAI REFINERY a. Refinery carried out short term revamp of existing FCC unit and improved thruput capacity from 0.65 MMTPA to 0.90 MMTPA. This also enabled to enhance the production of value added products like LPG by 42 % and MS by 29 %. b. Refinery installed / Commissioned DHDS second reactor & commenced EURO-III grade HSD supply in line with Auto Fuel policy during the year. Refinery is now capable of supplying entire HSD of EURO-III grade. c. Refinery Altered CDU-II process parameters suitably to maximize ATF pool by blending MH/PG ATF. It has improved ATF production substantially. It resulted highest-ever ATF production of 571.4 TMT during the year against previous best of 492.2 TMT during 2004-05. d. Refinery replaced PDU De-Waxing aid as cost reduction measures, which will result in annual saving of approx. Rs 7 Lakhs.
VISAKH REFINERY a. Used Gasoline Sulphur reduction additive in FCC catalyst and replaced 100 TMT of LS crude with medium sulphur crude to meet BIS-II MS specs. b. Developed synergy between Mumbai and Visakh Refineries and moved surplus secondary unit feed stock from VR to MR and vis-à-vis to maximize distillate yields. c. Commissioned LPG Merox caustic regeneration facility to reduce chemical consumption to improve product quality. ANNEXURE - III Control of Pollution & other Environment initiatives. The Control of Pollution & other initiatives taken by Refineries are as follows. MUMBAI REFINERY 1. In a major thrust to the solid waste management, Mumbai Refinery has processed approx 5,900 M3 of sludge during the year 2005-06 and recovered 3,025 M3 of potential oil in the sludge using mechanical separation method. 2. Mumbai Refinery has taken initiative for treating the tank sludge in an environmental friendly manner without removal of the sludge from tank and with reduced tank down time. In this direction, in-situ cleaning by M/s Balmer Lawrie & Co. Ltd. using BLABO technology has been completed in Crude Tank-115 during the year and recovered 3333 M3 of Oil out of 3830 M3 of sludge present in the tank. 3. Bio-remediation process of 600 M3 of Sludge Cake ( having oil content less than 10 %) out of 2000 M3 has been completed and the balance is in progress. 4. In line with the Hazardous Waste Management rules and Honorable Supreme Court directive, Mumbai Refinery has become a member of M/s Mumbai Waste Management Ltd., and disposed off about 226 MT different hazardous wastes such as spent catalyst from FCCU, DHDS, Lube Hydo-finers and SRU have been disposed off.
54th Annual Report 2005-06 41 Annexure to Directors’ Report
5. Air Emission Control & Monitoring : The present Ambient Air Analyzers (SO2, NOx, SPM & CO) which have become obsolete have been replaced with latest State-of-art technology analyzers. Action initiated for display of Stack emission data (6 stns) on HPCL Refinery Web site. Display of stack emission data for two stns successfully done. 6. Effluent Water Treatment & Control : Replacement of existing ETP-I & ETP-II with new Integrated ETP by adopting Cyclic Activated Sludge treatment followed by Membrane Bio-Reactor and TP is in progress. Two nos of Rotary Drum Skimmers (RDS) are proposed to be implemented during 2006-07 upstream of Old & New API separators for better recovery of free oil and reduce load on API Separators. Tankfarm modifications are planned to be carried out to segregate oily water & rain water and reduce load on New Integrated ETP / API Separators.
7. ISO 14001 Renewal : Refinery has undergone the “Final Certification Audit” process during March 22 – 24, 2006 and was recommended by the Certification Agency M/s. SGS India Pvt. Ltd. for “Renewal of Certification” of EMS/ ISO-14001 for implementing & operating the “Environmental Management System” (EMS), with continual improvement. 8. Public awareness activities : As a part of public awareness campaign, following environmental awareness activities were carried out: Refinery observed Earth Day (22nd April) event which was organized jointly by HPCL and MPCB in HP Nagar-East premises. The Chief Guest, Dr. D. B. Boralkar, Member Secretary, MPCB, highlighted the importance of protecting the Mother Earth. ‘World Environment Day’ was observed on June 05, 2005. On this occasion two lectures were conducted for refinery employees on the topics viz, ‘Environmental Aspects & Impacts’ and ‘Legal Aspects & Implications’. The lectures were delivered by Maharashtra Pollution Control Board senior officials namely Mr. R. G. Pethe, Water Pollution Abatement Engineer (WPAE) and Mr Ashok Jain, Legal Advisor. HPCL sponsored Environment Film “CHAKACHAK” made by Director Sai Paranjpye. The film has been screened in 2 cinema theaters in Mumbai as well as HP Nagar residential complex. The children from various schools watched the film and it was well received by them. As a part of knowledge sharing program, following Technical papers about various initiatives taken by Mumbai Refinery in the field of environment and related areas, were presented in both national as well international forums • Technical papers presented in 13th Refinery Technology Meet (RTM) held in Hyderabad. 1. In-situ cleaning of sludge by using “BLABO” Technology. 2. Comprehensive hazardous wastes management & handling program.
54th Annual Report 2005-06 42 Annexure to Directors’ Report
• Technical papers presented in World Petroleum Congress held in Johannesburg South Africa during 25 – 29th Sept’ 2005. 1. Sea cooling water new treatment process. 2. Improved boiler water treatment program. 3. Leveraging FCCU benefits with catalyst and additives. VISAKH REFINERY Pollution control measures initiated : Routing of Hot well gases to furnaces in CDU-I & CDU II. The objective of the project is to reduce smell around the process units by diverting the gases and burning off in the furnace. The project is in advanced stage of completion and planned date for commissioning is Nov-2006. Excess oil ingress project. The objective of the project is to improve the quality of treated effluents. The project is in advanced stage and planned to go on stream by Dec-06. Disposal of hazardous waste through transit storage and disposal facility. Refinery has planned to have an agreement with pollution control board approved transit storage and disposal facility for disposing of hazardous waste.
Pollution control measures completed : Drum washing facility. Inline with hazardous waste management rules, all used chemical drums are rinsed prior disposal. The facility was commissioned in Dec-05. Commissioning of auto samplers in effluent treatment units. Auto samplers are provided on the outlet of treatment plants for accurate sampling. The samplers were commissioned in Oct-05. Provision of fountain system in effluent treatment plant-2. Refinery provided a fountain network in guard pond for better aeration to improve the quality of treated water in Dec-05. 800 MT of crude tank sludge treatment completed using “BLABO” technology.
Other initiatives ISO 14001 re-certification audit completed in Mar-06. Zero effluent discharge study is in process of completion by EIL. Volatile organic compounds (VOC) inventorization completed.
54th Annual Report 2005-06 43 Annexure to Directors’ Report
Annexure - IV Information as per Section 217(2A), read with Companies (Particulars of Employment) Rules, 1975 and forming part of the Directors’ Report for the period 1st, April 2005 to 31st March 2006.
Sr. Name Designation / Remuneration Qualifications Exper- Date of Age Last Employement No Nature of Duties ience Joining (Years) 12 3 45 6 7 8 9
1 ADINARYANA K LAB ANALYST 401,466 LICENSIATE IN MECH. ENGG. 14 16-DEC-1991 60 - 2 AJITHBABU H V MANAGER - MARKETING 779,679 BE(MEHANICAL) 22 30-APR- 1984 47 BHARAT EARTH MOVERS LTD. 3 BAGWE RAJKUMAR B SR. MAINT. TECH. 426,848 SSC/SSLC 22 19-OCT-1983 60 - 4 BHUSHAN BANALA NAGA MGR - PROJ 1,007,792 B TECH (MECHANICAL), 18 2-JAN-1988 42 - POST GRADUATE DIP. IN IE 5 BORAGE S N GEN.SERVICE ASST. 321,247 NON SSC 20 2-DEC-1985 60 - 6 CHANDRASEKHARAN P D SECURITY GUARD (SG) 291,832 NON SSC 23 26-NOV-1982 60 INDIAN ARMY 7 CHAUDHURI SUBROTO SENIOR MANAGER - PAD/FR 707,047 BE (CHEMICAL) 21 11-MAY-1984 45 - 8 CHERIYARIMMAL MANAGER - ERP 668,110 B TECH(INSTRUMENTN.) 1 4 28-OCT-1991 36 - UNNIKRISHNAN GOV 9 DOSHI NIRANJAN J EXE OPNS OFFICER 1,219,460 BSC 34 12-MAR-1971 60 - 10 D’SOUZA DENNIS SR. PLANT OPERATOR(SG) 860,538 SSC/SSLC 31 2-DEC-1975 60 - 11 GOTPAGAR PRAKASH SR MGR-QC 977,800 MSC 30 20-NOV-1975 60 OGALE GLASS WORKS LTD. 12 JAYASHANKARARAO N SR. LPG OPERATOR(SG) 452,954 SSC/SSLC 19 12-APR-1986 60 INDIAN ARMY 13 JOSEPH D M SR TECHNICAL ASSISTANT 812,836 NON SSC 30 1-AUG-1975 60 PRABHAKAR AUTOMOBILES 14 JOSHI ASHOK GANESH EXE OPNS OFF 1,355,328 DME 36 19-FEB-1970 60 - 15 KALMANE D V DY. GENERAL MANAGER- 1,307,268 BSC 37 18-NOV-1968 60 SADHANA CHEMICAL FIRE & SAFETY INDUSTRIES,MUMBAI 16 KOMPELLA SRINIVAS SENIOR MANAGER - ERP 818,804 B TECH (ELECTRICAL) 18 28-DEC-1987 40 - RAVI DURGA 17 MAHAJAN VISHWAS DIGAMBER EXE.DIRECTOR - RCD 2,109,352 BE(MEHANICAL) 37 18-NOV-1968 60 BURMAH SHELL REFINERIES,MUMBAI 18 MATHUR D S DIR-REFINERIES 1,782,401 B TECH (CIVIL),MSC 37 16-DEC-1968 60 LUBE INDIA LIMITED 19 MOHANAN M P MANAGER-INSTL. 1,184,948 B.COM 37 14-JULY-1969 60 BANK OF BARODA 20 NAIK NANDKUMAR GANPAT CHIEF ADMIN. ASST. 753,717 27 3-JAN-1979 60 - 21 NARASIMHARAO C EXECUTIVE DIRECTOR - 1,812,165 B.COM,LLB,ACS, 23 28-MAR-1983 60 TISCO LIMITED IT & PLANNING FCA/ACA,ICWA 22 NAYAK RADHAKRISHNA S SENIOR MANAGER - FINANCE 1,494,850 DBM,MA 35 29-JULY-1971 60 UNIVERSAL CHEMICALS INDUSTRIES 23 PARWANI SUNIL K SENIOR MANAGER - ERP 1,200,881 BE(MEHANICAL),DSM 22 9-OCT-1984 45 RALLIS INDIA LTD 24 RAMANNA VIJAY KUMAR SENIOR MANAGER - INSPECTION 859,757 BOE,BE(MEHANICAL) 17 21-JUNE-1989 46 WEST COAST PAPER MILLS LTD. 25 ROY RAJIV DY MGR-PROJECT 563,641 BE(MEHANICAL) 14 28-OCT-1991 36 - 26 SARDAR PROVASH GEN SERVICE ASST 653,641 38 1-JULY-1967 60 ESSO 27 SAWANT V G PLANT OPERATOR 251,013 NON SSC 19 14-OCT-1986 42 - 28 SEEDI VENKATESWARA RA CH MGR - MEDICAL SERVICES 2,065,370 MBBS 27 19-OCT-1978 60 SOUTH EASTERN RAILWAYS 29 SHAH ATUL BHAICHAND MANAGER - R&D 856,918 MSC-CHEMISTRY 13 10-AUG-1992 47 LUBRIZOL INDIA LIMITED 30 SHETYE SURESH BHIKAJI OFFICER ON SPECIAL DUTY 1,087,723 BSC,DIP IN ORM 37 12-FEB-1968 60 CALICO CHEMICALS & PLASTICS,MUMBAI 31 SHINDE SHIVAJI VITHOBA SR. TECH. OPERATOR 402,082 34 6-AUG-1972 58 - 32 SINGH HARNEK SR MOBILE ASST (SG) 327,216 NON SSC 22 2-JAN-1984 60 KARTAR DRIVING SCHOOL,CHANDIGARH 33 WANVE N D DIP/SO/WB OPTR 796,068 SSC/SSLC 21 9-FEB-1985 60 INDIAN NAVY
1 Employees listed in the statement were employed for part of the year and were in receipt of remuneration at the rate of not less than Rs.2,00,000/- per month. 2 Employment in the corporation is non-contratual. 3 Employment provides for termination of services by either party giving one month’s notice. 4. None of the Employees are related to any of the Directors’. Annexure - V Statement Showing Women Employees as on March 31, 2006 Group Total No. of No. of Women % of Women Employees Employees Employees A 3849 245 6.36 B* - - - C 6256 410 6.55 D 673 26 4.83 Total 10778 681 6.36 *HPCL has no posts classified under group ‘B’ as the entry in non-management grades has been re-classified in group ‘C’ effective 1.1.1994.
54th Annual Report 2005-06 44 Management Discussion & Analysis Report
“At a Glance………….”
Performance for the year
• Physical performance in line with targets • Financial performance below targets • Major ongoing projects progressing satisfactorily • Several new initiatives in different SBU’s • Awards/ Recognitions from different forums
Concerns
• Substantial increase in Crude Oil price • Impact on margin due to subsidy on products • Non revision in price of the products with the rise in Crude Oil price • Dynamics of oil market / Growing Competition • Macroeconomic issues • Global Geopolitics
Future Plans
• Infrastructure upgradation • Increase in Refining capacity and Marketing infrastructure • Operations improvement to meet Global Standards • Sustain existing Market Share • Cost Reduction/Improvement in Efficiency • Leverage IT and ERP to enhance business initiatives • Continued foray in E&P, Gas, Power, Bio-diesel and Non-conventional energy • New Business Opportunities in India and Outside
54th Annual Report 2005-06 45 Management Discussion & Analysis Report
ECONOMIC SCENARIO Continuing the trend of 7-8% growth of last two years, the Indian economy is projected to grow 8.4% in 2005-06. Crude oil prices have continued to rise, rising from about $50/barrel in March 2005 to $65/barrel in March 2006 due to combination of tight demand-supply balance and geopolitical tensions in global oil markets. The impact of high prices on the economy was, however, contained through a policy of sharing the burden between the Government of India, Oil Companies and the consumer. The Sensex continued setting new records reflecting the confidence in the performance of the economy and the corporate sector. Agriculture sector is projected to record a modest recovery of 2.3% in 2005-06 against an anaemic 0.7% growth in 2003-04. Industry is projected to grow by 9% over and above 8.6% growth in 2004-05. Within the industry sector, Construction is estimated to record around 12% growth, continuing the double-digit growth trend of the last two years. Housing, Real Estate and Retail continue to provide support for construction. Manufacturing GDP is projected to have expanded by more than 9% in 2005-06 against 8.1% growth in 2003-04. The Services sector is expected to maintain its growth momentum at around 10%. Within services sector, trades, hotels, transport and communication are projected to record double-digit growth of around 11% while financial services are likely to grow by 9.5%. Services sector share in GDP has gone up from around 50% in 2000-01 to 54% in 2005-06. This increase has been at the expense of the agriculture sector. Industry sector’s share has remained largely constant, increasing marginally from 25.9% to 26.2% between 2000-01 and 2005-06. Petroleum product consumption has been stagnant rising by just 0.3% in 2005-06.With a booming Aviation sector, ATF consumption continued its high growth trajectory, increasing by 17% over and above 13% growth recorded in 2004-05. Petrol demand continued the trend of 4-5% growth. Diesel consumption after growing by 7% in 2004-05 reverted to marginal growth trend, clocking a growth of only 1.3% in 2005-06. Naphtha consumption declined by 12% in 2005-06 vis-à-vis 18% growth in 2004-05. Bitumen consumption reversed its decline of 2004-05, increasing by 5.3% in 2005-06. SKO and LDO consumption continued to decline in 2005- 06 too while LPG consumption increased marginally by 0.6%. On the external front, exports recorded a growth of 23% during 2005-06. Rising commodity prices improved unit realization for exports. Petroleum product exports increased by 18% in 2005-06, rising from 18.2 MMT in 2004-05 to 21.5 MMT in 2005-06. In value terms, petroleum product exports went up by more than 200%. Realization was $10.7 billion in 2005-06 against $6.6 billion in 2004-05. Imports went up by 32% in the first eleven months of 2005-06 with POL imports increasing by 49%. Among non- POL imports, iron & steel, non-electrical machinery, machine tools, metaliferrous ores & metal scrap, pearls, precious & semi-precious stones have seen high growth recording increase ranging from 30-90%. Crude and petroleum product imports in 2005-06 were around 111 MMT compared to 105 MMT in 2004-05. In value terms, POL imports in 2005-06 were about $45 billion vis-à-vis $29 billion in 2004-05. Current account deficit in first three quarters of 2005-06 was $10.6 billion, an all time high. Earlier, the highest current account deficit was recorded at $9.7 billion for the fiscal year 1990-91. Strong capital inflows financed the current account deficit. Foreign exchange reserves stood at $145 billion at the end of the financial year, an accrual of $9.5 billion over reserves in 2004-05. Average rupee exchange rate vis-à-vis US $ was 44.13 in 2005- 06 against 44.84 in 2004-05. Financial year ended with exchange rate at Rs. 44.6 per US $.
54th Annual Report 2005-06 46 Management Discussion & Analysis Report
The Inflation rate was lower at 4.5% in 2005-06 compared to 6.5% in 2004-05. Higher crop production and only partial pass-through of high oil prices to the economy helped rein in inflation.
Projections indicate that the economy is likely to maintain current high rates going forward which should be a positive for the Oil Sector. SECTOR OVERVIEW Demand growth in the petroleum has been sluggish in 2005-06 increasing by just 0.3% reversing 3.5% growth rate trend of last three years. Petroleum products consumption in the country was around 112 MMT in 2005-06. On the supply side, however, refining capacity, at around 133 MMT, continues to outstrip demand. As a result, nearly 22 MMT petroleum products were exported. Refining margins have been good though not as high as previous year, as easing of China’s explosive 15% demand growth to 2.4% reduced demand-supply imbalance.
Oil prices have continued to increase over the years. Hurricanes in the Gulf of Mexico, turmoil in Nigeria, Venezuela and Iraq and rising geopolitical tensions over Iran and limited spare capacity in Saudi Arabia have pushed the prices up. Further, constraints in the refining system have pushed up the product prices that fed through to crude prices. In most of the developing countries including India, economy has been shielded from high prices. Indian oil companies have had to contend with higher under-recoveries affecting their financials.
Among private oil companies, sale of HSD by Reliance has reached 3.6 MMT, indicating all-India market share of almost 9%. In MS, nearly 75% of incremental sales have gone to private oil companies while in retail HSD, PSU oil companies’ sales have declined to be picked up by private marketers.
LNG has augmented gas availability in the country and has contributed to decline in Naphtha sales.
Growing competition from new entrants and alternate fuels, high oil prices, increasing costs relating to environmental compliance, under-recoveries from the sale of auto fuels, SKO and LPG and increasing expenditure requirements relating to projects and marketing translate into a challenging operating environment. HPCL has developed a strategy involving a judicious mix of product differentiation, developing a strong brand equity, network expansion and vertical integration and diversification into gas to protect and grow its business. MOU PERFORMANCE: The Corporation has been achieving an all round “Excellent” rating vis-à-vis MOU targets for fourteen consecutive years upto 2004-05 as a result of the concerted efforts of all the employees. The performance of the Corporation for the year 2005-06 also qualifies for “Excellent” rating basis self assessment. OPERATIONAL AND FINANCIAL PERFORMANCE The operational performance of the Corporation has been significant. The turnover during 2005-06 is Rs.76920.26 crores as compared to Rs.65218.33 crores in 2004-05 showing 18% increase. The marketing volumes achieved were at 19.48 MMT as compared to 20.09 MMT for the previous year. Our Mumbai Refinery and Visakh Refinery together recorded the thruput of 13.82 MMT as compared to 13.94 MMT for the previous year. The growth trend in MS/HSD our main product line have been successively increasing by registering highest growth rates in the industry. Similarly the Aviation and Lubes business Line have also made distinct impact in terms of value and growth in the market.
54th Annual Report 2005-06 47 Management Discussion & Analysis Report REFINERIES Refineries Team
Shri S V Sahni Shri D K Deshpande Shri A B Sathe Shri A S Rao Shri P A B Raju Executive Director – CE Executive Director - MR Executive Director – IT&S Executive Director - VR General Manager - (Refineries) Operations, VR
Shri B K Namdeo Shri K V Rao Shri S C Mehta Shri V S Rao General Manager - CE General Manager - General Manager – General Manager – (Refineries) Finance, VR Operations, MR Technical, VR
Shri V Jagannathan Shri K Srinivasan Shri R M N Marar General Manager – Spl. General Manager – General Manager – Assignment, VR Projects, MR Projects, VR Crude thruput and Capacity utilization Mumbai Refinery (MR) Mumbai Refinery achieved a Crude thruput of 6.25 MMT against installed capacity of 5.5 MMT, which represents a capacity utilization of 113.6%. Visakh Refinery (VR) Visakh Refinery achieved a crude thruput of 7.57 MMT against installed capacity of 7.5 MMT, which corresponds to capacity utilization of 101.0%. Fuel & Loss Mumbai Refinery achieved Fuel & loss of 6.76 % during the year, which was better than MOU Excellent Target of 7.0 %. Similarly Visakh Refinery achieved Fuel & loss of 5.98 % during the year, which was better than MOU Excellent Target of 6.8 %.
54th Annual Report 2005-06 48 Management Discussion & Analysis Report
Mumbai Refinery Green Fuels & Emission Control Project (MR-GFECP) Refinery has undertaken mega project at an approved cost of Rs.1850 crores to meet the MS / HSD of EURO-III grade in Metro / Mega cities and Bharat stage–II grade in the rest of the country. The project also envisages to enhance refining capacity from current level of 5.5 MMTPA to 7.9 MMTPA. Refinery has already installed & commissioned DHDS 2nd reactor in May 2005, which facilitated to upgrade their HSD production to EURO- III grade. The major facilities proposed under this project are to upgrade the MS to EURO-III grade and enhance crude refining capacity of NHT/ CCR, Isomerization unit, FCC Gasoline Hydrotreater unit with associated auxiliaries and revamp of existing CDU-I/VDUs and FCC Units. The project is expected to be completed mechanically by December 2006. Visakh Refinery Clean Fuels Project Similarly Visakh Refinery has undertaken Clean Fuels Project at Shri M B Lal C&MD was conferred the Lifetime Achievement Award for his contribution to the refining an approved cost of Rs.2147.8 Crores to meet the MS / HSD of sector by the Chemtech Foundation. Seen above is EURO-III grade in Metro / Mega cities and Bharat stage– II grade in the Trophy. the rest of the country. Under this project, it is also envisaged to increase the refining capacity to 8.33 MMTPA from current level of 7.5 MMTPA. The major facilities proposed under this project are NHT/CCR/NIU/ FCC NHT in MS block, Flue gas Desulphurization project and revamp of existing FCCU-II and DHDS Units. The project is expected to be completed mechanically by December, 2006. Introduction of EURO-III & BS-II MS / HSD In line with Auto Fuel Policy, Government of India revised MS / HSD specs to EURO-III grade MS / HSD in Metros / Mega Cities and BS- II grade MS /HSD in rest of the country from April 1, 2005. Accordingly, Mumbai Refinery commenced BS-II MS / HSD production from January, 2005 & EURO-III HSD production from May, 2005. However production of EURO-III MS will commence after implementation of on-going Green Fuel Emission Project. Meanwhile, Shri M.B. Lal, C&MD alongwith other HPCL officials HPC Marketing is procuring EURO-III MS from industry sources for at Visakh Refinery meeting the Mumbai region demand. Similarly Visakh Refinery commenced BS-II / EURO-III HSD & BS-II MS production from January, 2005. With respect to EURO-III MS production/supply, it is expected to commence after implementation of on going Clean Fuel Project. Meanwhile, Euro-III MS demand of Hyderabad region is being met by the refinery by utilizing appropriate crude mix and blending of streams.
54th Annual Report 2005-06 49 Management Discussion & Analysis Report
AWARDS / ACHIEVEMENTS Mumbai Refinery • Achieved highest ever production of LPG, ATF & 500 N (Lube Oil Base Stock) during the year. • Received National safety Award – 2004 for lowest accident frequency rate. • Awarded “Environment Excellence Management – Green-Tech Gold Award - 2003-04” for outstanding achievement in “Environment Management” in Petroleum Sector by Greentech Foundation, New Delhi. • Achieved 2.13 million safe man-hours as on 31st March 2006. • Successfully commissioned new cooling towers, which has improved the efficiency of refinery units. • Installed DHDS 2nd Reactor and commenced EURO-III HSD production.
Shri Prabh Das, Jt Secretary, MOP&NG during a visit to MR. Also seen Construction of a unit of GFEC Project in progress at Mumbai Refinery in the photograph are Shri M.A. Tankiwala, Director (Refineries), Shri D.K. Deshpande, Executive Director - Mumbai Refinery. Visakh Refinery • Undertook DHDS shutdown and installed 2nd Reactor to meet EURO-III HSD demand and also enhanced DHDS thruput capacity by 40%. • Achieved lowest ever Specific Energy Consumption of 93.3 MBTU/BBL/NRGF during the year against previous best of 100.8 MBTU/BBL/NRGF during 2004-05. Specific Energy Consumption has improved consistently during the last 5 years. • Exported highest ever 1053 TMT petroleum products during the year ( Naphtha / MS / HSD /FO ) against 769 TMT during 2004-05. • Achieved 2.20 million safe man-hours as on 31st March 2006. • Implemented Process Management System conforming to US OSHA PSM 1010.119 and USEPA Risk Management Program (EPA RMP) is under implementation. • Carried out various safety promotional activities to create awareness among HPCL / CISF employees and Contractors.
Construction of units of Clean Fuels Projects in Progress at Visakh Refinery
54th Annual Report 2005-06 50 Management Discussion & Analysis Report
CENTRAL ENGINEERING CELL (CEC) In line with HPCL’s vision for growth, huge investments have been planned on new projects especially in the Refineries. It is essential to choose state-of-the-art technologies for these projects to control their cost and time of execution, in order to sustain our competitive edge in the market and to ensure adequate and assured return on our investments. One strategy that has been adopted by HPCL to achieve this is to bring the entire gamut of major project activities under a Centralised Engineering Cell which will handle all such projects from concept to completion. The Central Engineering group has been functioning since last 6 months. It has identified and prioritized refinery projects worth about Rs.19500 crores, slated for completion in phases from end 2007 to early 2011, with a potential to add about Rs.3600 crores to the Corporation’s net revenues. Some of the major projects identified are: • Petrochemical complex at Visakh • Visakh Refinery expansion to 15 MMTPA • Single Point Mooring facilities at Visakh for importing crude oil in VLCC class carriers • Crude oil terminals at Visakh and Mundra (Gujarat) • Production of Grade II lubes at Mumbai Refinery • Mixed Xylene and Propylene production at Mumbai and Visakh refineries The cell has also taken steps to implement HPCL’s plans to add to the “green power” generating capacity of the country through installation of Wind Electric Generators, which will contribute to the augmentation of the country’s power generation capacity protecting the environment. To realize its Vision to be recognized as a global player in the energy sector, HPCL has undertaken the task of benchmarking various operating parameters, Safety & Environment practices and operational efficiency factors in its Refineries with the globally best companies, for continuous improvement and to become world class. It is the constant endeavor of Central Engineering to help the Refineries succeed in this mission by putting in place best-in-class technology and infrastructure. CRUDE OIL PROCUREMENT HPCL’s two refineries at Mumbai and Visakhapatnam processed 13.82 MMT of crude oil during 2005-06. Of this 3.32 MMT was from indigenous source while the balance quantity of 10.5 MMT was imported. 7.21 MMT of crude was imported on term contract basis from M/s. Saudi Aramco ( Saudi Arabia), M/s. Somo (Iraq), M/s. Adnoc (U.A.E.) and Petronas (Malaysia) while the balance quantity was purchased on spot basis. Term contracts with SOMO and Petronas were enhanced during the year. During the year, 10.46 million MT of imported crude oil worth CIF value Rs.18,964 crores was purchased. Mumbai and Visakh refineries achieved lower GRMs of 3.22 and 2.56 $/bbl respectively during the year 2005-06 vis-à-vis 2004-05 (MR- 5.60 $/bbl, VR-5.06 $/bbl), mainly due to lower duty protection, discounts extended to marketing companies on major products LPG/MS/SKO/HSD, to compensate for under recoveries on account of non revision of retail sales price and higher exports. During the year, IT & S imported 646 TMT of bulk petroleum products worth CFR value Rs.1,669 crores. On the exports front, a growth of around 23% in volume and 67% in rupee value terms was achieved in 2005-06 as compared to the previous year. This year, over 1140 TMT of bulk petroleum products worth Rs.2,376 crores were exported. Export incentives in the form of advance license were obtained against the exports made which would enable savings in customs duty on import of crude oil to the extent of Rs.116 crores.
54th Annual Report 2005-06 51 Management Discussion & Analysis Report
OIL PRICE RISK MANAGEMENT :
HPCL, being a refining and marketing company, is exposed to risk on account of fluctuation in crude oil and product prices. Oil Price Risk Management was identified as an important activity for protecting margins in the new economic and competitive environment and the risk management policy was developed thru the process of risk identification and definition of risk management vision. The risk management is in advanced stage of completion and the derivatives trading activities will commence shortly. MARKETING Marketing Team
Shri S P Chaudhry Shri S K Biswas Shri G A Shirwaikar Shri S M Palav Shri A B Thosar Executive Director – Executive Director - P&P Executive Director - LPG General Manager – IT General Manager - Retail (Mktg) Pipelines
Shri R Sudhakara Rao Shri B Gururajan Shri M S Damle Shri A B Pai General Manager - General Manager - General Manager - General Manager - Lubes South Zone West Zone East Zone
Shri Y K Gawali Shri S K Savla Shri S Y Narvekar Shri C S Krishnaswamy General Manager – O&D General Manager - E&P General Manager – I&C General Manager – QC&R&D
Shri P Rajendran Shri S P Singh Shri Rakesh Misri General Manager – MRA&P DGM – Aviation DGM (I/C), North Zone
54th Annual Report 2005-06 52 Management Discussion & Analysis Report
RETAIL BUSINESS
Fuel retailing has seen paradigm shift in the last 2 to 3 years. While, the customers have seen a lot of positive changes in the industry, the industry has seen intense competition with rapid network buildup by both private and public sector companies. Customers have started viewing Retail experiences as “One Stop Shops” and are demanding more from each Retail Interaction.
As companies adopt a more customer centric approach, some notable changes in the industry are increased branding spends by oil retailers, investment in enhancing the visual identity of outlets, steps to improve delivery around quality and quantity and focus on non fuel business. There is a marked change in approach as companies are experimenting with options to offer customers more than just fuels – in terms of products as well as services.
Branding has emerged as one of the important drivers for top line growth and creates differentiation necessary to attract and retain customers. The oil companies have moved from being commodity players to provider of branded products and services. Focus on innovative ways to create customer delight continues to be a priority for oil companies. RETAIL SBU Retail constitutes nearly 57 % of HPCL’s business. It is also the face of the Organization from the customer perspective and, therefore, receives special focus of the Top Management as well as involvement of various cross functions. HPC enjoys significant market share of nearly 23.9 % among PSU Oil Companies while 21.8 % on total Industry basis including private players in combined petrol and diesel in retail. Retail SBU vision
• Highest Performer in Sales Growth over Industry.
• Sustained Profitability through increased Sales, Non Fuel earnings, Cost optimization, Branded Fuels and Branded Lubricants.
• Absolute Customer Delight at the point of interface. Fulfilling the stated and latent needs of the customers through innovative products and services.
• Competent, committed and empowered employees.
• Sense of pride and mutual trust and camaraderie. Conducting business in a fair, transparent and ethical manner. To achieve the Retail Vision, we have developed a Retail Value Proposition by keeping “customer experience” as the core of our strategy. We have developed deeper insights of customer needs and identified ten customer segments based on psychographics, lifestyle and behavior. This has helped us craft attractive value propositions for the distinct customer segments comprising fuel and non fuel offers. The offers would be delivered through seven standard formats, each targeted at specific segments. These formats will help standardize and ensure consistent delivery of relevant bouquet of products and services to the target segments. We have also aligned our brand strategy with our customers by focusing on key driver brands – Club HP, Power, Turbojet and the loyalty cards. Through these initiatives, we would deliver relevant, compelling, differentiated and consistent experience to the customers visiting our retail outlets.
54th Annual Report 2005-06 53 Management Discussion & Analysis Report
Retail Initiatives
Retail Branding: HPCL has branded its Retail outlets under the name “Club HP” positioned on the platform of “Outstanding Customer & Vehicle Care”. During 2005-06, 771 outlets were Branded as “Club HP” taking the total number to 3018 as on 31.3.2006. Club HP outlets constitute 41% of total Retail network and generate more than 50% of total MS/HSD sales. To enhance the level of Customer Services to our valued customers an aggressive expansion programme is underway. To ensure consistent delivery of superior Customer services, all the Club HP Outlets are certified by Third Party Inspection Agency. Branded Fuels : “Turbojet”- the Branded diesel from HPCL continues to be the market leader. During 2005-06 “Turbojet” was added at 1177 Retail Outlets taking the total number to 2537 as on 31.3.06. “Turbojet” sales constitute 11.4% of total HSD sales of March 06. In view of increasing Customer loyalty for this product we have aggressive plans to penetrate on Highways and also in select Rural markets. During 2005-06 “Power” was added at 603 Retail Outlets taking the total number to 1824 as on 31.3.06. “Power” sales constitute 15.1% of total MS sales of March 06. This is testimony to the acceptance of this premium product by the customers. Loyalty Based Card Program In its continued efforts to build consumer loyalty, Retail SBU is running a powerful card based loyalty programme with various card products such as Credit card/Debit card/Smart 1 card/Fleet cards etc. During 2005-06, 2.6 million Loyalty Card Customers were enrolled taking the total number to over 5 million as on 31.3.2006. Retail SBU will also shortly launch a coalition loyalty programme that will offer rewards even to cash customers. In addition, the members will also get an option to accumulate points at other coalition member establishments. Quality Assurance: Retail SBU has taken several initiatives, many of them, first in the Industry towards quality assurance under the banner of “Good Fuel Promise” at the Retail outlets. • 10 exclusive Mobile Labs were added during 2005-06 taking the total number to 30. These labs have strengthened our capabilities of carrying out surprise checks at the outlets.
HPCL Outlet at the Mumbai - Pune Express Way
54th Annual Report 2005-06 54 Management Discussion & Analysis Report
• Third party Surveillance Audit by M/s. Bureau Veritas was completed at 3215 Club HP outlets during 2005-06 which has resulted in remarkable improvement in the quality and service standards at the outlets. • 369 Retail outlets received ISO certification during 2005-06, taking total number to 732 as of March 31, 2006. • Customer Satisfaction Index (CSI) survey was undertaken by the Regional Offices covering 4246 Retail outlets across the country during 2005-06, as a mechanism to receive customer feedback • Retail SBU has taken unique initiative in launching Quality/ Quantity awareness campaigns under the Club HP offering of Good Fuel Promise. During 2005-06 more than 150 such campaigns were conducted by Regions across the country. This has created trust and confidence in customers. Leveraging on Technology to enhance Quality. • Retail Automation HPCL has pioneered the concept of e-fuel stations in India, having fully automated over 40 Retail outlets in Mumbai/Vashi. Quality Assurance through Quality control is an international practice. Retail Automation focuses on monitoring the stocks, sales and inventory controls at Retail outlets by capturing, collating and analyzing all the transactions electronically. Retail Automation at 425 sites, mainly on Highways, is in progress. We are targeting to complete over 1000 sites in about a years time. • Vehicle Management System As a step towards ensuring quality of products during transportation to the Retail outlets, HPCL has taken the pioneering step to monitor tank truck movements on real time basis through a technology based Vehicle Management System (VMS). We have already installed the system on all 160 Company owned Tank trucks engaged for transporting MS/HSD. In addition to this we have also installed VMS on 68 Tank trucks transporting SKO under “Jan Kerosene Pariyojna” scheme. We are pursuing aggressive plans to install Vehicle Management system on all the Tank Trucks for transportation of MS/HSD. New Visual Retail Identity – “Project Aakarshan” HPCL Retail SBU is the first to introduce the concept of New Visual Retail Identity to give attractive look and appearance to its Retail outlets as per world class standards which stand out in the Oil Industry. More than 600 outlets have been provided with new Visual Retail Identity with rapid expansion in progress. Network Expansion During 2005 – 06 we have commissioned 647 Retail Outlets with focus on Highways and Rural markets. As on March 31, 2006 we have a network of total 7313 Retail Outlets. Assessment and improvement of Network Productivity To assess the health of our network and identify improvement opportunities, we have developed a ‘site evaluation tool’. We are in the process to administer the tool on a large sample of outlets and take suitable action based on the findings. Rural Initiative : As a part of Rural initiative, 206 “Hamara Pumps” were commissioned during 2005-06 taking the total number to 602. Seeds, Pesticides and fertilizers are also being sold to the farmers through 60 “Kisan Vikas Kendras” set up at select “Hamara Pump” outlets. We are targeting to reach a mark of over 1100 Hamara Pumps by March 2007.
54th Annual Report 2005-06 55 Management Discussion & Analysis Report
Non Fuel Business Market research shows that there are certain non fuel offerings that customers demand at fuel outlets. It provides a great opportunity for HPCL, as, in addition to deliver customer needs it is an additional revenue option at the Retail Outlet real estate. The focus is now to partner with the best in class brands in the relevant categories. Currently we have agreements with brands like Café Coffee Day, Crossword Book Stores, Music World, Subway, Pizza Corner and e-Ticketing for Air Deccan and Spice Jet. We have expanded the number of partners by entering into tie-up with reputed brands like Marry Brown and Kamats. Aggressive plans are underway to operationalize the arrangements in large number of Highway outlets. Training / Motivation of Dealers & Dealermen: Gurukul: Training Centres for “in-house” training programs are being developed at prominently located company-owned model retail outlets in each Region for training Dealers/Dealermen on a regular basis. 41 such training centers have been commissioned one in each Region. Dealermen Training:
Dealermen training “customer first” conducted covering 14982 dealer men on all India basis in 1085 training programmes held by professional agencies during 2005-06. In addition to above, “In-sit-U” training programme conducted covering 4061 dealer men through 507 training programmes across the Regions.
Dealer men motivation:
1494 dealermen awarded under the scheme “Spot & Reward”, which aims at giving immediate recognitions for the good work by the dealermen. Similarly, 38 Dealermen children were given scholarships during 2005-06 across Regions.
Retail SBU Performance
Due to various marketing initiatives, Retail SBU has achieved land mark performance in the year 2005-06. HPCL has recorded highest sales growth among major PSUs both in MS and HSD during the year 2005-06. We have gained Market Share by 0.16 % in MS and 0.24% in HSD. This gain in Market Share in MS & HSD is for the second successive year. Our loss in sales and market share to Private players is the least in comparison to major PSUs. HPCL Market share in MS+HSD Retail, on total Industry basis (including private HPCL Auto Fuel was voted as India’s most preferred auto fuel in the auto Fuel category at the Awaaz Consumer Award, 2006. Awaaz is the member of the World players) is 21.8% as on 31.3.2006 wide CNBC Network. Shri M B Lal, C&MD, receiving award from Shri L. Mansingh, Secretary, Consumer Affairs, Government of India. Also seen in the picture are Shri S. Roy Choudhury, Director Marketing & Shri S P Chaudhry, ED-Retail.
54th Annual Report 2005-06 56 Management Discussion & Analysis Report
Opportunities and Future Challenges The key challenges that we foresee are pressure on margins for the retail business - rising crude price being a major factor impacting our profitability. Rapid network buildup by the industry and consequent drop in thruput per outlet is a concern that we face and we are gearing up to emerge ahead of competition – by building on our strengths and launching attractive customer centric initiatives. We see opportunities in the area of branded fuels and expect a significant increase in our branded fuels business in the coming years. We also see opportunity in alternate fuels – especially CNG and Auto LPG. We are committed to expand in this field with more and more vehicles adopting gaseous fuel options. HPCL sees great opportunity in the non fuels business. Our understanding of customers through on-going market research, new formats, tying up with best in class operators gives us confidence that there are significant gains expected from non fuels business. This will remain one of our key thrust area. We have plans to diversify into some overseas markets and are exploring retail opportunities through the route of a Joint Venture. Growing purchasing power in rural India and current absence of competition presents an opportunity for oil retailers and HPCL plans to capture this opportunity and be a market leader in this segment. In summary, the key to success is a differentiated service at the forecourt and the winner will be the one who ultimately delivers the promises of his Brand. In order to succeed, it is, therefore, essential that we anticipate the future, initiate revolutionary innovations and change the historical pattern of management by aligning strategy, structure, people, culture, processes and ultimately working in teams to meet the contemporary business imperatives. Retail SBU in HPCL understands the challenges ahead and the entire Retail team stands committed to achieve the co-created vision, which is in full alignment with Corporate Vision.
Another HPCL outlet recently commissioned at Pune - Mumbai segment of Express way
54th Annual Report 2005-06 57 Management Discussion & Analysis Report
LPG SBU
The LPG Business line accounts for approximately 11% of the total volume base of HPCL. LPG Marketing has undergone tremendous change in the last few years with our country getting distinction of having the largest number of domestic consumers being served through bottles. During the year 2005-06, LPG SBU has marketed 2.51 Million Metric Tonnes achieving an all time record Non Domestic packed sales of 93 TMT notching a growth of 98% in this sector. 44 new LPG distributorships were commissioned during the year taking the total distributorships to 2188. Eleven Lakh new connections were given during the year taking the customer base to nearly 2.3 Crores.
Due to spiralling costs and critical availability of LPG, the focus area of LPG SBU for the year was genuine refill supplies to genuine customer and Conservation of LPG. LPG SBU took many steps of surveillance to arrest diversion and steps towards conservation of LPG.
Marketing initiatives:
HPCL was the first Company to brand LPG Marketing under the platform of “Ji Haan” focusing on instant service to LPG customers and further consolidated with introduction of single number help line and offered the customer, the choice of verifying the correct weight of the cylinder at the doorstep which was not only followed by the Industry but also very well appreciated by the public at large. This year again HPCL became the first Oil Company to introduce co-branded “Green Label series LPG Stoves” having high HPCL officials demonstrating weighment of filled LPG cylinders . Seen in the photograph are Shri M.S. Srinivasan, Secretary, Petroleum & Natural Gas, Shri thermal efficiency resulting in saving of precious Anil Razdan, Additional Secretary, Petroleum & Natural Gas, Shri M.B. Lal, C&MD at the recent Strategy Meet. LPG for the country.
Thrust Area:
Major thrust area this year was to reduce the losses due to subsidy on Domestic LPG. HPCL has taken steps to bridge this gap by focusing on Genuine Refill supplies to genuine customers with strict controls & surveillance and put all out efforts in Non-Domestic Sales to strengthen our hold in the Industrial & commercial sector besides generating revenue in this sector. Number of steps were taken such as reducing costs through independent product sourcing, inventory optimization, aggressive credit and discount policy etc. LPG SBU also successfully converted 100 industries from alternative fuels to LPG, generating additional ND volume of 1000 MTs per month.
The ‘HP Gas Rasoi Ghar’ concept was further extended at Hospitals and forest areas. Today, we have Rasoi Ghars covering all major hospitals in Metro cities. Our commitment to provide a clean eco-friendly fuel to our rural population was appreciated not only by the users but received laurels at international level. Today, there are over 1500 Rasoi Ghars operating across the country benefiting over 20,000 families.
54th Annual Report 2005-06 58 Management Discussion & Analysis Report
LPG SBU Vision • HP Gas is the market leader in growth and profitability in the industry. • HP Gas is the world class and most preferred brand by the customers for the quality, appearance, innovations, services and offering total energy solutions for all gaseous fuel applications. • HP Gas is global in entire gamut of LPG Marketing and trading with massive presence in rural sector. • HP Gas is a caring organization with a strong bond with its customers, dealers and all other stakeholders. • HP Gas is a team of highly motivated, competent and disciplined employees and conducts its business in ethical and transparent manner. • HP Gas is totally committed to safety, health and environment.
Safety, Conservation & Environment: Safety has always been accorded the highest priority in HPCL and to reaffirm the same the current year was observed as ‘Customer Safety Awareness year’ all over India. To convert HP GAS consumers as “Suraksha Users” for enhanced safety, Suraksha Rubber hoses were promoted thru campaigns with awareness programs like street plays, banners, posters, leaflets etc., involving NGOs, Self Help Groups & Tribal Groups. During the year converted 14% of HP Gas consumers as Suraksha hose users. Apart from these campaigns, 19027 Safety Clinics were conducted for Conservation & Safety education in schools, colleges, housing societies, women welfare centers across the country. Recognizing the need to promote environment friendly alternative fuel, HPCL has been the front-runner in the field of Auto LPG. HPCL, which was the first company to introduce Auto LPG in India, commissioned 8 more ALDs during the year taking the total numbers to 39, which has resulted in sales of more than 18000 MTs. HPCL also commissioned its first independent CNG Station at Ahmedabad. With 1 mother station & 9 daughter stations, achieved volume of 1235 MT during the year, besides significantly contributing towards reducing environmental pollution. Our Mangalore LPG Import Facility achieved the globally acclaimed OSHAS 18001:2004 & ISRS Level-8 certificate demonstrating the excellent, safety, health environment & quality systems under practice. MLIF is the first and the only terminal in the entire Oil Industry to achieve this feat. To conform to environmental standards, all our LPG locations are working towards ISO 14001 certification for Environment Management System (EMS). At the close of year, a total of 31 Bottling Plants have either been accredited or recommended under ISO 14001. Facility Up-gradation and System Improvements: HPCL’s strength had always been its infrastructure and to further consolidate the same commissioned bottling plant at Mumbai, with a total capacity of 88 TMTPA. This plant would help HPCL in significantly reducing logistics cost of feeding Mumbai market. To meet increased demand, capacity augmentation of Unnao, Madurai & Khapri LPG Plants were completed during the year. This will boost our total bottling capacity of LPG plants by 164 TMT to 2154 TMT. Currently, more than 50% of plants are having electronic carousels while Industry has just started this activity.
54th Annual Report 2005-06 59 Management Discussion & Analysis Report
ERP & IT Initiatives: During the year, ERP implementation completed for all the Regional Offices, Plants & locations. Distributor computerization programme completed across the country. This would enable us to provide efficient service to consumers and also help us to roll out IT enabled value added services such as single number refill booking service, SMS based refill booking, internet services, net based transactions with Corporation and build up centralized consumer database. Learning & Growth: LPG SBU also marked this year as Learning and Growth Year and completed Functional Intensive Training for all officers in Sales and Operation streams including Regional Managers & Plants Managers, reinforcing functional fundamentals for clarity and uniformity in understanding of SBU policies and Governing principles facilitating consistent approach in LPG Marketing across the country. Training programme “Project Pragati” launched for Distributors as an extension to earlier programme “Millennium Distributorship” to sensitize them for genuine use of LPG and preparing them for competitive scenario of ND segment. Completed training of all Mechanics and show room staff of LPG distributorships across the country under “Project Jee Haan Seva” a Training Module launched for training on behavioural aspects along with functional training.
As a Corporate Social Citizen: Jammu LPG RO organized “Relief Material distribution” to earthquake victims thru Army in the valley, at Srinagar. Artificial limbs to physically challenged persons were distributed at MLIF as part of SC / ST special component plan. Similarly, 834 sets of uniforms, 35 Desks and benches were distributed to 417 students of Higher Secondary School, Khapri Railway and Jamtha village, Nagpur.
The period ahead: Keeping in mind the opportunities available to HPCL, LPG SBU has chalked out elaborate future plans for the LPG business. Revenue generation thru non fuel business will be the major focus area. LPG SBU has also plans to enter overseas markets in various fields of gaseous fuels such as CNG and Auto LPG besides targeting polluted cities within the country for setting up city gas distribution and CNG facilities. DIRECT SALES SBU LUBES BUSINESS - LINE India is the 6th largest lubricant market in the world with an annual sales of over Rs.6500 crores. The present market size is approximately 1.25 MMTPA. Of the above market, the automotive segment comprises of about 0.75 MMTPA and the industrial/direct segment contributes to the tune of 0.50 MMTPA. The core/large sector industries account for around 50% of the
54th Annual Report 2005-06 60 Management Discussion & Analysis Report industrial/direct market, and the balance is distributed across diverse sectors such as sugar, marine, fisheries, fertilizers, etc. In line with the attractive growth potential in automotive and industrial sectors in the country, the Corporation has demarcated its Lubes Division as a Strategic Business Unit. During the year, HPCL has marketed 354 TMT of lubricant products including base oils during the year. CATEGORY TMT AUTOMOTIVE GRADES 71 SALE TO INDUSTRIAL / DIRECT CONSUMERS 80 BASE OILS 203 TOTAL 354 Lubes Business Line Vision • HP DS(Lubes) Is market leader in growth and profitability. • HP DS (Lubes) is most preferred supplier of quality products at right price and time. • HP DS is a learning organization with committed, competent and professional team. • HP DS (Lubes) is delighting the customers by value added services. • HP DS (I&G) is the market leader in growth with focus on profitability. • HP DS (Lubes) is a professional and empowered team for quick response to customers. • HP DS ensures consumer loyalty through differentiated services.
Important Awards & Recognition: • Golden Peacock Award for Innovation for 2004-05 (In-house manufacturing of VI Improver) • HPCL Lube Blending Plants ranked “FIRST” for OISD award for 2004-05 • Greentech Award for the year 2004-05 for Safety & Environment to Mazagaon OTHER INITIATIVES: New Products Launched: • HP No 1 – Euro III Compliant engine oil meeting API CH 4 & Volvo VDS 3 Specifications for high end commercial vehicles. • HP AP-3 Grease – Superior Grade Grease with longer life, outstanding protection from rust and superior washout resistance. • HP Grape Spray Oil – Effective environment friendly pest control oil for grape farmers. • Supertran OIB – Combined transmission and hydraulic oil for new generation tractors. Brand Building: HPCL continued to promote its major brands through innovative above and below the line promotional activities. Cricketer Zaheer Khan endorsed HP Racer 4, the company’s four stroke bike engine oil. Zaheer’s endorsement was effectively leveraged to promote the brand in all major markets.
54th Annual Report 2005-06 61 Management Discussion & Analysis Report
Core Sectors: HPCL improved its participation in core sectors (Army, Railways, Coal, Steel etc.) by 4% during the year. This will continue to be a major focus area for the Corporation. Distribution Network: HPCL focused on expanding the reach of its Distributor network while at the same time improving sales at its countrywide network of over 7000 retail outlets. The Corporation will continue to work for improving its supply chain so as to increase its Shri S. Roy Choudhury, Director (Marketing), showing Shri service level to customers. M.B. Lal, C&MD, the various brands of Lubes at the recent Lubes SBU Meet Genuine Oil Tie-Ups: HPCL continues its Genuine Oil tie-ups with Tata Motors and Kinetic Engineering. The Corporation is in the process of finalizing similar tie ups with other major OEMs. The Lubes SBU’s plans for the year 2006-07 will include: • Development of new products to meet changing customer needs. • Development of high end automotive grades to cater to emerging vehicle technologies. • Focusing on Core Sectors like Railways, Defence, Coal, Steel, State Transport Undertakings, Cement etc. • Building and sustaining a strong brand identity through above and below the line promotional activities. • Establishing a foothold in lucrative international markets. • Genuine Oil Tie-ups with OEMs. • Enhancing Sales Channel Networks. • Modernising the supply chain to give improved service to customers.
Section of Participants at the Lubes Meet Shri M.B. Lal, C&MD, Shri Arun Balakrishnan, Director (HR), Shri S .Roy Choudhury, Director (Marketing), and Shri B.R. Mandal , Chief Vigilance Officer, examining intensely the new Lubes package.
54th Annual Report 2005-06 62 Management Discussion & Analysis Report
I & C BUSINESS LINE Industrial and Consumer (I & C) business line primarily meets the requirement of wide range of direct consumers of Fuels, Special Products and Bitumen. This business line caters to the requirement of consumers in sectors like power, fertilizer plants, Industrial units, cement, steel, coal, glass, road construction, transportation, paint, Solvent Extraction, tyre etc. During the year 2005-06 we have recorded a sales volume of 4579 TMT. HPCL holds market share of about 14.33%. The business is transacted through 18 Regional Offices spread all over the country, with the complement of competent and technically strong staff catering to the varied needs of our customers. HPCL has a market share of (Major products) 20.6% in Naphtha, 19.95% in LDO, 19.6% in FO, 16% in Bitumen and 7.5% in HSD. I&C business line has achieved Furnace oil sales of 1612 TMT which is the highest ever sales in one year. This has enabled us to ensure sustained Furnace oil evacuation from refineries. This was possible due to solicitation of new businesses as well as retaining the existing business. Refinery evacuation was ensured inspite of huge fluctuation of production. HPCL has signed Memorandum of Understanding and Confidentiality Agreement with Fuel & Marine Marketing LLC (FAMM), subsidiary of Chevron, USA on November 11, 2005 towards enhancing HPCL’s bunkering prospects in India through Techno Commercial support of FAMM. HPCL has the distinction of being the first to introduce 380 cSt Furnace Oil bunkering in India. Retained Naphtha business of RCF (550 TMTPA) against stiff Global Competition and also obtained DFRC from DGFT towards supplies effected in the previous financial year. Fresh Agreement for supply of Propylene (34 TMTPA) was signed with M/s. Andhra Petrochemicals Ltd. on November 7, 2005. Tank wagon loading facility for Black Oil was commissioned at Haldia on June 10, 2005. Signing of MOU with G.B. Pant University of Agriculture and Technology for Jatropha Cultivation. Seen in the photograph are Shri S. Roy Choudhury, MOU was signed with G B Pant University of Director (Marketing), officials of Pant University and HPCL. Agriculture & Technology on January 20, 2006 for joint programme of Jatropha cultivation and production of Biodiesel through transestrification. The Central and State Governments have been laying special emphasis on road infrastructure development due to which we continue to pay special focus on marketing of Bitumen and Bituminous products. We have strengthened our relationship with Border Roads Organization by participating in their co-ordination meets at Leh and Shilong. To enhance customer relationship, 6 seminars were conducted for Hexane and 8 for Bitumen. During the year 1300 MT Lubes was exported to Kenya, Bangladesh and Nepal and also 2260 MT Furnace Oil to Nepal. The Score Cards of Product Line Managers at Headquarters were finalized. Competency mapping for all field officers was completed and Individual Development Plans were drawn out.
54th Annual Report 2005-06 63 Management Discussion & Analysis Report
AVIATION HP Aviation is the fastest growing supplier in India which is only because of customer centric initiatives taken by HP Aviation resulting in a compounded annual growth of 35% and the over all market share increase from 9.8% to 15.4%. During this period the customer base of international airlines increased from 3 to 30 and the market share increased from 3.8% to 22%. It started in December 2002, when the Shri S.P. Singh , Head Aviation SBU seen with group of children for whom a Management visualized that the Aviation sector fantasy flight was organised - courtesy : Jet Airways in India was poised for substantial growth and decided that the Aviation Fuel business needed to be one of the thrust areas and formed a separate Aviation SBU. A core team was formed in the SBU with emphasis on drawing up a road map for the future. While the main intention was to boost sales and enhance market share, the key measures to be taken for achieving this were identified as under: • Create a unique identity for HP Aviation. • Augment and upgrade facilities. • Train manpower. • Improve Service and Safety Standards. • Improve Customer Focus. • To be a responsible corporate citizen. Various measures were taken to create a unique identity for HP Aviation and it created differentiation in the market while providing the services to its airline customers in India. To cater and to have better reach to airline customers, new locations were identified and facilities at Bangalore, Goa and Dehradun were commissioned during 2005-06. Facilities at existing locations have been upgraded to ensure that the same are in line with stringent international standards with Inauguration of Bangalore Aviation facility . Seen in the photograph are special emphasis on refueling equipments. Shri M.B. Lal, C&MD, Shri S. Roy Choudhury, Director (Mktg). HP Aviation Vision
• HP Aviation is the market leader in profitability and growth through a wider network among the industry. • HP Aviation has the second largest market share in both domestic and international business in the country. • HP Aviation has a highly motivated, inspired and dynamic team, which takes pride in being part of the SBU. • HP Aviation inspires confidence in customers by providing the best quality in product and service. • HP Aviation practices the highest standards of health, safety and environment in the industry.
54th Annual Report 2005-06 64 Management Discussion & Analysis Report
Manpower training is being given special emphasis which includes in house courses conducted by experienced personnel from within the Aviation SBU as well as those conducted by trainers from Chevron Global Aviation (CGA). HPCL officers are also sent to CGA facilities outside the country to acclimatize them with the prevalent international norms and practices. Efforts were also made to bring a more intense customer focus in the business by running promotional campaign with the airlines highlighting both the airlines as well as HP Aviation apart from supporting airlines in initial launch and anniversary celebrations. Also the e-ticketing have been launched thru retail outlets in major cities for Air Deccan and Spicejet airlines during the year. Only HP Aviation provides such value added services to its airline customers in Industry. Being a responsible corporate citizen, HP Aviation has been regularly associated with events with a cause like special flights for the underprivileged children, etc. As part of efforts made to ensure that its operations cause no harm to the environment, all the major locations follow prudent Safety, Health and Environment practices culminating in their certification to international environment standards (ISO 14001) resulting in HP Aviation being the only Indian Aviation Fuel company to win the Golden Peacock award for Environment Management 2004-05 & 2005-06. OPERATIONS & DISTRIBUTION • NEW GRASS ROOT DEPOT AT RAMAGUNDAM, A.P. A land area of approx.18 Acres was acquired at Kundanpalli Village, adjacent to Rajiv Rahadhari State Highway and a new Depot with total Tankage of 7974 KL for MS, HSD and SKO together, with product receipt through Railway Tank Wagons from Vijayawada Terminal has been completed in all respects at a cost of Rs.11.47 Crores. The Depot will meet the requirement of Nizamabad, Adilabad & Karimnagar. The facilities were constructed in the extremely difficult terrain involving extensive Rock cutting. The siding facilities were completed by re-routing 2 Nos. 132 KV HT Towers in the shortest possible time. The Depot has been commissioned in September, 2005. • ADDITIONAL TANKAGE AT HASSAN TERMINAL 2 x 10000 KL and 1 x 15000 KL Additional Product Tankage for premium grades completed at Hassan Terminal in May’05. • ASF New Aviation Service Facilities at Bangalore and Goa have been commissioned with 880 KL and 400 KL Tankage respectively. • NEW OFFICE CUM LABORATORY BUILDING AT BUDGE BUDGE TERMINAL New Office / Laboratory Building (Approx. 21000 Sft) with interiors completed in November, 2005 at Budge Budge Terminal - I and Building is occupied by Budge Budge Terminal. • 40 KL CAPACITY NEW GENERATION TANK TRUCK HPCL is first in Oil Industry to propose and obtain CCOE approval for a period of 6 months trial operation of Aluminium Alloyed tank truck of 40 KL capacity on Volvo FM 9 X 340, 6 X 4 Trailer Chassis for operating between Vashi Terminal and Retail Outlet at Sajgaon on Mumbai Pune Express Highway. The Truck is ready in all respects and ready for commissioning. In addition several safety/security systems such as bottom loading arrangement with vapour recovery system, vehicle management system for monitoring vehicles in transit and anti lock braking system for prevention of skidding of the vehicle due to sudden braking are some of the features of this tank truck.
54th Annual Report 2005-06 65 Management Discussion & Analysis Report
A new generation tank truck feeding HPCL outlet. • ADDITIONAL TANKAGE COMMISSIONED A total of 44,254 KL (16 Nos.Tanks) additional tankage has been completed / commissioned at various locations during 2005-06. • WIND / SOLAR HYBRID SYSTEM AT LONI TERMINAL 15 Kw Wind/Solar Hybrid Power Plant to support a connected Lighting load of 6 KW for a working period of 6 to 8 hours per day is nearing completion at Loni terminal as a part of Renewable Energy Projects. Subsidy to the tune of 50 % has been obtained from MoNES (Ministry of Non Conventional Energy Sources) through MEDA (Maharashtra Energy Development Agency). • ENERGY SAVING PROJECTS Energy Saving System consisting of VFDs (Variable Frequency Drives) and automation for TT loading Pumps has been installed and commissioned at 15 Locations out of 32 locations at a cost of Rs.160 Lakhs. The estimated energy saving from these 15 locations would be Rs.90 Lakhs and the simple pay back period is 1.8 years. Commissioning activities are in progress at balance locations. • VEHICLE MANAGEMENT SYSTEM IN CO. OWNED T/Ts Vehicle Management System completed and commissioned in 148 Company owned T/Ts at 60 Locations all over India in phases. ONGOING MAJOR PIPELINE PROJECTS • MUNDRA DELHI PIPELINE PROJECT: The project approved in July 2004 at a cost of Rs.1623.84 crores is under execution, with an objective to commission the new infrastructure by May, 2007, which would be a back bone for supplies and distribution to Northern Part of India. The cross country pipeline will have a capacity of 5 MMTPA and originates from West coast location at Mundra (Gujarat) and passes through Rajasthan, Haryana and terminates at Bahadurgarh to cater to market in North India. The Main pipeline is 18" / 16" dia size from Mundra Despatch terminal to Bahadurgarh Receipt terminal with length of 1048 KM. Further 3 nos of 8" dia spur lines for dedicated supply for MS/HSD/SKO are proposed from Bahadurgarh to Tikkrikalan for a length of approximately 12 KM. At Bahadurgarh receipt terminal, Railway loading facility is planned to facilitate supplies to other markets in UP / Himachal Pradesh / Uttaranchal / Madhya Pradesh (northern part)/ Jammu & Kashmir by Rail Wagons.
54th Annual Report 2005-06 66 Management Discussion & Analysis Report
The main pipeline enroute also envisages supplies to Palanpur (Gujarat), Ajmer & Jaipur (Rajasthan) & Rewari (Haryana) through tap-off terminals with storage & distribution Facilities. In line with the guidelines of MOP&NG the pipeline is also planned for common usage for other users for 25% of the pipeline capacity. • PUNE SOLAPUR PIPELINE PROJECT The project approved in January 2004 at a cost of Rs.335.17 crores is expected to be mechanically completed by September, 2006. On completion of the project, Industry requirements in the districts of Kolhapur, Solapur, Sangli and Gulbarga will be catered. The project envisages derating of Trombay - Vashi Section of Mumbai Pune Pipeline involving changes in configuration of Trombay Mainline Pumps and providing a new pumping station at Vashi Tap Off. Extension part involves laying 343 Kms. long multi product cross country pipeline from Loni to Pakni via Hazarwadi and setting up a pumping station at Loni, Tap Off Facility at Hazarwadi, Receipt Station at Pakni near Solapur and additional product storage tanks at Hazarwadi and Pakni. RESEARCH & DEVELOPMENT (R&D) • COLLABORATIVE R&D PROJECTS MOU have been finalized with Research collaborators for the following projects: a. Energy efficient Deasphalting process using supercritical solvent recovery (With IIP, EIL & CHT) In the energy efficient super-critical approach the solvent recovery in the unit is done under supercritical process conditions, resulting in an overall energy savings of about 20 to 40 percent (mainly in utilities) and lower solvent losses. After incorporating the required hardware modification in the Mumbai Refinery PDA unit, the benefit expected is approx. Rs.2 crores / annum. A test run under supercritical condition is planned during 2006-07. b. Optimization studies of Hexane manufacturing unit and feasibility study for producing polymer-grade Hexane (With IIP) Study was initiated along with IIP during 2004-05 for optimizing the existing Mumbai Refinery Hexane plant operating conditions to explore the possibility to produce WHO and Polymer grade Hexane, which have more stringent quality specification with reference to sulphur and benzene content. c. Optimization studies of NMP Lube Extraction Unit (With IIP) Study was initiated along with IIP during 2004-05 to optimize Mumbai Refinery NMP Lube Extraction Unit operating parameters to obtain specific product quality & thruput maximization. Improvement in colour, sulphur and saturates is also expected by increasing severity of hydrofining and thru usage of suitable catalyst. A substantial energy saving is also expected by pinch analysis of heat exchangers in the unit. A controlled test run was conducted during 2005 with the participation of IIP-HPCL personnel. The test run samples are being analyzed by IIP for Physico Chemical Characterization. d. Improvement of Propylene Purity (With IICT Hyderabad) Agreement entered with IICT Hyderabad to improve the purity of Propylene through membrane separation. e. Implementation of Advance Process Control technology Visakh refinery has engaged M/s.Honeywell to Implement Advance Process Control Technology in all process units. f. Collaborative Research Projects with IIT-Kanpur/ Chevron / ART MOU has been signed between HPCL, Chevron, IIT Kanpur and Advance Refining Technologies for various R&D activities.
54th Annual Report 2005-06 67 Management Discussion & Analysis Report
UPGRADATION INITIATIVES MUMBAI REFINERY • Refinery carried out short term revamp of existing FCC unit and improved thruput capacity from 0.65 MMTPA to 0.90 MMTPA. This also enabled to enhance the production of value added products like LPG by 42 % and MS by 29 %. • Refinery installed / Commissioned DHDS second reactor & commenced EURO-III grade HSD supply in line with Auto Fuel policy during the year.Refinery is now capable of supplying entire HSD of EURO-III grade . • Refinery altered CDU-II process parameters suitably to maximize ATF pool by blending MH ATF to PG ATF. It has improved ATF production substantially. It resulted highest-ever ATF production of 571.4 TMT during the year against previous best of 492.2 TMT during 2004-05. • Refinery replaced PDU De-Waxing aid as cost reduction measures , which will result in annual saving of approx. Rs. 7 Lakhs. VISAKH REFINERY a) Used Gasoline Sulphur reduction additive in FCC catalyst and replaced 100 TMT of LS crude with medium sulphur crude to meet BIS-II MS specification. b) Developed synergy between Mumbai and Visakh Refineries and moved surplus secondary unit feed stock from VR to MR and vis-à-vis to maximize distillate yields. c) Commissioned LPG Merox caustic regeneration facility to reduce chemical consumption to improve product quality. Imported Technology (Imported during last 5 years): Technology Imported Year of Import Whether fully absorbed
Diesel Hydro De-sulfurisation Unit 2nd Reactor at MR 2004 Yes Diesel Hydro De-sulfurisation Unit 2nd Reactor at VR 2005 Yes
JOINT VENTURES
Shri T K Kalyanaraman Shri A V Sarma Shri R K Gupta Shri Rajan K Pillai General Manager General Manager General Manager General Manager Mangalore Refinery and Petrochemicals Ltd. (MRPL)
MRPL with a capacity of 3 MMTPA was commissioned in March 1996. The capacity of the refinery was enhanced to 9 MMTPA during 1999-2000. ONGC acquired the entire equity stake of IRIL in MRPL on 03.03.2003
54th Annual Report 2005-06 68 Management Discussion & Analysis Report and also infused Rs.600 crores into MRPL as additional equity on 30.03.2003. The FIs/Lenders of MRPL converted Rs.365 crores of debt into equity and Rs.160 crores debt into ZCBs. Consequent to the above, HPCL’s equity stands at 16.95% after which a fresh Shareholder Agreement dated 03.03.2003 has been signed by HPCL with ONGC to take care of the interests of HPCL. MRPL declared a dividend of 7% for the financial year 2005-06. HPCL and MRPL have been exchanging intermediate process streams between their refineries to supplement efforts to meet new environmental norms in respect of products like MS and HSD on mutually agreed terms Hindustan Colas Ltd. (HINCOL) The performance of HINCOL, a Joint Venture Company jointly promoted with M/s COLAS SA, France continues to be encouraging. HINCOL currently operates six manufacturing plants across India, manufacturing international quality value-added bituminous products such as bitumen emulsions & cutbacks and modified bitumen. During the year, HINCOL consolidated its growth further by achieving a 25% growth in volumes and a 34% growth in profitability. The products of HINCOL are used by agencies associated with road construction. The outlook for road sector being bright, HINCOL is confident of gaining from the increased opportunities in the forthcoming years. The Joint Venture company maintained the dividend of 15% during the year 2005-06. A view of the HINCOL Plant South Asia LPG Co. Pvt. Ltd. (SALPG) This Joint Venture Company with Total Gas and Power India (a wholly owned subsidiary of Total of France) was incorporated on November 16, 1999, with HPCL’s equity participation of 50%. SALPG is constructing the first underground cavern storage facility in the country. The SALPG project envisages the construction of a 60,000 MT LPG Underground Mined Cavern with its associated receiving & despatch facilities at Visakhapatnam. The storage will be the largest LPG storage facility in South Asia and would enable meeting the growing demand of LPG in India and also the export of LPG to the deficit markets in South Asia/South East Asia. The financial outlay for the project is Rs.333.30 crores and it is being financed through Debt-Equity of 2.33:1. Debt is fully tied up with a consortium of seven banks lead by State Bank of India. The financial closure of the project has already been achieved. The SALPG cavern would be the second deepest mined cavern in the world. Geostock of France is the consultant for the project and the facility is being constructed by Larsen and Toubro Ltd. Excavation of the top heading of the Main Cavern Gallery is in progress. Petronet India Ltd. (PIL) Petronet India Ltd. (PIL) was formed in May 1997 as a joint venture company with 50% equity by oil PSUs and balance 50% being taken by private companies/financial institutions. Special Purpose Vehicles (SPVs) were floated by PIL with oil companies for implementing individual pipeline projects, viz, Petronet MHB, Petronet CCK and Petronet VK which are operating companies. Since oil companies are now having pipelines independently, PIL has initiated action to disinvest its equity holding in individual JVCs.
54th Annual Report 2005-06 69 Management Discussion & Analysis Report
Petronet MHB Ltd. (PMHBL) HPCL, alongwith Petronet India Ltd.(PIL) had promoted Petronet MHB Ltd for the construction and operation of Mangalore–Hassan-Banglore pipeline. ONGC has joined as a strategic partner in the Company by taking 23% equity. The product pipeline from Manglore to Banglore, with a tap off point at Hassan, has been executed at a cost of 639 crores. The pipeline is meeting the transportation needs between Manglore, Hassan and Banglore. Due to lower thruput and pipeline tariff, the operational and financial viability of the project has been affected. Financial restructuring of PMHBL is in progress. Prize Petroleum Co. Ltd. HPCL, in partnership with ICICI and HDFC, had formed this Joint Venture E&P Company viz Prize Petroleum Company Ltd for participating in exploration and production of hydrocarbons. Prize Petroleum in consortium with GSPC Ltd., Jubilant Enpro and Geo-global Resources Ltd has been awarded the Block CB-ONN-2002-/3 in the Cambay Area under NELP-IV bidding process, Prize Petroleum has been successful in getting award of an offshore field cluster consisting of three fields (Cluster-7) from ONGC under Service Contract. The Company has started a drilling programme for onshore fields of Hirapur and Khambel as well as Sanganpur Fields. Also, the first well drilled on a prospect (P1) by the Company, is producing 320 barrels per day through a restricted 6 mm bean. The well was drilled by the Company by a non damaging drilling fluid which has been used for the first time in Cambay Basin Bhagyanagar Gas Ltd. Bhagyanagar Gas Ltd. (BGL) has been incorporated on August 22, 2003 as a Joint Venture Company by GAIL and HPCL for distribution and marketing of environmental friendly fuels (green fuels) viz. CNG and Auto LPG for use in the transportation, domestic, commercial and industrial sectors, in the state of Andhra Pradesh. HPCL and GAIL would hold 22.5% of the equity while 5% would be held by the Government of Andhra Pradesh and 50% by Strategic/Financial investors. BGL has commissioned and operating 3 Auto LPG Outlets – 2 in Hyderabad and one in Tirupati. BGL also commissioned the first CNG mother station in August 2005 , followed up with commissioning of 2 daughter stations in existing HPCL retail oulets. Discussions with APSRTC for supplying of CNG to their buses in Vijaywada are in progress.
Outlets set up recently by Bhagyanagar Gas Ltd
54th Annual Report 2005-06 70 Management Discussion & Analysis Report
Aavantika Gas Ltd. HPCL signed a Joint Venture Agreement on November 16, 2005 with GAIL for the distribution and marketing of CNG and Auto LPG, for use by consumers in automotive sectors and natural gas for use by consumers in residential, commercial and industrial sectors. Towards implementation of this project in the State of Madhya Pradesh, a company by name “Aavantika Gas Limited” has been incorporated on June 07, 2006. INTERNAL CONTROL SYSTEMS HPCL believes that a strong internal control is necessary for good Corporate Governance and freedom of management should be exercised within a framework of appropriate checks and balances. It has got added importance with the roll out of ERP system at almost all locations throughout the country. The Corporation remains committed to ensuring an effective internal control environment that provides assurance on the efficiency of operations and security of assets. It has got adequate internal control system commensurate with its size and nature of business and has well laid down documented manuals, policies and guidelines covering various aspects of business, processes and operations. It has an independent Internal Audit Department comprising of financial, technical and IT professionals having varied experience in their respective functional areas. The focus of internal audit is to review the adequacy of internal controls, compliance with Corporation’s policies and guidelines highlighting areas which would result in optimum utilization of assets and financial resources, increase in profitability and operational excellence. The Internal Audit activity encompasses carrying out test check of all major locations, Refineries, controlling offices and major operating functions on annual basis. The Annual Audit Programme is reviewed and approved by Chairman and Managing Director and the Audit Committee of the Board. The significant audit findings are reviewed by the top Management and Audit Committee and directions where necessary, are given for follow up action in line with the audit findings. BUSINESS DEVELOPMENT INITIATIVES OVERSEAS INITIATIVES Initiatives being taken by HPCL to acquire/put up assets overseas : • MOU with Petrosen (Senegal): HPCL has initiated dialogue with Petrosen for acquisition of part stake in the refinery and for setting up of marketing network in Senegal. An MoU has been signed on 30th Dec. 2005 for the following broad areas of co-operation : i) Petrosen will use reasonable endeavours through dialogue with its co-promoters for HPCL’s equity participation in the SAR refinery and HPCL will evaluate the proposal and work towards an agreement on mutually acceptable terms and conditions ii) Jointly develop an action plan for undertaking project for expansion of existing refinery, if necessary iii) HPCL and Petrosen would jointly work towards promoting network for distribution and marketing of petroleum products in Senegal iv) Joint Venture Company should optimise value to be leveraged from capability and resources of the parties Discussions are in progress to finalize the draft joint venture agreement with M/s. Petrosen. • MOU with SINOPEC, China : HPCL & SINOPEC have signed an MoU on 13th March 2006 for cooperation in upstream, R&D crude sourcing, product trading and consultancy. Discussions are in progress to carry forward the business activity in the areas identified in the MOU.
54th Annual Report 2005-06 71 Management Discussion & Analysis Report
• VR Expansion Project and Aromatics Project: HPCL and Total had entered into a Memorandum of Understanding on 16th August 2005, for the study and evaluation of certain refining and marketing projects in India and other areas of Asia as well as evaluation of opportunities for HPCL’s participation in Total’s Refining and Marketing assets overseas. Negotiations are in progress with M/s. TOTAL for jointly promoting HPCL’s Visakh Refinery Expansion Project from current capacity to 15 MMPTA along with Aromatics Project. Feasibility study of Refinery expansion project as well as Aromatics Project is in progress. • HPCL MoU with M/s GAIL (India) Ltd. : i) MOU signed for jointly promoting CNG & City Gas. Distribution in States of Madhya Pradesh, Rajasthan and Gujarat. ii) JVA signed for State of Madhya Pradesh to start with, for CNG & Gas distribution at Indore. The JV Company with the name, Aavantika Gas has already been incorporated for pursuing this business. iii) Board approval is being sought for signing a JVA for distribution of City Gas & CNG gas distribution in Rajasthan. iv) MOU signed with GAIL for joint participation in E&P opportunities in India and overseas. • HPCL PARTICIPATION IN M/s SHELL LNG TERMINAL AT HAZIRA : HPCL entered into a Memorandum of Understanding on 8th March, 2004 with M/s. Shell India Pvt. Ltd., for products infrastructure and facility sharing between both the Companies. The scope of MOU also envisaged that M/s. Shell, its affiliate Companies and HPCL would evaluate and work towards an agreement for HPCL to participate in LNG business in India. HPCL has evinced interest for taking equity participation in Shell LNG Terminal at Hazira. The due diligence of Hazira Terminal has been completed and non-binding offer submitted. Negotiations are in progress to finalize the deal. • DFR STUDY FOR 5 MMTPA LNG IMPORT TERMINAL AT MUNDRA: A detailed feasibility study has been conducted for setting up of 5 MMTPA capacity ‘LNG’ import terminal at Mundra. The scope also includes associated gas evacuation pipelines from Mundra to Delhi respectively. Discussions are in progress to source LNG for this project. • ACQUISITION OF M/s GREATER CALCUTTA GAS CO. LTD.: In order to enter into natural gas business in the East zone, HPCL has decided to acquire Gas supply Company located in Eastern Zone of India. HPCL has engaged a consultant to conduct due diligence of this opportunity. The techno-economic evaluation of this opportunity is in progress.
Shri M.S. Srinivasan, Secretary, Petroleum & Natural Gas addressing the Strategy Meet of the Corporation held recently.
54th Annual Report 2005-06 72 Management Discussion & Analysis Report
INITIATIVES IN UPSTREAM E&P BUSINESS • Award of onshore block in Assam: HPCL in consortium with Oil India Ltd. and some other interested parties had participated in bidding process for few high potential blocks in onshore, shallow water & deep water categories under NELP-V. A MOU to this effect was signed with Oil India Ltd., on 20th May, 2005. OIL-HPCL consortium has been awarded one on share block, AA-ONN-2003/3, in Assam. A Production Sharing Contract has been signed with Shri M.B. Lal , C&MD, at the site of Hirapur onshore marginal field, Kheda Govt. of India on 23rd September 2005 for the Dist., Gujarat. Also present at the site are Dr. M. N. Prasad, CEO - Prize development of this block and the Joint Operating Petroleum and Shri. O. P. Pradhan, GM - CP&S, HPCL. Agreement was signed with OIL on 5th Nov. 2005. An application seeking the Petroleum Exploration License has been submitted to the Govt. of Assam. • Award of ONGC offshore marginal fields : Oil and Natural Gas Corporation of India (ONGC) had offered award of service contract for development of nineteen (19) offshore fields in nine (9) clusters in Mumbai High area. HPCL participated in the bidding in consortium with Prize Petroleum Company Ltd., and M/s Trenergy of Malaysia for two clusters (# 7 & 8). The consortium has been awarded one cluster # 7, in March 2006. • HPCL MoU with M/s Oilex, Australia: HPCL / Prize and M/s Oilex of Australia entered into an MOU on 10th October 2005 at New Delhi, for international alliance in various E&P activities in India as well as abroad, with an objective of ascertaining block prospectivity and defining appropriate work program bids. M/s. Prize Petroleum participated in the bidding for two exploration blocks (WO5-3 and WO5-16) in the Australian E&P round in consortium with OILEX NL, Australia, GSPC & GAIL INDIA LTD. However, this consortium was not awarded the blocks. • Joint Bidding in Oman for E&P blocks: HPCL in consortium with Oilex, Gail (India) Limited, Videocon Industries Limited and BPCL .had participated in the bidding for block Nos. 56 & 58 at Oman. The participating interests of the parties is as under :- OILEX 25% VIL 25% GAIL 25% HPCL 12.5% BPCL 12.5% The consortium has been awarded one block-56 during March 2006. EPSA Agreement is expected to be signed with the Sultanate of Oman by end June 2006. 5. Bidding for blocks in Australia: HPCL has participated in Australian bidding round two for blocks in Carnarvon basin in consortium with M/s. OILEX Australia, GSPC, Videcon Industries Ltd., and BPCL.
54th Annual Report 2005-06 73 Management Discussion & Analysis Report
FINANCE During the year 2005-06, there has been substantial rise in crude / product prices in international market. The working capital requirements of the Corporation have gone up on account of high crude oil prices due to inability of the oil marketing companies to pass on the increased product prices to consumers and subsidy burden on SKO and LPG. The Government of India has issued oil bonds to the oil marketing companies to share the burden of subsidy on LPG and SKO. The average working capital borrowing requirement went up by 68%. The funds requirements were also higher on account of the major projects like Green Fuel Projects of Mumbai and Visakh Refinery, as also the Mundra - Delhi and Pune - Solapur pipelines and retail modernisation. The working capital requirements have been met by short term borrowings. The Corporation has made arrangement of funds through medium and long term borrowings for capital expenditure. During the year, the Corporation has signed its maiden External Commercial Borrowing agreement for US$ 200 million. The year 2005-06 saw global and local interest rates firming up sharply. As a result, the weighted average cost of borrowings to meet working capital requirement during the year increased to 5.77%. During 2005-06, Foreign Exchange Market has been volatile. However, the Corporation took suitable steps to ensure that adverse impact is minimised by timely hedging / forward cover. During 2005-06, Corporation offered fixed price contracts to customers by taking appropriate hedge in international commodity market. Steps are being taken to offer new hedging structures like options to customers. This has been profitable for both customer and the Corporation. With progressive implementation of Enterprise Resource Planning and increased implementation of core banking by major banks, it has now become possible to implement e-banking. To leverage ERP and Core Banking System in banking sector, a pilot was taken in the Mumbai Refinery and supplier payments through electronic mode were implemented. ENTERPRISE RESOURCE PLANNING (ERP) Enterprise Resource Planning (ERP) system has now been introduced across the Corporation to support core business processes. This strategic initiative leverages the Information Technology for the benefit of business and is a step in meeting the challenges being faced consequent to the liberalisation of the oil industry. ERP system would effectively manage the information needs of the Corporation. The system would aid the decision makers in taking timely business decisions based on on-line and accurate information that would be available from the system. Tracking of cost of operations would become easy with the implementation of this system. There would be an improvement in management control due to standardisation of various business processes. More details on ERP is given under the segment Special Focus Areas. HUMAN RESOURCE DEVELOPMENT The Training Department has been endeavouring to play the role of strategic business partner, in this dynamic context, which is characterised by the following :- Achievement of HPCL vision PSU strategy/reforms Increasing customer requirements and expectations Intensifying domestic competition Volatile supply situation Emergence of new technologies
54th Annual Report 2005-06 74 Management Discussion & Analysis Report
This emerging environment calls for re-defining and enhancing of employees’ competencies. The strategy of the Training Department, in this context, can be briefly articulated as under :- Enhancing competencies to realise vision Developing current and future capabilities Create avenues for fast and continual learning Facilitate adapting to change Providing support to business initiatives The process followed by the Training Department has been largely through a series of competency based training initiatives. Throughout the financial year, Training Department has been interacting with various SBUs to ascertain the training needs and designing the programs to address these needs. The training programs designed, developed and delivered during the year are :- Shri Arun Balakrishnan, Director (HR) being conferred Fellowship by All “Building High Performance Teams” - Program India Institute of Management Association in recognition of his contribution based on Leadership Competency Framework for in the field of Management. officers in Salary Grades D/E/G through International GE. “Management Development Program” for officers in Retail SBU through IIM-A. “Excellence in Lube Blending Plant Operations” for officers in Lube “Meeting Challenges in Marine Sales” “International Trade and Finance” “Refresher program on LPG Sales/Operations/ Maintenance. Refinery Technical Programs ( Excellence in Refinery Operations / Refinery Economics / Storage Tanks etc.) “Program on Marketing Quality Control” for Quality Control Cell Officers. “Media Training” for senior management IT related training programs (Hummingbird and ITIL). “Program on Project Management
“Programs on Safety , Health and Environment” Hon’ble Chief Minister, New Delhi, Smt. Sheela Dixit presenting to Shri M.B. Lal, C&MD, HPCL, the Golden Peacock Award 2005 of the Institute We have designed all the above programs customised of Directors for Corporate Social Responsibility. to our organisation and have also engaged the services of reputed institutions like IIM-Ahmedabad, International GE, Achieve Global, Indian School of Petroleum etc. Officers have also been sent for various external and foreign training programs like Advanced Management Program, Accelerated Management Program etc to reputed institutions. Officers were also nominated for EMBA program conducted by S.P. Jain Institute of Management & Research (SPJIMR). We have nominated 10 officers in the Batch-3 of this EMBA program. Officers were also nominated for online certification program in ‘Project Management’ offered by Universitas 21.
54th Annual Report 2005-06 75 Management Discussion & Analysis Report
With a view to enhance the quality of service and interaction with our various stakeholders, a program on ‘Customer Delight’ was designed and rolled out across all the locations for non-management staff and DGR sponsored / contract security guards.
To facilitate continual learning Training Department has also introduced the following innovations :-
The Training Portal was upgraded to make the same more user-friendly, interactive and personalized. It has strong features for Knowledge Management, has real time integration with the ERP system and facilitate blended learning. Gave impetus to development of internal faculty. This was facilitated by conduct of “Train the Trainer” program for internal faculty and increasing the utilisation of internal faculty for programs. Customized business portal ‘Knowledge on Demand’ was launched in collaboration with Centre for Monitoring Indian Economy. Six e-learning courses in management topics were introduced through ManageMentor site. Facilities in HP-MDI, Nigdi were upgraded and new facilities added to create a more conducive learning environment. The average number of training man-days per officer was 6.4 mandays for the current year.
All India Employees Sports Meet
INDUSTRIAL RELATIONS
The Industrial Relations climate for the financial year April 2005 to March 2006, continued to be generally harmonious in all units of Marketing Division, Mumbai Refinery and Visakh Refinery and there was no loss of production. Due to our endeavour and the positive approach of the 15 different unions operating in the Marketing Division and Refineries, the overall Industrial Relations scenario witnessed active cooperation from the employees and strengthened industrial peace which in-turn enhanced the productivity. “ERP / Automation / Modernisation Implementation” settlement has been signed with All-India Marketing Unions in January 2006 with various productivity improvements including adjustment of surplus manpower thru redeployments/transfers, introduction of access control systems, stricter controls on unauthorised absentees etc.
54th Annual Report 2005-06 76 Management Discussion & Analysis Report
During the financial year 2005-2006, 5 settlements have been signed with Marketing Unions for improvement of productivity at 5 different LPG Plants. The broad features of these settlements are upgradation of technology, additional production, outsourcing of non-core activities etc. Proactive-IR (a) Learning Organisation Workshops In order to build teams and imbibe the spirit of team work etc, IR organised “Learning Organisation” workshops for workmen during the year 2005-2006. The concept of the workshop is based on Peter M Senge’s book “Fifth Discipline”. A total of 29 such workshops have been conducted during the year 2005-2006 against MOU target of 24 by Team of Internal Coaches. (b) Employee Engagement Survey for workmen : For the first time in the Corporation, the subject survey was proposed to be undertaken. On a pilot basis, the subject survey was carried out at 29 locations under South Zone, during the period Jan-Mar 2006. Before conducting the actual survey, the line management and union leaders were briefed on the purpose of the survey and future plans. The analysis of the questionnaires is being done. The subject survey is proposed for other Zones in the current year i.e. 2006-2007. (c) Others With a view to enhance the customer focus amongst the workmen, a unique program “Project Customer Delight” was designed covering all non-management employees. Through this program, around 2000 non-management employees have been covered (Security, Clerical, Stenography, Canteen etc). With a view to proactively deal with the HR related issues, concept titled “HR Aapka Dwar” was introduced at Mumbai Refinery during the year. A total of 217 workmen have been redeployed during the year 2005-2006 and most of the manpower requirements have been met through re-deployments. As a part of our continued endeavour to delight our internal customers, a policy was developed for extending the financial assistance to the retired employees who are involved in CBI/quasi-criminal cases (both accused as well as witnesses). The same was implemented in the year 2005-2006. MANPOWER DATA The manpower statistics of our Corporation for the past 5 years is as under : Year-wise No. of Management No. of Non- Manpower as on Employees Management Employees Total Strength 31.03.2002 3571 7786 11357 31.03.2003 3583 7630 11213 31.03.2004 3594 7494 11088 31.03.2005 3562 6999 10561 31.03.2006 3849 6929 10778
54th Annual Report 2005-06 77 Management Discussion & Analysis Report
RECRUITMENT OF LAST 5 YEARS Year-wise Recruitment Recruitment of Recruitment of Total Recruitment Officers Non-Management 2001-2002 38 41 79 2002-2003 27 11 38 2003-2004 63 1 64 2004-2005 80 6 86 2005-2006 378 38 416
BREAK-UP OF EMPLOYEES (As of 31.3.2006) Special Component Plan / Tribal Sub Plan & Welfare Plan for Weaker Sections : Total Strength 10778 SC/ST 2984 During the year 2005 - 2006, our Corporation has carried out a number of Welfare/Developmental Persons with Disabilities 126 Ex-Servicemen 595 Women Employees 681 Sportsmen 2 activities at various locations inhabited by SC/ST/ Weaker Sections in the vicinity of operating business locations and Refineries at Mumbai and Visakhapatnam at a total cost of over Rs. 4.19 crores. The said activities include Primary / Secondary / Graduation & Post- Former Union Minister of Petroleum and Natural Gas & Panchayat Raj Graduation education, health care, augmentation of Shri Mani Shankar Aiyar distributing relief materials to the Tsunami affected people in Tamilnadu. drinking water facilities, family welfare, vocational training, income generating schemes, rehabilitation of Persons With Disabilities (PWD), Scholarships to students of SC/ST/Weaker Sections including students with disabilities and provision of computers to the Educational Institutes.
Corporate Social Responsibilities :
HPCL, as a Socially Responsible Corporate Citizen, is undertaking CSR Activities in a focused and systematic manner on the principle of Triple Bottom Shri M.B. Lal, C&MD lighting the lamp on the occasion of launch of Line. This envisages enlarging the scope of existing CSR initiatives by HPCL. Also seen in the photograph are Shri Arun Balakrishnan, Director (HR), Shri C. Ramulu, Director (F), and Shri activities and not limiting the benefits to the SC/STs M.A. Tankiwala, Director (Refineries).
54th Annual Report 2005-06 78 Management Discussion & Analysis Report alone, but to reach the other sections of the Society, who need support and also certain initiatives in the environment protection. In order that these Projects receive continued focus, an HPCL Foundation has been setup with a corpus of Rs. 7 crores to finance these projects. The Foundation would also monitor implementation of these schemes. More details have been given under the segment Special Focus Areas.
OFFICIAL LANGUAGE IMPLEMENTATION
Progressive use of Hindi in the Corporation continues to receive due importance. Details are given under the segment Special Focus Areas.
Shri M B Lal, C&MD receiving Indira Gandhi Rajbhasha Shield from Shri Corporation receiving the Aashirwad Rajbhasha Puraskar. Hon’ble Dy.Chief Manikrao H Gavit, Hon’ble Minister of State, Home Affairs. Also seen in Minister, Maharashtra, Shri R.R. Patil handing over the award to HPCL the picture is Shri Shivraj Patil, Hon’ble Union Home Minister. Team.
CORPORATE GOVERNANCE :
The Corporation has been taking required steps to comply with the various requirements of Corporate Governance regulations including the requirements relating to compliance of Clause 49 of the listing guidelines , as notified by SEBI. A separate segment on Corporate Governance has been included in the Annual Report. The Future – Opportunities & Threats and our Initiatives to counter :
The downstream companies in the Oil and Gas Sector which are basically engaged in Refining crude and marketing petroleum products has experienced a steep fall in profits in 2005-06. Unless there is a significant fall either in the crude price or significant increase in the product prices , particularly the LPG and Kerosene, the profitability would continue to be affected in the period to come. It has thus become necessary for the Corporation to pursue vigorously its initiatives both in its current area of activities and in new areas, as explained above with greater focus in the E&P and Gas segments. Our initial steps in the E&P segment on our own as well as thru the JV Prize Petroleum are showing positive signs. The Corporation is looking for opportunities in Oil and Gas fields both within the country as well as outside. MOUs have been signed with well known companies in the field for undertaking joint initiatives. Even a moderate success could result in a positive revenue flow to the Company.
54th Annual Report 2005-06 79 Management Discussion & Analysis Report
In the Refining segment , both MR and VR have completed extensive turnaround involving maintenance, upgradation of facilities . This has resulted in improved unit performance and yield improvement. The Green Fuels Project at both the Refineries are expected to be completed by the year end which will enable them to produce products meeting EURO III norms.
Both the Refineries are benchmarking their activities to Shell Global Solutions. Actions have already been taken in the area of energy and loss management, maintenance performance, reliability improvement and environment performance.
The Marketing segment continues to focus for achieving “Customer Delight” in each of its SBUs. The retail segment aims to enhance sales volume thru greater focus in the rural and highway segment apart from consolidating its urban market share. The Lube and Industrial Oil segment would continue to provide thrust on value added products. The need for specialized products of large customers like Railway, Defence and other major Industries meeting stringent quality norms would be met with, to the satisfaction of such important customers. The aim would be to gain their full confidence and trust and thereby make HPCL as their “preferred supplier” for their special product requirement. The Aviation SBU which has recorded significant performance for the last 2 years would continue to strive for further market share in the Aviation segment. The LPG SBU which is facing continued pressure on Margins due to non revision of price in line with the import cost would focus to look for business opportunities in alternate LPG applications with greater thrust towards increasing non domestic sales.
The various HR initiatives that are in progress for the last 2 years, would further enhance the employee capabilities / competency in discharging their responsibilities to face the challenges and lead the company towards sustained growth and profitability in future.
CAUTIONARY STATEMENT
Matters covered in the Management Discussion and Analysis describing the Company’s objectives, projections, estimates, expectations may be “forward looking statements” within the meaning of applicable securities, laws and regulations. The actual performance could vary from those projected or implied. Important or unforeseen factors that could make a difference to the Company’s operations include economic conditions affecting demand / supply and price conditions in the domestic market in which the Company predominantly operates, changes in regulations, and other incidental factors.
The road ahead is challenging. The Corporation could continue to face pressures on margins. The scenario calls for action plans not only to sustain in current position but also to look for avenues to sustain the growth and development. The various initiatives that have been highlighted would provide the platform to the Corporation to chart its activities aligned to its Corporation Vision. The Corporation with its strong fundamentals and growth plans is confident of meeting the challenges ahead and live up to the expectations of all segments of its Stakeholders.
54th Annual Report 2005-06 80 Special Focus Areas
HPCL’S CONSTANT ENDEAVOUR
• Aim for sustained Growth and Productivity to reward consistently our shareholders and stakeholders
• Ensure highest standards of Safety in all our operations
• Function in harmony with Environment and the Society
• Be known for highest standards of Ethics and Transparency in operations
• Earn the trust of all sections with whom the company operates for an enduring relationship aimed at mutual benefit
• Produce Quality products and services to meet the stated and latent needs of customers
• Set up infrastructure with “state of the art” facilities
• Ensure highest standards of maintenance to ensure reliability of plants / units and enhance MTBF (Mean Time Between Failures)
• Be a learning organization with constant measures to upgrade skills and competencies to respond to the ever changing market scenario
• Creating an environment of Trust, Pride and Camaraderie within the organisation
• To be seen as a ‘Company that Cares’
Setting goals, Raising the bar, Looking beyond the obvious, Courting the impossible, Dreams that chart The course of our future, That’s the HP way
54th Annual Report 2005-06 81 Special Focus Areas
CORPORATE SOCIAL RESPONSIBILITY HPCL, as a Socially Responsible Corporate Citizen, has undertaken CSR Activities in a more focused and systematic manner on the principle of Triple Bottom Line. This envisages enlarging the scope of existing activities and not limiting the benefits to the SC/STs alone, but to reach the other sections of the Society, who need support and also certain initiatives in the environment protection.
In order that these Projects received continued focus, an HPCL Foundation has been setup with a corpus of Rs. 7 crores to finance these projects. The Foundation would also monitor implementation of these schemes. For implementation of the CSR projects, MoUs between Operating Partners (reputed NGOs) and Project Partners were signed in the month of January/February 2006 in Delhi & Mumbai. The following nine projects have been launched :
1) SURAKSHA : This project is partnered with Hindustan Latex Limited, focussed on prevention of AIDS across truckers, who are considered to be high risk population. Highway Retail Outlets across 13 States are being identified where Condom Vending Machines (CVM) will be installed. M/s. Hindustan Latex Ltd. has already supplied 45 CVMs. Organisation for Socio-Economic & Rural Development (OSERD), Patna, for East Zone, “Kanan” Delhi for North Zone, “Association For Rural Mass India (ARM)”, Villupuram District, Tamil Nadu for South Zone and “Sevadham Trust”, Pune for West Zone have been identified for carrying out the activities to train the forecourt operators as “peer educator” and various other campaigns.
2) SWAVALAMBAN : This project is partnered with Confederation of Indian Industry (CII), New Delhi, aimed at 1100 unemployed youth to be self-reliant through vocational training.
Initially, the programme will cover 250 persons in Bhiwadi (near Delhi), Dehradun and Rae Bareilly, where the centres are finalised.
3) NAYA NETRITWA : This project is partnered with Organisation Dynamics (OD), New Delhi. Out of a total of 400 students of 4 schools from Mumbai / Delhi to be covered on Leadership Lectures, 350 students are already covered. The participants have voluntarily agreed to help poor children of rural India by donating used books and interacting with them.
4) UNNATI : This project is partnered with NIIT Limited to provide computer training to 3000 students of Class VII - IX, so that they are better equipped to move to higher classes. This project is being implemented at Visakh and Mumbai schools.
5 schools from Visakh covering 1500 students have been provided computer training. 4 schools at Mumbai have been identified for providing computer training.
5) NANHI KALI : This project is partnered with K. C. Mahindra Education Trust (KCMET), Mumbai. This project is focussed towards education of 500 girl children in Andhra Pradesh through sponsorship. All such children will be provided notebooks, stationery, uniforms and other learning materials.
6) MUSKAN : This project is partnered with PRAYAS Juvenile Centre (JAC) Society, New Delhi. 100 street children are targeted for bringing back their lost childhood through basic support such as food, clothes, shelter, healthcare, vocational training etc. 68 such children have been identified, who are placed in shelter homes of Tughalakabad and Jahangirpuri.
54th Annual Report 2005-06 82 Special Focus Areas
7) VIKAS (Bihar Development Initiative) : This project is partnered with Confederation of Indian Industry (CII), New Delhi, focussed on improvement of learning /literacy levels of 5000 children from poor families of rural Bihar through innovative teaching methods like crafts, films, team activities etc.
4000 children have been identified for remedial classes which are launched with the help of village youth. Orders for books are placed to set 30 libraries.
8) LEADERSHIP LECTURE : This is a project partnered with Organisation Dynamics (OD), New Delhi. About 12000 young students across 25 cities are planned to be covered to influence the minds of school children towards national issues and ignite their leadership qualities. The lecture series will commence at 12 cities.
9) NAVJYOT : This project is partnered with Navjyoti Delhi Police Foundation, New Delhi. Through this project, healthcare facilities are being provided to slum rehabilitated families around Delhi.
4 health camps are organised and approximately 1400 children have been identified for monitoring their periodical health checkups. 261 families are registered at health centres.
Out of a total of 698 New Retail Outlet and LPG distributorships commissioned during the year, 169 were allotted to SC/ST category and 18 were allotted to Persons with Disabilities (PWD) category.
Glimpses of CSR initiatives
54th Annual Report 2005-06 83 Special Focus Areas
SAFETY, HEALTH & ENVIRONMENT CARE The Corporation is committed to conducting business with a strong focus on preserving the environment, sustainable development, safe workplaces and enrichment of the quality of life of employees, customers and the community. Systems, procedures and practices are in place at all operating units and installations to take care of safety, occupational health and protection of the environment. Existing facilities are periodically audited and upgraded to maintain excellence. Environment management systems at the refineries and major marketing installations are certified to ISO-14001 standards. The Visakh and Mumbai Refinery’s Quality Control Laboratories have approval from “The Director, Directorate General of Civil Aviation (DGCA)”, for Testing, Storage & Supply of Aviation Turbine Fuel (ATF). The Corporation continues to strive for improvement in Safety, Health & Environmental performance by not only meeting industry standards, but also by going beyond the expectations of these standards and other regulatory bodies. The Corporation’s efforts on continual improvement in the field of Safety, Health & Environment are not only recognized at local level but also on National level as seen from the number of awards that have been presented to the Corporation. These efforts have gone a long way in building a strong safety culture in the Corporation. The Corporation’s major Safety, Health & Environment achievements include: Safety • Mumbai Refinery completed 2.13 Safe Million Man Hours without any Lost Time Accident. • Visakh Refinery completed 2.20 Safe Million Man Hours without any Lost Time Accident. • Mangalore LPG Import Facilities situated at Mangalore has been awarded International Safety Rating System (ISRS) level 8 certificate from M/s DNV, a globally accredited certifying agency. • Raipur & Jatni LPG Plants have been awarded ISRS level 6 certificate from M/s DNV. • Mumbai & Visakh Refineries have already been certified for ISRS Level 8 from M/s DNV. Environment • Adopting eco–friendly technologies such as change over from phenol to NMP solvent and change over from Oleum to NMP. These initiatives have been widely appreciated and have won for HPCL various National & International awards / citations. Diesel Desulphurisation facilities are fully operational in both the refineries. • Significant reduction in SO2 emission has been brought about in both the Refineries through design and operating strategies. • Both the Refineries have commenced supply of BIS – II MS / HSD and EURO – III HSD from January 2005 and May 2005 respectively. Project for Euro – III MS is under implementation. • Both the Refineries have taken initiative for treating the crude tank sludge in an environment-friendly manner using in-situ BLABO technology of M/s. Balmer Lawrie & Co. Ltd. • Over 75% of the petroleum products from the Refineries are being evacuated through pipelines. Dependence on road transport for evacuation of products has been reduced significantly, resulting in considerable reduction in auto emissions to atmosphere.
54th Annual Report 2005-06 84 Special Focus Areas
• Extensive green coverage has been provided in and around the Refineries and Housing Colonies.
Health
• No cases of occupational illness diagnosed and reported.
• Periodical Medical Examinations for employees completed as per schedule.
• Carried out Special Medical check up for Canteen, Welders and F&S Personnel.
• Health awareness programmes such as Heart Diseases, Diabetes, Yoga, Meditation, etc, organized for employees and their family.
• Organized Tetanus Toxid, Hepatitis B, Typhoid Vaccination programs for food handlers and Medical Personnel.
• Training Programs organized on Cardio Pulmonary Resuscitation (CPR), First Aid & Occupational Health.
• Special training program for Medical Personnel on handling Cardiac Emergencies and Cardio Pulmonary Resuscitation (CPR) conducted.
• Study on Cleaning and Hygiene practices covering Canteens & Guest houses had been carried out to find out the gap and to take remedial measures.
Mock safety drill in LPG Plant
54th Annual Report 2005-06 85 Special Focus Areas
ENTERPRISE RESOURCES PLANNING (ERP)
Enterprise Resource Planning (ERP) system has now been introduced across the Corporation to support core business processes. This strategic initiative leverages the Information Technology for the benefit of business and is a step in meeting the challenges being faced consequent to the liberalisation of the Oil Industry.
ERP system would effectively manage the information needs of the Corporation. The system would aid the decision makers in taking timely business decisions based on on-line and accurate information that would be available from the system. Tracking of cost of operations would become easy with the implementation of this system. There would be an improvement in management control due to standardisation of various business processes.
Project Parivartan is HPCL’s initiative to implement JD Edwards OneWorldTMXe, a leading world class ERP solution. The implementation covers all the modules of the ERP software viz. Sales & Distribution, Manufacturing, Finance and HR. Customised modules to suit HPCL processes have been developed for employee compensation & benefits and also Payroll and both integrated with Finance and HR modules of the software.
Roll out across all HPCL locations has been completed during December 2005 in line with the MOU target in the ‘Excellent’ category. This has covered more than 430 locations. Roll out at Marketing & Corporate HQO has been completed in April 2006.
ERP system has been interfaced with the maintenance systems at the Refineries, automation system at the marketing locations, electronic weighbridges for weight based loading of Bitumen, FO and LPG tank trucks. These interfaces have simplified the operations and reduced the human intervention thereby reducing errors.
During the roll out, comprehensive training has been imparted to the users at the site. This is being followed by refresher courses. Additional training programmes are also arranged from time to time for focused training to specific user groups such as Regional Managers, Finance functionaries, location In-charges, clerical staff, etc.
A state-of-the-art data centre in the Head Office at Mumbai hosts powerful enterprise servers, which manages the entire data and applications in a centralised architecture. The connectivity to the locations has been established by using various available communication channels such as leased lines, VSATs, ISDN, VPN, radio links and dial-ups. A separate Disaster Recovery Centre (DRC) is being set up in Hyderabad for providing a back-up in the event of any physical contingency at the primary site. This DRC would mirror the main server and would be in a position to take over in case of any disaster at the primary site as well as to enable any maintenance shutdown to the primary server.
New initiatives in Parivartan
Based on the real-time information available in the ERP system, various new initiatives have been implemented and sustained efforts continue to bring in more of these to reality. A dedicated portal has been designed to display the information related to despatch details & statement of accounts of a customer. This portal also gives details of sales for the last 3 years. A customer logs in through internet using a secure user-id and password. The portal is available for all SBUs and is a step towards enhancing customer satisfaction.
54th Annual Report 2005-06 86 Special Focus Areas
We have implemented another ERP based initiative, viz. the electronic payment system (e-payment), for smoother and faster payment to the vendors, contractors, transporters and other service providers. ERP server communicates directly with the bank server to enable payment information to flow seamlessly. The payment is effected by the bank through ECS, account transfer, EFT or by cheque. E-payment would bring about transparency in the payment process and at the same time ensure timely payment to all vendors. Post ERP implementation, HPCL’s dealers and distributors get the information by SMS and e-mail on the loads sent to them. This information is sent to them immediately on printing of the invoice and thus enables them to keep track of their indents. Generation of daily sales reports for Regional Managers, Sales Field Officers; document archival system for critical documents like invoices, purchase orders, cheques etc; electronic data transmission to a foreign airline on sales are some of the other initiatives that have already been implemented. More and more ways are being explored to harness the on-line information from the ERP system to provide improved customer service and to provide visibility of information to other stakeholders.
Communication network in ERP
54th Annual Report 2005-06 87 Special Focus Areas
PROJECT ORGANISATIONAL TRANSFORMATION Organizational Transformation is a continuous journey, not a destination to reach. HPCL embarked upon this journey in March 2003 with co-creation of a Corporate Vision by the top management. One of the elements of this vision was to transform HPCL into a Learning Organization. In order to achieve this vision, a separate department – Project Organization Transformation- was set up under the overall leadership of Director-HR and a team of appropriately trained Internal Coaches was formed. The team has so far conducted more than 250 Workshops covering more than 4000 employees in the Company. An essential feature of these workshops is the co-creation of the team vision and alignment of the team with the Corporate Vision. Inspired performance is a function of employees operating with a vision and purpose in well-conceived organizational structures, those that are designed primarily to foster the creation of a collective vision and to channelise the creative energies of everyone towards producing the results to which they are all committed. Team Leaders, who have been put in charge of making the destiny of the company, need to have the skill of systemic thinking, courage to challenge and change mental models and belief systems and do things differently to get extraordinary results. With focus on these objectives, ‘Leadership Self Development Programs’ for Regional Managers and other team leaders from Marketing as well as from Refineries have been conducted in-house thus setting in motion a Leadership Engine whereby every team leader assumes the role of Leader cum Coach developing future leaders at all levels - the leaders who can effectively create change, not just react to change. In our endeavor to soften functional boundaries across SBUs, the Leadership Self Development Programs were also conducted together for the team leaders from the Refineries and Direct Sales aiming towards bringing in a sense of collaboration and camaraderie and appreciation of each others’ perspective thereby creating an environment where a common understanding on customer needs could be brought out through discussions and sharing of thoughts. In recognition of the fact that no change initiative can be sustained in an organization without the active involvement of the grass root employees, Learning Organization Workshops have been conducted for non- management staff across the SBUs. The Workshops have not only resulted in their alignment with the corporate vision but have also helped them in identifying its anchor in their personal vision and values. Structure influences behavior which in turn influences performance. Recognizing this fact, an Executive Council for top management and Business Councils at SBU level have been constituted to bring about alignment of various SBUs towards organizational vision. Learning and growth is an intangible component of human and organizational progress that is difficult to measure. However, the manifestations of learning and growth can be seen in the shift of mind from reactive orientation to creative orientation; from focus on sales growth to focus on customer delight; from only short term gains to long term strategy; from building silos of excellence to team based working; from the focus on ‘who said it’ to ‘what has been said’ and from lack of trust with dealers to a spirit of business partnership. At the 2nd Global Forum of Society for Organizational Learning (SOL) at Vienna during September 13 - 16, 2005, three of our Internal Coaches presented the article “Empowerment and Learning in Organizations”. Society for Organizational Learning had selected this article contributed by our Internal Coaches. A brochure “The Beauty of Transformation” carrying the views and interviews of Top Management and articles from Internal Coaches on the subject topic was distributed to SOL members, as a part of the presentation.
54th Annual Report 2005-06 88 Special Focus Areas
The efforts of HPCL in its quest for excellence was appreciated by the group of over 400 worldwide Consultants, Practitioners, company representatives, etc., who had gathered for the event. Further in view of fast changing market environment and competitive landscape, a need was felt to reformulate the Retail strategy through active participation of cross functional Managers together with the Regional Managers in Retail SBU. Accordingly, cross functional teams were formed at Regional and Zonal levels to work out appropriate strategies for their respective areas which would ultimately result into a comprehensive strategy for the Retail SBU. The year 2005-06 has truly been memorable and eventful in our journey of transformation and the icing on the cake was the acknowledgement of our efforts by none other than the father of the concepts of the Learning Organization, Dr. Peter Senge who presented an award to our C&MD in the category of “Organizations that create Learning Culture” to HPCL in Mumbai in November 2005.
Shri M.B. Lal, C&MD receiving “Creating Learning Culture Award” from the noted Management Guru and Author of the book - Fifth Discipline, Dr.Peter Senge
ACE group alongwith Shri M.B. Lal, C&MD, Shri Arun Balakrishnan, Director (HR) and Dr. Peter Senge
54th Annual Report 2005-06 89 Special Focus Areas
OFFICIAL LANGUAGE IMPLEMENTATION 2005-2006 Official Language Implementation continues to receive utmost importance in the Corporation. Efforts taken in the direction of associating Official Language with productivity of various Strategic Business Units of the Organisation further gained the momentum. As a result, Hindustan Petroleum Corporation Limited was honoured with “Indira Gandhi Rajbhasha” (third prize) for the year 2003-04. A Social, Literary and Cultural Institution - “Ashirwad” awarded HPCL a special prize for Official Language implementation for 2004-05. “Hindi Pakhwada” was celebrated from 14-28 September, 2005 to create an awareness about Official Language Implementation and to motivate employees. To further enhance the vocabulary and knowledge of Official Language among the employees and to encourage the hidden talents of our employees, various competitions such as group discussions, news reading, sentence formation were organised. Eminent personalities dedicated towards propagation of Hindi were invited as Judges. Various activities were carried out during the year. Some of the important activities are :- • MS Office 2003 Hindi Computer training • Workshops and Conferences for the Officers/Clerical Staff to encourage employees for implementation of Official Language as also to rejuvenate their capabilities in Official Language. • Hindi Essay Writing Competition and Slogan Competition organised on all India level and the winners were awarded. • Head Quarters Office also organised an All India Hindi Mahotsav 2006 in which employees of the four Zones and both the Refineries participated alongwith their family members. • Inspections were carried out by the Sub-Committee of the Parliament Committee on Official Language at various locations and the efforts of our Corporation in this regard was appreciated. • GMO, East Zone received first prize from Regional Official Language Department, Kolkata under ‘C’ Region. Patna Regional Office also received first prize from Official Language Dept under ‘A’ Region. • The Corporation continues to head the Town Official Language Implementation Committee (TOLIC) in Mumbai for Government Undertakings/Corporations since its formation. Half yearly meetings were held as per the schedule. Both the TOLIC Meetings were headed by Shri M.B. Lal. During TOLIC Meetings, the progress of implementation of TOLIC members is reviewed and they discuss on effective implementation of Official Language and share their experiences so that others can benefit from it. Besides, “CHAUPALS” were conducted under the banner of ‘TOLIC’ at the offices of various member Organisations. A number of competitions were conducted by various member Organisations under the aegis of TOLIC. HPCL also organised a Training program ‘Self Leadership Management’ for TOLIC members. • Activities about Hindi Pakhwada and Hindi Utsav were published in In-House magazine ‘HP News’ and other activities performed by TOLIC members were also published in “TOLIC” News.
Shri M.B. Lal, C&MD addressing the meeting of Town Official Languages Implementation Committee (TOLIC)
54th Annual Report 2005-06 90 Special Focus Areas
RASOI GHAR • HP GAS pioneered the launch of the Rasoi Ghar concept for providing lower strata of the society with cheap and alternate fuel for cooking at affordable price.
• It provides the villagers with a ready to cook facility that eliminates the cost of one time deposit as well as the recurring refill cost as they are required to pay basis the usage time only.
• The innovative concept of Rasoi Ghar, or community kitchen has been appreciated by all sections of society including voluntary organizations and women groups.
• These Rasoi ghars also help in meeting the aspirations of rural population who could not afford to have an LPG connection on their own.
• The Rasoi Ghar concept has now been expanded to public utility area such as hospitals etc. Some of the important locations covered are AIIMS, Delhi, King George™s Hospital, Visakh, Tata Memorial Hospital, Mumbai and Lal Ded, Srinagar to ensure cooking of hygienic food at affordable prices for the relatives of patients who normally accompany the patient.
• Restricting felling of trees and protecting environment thereon has been another key benefit from these Rasoi Ghars. In a pilot project undertaken in the Yavatmal district of Maharashtra, 100 Rasoi Ghars were set up in the forest area in co-ordination with the forest department. It resulted in savings of nearly 36,000 trees per Rasoi Ghar.
• Further, temporary Rasoi Ghars were also set up at all major rural melas such as Pushkar, Sonpur, Ujjain etc. to benefit pilgrims and floating population and at the same time to popularize the concept as well as to increase awareness of the benefits of LPG.
• Appreciating this novel initiative, NDTV Profit Channel has done a special feature covering the complete concept and operations. Further the concept has also been widely covered by several dailies, periodicals and magazines.
• For this innovative concept, HPCL has been awarded the prestigious ‘Golden Peacock Award’ for eco innovation and has also been awarded the ‘National Excellence Award for Innovative Techniques’ for improving access of a modern fuel to rural women.
• HPCL would endeavour to promote the scheme further for the benefit of wider spectrum of the society and in particular the weaker sections of the society.
The Scheme has made a deep impact on the quality of living of rural people who otherwise were dependent on charcoal, firewood etc., for heating with associated health and environmental hazards.
The ‘HP Gas Rasoi Ghar’ concept was further extended to Hospitals and forest areas. Today, we have Rasoi Ghars covering all major hospitals in Metro cities.
Our commitment to provide a clean eco-friendly fuel to our rural population was appreciated not only by the users but received laurels at international level. Today, there are over 1500 Rasoi Ghars operating across the country benefiting over 20,000 families.
54th Annual Report 2005-06 91 Special Focus Areas
INDIA’s FIRST UNDERGROUND (CAVERN) LPG STORAGE FACILITY
• JV between HPCL and M/s. TOTAL of FRANCE ( 50 : 50 ) called South Asia LPG Pvt. Ltd. • Underground LPG Cavern facility at Visakh 60,000 MTs. • First in South Asia. • LPG imports in large size 40,000 MT tankers resulting in freight savings. • Project cost : Rs.333 crores. • Completion : June 2007. • Storage facility is located at a depth of 160 mtrs. below the earth’s surface and is fully isolated. • Technologically proven methodology. • By far the safest and environment friendly means of storing LPG. • Principle of containment ensures no leakage or contamination. • Safety hazards on account of sabotage, storms, earthquakes and explosions are minimised. • External fires will not affect storage. • Surface land requirement is low in view of reduced safety distances. • Caverns by their very nature require very low maintenance and hence safety is in-built. • The required low capital cost per tonne of storage.
Progress of above mentioned project. Also seen is Shri M.S. Srinivasan , Secretary, Petroleum & Natural Gas on a visit to the site.
54th Annual Report 2005-06 92 Special Focus Areas
AWARDS / RECOGNITIONS
• Greentech Safety Awards for 2004-2005 from Shri Kamaleshwar Sharan – President of Greentech Foundation for outstanding achievements in the field of Safety: Gold award bagged by Mumbai Refinery/Mazagaon Lube Plant/MLIF Silver award bagged by Santacruz ASF/Palam ASF/Cochin ASF Bronze Award bagged by Kolkatta ASF • NSCI Safety Award – “Suraksha Puraskar” from National Safety Council for Performance in Occupational Safety and Health Management Services by Dr.Olla Ullsten, Former Prime Minister of Sweden – Chairman of World Council on Sustainable Development & World Council for Corporate Governance, UK. • Golden Peacock Environment Management Award for the year 2004-05 from Institute of Directors for Innovative and pioneering initiatives taken by HP GAS for setting up Rasoi Ghars in Pandarkawda Forest Range in Yavatmal District. • Excellent Service Award from ‘The Kashmir Chamber of Commerce & Industries’ for Excellent service and supply of LPG cylinders to the consumers in Kashmir Valley even during heavy snow fall during February 2005 by Shri Jenab Mohiuddin, Minister for Consumer Affairs & Public Distribution. • NPMP Award for the year 2003-04 from National Petroleum Management Programme for Excellence in Internal Communication. • Excellence Award on outstanding contributions to Petroleum Industry from Delhi Telugu Academy received from Shri Shivraj V. Patil, Hon’ble Minister of Home Affairs, Govt. of India. • Indira Gandhi Rajbhasha Puraskar on outstanding contribution in usage of Hindi from Govt. of India received from Shri Shivraj V. Patil, Hon’ble Minister of Home Affairs, Govt. of India. • Strong Commitment to HR Excellence Award on various HR initiatives from Confederation of Indian Industry – Western Region received from Shri V.K. Jairath, Secretary – Industries, Govt. of Maharashtra. • Certificate of Excellence to Mangalore LPG Import Facility on Handling highest quantity of 11.35 Lakh tons of LPG during 2005-06 received from Shri Tamilvannan Chairman – New Mangalore Port Trust. • Rajbhasha Puraskar for the year 2004-05 on outstanding contribution in usage of Hindi from Aashirwad received from Shri R.R. Patil, Dy. Chief Minister – Govt. of Maharashtra. • Environment Excellence – Gold Award on outstanding achievement in Environment Management received from Shri C.P. Jain – C&MD-NTPC for the year 2004-05 : Mumbai Refinery; Santacruz ASF, Mumbai; Palam ASF, Delhi; Chennai ASF • The Golden Peacock National Training Award for the year 2005 in recognition of organizations with contemporary and outstanding practices in Training & Development from Institute of Directors, New Delhi. • Oil Industry Safety Award for Best Performer in Group-III (LPG Marketing Organisation) for the year 2003- 04 from Oil Industry Safety Directorate, MOP&NG, New Delhi. • Oil Industry Safety Award for Best Performer in Group-VII (Lube Oil Blending Plants) for the years 2003- 04 & 2004-05 from Oil Industry Safety Directorate, MOP&NG, New Delhi. • Indira Business Strategy Award for Creating a Learning Culture from Indira Group of Institutes, Pune by Shri Peter Senge Chairperson of the Society for Organisation Learning (SoL) and a Sr. Lecturer at the Masachusetts Institute of Technology. • Honorary Fellowship on Shri M.B. Lal, C&MD for the Highest Professional Recognition the Energy Institute awards for notable and distinguished contribution to the energy industry from Energy Institute (E) London, UK from Mr.Lawrence Slade of Fellowship of the Energy Institute, UK.
54th Annual Report 2005-06 93 Special Focus Areas
• Leadership & Excellence Award on Outstanding Achievement in Oil Refining from Oceantex 2006 (Chemtech Foundation) from Shri S.C. Tripathi – Former Secretary, MOP&NG. • Golden Peacock Award on Corporate Social Responsibility from Institute of Directors, New Delhi received from Smt. Sheila Dixit – Hon’ble Chief Minister, Delhi. 9 Greentech Safety Awards – 2006 from the Greentech Foundation : Gold Award – Mangalore POL, Mazgaon Lube Plant, Santacruz ASF, MLIF, Mumbai Refinery Silver Award – Loni LPG Plant, Palam ASF, Dumdum ASF Bronze Award – Chennai ASF • Green Industry Award to Jammu LPG RO for survey conducted by the Board on Pollution Control, Greenery Development and various steps for creating awareness for a neat & clean environment from Jammu & Kashmir State Pollution Control from Mayor of Jammu, Shri Bharti Bahkshi. • Reader’s Digest Trusted Brand Platinum Award for Club HP – Brand from Reader’s Digest from Ms. Rosemarie Wallace, Managing Director, Reader’s Digest, Asia Pacific. • Green-Tech Environmental Gold award 2004-05 : for excellence in environment management. • Housing colony at Mumbai has received various awards from “National Society of the Friends of the Trees and Tree Authority & Brihan Mumbai Maha Nagarpalika” under different category of “Garden Competitions.” • National Excellence Award for innovation in Rural Technology for Rasoi Ghar to LPG SBU.
Shri Arjun Singh , Hon’ble Union Minister for HRD handing over the Presentation of Oil Iindustry Safety Award for the years 2003-04 & Golden Peacock National Training Award for the year 2005 of the 2004-05 . Seen in the photograph are Shri S. Roy Choudhury, Director Institute of Directors, New Delhi to Shri Arun Balakrishnan, Director (Marketing) alongwith other HPCL Officials (HR).
Shri M.B. Lal, C&MD receiving the Golden Peacock Environment Shri P.T. Suresh, DGM-ARB and Shri T.S. Sawhney, DGM-Highway Management Award for the Year 2004-05 of Institute of Directors Retailing receiving the Reader’s Digest Award for “Most Trusted from Dr. Olla Ulsten, former Prime Minister of Sweden. Brand”
54th Annual Report 2005-06 94 Human Resource Accounting
HPCL considers human dimension as the key to organisation’s success. Several initiatives for development of human resources to meet new challenges in the competitive business environment have gained momentum. HPCL recognises the value of its human assets who are committed to achieve excellence in all spheres. The Human Resource Profile given below in table shows that HPCL has a mix of energetic youth and experienced seniors who harmonise the efforts to achieve the Corporation’s goals. Age 21 - 30 31 - 40 41 - 50 Above 50 Total No. Of Employees 681 2644 5344 2109 10778 Management 560 1167 1551 588 3866 Non Management 121 1477 3793 1521 6912 Average Age 44 Accounting For Human Assets The Lev & Schwartz model is being used by our Company to compute the value of Human Resources. The evaluation as on 31st March 2006 is based on the present value of future earnings of the employees on the following assum ptions. 1. Employees’ compensation represented by direct & indirect benefits earned by them on cost to company basis. 2. Earnings upto the age of superannuation are considered on incremental basis taking the corporation’s policies into consideration. 3. Such future earnings are discounted @ 8% (2004-05 : 8%). Rs./ Crores 2005-06 2004-05 VALUE OF HUMAN RESOURCES Management employees 6,162 5,598 Non Management employees 4,444 4,445 10,606 10,043 Human Assets vis-a-vis Total Assets No. Of Employees 10778 10561 Value of Human Assets 10,606 10,043 Net Fixed Asset 9,701 7,731 Investments 4,028 1,757 Net Current Asset 3,171 2,514 27,506 22,045 Employee Cost ( incl. VRS compensation for 2004-05) 691 714 Net Profit Before Tax 285 1641 Ratios (in %) PBT to Human Resource 2.69 16.34 Employee Cost to Human Resource 6.51 7.11 Human Resource to Total Resource 38.56 45.56
54th Annual Report 2005-06 95 Auditors’ Report
TO THE MEMBERS OF HINDUSTAN PETROLEUM CORPORATION LIMITED 1. We have audited the attached Balance Sheet of Hindustan Petroleum Corporation Limited as at March 31, 2006, and also the Profit and Loss Account and Cash Flow Statement of the Company for the year ended on that date annexed thereto. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit. 2. We conducted our audit in accordance with auditing standards generally accepted in India. These Standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatements. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. 3. As required by the Companies (Auditors’ Report) Order, 2003, (“Order”), issued by the Central Government of India in terms of sub-section (4A) of Section 227 of the Companies Act, 1956, we enclose in the Annexure, a statement on the matters specified in paragraphs 4 and 5 of the said Order. 4. Further to our comments in the Annexure referred to in paragraph 3 above, we report that: (a) We have obtained all the information and explanations which, to the best of our knowledge and belief, were necessary for the purpose of the audit; (b) In our opinion, proper books of account, as required by law, have been kept by the Company, so far as it appears from our examination of these books, and proper returns, adequate for the purposes of our audit, have been received from the branches; (c) The Branch Auditors’ report, made available to us, has been appropriately dealt with while preparing our report; (d) The Balance Sheet, Profit and Loss Account and Cash Flow Statement dealt by this report are in agreement with the books of account; (e) The Balance Sheet, Profit and Loss Account and Cash Flow Statement dealt with by this report comply with the Accounting Standards referred to in sub-section (3C) of Section 211 of the Companies Act, 1956; (f) On the basis of the written representations received from directors of the Company, as at March 31, 2006 and taken on record by the Board of Directors, we report that none of the directors is disqualified as at March 31, 2006, from being appointed as a director in terms of clause (g) of sub-section (1) of Section 274 of the Companies Act, 1956; and (g) In our opinion, and to the best of our information and according to the explanations given to us and read with Note No. 8 to Schedule 19B, regarding treatment of certain Income tax benefits, the said accounts give the information required by the Companies Act, 1956, in the manner so required and give a true and fair view in conformity with the accounting principles generally accepted in India; (i) in the case of the Balance Sheet, of the state of affairs of the Company as at March 31, 2006; (ii) in the case of the Profit and Loss Account, of the profit for the year ended on that date; and (iii) in the case of the Cash Flow Statement, of the cash flows for the year ended on that date.
For N.M. Raiji & Co. For Sudit K. Parekh & Co. Chartered Accountants Chartered Accountants Vinay D. Balse Srikant V. Jilla Partner Partner Membership No. 39434 Membership No. 39461 Place : New Delhi Date : May 25, 2006
54th Annual Report 2005-06 96 Annexure to the Auditors’ Report
(Referred to in paragraph 3 of our Report of even date)
1. (a) The Company has maintained proper records showing full particulars including quantitative details and situation of fixed assets except for items like pipes, valves, meters, instruments and other similar items peculiar to a continuous process industry.
(b) As explained to us, the Company, having regard to the size and nature of its business, has adopted a practice of carrying out physical verification of its fixed assets, except LPG cylinders and fixed assets of the erstwhile Kosan Gas Company undertaking, not handed over, on a staggered basis, over a period of three years in the case of Plant and Machinery and other assets, and over a period of five years in the case of furniture, fixtures and office equipment. We were informed that discrepancies noticed on such verification as compared to the book records have been properly dealt with in the books of account. The existence of fixed assets situated at the residence of employees has, however, been ascertained on a self-declaration basis.
(c) Fixed Assets disposed off during the year were not substantial and, therefore, do not affect the going concern assumption.
2. (a) As explained to us, the inventories were physically verified during the year by the Management at reasonable intervals.
(b) The procedures of physical verification of stocks followed by the management are reasonable and adequate in relation to the size of the Company and the nature of its business. In the case of materials lying with third parties, certificates confirming stocks held have been received from them.
(c) The Company has maintained proper records of inventory. We were informed that discrepancies noticed on such verification, as compared to the book records, were not material and have been properly dealt with in the books of account.
3. Based on the audit procedures applied by us and according to the information and explanations given to us, the Company has neither granted nor taken loans, secured or unsecured to/from companies, firms or other parties covered in the register maintained under Section 301 of the Companies Act, 1956. Consequently, sub clauses (b), (c), (d), (e), (f) and (g) of sub-para (iii) of para 4 of the Order are not applicable.
4. In our opinion and according to the information and explanations given to us, and having regard to the explanations that some of the items are of a specialized nature, in respect of which suitable alternative sources do not exist for obtaining comparative quotations, there are adequate internal control procedures commensurate with the size of the Company and nature of its business for the purchase of inventory and fixed assets and for the sale of goods and services.
5. (a) To the best of our knowledge and belief and according to the information and explanations given to us, there were no transactions that needed to be entered in the Register in pursuance of Section 301 of the Companies Act, 1956.
(b) As there have been no transactions that needed to be entered in the register maintained under Section 301 of the Companies Act, 1956, during the year, no comments are required to be offered in respect of reasonability of prices at which such transactions have entered into at the relevant time.
54th Annual Report 2005-06 97 Annexure to the Auditors’ Report
6. In our opinion, and according to the information and explanations given to us, the Company has complied with the directives issued by the Reserve Bank of India and the provisions of Section 58A and Section 58AA or any other relevant provisions of the Companies Act, 1956, and the rules framed thereunder with regard to deposits accepted from the public. We have been informed that no order has been passed by the Company Law Board or National Company Law Tribunal or Reserve Bank of India.
7. In our opinion, the Company has an internal audit system commensurate with its size and the nature of its business.
8. We have broadly reviewed the books of account maintained by the Company in respect of products where, pursuant to the Rules made by the Central Government, the maintenance of cost records has been prescribed under Section 209 (1) (d) of the Companies Act, 1956. We are of the opinion that prima-facie the prescribed accounts and records have been maintained and are being made. We have not, however, made a detailed examination of the records with a view to determine whether they are accurate or complete.
9. (a) According to the information and explanations given to us and on the basis of our examination of the books of account, the Company has, during the year, been generally regular in depositing with the appropriate authorities, undisputed statutory dues, including Provident Fund, Investor Education and Protection Fund, Employees’ State Insurance, Income Tax, Sales Tax, Wealth Tax, Service Tax, Custom Duty, Excise Duty, Cess and any other material statutory dues.
(b) According to the information and explanations given to us and on the basis of our examination of the books of account, no undisputed amounts payable in respect of Income Tax, Sales Tax, Wealth Tax, Service Tax, Custom Duty, Excise Duty, Cess were in arrears, as at March 31, 2006, for a period of more than six months from the date they became payable.
(c) According to the information and explanations given to us, dues relating to Sales Tax/Custom Duty/ Wealth Tax/Service Tax/Excise Duty/Cess, which have not been deposited on account of disputes with the related authorities, have been reflected in the table herebelow:
STATUTE FORUM AMOUNT YEAR Rs./Crores Central Excise Commissioner (Appeals) 19.75 1993 - 2002 3.40 1994 - 2002 0.83 2002 - 2006 0.01 1997 - 1998 0.24 2002 - 2003 28.82 2003 - 2004 0.23 2004 - 2005 53.28 Assistant Commissioner 1.78 1994 - 2002 12.25 2000 - 2001 1.66 2001 - 2002 4.15 2001 - 2003 2.14 2003 - 2004 21.98
54th Annual Report 2005-06 98 Annexure to the Auditors’ Report
STATUTE FORUM AMOUNT YEAR Rs./Crores Department of Revenue 0.77 1994 - 1997 0.11 1994 - 1999 5.05 2000 - 2002 2.73 2001 - 2002 1.57 2001 - 2002 10.23
CESTAT 285.49 1994 - 2002 0.39 1997 - 1998 2.70 2001 - 2002 38.24 1998 - 1999 0.01 1999 - 2000 1.41 2002 - 2003 308.64 2002 - 2006 17.22 2003 - 2004 5.20 2004 - 2005 659.30 Appellate Tribunal 1.74 1998 -1999 Supreme Court 25.26 1993 Total – Central Excise (A) 771.79 Sales Tax Sales Tax Appellate Tribunal Gujarat State MST/CST 1.07 1994 - 1998 Bihar State CST/GST/ Finance Act/Works Contract Tax 4.17 1985 - 1998 Uttar Pradesh CST 0.31 1987 - 1998 Andhra Pradesh State GST/CST 120.90 1993 - 2002 Karnataka State KST/CST/ Entry Tax/GST 262.89 1994 - 2002 Haryana CST 19.90 1997 - 2000 Jammu and Kashmir State 0.21 Orissa State 4.08 2001 - 2002 Kerala State 1.23 1996 - 1997 West Bengal State 5.75 1994 - 1995 Haryana State Purchase Tax 9.49 1994 - 1995 to 1997 Karnataka State GST 6.98 1996 - 1997 Subtotal (B) (i) 436.98
54th Annual Report 2005-06 99 Annexure to the Auditors’ Report
STATUTE FORUM AMOUNT YEAR Rs./Crores Commissioner/ DCCT/ADC/JCCT Gujarat State MST 1.05 1987 - 2000 Maharashtra State GST/CST 1,100.90 1999 - 2001 Maharashtra Sales Tax 34.09 1985 - 1986 West Bengal Sales Tax/CST 36.44 1996 - 2003 Orissa CST/OST/Entry Tax 1.93 1998 - 1999 Assam State CST 3.83 1996 - 2000 Uttar Pradesh CST 0.15 1994 - 1995 Delhi State CST 0.81 1976 – 1977 to 2002 Rajasthan State 13.99 1999 - 2003 Andhra Pradesh State GST/CST 23.70 1993 - 2005 Kerala CST/GST 12.14 1987 - 1999 Karnataka CST/GST 11.65 1998 - 2004 Jammu and Kashmir State 0.08 1989 – 1990 to 2002 – 2003 Jharkhand CST/Finance Act 0.04 Sub total (B) (ii) 1,240.80 Board of Revenue Assam State GST 66.43 1993 - 1999 Madhya Pradesh 0.18 1985 - 1987 Sub total (B) (iii) 66.61 High Courts Kerala State Kerala High Court 16.31 1987-1988 to 1995-1996 Karnataka Sales Tax Act Karnataka High Court 0.06 1979 - 1987 Uttar Pradesh CST/Works Contract Tax Allahabad High Court 10.69 1994 - 2003 Sub total (B) (iv) 27.06 Total – Sales Tax Act (B) (i+ii+iii+iv) 1,771.45 Custom Duty CESTAT 31.60 1994 - 2002 0.07 2000 - 2001 Total – Custom Duty (C) 31.67 Grand Total (A+B+C) 2,574.91
54th Annual Report 2005-06 100 Annexure to the Auditors’ Report
10. The Company does not have any accumulated losses at the end of the financial year and has not incurred cash losses in the financial year and in the financial year immediately preceding such financial year. 11. According to the information and explanations given to us, and based on checks carried out by us, the Company has not defaulted in repayment of dues to financial institutions or banks or debenture holders. 12. According to the information and explanations given to us, the Company has not granted loans and advances on the basis of security by way of pledge of shares, debentures and other securities. 13. In our opinion and according to information and explanations given to us, the Company is not a chit fund or a nidhi/mutual benefit fund/society. Therefore the provisions of sub-para (xiii) of para 4 of the Order are not applicable to the Company. 14. According to the information and explanations given to us, the Company is not dealing or trading in shares, securities, debentures and other investments. Therefore the provisions of sub-para (xiv) of para 4 of the Order are not applicable to the Company. 15. In our opinion and according to information and explanations provided to us, the Company has not provided guarantees for loans taken by others from banks and financial institutions. 16. In our opinion, the term loans taken during the year have been applied for the purpose for which they were raised. 17. According to the information and explanations given to us, and on an overall examination of the Balance Sheet of the Company, funds raised on short-term basis have, prima facie, not been used during the year for making long-term investments. 18. According to the information and explanations given to us, during the year the Company has not made any preferential allotment of shares to parties and companies covered in the Register maintained under Section 301 of the Companies Act, 1956. 19. The Company has not raised any monies by way of issue of debentures. Therefore, the provisions of sub- para (xix) of para 4 of the Order are not applicable to the Company. 20. The Company has not made any public issue of securities during the year. 21. According to information and explanations given to us and based on audit procedures performed and representations obtained from the management, we report that no fraud on or by the Company, having material misstatement on the financial statements has been noticed or reported during the year under audit.
For N.M. Raiji & Co. For Sudit K. Parekh & Co. Chartered Accountants Chartered Accountants
Vinay D. Balse Srikant V. Jilla Partner Partner Membership No. 39434 Membership No. 39461
Place : New Delhi Date : May 25, 2006
54th Annual Report 2005-06 101 Balance Sheet as at 31st March, 2006 Rs./ Crores SCHEDULE 2005-06 2004-05 SOURCES OF FUNDS Shareholders’ Funds: a) Capital 1 338.94 338.93 b) Reserves and Surplus 2 8,396.80 8,101.92 8,735.74 8,440.85 Loan Funds: a) Secured Loans 3 1,486.16 319.91 b) Unsecured Loans 4 5,177.67 1,865.44 6,663.83 2,185.35 Deferred Tax Liability 1,384.44 1,374.75 TOTAL 16,784.01 12,000.95 APPLICATION OF FUNDS Fixed Assets: 5 a) Gross Block 13,479.25 12,393.17 b) Less: Depreciation 6,141.85 5,449.53 c) Net Block 7,337.40 6,943.64 d) Capital Work-in-Progress 6 2,363.88 786.84 9,701.28 7,730.48 Investments 7 4,027.64 1,756.84 Current Assets, Loans and Advances: a) Inventories 8 7,810.29 5,682.21 b) Sundry Debtors 9 1,392.26 1,048.61 c) Cash and Bank Balances 10 42.59 201.63 d) Other Current Assets 11 11.38 0.35 e) Loans and Advances 12 1,753.46 2,569.50 11,009.98 9,502.30 Less: Current Liabilities and Provisions: 13 a) Liabilities 7,394.74 6,177.82 b) Provisions 560.15 810.85 7,954.89 6,988.67 Net Current Assets 3,055.09 2,513.63 TOTAL 16,784.01 12,000.95
STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES AND NOTES FORMING PART OF ACCOUNTS 19 M.B. LAL Chairman & Managing Director C.RAMULU FOR N.M.RAIJI & CO. FOR SUDIT K. PAREKH & CO. Director-Finance Chartered Accountants Chartered Accountants N.R. NARAYANAN VINAY D. BALSE SRIKANT V. JILLA Company Secretary Partner Partner Place : New Delhi Date : May 25, 2006
54th Annual Report 2005-06 102 Profit and Loss Account for the year ended 31st March, 2006
Rs./ Crores SCHEDULE 2005-06 2004-05 INCOME Sale of Products 74,044.11 64,689.51 (Net of Discount Rs. 564.67 crores; 2004-05 Rs.462.60 crores) Less : Excise Duty Paid 5,882.34 5,359.59 Net Sales 68,161.77 59,329.92 Net Recovery from/(Payment to) Industry Pool Accounts - (7.86) Recovery under Subsidy Schemes 2,876.15 536.68 Other Income 14 328.45 329.53 71,366.37 60,188.27 INCREASE /(DECREASE) IN INVENTORY 15 1,408.96 34.87 EXPENDITURE AND CHARGES Purchase of Products for resale 42,178.12 33,842.86 Raw materials consumed 25,582.18 20,576.22 Packages consumed 95.99 90.38 Excise Duty on Inventory differential 177.00 (9.02) Transhipping Expenses 1,520.14 1,384.00 Payments to and provisions for Employees 16 690.77 713.62 Exploration Expenses 12.42 0.79 Other Operating Expenses 17 1,385.90 1,243.67 Depreciation/Amortisation 688.97 658.38 Interest 18 158.74 81.64 72,490.23 58,582.54 PROFIT BEFORE TAXES 285.10 1,640.60 PROVISION FOR CURRENT TAXATION 78.45 589.71 PROVISION FOR DEFERRED TAXATION (NET) 9.69 (79.33) PROVISION FOR TAXATION OF EARLIER YEARS WRITTEN BACK (220.05) (147.11) PROVISION FOR FRINGE BENEFIT TAX 11.38 - PROFIT AFTER TAXES 405.63 1,277.33 Balance brought forward 5,937.64 5,268.19 Transfer from Debenture Redemption Reserve - 100.00 PROFIT AVAILABLE FOR APPROPRIATION 6,343.27 6,645.52 APPROPRIATED FOR: General Reserve 40.56 127.73 Interim Dividend - 169.67 Proposed Final Dividend 101.80 339.33 Tax on Distributed Profits 14.28 71.15 BALANCE CARRIED FORWARD 6,186.63 5,937.64 EARNINGS PER SHARE (in Rs.) - Basic & Diluted 11.97 37.69 (2005-06 : EPS = Net Profit - Rs. 405.63 crores / Weighted avg. no. of shares - 33.894 crores; 2004-05 : EPS = Net Profit - Rs. 1,277.33 crores / Weighted avg. no. of shares - 33.893 crores) STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES AND NOTES FORMING PART OF ACCOUNTS 19 M.B. LAL Chairman & Managing Director C.RAMULU FOR N.M.RAIJI & CO. FOR SUDIT K. PAREKH & CO. Director-Finance Chartered Accountants Chartered Accountants N.R. NARAYANAN VINAY D. BALSE SRIKANT V. JILLA Company Secretary Partner Partner Place : New Delhi Date : May 25, 2006
54th Annual Report 2005-06 103 Schedules forming part of the Balance Sheet
Rs./ Crores 2005-06 2004-05 1. CAPITAL A. Authorised : 75,000 Cumulative Redeemable Preference Shares of Rs. 100/- each 0.75 0.75 34,92,50,000 Equity Shares of Rs.10/- each 349.25 349.25 350.00 350.00 B. Issued, Subscribed & Called up : 33,93,30,000 Equity Shares of Rs.10/- each fully paid up 339.33 339.33 Less: Calls unpaid by Others 0.39 0.40 338.94 338.93 NOTES :- (1) 77,50,000 fully paid up equity shares of Rs. 10/- each were allotted to the shareholders of Lube India Limited on the amalgamation of that company for consideration other than cash. (2) 52,00,000 fully paid up equity shares of Rs. 10/- each were allotted to the President of India, for consideration other than cash, on the amalgamation of Caltex Oil Refining India Limited with the Company. (3) 26,44,30,000 shares of Rs. 10/- each were allotted as fully paid bonus shares by capitalisation of Capital Reserve, Capital Redemption Reserve and accumulated profits.
2. RESERVES AND SURPLUS Share Premium Account As per last Balance Sheet 1,164.12 1,164.12 Less : Calls Unpaid 12.88 13.27 1,151.24 1,150.85 Debenture Redemption Reserve As per last Balance Sheet - 100.00 Less: Transfer to Profit & Loss Account - 100.00 - - Capital Grant Received during the year 5.02 - Less: Amortised during the year 0.08 - 4.94 - General Reserve As per last Balance Sheet 1,013.43 885.70 Add : Transfer from Profit & Loss Account 40.56 127.73 1,053.99 1,013.43
Profit and Loss Account Surplus as per Account annexed 6,186.63 5,937.64 8,396.80 8,101.92
54th Annual Report 2005-06 104 Schedules forming part of the Balance Sheet
Rs./ Crores 2005-06 2004-05 3. SECURED LOANS i. Collateral Borrowing and Lending Obligation (CBLO) 1,010.00 - (Secured by Pledge of Oil Bonds) (Due for repayment within one year - Rs. 1010 crores; 2004-05 : Rs. Nil) ii. Overdrafts from Banks 476.16 319.91 (Secured by hypothecation of Stock-in-Trade) 1,486.16 319.91 4. UNSECURED LOANS Fixed Deposits 0.02 0.11 Clean Loans from Banks 2,300.00 - (Due for repayment within one year - Rs. 2300 crores; 2004-05 : Rs. Nil) Short Term Loans from Banks 1,768.05 1,665.33 (Due for repayment within one year - Rs. 1768.05 crores; 2004-05 : Rs. 1665.33 crores) From Oil Industry Development Board 650.00 200.00 (Due for repayment within one year - Rs. Nil; 2004-05: Rs. Nil) Syndicated Loans from Foreign Banks (repayable in foreign currency) 459.60 - (Due for repayment within one year - Rs. Nil; 2004-05: Rs. Nil) 5,177.67 1,865.44
54th Annual Report 2005-06 105 Schedules forming part of the Balance Sheet
5. FIXED ASSETS (A & B) Rs. /Crores Gross Block Additions/ Deductions/ Gross Block Depreciation Total Net Net at cost Reclassifi- Reclassifi- at cost and Depreciation Block Block as at cations cations as at Amortisation and as at as at 01-04-2005 31-03-2006 for the year Amortisation 31-03-2006 31-03-2005 2005-2006 upto 31-03-2006 A. OTHER THAN INTANGIBLE ASSETS 1. Land - Freehold (C) 185.69 25.75 0.45 210.99 - - 210.99 185.69 2. Roads and Culverts (E & F) 552.22 94.70 3.04 643.88 9.29 57.07 586.81 504.39 3. Buildings (D & F) 1068.47 172.01 3.18 1237.30 23.38 156.68 1080.62 934.24 4. Leasehold Property-Land 88.06 5.06 0.02 93.10 2.84 20.03 73.07 70.87 5. Railway Siding and (E) 271.58 3.18 - 274.76 12.78 114.38 160.38 169.97 - Rolling Stock 6. Plant and Equipment (E & F) 9832.05 770.97 21.01 10582.01 607.61 5561.90 5020.11 4884.63 7. Furniture, Fixtures 278.33 29.95 6.43 301.85 23.38 156.66 145.19 141.24 and Office/Lab. Equipment 8. Transport Equipment 77.35 15.01 1.11 91.25 5.32 47.06 44.19 35.66 9. Unallocated capital 0.20 - - 0.20 - 0.20 - - Expenditure on Land Development Total (A) 12353.95 1116.63 35.24 13435.34 684.60 6113.98 7321.36 6926.69 B. INTANGIBLE ASSETS 1. Right of Way 1.72 - - 1.72 - - 1.72 1.72 2. Technical / Process Licences 6.24 3.23 - 9.47 0.81 2.59 6.88 4.46 3. Software 31.26 1.48 0.02 32.72 4.82 25.28 7.44 10.77 Total (B) 39.22 4.71 0.02 43.91 5.63 27.87 16.04 16.95 GRAND TOTAL (A+B) 12393.17 1121.34 35.26 13479.25 690.23 6141.85 7337.40 6943.64 Previous Year 11387.43 1035.29 29.55 12393.17 659.59 5449.53 6943.64 A. Includes assets costing Rs. 0.14 Crores (2004-2005: Rs. 0.14 Crores) of erstwhile Kosan Gas Company not handed over to the Corporation consisting of: Freehold Land Rs. 76191/- (2004-2005: Rs. 76191/-) Building Rs. 0.06 Crores (2004-2005 : Rs. 0.06 Crores ) Plant & Equipment Rs.0.75 Crores (2004-2005 : Rs. 0.75 Crores). Consequently, cumulative Depreciation on the Fixed Assets amounting to Rs. 0.12 Crores (2004-2005: Rs. 0.12 Crores) has not been provided for. B. Includes Rs. 63.66 Crores (2004-2005: Rs.62.05 Crores) being the Corporation’s Share of Cost of Land & Other Assets jointly owned with Other Oil Companies. C. Title Deeds to some of the lands acquired are still to be obtained. D. Includes Rs. 1000/- (2004-2005: Rs. 1000/-) being share application money in Co-operative Housing Societies. E. Includes Rs 40.50 Crores towards Plant and Machinery, Roads & Culverts and Railway Sidings & Rolling Stock, ownership of which does not vest with the Corporation. These assets are amortised at the rate of depreciation specified in Schedule XIV of the Companies Act,1956. F. Includes following assets which are used for distribution of PDS Kerosene under Jana Kalyan Pariyojana against which financial assistance in the form of Capital Grant is being provided by OIDB. Description Original Cost (Rs/Crores) Roads & culverts 0.16 Buildings 1.70 Plant & Equipment 3.30 Total 5.16
54th Annual Report 2005-06 106 Schedules forming part of the Balance Sheet
Rs./ Crores 2005-06 2004-05 6. CAPITAL WORK-IN-PROGRESS (at Cost) Unallocated Capital Expenditure and Materials at Site 1,609.56 648.16 Advances for Capital Expenditure 91.24 57.91 Capital Stores 423.87 47.88 Capital Stores lying with Contractors 117.60 4.45 Capital goods in transit 40.38 2.03 2,282.65 760.43 Construction period expenses pending apportionment (Net of recovery) : Establishment charges 39.14 25.71 Borrowing Cost 42.01 0.70 Depreciation 0.08 - 81.23 26.41 2,363.88 786.84 7. INVESTMENTS I. LONG TERM INVESTMENTS (at Cost): A. TRADE INVESTMENTS Quoted 1. Mangalore Refinery and Petrochemicals Ltd. 29,71,53,518 Equity Shares of Rs. 10/- each fully paid up 471.68 471.68 2. 6.96% Oil Companies Government Of India Special Bonds 2009* 81.00 931.00 7.00% Oil Companies Government Of India Special Bonds 2009* 777.02 - Unquoted 1. Guru Gobind Singh Refineries Ltd. (Wholly owned subsidiary) 29,57,10,000 Equity Shares of Rs. 10/- each fully paid-up 295.71 295.71 2. Hindustan Colas Ltd. 47,25,000 Equity Shares of Rs. 10/- each fully paid up 4.73 4.73 3. Petronet India Ltd. 1,59,99,999 Equity Shares of Rs. 10/- each fully paid up 16.00 16.00 4. Petronet MHB Ltd. 1,30,000 Equity Shares of Rs. 10/- each fully paid up 0.13 0.13 5. Prize Petroleum Co. Ltd 99,99,600 Equity Shares of Rs. 10/- each fully paid up 10.00 10.00 6. South Asia LPG Co. Pvt. Ltd. 2,75,00,000 Equity Shares of Rs. 10/- each fully paid up 27.50 27.50 7. Bhagyanagar Gas Ltd. 12,497 Equity Shares of Rs. 10/- each fully paid up 0.01 0.01 Total (A) 1,683.78 1,756.76
54th Annual Report 2005-06 107 Schedules forming part of the Balance Sheet
Rs./ Crores 2005-06 2004-05 B. OTHER INVESTMENTS
Quoted
1. Government Securities of the face value of Rs. 0.02 crores (2004-05 : Rs. 0.02 crores) Deposited with Others 0.02 0.02 On hand - Rs. 0.25 lakhs ( 2004-05 : Rs. 0.25 lakhs) 0.00 0.00 2. Scooters India Ltd. 10,000 Equity Shares of Rs. 10 each fully paid up 0.01 0.01
Unquoted
1. Government Securities of the face value of Rs. 0.24 lakhs (2004-05 : Rs. 0.24 lakhs) Deposited with Others - Rs. 0.10 lakhs ( 2004-05 : Rs. 0.10 lakhs) 0.00 0.00 On hand** - Rs. 0.14 lakhs ( 2004-05 : Rs. 0.14 lakhs) 0.00 0.00 2. East India Clinic Ltd. 1/2% Debenture of face value of Rs.0.15 lakhs - Rs.0.15 lakhs (2004-05: Rs.0.15 lakhs) 0.00 0.00 5% Debenture of face value of Rs.0.07 lakhs - Rs.0.07 lakhs (2004-05: Rs.0.07 lakhs) 0.00 0.00 3. Shushrusha Citizen Co-operative Hospital Limited 100 Equity Shares of Rs. 100/- each fully paid up - Rs. 0.10 lakhs (2003-04: Rs. 0.10 lakhs) 0.00 0.00 4. Petroleum India International (Association of Persons)*** Contribution towards Seed Capital 0.05 0.05 TOTAL (B) 0.08 0.08 TOTAL LONG TERM INVESTMENTS 1,683.86 1,756.84 Less: Provision for loss on Investments** - Rs. 0.14 lakh 0.00 0.00 (2004-05 : Rs. 0.14 lakh) TOTAL: (I) 1,683.86 1,756.84
54th Annual Report 2005-06 108 Schedules forming part of the Balance Sheet
Rs./ Crores 2005-06 2004-05 II. CURRENT INVESTMENTS (at Cost or Fair Value whichever is lower) A. TRADE INVESTMENTS. Quoted 7.07% Oil Marketing Companies’ GOI Special Bonds, 2009 400.00 - 7.33% Oil Marketing Companies’ GOI Special Bonds, 2009 398.92 - 7.44% Oil Marketing Companies’ GOI Special Bonds, 2012 400.00 - 7.47% Oil Marketing Companies’ GOI Special Bonds, 2012* 400.00 - 7.59% Oil Marketing Companies’ GOI Special Bonds, 2015 344.74 - 7.61% Oil Marketing Companies’ GOI Special Bonds, 2015 400.12 - TOTAL CURRENT INVESTMENTS - (II) 2,343.78 - 4,027.64 1,756.84
Cost Market / Redemption Value 2005-06 2004-05 2005-06 2004-05 Aggregate of quoted Investments 3,674.59 1,402.71 4,458.23 2,354.23 Aggregate of unquoted Investments 354.13 354.13 4,028.72 1,756.84
* Pledged with Clearing Corporation of India Limited against CBLO Loan ** Includes Rs. 0.14 lakhs (2004-05 : Rs. 0.14 lakhs) not in the possession of the Company *** Members in Petroleum India International (AOP) where Hindustan Petroleum Corporation Ltd., Bharat Petroleum Corporation Ltd., Bongaigaon Refinery & Petrochemicals Ltd., Kochi Refineries Ltd., Engineers India Ltd.,IBP Co. Ltd., Indian Petrochemicals Corporation Ltd., Chennai Petroleum Corporation Ltd. have a share of 12.50 % each
8. INVENTORIES (As per Inventory taken, valued and certified by the Management) Raw Materials (Including in-transit - Rs. 649.49 crores; 2004-05 : Rs. 221.93 crores) 1,852.02 1,166.24 Finished Products (Including in-transit between locations - Rs. 636.83 crores; 2004-05:Rs. 449.54 crores) 5,384.74 4,107.17 Stock in Process 406.47 275.07 Packages 6.36 7.96 7,649.59 5,556.44 Stores and Spares * (Including in-transit - Rs. 7.35 crores; 2004-05:Rs. 13.25 crores) 160.70 125.77 7,810.29 5,682.21 * Includes stock lying with contractors Rs. 1.39 crores (2004-05 : Rs. 1.39 crores)
54th Annual Report 2005-06 109 Schedules forming part of the Balance Sheet
Rs./ Crores 2005-06 2004-05 9. SUNDRY DEBTORS : (Unsecured)
Over six months :
Considered good 294.89 303.39 Considered doubtful 36.58 31.56 Others :
Considered good 1,097.37 745.22 1,428.84 1,080.17 Less: Provision for Doubtful Debts 36.58 31.56 1,392.26 1,048.61 10. CASH AND BANK BALANCES Cash on hand 1.21 1.21 Cheques Awaiting Deposit 2.09 0.59 With Scheduled Banks: On Current Accounts 36.11 196.74 On Non-operative Current Accounts* 0.01 0.01 On Fixed Deposit Accounts ** 3.11 3.02 With Others: In Current Account with Municipal Co-operative Bank Ltd. (maximum balance during the year Rs. 0.09 crores, 2004-05 : Rs. 0.13 crores) 0.06 0.06 42.59 201.63
* Represents amount deposited as per Court Order pending final disposal. ** Includes lodged as security deposit with Mumbai Port Trust - Rs. 0.54 crores (2004-05 : Rs.0.54 crores) and with IAAI - Rs. 0.24 crores (2004-05 : Rs.0.24 crores).
11. OTHER CURRENT ASSETS Interest accrued on Bank Deposits and Investments 11.38 0.35
54th Annual Report 2005-06 110 Schedules forming part of the Balance Sheet
Rs./ Crores 2005-06 2004-05 12. LOANS AND ADVANCES Secured, considered good : Advances recoverable in cash or in kind or for value to be received* 359.23 365.48 Interest Accrued thereon 114.44 102.77 Unsecured, considered good : Advances recoverable in cash or in kind or for value to be received ** 50.09 46.81 Balances with Excise, Customs, Port Trust etc. 256.77 296.66 Other Deposits 142.57 148.40 Prepaid Expenses 7.18 7.40 Amounts recoverable under Subsidy Schemes 41.11 832.86 Share application money pending allotment 61.27 44.98 Advance towards equity 13.00 8.00 Other Accounts Receivable *** 707.80 716.14 Unsecured, considered doubtful : Accounts Receivable & Deposits 2.99 4.17 1,756.45 2,573.67 Less : Provision for Doubtful Receivables 2.99 4.17 1,753.46 2,569.50
* Includes Rs. 0.31 crores, (2004-05: Rs.0.33 crores) due from Directors; maximum balance - Rs. 0.33 crores, (2004-05: Rs.0.35 crores) and Rs. 0.01 crore (2004-05: Rs. 0.02 crore) due from an Officer; maximum balance - Rs. 0.01 crore, (2004-05 Rs.0.01 crore).
** Includes Rs.Nil (2004-05: Rs. Nil ) due from Directors; maximum balance Rs. Nil, (2004-05: Rs Nil ) and Rs. Nil (2004-05: Rs. Nil) due from an Officer; maximum balance Rs.Nil, (2004-05 Rs.Nil).
*** Includes Rs. 10.83 crores (2004-05 : Rs.10.28 crores) being amount due towards Company’s share of profit in Petroleum India International.
54th Annual Report 2005-06 111 Schedules forming part of the Balance Sheet
Rs./ Crores 2005-06 2004-05 13. CURRENT LIABILITIES AND PROVISIONS A. Current Liabilities Sundry Creditors i) Total outstanding dues of small scale industrial undertakings * 3.38 4.41 ii) Total outstanding dues of creditors other than small scale industrial 3,373.66 2,094.84 undertakings Deposits from Dealers/Consumers for LPG Cylinders 2,673.90 2,549.33 Other Deposits 103.48 90.28 Accrued Charges/Credits 122.83 200.39 Interest accrued but not due on loans 25.59 5.79 Preference share capital redeemed remaining unclaimed/unencashed 0.01 0.01 Unclaimed Dividend** 11.19 10.84 Other Liabilities 1,080.70 1,221.93 7,394.74 6,177.82 B. Provisions Provision for Tax (Net) 301.78 301.91 Provision For Dividend 101.80 339.33 Provision for Pension 39.84 37.04 Provision for other Retirement Benefits 102.14 84.98 Provision for Fringe Benefit Tax 0.31 - Tax on Distributed Profits 14.28 47.59 560.15 810.85 7,954.89 6,988.67
* OUTSTANDING DUES OF SMALL SCALE UNDERTAKINGS FOR MORE THAN 30 DAYS M/s PYRO ELECTRIC INSTRUMENTS, M/s S.K.M.L. ENTERPRISES, M/s NEWAGE INDUSTRIES, M/s M. SAGAR, M/s KEVIN ENTERPRISES PRIVATE LTD., M/s SRI MANOJ ELECTRICAL WORKS, M/s K.V. FIRE CHEMICALS (INDIA), M/s SRI TRINADHA ELECTRICAL WORKS, M/s JOSEPH LESLIE DRAGER MFG.PVT. LTD., M/s LEVCON INST. PVT. LTD., M/s GASKETS (INDIA) PRIVATE LTD, M/s CHEMTROLS ENGINEERING LTD, M/s EX- PROTECTA, M/s REMI PROCESS PLANT & MACHINERY, M/s SHANMUKA ENGINEERING WORKS, M/s SRI BALAJI ASSOCIATES, M/s EBY FASTENERS, M/s PACKINGS & JOINTINGS GASKET, M/s CDC CARBOLINE INDIA PVT LTD., M/s SOUTHERN GASKET PRODUCTS, M/s A.K. DEY & COMPANY, M/s IGP ENGINEERS PVT LIMITED, M/s HYDRO - PNEUMATICS, M/s MADRAS INDUSTRIAL PRODUCTS, M/s DEMBLA VALVES PVT. LIMITED, M/s GOODRICH GASKET (P) LIMITED, M/s H. GURU INDUSTRIES, M/s SEBIM VALVES INDIA PVT. LTD., M/s A.N. INSTRUMENTS PRIVATE LTD, M/s VIRGO ENGINEERS LIMITED, M/s JAYALAKSHMI ENGINEERING CON, M/s FLOWAY VALVES PVT. LIMITED, M/s PRECISION ENGINEERING WORKS, M/s J R U CONTROLS PVT. LTD., M/s COASTAL AMMONIA PRIVATE LTD, M/s GUJARAT INFRAPIPES PVT LTD., M/s ASSOCIATED SUPPLIERS, M/s M.S. FITTINGS MANUFACTURING, M/s PRIME MOVER GOVERNER SERVICES, M/s A.V. VALVES LIMITED, M/s SRIRAM & CO, Ms ECONO VALVES PRIVATE LIMITED, M/s X TECHS, M/s CHAUDHRY HAMMER WORKS PVT.LTD., M/s COROMANDEL PAINTS & CHEMICALS, M/s FLASH FORGE PVT LIMITED, M/s GEETHA ENTERPRISES, M/s SWARAN SINGH & CO, M/s RAO WELDING WORKS, M/s PRESIDENT ENGINEERING WORKS, M/s LEAK STOP EXPERTS, M/s MULTITHREAD FASTENERS, M/s PRECISION MANAGEMENT COUNCIL, M/s AEP COMPANY, M/s NCON TURBO TECH (PVT) LTD, M/s PTD FASTENERS PVT. LIMITED, M/s GANGOTRI TURBO TECH. ENGG., M/s NIREKA ENGINEERING & CO.PVT LTD., M/s MODERN ELECTRICAL WORKS, M/s MAHALAKSHMI ENGINEERS, Ms SRI GAJALAKSHMI INDUSTRIES, M/s PAVANI ENTERPRISES, M/s VOLTAMP TRANSFORMERS PVT. LTD., M/s GOPAL ENGINEERING WORKS, Ms WAAREE INSTRUMENTS LTD, M/s PRAVASI ENTERPRISES, M/s GANESH ENGINEERING WORKS, M/s MASTAN ENGINEERING WORKS, M/s SABARI ENGINEERING CONTRACT, M/ s TAS ENGINEERING CO PVT LTD, M/s USHA ENGINEERING WORKS, M/s TECHNIKA, M/s SRI SANARI ELECTRICAL & ENG, M/s GLOBAL ENTERPRISES, M/s SHIVA JYOTHI ENTERPRISES, M/s M. SOMESWARA RAO, M/s SRI GANESH ELE & REWINDING, M/s RAMAKRISHNA ELECTRICAL WIND, M/s S. VENKATA RAO, M/s PRATHYUSHA SAFETY MFG. CO, M/s UNITED ELECTRICAL & REWINDING, M/s PIPEFIT ENGINEERS, M/s S.K. AHMED, M/s SOHAN ENGINEERING ENTERPRISES, M/s INMACRO, Ms CARTAL TECHNICAL SERIVCES, M/s STEEL SAMRAT (India), M/s PAVAN KUMAR BLASTINGS, M/s J.J. INDUSTRIES, M/s AES ENERGY WORKS(P) LTD, M/s SURESH ENGINEERING WORKS, M/s H.M. TECHNOLOGIES, M/s IGP ENGINEERS LTD., M/s PREM ENTERPRISES, M/s SWAN ENTERPRISES PVT. LTD., M/s MICROCARE COMPUTERS PVT LTD, M/s RANK CONTROLS & INSTRUMENTS, M/s MIKROFLO FILTERS (P) LTD., M/s C & I SYSTEMS, M/s CHHABI ELECTRICALS, M/s FIX FIT FASTENERS MFG PVT. LTD., M/s EVANS ELECTRICALS, M/s PAVING STONE, M/s HI-TEC VALVES, M/s SHARP TANKS & STRUCTURE PVT. LTD., M/s TECHNO PROCESS EQUIPMENTS LTD, M/s PACE ENGINEERS INDL., M/s TEEKAY TUBES PVT. LTD. The above information is given to the extent available with the Company. ** No amount is due as at the end of the year for credit to Investors’ Education and Protection Fund.
54th Annual Report 2005-06 112 Schedules forming part of the Profit and Loss Account
Rs./ Crores 2005-06 2004-05 14. OTHER INCOME Interest (Gross): * On Investments 73.56 74.77 On Deposits 0.15 3.85 On Staff Loans 16.75 14.76 On Customers’ Accounts 17.55 4.11 On Others 12.46 20.19 120.47 117.68 Dividend income 30.42 0.71 Share of Profit from Petroleum India International (AOP) 1.03 0.67 Rent Recoveries 36.51 33.31 Profit on sale of Long Term Investments 4.78 6.60 Exchange rate variation (Net) 20.22 77.88 Miscellaneous Income ** 115.02 92.68 207.98 211.85 328.45 329.53 Note: * Tax deducted at source amounts to Rs. Nil (2004-05: Rs.0.78 crores) ** Miscellaneous Income Includes Rs. 0.08 crores on account of amortisation of capital grant and Rs. 4.95 crores on account of recognition of revenue grant from OIDB during the year (2004-05: Nil) 15. INCREASE / (DECREASE) IN INVENTORY Closing Stock: Stock in Process 406.46 275.07 Finished Products 5,384.74 4,107.17 5,791.20 4,382.24 Less: Opening Stock: Stock in Process 275.07 197.68 Finished Products 4,107.17 4,149.69 4,382.24 4,347.37 1,408.96 34.87 16. PAYMENTS TO AND PROVISIONS FOR EMPLOYEES Salaries, Wages, Bonus, etc. * 456.29 454.01 Contribution to Provident Fund 36.37 35.19 Pension, Gratuity etc. 24.16 23.17 Voluntary Retirement Compensation - 41.98 Employee Welfare Expenses ** 178.80 163.60 Less: Recoveries 4.85 4.33 173.95 159.27 690.77 713.62 * Includes Rs. 12.89 crores (2004-05: Rs.16.79 crores) towards Leave Encashment on the basis of actuarial valuation ** Includes Rs. 4.28 crores (2004-05 : Rs. 1.75 crores) towards Post retirement medical benefits on the basis of actuarial valuation
54th Annual Report 2005-06 113 Schedules forming part of the Profit and Loss Account
Rs./ Crores 2005-06 2004-05
17. OTHER OPERATING EXPENSES Consumption of Stores, Spares and Chemicals 85.84 70.82 Power and Fuel 1,306.32 969.53 Less : Fuel of own production consumed 1,287.65 956.76 18.67 12.77 Repairs and Maintenance - Buildings 11.37 9.93 Repairs and Maintenance - Plant & Machinery 277.84 234.57 Repairs and Maintenance - other assets 6.63 5.34 Insurance 20.15 29.71 Rates and Taxes 21.88 20.91 Irrecoverable Taxes and Other Levies 257.90 300.07 Equipment Hire Charges 2.08 1.04 Rent 67.99 55.82 Travelling and Conveyance 68.09 59.39 Printing and Stationery 8.68 9.63 Electricity and Water 107.85 101.57 Charities and Donations 8.91 21.13 Stores & spares written off 2.48 3.12 Provision for Dimunition in value of Current Investments 1.08 - Write off of Goodwill on acquiring LPG Business of PITCL & DGL - 1.22 Provision for Doubtful Receivables written back (1.18) (3.13) (After adjusting provision no longer required written back Rs. 1.22 crores , 2004-05 : Rs. 3.13 crores) Provision for Doubtful Debts and write-offs 5.02 2.91 (After adjusting provision no longer required written back Rs. 3.76 crores , 2004-05 : Rs.0.11 crore ) Provision for assets under reconciliation no longer required (7.68) - Loss on Sale/ write off of Fixed Assets/ CWIP 7.59 4.02 Security Charges 31.53 27.43 Advertisement & Publicity 105.30 94.60 Sundry Expenses and Charges (Not otherwise classified) 245.26 157.46 Consultancy & Technical Services 32.62 23.34 1,385.90 1,243.67 18. INTEREST On Short Term Loans 149.60 78.37 On Overdraft from Banks 9.07 3.13 On Fixed Deposits - 0.13 Others 0.07 0.01 158.74 81.64
54th Annual Report 2005-06 114 Statement of Significant Accounting Policies and Notes forming part of Accounts
19. A. SIGNIFICANT ACCOUNTING POLICIES Accounts are prepared under the historical cost convention in accordance with Generally Accepted Accounting Principles (GAAP), Accounting Standards issued by The Institute of Chartered Accountants of India (ICAI) and the provisions of the Companies Act, 1956. All income and expenditure having material bearing are recognised on accrual basis, except where otherwise stated. Necessary estimates & assumptions of income & expenditure are made during the reporting period and difference between the actuals and the estimates are recognised in the period in which the results materialise. 1. FIXED ASSETS Land acquired on lease for 99 years or more is treated as freehold land. 2. INTANGIBLE ASSETS a. Cost of Right of Way for laying pipelines is capitalised as Intangible Asset and being perpetual in nature is not amortised. b. Costs incurred on technical know-how / license fee relating to process design / plants / facilities are capitalised as Intangible Assets. c. Cost of Software directly identified with hardware is capitalised along with the cost of hardware. Application software is capitalised as Intangible Asset. 3. CONSTRUCTION PERIOD EXPENSES ON PROJECTS a. Related expenditure (including temporary facilities and crop compensation expenses) incurred during construction period in respect of plan projects and major non-plan projects are capitalised. b. Financing cost incurred during the construction period on loans specifically borrowed and utilised for projects is capitalised. c. Financing cost, if any, incurred on general borrowings used for projects is capitalised at the weighted average cost. 4. DEPRECIATION a. Depreciation on Fixed Assets is provided on straight line method, in the manner and at rates prescribed under Schedule XIV to the Companies Act, 1956 and is charged pro rata on monthly basis on assets, from / upto and inclusive of the month of capitalisation / sale, disposal or deletion during the year. b. All assets costing upto Rs. 5000/-, other than LPG cylinders and pressure regulators, are fully depreciated in the year of capitalisation. c. Premium on leasehold land is amortised over the period of lease. d. Machinery Spares which can be used only in connection with an item of fixed asset and the use of which is expected to be irregular, are depreciated over a period not exceeding the useful life of the principal item of fixed asset. Replacement of such spares is charged to revenue. e. Intangible Assets other than Application Software are amortised on a straight line basis over the useful life of the Parent Asset. f. Application software are normally amortised over a period of four years or over its useful life before it becomes obsolete, whichever is earlier.
54th Annual Report 2005-06 115 Statement of Significant Accounting Policies and Notes forming part of Accounts
5. IMPAIRMENT OF ASSETS At each balance sheet date an assessment is made of whether there is any indication of impairment. An impairment loss is recognised whenever the carrying amount of assets of cash generating units(CGU) exceeds their recoverable amount. 6. FOREIGN CURRENCY TRANSACTIONS a. Foreign Currency transactions during the year are recorded at the rates of exchange prevailing on the dates of transactions. b. All foreign currency assets, liabilities and forward contracts are restated at the rates ruling at the year end. c. All exchange differences are dealt with in the Profit and Loss Account, except those relating to acquisition of fixed assets, which are adjusted in the cost of assets and those covered by forward contract rates, where the premium / discount arising from such contracts are recognised over the period of contracts. 7. INVESTMENTS a. Long-term investments are valued at cost and provision for diminution in value thereof is made, wherever such diminution is other than temporary. b. Current investments are valued at the lower of cost and fair value. 8. INVENTORIES a. Crude oil is valued at cost on First In First Out (FIFO) basis or at net realisable value, whichever is lower. b. Raw material for lubricants and Finished lubricants are valued at weighted average cost or at net realisable value whichever is lower. c. Stock-in process is valued at raw material cost plus cost of conversion or at net realisable value, whichever is lower. d. Finished products other than Lubricants are valued at cost (on FIFO basis) or at net realisable value, whichever is lower. e. Empty packages are valued at weighted average cost. f. Stores and spares are valued at weighted average cost. g. Value of surplus, obsolete and slow moving stores and spares, if any, is reduced to net realisable value. Surplus items, when transferred from completed projects are valued at cost / estimated value, pending periodic assessment / ascertainment of condition. 9. DUTIES ON BONDED STOCKS Excise / Customs duty is provided on stocks stored in Bonded Warehouses (excluding goods exempted from duty / exports or where liability to pay duty is transferred to consignee).
54th Annual Report 2005-06 116 Statement of Significant Accounting Policies and Notes forming part of Accounts
10. GRANTS a. In case of Depreciable Assets, the cost of the asset is shown at gross value and grant thereon is treated as Capital Grants which are recognised in the Profit and Loss Account over the period and in the proportion in which depreciation is charged. b. Grants received against revenue items are recognised as income. 11. PROVISIONS A provision is recognised when there is a present obligation as a result of a past event and it is probable that an outflow of resources will be required to settle the obligation in respect of which a reliable estimate can be made. 12. EXPLORATION & PRODUCTION EXPENDITURE “Successful Efforts Method” of accounting is followed for Oil & Gas exploration and production activities as stated below: a. Cost of surveys, studies, carrying and retaining undeveloped properties are expensed out in the year of incurrence. b. Cost of acquisition, drilling and development are treated as capital work-in-progress when incurred and capitalised when the well is ready to commence commercial production. c. Accumulated costs on exploratory wells in progress are expensed out in the year in which they are determined to be dry. The proportionate share in the assets, liabilities, income and expenditure of joint operations are accounted as per the participating interest in such joint operations. 13. RETIREMENT BENEFITS Liability towards leave encashment, pension, post - retirement medical benefits and gratuity to employees is determined on actuarial valuation done at the year end. Liability so determined is funded in the case of gratuity and provided for in other cases. 14. SALE OF PRODUCTS Sales are net of discount, include applicable excise duty, surcharge and other elements as allowed to be recovered as part of the price but exclude VAT/sales tax. 15. RESEARCH & DEVELOPMENT Expenditure incurred on research activities are charged off in the year they are incurred. Expenses directly related to development activities which are capable of generating future economic resources are treated as intangible assets. 16. TAXES ON INCOME a. Provision for current tax is made in accordance with the provisions of the Income Tax Act, 1961. b. Deferred tax on account of timing difference between taxable and accounting income is provided by using tax rates and tax laws enacted or substantively enacted as at the balance sheet date.
54th Annual Report 2005-06 117 Statement of Significant Accounting Policies and Notes forming part of Accounts
17. CONTINGENT LIABILITIES AND CAPITAL COMMITMENTS Contingent Liabilities and Capital Commitments are considered only for items exceeding Rs.1.00 Lakh in each case. Contingent Liabilities in respect of show cause notices are considered only when converted into demands. 18. ACCOUNTING/CLASSIFICATION OF EXPENDITURE AND INCOME a. Insurance claims are accounted on acceptance basis. b. All other claims/entitlements are accounted on the merits of each case/realisation. c. Raw materials consumed are net of discount towards sharing of under recoveries. d. Prior Period items : Income and expenditure over Rs.1.00 Lakh in each case pertaining to prior period items arising in the current period are considered as prior period items. 19 B. NOTES FORMING PART OF ACCOUNTS 1. In respect of sale of sensitive products (MS, HSD LPG (Domestic) and SKO (PDS)), as advised by the Ministry of Petroleum & Natural Gas, a part of the under-recovery suffered by the Oil Marketing Companies during the year was compensated by ONGC and GAIL, by offering discounts on prices of crude, SKO and LPG purchased from them. Accordingly, the Corporation has accounted the discount received as follows: (a) Rs.2,531.11 crores (2004-05: Rs.490.66 crores) discount received, on crude oil purchased from ONGC, has been adjusted against ‘Raw Material Cost’. (b) Rs.690.48 crores (2004-05: Rs.787.68 crores) discount received on purchase of SKO (PDS) and LPG (Domestic) from ONGC and GAIL has been adjusted against ‘Purchase of Product for Resale’. 2. Oil Bonds issued by the Government of India towards under-recoveries suffered by OMCs on sale of sensitive products during 2005-06 for Rs.2,344.86 crores (2004-05 : Nil), have been accounted under ‘Recovery under Subsidy Schemes’. 3. During the year, provision of Rs. 7.68 crores (2004-05: Nil) has been written back, based on actual shortages/overages, as against the provision of Rs. 24.55 crores made in the year 2003-04 towards variation, based on physical verification of assets in the marketing locations. 4. The Corporation has, as at the Balance Sheet date, entered into Forward Contracts amounting to USD 389.13 million to hedge its foreign currency exposure towards loans/Export Earnings. The Corporation does not generally hedge the risks on account of foreign currency exposure for the payment of Crude. Exposures not hedged as of Balance Sheet date amounted to USD 403.99 million towards purchase of crude and USD 50 million in respect of loans taken. 5. (a) Inter-Oil Company transactions are reconciled on continuous basis. However, year end balances are subject to confirmation/reconciliation. (b) Customers’ Accounts are reconciled on an ongoing basis and are not likely to have a material impact on the outstanding or classification of the accounts.
54th Annual Report 2005-06 118 Statement of Significant Accounting Policies and Notes forming part of Accounts
6. Deferred Tax Assets/(Liabilities) arising due to timing differences comprise of : Rs./Crores 2005-06 2004-05 Deferred Tax Asset Provision for Pension 13.41 12.47 Provision For Medical Benefits 4.16 2.72 Provision For Leave Encashment 22.99 18.65 Others 36.25 36.05 TOTAL (A) 76.81 69.89 Deferred Tax Liability Depreciation (1,418.89) (1,412.54) Others (42.36) (32.10) TOTAL (B) (1,461.25) (1,444.64) Deferred Tax Liability (A + B) (1,384.44) (1,374.75) 7. Related Party disclosure: Rs. /Crores Subsidiary Company Joint Venture Companies Total 2005-06 2004-05 2005-06 2004-05 2005-06 2004-05 Sales - - 267.02 91.53 267.02 91.53 Purchases 6.16 14.00 6,907.32 5,039.64 6,913.48 5,053.64 Investment - 2.12 - - - 2.12 Advance towards Equity - - 5.00 5.00 5.00 5.00 Other Advances ------Share application pending allotment 4.29 - 12.00 - 16.29 - Interest - - 0.90 0.34 0.90 0.34 Services - 2.07 (1.36) 2.83 (1.36) 4.90 Others 2.69 0.18 2.28 4.44 4.97 4.62 Closing Balances (1.40) (6.76) (193.15) (240.12) (194.55) (246.88) The names of parties are as follows: Subsidiary Company: Guru Gobind Singh Refineries Ltd. Joint Venture Companies : Mangalore Refinery and Petrochemicals Ltd., Hindustan Colas Ltd., Prize Petroleum Co. Ltd., Petronet India Ltd., Petronet MHB Ltd., South Asia LPG Co. Pvt. Ltd. and Bhagyanagar Gas Ltd. Key Management Personnel : Shri M. B. Lal, Chairman & Managing Director Shri D. S. Mathur, Director - Refineries (till May 30, 2005) Shri Arun Balakrishnan, Director- Human Resources Shri C. Ramulu, Director - Finance Shri S. Roy Choudhury, Director- Marketing Shri M.A. Tankiwala, Director- Refineries (from June 01, 2005) Details of remuneration to directors are given in note 10F of Notes to Accounts.
54th Annual Report 2005-06 119 Statement of Significant Accounting Policies and Notes forming part of Accounts
8. Considering the uncertainties attached to certain benefits under the Income Tax Act, the Corporation has been accounting for such tax benefits in the year they are allowed in the assessments. Accordingly, the Corporation, upon completion of assessment for the financial year 2002-03 (assessment year 2003-04) has reversed provision for tax amounting to Rs. 217.36 crores (previous year: Rs. 47.52 crores). 9. Previous year’s figures have been regrouped/reclassified wherever necessary. Rs. / Crores 2005-06 2004-05 10. A. Estimated amount of contracts remaining to be executed on Capital Account not provided for 3,492.52 1,071.21 B. No provision has been made in the accounts in respect of the following disputed demands/claims since they are subject to appeals/representations filed by the Corporation i. Income Tax - - ii. Sales Tax/Octroi 1,811.78 632.05 iii. Excise/Customs 788.64 910.58 iv. Land Rentals & Licence Fees 64.38 41.36 v. Others 20.06 19.90 C. Contingent Liabilities not provided for in respect of appeals filed against the Corporation i. Income Tax 10.55 10.55 ii. Sales Tax/Octroi 84.53 83.72 iii. Excise/Customs 69.59 111.32 iv. Employee Benefits/Demands (to the extent quantifiable) 82.81 69.48 v. Guarantees on behalf of others 158.53 166.82 vi. Claims against the Corporation not acknowledged as debts 185.09 197.84 591.10 639.74 D. Payment to Auditors: -Audit fees 0.11 0.10 -Tax audit fees 0.01 0.02 - Other Services 0.05 0.05 - Reimbursement of expenses 0.03 0.03 0.20 0.19 E. Items included under Employee Welfare Expenses - Salaries, Wages, Bonus etc. 5.36 2.80 - Contribution to Provident Funds 0.37 0.38 - Stores & Provision 8.54 7.94 - Electricity and Water (Net of recoveries) 2.84 3.04
54th Annual Report 2005-06 120 Statement of Significant Accounting Policies and Notes forming part of Accounts
Rs./ Crores 2005-06 2004-05 - Repairs and Maintenance - Buildings 7.81 4.50 - Repairs and Maintenance - Plant & Machinery 2.86 1.95 - Repairs and Maintenance - Other Assets 0.35 0.15 - Pension / Gratuity / Medical expenses 6.71 2.62 - Rates and Taxes 1.49 1.19 - Rent (Net of Recoveries) 36.54 42.18 - Depreciation 1.26 1.21 - Medical Expenses 51.90 44.86 - Uniform / Work clothes 26.92 25.67 - Insurance 3.55 2.59 - Security 0.32 0.76 - Others (Net) 17.13 17.43 173.95 159.27 F. Managerial Remuneration : - Salary and Allowances 0.52 0.43 - Contribution to Provident Fund and other funds 0.05 0.04 - Pension and Gratuity 0.02 0.02 - Other benefits 0.14 0.12 G. C.I.F.value of imports during the year(excludes canalised imports): - Raw materials 19,923.73 13,867.05 - Stores, Spares and Chemicals 53.93 38.36 - Capital Goods, Components and Spares 85.16 42.75 H. (i) Expenditure in foreign currency on account of: Engineering, Technical and other services, demurrage charges, royalties and other matters 105.79 64.01 (ii) Foreign Currency payments for crude 19,058.79 13,849.09 I. Earnings in foreign exchange:(On accrual basis) Export of goods calculated on FOB basis 3,271.39 1,943.51 Includes Rs. 453.11 crores (2004-05 : Rs. 330.56 crores) received in Indian currency out of repatriable funds of foreign airlines customer
54th Annual Report 2005-06 121 Statement of Significant Accounting Policies and Notes forming part of Accounts
Rs./ Crores 2005-06 2004-05 J. Value of Raw Materials, Spare Parts and Components consumed (i) Raw Materials - Imported (in %) 81.75 73.26 - Imported (in Value) 20,913.10 15,073.62 - Indigenous (in %) 18.25 26.74 - Indigenous (in Value) 4,669.08 5,502.60 (ii) Spare Parts & Components: - Imported (in %) 22.02 37.54 - Imported (in Value) 26.90 30.50 - Indigenous (in %) 77.98 62.46 - Indigenous (in Value) 95.27 50.76 K. Licensed capacity at year end in Metric Tonnes p.a. (a) Petroleum fuel and lube products 13,000,000 13,000,000 (b) Lubricating Oils 122,173 122,173 (c) Textile Auxiliaries 3,391 3,391 (d) Hydraulic Brake Fluid 556 556 (e) Insecticides 782 782 (f) Greases 5,913 5,913 L. Installed capacity at year end in Metric Tonnes per annum as certified by the Management on which the Auditors have relied upon: (a) Petroleum fuel and lube products 13,000,000 13,000,000 (b) Lubricating Oils,Greases and Textile Auxiliaries * 319,779 319,779 (c) Hydraulic Brake Fluid and Insecticides 4,062 4,062 * Product manufacturing facilities are interchangeable M. Production in Metric Tonnes: (a) Petroleum fuel and lube products i. Bulk Petroluem Products 12,734,631 12,821,603 ii. Lubricating Oil Base Stocks(including Transformer Oil Base Stocks) 279,757 214,023 iii. Carbon Black Feed Stock 27,818 29,346 iv. Axle Oil - 277 v. Rubber Processing oil 22,555 20,811 (b) Lubricating Oils 130,519 176,863 (c) Textile Auxiliaries 554 106 (d) Hydraulic Brake Fluid 425 - (e) Insecticides 360 238 (f) Greases 2,100 3,273
54th Annual Report 2005-06 122 Statement of Significant Accounting Policies and Notes forming part of Accounts
N. Information for each class of goods purchased, sold and stocks during the year : Rs./Crores OPENING STOCK PURCHASES SALES CLOSING STOCK 2005-06 2004-05 2005-06 2004-05 2005-06 2004-05 2005-06 2004-05 Bulk Petroleum M.T. 1556197 2112103 13555011 14697636 25903093 28082980 1892101 1556197 Products Value 3,876.43 3,961.87 42,136.65 33,842.86 72,373.63 63,703.18 5,160.43 3,876.43 Lubricating M.T. 31033 25870 - - 58486 38340 18634 31033 Oil Base Stocks Value 61.95 51.50 - - 216.61 98.61 58.99 61.95 (including Transformer oil Base stock) Carbon Black M.T. 193 2332 26852 - 53301 31283 1157 193 Feed Stock Value 0.24 2.47 41.47 - 97.48 39.59 1.98 0.24 Axle Oil M.T. 40 48 - - 12 285 28 40 Value 0.13 0.15 - - 0.03 0.73 0.13 0.13 Lubricating M.T. 31308 27664 - - 274479 173194 24223 31308 Oils Value 155.88 123.56 - - 1,334.01 824.66 147.87 155.88 Textile M.T. 33 46 - - 546 119 41 33 Auxiliaries Value 0.14 0.17 - - 3.00 0.58 0.24 0.14 Insecticides M.T. 584 725 - - 547 379 397 584 Value 2.99 2.34 - - 3.89 2.87 3.43 2.99 Greases M.T. 1985 1848 - - 2191 3133 1894 1985 Value 9.30 7.52 - - 15.46 19.29 11.67 9.30 Automotive Accessories Value 0.11 0.12 - - - - - 0.11 Total 4,107.17 4,149.69 42,178.12 33,842.86 74,044.11 64,689.51 5,384.74 4,107.17
No adjustments for transit/operational/temperature variations/consumption for own operation have been made in regard to quantitative information.
54th Annual Report 2005-06 123 Statement of Significant Accounting Policies and Notes forming part of Accounts
Rs. / Crores 2005-06 2004-05 O. Raw Materials consumed: (a) Crude Oil Processed: - Tonnes 13,795,237 13,942,043 - Value 25,342.40 20,316.50 (b) Other Petroleum Products - Tonnes 51,879 43,049 - Value 150.06 83.68 (c) Additives, Inhibitors and Chemicals: - Value 73.03 99.36 (d) Non-Petroleum Products: - Value 16.69 76.68 P. Expenditure incurred on Research and Development - Capital 0.78 0.47 - Revenue 0.71 1.28 Q. Interest on Project specific borrowings capitalised 41.31 0.10 R . Exchange Differences i) Adjusted in the carrying amount of Fixed Assets during 0.13 0.70 the accounting period. ii) In respect of Forward Exchange contracts to be recognised 94.66 1.08 in Profit or Loss for one or more subsequent accounting periods
54th Annual Report 2005-06 124 Statement of Significant Accounting Policies and Notes forming part of Accounts
S. Information regarding Primary Segment Reporting as per AS-17 for the year ended March 31, 2006 is as under: Rs. / Crores 2005-06 2004-05 Downstream Exploration Total Downstream Exploration Total Petroleum & Production Petroleum & Production Revenue External Revenue 71,209.67 - 71,209.67 60,062.60 - 60,062.60 Inter-segment Revenue - - - - Total Revenue 71,209.67 - 71,209.67 60,062.60 - 60,062.60 Result Segment Results 300.64 (12.42) 288.22 1,600.03 (3.45) 1,596.58 Less: Unallocated Expenses ------Net of unallocated Income ------Operating Profit 300.64 (12.42) 288.22 1,600.03 (3.45) 1,596.58 Less: Interest Expenditure 158.74 - 158.74 81.64 - 81.64 Provision for dimunition in investments 1.08 - Add: Interest/Dividend (Incl Share of profit from PII) 151.92 119.06 Profit on Sale of Investments 4.78 6.60 Profit before Tax 285.10 1,640.60 Less: Taxes (including Deferred tax / FBT) (120.53) 363.27 Profit after Tax 405.63 1,277.33 Other Information Segment Assets 20,151.95 - 20,151.95 16,711.21 - 16,711.21 Corporate Assets 4,586.95 2,278.41 Total Assets 24,738.90 18,989.62 Segment Liabilities 14,173.48 15.87 14,189.35 8,470.89 3.45 8,474.34 Corporate Liabilities 1,813.81 2,074.43 Total Liabilities 16,003.16 10,548.77 Capital Expenditure 2,694.43 - 2,694.43 1,322.63 - 1,322.63 Depreciation 690.23 - 690.23 659.59 - 659.59 Notes: 1. The Company is engaged in the following business segments: a) Downstream i.e. Refining and Marketing of Petroleum Products b) Exploration and Production of Hydrocarbons Segments have been identified taking into account the nature of activities and the nature of risks and returns. 2. Segment Revenue comprises the following: a) Turnover (Net of Excise Duties) b) Subsidy from Government of India c) Net Claim/(surrender to) PPAC/GOI d) Other income (excluding interest income, dividend income and investment income) 3. There are no geographical segments.
54th Annual Report 2005-06 125 Statement of Significant Accounting Policies and Notes forming part of Accounts
T. In compliance of AS-27 ‘Reporting of Financial Interests in Joint Ventures’, the required information is as under: a) Jointly Controlled Entities Country of Percentage of Percentage of Incorporation ownership ownership interest interest as on 31-03-06 as on 31-03-05 Hindustan Colas Limited India 50.00 50.00 South Asia LPG Company Pvt. Limited India 50.00 50.00 Prize Petroleum Company Limited India 50.00 50.00 Mangalore Refinery and Petrochemicals Limited India 16.95 16.95 Bhagyanagar Gas Limited India 25.00 25.00 Petronet India Limited India 16.00 16.00 Petronet MHB Limited India 26.00 26.00
b) In respect of jointly controlled entities, the Corporation’s share of assets, liabilities, income, expenses, contingent liabilities and capital commitments as furnished below, have been included on the basis of unaudited/audited financial received from these joint venture companies: Rs. / Crores 2005-06 2004-05 (i) Assets - Long Term Assets 977.88 958.43 - Investments 13.00 8.07 - Current Assets 674.22 651.71 (ii) Liabilities - Loans (Secured & Unsecured) 741.76 741.29 - Current Liabilities & Provisions 414.85 432.58 - Deffered Tax Liability 9.75 24.63 (iii) Income 4,298.58 3,250.11 (iv) Expenses * 4,252.14 3,111.81 (v) Contingent Liabilities 777.57 581.23 (vi) Capital Commitments 352.98 286.38 * Including Tax
54th Annual Report 2005-06 126 Cash Flow Statement for the year ended 31st March, 2006
Rs./ Crores 2005-06 2004-05 A. Cash Flow From Operating Activities Net Profit before Tax & Extraordinary items 285.10 1,640.60 Adjustments for : Depreciation / Amortisation 690.23 659.59 Provision for assets under reconciliation no longer required (7.68) - Loss on Sale/write off of Fixed Assets/ CWIP 7.59 4.02 Amortisation of capital grant (0.08) - Spares written off 2.48 - Provision for dimunition in the value of current investments 1.08 - Interest Expense 158.74 81.64 Exchange rate difference on loans 24.85 10.14 Provision for Doubtful Receivables written back (1.18) - Provision for Doubtful Debts 5.02 (0.22) Interest Income (73.72) (78.62) Share of Profit from PII (1.03) (0.67) Dividend Received (30.42) (0.71) Profit on sale of Oil bonds (4.78) (6.60) Operating Profit before Working Capital Changes 1,056.20 2,309.17 (Increase) / Decrease in Working Capital : Trade Receivables (348.67) (51.23) Other Receivables 838.52 261.23 Inventories (2,098.81) (279.69) Trade and other Payables 1,073.85 (291.63) (535.11) (361.31) Cash generated from operations 521.09 1,947.86 Direct Taxes / FBT refund / (paid) - Net 130.41 (629.82) Cash Flow before extraordinary items 651.50 1,318.03 Extraordinary items - - Net Cash from Operating Activities ( A ) 651.50 1,318.03 B. Cash Flow From Investing Activities Purchase of Fixed Assets (incl. Capital Work in Progress / excluding interest capitalised) (2,529.81) (1,284.86) Sale of Fixed Assets 1.74 2.79 Purchase of Investment (Including share application money pending allotment/Adv. towards Equity) (3,143.17) (7.13) Sale Proceeds of Oil bonds 854.78 306.60 Interest received 62.69 78.59 Dividend Received 30.42 0.71 Share of profit from PII 1.03 0.67 Net Cash from Investing Activities ( B ) (4,722.32) (902.63)
54th Annual Report 2005-06 127 Cash Flow Statement for the year ended 31st March, 2006
Rs./ Crores C. Cash Flow From Financing Activities 2005-06 2004-05 Proceeds from Calls in Arrear(Net) 0.40 0.86 Long term loans raised 902.00 200.00 Fixed deposits / Debentures repaid (0.09) (402.68) Short term loans raised / (repaid) 3,408.81 498.22 Interest paid on Loans (174.03) (81.64) Dividend paid (including Dividend Distribution Tax) (386.57) (804.92) Capital grant against purchase of assets 5.02 - Net Cash from Financing Activities ( C ) 3,755.54 (590.17) Net Increase / (Decrease) in Cash and Cash Equivalents (A) + (B) + ( C) (315.28) (174.76) Cash and Cash Equivalents as on 1st April (Opening) : Cash / Cheques on Hand 1.80 1.36 Balances with Scheduled Banks - On Current Accounts 196.74 194.85 - Others 3.03 2.95 Balances with other Banks 0.06 0.05 201.63 199.21 Overdrafts from Banks (319.91) (142.73) (118.28) 56.48 Cash and Cash Equivalents as on 31st March (Closing): Cash / Cheques on Hand 3.31 1.80 Balances with Scheduled Banks - On Current Accounts 36.11 196.74 - Others 3.12 3.03 Balances with other Banks 0.06 0.06 42.60 201.63 Overdrafts from Banks (476.16) (319.91) (433.56) (118.28) Net Increase / (Decrease) in Cash and Cash Equivalents (315.28) (174.76) Note: Previous year’s figures have been regrouped / reclassified wherever necessary. FOR AND ON BEHALF OF THE BOARD M.B. LAL Chairman & Managing Director C.RAMULU FOR N.M.RAIJI & CO. FOR SUDIT K. PAREKH & CO. Director-Finance Chartered Accountants Chartered Accountants N.R. NARAYANAN VINAY D. BALSE SRIKANT V. JILLA Company Secretary Partner Partner Place : New Delhi Date : May 25, 2006
54th Annual Report 2005-06 128 Balance Sheet Abstract and Company’s General Business Profile
I. REGISTRATION DETAILS REGISTRATION NO. : 0 8 8 5 8 STATE CODE: 1 1 BALANCE SHEET DATE: 3 1 0 3 2 0 0 6
II. CAPITAL RAISED DURING THE YEAR (Amount in Rs.Thousands) PUBLIC ISSUE RIGHTS ISSUE NI L NI L BONUS ISSUE PRIVATE PLACEMENT NI L NI L III. POSITION OF MOBILISATION AND DEPLOYMENT OF FUNDS (Amount in Rs.Thousands) TOTAL LIABILITIES TOTAL ASSETS 167840156 167840156 SOURCES OF FUNDS PAID -UP CAPITAL RESERVES & SURPLUS 3389397 83968031 SECURED LOANS UNSECURED LOANS 14861559 51776752 DEFFERED TAX LIABILITY 13844417 APPLICATION OF FUNDS NET FIXED ASSETS INVESTMENTS 97012857 40276387 NET CURRENT ASSETS MISC.EXPENDITURE 30550912 NI L ACCUMULATED LOSSES NI L IV. PERFORMANCE OF THE COMPANY (Amount in Rs.Thousands) TURNOVER TOTAL EXPENDITURE 740441146 710812751 PROFIT /LOSS BEFORE TAX PROFIT /LOSS AFTER TAX + 2850963 + 4056333 EARNINGS PER SHARE IN RS. DIVIDEND RATE % 11. 97 30 V. GENERIC NAMES OF THREE PRINCIPAL PRODUCTS OF THE COMPANY (as per monetary terms ) Item Code No. (ITC Code) 2 7 1 0 Product Description B U L K P E T R O L E U M PRODUCTS Item Code No. (ITC Code) 2 7 1 0 0 0 4 1 / 6 1 Product Description L U B R I C A N T S Item Code No. (ITC Code) 2 9 0 1 2 2 0 0 Product Description P R O P Y L E N E M.B. LAL C. RAMULU N.R.NARAYANAN Chairman & Managing Director Director - Finance Company Secretary Place : New Delhi Date : May 25, 2006
54th Annual Report 2005-06 129 Statement pursuant to Section 212 of the Companies Act, 1956 relating to Subsidiary Companies. 1. Name of the Subsidiary company Guru Gobind Singh Refineries Ltd. 2. Financial period of the subsidiary company ended 31st March 2006 3. Total issued Share Capital of the subsidiary company 29,57,10,000 Equity Shares of Rs. 10 each 4. Number of shares held in the subsidiary company 29,57,10,000 Equity Shares of Rs. 10 each 5. Percentage of shares held in the subscribed capital of the subsidiary 100% 6. The net aggregate amount, so far as it concerns the members of the company and is not dealt within the accounts, of the Subsidiary’s i) Profit / (Loss) for the year ended 31st March 2006 NIL ii) Profit / (Loss) of the previous financial years of the subsidiary since it became the Company’s subsidiary NIL 7. The net aggregate amount, so far as it concerns the members of the Company and is dealt within the Company’s accounts, of the subsidiary’s i) Profit / (Loss) for the year ended 31st March 2006 NIL ii) Profit / (Loss) of the previous financial years of the subsidiary since it became the Company’s subsidiary NIL
For and on behalf of the Board
M.B. Lal C. Ramulu N.R. Narayanan Chairman & Managing Director Director - Finance Company Secretary
Place : New Delhi Date : May 25, 2006
54th Annual Report 2005-06 130 Social Welfare
INCOME AND EXPENDITURE ACCOUNT FOR TOWNSHIPS, EDUCATION, MEDICAL AND OTHER SOCIAL WELFARE FACILITIES FOR THE YEAR ENDED 31ST MARCH, 2006 Rs./ Crores 2005-06 2004-05 Income : Recovery of house rent 1.84 3.37 Recovery of utilities 0.22 0.32 Other recoveries 0.40 0.66 Excess of expenditure over income 173.95 159.27 176.41 163.62 Expenditure : Salaries, wages, bonus etc. 5.36 4.79 Contribution to provident funds 0.37 0.38 Consumption of stores, spares and chemicals 8.54 8.26 Electricity and water 2.94 3.15 Repairs and maintenance to buildings 7.81 4.49 Repairs and maintenance to plant & machinery 2.86 1.95 Repairs and maintenance to other assets 0.35 0.15 Pension / gratuity 6.84 2.62 Rates & taxes 1.49 1.19 Rent 38.39 45.56 Depreciation 1.26 1.21 Medical expenses 51.90 44.86 Uniform / work clothes 26.93 25.67 Insurance 3.55 2.59 Security 0.33 0.76 Others 17.53 15.97 176.41 163.62
SCHEDULE OF FIXED ASSETS (TOWNSHIP) Rs./ Crores Gross Block Additions/ Deductions/ Gross Block Depreciation Total Net Net at cost Reclassifi Reclassifi at cost and Depreciation Balance Balance as at -cations -cations as at Amortisation and as at as at 1.4.2005 31.3.2006 for the year Amortisation 31.3.2006 31.3.2005 2005-06 upto 31.3.2006
1. Land - Freehold 0.10 - - 0.10 - - 0.10 0.10 2. Buildings, Roads, etc. 25.43 0.08 - 25.51 0.41 6.88 18.63 19.04 3. Plant and Machinery 4.15 0.01 - 4.16 0.16 2.71 1.45 1.60 4. Furniture, Fixtures and Office/Laboratory Equipment 4.42 0.56 0.11 4.87 0.07 0.59 4.28 3.72 5. Transport Equipment 0.01 - - 0.01 0.01 0.01 0.00 0.01 Total 34.11 0.65 0.11 34.65 0.65 10.19 24.46 24.47 Previous Year 33.55 0.58 0.02 34.11 0.64 9.64 24.47
54th Annual Report 2005-06 131 C & AG’s Comments
COMMENTS OF THE COMPTROLLER & AUDITOR GENERAL OF INDIA U/S 619 (4) OF THE COMPANIES ACT, 1956 ON THE ACCOUNTS OF THE HINDUSTAN PETROLEUM CORPORATION LIMITED FOR THE YEAR ENDED 31ST MARCH, 2006.
I have to state that the Comptroller and Auditor General of India has no comments upon or supplement to the Auditors’ Report under Section 619(4) of the Companies Act, 1956 on the accounts of Hindustan Petroleum Corporation Limited for the year ended 31st March, 2006.
Revathy Iyer Principal Director of Commercial Audit & ex-officio Member, Audit Board-II, Mumbai.
Place: Mumbai Date: July 4, 2006
54th Annual Report 2005-06 132 Review of Accounts by C & AG
REVIEW OF ACCOUNTS OF HINDUSTAN PETROLEUM CORPORATION LIMITED FOR THE YEAR ENDED 31ST MARCH 2006 BY THE COMPTROLLER AND AUDITOR GENERAL OF INDIA. Note: Review of Accounts has been prepared without taking into account comments under Sec.619 (4) of the Companies Act, 1956, if any, and qualifications contained in the Statutory Auditors’ Report. 1. FINANCIAL POSITION The table below summarises the financial position of the Company under broad headings for the last three years. :- Rs. / Crores LIABILITIES 2003-04 2004-05 2005-06 (a) Paid Up Capital : (i) Government 173.08 173.08 173.08 (ii) Others 165.82 165.85 165.86 (b) Reserves & Surplus (i) Free Reserves & Surplus(Other than Share Premium) 6253.89 6951.07 7245.56 (ii) Share Premium Account 1150.02 1150.85 1151.24 (c) Share Application Money Pending Allotment - - - (d) Borrowings from (i) Issue of Debentures 400.00 - - (ii) Cash Credit/Overdrafts from Bank 142.73 319.91 476.16 (iii) Others 1158.07 1865.44 6187.67 (e) (i) Current Liabilities & Provision 7655.15 6988.67 7954.89 (ii) Deferred Tax Liability 1454.08 1374.75 1384.44 Total 18552.84 18989.62 24738.90 ASSETS (f) Gross Block 11387.43 12393.17 13479.25 (g) Less: Cumulative Depreciation 4809.32 5449.53 6141.85 (h) Net Block 6578.11 6943.64 7337.40 (i) Capital Work-in-progress 496.14 786.84 2363.88 (j) Investments 2048.42 1756.84 4027.64 (k) Current Assets, Loans & Advance (i) Inventories 5402.53 5682.21 7810.29 (ii) Sundry Debtors 1000.29 1048.61 1392.26 (iii) Cash & Bank Balances 199.21 201.63 42.59 (iv) Loans & Advances 2827.82 2569.50 1753.46 (v) Other Current Assets 0.32 0.35 11.38 (l) Miscellaneous Expenditures to the extent not written off or adjusted - - - Total 18552.84 18989.62 24738.90
54th Annual Report 2005-06 133 Review of Accounts by C & AG
Rs. / Crores 2003-04 2004-05 2005-06
(m) Working Capital [k-e(i)] 1775.02 2513.63 3055.09 (n) Capital employed (h+m) 8353.13 9457.27 10392.49 (o) Net Worth (a+b(i)+b(ii)-l) 7742.81 8440.85 8735.74 (p) Net worth per Rupee of Equity capital (Rs.)(o/a) 22.85 24.90 25.77
2. RATIO ANALYSIS Some important financial ratios on the financial health and working of the Company at the end of last three years are as under: Rs. / Crores
2003-04 2004-05 2005-06 A. Liquidity Ratio
Current Ratio (%) 123.19 135.97 138.41
B. Debt Equity Ratio 0.05:1 0.02:1 0.13:1
C. Profitability Ratios (%)
a) Profit before tax to i) Capital employed 35.68 17.35 2.74 ii) Net worth 38.49 19.44 3.26 iii) Sales 5.79 2.74 0.40 b) Net Profit after tax to Net worth 24.59 15.13 4.64
3. RESERVES & SURPLUS The free Reserves and Surplus of the company were 24.77 times the paid-up capital as on 31st March, 2006 as against 23.90 times as on 31st March, 2005 and 21.85 times as on 31st March, 2004.
4. INVESTMENTS The Company has made Rs. Nil investments in their subsidiaries during the year.
5. DUES FROM PP&AC As of March 2006, dues towards various pool claims pertaining to the APM period (i.e., up to March 31, 2002) to the Company from PP&AC is Rs. Nil.
54th Annual Report 2005-06 134 Review of Accounts by C & AG
6. SOURCES AND UTILISATION OF FUNDS
Funds amounting to Rs. 6441.12 crores from internal and external sources were realised and utilised during the year as follows: Rs. / Crores 2005-06 SOURCES OF FUNDS Funds from operations : Profit after tax 405.63 Depreciation 690.23 Deferred tax 9.69 Adjustment on sale/deletion of Fixed Assets/CWIP 1.66 Share Capital 0.01 Share Premium 0.39 Receipt of Capital Grant from OIDB 4.94 Long Term Loan raised 909.60 Short Term Loans raised 3412.72 Increase in Bank Overdraft 156.25 Redemption of Oil Bonds 850.00 Total 6441.12
UTILISATION OF FUNDS Public Deposit Repaid 0.09 Capital Expenditure during the year 2694.43 Investments made during the year 3120.80 Dividend Paid 116.08 Increase in working capital 509.72 Total 6441.12
7. WORKING CAPITAL
i) The working capital of the Company as on 31st March for the year 2003-04, 2004-05 and 2005-06 was Rs.1775.02 crores, Rs.2513.63 crores and Rs. 3055.09 crores respectively. ii) The percentage of working capital to capital employed during the three years 2003-04, 2004-05 and 2005-06 was 21.25, 26.58 and 29.39 respectively.
54th Annual Report 2005-06 135 Review of Accounts by C & AG
8. WORKING RESULTS
The working results of the company during the last three years are given below: Rs. / Crores 2003-04 2004-05 2005-06 1 Net Sales (excl. excise duty & including payments to pool accounts) 51517.66 59858.74 71037.92 2 Profit before tax 2980.43 1640.60 285.10 3 Profit after tax 1903.94 1277.33 405.63 9. INVENTORY The inventory position as at the end of last three years was as follows: Rs. / Crores 2003-04 2004-05 2005-06 i) Raw Materials 931.53 1166.24 1852.02 ii) Stores & Spares 110.21 125.77 160.70 iii) Stock in Process 197.68 275.07 406.47 iv) Finished Goods 4149.69 4107.17 5384.74 v) Packages 13.42 7.96 6.36 The stock of raw materials at the close of each year was equivalent to about 26 days’ consumption in 2005-06 as against 21 days consumption in 2004-05 and 23 days consumption in 2003-04. The stores, spares and packages at the end of 2005-06 represented 335 days’ consumption as against 303 days’ consumption in 2004-05 and 301 days’ in 2003-04. Finished Goods at the end of the year was equivalent to 29 days’ sales during 2005-06 as against 25 days’ sales during 2004-05 and 30 days’ during 2003-04.
10. SUNDRY DEBTORS The position of sundry debtors for the last three years ending 31st March 2006 stood as follows: Rs. / Crores Year Sundry Considered Percentage Debtors Doubtful & Of debtors Provided for To sales
2003-04 1028.94 28.65 1.83 2004-05 1080.17 31.56 1.67 2005-06 1428.84 36.58 1.93
54th Annual Report 2005-06 136 Review of Accounts by C & AG
The following table indicates the debts outstanding for more than one year as on 31st March 2006: - Rs. / Crores Government Others Total Departments
Debts over one year but less than two years 4.48 5.81 10.29 Debts over two years but less than three years 0.11 3.69 3.80 Debts outstanding for more than three years 6.86 37.85 44.71
11. DIVIDEND The proposed dividend for the year 2005-06 is 30% on equity as compared to 150% paid for 2004-05 and 220% paid for 2003-04. The dividend payout ratio after considering the tax on distributed profits, calculated as a percentage of total dividend paid/proposed to profit after tax, during the last three years 2005-06, 2004-05 and 2003-04 was 28.62%, 45.42% and 44.23% respectively.
Revathy Iyer Principal Director of Commercial Audit & ex-officio Member, Audit Board-II, Mumbai. Place : Mumbai Date : July 4, 2006
54th Annual Report 2005-06 137 Joint Ventures
Sl. Name of the Date of Major Shareholdings Nature of Operations No Joint Venture Incorporation 1. Mangalore Refinery & 07.03.1988 ONGC - 71,62% Refining of petro products Petrochemicals Ltd. HPCL - 16.95% 2. Hindustan Colas Ltd. 17.07.1995 HPCL - 50.00% Manufacture and COLASIE - 50.00% Marketing of Bitumen Emulsions & Modified Bitumen 3. Petronet India Ltd. 26.05.1997 HPCL - 16.00% To act as nodal agency Financial / for developing identified Strategic and prioritised petroleum Investors - 50.00% product pipelines in the Other PSUs - 34.00% country. 4. Petronet MHB Ltd.* 31.07.1998 HPCL - 26.00% Operation and Petronet maintenance of India Ltd. - 26.00% petroleum pipeline ONGC - 23.00% between Mangalore- Financial / Hassan-Bangalore Strategic Investors - 25.00% * Company is undergoing the process of financial restructuring 5. Prize Petroleum Co. Ltd. 28.10.1988 HPCL - 50.00% Exploration and ICICI & production activities in Associates - 45.00% the oil and gas sector HDFC - 5.00% 6. South Asia LPG Co. Pvt.Ltd. 16.11.1999 HPCL - 50.00% Construction of LPG TOTAL - 50.00% underground cavern storage of 60000 MT capacity and associated receiving and dispatch facilities at Visakhapatnam 7. Bhagyanagar Gas Ltd. 22.08.2003 HPCL - 25.00% Distribution and marketing GAIL - 25.00% of environmental friendly AP Govt - 50.00% fuels (green fuels) viz. CNG and Auto LPG in the state of Andhra Pradesh.
54th Annual Report 2005-06 138 Auditors’ Report
AUDITORS’ REPORT TO THE BOARD OF DIRECTORS OF HINDUSTAN PETROLEUM CORPORATION LIMITED ON THE CONSOLIDATED FINANCIAL STATEMENTS OF HINDUSTAN PETROLEUM CORPORATION LIMITED, ITS SUBSIDIARY AND ITS INTERESTS IN JOINT VENTURE COMPANIES 1. We have audited the attached Consolidated Balance Sheet of Hindustan Petroleum Corporation Limited, its Subsidiary and its interests in Joint Venture Companies as at March 31, 2006, the Consolidated Profit and Loss Account and Consolidated Cash Flow Statement for the year ended on that date annexed thereto, which we have signed under reference to this report. These Financial Statements are the responsibility of the Hindustan Petroleum Corporation Limited’s Management. Our responsibility is to express an opinion on these Financial Statements based on our audit. 2. We conducted our audit in accordance with Generally Accepted Auditing Standards in India. These Standards require that we plan and perform the audit to obtain reasonable assurance whether the Financial Statements are prepared, in all material respects, in accordance with an identified financial reporting framework and are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the Financial Statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. 3. The Audited Financial Statements of the Subsidiary reflecting total assets of Rs. 304.24 crores as at March 31, 2006 and Rs. Nil revenue for the year ended on that date and of five of the Joint Venture Companies reflecting total assets of Rs. 241.57 crores as at March 31, 2006 and revenue of Rs. 53.48 crores for the year ended on that date, have been audited by other auditors, on which we have relied. We have also relied on unaudited provisional financial statements of two other Joint Venture Companies, viz. Mangalore Refinery & Petrochemicals Ltd and Petronet India Limited, reflecting total assets of Rs. 1,423.53 crores as at March 31, 2006 and revenues of Rs. 4245.10 crores for the year ended on that date, for the purpose of our examination of the Consolidated Financial Statements. 4. We report that the Consolidated Financial Statements have been prepared by the Company in accordance with the requirements of Accounting Standard 21 “Consolidated Financial Statements” and Accounting Standard 27 “Financial Reporting of Interests in Joint Ventures”, issued by the Institute of Chartered Accountants of India, on the basis of separate audited financial statements of Hindustan Petroleum Corporation Limited, its subsidiary and five Joint Venture Companies and unaudited provisional financial statements of two Joint Venture Companies. 5. On the basis of information and explanations given to us and read with note no. 7 of Schedule 20 regarding treatment of Income Tax benefits, and in consideration of separate audit reports on individual Financial Statements, of Hindustan Petroleum Corporation Limited, its Subsidiary and Joint Venture Companies, in our opinion, the consolidated financial statements give a true and fair view in conformity with the accounting principles generally accepted in India: (a) in the case of the Consolidated Balance Sheet, of the consolidated state of affairs of Hindustan Petroleum Corporation Limited, its Subsidiary and its Joint Venture Companies as at March 31, 2006; (b) in the case of the Consolidated Profit and Loss Account, of the consolidated results of operations of Hindustan Petroleum Corporation Limited, its Subsidiary and its Joint Venture Companies for the year ended on that date; and (c) in the case of the Consolidated Cash Flow Statement, of the consolidated cash flows of Hindustan Petroleum Corporation Limited, and its Subsidiary and seven Joint Venture Companies for the year ended on that date. For N.M. Raiji & Co. For Sudit K. Parekh & Co. Chartered Accountants Chartered Accountants Vinay D. Balse Srikant V. Jilla Partner Partner Membership No. 39434 Membership No. 39461 Place : New Delhi Date : May 25, 2006
54th Annual Report 2005-06 139 Consolidated Balance Sheet as at 31st March, 2006
Rs./Crores SCHEDULE 2005-06 2004-05 SOURCES OF FUNDS Shareholders’ Funds: a) Capital 1 340.50 340.49 b) Reserves and Surplus 2 8,318.00 7,977.50 8,658.50 8,317.99 Shares Application Money Pending Allotment 28.40 22.40 Loan Funds: a) Secured Loans 3 1,753.82 616.10 b) Unsecured Loans 4 5,648.44 2,308.40 7,402.26 2,924.50 Deferred Tax Liability 1,394.19 1,350.12 TOTAL 17,483.35 12,615.01 APPLICATION OF FUNDS Fixed Assets: 5 a) Gross Block 14,983.13 13,884.19 b) Less: Depreciation 6,640.22 5,874.13 c) Net Block 8,342.91 8,010.06 d) Capital Work-in-Progress 6 2,635.36 974.09 10,978.27 8,984.15 Investments 7 3,214.87 939.15 Current Assets, Loans and Advances: a) Inventories 8 8,133.69 6,008.44 b) Sundry Debtors 9 1,594.41 1,215.19 c) Cash and Bank Balances 10 56.01 211.91 d) Other Current Assets 11 11.55 0.64 e) Loans and Advances 12 1,853.13 2,692.67 11,648.79 10,128.85 Less: Current Liabilities and Provisions: 13 a) Liabilities 7,808.54 6,601.72 b) Provisions 554.75 844.16 8,363.29 7,445.88 Net Current Assets 3,285.50 2,682.97 Miscellaneous Expenditure to the extent not written off or adjusted : Expenses including commission or brokerage on underwriting or subscription of shares 4.71 8.74 TOTAL 17,483.35 12,615.01 NOTES FORMING PART OF CONSOLIDATED ACCOUNTS 20
M.B. LAL FOR N.M.RAIJI & CO. FOR SUDIT K. PAREKH & CO. Chairman & Managing Director Chartered Accountants Chartered Accountants C. RAMULU VINAY D. BALSE SRIKANT V. JILLA Director-Finance Partner Partner N.R. NARAYANAN Company Secretary Place : New Delhi Date : May 25, 2006
54th Annual Report 2005-06 140 Consolidated Profit & Loss Account for the year ended 31st March, 2006
Rs./Crores SCHEDULE 2005-06 2004-05 INCOME Sale of Products 78,881.98 68,239.88 Less : Excise duty Paid 6,443.18 5,735.27 Net Sales 72,438.80 62,504.61 Net Recovery from/(Payment to) Industry Pool Accounts - (7.86) Recovery under Subsidy Schemes 2,876.15 536.68 Other Income 14 337.93 371.38 75,652.88 63,404.81 INCREASE / (DECREASE) IN INVENTORY 15 1,359.64 68.43 EXPENDITURE AND CHARGES Purchase of Products for resale 42,180.80 33,843.49 Raw materials consumed 29,481.32 23,359.55 Packages consumed 101.28 94.23 Excise duty on inventory differential 171.95 (5.89) Transhipping Expenses 1,520.15 1,384.00 Payments to and provisions for Employees 16 701.12 723.08 Exploration Expenses 12.44 0.79 Other Operating Expenses 17 1,499.39 1,327.40 Depreciation/Amortisation 760.81 736.73 Interest 18 203.77 133.28 Miscellaneous Expenditure written off 6.01 5.38 76,639.04 61,602.04 PROFIT FOR THE YEAR BEFORE PRIOR PERIOD ADJUSTMENTS & TAXES 373.48 1,871.20 PRIOR PERIOD DEBITS / (CREDITS) (NET) 19 - (0.05) PROFIT BEFORE TAXES 373.48 1,871.25 PROVISION FOR CURRENT TAXATION 85.54 602.49 PROVISION FOR DEFERRED TAXATION (NET) 44.07 0.69 PROVISION FOR TAXATION IN EARLIER YEARS WRITTEN BACK (219.88) (147.57) PROVISION FOR FRINGE BENEFIT TAX 11.68 - PROFIT AFTER TAXES 452.07 1,415.64 BALANCE BROUGHT FORWARD 5,926.50 5,153.51 Transfer from Debenture Redemption Reserve - 100.00 PROFIT AVAILABLE FOR APPROPRIATION 6,378.57 6,669.15 APPROPRIATED FOR: General Reserve 40.67 127.81 Interim Dividend - 169.67 Proposed Final Dividend 102.51 369.75 Tax on Distributed Profits 14.38 75.42 BALANCE CARRIED FORWARD 6,221.01 5,926.50 EARNINGS PER SHARE (in Rs.) 13.34 41.77 (2005-06 : EPS = Net Profit - Rs. 452.07 crores / Weighted avg. no. of shares - 33.894 crores; 2004-05 : EPS = Net Profit - Rs. 1415.64 crores / Weighted avg. no. of shares - 33.893 crores )
NOTES FORMING PART OF CONSOLIDATED ACCOUNTS 20 M.B. LAL FOR N.M.RAIJI & CO. FOR SUDIT K. PAREKH & CO. Chairman & Managing Director Chartered Accountants Chartered Accountants C. RAMULU VINAY D. BALSE SRIKANT V. JILLA Director-Finance Partner Partner N.R. NARAYANAN Company Secretary Place : New Delhi Date : May 25, 2006
54th Annual Report 2005-06 141 Schedules forming part of the Consolidated Balance Sheet
Rs./Crores 2005-06 2004-05 1. CAPITAL A. Authorised: 75,000 Cumulative Redeemable Preference Shares of Rs. 100/- each 0.75 0.75 34,92,50,000 Equity Shares of Rs.10/- each 349.25 349.25 350.00 350.00 B. Issued, Subscribed & Called up : 33,93,30,000 Equity Shares of Rs.10/- each fully paid up 339.33 339.33 Less : Calls unpaid by Others 0.39 0.40 338.94 338.93 Non-Cumulative, Redeemable Preference Shares 1.56 1.56 340.50 340.49 2. RESERVES AND SURPLUS Share Premium Account As per last Balance Sheet 1,048.72 1,048.72 Less : Calls Unpaid 12.93 13.31 1,035.79 1,035.41 Capital Grant Received during the year 5.02 - Less : Amortised during the year 0.08 - 4.94 - Debenture Redemption Reserve As per last Balance Sheet - 100.00 Less : Transfer to Profit & Loss Account - 100.00 - - Capital Reserve 0.08 0.08 Market Development Reserve 1.40 1.40 General Reserve As per last Balance Sheet 1,014.11 886.30 Add : Transfer from Profit & Loss Account 40.67 127.81 1,054.78 1,014.11 Profit & Loss Account Surplus as per Account annexed 6,221.01 5,926.50 8,318.00 7,977.50 3. SECURED LOANS Collateral Borrowing and Lending Obligation (CBLO) 1,010.00 - (Secured by Pledge of Oil Bonds) Overdrafts from Banks 476.16 320.13 Rupee Term Loan 26.32 48.17 Long Term Loans from Banks 138.16 123.45 Interest accrued and due 11.34 2.55 Foreign Currency Loans 64.02 79.91 1,726.00 574.21 Others 27.82 41.89 1,753.82 616.10
54th Annual Report 2005-06 142 Schedules forming part of the Consolidated Balance Sheet
Rs./Crores 2005-06 2004-05 4. UNSECURED LOANS Fixed Deposits 0.02 0.11 From Oil Industry Development Board 650.00 200.00 Clean Loans 2,300.00 - (Due for Repayment within one year - Rs. 2300 crores; 2004-05: Rs. Nil) Syndicated Loans from Foreign Banks 459.60 - (Repayable in Foreign Currency) Foreign Currency Loans 186.38 166.98 Advance towards Equity 2.64 1.40 Interest Accrued & Due 1.05 1.05 Short Term Loans from Banks 1,770.93 1,667.83 (Due for Repayment within one year - Rs. 1770.93 crores; 2004-05 : Rs. 1667.83) Sales Tax Deferment Loan 23.57 16.78 Others 254.25 254.25 5,648.44 2,308.40
5. FIXED ASSETS Rs./Crores
Gross Block Additions/ Deductions/ Gross Block Depreciation Total Net Block Net Block at cost Reclassifi- Reclassifi- at cost and Depreciation as at as at as at cations cations as at Amortisation and 31-03-2006 31-03-2005 01-04-2005 31-03-2006 for the year Amortisation 2005-2006 upto 31-03-2006
A. OTHER THAN INTANGIBLE ASSETS 1. Land - Freehold 274.75 25.82 0.45 300.12 - - 300.12 274.75 2. Roads and Culverts 573.20 94.77 3.05 664.92 9.64 58.43 606.49 524.36 3. Buildings 1,126.48 172.57 3.20 1,295.85 24.68 165.59 1,130.26 984.64 4. Leasehold Property - Land 127.32 5.21 0.02 132.51 4.15 24.86 107.65 106.61 5. Railway Siding and Rolling Stock 271.59 3.18 - 274.77 12.78 114.38 160.39 169.99 6. Plant and Machinery 11,092.92 800.09 41.81 11,851.20 678.21 6,042.59 5,808.61 5,735.02 7. Furniture, Fixtures and Office/Laboratory Equipment 286.51 30.71 6.47 310.75 23.91 158.66 152.09 147.94 8. Transport Equipment 79.01 15.23 1.43 92.81 5.47 47.60 45.21 36.84 9. Unallocated Capital Expenditure on Land Development 0.20 - - 0.20 - 0.20 - - Total (A) 13,831.98 1,147.58 56.43 14,923.13 758.84 6,612.31 8,310.82 7,980.15 B. INTANGIBLE ASSETS 1. Right of Way 14.65 3.10 - 17.75 - - 17.75 14.64 2. Technical/Process Licences 6.24 3.23 - 9.47 0.81 2.59 6.88 4.46 3. Software 31.32 1.48 0.02 32.78 4.83 25.32 7.46 10.81 Total (B) 52.21 7.81 0.02 60.00 5.64 27.91 32.09 29.91 GRAND TOTAL (A+B) 13,884.19 1,155.39 56.45 14,983.13 764.48 6,640.22 8,342.91 8,010.06 Previous Year 12,865.87 1,100.90 82.58 13,884.19 740.19 5,874.13 8,010.06
54th Annual Report 2005-06 143 Schedules forming part of the Consolidated Balance Sheet
Rs./Crores 2005-06 2004-05 6. CAPITAL WORK-IN-PROGRESS (at Cost) Unallocated Capital Expenditure and Materials at Site 1,792.97 765.82 Advances for Capital Expenditure 93.52 60.67 Capital Stores 426.72 50.72 Capital Stores lying with Contractors 117.60 4.46 Capital goods in transit 40.38 2.03 2,471.19 883.70 Construction period expenses pending apportionment (Net of recovery) 0.22 0.65 Establishment charges 121.86 89.04 Borrowing Cost 42.01 0.70 Depreciation 0.08 - 164.17 90.39 2,635.36 974.09 7. INVESTMENTS I. LONG TERM INVESTMENTS (at cost): A. TRADE INVESTMENTS Quoted 6.96% Oil Companies Government Of India Special Bonds 2009* 81.00 931.00 7.00% Oil Companies Government Of India Special Bonds 2009* 781.64 - Unquoted 1. Petronet MHB Limited 0.05 0.05 2. Petronet VK Limited 4.16 4.16 3. Petronet CCK Limited 4.16 4.16 4. Petronet CI Limited 0.60 0.17 Total (A) 871.61 939.54 B. OTHER INVESTMENTS Quoted 1. Government Securities of the face value of Rs. 0.02 crores (2004-05 : 0.02 crores) Deposited with Others 0.02 0.02 On hand - Rs. 0.25 lakhs (2004-05 : 0.25 lakhs) - - 2. Scooters India Ltd. 10,000 Equity Shares of Rs. 10 each fully paid up 0.01 0.01 Unquoted 1. Government Securities of the face value of Rs. 0.24 lakhs (2004-05 : 0.24 lakhs) Deposited with Others - Rs. 0.10 lakhs (2004-05 : 0.10 lakhs) - - On hand** - Rs. 0.14 lakhs (2004-05 : 0.14 lakhs) - - 2. East India Clinic Ltd. 1/2% Debentures of face value of Rs. 0.15 lakhs (2004-05 : 0.15 lakhs) - - 5% Debentures of face value of Rs. 0.07 lakhs (2004-05 : 0.07 lakhs) - -
54th Annual Report 2005-06 144 Schedules forming part of the Consolidated Balance Sheet
Rs./Crores 2005-06 2004-05 3. Shushrusha Citizen Co-operative Hospital Limited 100 Equity Shares of Rs. 100/- each fully paid up Rs. 0.10 lakhs (2004-05 : 0.10 lakhs) - - 4. Petroleum India International (Association of Persons)*** Contribution towards Seed Capital 0.05 0.05
Total (B) 0.08 0.08 TOTAL LONG TERM INVESTMENTS [(A)+(B)] 871.69 939.62 Less: Provision for loss on Investments 0.60 0.47 TOTAL : (I) 871.09 939.15 II. CURRENT INVESTMENTS (at Cost or Fair Value whichever is lower) A. TRADE INVESTMENTS Quoted 7.07% Oil Marketing Companies’ GOI Special Bonds, 2009 400.00 - 7.33% Oil Marketing Companies’ GOI Special Bonds, 2009 398.92 - 7.44% Oil Marketing Companies’ GOI Special Bonds, 2012 400.00 - 7.47% Oil Marketing Companies’ GOI Special Bonds, 2012 * 400.00 - 7.59% Oil Marketing Companies’ GOI Special Bonds, 2015 344.74 - 7.61% Oil Marketing Companies’ GOI Special Bonds, 2015 400.12 - TOTAL CURRENT INVESTMENTS - (II) 2,343.78 - TOTAL (I) + (II) 3,214.87 939.15
* Pledged with Clearing Corporation of India Limited against CBLO Loan ** Includes Rs. 0.14 lakhs (2004-05 : Rs. 0.14 lakhs) not in the possession of the Company *** Members in Petroleum India International (AOP) where Hindustan Petroleum Corporation Ltd., Bharat Petroleum Corporation Ltd., Bongaigaon Refinery & Petrochemicals Ltd., Kochi Refineries Ltd., Engineers India Ltd., IBP Co. Ltd., Indian Petrochemicals Corporation Ltd., Chennai Petroleum Corporation Ltd. have a share of 12.50 % each
54th Annual Report 2005-06 145 Schedules forming part of the Consolidated Balance Sheet
Rs./Crores 2005-06 2004-05 8. INVENTORIES Raw Materials 2,058.43 1,329.90 Finished Products 5,477.17 4,241.54 Stock in Process 420.52 296.61 Packages 6.44 8.08 7,962.56 5,876.13 Stores and Spares 171.13 132.31 8,133.69 6,008.44
9. SUNDRY DEBTORS : (Unsecured) Over six months : Considered good 317.22 317.25 Considered doubtful 39.63 31.97 Others : Considered good 1,277.19 897.94 Considered doubtful 0.17 7.28 1,634.21 1,254.44 Less: Provision for Doubtful Debts 39.80 39.25 1,594.41 1,215.19
10. CASH AND BANK BALANCES Cash on hand 1.23 1.24 Cash & Cheques Awaiting Deposit 2.79 0.85 With Scheduled Banks: On Current Accounts 42.13 199.62 On Non-operative Current Accounts 0.39 0.03 On Fixed Deposit Accounts 9.41 10.11 With Others: In Current Account with Municipal Co-operative Bank Ltd. (maximum balance during the year Rs. 0.09 crore ; 2004-05 : Rs. 0.13 crore) 0.06 0.06 56.01 211.91 11. OTHER CURRENT ASSETS Interest accrued on Bank Deposits and Investments 11.55 0.64
54th Annual Report 2005-06 146 Schedules forming part of the Consolidated Balance Sheet
Rs./Crores 2005-06 2004-05 12. LOANS AND ADVANCES Secured, considered good : Advances recoverable in cash or in kind or for value to be received 362.64 367.31 Interest Accrued thereon 114.44 102.77 Unsecured, considered good : Advances recoverable in cash or in kind or for value to be received 85.85 94.98 Balances with Excise,Customs, Port Trust etc. 266.20 306.40 Other Deposits 145.13 150.71 Prepaid Expenses 7.30 7.48 Amounts recoverable under Subsidy Schemes 41.11 832.86 Advance towards Equity 9.67 5.92 Share Application Money Pending Allotment 46.21 40.51 Other Accounts Receivable 774.58 783.73 Unsecured, considered doubtful : Accounts Receivable & Deposits 3.16 4.36 1,856.29 2,697.03 Less : Provision for Doubtful Receivables 3.16 4.36 1,853.13 2,692.67 13. CURRENT LIABILITIES AND PROVISIONS A. Current Liabilities Sundry Creditors i) Total outstanding dues of small scale industrial undertakings 3.45 4.45 ii) Total outstanding dues of creditors other than small scale industrial undertakings 3,751.54 2,484.23 Deposits from Dealers/Consumers for LPG Cylinders 2,673.90 2,549.33 Other Deposits 108.00 97.80 Accrued Charges/Credits 122.83 200.39 Interest accrued but not due on loans 26.26 7.38 Interest accrued and due on Unpaid Debentures 0.86 1.18 Preference share capital redeemed remaining unclaimed/uncashed 0.01 0.01 Unclaimed Dividend * 11.19 10.84 Unpaid Matured Debentures 2.33 2.80 Other Liabilities 1,108.17 1,243.31 7,808.54 6,601.72 B. Provisions Provision for Tax (Net) 294.03 299.14 Proposed Dividend 102.51 369.75 Provision for Gratuity / Pension 39.90 37.08 Provision for other Retirement Benefits 103.61 86.33 Provision for Fringe Benefit Tax 0.32 - Tax on Distributed Profits 14.38 51.86 554.75 844.16 8,363.29 7,445.88
* No amount is due as at the end of the year for credit to Investors’ Education and Protection Fund.
54th Annual Report 2005-06 147 Schedules forming part of the Consolidated Profit & Loss Account
Rs./Crores 2005-06 2004-05 14. OTHER INCOME Interest (Gross): On Investments 73.57 74.77 On Deposits 0.40 4.31 On Staff Loans 16.74 14.76 On Customers’ Accounts 17.55 4.11 On Others 15.14 22.83 123.40 120.78 Dividend Income 30.42 0.71 Share of Profit from Petroleum India International (AOP) 1.03 0.67 Rent Recoveries 36.51 33.31 Export benefit under duty free entitilement scheme - 23.17 Profit on sale of Investments 4.78 6.60 Exchange rate variation (Net) 8.17 78.94 Miscellaneous Income 133.62 107.20 214.53 250.60 337.93 371.38
15. INCREASE / (DECREASE) IN INVENTORY Closing Stock: Stock in Process 420.52 296.61 Finished Products 5,477.27 4,241.54 5,897.79 4,538.15 Less: Opening Stock: Stock in Process 296.61 219.07 Finished Products 4,241.54 4,250.65 4,538.15 4,469.72 1,359.64 68.43 16. PAYMENTS TO AND PROVISIONS FOR EMPLOYEES Salaries, Wages, Bonus, etc. 465.45 461.82 Contribution to Provident Fund 37.04 35.81 Pension, Gratuity etc. 24.17 23.18 Voluntary Retirement Compensation - 41.98 Employee Welfare Expenses 179.31 164.62 Less: Recoveries 4.85 4.33 174.46 160.29 701.12 723.08
54th Annual Report 2005-06 148 Schedules forming part of the Consolidated Profit & Loss Account
Rs./Crores 2005-06 2004-05 17. OTHER OPERATING EXPENSES Consumption of Stores, Spares and Chemicals 94.99 74.18 Power and Fuel 1,468.94 1,076.46 Less : Fuel of own production consumed 1,447.67 1,060.76 21.27 15.70 Repairs and Maintenance - Buildings 11.42 10.00 Repairs and Maintenance - Plant & Machinery 282.80 239.10 Repairs and Maintenance - other assets 7.98 6.31 Insurance 22.54 32.28 Rates and Taxes 22.43 21.23 Irrecoverable Taxes and Other Levies 335.40 348.58 Equipment Hire Charges 2.08 1.04 Rent 69.19 56.80 Travelling and Conveyance 68.61 59.87 Printing and Stationery 8.72 9.66 Electricity and Water 108.13 101.76 Charities and Donations 8.91 21.13 Loss on Sale/ write off of Fixed Assets/ CWIP 7.71 4.12 Stores & spares written off 2.50 3.15 Provision for Dimunition in value of Current Investments 1.21 - Write off of Goodwill on acquiring LPG Business of PITCL & DGL - 1.22 Provision for Doubtful Debts and write-offs 6.52 10.23 Provision for Doubtful Receivables written back (1.17) (3.10) Provision for assets under reconciliation no longer required (7.68) - Security Charges 31.63 27.52 Advertisement & Publicity 105.40 94.69 Consultancy and Technical Services 33.03 23.75 Sundry Expenses and Charges (Not otherwise classified) 255.77 168.18 1,499.39 1,327.40
18. INTEREST On Long Term Loans 33.87 39.99 On Short Term Loans 149.79 78.37 On Overdraft from Banks 9.07 3.13 On Fixed Deposits - 0.13 Others 11.04 11.66 203.77 133.28
19. PRIOR PERIOD DEBITS/(CREDITS) Interest on Deposits - (0.05)
54th Annual Report 2005-06 149 Notes forming part of the Consolidated Financial Statements
20. Notes forming part of the Consolidated Financial Statements for the year ended 31st March, 2006 1. Basis of preparation The company has prepared the Consolidated Financial Statements by consolidating its accounts with its wholly owned subsidiary Guru Gobind Singh Refineries Limited in accordance with Accounting Standard 21 (Consolidated Financial Statements) and its Joint Ventures in accordance with Accounting Standard 27 (Reporting for Financial Interests in Joint Ventures). 2. Principles of Consolidation The Financial Statements of all these companies are prepared according to uniform accounting policies, in accordance with Generally Accepted Accounting Principles in India. 3. Companies included in Consolidation % Holding Subsidiary Guru Gobind Singh Refineries Limited 100.00 Joint Ventures Hindustan Colas Limited 50.00 South Asia LPG Co. Pvt. Ltd., 50.00 Prize Petroleum Company Pvt. Limited 50.00 Mangalore Refinery and Petrochemicals Limited 16.95 Bhagyanagar Gas Limited 25.00 Petronet India Limited 16.00 Petronet MHB Limited 26.00 4. Other Significant Accounting Policies and additional information The other significant accounting policies have been set out in the notes to accounts of the parent company Hindustan Petroleum Corporation Limited as the same have been applied to the accounts of the parent, subsidiary and joint ventures. Additional information not impacted by consolidation is also set out in the notes to the accounts of the parent company. 5. Figures pertaining to the Subsidiary company and Joint Ventures have been reclassified wherever necessary to confirm to the Company’s Financial Statements. 6. Related Party disclosure: Rs./Crores Joint Venture Companies 2005-06 2004-05 Sales 267.02 91.53 Purchases 6,907.41 5,043.35 Dividend 0.71 0.71 Advance towards equity 5.00 5.00 Share application money pending allotment 12.00 - Interest 0.90 0.34
54th Annual Report 2005-06 150 Notes forming part of the Consolidated Financial Statements
Rs./Crores Joint Venture Companies 2005-06 2004-05
Services (1.20) 2.83 Others 2.28 4.44 Interest paid - 0.01 Services received 1.30 1.50 Closing Balances (193.12) (240.98)
The names of parties are as follows : Joint Venture Companies: Mangalore Refinery and Petrochemicals Ltd., Hindustan Colas Ltd., Prize Petroleum Co. Ltd., Petronet India Ltd., Petronet MHB Ltd., South Asia LPG Co. Pvt. Ltd., Bhagyanagar Gas Ltd., M/s Colasie, M/s Colas SA Key Management Personnel : Shri M. B. Lal, Chairman & Managing Director Shri M. A. Tankiwala, Director – Refineries(from June 01, 2005) Shri Arun Balakrishnan, Director- Human Resources Shri C. Ramulu, Director - Finance Shri S. Roy Choudhury, Director- Marketing 7. Considering the uncertainties attached to certain benefits under the Income Tax Act, the Parent Company (Hindustan Petroleum Corporation Limited) has been accounting for such tax benefits in the year they are allowed in the assessments. Accordingly, the Parent Company, upon completion of assessment for the Financial year 2002-03 (Assessment year 2003-04) has reversed provision for tax amounting to Rs. 217.36 crores (Previous year: Rs. 47.52 crores). 8. Previous year’s figures have been regrouped/reclassified wherever necessary. Rs./Crores 2005-06 2004-05 9. A. Estimated amount of contracts remaining to be executed on Capital Account not provided for 3,669.64 1,192.85 B. No provision has been made in the accounts in respect of the following disputed demands/claims since they are subject to appeals / representations and a substantial portion thereof is recoverable from Pool Account i) Sales Tax/Octroi 1,811.78 632.05 ii) Excise/Customs 788.64 910.58 iii) Land Rentals & Licence Fees 64.38 41.36 iv) Others 20.06 19.90
54th Annual Report 2005-06 151 Notes forming part of the Consolidated Financial Statements
Rs./Crores 2005-06 2004-05 C. Contingent Liabilities not provided for in respect of i) Income Tax 25.27 25.19 ii) Sales Tax/Octroi 131.53 128.64 iii) Excise/Customs 102.60 114.09 iv) Employee Benefits/Demands 82.81 69.48 (to the extent quantifiable) v) Guarantees on behalf of others 171.17 184.41 vi) Claims against the Corporation not acknowledged as debts 231.24 237.77 vii) Enhancement of Compensation against land acquired 23.00 173.26 viii) Service Tax 0.08 0.08 ix) Others 2.24 1.72 D. Payment to Auditors: - Audit fees 0.17 0.16 - Tax audit fees 0.02 0.02 - Other services 0.04 0.05 - Reimbursement of expenses 0.07 0.05 E. Managerial Remuneration : - Salary and Allowances 0.69 0.65 - Contribution to Provident Fund and other funds 0.06 0.05 - Pension and Gratuity 0.02 0.02 - Other benefits 0.20 0.16 F. Deferred Tax Assets/(Liabilities) arising due to timing differences comprises of: Deferred Tax Assets Provision for Gratuity/Pension 13.43 12.48 Provision for Medical Benefits 4.16 2.72 Provision for Leave Encashment 22.99 18.65 Provision for doubtful debts 0.04 0.01 Unabsorbed Losses and Allowances 156.88 193.66 Others 39.90 40.00 Total 237.41 267.52 Deferred Tax Liabilities Depreciation 1,577.94 1,571.65 Lease Finance 11.30 12.58 Deferred Revenue Expenditure - 1.30 Others 42.36 32.10 Total 1,631.60 1,617.63 Deferred Tax Asset/(Liability) (1,394.19) (1,350.12)
54th Annual Report 2005-06 152 Notes forming part of the Consolidated Financial Statements
G. Information regarding Primary Segment Reporting as per AS-17 for the year ended March 31, 2006 is as under: Rs./Crores 2005-06 2004-05 Downstream Exploration Total Downstream Exploration Total Petroleum & Production Petroleum & Production Revenue External Revenue 75,493.25 75,493.25 63,283.91 63,283.91 Inter-segment Revenue ---- Total Revenue 75,493.25 - 75,493.25 63,283.91 - 63,283.91 Result Segment Results 431.27 (12.44) 418.83 1,879.22 (3.45) 1,875.77 Less: Unallocated Expenses ------(Net of unallocated Income) ------Operating Profit 431.27 (12.44) 418.83 1,879.22 (3.45) 1,875.77 Less: Interest Expenditure 203.77 - 203.77 133.28 - 133.28 Provision for dimunition in value of current investments 1.21 - Add: Interest/Dividend (Incl Share of profit from PII) 154.85 122.16 Profit on Sale of Investments 4.78 6.60 Profit before Tax 373.48 1,871.25 Less: Taxes (including Deferred tax / FBT) (78.59) 455.61 Profit after Tax 452.07 1,415.64 Other Information Segment Assets 22,082.55 - 22,082.55 18,595.85 - 18,595.85 Corporate Assets 3,764.09 1,465.04 Total Assets 25,846.64 20,060.89 Segment Liabilities 15,327.22 15.89 15,343.11 9,635.33 3.45 9,638.78 Corporate Liabilities 1,816.63 2,081.72 Total Liabilities 17,159.74 11,720.50 Capital Expenditure 2,753.47 - 2,753.47 1,353.12 - 1,353.12 Depreciation 762.07 762.07 737.94 737.94 Notes: 1. The Group is engaged in the following Business Segments: a) Downstream i.e. Refining and Marketing of Petroleum Products b) Exploration and Production of Hydrocarbons Segments have been identified taking into account the nature of activities and the nature of risks and returns. 2. Segment Revenue comprises the following: a) Turnover (Net of Excise Duties) b) Subsidy from Government of India c) Net Claim/(surrender to) PPAC/GOI d) Other income (excluding interest income, dividend income and investment income) 3. There are no geographical segments.
54th Annual Report 2005-06 153 Consolidated Cash Flow Statement for the year ended 31st March, 2006
Rs./Crores 2005-06 2004-05 A. Cash Flow from Operating Activities Net Profit before Tax & Extraordinary items 373.48 1,871.25 Adjustments for : Depreciation / Amortisation 760.81 736.73 Miscellaneous Expenditure written off 6.01 5.38 Provision for assets under reconciliation written back (7.68) - Loss on Sale/write off of Fixed Assets/ CWIP 7.71 4.12 Amortisation of capital grant (0.09) - Spares written off 2.50 3.15 Provision for dimunition in the value of current investments 1.21 - Interest Expense 203.77 133.28 Provision for Doubtful Receivables written back (1.17) (3.10) Provision for Doubtful Debts 6.52 10.23 Interest Income (123.40) (120.78) Share of Profit from PII (1.03) (0.67) Dividend Received (30.42) (0.71) Profit on sale of Oil bonds (4.78) (6.60) Operating Profit before Working Capital Changes 1,193.44 2,632.28 (Increase) / Decrease in Working Capital : Trade Receivables (385.74) (82.90) Other Receivables 850.16 224.60 Inventories (2,096.00) (406.09) Trade and other Payables 1,099.74 (129.02) (531.84) (393.41) Cash generated from operations 661.60 2,238.87 Direct Taxes / FBT refund / (paid) - Net 117.87 (644.94) Cash Flow before extraordinary items 779.47 1,593.93 Extra Ordinary Items - - Net Cash from Operating Activities ( A ) 779.47 1,593.93 B. Cash Flow from Investing Activities Purchase of Fixed Assets (incl. Capital Work in Progress / excluding interest capitalised) (2,626.31) (1,354.22) Sale of Fixed Assets 1.85 2.88 Purchase of Investment (Including Share Application money pending allotment/Adv. towards Equity) (3,136.38) - Misc Expenditure incurred by GGSRL (1.98) - Sale Proceeds of Oil bonds 854.78 306.60 Interest received 112.49 120.52 Dividend Received 30.42 0.71 Share of profit from PII 1.03 0.67 Net Cash from Investing Activities ( B ) (4,764.10) (922.84)
54th Annual Report 2005-06 154 Consolidated Cash Flow Statement for the year ended 31st March, 2006
Rs./Crores 2005-06 2004-05 C. Cash Flow from Financing Activities Proceeds from Calls in Arrear(Net) 0.39 0.92 Share application money received 6.00 - Advance towards equity received 1.24 - Long term loans raised 924.31 225.07 Fixed deposits / Debentures repaid (36.01) (409.23) Short term loans raised / (repaid) 3,423.40 264.37 Interest paid on Loans (230.39) (133.30) Dividend paid (including Dividend Distribution Tax) (421.26) (805.73) Capital grant against purchase of assets 5.02 - Net Cash from Financing Activities ( C ) 3,672.70 (857.90) Net Increase / (Decrease) in Cash and Cash Equivalents (A) + (B) + ( C) (311.93) (186.81) Cash and Cash Equivalents as on 1st April (Opening) Cash / Cheques on Hand 2.09 2.23 Balances with Scheduled Banks - On Current Accounts 199.62 203.75 - Others 10.14 15.29 Balances with other Banks 0.06 0.05 211.91 221.32 Overdrafts from Banks (320.13) (142.73) (108.22) 78.59 Cash and Cash Equivalents as on 31st March (Closing): Cash / Cheques on Hand 4.02 2.09 Balances with Scheduled Banks - On Current Accounts 42.13 199.62 - Others 9.80 10.14 Balances with other Banks 0.06 0.06 56.01 211.91 Overdrafts from Banks (476.16) (320.13) (420.15) (108.22) Net Increase / (Decrease) in Cash and Cash Equivalents (311.93) (186.81)
Note: Previous year’s figures have been regrouped / reclassified wherever necessary FOR AND ON BEHALF OF THE BOARD M.B. LAL FOR N.M.RAIJI & CO. FOR SUDIT K. PAREKH & CO. Chairman & Managing Director Chartered Accountants Chartered Accountants C. RAMULU VINAY D. BALSE SRIKANT V. JILLA Director-Finance Partner Partner N.R. NARAYANAN Company Secretary Place : New Delhi Date : May 25, 2006
54th Annual Report 2005-06 155 Corporate Governance
Corporate Governance (CG)...... as defined by experts : ♦ OECD Principles of Corporate Governance : The Organisation for Economic Cooperation and Development (OECD) countries took early initiatives to address Corporate Governance (CG) issues. OECD has defined Corporate Governance to mean “A system by which business corporations are directed and controlled towards achieving the following : Ensuring the basis for an effective Corporate Governance framework. The rights of shareholders and key ownership functions The equitable treatment of shareholders The role of stakeholders in Corporate Governance Disclosure and Transparency Defining the responsibilities of the Board ♦ Noble laureate Milton Friedman defined Corporate Governance, in the narrowest sense as, “the conduct of business in accordance with shareholders’ desires, which generally is to make as much money as possible while conforming to the basic rules of the society embodied in law and local customs”. ♦ James D Wolfensohn, President of World Bank, defined CG as “Corporate Governance is about promoting corporate fairness, transparency and accountability”. ♦ Standard and Poor has defined Corporate Governance as “the way a company is organised and managed to ensure that all financial stakeholders (shareholders and creditors) receive their fair share of a company’s earnings and assets”. ♦ “Cadbury Committee, UK has defined Corporate Governance as follows : Fulfilling long term strategic goals of owners Taking care of the interests of employees A consideration for the environment and local community Maintaining excellent relations with customers and suppliers Proper compliance with all the applicable legal and regulatory requirements” ♦ “CII - Desirable Corporate Governance Code defined Corporate Governance as follows: Corporate Governance deals with laws, procedures, practices and implicit rules that determine a company’s ability to take informed managerial decisions vis-a-vis its claimants - in particular, its shareholders, creditors, customers, the State and employees. There is a global consensus about the objective of ‘good’ corporate governance : maximising long term shareholder value” ♦ The Kumarmangalam Birla Committee constituted by The Securities Exchange and Board of India (SEBI) has observed that “strong corporate governance is indispensable to resilient and vibrant capital markets and is an important instrument of investor protection. It is the blood that fills the veins of transparent corporate disclosure and high quality accounting practices. It is the muscle that moves a viable and accessible financial reporting structure”. ♦ Shri N.R. Narayana Murthy Committee on Corporate Governance constituted by SEBI has observed that “Corporate Governance is the acceptance by management of the inalienable rights of shareholders as the true owners of the Corporation and of their own role as trustees on behalf of the shareholders. It is about commitment to values, about ethical business conduct and about making a distinction between personal and corporate funds in the management of a company”. ♦ The Institute of Company Secretaries of India also defined the term Corporate Governance as under: “Corporate Governance is the application of best management practices, compliance of law in true letter and spirit and adherence to ethical standards for effective management and distribution of wealth and discharge of social responsibility for sustainable development of all stakeholders”.
54th Annual Report 2005-06 156 Corporate Governance
(Source : Corporate Governance {Models of Best Practices} 6th edition published by The Institute of Company Secretaries of India, New Delhi). ♦ Corporate Governance in India : The evolution of Corporate Governance in India began in early 90s. The starting point was the recommendations of the Cadbury Committee Report after which followed various committees as enumerated above, leading to a formal Corporate Governance Code. This code was notified by Securities Exchange Board of India (SEBI) by inserting a new Clause 49 in the Listing Guidelines to the Stock Exchanges making it mandatory for the listed companies to follow the requirements of Clause 49. The said clause was further modified which became effective from January 01, 2006. The major areas of compliance in Clause 49 are as under: Appointment of required number of independent directors. Larger role of Audit Committee. CEO/CFO Certification of Accounts (will become applicable for 2005-06 Accounts). Code of Conduct for Board / Senior Management . Risk Minimization Report to the Board. Legal Compliance Report to the Board. Compliance relating to Subsidiary Companies. Information items to Board HPCL has taken necessary steps to comply with the requirement of the above mentioned matters. HPCL, lays special emphasis on conducting its affairs within the framework policies, internal and external regulations and in a transparent manner. Being a Government Company, its activities are subject to review by several external authorities like the Comptroller & Auditor General of India (CAG), the Central Vigilance Commission (CVC), Parliamentary Committees, etc. Decision making process: Like any other corporate, at the apex level is the HPCL Board of Directors (The Board). The Board has constituted several sub-committees, such as the Committee of Functional Directors (CFD), the Audit Committee, the Investment Committee, the HR Committee, the Investor Grievance Committee, etc. The composition of these Committees is given in this Report. The meetings of these committees are convened on need basis and minutes of these meetings are placed for information of the Board. Majority of the members of the Committees except the CFD are Independent Non-Executive or Government nominated Directors with the Whole Time Directors playing a facilitating role. The Corporation has constituted an Executive Council comprising of Chairman & Managing Director, the Functional Directors and the SBU Heads of the Corporation. This council discusses important issues concerning the organization, analyses the same and recommends the ‘way forward’ in respect of matters discussed. Emphasis is laid on team approach, mutual support of functions and joint deliberations on issues by the council which has enhanced further the decision making process. It has thus facilitated an integrated thinking process and an aligned approach across the Corporation for achieving the Corporate Vision and each one of the aspirational aspects contained in the Vision Statement. Advisory Council : In the context of a highly competitive and dynamic environment of the Oil and Gas Sector, the Corporation felt that an external Committee comprising of eminent people could be constituted to seek their views and guidance, not only on the various ongoing activities, but also on its strategic initiatives aimed towards growth and development. With this background, this Committee called as Advisory Council was constituted in July, 2005 with the approval of the Board.
54th Annual Report 2005-06 157 Corporate Governance
The Committee comprises of the following members : Shri V.K. Shunglu Shri N.R. Narayana Murthy Ex-CAG Chairman and Chief Mentor Infosys Technologies Limited Ms. Shailaja Chandra Shri Manab Bose Chairperson Managing Director Public Grievance Commission Connectivity Consulting (P) Ltd Shri Naresh Narad Ms. Rama Bijapurkar Member Marketing Consultant Public Enterprise Selection Board Strategic Marketing Consulting This Council has met twice so far on October, 01, 2005 and February 20, 2006. Aspects related to performance of the Corporation, HPCL’s endeavour for global standards for various operations, initiatives under the areas of Corporate Governance, Corporate Social Responsibilities etc. were placed before this council. The suggestions/ observations made by the Council is being progressed further by the Corporation. The advice from this highly eminent group would immensely benefit the Corporation in the time to come.
Shri M.B. Lal, C&MD, Shri Arun Balakrishnan, Director (HR), Shri C. Ramulu, Director (F) and Shri M. A. Tankiwala, Director (R) at the meeting of the Advisory Council
Advisory Council Meeting Exercise of Authority: The Corporation has well documented Limits of Authority Manual, Purchase Manual, Chart of Accounts, etc., facilitating the decentralised decision making process throughout the organization spread out throughout the country at various levels of the organization. Limits of Authority Manual (LAM) : The LAM lays down the authorities that can be exercised at various levels i.e. the Board, Committee of Functional Directors, the Executive Committee, the Contracts Committee, the Bids Committee and the senior individual positions etc. for different activities of the Corporation. The manual is divided into segments representing different functions like Sales, Crude & Shipping, Capital Projects, Operations & Distribution, Finance, HR etc., and provides for a decision making process through various committees as above, represented by inter-functional groups including Finance. This ensures a transparent well-considered and streamlined decision making process adhering to the laid down systems and procedures and thereby leaving no room for arbitrariness.
54th Annual Report 2005-06 158 Corporate Governance
Purchase Manual: This Manual lays down elaborate procedures to be followed while undertaking purchases and in finalisation of contracts. It lays down, inter-alia, the purchasing authorities at various levels, norms and processes for procurement. The endeavour is always on building trust with shareholders, employees, customers and other stakeholders based on the basic principles of Corporate Governance i.e. transparency, fairness, disclosure and accountability. Disclosures : Given below are the various information forming part of Corporate Governance disclosures:-. 1. BOARD OF DIRECTORS : 1.1 Composition of Board of Directors Executive Directors including Chairman (Whole-time) 5 Non-Executive Govt. Directors (Ex-officio) 2 Non-Executive Independent Directors (Non-official) 4 Total 11 1.2 Board Meetings:
Eight Board Meetings were held during the financial year on the following dates: 07th April 2005 26th May 2005 30th July 2005 06th September 2005 29th October 2005 14th December 2005 30th January 2006 11th February 2006
1.3 Particulars of Directors including their attendance at the Board / Shareholders’ Meetings
Names of Academic No. of No. of Attendance Details of Memberships Directors Qualifications Board Meetings at the Directorships held in Meetings attended last AGM in Committees as held Companies specified in Clause 49 of the Listing Agreement FUNCTIONAL DIRECTORS Shri M.B.Lal B.E.(Chem), 8 7 Yes 1. GGSRL Nil PGDBM 2.HINCOL (IIM Ahmedabad) 3. Prize Petroleum Co. Ltd. Shri D.S.Mathur (*) B.Tech, 2 1 No 1. GGSRL Member - Audit M.Sc. PGDPE 2.Prize Petroleum Committee: Co. Ltd. a) GGSRL Shri Arun Balakrishnan B.E.(Chem), 8 8 Yes 1. PIL Nil PGDBM 2.MRPL (IIM Bangalore) Shri C. Ramulu B.Com, ACA, 8 8 Yes 1. Prize Petroleum Member - Audit ACS, Co. Ltd. Committee MBA (Leeds, UK) 2. GGSRL a)GGSRL 3.HINCOL Chairman - Audit Committee a)HINCOL b) Prize Petroleum Co. Ltd.
54th Annual Report 2005-06 159 Corporate Governance
Names of Academic No. of No. of Attendance Details of Memberships Directors Qualifications Board Meetings at the Directorships held in Meetings attended last AGM in Committees as held Companies specified in Clause 49 of the Listing Agreement Shri S. Roy Choudhury B.E. (Mech.) 8 8 Yes 1. HINCOL Nil 2. Petronet MHB Ltd. 3. Bhagyanagar Gas Ltd. 4. MRPL
Shri M.A. Tankiwala (**) B.E. (Mech.) 6 5 Yes 1. GGSRL Member – Audit Committee a) GGSRL NON-EXECUTIVE DIRECTORS (a) PART-TIME (EX-OFFICIO) Shri M.S. Srinivasan @ IAS, B.Tech. (Civil), 2 1 - 1. IOCL Chairman – Master of 2. BPCL Remuneration Public Administration, 3. GAIL Committee (a) IOCL (b) BPCL Shri P.K. Sinha ($) IAS, M. Phil in Social Nil Nil - 1. IOCL Member – Audit Sciences & 2. BPCL Committee Master Diploma a) HPCL in Public Member – Administration Establishment & Remuneration Committee a)IOCL Shri Prabh Das(#) IAS, B.Tech. (Hons), 7 6 Yes 1.Engineers Chairman – M B A India Ltd. Investor 2. MRPL Grievance Committee a) Engineers India Ltd. Shri C. B. Singh(##)(##) M.A. (Eco.) MBA 7 7 - 1. Oil India Ltd. Nil (b) PART-TIME DIRECTORS (NON-OFFICIO) Shri T.L. Sankar IAS, M.Sc.(Chem.), 8 4 Yes 1. Rain Calcining Member - MA (Dev. Eco.), Ltd. Remuneration 2.KSK Energy Committee: Ventures Ltd. a) Rain Calcining 3. GGSRL Ltd 4. Delhi Power Member – Co. Ltd. Investment 5. Small Scale Committee: Sustainable a) KSK Energy Infrastructure Ventures Development Ltd. Board Chairman - Audit Committee: a)HPCL b) Rain Calcining Ltd. c)GGSRL
54th Annual Report 2005-06 160 Corporate Governance
(b) PART-TIME DIRECTORS (NON-OFFICIO) – CONTINUED Names of Academic No. of No. of Attendance Details of Memberships Directors Qualifications Board Meetings at the Directorships held in Meetings attended last AGM in Committees as held Companies specified in Clause 49 of the Listing Agreement Chairman – Shareholders’ Investor Grievances Committee: a) Rain Calcining Ltd. Shri Rajesh V Shah Degree in Mathematics, 8 2 - 1. Mukand Ltd Member - Audit M B A 2. Mukand Engineers Committee: Ltd. a) HPCL 3. Fusion Investments Member – Audit & Financial & Ethics Services Ltd. Committee 4. Catalyst Finance Ltd. a) ONGC 5.Conquest Member - Investments & Shareholders’ Finance Ltd. Investors 6. Kalyani Grievances Mukand Ltd. Committee: 7. Bengal Port Ltd. a) Mukand 8. Jeewan Ltd. Engineers Ltd. 9. India Thermal b) HPCL Power Ltd. Chairman- 10. ONGC Shareholder’s Investor Grievances Committee: ONGC Chairman – Audit Committee: a) Fusion Investments & Financial Services Ltd. b) Catalyst Finance Ltd. c) Conquest Investments & Finance Ltd. Shri M. Nandagopal B.Sc. (Agriculture) 8 3 - 1. Mohan Breweries Chairman - & Distilleries Ltd. Shareholder’s 2. Thirumagal Mills Ltd. Investors 3. D1 Mohan Grievances Bio Oils Ltd. Committee: 4. Mohan Meakin a) HPCL Ltd. Member - Audit 5. Arthos Committee : Breweries Ltd. a) HPCL
54th Annual Report 2005-06 161 Corporate Governance
Names of Academic No. of No. of Attendance Details of Memberships Directors Qualifications Board Meetings at the Directorships held in Meetings attended last AGM in Committees held Companies as specified in Clause 49 of the Listing Agreement 6. S V Sugar Mills Ltd. 7. Vestas RRB Ltd. 8. Mira Textiles & Industries (India) Ltd 9. Binny Engg. Ltd. 10. TCP Ltd. 11. Bhankerpur Distilleries Ltd. 12. Sagar Sugars & Allied Products Ltd. 13. Binny Ltd. 14. Balaji Breweries Ltd. Shri Raja G. Kulkarni ($$) M.A. (Eco.) 8 2 - None Member – Shareholders Investors Grievance Committee a) HPCL
Shri I.M. Pandey(@ @) Ph.D in Finance 3 2 - 1. Industrial Finance Member – Audit, Corporation of Remuneration & India Ltd. Investor 2. Cochin Shipyard Ltd. Grievance Committee a)Industrial Finance Corporation of India Ltd. (*): Shri D.S. Mathur retired on attaining the age of superannuation effective 31.05.05. (**): Shri M.A. Tankiwala was appointed Director-Refineries with effect from 01.06.05. (@): Shri M.S. Srinivasan ceased to be Director with effect from 20.06.05. ($): Shri P.K. Sinha was appointed as a Director with effect from 01.03.06. (#): Shri Prabh Das was appointed as a Director with effect from 03.05.05. (##): Shri C.B. Singh ceased to be a Director with effect from 01.03.06. ($$): Shri Raja G. Kulkarni ceased to be a Director with effect from 03.03.06. (@@): Shri I.M. Pandey was appointed as a Director with effect from 09.12.05.
54th Annual Report 2005-06 162 Corporate Governance
1.4 PROFILES OF DIRECTORS: Shri Mahesh B. Lal Shri Lal is the Chairman & Managing Director of Hindustan Petroleum Corporation Ltd. Shri Lal is a Chemical Engineer from Indian Institute of Technology, Kanpur and a Post Graduate Diploma in Management from IIM, Ahmedabad. Shri Lal has a vast and extensive experience in the Petroleum Industry. He was earlier Advisor - Refineries in the Ministry of Petroleum & Natural Gas, Government of India. In this capacity, he was the Government Director on the Boards of Kochi Refineries Ltd., IBP Co. Ltd., and Numaligarh Refineries Ltd. Thereafter, he was Director (Operations) of Madras Refineries Ltd. (now Chennai Petroleum Corporation Limited) before moving back to Bharat Petroleum Corporation Limited as Director (Refineries). IIT Kanpur bestowed the distinguished Alumnus Award on Shri Lal in the year 2002. Shri P.K. Sinha Shri P.K. Sinha, aged 50 years, is a Post Graduate from Delhi School of Economics and an IAS officer of U.P. Cadre. Shri P.K. Sinha also holds M.Phil in Social Sciences and Masters Diploma in Public Administration. Shri Sinha has served both in the Central and State Governments, including as District Magistrate of Jaunpur and Agra Districts, Commissioner of Varanasi Division and Principal Secretary, Irrigation, Uttar Pradesh. Shri Sinha has also served in the Ministry of Power, Department of Youth Affairs and Sports in the Central Government before joining the MOP&NG. Shri Prabh Das Shri Prabh Das, Joint Secretary of Ministry of Petroleum & Natural Gas is a member of Indian Administrative Service. He is a B.Tech (Hons). from IIT, Kharagpur. He has also completed his Master of Business Administration from Southern Cross University, Australia. He has worked as a District Magistrate and Collector in Midnapur & Jalpaiguri Districts for a period of 5 years. Shri Prabh Das has also worked as a Deputy Secretary / Director in the Department of Ocean Development and Ministry of Commerce, Government of India. He has also worked as a Special Secretary (Transport), Government of West Bengal and Chief Executive Officer of Calcutta Metropolitan Development Authority. Shri Prabh Das joined the Ministry of Petroleum & Natural Gas as Joint Secretary in March 2003. He is also a Director on the Boards of Mangalore Refineries & Petrochemicals Ltd. and Engineers India Ltd. Shri T. L. Sankar Shri Sankar is a retired Indian Administrative Service Officer with M.Sc. (Chemistry), Madras and M.A. (Development Economics) (Williams College, USA). Shri Sankar has held several assignments for the Government of Andhra Pradesh, the Government of India, and international organizations in his 35 years career with the Indian Administrative Service. He continues to be associated with several Committees of the Government of India in the areas of Energy Economics, Public Policy Analysis, and restructuring of Public Enterprises. He has served as the Principal of Administrative Staff College of India, Director General - National Institute of Rural Development, Director, Institute of Public Enterprises, Hyderabad, Advisor to the Governments of India, Bangladesh, Sri Lanka, Tanzania and North Korea on energy policy and as Leader of the United Nations Team to design Regional Energy Development Programme and the Asian Development Bank’s Regional Energy Survey. He was also the Chairman, Gas Price Revision Committee. He was a member of the Power Minister’s Committee of Eminent Persons and the Independent Standing Group under Justice P.N. Bhagawati. Shri Sankar has jointly edited two books, co-authored one, wrote several book chapters, and articles in national and international journals.
54th Annual Report 2005-06 163 Corporate Governance
Shri Rajesh V. Shah Shri Rajesh V. Shah obtained his first degree in Mathematics from the University of Cambridge in 1973, later obtained a Master’s Degree in Business Administration from the University of California, Berkeley. He has also attended the Programme for Management Development (PMD) from Harvard Business School in 1983. Shri Shah is presently the Managing Director of Mukand Ltd. In this capacity, he is responsible for all the diverse activities of the Company, which is India’s leading speciality steel producer and executing projects for road construction and power plants. He has served on various business councils, is a past President and has been a Member of the National Council of the apex Indian business body, the Confederation of Indian Industry (CII) since 1986. He has been a member of the International Young Presidents’ Organization (YPO) and was also Chairman of the YPO International Conference held in Mumbai in February, 1996 and on the International Board of Directors in the same year. Shri Rajesh Shah has been a strong believer in bringing about change within his Company through the application of ‘Total Quality Management’ and has been awarded the Qimpro Gold Standard in 1990 and Platinum Standard in 1994 by Qimpro (an affiliate of Juran International Inc., USA), for his contribution in building India Inc. Shri M. Nandagopal Shri M. Nandagopal is a B.Sc (Agriculture) from Agricultural University, Coimbatore. He is an Industrialist holding the position of Director in various Companies. He is the Managing Director of Mohan Breweries & Distilleries Ltd. He is a Trustee in Sri Ramachandra Medical College & Research Institute, Chennai, Sakthi Trust, Delhi and Mother Service Society, Pondicherry. Shri M.Nandagopal is also a member of Cosmopolitan Club and Madras Cricket Club. Shri I.M. Pandey Shri I.M. Pandey has done his Ph. D in Finance from Delhi School of Economics, University of Delhi. Currently, Professor at the Indian Institute of Management, Ahmedabad (IIMA), Shri Pandey is also Dean of School of Management, Asian Institute of Technology, Bangkok. Shri Pandey is a Director on the Boards of IFCI and Cochin Shipyard Limited. In the past, he served as Member of Controller of Capital Issues, Government of India, Member of Ahmedabad Stock Exchange, Member of IDBI Western Advisory Board, and Member of Board of Directors of IDBI- Principal. Shri I.M. Pandey has carried out research focused on Corporate Finance policies and practices, strategic finance management and financial market in the emerging economies. He has published several articles in these areas. He has authored ten books, six monographs and many management cases. Shri I.M. Pandey is also on the editorial boards of several journals in India and abroad. Shri I.M. Pandey is a consultant to many public and private sector organizations, and has conducted management training programmes for many domestic and multinational companies. Shri Arun Balakrishnan Shri Arun Balakrishnan is currently holding the portfolio of Director - Human Resources. Shri Balakrishnan is a Chemical Engineer and an alumni of the Indian Institute of Management, Bangalore. He joined HPCL in 1976 as a Management Trainee. He has held various positions in Marketing and Corporate functions around the country. These include positions such as Regional Manager of Orissa, Director Planning - OCC, General Manager - International Operations, General Manager - Lubricants & Specialities and Chief General Manager - Direct Sales.
54th Annual Report 2005-06 164 Corporate Governance
He is credited with launching a number of successful lubricant brands and for spreading the HP Lube distributors network in the ASEAN countries. Shri Balakrishnan attended a program on Management in the United Kingdom under the Colombo Plan Program. He has also attended various seminars and conferences related to Petroleum & Energy. Shri C. Ramulu Shri C. Ramulu is currently holding the portfolio of Director- Finance. Shri C. Ramulu is a Chartered Accountant and Company Secretary and is a rank holder at the All India level. Shri C. Ramulu secured distinction in MBA from the University of Leeds, U.K. Shri C. Ramulu commenced his career in the Petroleum Industry with Caltex India Ltd., which was nationalized and merged with HPCL. His wide experience encompasses Financial Management in varied positions spread accross the organisation in Refining, Marketing and Corporate Divisions and General Management including Strategy Planning, Management of Joint Ventures, etc. He has attended serveral International Senior Management Programmes. He has also presented serveral papers at National & International Conferences, Seminars etc. Shri Ramulu successfully handled the Public Issue of HPCL for raising Equity Capital of Rs.1200 crores. Shri S. Roy Choudhury Shri S. Roy Choudhury took charge as Director-Marketing effective May 10, 2004. Shri S. Roy Choudhury is a Mechanical Engineer from the University of Assam. He commenced his career in the Petroleum Industry with Assam Oil Company, Digboi, a subsidiary of Burma Oil Company. Shri S. Roy Choudhury joined HPCL on June 21, 1982 as a Construction Engineer. He has held various positions in the Company in Refinery, Marketing (Operations), Projects and Sales Division of HPCL. He is well known in the Oil Industry for his knowledge and expertise in the cross Country Pipeline Projects before his appointment as Director-Marketing. Shri M.A. Tankiwala Shri M.A. Tankiwala took charge as Director (Refineries) effective June 1, 2005 prior to which he was the Managing Director of Guru Gobind Singh Refineries Ltd. (GGSRL), a fully owned subsidiary of HPCL and was instrumental in developing the grass roots project. He also served on the Board of Mangalore Refineries & Petrochemicals Limited (MRPL) the first refinery in the Joint Sector as Managing Director (Technical) and ensured that due share was given to MRPL in meeting the country’s energy demand. Shri M.A. Tankiwala, a Graduate in Mechanical Engineering, commenced his career in the Mumbai Refinery of HPCL. He has had a wide exposure to the Petroleum Industry spanning more than three decades in the Refining Sector. He has worked in both Mumbai and Visakh Refineries of HPCL in various capacities and contributed to the growth and development of the refinery operations of the Corporation. 2. REMUNERATION OF DIRECTORS : HPCL being a Government Company, the remuneration payable to its whole-time directors is approved by the Government and advices received through the Administrative Ministry, viz., Ministry of Petroleum & Natural Gas. The non-official part–time Directors are paid sitting fees for Board Meetings attended by them. HPCL does not have a policy of paying commission on profits to any of the Directors of the Company.
54th Annual Report 2005-06 165 Corporate Governance
The remuneration payable to officers below Board level is also approved by the Government of India. 3. BOARD SUB-COMMITTEES : A. Audit Committee : The Audit Committee comprises of Non-Executive Directors as follows: 1. Shri T. L. Sankar Non-Executive Independent Director 2. Shri C. B. Singh * Non-Executive Govt. Director 3. Shri Rajesh V Shah Non-Executive Independent Director 4. Shri M. Nandagopal ** Non-Executive Independent Director 5. Shri P.K. Sinha *** Non-Executive Govt. Director * Shri C.B. Singh ceased to be Director with effect from 01.03.06. ** Shri M.Nandagopal was inducted in the Audit Committee as a Member with effect from 30.07.05. *** Shri P.K. Sinha was inducted in the Audit Committee as a Member with effect from 07.03.06.
Shri T. L. Sankar is the Chairman of the Audit Committee. The terms of reference of the Audit Committee are as provided under the Companies Act,1956 and other applicable regulations. The scope of the Audit Committee includes the following: • Reviewing with Management the annual financial statements before submission to the Board. • Reviewing with the Management, Statutory Auditors and Internal Auditors, the adequacy of internal control systems. • Reviewing the adequacy of internal audit function, including the structure of the internal audit department, staffing and seniority of the official heading the department, reporting structure, coverage and frequency of internal audit. • Discussion with internal auditors on any significant findings and follow up thereon. • Reviewing the findings of any internal investigations by the internal auditors into matters where there is suspected fraud or irregularity or a failure of internal control systems of a material nature and reporting the matter to the Board. • Reviewing the Company’s financial and risk management policies. The Committee, at the meeting held on May 25, 2006, reviewed the Accounts for the year 2005-06, before the Accounts were adopted by the Board. Date when Audit Committee Meetings held : 23rd May, 2005 30th July, 2005 29th October, 2005
30th January 2006 16th March, 2006 25th May 2006
54th Annual Report 2005-06 166 Corporate Governance
Attendance at Audit Committee Meetings: Name of the No. of No. of Meetings % of Members Meetings held attended attendance Shri T. L. Sankar 6 5 8 3 % Shri P.K. Sinha 2 1 5 0 % Shri C.B. Singh 4 3 7 5 % Shri Rajesh V. Shah 6 2 33.34% Shri M. Nandagopal 4 2 5 0 %
B. Committee on HR Policies : The Company has constituted the Board Sub - Committee on HR Policies to look into various aspects including remuneration as well as Compensation and Benefits for the employees. The Committee comprises of: 1. Shri T.L. Sankar 2. Shri Rajesh V. Shah 3. Shri Arun Balakrishnan Shri Arun Balakrishnan, Director-Human Resources, is the Convenor of the Committee. A meeting of Committee on HR policies was held on March 16, 2006, which was attended by the above Directors. C. Investment Committee : The Company has constituted an Investment Committee with the following members. 1. Shri T. L. Sankar 2. Shri Prabh Das 3. Shri Rajesh V. Shah 4. Shri C. Ramulu Shri T. L. Sankar is the Chairman of the Committee. This Committee reviews investment proposals before they are placed before the Board for its consideration. D. Investor Grievance Committee: The Company has constituted an Investor Grievance Committee comprising of Non-Executive Directors as follows : 1. Shri M. Nandagopal Non-Executive Independent Director 2. Shri Rajesh V. Shah Non-Executive Independent Director 3. Shri Raja G. Kulkarni * Non-Executive Independent Director 4. Shri C. B. Singh ** Non-Executive Government Director *: Shri Raja G. Kulkarni resigned with effect from 03.03.06. **: Shri C.B. Singh ceased to be Director with effect from 01.03.06.
Shri M. Nandagopal is the Chairman of the Committee. The Committee reviews the status of Investor Grievances and Services and other important matters of investors’ interest.
54th Annual Report 2005-06 167 Corporate Governance
Dates of Investor Grievance Committee Meetings: 26th May, 2005 29th October, 2005 18th April, 2006 E. Remuneration Committee: HPCL has not felt the need for a Remuneration Committee in view of the fact that the Company is a Government Company as per Section 617 of the Companies Act, 1956 and since the remuneration of the Whole Time Functional Directors are fixed by the Government of India. The details of Remuneration paid to all the Whole Time Functional Directors are given below: The remuneration of the Whole Time Functional Directors include basic salary, allowances and perquisites as determined by the Government of India. Moreover, they are entitled to provident fund and superannuation contributions as per the rules of the Company. The gross value of the fixed component of the remuneration, as explained above, paid to the Whole-Time Functional Directors, during the financial year 2005-06 is given below: (Rs. in Lakhs) Name of the Director Salaries & Contribution Contribution Other Benefits Total Allowances to Provident to Fund Superannuation Fund and Gratuity M.B. Lal (Chairman & Managing Director) 7.83 0.73 0.00 1.90 10.46 D.S. Mathur (Director-Refineries) Till – 31.05.2005 17.18 1.30 0.24 0.26 18.98 Arun Balakrishnan (Director-HR) 9.22 0.76 0.00 1.73 11.71 C. Ramulu (Director-Finance) 10.89 0.9 0.01 2.40 14.24 S. Roy Choudhury (Director – Marketing) 9.99 0.70 0.00 2.07 12.76 M.A. Tankiwala (Director-Refineries) 8.62 0.69 0.00 0.43 9.74
4. Sitting Fees for the year 2005-2006:
The details of Sitting Fees paid to Part-time Independent Directors for the year 2005-06 for attending the Board / Sub-committee meetings are given below:
54th Annual Report 2005-06 168 Corporate Governance
(Figures in Rs) Sitting Fees Paid Details of Meetings T.L.Sankar R.G.Kulkarni * Rajesh V.Shah M.Nandagopal I.M.Pandey **
Board 40000 20000 20000 30000 20000
Audit 50000 - 20000 20000 -
HR 10000 - 10000 - -
Investor - - - 10000
Retail - - 10000 - -
Total Sitting fees paid 100000 20000 60000 60000 20000
* Shri Raja G. Kulkarni resigned with effect from 03.03.06. ** Shri I.M. Pandey appointed as Director with effect from 09.12.05.
5. DIRECTORS’ SHAREHOLDING
Shri T. L. Sankar is holding 150 shares of the Corporation as of date. Other than Shri T. L. Sankar none of the other non-officio and ex-officio Directors of the Corporation are holding any shares in the Corporation.
6. RIGHT TO INFORMATION ACT 2005
The Right to Information (RTI) Act 2005 became effective from 12th October 2005. The Act envisages provisions for Disclosure by the Public Authorities and aims at transparency of information. It makes authorities responsible and accountable to enable good governance. It has provided for exemptions and also penalty for failure to comply with the Act.
In line with the provisions of the Act, HPCL has hosted detailed information covering various activities on its website “www.hindustanpetroleum.com”, during September 2005. These will be updated on need basis. Further, a large number of officers across the country, representing different departments, have been appointed as Public Information Officers and Appellate Authorities to deal with the queries from the Indian Citizens.
As of the close of 30th June 2006, a total of 321 queries for information from the Indian Citizens, inclusive of appeals made to the Appellate Authorities at HPCL and to the Central Information Commission, have been handled. HPCL has been judiciously applying the various exemptions under Section 8 & 11 of the Act, while dealing with the replies to the querists. So far, 4 appeals made to the Central Information Commission have been disposed off in line with the stand taken by HPCL.
54th Annual Report 2005-06 169 Corporate Governance
7. Risk Management
HPCL over the period has been assessing the risks that are being faced by the Company and has been taking required measures for minimization of such risks. However, the Company has not developed a formal policy framework for risk assessment and minimization process. Assistance of an external consultant is taken to develop a Risk Policy for the Corporation and the policy is expected to be ready by shortly.
8. Shares Department Activities :
HPCL has a Shares Department under the Company Secretary, which monitors the activities of R&T Agents and looks into the issues relating to shareholders. Share transfers, transmissions and other important matters are approved by the Share Transfer Committee.
Presently, HPCL has over 92133 shareholders. The Corporation regularly interacts with the shareholders through letters, investors’ meets, at the AGM, wherein the activities of the Corporation, its performance and its future plans are provided to the Shareholders.
The Company has been taking appropriate steps to ensure that Shareholder related activities are given due priority and references / representations, if any are resolved at the earliest.
The Company Secretary of the Corporation is the Compliance Officer in terms of the requirements of The Stock Exchange, Mumbai.
The quarterly results are published in the English and Vernacular newspapers. The Company also organises press meets and press releases. The Financial Performance and other details are also posted on the Company’s website viz. www.hindustanpetroleum.com.
9. During the year 2005-06, there were no material transactions with Directors or their relatives having potential conflict with the interests of the Company at large.
There have been no instances of non-compliance by the Company or penalties, strictures imposed on the Company by any Stock Exchange or SEBI or any Statutory Authority, on any matters relating to capital markets during the last 3 years. 10. DETAILS OF ANNUAL GENERAL MEETINGS : 10.1 Location and time of the previous three Meetings held : Year Location Date Time 2004-05 Y.B. Chavan Auditorium, Mumbai 21.09.05 3.00 p.m. 2003-04 Y.B. Chavan Auditorium, Mumbai 09.09.04 3.00 p.m. 2002-03 Y.B. Chavan Auditorium, Mumbai 24.09.03 3.00 p.m. 10.2 Whether Special Resolutions were put through postal ballot last year : No. 10.3 Are votes proposed to be conducted through postal ballot this year : No.
54th Annual Report 2005-06 170 Corporate Governance
11. MEANS OF COMMUNICATION : Half yearly report Press Advertisements, advices to Stock Exchanges, Letters to shareholders etc. Quarterly results Which newspapers normally Mainly business/regional/vernacular newspapers like Economic published in Times, Times of India, Financial Express, Indian Express, Loksatta etc. Websites where quarterly www.hindustanpetroleum.com results are displayed Whether it also displays official Yes news releases & presentations made to institutional investors / analysts : Whether Management Yes Discussion & Analysis Report is a part of Annual Report Whether shareholder information Shareholder information has been incorporated section forms part of in the Annual Report. The Company also communicates Annual Report with the shareholders from time to time.
12. GENERAL SHAREHOLDER INFORMATION :
12.1 54 th Annual General Meeting
Date and Time : September 14, 2006 at 3.00 PM Venue : Y.B. Chavan Auditorium, General Jagannath Bhosale Marg, Next to Sachivalaya Gymkhana, Mumbai-400 021
Shri M. B. Lal C&MD and Functional Directors at a Press Meet.
54th Annual Report 2005-06 171 Corporate Governance
12.2 Financial calendar
Financial reporting for Qtr.ending 30/06/06 End Jul. 2006 Financial reporting for Qtr.ending 30/09/06 End Oct. 2006 Financial reporting for Qtr.ending 31/12/06 End Jan. 2007 Financial reporting for Qtr.ending 31/03/07 End May 2007 Annual General Meeting for year ending 31/03/07 Aug-Sep. 2007
12.3 Date of Book Closure : August 22, 2006 - September 06, 2006
12.4 Dividend payment date (tentative) : September 19, 2006
12.5 (a) Listing on Stock Exchanges :
The Bombay Stock Exchange Ltd, The Delhi Stock Exchange Association Ltd. Phiroze Jeejeebhoy Towers, DSE House, 3/1, Dalal Street, Mumbai – 400 001 Asaf Ali Road,New Delhi – 110 002
The Calcutta Stock Exchange Madras Stock Exchange Ltd. 7 Lyons Range , Kolkata 700001 Exchange Building, 11, Second Line Beach,Chennai – 600 001
National Stock Exchange of India Ltd. Exchange Plaza, 5th Floor, Plot No. C/1, G-Block,Bandra-Kurla Complex, Bandra (East), Mumbai – 400 051 (b) Listing fees : Listing fees for financial year 2006-07 have been paid to the Stock Exchanges in April, 2006. 12.6 Stock Codes :
B S E : 500104 NSE : HINDPETRO ISIN (for trading in Demat form) : INE094A01015
12.7 Stock Market Data : HPCL Share Price – BSE Year High Rs. Low Rs. 2005-06 348.00 283.30 2004-05 538.50 225.55 2003-04 542.45 269.40 2002-03 329.60 166.50 2001-02 338.75 94.50
54th Annual Report 2005-06 172 Corporate Governance
Performance in comparison to broad based indices As on HPCL Share price (Rs.) BSE 30 SENSEX NSE 50 NIFTY 31-3-2006 322.90 11279.96 3402.55 31-3-2005 305.95 6492.82 2035.65 31-3-2004 507.60 5590.60 1771.90 31-3-2003 294.40 3048.72 978.20 31-3-2002 290.60 3469.35 1129.55 31-3-2001 160.60 3694.38 1148.20
HPCL SHARE PRICE MONTHLY DATA Month Mumbai Stock Exchange National Stock Exchange High Low Close Volume High Low Close Volume Rs. Rs. Rs. Nos. Rs. Rs. Rs. Nos. April 2005 333.50 301.10 302.85 3123778 333.15 300.25 303.10 13775255 May 2005 345.60 308.00 335.15 3401824 345.50 306.30 335.05 13061514 Jun 2005 344.00 303.00 306.50 4170905 370.00 302.50 306.90 12208563 Jul 2005 314.90 290.00 292.05 2279519 314.95 283.60 290.45 8626873 Aug 2005 315.00 283.30 292.50 2848437 314.90 281.60 292.35 10357407 Sep 2005 326.00 287.00 316.20 4594367 326.00 287.05 314.40 13102432 Oct 2005 338.00 296.05 297.30 3107750 335.90 295.05 297.35 9204157 Nov 2005 348.00 297.00 339.75 6174479 349.00 296.00 339.75 19737614 Dec 2005 345.10 310.00 328.75 3343430 345.50 310.00 328.70 9603068 Jan 2006 346.00 303.00 309.10 2887880 367.00 301.90 309.05 5988987 Feb 2006 344.00 303.00 323.95 2717783 344.80 303.55 323.70 7314135 Mar 2006 334.00 314.60 322.90 1994637 333.80 292.25 319.85 5061681
HPCL SHARE PRICE V/S BSE SENSEX HPCL SHARE PRICE V/S NSE NIFTY - - 2005-06 2005-06 Rs.) BSE SENSEX NSE NIFTY HPCL SHARE PRICE (IN HPCL SHARE PRICE (IN Rs.)
54th Annual Report 2005-06 173 Corporate Governance
PER SHARE AND RELATED DATA : 2005-06 2004-05 2003-04 2002-03 2001-02 2000-01 Per Share Data Unit E P S Rs. 11.97 37.69 56.18 45.37 23.26 32.12 CEPS Rs. 32.62 54.81 75.67 62.94 42.85 44.91 Dividend Rs. 3.00 15.00 22.00 20.00 10.00 10.00 Book Value Rs. 257.74 249.04 228.47 197.12 174.07 191.47 Share Related Data Unit Dividend Payout % 28.62 45.42 44.23 49.24 43.06 34.37 Price to Earnings* Multiple 26.98 8.12 9.03 6.49 12.49 5.0 Price to Cash Earnings* Multiple 9.90 5.58 6.71 4.68 7.47 3.6 Price to Book Value * Multiple 1.25 1.23 2.22 1.49 1.67 0.8 *Based on March 31 closing prices Rs. 322.90 305.95 507.60 294.40 290.60 160.60 12.8 Registrars and Transfer Agents : M/s.INTIME SPECTRUM REGISTRY LTD (ISRL)* C-13, Pannalal Silk Mills Compound, LBS Marg, Bhandup (W), Mumbai - 400 078. Telephone No.: 022 – 25963838, Fax No.: 022 - 25946969 * M/s. ISRL took over HPCL R & T Services from M/s. MCS with effect from July, 01, 2006. 12.9 Share Transfer System Activities relating to Share Transfers are carried out by M/s. ISRL who are the Registrars and Transfer Agents of the Company who have arrangements with the Depositories viz., National Securities Depository Limited and Central Depository Services Limited. The transfers are approved by the Share Transfer Committee. Share transfers are registered and Share Certificates are despatched within a period of 30 days from the date of receipt if the documents are correct and valid in all respects. The number of shares transferred during last the two years: 2005-06 79,200 2004-05 88,905 12.10 Status of Investor Services: Investor correspondence replied during the year are as follows: Nature of Correspondence Number 1. Share Transfers and related issues 207 2. Transmission of Shares/Nomination for shares 335 3. Issue of Duplicate share certificates 106 4. Dividend related issues 2192 5. ECS/Bank Mandates/Request for Change of Address 2340 6. Call Money Payment Correspondence/Reminders 334 7. SEBI/Stock Exchange/Legal cases 22 8. Others 739 Total 6275 All complaints received from SEBI, Stock Exchanges, Department of Company Affairs etc., have been appropriately dealt with.
54th Annual Report 2005-06 174 Corporate Governance
12.11 Dematerialisation of shares and liquidity: The total number of shares dematerialised as on 31.03.2006 is 16,23,07,723 representing 97.63% of share capital excluding shares held by the Government of India. Trading in Equity shares of the Company is permitted only in dematerialised form, w.e.f., February 15, 1999 as per notification issued by the Securities and Exchange Board of India (SEBI). 12.12 Outstanding GDRs/ADRs/Warrants or any convertible instruments, conversion date and likely impact on equity There are no outstanding Warrants to be converted into Equity shares. Detachable Tradeable Warrants issued alongwith public issue shares in April 1995 were converted into equity shares during the period February 1997- April 1997. The Warrant certificates were not called back by the Company and bear no value. 12.13 Plant Locations: The Corporation has 2 Refineries located at Mumbai and Visakh. It has 85 Regional offices, 37 Terminals / Installations / Tap off Points, 92 Depots, 41 LPG Bottling Plants and 7313 Retail outlets etc., located all over the country. 12.14 Address for correspondence Registrars and Transfer Agents: Company’s Shares Department: M/s.INTIME SPECTRUM REGISTRY LTD. Shares Department Unit:HINDUSTAN PETROLEUM HINDUSTAN PETROLEUM CORPORATION LTD. CORPORATION LIMITED C-13, Pannalal Silk Mills Compound 2nd Floor, Petroleum House, LBS Marg, 17, Jamshedji Tata Road, Bhandup (West), Mumbai - 400 078 Churchgate, Mumbai - 400 020 Telephone No.: 022 – 25963838. Telephone No.: 022 - 2286 3900 Fax No.: 022 - 25946969 Ext.3204/3201/3233/3239/3208 Fax No.: 022-2287 4552/2284 1573 12.15 DISTRIBUTION SCHEDULE AS ON 31.03.2006
No. of Physical Holding Dematerialised Total Share holding % Shares Holding No. of No. of No. of No. of No. of No. of Share Holding Share Shares Share shares Share shares Holders holders Holders Holders 1-500 15957 2936399 69129 8733271 85086 11669670 92.35 3.44 501-1000 698 510847 3955 2942745 4653 3453592 5.05 1.02 1001-5000 78 126731 1886 3476862 1964 3603593 2.13 1.06 5001-10000 3 19050 144 1052200 147 1071250 0.16 0.32 10001 & above 3 173429250 280 146102645 283 319531895 0.31 94.16 Total 16739 177022277 75394 162307723 92133 339330000 100.00 100.00
54th Annual Report 2005-06 175 Corporate Governance
12.17 Shareholding pattern as on : 31/03/2006 31/03/2005 Category No. of No. of % No. of No. of % Share Shares Share Shares holders holders President of India 1 173076750 51.01 1 173076750 51.01 Financial Institutions 28 56128800 16.54 36 52184490 15.38 FIIs/OCBs 160 78890243 23.25 147 73696932 21.72 Banks 34 1488303 0.44 30 1633802 0.48 Mutual Funds 41 5186993 1.53 86 8105835 2.39 NRIs 3206 1078869 0.31 3547 1170352 0.34 Employees 1053 467585 0.14 1162 522910 0.15 Others 87610 23012457 6.78 102881 28938929 8.53 Total 92133 339330000 100.00 107890 339330000 100.00
SHAREHOLDING PATTERN AS ON MARCH 31, 2006
12.18 Code of Conduct:
In compliance with the terms of clause 49 of the Listing Agreement with Stock Exchanges, a “Code of Conduct for Board Members and Senior Management Personnel of Hindustan Petroleum Corporation Limited” has been devised and made effective 1.1.2006. The purpose of this Code is to enhance further ethical and transparent process in managing the affairs of the Company. This Code has been made applicable to a) All Whole-Time Directors b) All Non-Whole Time Directors including independent Directors under the provisions of law and c) Senior Management Personnel. This Code would be read in conjunction with the Conduct, Discipline & Appeal Rules for Officers applicable to Whole time Directors and Senior Management Personnel. All the Board Members and Senior Management Personnel have provided the Annual Compliance Certificate duly signed by them as on March 31, 2006.
54th Annual Report 2005-06 176 Corporate Governance
13. Compliance of Mandatory / Non-mandatory requirements under revised Clause 49 AUDIT COMMITTEE MANDATORY COMPLIANCES
Sl.No. Mandatory Requirement Status of Compliance by HPCL 1 Review of Management Discussion Analysis of financial condition and results Complied of operation. 2 Statement of review of significant related party transactions as defined by Complied the Audit Committee and submitted by the Management. 3 Review of Management letters / letter of internal control weaknesses issued Complied by the Statutory Auditors. 4 Review of Internal Audit Report relating to internal control weaknesses. Complied 5 The appointment, removal and terms of remuneration of the Chief Internal Complied Auditors. DISCLOSURES Basis of related party transactions 6 A statement in summary form of transactions with related parties in the Would be complied ordinary course of business shall be placed periodically before the audit committee. 7 Details of material individual transactions with related parties which are not Would be complied in the normal course of business shall be placed before the audit committee. 8 Details of material individual transactions with related parties or others, which Would be complied are not on an arm’s length basis should be placed before the audit committee, together with Management’s justification for the same. Proceeds from public issues, rights issues, preferential issues etc. 9 When money is raised through an issue (public issues, rights issues, Will be complied preferential issues etc.) it shall disclose to the Audit Committee, the uses / as and when applications of funds by major category (capital expenditure, sales and applicable. marketing, working capital etc.), on a quarterly basis as a part of their quarterly declaration of financial results. Further, on an annual basis, the company shall prepare a statement of funds utilised for purposes other than those stated in the offer document / prospectus / notice and place it before the audit committee. Such disclosure shall be made only till such time that the full money raised through the issue has been fully spent. This statement shall be certified by the statutory auditors of the company. The audit committee shall make appropriate recommendations to the Board to take up steps in this matter.
54th Annual Report 2005-06 177 Corporate Governance
AUDIT COMMITTEE - NON-MANDATORY COMPLIANCES Sl.No. Non - Mandatory Requirement Status of Compliance by HPCL 1 Oversight of the company’s financial reporting process and the disclosure of Complied its financial information to ensure that the financial statement is correct, sufficient and credible.
2 Recommending to the Board, the appointment, re-appointment and, if required, Complied the replacement or removal of the statutory auditor and the fixation of audit fees.
3 Approval of payment to statutory auditors for any other services rendered by Complied the statutory auditors. 4 Reviewing, with the management, the annual financial statement before submission to the Board for approval, with particular reference to: a Matters required to be included in the Director’s Responsibility Statement Complied to the included in the Board’s report in terms of clause (2AA) of section 217 of the Companies Act, 1956.
b Changes, if any, in accounting policies and practices and reasons for Complied the same. c Major accounting entries involving estimates based on the exercise of Would be complied, judgement by management if applicable. d Significant adjustments made in the financial statements arising out of Would be complied, audit findings. if applicable. e Compliance with listing and other legal requirements relating to financial Complied statements f Disclosure of any related party transactions Would be complied g Qualifications in the draft audit report. Would be complied, if applicable. 5 Reviewing , with the management, the quarterly financial statements before Complied submission to the board for approval. 6 Reviewing, with the management, performance of statutory and internal Complied auditors, adequacy of the internal control systems. 7 Reviewing the adequacy of internal audit function, if any, including the structure Being followed of the internal audit department, staffing and seniority of the official heading the department, reporting structure coverage and frequency of internal audit. 8 Discussion with internal auditors any significant findings and follow up there Being followed on. 9 Reviewing the findings of any internal investigations by the internal auditors Being Complied into matters where there is suspected fraud or irregularity or a failure of
54th Annual Report 2005-06 178 Corporate Governance
internal control systems of a material nature and reporting the matter to the Board. 10 Discussion with statutory auditors before the audit commences, about the Complied nature and scope of audit as well as post-audit discussion to ascertain any areas of concern. 11 To look into the reasons for substantial defaults in the payment to the Would be complied, depositors, debenture holders, shareholders (in case of non-payment of when applicable. declared dividends) and creditors. 12 To review the functioning of the Whistle Blower mechanism, in case the Whistle Blower same is existing. mechanism is there. The requirement would be followed.
13 Carrying out any other function as is mentioned in the terms of reference of Would be complied, the Audit Committee. if applicable. BOARD - MANDATORY COMPLIANCES Sl.No. Mandatory Requirement Status of Compliance by HPCL Composition of the Board 1 50% of the Board Members to be Independent Directors. Being Govt. Company, matter taken up with Ministry of Petroleum & Natural Gas being the administrative Ministry.
2 Non-Executive Directors’ compensation and disclosures. Fees / compensation of non-executive Directors including Independent Complied as applicable for Directors to be fixed by the Board. payment of Sitting Fees. 3 Board shall meet atleast four times in a year with a maximum time gap of Complied four months between two Meetings. 4 Directors shall not be a member in more than 10 committees or act as Complied Chairman of more than 5 Committees across all companies in which he is a Director. Every Director to inform the Company about the Committee position he occupies in another company and notify changes as and when they take place. 5 Periodic review by the Board of compliance report of all laws applicable to Compliance the company and action taken by the company to rectify instances of non- commenced. compliances.
54th Annual Report 2005-06 179 Corporate Governance
Code of Conduct 6 Board to lay down Code of Conduct for Board and Sr. Management Complied which should also be hosted on website of the company. Board and Sr. Management to affirm compliance of the Code on Annual basis. The Annual Report of the Company should contain a declaration to this Complied effect signed by the CEO. Subsidiary Company
7 One Independent Director on the Board of Directors of the holding company Complied shall be a Director on the Board of Directors of a material non-listed Indian Subsidiary company. 8 The Audit Committee of the listed holding company shall review the financial Complied statement in particular, the investments made by the unlisted subsidiary company. 9 The minutes of the Board meeting of the unlisted company shall be placed Complied at the Board meeting of the listed holding company. 10 Where in the preparation of financial statements, a treatment different from Not Applicable that prescribed in an Accounting Standard has been followed, the fact shall be disclosed in the financial statements, together with the management’s explanation as to why it believes such alternative treatment is more representative of the true and fair view of the underlying business transaction in the Corporate Governance Report.
11 The company shall lay down procedures to inform Board Members about the Compliance Risk Assessment and Minimisation procedures. commenced. Process being enhanced further. 12 All pecuniary relationship or transaction of the non-executive director vis-à- Would be complied vis company shall be disclosed in the Annual Report. as applicable
13 Disclosure of the remuneration of the directors giving the break-up of Complied remuneration shall be made in the section on Corporate Governance. 14 Company to publish criteria of making payments to Non-Executive Directors Presently, only in its Annual Report. This is also to be put on the website of the company. Sitting Fees are payable to Non- Executive Directors 15 Company to disclose the number of shares and convertible instruments held Complied by non-executive directors in the Annual Report.
16 Non-Executive Directors required to disclose their shareholding in the listed Complied company in which they are proposed to be appointed as directors. The details should be given by the company in the notice of the general meeting called for appointment of such director.
54th Annual Report 2005-06 180 Corporate Governance
17 Management Discussion Analysis to form part of the Annual Report. Complied 18 Senior Management shall make disclosure to the Board relating to all material, Complied financial and commercial transactions where they have personal interest. 19 In case the appointment of a new director or re-appointment, the details of Complied such Director to be provided in the Annual Report. 20 Quarterly results and presentation made by the company to the analyst to Would be complied be put on the company’s website. 21 A committee under the Chairmanship of a Non-Executive director shall be Complied formed to look into the redressal of shareholder and investor’s grievances. 22 Board of the company to delegate the power of share transfer to an officer or committee or to the registrar and share transfer agents. The delegated Complied authority shall attend to share transfer formalities atleast once in a fortnight. CEO / CFO Certification 23 The CEO i.e. the Managing Director or Manager appointed in terms of the Complied Companies Act, 1956 and the CFO i.e. the whole-time Finance Director or any other person heading the finance discharging that function shall certify to the Board that: a They have reviewed financial statements and the cash flow statement for the year and that to the best of their knowledge and belief: (i) these statements do not contain any materially untrue statement or omit any material fact or contain statements that might be misleading; (ii) these statements together present a true and fair view of the company’s affairs and are in compliance with existing accounting standards, applicable laws and regulations. b There are to the best of their knowledge and belief, no transactions entered into by the company during the year which are fraudulent, illegal or violative of the company’s code of conduct. c They accept responsibility for establishing and maintaining internal controls and that they have evaluated the effectiveness of the internal control systems of the company and they have disclosed to the auditors and the Audit Committee, deficiencies in the design or operation of internal controls, if any, of which they are aware and the steps they have taken or propose to take to rectify these deficiencies. d They have indicated to the auditors and the Audit Committee: (i) significant changes in internal control during the year. (ii) significant changes in accounting policies during the year and
54th Annual Report 2005-06 181 Corporate Governance
that the same have been disclosed in the notes to the financial statements; and (iii) instances of significant fraud of which they have become aware and the involvement therein, if any, of the management or an employee having a significant role in the company’s internal control system. Report on Corporate Governance: 24 There should be a separate section on Corporate Governance in the Annual Complied Report of the company with a detailed compliance report on Corporate Governance. Non-compliance of mandatory requirements, if any, and compliance of non-mandatory requirements should be specifically highlighted. 25 Company to submit a Quarterly Compliance Report to the Stock Exchanges Complied within 15 days from the close of quarter. 26 Company to obtain a certificate from a Practising Company Secretary or Complied Auditors regarding compliance of conditions of Corporate Governance, the certificate should be sent to the Stock Exchanges and also to the shareholders of the company. BOARD – NON-MANDATORY COMPLIANCES Sl.No. Non-mandatory Requirement Status of Compliance by HPCL 1 Annual operating plans and budgets and any updates. Complied 2 Capital budgets and any updates. Complied 3 Quarterly results for the company and its operating divisions or business Complied segments.
4 Minutes of meetings of Audit Committee and other committees of the board. Complied 5 The information on recruitment and remuneration of senior officers just below Complied the board level, including appointment or removal of Chief Financial Officer and the Company Secretary. 6 Show cause, demand, prosecution notices and penalty notices which are Would be complied materially important. when need arise. 7 Fatal or serious accidents, dangerous occurances, any material effluent or Would be complied substantial non-payment for goods sold by the company. when need arise.
8 Any material default in financial obligations to and by the company, or Would be complied substantial non-payment for goods sold by the company. when need arise. 9 Any issue, which involves possible public or product liability claims of Would be complied substantial nature, including any judgement or order which may have passed when need arise.
54th Annual Report 2005-06 182 Corporate Governance
strictures on the conduct of the company or taken an adverse view regarding another enterprise that can have negative implications on the company. 10 Details of any joint venture or collaboration agreement. Complied 11 Transactions that involve substantial payment towards goodwill, brand equity, Would be complied, or intellectual property. when applicable 12 Significant labour problems and their proposed solutions. Any significant Being Complied development in Human Resources / Industrial Relations front like signing of wage agreement, implementation of Voluntary Retirement Scheme etc. 13 Sale of material nature, of investments, subsidiaries, assets, which is not in Would be complied normal course of business. 14 Quarterly details of foreign exchange exposures and the steps taken by Complied management to limit the risks of adverse exchange rate movement, if material. 15 Non-compliance of any regulatory, statutory or listing requirements and Would be complied shareholders service such as non-payment of dividend, delay in share transfer when becomes etc. necessary
53rd Annual General Meeting of the Corporation Shareholders at the AGM
Shri M B Lal C&MD handing over Dividend Cheque to Shri Mani Shankar Aiyar, Former Union Minister of Petroleum & Natural Gas & Panchayati Raj.
54th Annual Report 2005-06 183 Declaration of the Chairman & Managing Director
This is to Certify that the Company has laid down Code of Conduct for all Board Members and Senior Management of the Company and the same is uploaded on the website of the company - www.hindustanpetroleum.com.
Further certified that the Members of the Board of Directors and Senior Management have affirmed and have complied with the code as applicable to them during the year ended March 31, 2006.
M.B.Lal Chairman & Managing Director
Auditors’ Certificate on Corporate Governance
To the Members of Hindustan Petroleum Corporation Limited We have examined the compliance of conditions of Corporate Governance by Hindustan Petroleum Corporation Limited (‘the Company”), for the year ended 31st March 2006, as stipulated in Clause 49 of the Listing Agreements of the Company with the stock exchanges. The compliance of conditions of Corporate Governance is the responsibility of the Management. Our examination was limited to procedures and implementation thereof adopted by the Company for ensuring the compliance of the conditions of Corporate Governance. It is neither an audit nor an expression of opinion on the financial statements of the Company. In our opinion and to the best of our information and according to explanations given to us, we certify that the Company has complied with the conditions of Corporate Governance as stipulated in the abovementioned Listing Agreements. We state that such compliance is neither an assurance as to the future viability of the Company nor the efficiency or effectiveness with which the Management has conducted the affairs of the Company.
For and on behalf of For and on behalf of N. M. Raiji & Co. Sudit K. Parekh & Co. Chartered Accountants Chartered Accountants Vinay D. Balse Srikant V. Jilla Partner Partner (Membership No. 39434) (Membership No. 39461) Place : Mumbai Dated : July 31, 2006
54th Annual Report 2005-06 184 Guru Gobind Singh Refineries Limited
Our Directors
Shri M.B. Lal Shri B.S. Sant Shri M.A.Tankiwala Shri C. Ramulu Chairman Managing Director Director Director (w.e.f 23/01/2006)
Shri T.L. Sankar Shri C.B. Singh Shri S.P. Chaudhry Shri D.S. Mathur Director Director Director Director (w.e.f 25/11/2005) (till 31/05/2005)
Registered Office Administrative Office
Guru Gobind Singh Refineries Limited Guru Gobind Singh Refineries Limited Village : Phulokhari 3rd Floor, UCO Bank Building, Taluka : Talwandi Saboo Sansad Marg, District : Bhatinda New Delhi : 110001 State : Punjab
Statutory Auditors Bankers M/s Rawla & Company Punjab National Bank Chartered Accountants 28-A, Kasturba Gandhi Marg New Delhi New Delhi : 110001
Company Secretary Shri Sidhartha Tyagi
54th Annual Report 2005-06 185 Directors’ Report
On behalf of the Board of Directors of your Company, I present the 5th Annual Report on the working of your Company together with the Audited Statement of Accounts, the Auditors Report and the Review of the Accounts by the Comptroller and Auditor General of India for the financial year ended on 31st March 2006. As on March 31, 2006, your company is a wholly owned subsidiary of Hindustan Petroleum Corporation Limited (HPCL). Your company which had been negotiating with Government of Punjab (GoP) for conclusion of the Deed of Assurance (DOA) has on August 12, 2005 signed the DOA with the GoP. The deed incorporates various fiscal & non fiscal incentives granted to the Punjab Refinery Project by the GoP. Some of the incentives granted to your company are as under : 1. Interest free loan of Rs. 250 crore per annum for a period of five years amounting in all to Rs 1250 crore. 2. GoP will facilitate Power Purchase Agreement in favour of HPCL / GGSRL for sale of the power generated by the project and for the payments for the power supplied under the agreement through commercially viable mechanism. 3. Project exempted from such of the taxes / levies as are not existing on the date of signing of this Deed, which the State Government can levy itself or through its other bodies. 4. Rates/ amounts of the existing taxes/ levies will be restricted, excluding water and electricity charges, as prevailing on the date of signing of the deed for the duration of the incentives packages viz 15 years. 5. Deferment of CST to the maximum extent of 300% of the fixed capital investment for a period of 15 years from the date of commercial production. 6. GoP will give purchase preference in procurement of products from the refinery by itself and other bodies, Corporation and agencies under its control. 7. Power for construction will be supplied to the refinery project on the same rate, terms/ conditions as applicable to similar industrial consumers in the State of Punjab. Your company during the year has also initiated various other project activities for construction of office buildings at Refinery site, appointment of Project Management Consultants, Process Licensors etc. The Company is also shortly expecting to complete the detailed feasibility report on the final configuration & cost estimate for execution of the 9 MMTPA refinery and its associated facilities. STATUTORY DISCLOSURES (A) Particulars of Employees u/s 217(2A) of the Companies Act, 1956 : There are no employees under the category covered by Section 217 (2A) of the Companies Act, 1956. (B) Conservation of Energy : As required under 217(1)(e) of the Companies Act, 1956 read with the Companies (Disclosure of Particulars in the Report of Board of Directors) Rules, 1988 regarding Energy Conservation and Technology Absorption, the Board hereby discloses as follows : (i) That the Board, as part of its existing internal control measures, is striving for the conservation of Energy under the supervision of Managing Director on a continuous basis and is satisfied that the utilisation of energy is optimum for the present working of the Company. (C) Technology Absorption : The Company has not made any absorption, adaptation & import of technology from the date of incorporation. (D) Foreign exchange earnings and outgo : The required information in respect of foreign exchange earnings and outgo is given in Note no. 8 (b) (i) & (ii) of the Accounts.
54th Annual Report 2005-06 186 Directors’ Report
CORPORATE GOVERNANCE The details in this regard is enclosed as attachment and form part of this Director’s Report. DIRECTORS Shri D.S. Mathur, ceased to be the Director of the company w.e.f. June 01, 2005 consequent to his attaining the age of superannuation from the post of Director (Refineries), HPCL. During the year Shri M.A. Tankiwala, Managing Director of the company was appointed as Director (Refineries) HPCL w.e.f. June 01, 2006. Shri Tankiwala continued to hold the additional post of Managing Director uptill August 31, 2005 as per the advise of Government of India, Ministry of Petroleum & Natural Gas. Thereafter, Government of India, Ministry of Petroleum & Natural Gas entrusted Shri M.B. Lal, Chairman of the company with the powers & responsibilities of the Managing Director till a regular incumbent to the post is appointed. Shri Lal exercised the powers of the Managing Director uptill January 22, 2006. Subsequently, the Government of India, Ministry of Petroleum & Natural Gas appointed Shri B.S. Sant as the Managing Director of your company w.e.f January 23, 2006. S/Shri M.A. Tankiwala , C.B. Singh, Joint Advisor (Finance), MOP & NG & B.S. Sant were appointed as Directors w.e.f 26/10/2005, 25/11/2005 and 23/01/2006 respectively. They have been co-opted as additional Directors, liable to retire at the next Annual General Meeting and are eligible for reappointment. S/Shri M.B. Lal, C. Ramulu, T.L. Sankar & S.P. Chaudhry continue to be the part time Directors of the Company. As per the provisions of Section 256 of the Companies Act, 1956, S/Shri T.L. Sankar & C. Ramulu will be the Directors who will retire by rotation at the forthcoming Annual General Meeting and being eligible, offer themselves for reappointment under the provisions of Section 255 of the Companies Act, 1956. The Board of Directors place on record their sincere appreciation of the valuable services rendered by Shri D.S. Mathur during his tenure on the Board. DIRECTORS RESPONSIBILITY STATEMENT In terms of Section 217 (2AA) of the Companies Act, 1956, your Directors state that : (i) In the preparation of the annual accounts for the financial year 2005-06, the applicable accounting standards have been followed along with proper explanation relating to material departures. (ii) The Company has selected such accounting policies and applied them consistently and made judgments and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the Company as on 31st March, 2006. (iii) The Company has taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act, 1956 for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities. (iv) These accounts have been prepared on a going concern basis. ACCOUNTS There being no commercial activities, the Company is only required to prepare the Balance Sheet for the period of 12 Months from 01/04/2005 to 31/03/2006. ACKNOWLEDGMENT Your Directors acknowledge with thanks the continued help, support and guidance received from the Government of India, especially, the Ministry of Petroleum and Natural Gas, Department of Public Enterprises, Government of Punjab, Punjab State Industries Development Corporation, Government of Gujarat, Government of Rajasthan, Government of Haryana & the holding Company HPCL in guiding the Company in its activities. Your Directors also take this opportunity to place on record their appreciation on the valuable contribution made by the employees. For and on behalf of the Board of Directors Place : New Delhi Shri M.B Lal Date : May 03, 2006 Chairman
54th Annual Report 2005-06 187 Auditor’s Report
To,
The Members,
GURU GOBIND SINGH REFINERIES LIMITED
1. We have audited the attached Balance Sheet of M/s. Guru Gobind Singh Refineries Limited as at 31st March, 2006 along with Statement of Incidental Expenses incurred for the year ended on that date annexed thereto. No Profit & Loss Account has been prepared since the Company is under construction stage during the year. These Financial Statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these Financial Statements based on our Audit.
2. We conducted our audit in accordance with the Auditing Standards generally accepted in India. These standards require that we plan and perform the audit to obtain reasonable assurance about whether the Financial Statements are free of material misstatements. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the Financial Statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
3. As required by the Companies (Auditor’s Report) Order, 2003, issued by the Central Government of India in terms of sub section (4A) of Section 227 of the Companies Act, 1956, we enclose in the Annexure a statement on the matters specified in paragraphs 4 and 5 of the said order.
4. Further to our comments in the annexure referred to in above, we report that:
a) We have obtained all the information and explanations, which to best of our knowledge and belief were necessary for the purpose of our audit.
b) In our opinion, proper books of account, as required by law, have been kept by the Company so far as appears from our examination of these books.
c) The Balance Sheet and the Statement of Incidental Expenses dealt with by this report are in agreement with books of accounts.
d) In our opinion, the said Balance Sheet and Statement of Incidental Expenses incurred during Construction Period dealt with by this report complies with the Accounting Standards, referred in Section 211 (3C) of the Companies Act, 1956.
e) On the basis of written representations received from the Directors, as on March 31, 2006 and taken on record by the Board of Directors, we report that none of the Directors is disqualified as on March 31, 2006 from being appointed as a Director of the Company under clause (g) of sub-section (1) of Section 274 of the Companies Act, 1956.
54th Annual Report 2005-06 188 Auditor’s Report
f) In our opinion, and to the best of our information and according to explanations given to us, the said Accounts read together with the notes thereon, give the information required by the Companies Act, 1956, in the manner so required and give a true & fair view in conformity with the Accounting principles generally accepted in India.
(i) In so far as it relates to Balance Sheet, of the state of affairs of the Company as on 31St March, 2006 and
(ii) In so far as it relates to “Statement of Incidental Expenses”, of the expenses incurred for the year ended on that date.
For RAWLA & COMPANY Chartered Accountants
Y.P. RAWLA Place : New Delhi Partner Date : May 03, 2006 Membership No. 10475
A section of the project site
54th Annual Report 2005-06 189 Annexure to Auditor’s Report
Referred to in paragraph 3 of our report of even date
(1) (a) The Company has maintained a register showing full particulars including quantitative details and situation of fixed assets.
(b) All the assets have been physically verified by the management during the year and there is a regular programme of verification which, in our opinion is reasonable having regard to the size of the Company and the nature of its assets. No material discrepancies were noticed on such verification.
(c) During the year, the Company has not disposed off any fixed assets.
(2) As the Company is under construction stage therefore the clause of physical verification and maintaining of proper records relating to inventory is not applicable to the Company.
(3) The Company had not taken/granted any loans, secured or unsecured during the year from other/to Companies covered in the register maintained under Section 301 of the Companies Act, 1956, hence this clause is not applicable to the Company.
(4) In our opinion and according to the information and explanations given to us, there are adequate internal control procedures commensurate with the size of the Company and the nature of its business with regard to fixed assets. As the Company is under construction stage therefore this clause relating to inventory and sale of goods is not applicable. During the course of our audit, we have not observed any major weaknesses in internal control.
(5) (a) According to the information and explanations given to us, there are no such transactions which needs to be entered into the register maintained in pursuance of Section 301 of the Companies Act, 1956.
(b) In our opinion and according to the information and explanations given to us, there are no transactions made in pursuance of contracts or arrangements entered into the register maintained in pursuance of Section 301 of the Companies Act, 1956 hence this clause is not applicable.
(6) The Company has not accepted any deposits from public during the year hence the requirements of Section 58A and Section 58AA of Companies Act, 1956 and Rules framed there under are not applicable.
(7) In our opinion, the Company has an internal audit system commensurate with the size and nature of its business.
(8) The Company is under construction stage, therefore, maintenance of Cost Records under Section 209(1)(d) of the Companies Act, 1956 is not applicable to the Company.
(9) (a) The Company is regular in depositing with Appropriate Authorities undisputed statutory dues including Income Tax, Sales Tax, Excise Duty, Custom Duty, Cess and other material statutory dues applicable during the year to the Company.
54th Annual Report 2005-06 190 Annexure to Auditor’s Report
(b) According to the information and explanations given to us, no undisputed amounts payable in respect of Income Tax, Sales Tax, Excise Duty, Custom Duty and Cess were in arrears, as at March 31, 2006 for a period of more than six months from the date they became payable. (c) According to the information and explanation given to us, there are no disputed dues of Sales Tax, Income Tax, Custom Duty, Excise Duty and Cess. (10) The Company is under construction stage hence this clause of accumulated losses is not applicable. (11) The Company has not taken any loan from Bank & Financial Institution, and not issued any debenture hence this clause is not applicable to the Company. (12) The Company has not granted any loans and advances against pledge of shares, debentures and other securities hence this clause is not applicable. (13) In our opinion, the Company is not a chit fund or a nidhi/ mutual benefit fund/ society. Therefore, the provisions of clause 4(xiii) of the Companies (Auditor’s Report) Order, 2003 are not applicable to the Company. (14) In our opinion, the Company is not dealing in or trading in shares, securities, debentures and other investments. Accordingly, the provisions of clause 4(xiv) of the Companies (Auditor’s Report) Order, 2003 are not applicable to the Company. (15) In our opinion, the Company has not given any guarantee for loans taken by others from banks or financial institutions; hence this clause is not applicable. (16) In our opinion, the Company has not applied for any term loan; hence this clause is not applicable. (17) According to the information and explanations given to us and on the basis of overall examination of the balance sheet of the Company, we report that no fund raised on short-term basis have been used for long-term investment, hence this clause is not applicable. (18) According to the information and explanations given to us, the Company has not made preferential allotment of shares to parties and companies covered in the register maintained under Section 301 of the Companies Act, 1956 hence this clause is not applicable. (19) According to the information and explanations given to us, the Company has not issued any Debenture during the period covered by the audit report; hence this clause is not applicable. (20) The Company has not raised any money by public issue; hence this clause is not applicable. (21) According to the information and explanations given to us, no fraud on or by the Company has been noticed or reported during the course of our audit. For Rawla & Company Chartered Accountants
Y.P. RAWLA Place : New Delhi. Partner Date : May 03, 2006 Membership No. 10475
54th Annual Report 2005-06 191 Balance Sheet as at 31st March, 2006
Amount (Rs.) SCHEDULE 2005-06 2004-05 SOURCES OF FUNDS Shareholder’s funds : a) Share Capital 1 2,957,100,000 2,957,100,000 b) Share Application Pending Allotment 42,900,000 - TOTAL 3,000,000,000 2,957,100,000 APPLICATION OF FUNDS Fixed Assets : a) Gross Block 2 1,670,154,242 1,640,624,169 b) Less: Depreciation 83,771,315 62,493,972 c) Net Block 1,586,382,927 1,578,130,197 d) Capital Expenditure (In respect of assets not owned by the company) 3 49,935,335 146,857,678 e) Capital Work in Progress 4 1,354,717,582 1,227,368,325 2,991,035,844 2,952,356,200 Current Assets, Loans & Advances : a) Sundry Debtors 5 13,984,837 67,641,473 b) Cash and Bank Balance 6 3,338,544 103,508 c) Other Current Assets 7 8,588 13,617 d) Loans and Advances 8 34,072,652 34,444,681 51,404,621 102,203,279 Less: Current Liabilities and Provisions : a) Liabilities 9 88,354,921 123,468,172 b) Provisions 21,130 5,357 88,376,051 123,473,529 Net Current Assets (36,971,430) (21,270,250) Miscellaneous Exp. to the extent not written off or adjusted 10 45,935,586 26,014,050 TOTAL 3,000,000,000 2,957,100,000
STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES 11 AND NOTES FORMING PART OF ACCOUNTS
As per our report of the even date
For Rawla & Company B.S. Sant C.Ramulu Chartered Accountants Managing Director Director
Y.P. Rawla S. Malhotra S.Tyagi Partner DGM- Finance Company Secretary
Place : New Delhi Date : May 03, 2006
54th Annual Report 2005-06 192 Schedules forming part of the Balance Sheet
Amount (Rs.) As at 31st As at 31st March 2006 March 2005 SCHEDULE 1 SHARE CAPITAL A AUTHORISED 550,000,000,(As at 31st March 2005 : 550,000,000) Equity Shares of Rs. 10/- each 5,500,000,000 5,500,000,000 5,500,000,000 5,500,000,000 B ISSUED CAPITAL 300,000,000,(As at 31st March 2005 : 295,710,000) 3,000,000,000 2,957,100,000 Equity Shares of Rs. 10/- each 3,000,000,000 2,957,100,000
C SUBSCRIBED & PAID UPCAPITAL 295,710,000,(As at 31st March 2005 :295,710,000) Equity Shares of Rs. 10/- each fully paid 2,957,100,000 2,957,100,000 2,957,100,000 2,957,100,000
SCHEDULE 2 FIXED ASSETS
GROSS BLOCK DEPRECIATION BLOCK NET BLOCK
Additions/ Ded/ As at As at For the Ded/ Total Upto As at As at reclassifi- Recl. 31.03.06 31.03.05 year Recl. 31.03.06 31.03.05 31.03.06 Description As at cation 2005-06 01.04.05 during the year
Land- Freehold 876,647,847 - - 876,647,847 - - - - 876,647,847 876,647,847
- Right of Use 88,022,350 29,499,593 - 117,521,943 - - - - 88,022,350 117,521,943
Road & Culverts 204,057,533 - - 204,057,533 9,991,647 3,326,138 13,317,785 194,065,886 190,739,748
Buildings 59,171,473 - - 59,171,473 7,040,088 1,849,591 8,889,679 52,131,385 50,281,794
Lease Hold Property- Land 332,864,197 - - 332,864,197 33,028,885 11,782,234* - 44,811,119 299,835,312 288,053,078
Plant & Machinery 75,581,578 21,000 - 75,602,578 11,488,936 4,027,796 - 15,516,732 64,092,642 60,085,846
Furniture & Fixture 4,279,191 9,480 - 4,288,671 944,416 291,584 - 1,236,000 3,334,775 3,052,671
TOTAL 1,640,624,169 29,530,073 - 1,670,154,242 62,493,972 21,277,343 - 83,771,315 1,578,130,197 1,586,382,927
Previous Year 1,627,031,505 15,112,579 1,519,915 1,640,624,169 41,262,913 21,264,996 33,937 62,493,972 1,585,768,592 1,578,130,197
* The amount of amortization of land has been classified under the head ‘Direct Revenue Expenses- SPM/COT’ in schedule 4(II)
54th Annual Report 2005-06 193 Schedules forming part of the Balance Sheet
Amount (Rs.) As at 31st As at 31st SCHEDULE 3 March 2006 March 2005 CAPITAL EXPENDITURE NOT REPRESENTED BY ASSET OWNED BY THE COMPANY Capital Expenditure not represented by asset owned by the company 144,190,678 146,857,678 Less : Amortisation during the year 94,255,343 * - 49,935,335 146,857,678 * The amount includes Rs. 28,838,136 amortised during the year and Rs. 65,417,207 pertaining to period prior to 2005-06 (Previous Year Nil) SCHEDULE 4 I CAPITAL WORK IN PROGRESS (at Cost) Capital work in progress - Pipeline 201,247,343 201,448,531 Capital work in progress - Refinery 356,060,085 409,202,542 Capital work in progress - SPM/COT 50,541,226 50,541,226 Advance to PSEB for Capital Expenditure 3,215,061 3,215,061 Wind Energy Project 1,389,535 950,743 Total (I) 612,453,250 665,358,103 II Incidental expenses during the construction (pending apportionment) Opening Balance 562,010,222 467,082,268 Direct revenue Exp-SPM/COT Lease Rent 32,636,979 32,492,213 Amortization of land 11,782,234 11,782,234 Survey & Feasibility Study - 44,419,213 56,598 44,331,045 Direct revenue Exp-Refinery Amortisation of Assets not owned by the company 28,838,136 - DFR Cost 8,916,000 37,754,136 3,456,000 3,456,000 Other Incidental Expenses Salary & Wages (Reimbursed to holding co.) 15,337,690 19,195,370 Travel/ Conveyance/Transportation Charges 3,042,952 5,182,211 Professional Charges 596,796 296,973
54th Annual Report 2005-06 194 Schedules forming part of the Balance Sheet
Amount (Rs.) As at 31st As at 31st March 2006 March 2005
Sponsership/Subscription - 437,902 NIT Publication Charges 2,767,422 28,447 Outsourced services 2,622,010 3,364,120 Rent 1,502,598 1,886,912 Insurance 500 675 Postage, Telephone Telegram & Telex 681,752 902,880 Staff Welfare Expenses 309,198 932,355 Security Charges 1,753,755 1,827,360 Fuel Electricity & Water 928,164 1,061,692 Stationary & Office Supplies 337,822 299,978 Repair & Maintenance to others 1,707,754 1,488,021 Repair & Maintenance to building 10,832 26,044 Books & Periodicals 154,825 128,932 General Expenses 1,813,299 1,498,634 Audit Fees (Inclusive of service tax) 56,220 55,000 Fringe Benefit Tax 427,648 - Income Tax 2,845 5,760 Rates & Taxes 112,915 114,540 Depreciation 9,495,109 9,482,763 Sub Total 43,662,106 48,216,569 Prior period credit/debit Amortisation of assets not owned by the company 65,417,207 - Sponsorship (10,210,000) - DFR Cost (256,000) - PMC- Pipeline/COT/SPM (78,270) - Repair & Maintenance others (10,230) - Depreciation - 98,524,812 (33,937) 48,182,632 Sub Total 742,708,383 563,051,945 Less : Interest on Term Deposits 8,445 14,637 Misc Income 435,606 444,051 1,027,086 1,041,723 Sub Total 444,051 1,041,723 Total (II) 742,264,332 562,010,222 Grand Total (I +II) 1,354,717,582 1,227,368,325
54th Annual Report 2005-06 195 Schedules forming part of the Balance Sheet
Amount (Rs.) As at 31st As at 31st March 2006 March 2005 SCHEDULE 5 SUNDRY DEBTORS (Unsecured) Debt outstanding for a period exceeding six months Considered good - - Considered doubtful - - Other debts - - Considered good (Due from HPCL, holding company) 13,984,837 67,641,473
13,984,837 67,641,473
SCHEDULE 6
CASH AND BANK BALANCE Cash on hand 100,000 100,000
Balance with Schedule Bank On Current Account with Punjab National Bank 3,238,544 3,508
3,338,544 103,508
SCHEDULE 7 OTHER CURRENT ASSETS Interest Accrued on bank deposits but not due 8,588 2,627 Interest accrued and due on Bank deposits - 10,990
8,588 13,617
SCHEDULE 8 LOAN AND ADVANCES (UNSECURED CONSIDERED GOOD)
(Advance recoverable in cash or kind for the value to be recieved) Security Deposits Paid 8,927,785 8,706,782 TDS on Interest Income - 3,061 CENVATABLE Claim 25,111,596 25,692,288 Other Advances 33,271 42,550
34,072,652 34,444,681
54th Annual Report 2005-06 196 Schedules forming part of the Balance Sheet
Amount (Rs.) As at 31st As at 31st March 2006 March 2005
SCHEDULE 9 CURRENT LIABILITIES AND PROVISIONS A Current Liabilities : Duties and Taxes 2,698,340 104,873 Sundry Creditors 9,169,336 6,916,866 Earnest Money Deposits 95,887 72,127 Retention Money 1,870,125 1,752,018 Security Deposits Received 3,183,178 3,274,070 Adhoc deductions 1,532,653 2,026,426 Liabilities for - Works Contract 55,730,877 106,798,347 - ROU compensation 13,080,000 - - Expenses 994,525 2,523,445 88,354,921 123,468,172 B Provisions : Income Tax 2,845 5,357 Fringe Benefit Tax 18,285 - 21,130 5,357 88,376,051 123,473,529
SCHEDULE 10
MISCELLANEOUS EXPENDITURE (To the extent not written off or adjusted) Preliminary Expenses 20,803,000 20,803,000 Proposed Public Issue Expenses 5,287,146 5,211,050 Sponsorship 10,210,000 - Project Relaunch Expenses 9,635,440 - 45,935,586 26,014,050
54th Annual Report 2005-06 197 Statement of Significant Accounting Policies and Notes forming part of Accounts
SCHEDULE 11
A. SIGNIFICANT ACCOUNTING POLICIES
a. Accounts are prepared under the historical cost convention in accordance with Generally Accepted Accounting Principles (GAAP) accounting Standards issued by the Institute of Chartered Accountants of India (ICAI) and the provisions of the Companies Act, 1956. All income and expenditure having material bearing are recognized on the accrual basis, except where otherwise stated.
b. Land
Land acquired on lease for less than 99 years is treated as lease hold land. Cost of “Right of Use” is capitalized. Lease hold land is amortized over the period of lease.
c. Fixed Assets
Cost of Fixed Assets comprises of purchase price, duties, statutory levies (net of cenvatable claim) and any directly attributable cost of bringing the asset to its working condition for its intended use.
d. Intangible assets
1. Cost of “Right of Use” is capitalized. However, such “Right of Use” being perpetual in nature is not amortized.
2. Hitherto, expenditure on Intangible assets in the nature of “Assets not owned by the company” were to be amortized over a period of five years after commencement of commercial production. The company during the year has modified the policy so as to amortize “Assets not owned by the company” over a period of five years after completion of assets or its period of utility whichever is less.
e . Depreciation
1. Depreciation on fixed assets is provided on straight line basis, in the manner and at the rates provided under Schedule XIV of the Companies Act, 1956. Depreciation is charged prorata on monthly basis on assets, from/ upto and inclusive of the month of capitalization/ sale, disposal or deletion during the year.
2. Premium on lease hold is amortized over the period of lease.
f. Expenses During Construction Period
The direct project expenditure incurred during the construction period has been shown under the head “Capital Work in Progress” which will be transferred to relevant fixed assets as and when they are completed.
Indirect expenditure incurred during construction period has been shown under the head “Incidential Expenditure relating to project (pending apportionment)” which will be apportioned to fixed assets upon completion of the project.
54th Annual Report 2005-06 198 Statement of Significant Accounting Policies and Notes forming part of Accounts
g. Miscellaneous Expenditure
The expenditure shown under the head “Miscellaneous Expenditure (to the extent not written off/ adjusted) “ will be amortized over a period of five years after commencement of commercial production.
B. NOTES FORMING PART OF ACCOUNTS
1. The entire equity contribution to Guru Gobind Singh Refineries Limited (GGSRL) has been made by Hindustan Petroleum Corporation Limited (HPCL). Hence, GGSRL is a wholly owned subsidiary of HPCL and a Government company u/s 617 of the Companies Act, 1956.
2. The Company has prepared the Statement of Incidental Expenditure during construction instead of a Profit and Loss Account. The necessary details as per Part II of Schedule VI of the Companies Act, 1956, have been disclosed in the said statement.
3. Cost of land- (Freehold) Rs. 8766 Lakhs (Previous Year Rs. 8766 Lakhs) comprises of :
(i) Land at refinery site : Rs. 8758 lakhs (Previous Year Rs. 8758 lakhs).
The necessary action for transfer of the above land’s viz “Intakal” process has been completed and the company is in the process of signing conveyance deed.
(ii) Land along Pipeline routes : Rs. 8 Lakhs (Previous Year Rs. 8 lakhs).
The amount has been deposited with statutory authorities viz Sub Divisional Officers / Tehsildar towards land acquisition for pumping and service stations. The ownership of the land has not yet been transferred in the name of the Company.
4. There were no amounts due payable to Small Scale and/or Ancillary industrial suppliers on account of Principal and/or interest as at the close of the year exceeding Rs. One lac for more than thirty days.
5. (a) The entire manpower of the company except the Ex-Managing Director and the present Managing Director has been assigned by HPCL, the Holding company on full time basis and are continuing their lien with HPCL and their salary and retirement benefits are regularly disbursed to HPCL. Accordingly provision for retirement benefits are not required to be made in the books of the company.
(b) Mr. M.A. Tankiwala, occupied the position of Managing Director of the company uptill 31/08/2005. He was appointed as the Director (Refineries), HPCL w.e.f. 01/06/2005 and vide Government of India, Ministry of Petroleum & Natural Gas letter no. 31015/1/2005-CA dated 01/06/2005 was advised to hold the additional charge of the post of Managing Director , GGSRL for a period of three months on ad hoc basis, in addition to his own duties. During his tenure as the Managing Director he continued his lien with HPCL and his salary & other emoluments were administered by HPCL.
54th Annual Report 2005-06 199 Statement of Significant Accounting Policies and Notes forming part of Accounts
(c) The Government of India through Ministry of Petroleum & Natural Gas has appointed Mr. B.S. Sant as Managing Director of the company w.e.f. 23/01/2006. His detailed terms and conditions of appointment as received from the Ministry has since been approved by the Board and appropriate provision in respect of Salary and retirement benefits has been made.
The provisions of Section 217 (2A) of the Companies Act, 1956 are not applicable to the company.
6. Provision for Income Tax of Rs. 2845 /- (Previous Year 5357/-) has been made on the interest received on term deposit with the Bank as per the rates applicable under Income Tax Act, 1961 .
7. The amount of cenvat claim in Schedule-8 represents excise duties, countervailing duties and service tax paid by the company which shall be utilized as a set off from the excise duty and service tax payments as and when the company commences commercial production.
8. Information pursuant to the provision of paragraph 3,4C and 4D of part II of Schedule VI of the Companies Act, 1956.
a. As the company is in process of construction of Refinery and its associated facilities, hence information containing in paragraph 3 & 4C of Part II of Schedule VI is not applicable.
(Rs./Lakhs) 2005-06 2004-05 b. Expenditure in foreign currency on account of :
(i) Purchase of Books/Magazine 0.06 1.11
(ii) Business Travel & Training fees 6.80 Nil
9. Contingent Liabilities not provided for in respect of
(i) Land Compensation 2,300.00 17,326.00
District court, Bathinda vide its order dated November 29, 2005 has enhanced land compensation to the land owners who had filed application u/s 18 of Land Acquisition Act, 1894. The company has filed appeal in the Punjab & Haryana High Court, against the orders.
(ii) Claims against the Company not acknowledged 1,317.00 1,649.22 as debts (plus interest if any).
10. Estimated amount of contract remaining to be executed on Capital Account not provided for. 6,384.00 7,211.05
54th Annual Report 2005-06 200 Statement of Significant Accounting Policies and Notes forming part of Accounts
(Rs./Lakhs) 2005-06 2004-05 11. Related Party disclosure
(With HPCL, Holding Company)
(i) Issuance of Share Capital Nil 212.00 (ii) Share application 429.00 Nil (iii) Expenses Reimbursed Nil 7.24 (iv) Sale of steel plates Qty. (MT) 3,383.52 8,008.47 Amount 503.42 1,399.70 (v) Cost of Employees assigned to Co. 151.50 189.15
12 Capital Work in Progress (Refinery) includes closing stock of steel plates. (i) Qty.(MT) 6,344.58 9,728.10 (ii) Amount 1,361.58 1,865.00
13. Managerial Remuneration As Managing Director (i) Salary & Allowances 2.53 6.77 (ii) Gratuity 0.10 0.29 (iii) Contribution to Provident Fund 0.12 0.83 (iv) Other Benefits 0.10 1.57
14. Auditors Remuneration (Incl.of service tax)
(i) Audit Fees 0.56 0.55 (ii) Certification work 0.05 0.05
15. Amounts due from the Directors to the Company :
(i) As on 31.03.2006 Nil Nil
(ii) Maximum amount due during the year Nil Nil
54th Annual Report 2005-06 201 Statement of Significant Accounting Policies and Notes forming part of Accounts
(Rs./Lakhs) 2005-06 2004-05 16. Intangible assets (not internally generated)
(i) Assets owned by the company : Right of Use 1,175.00 880.00 Amounts paid to Competent Authority for acquiring “Right of Use” to lay the pipeline and expenditure on investigating the title & measurement of the land. The “Right of Use” is a perpetual right of use of land but the ownership of the land does not rest with the Company. (ii) Assets not owned by the company (net of 499.35 1,469.00 Amortization) Expenditure incurred towards construction & widening of roads, the ownership of which rests with Government of Punjab.
17 Pursuant to change in accounting policy 942.55 Nil {A.d(2)}with regard to amortization of “assets not owned by the company” the company during the year has charged Rs. 942.55 lakhs to “Incidental Expenditure during the construction period (Pending Apportionment)” including Rs. 654.17 lakhs pertaining to earlier years. 18. Prior period credits (i) In respect of cenvatable service tax for the 3.45 Nil last financial year 2004-05. (ii) Sponsorship expenses 102.10 Nil
19. Previous year’s figures have been regrouped, recasted and reclassified wherever necessary. 20. Schedule “1” to “10” form an integral part of the Balance Sheet and “Incidental Expense during Construction”. 21. Figures under schedule “1” to “10” have been rounded off to the nearest rupee.
54th Annual Report 2005-06 202 Balance Sheet Abstract and Company’s General Business Profile Schedule VI Part IV of Companies Act, 1956 I. REGISTRATION DETAILS REGISTRATION NO. : U 2 3 2 0 1 P B 2 0 0 0 P L C 2 4 1 2 6 STATE CODE : 1 6 BALANCE SHEET DATE : 3 1 0 3 2 0 0 6
II. CAPITAL RAISED DURING THE YEAR (Amount in Rs.Thousands) PUBLIC ISSUE RIGHTS ISSUE NI L NI L BONUS ISSUE PRIVATE PLACEMENT NI L 42900 III. POSITION OF MOBILISATION AND DEPLOYMENT OF FUNDS (Amount in Rs.Thousands) TOTAL LIABILITIES TOTAL ASSEST 3088376 3088376 SOURCES OF FUNDS PAID -UP CAPITAL RESERVES & SURPLUS 2957100 NI L SECURED LOANS UNSECURED LOANS NI L NI L
APPLICATION OF FUNDS NET FIXED ASSETS INVESTMENTS 2991036 NI L NET CURRENT ASSETS MISC.EXPENDITURE ( 36971) 45936 ACCUMULATED LOSSES NI L IV. PERFORMANCE OF THE COMPANY (Amount in Rs.Thousands) TURNOVER TOTAL EXPENDITURE NI L NI L PROFIT /LOSS BEFORE TAX PROFIT /LOSS AFTER TAX NI L NI L EARNINGS PER SHARE IN RS. DIVIDEND RATE % NI L NI L V. GENERIC NAMES OF THREE PRINCIPAL PRODUCTS OF THE COMPANY (as per monetary terms ) Item Code No. (ITC Code) 2 7 1 0 Product Description B U L K P E T R O L E U M PRODUCTS Item Code No. (ITC Code) Product Description Item Code No. (ITC Code) Product Description *Includes Capital Work in progress, Incidental Expences, Capital Expenditure & Advance against Capital Assets. B.S. SANT C. RAMULU S.MALHOTRA S. TYAGI Managing Director Director DGM Finance Company Secretary Place : New Delhi Date : May 03, 2006
54th Annual Report 2005-06 203 Cash Flow Statement for the Year ended 31st March, 2006
Rupees in Millions 2005-06 2004-05 A. Cash Flow from Operating Activities Net Profit before Tax & Extraordinary items -- Adjustments for : Depreciation / Amortisation -- Interest -- Dividend received -- Deletion of Fixed Assets/CWIP -- Interest received on Long Term Investments -- Interest received on Fixed Deposits -- Misc. Expenses to the extent written off -- Provision for Doubtful Debts & write offs -- Profit on sale of Investment -- Provision for Loss on Investments -- Operating Profit before Working Capital changes -- Adjustments for : Trade Receivables 53.66 (38.16) Other Receivables 0.38 15.52 Other Current Assets - - Inventories - - Trade and other Payables (35.10) (32.63) 18.94 (55.27) Amounts recoverable from Pool Account - - Cash generated from operations 18.94 (55.27) Provision for taxes (Net) - - Cash Flow before extraordinary items 18.94 (55.27) Extraordinary items - - Net Cash from Operating Activities ( A ) 18.94 (55.27) B. Cash Flow from Investing Activities Purchase of Fixed Assets (incl. Capital Work (38.68) 20.61 in Progress / excluding interest capitalised) Sale of Fixed Assets -- Preliminary / Pre-operative expenses (19.92) - Purchase of Investment - - Redemption of Investments - - Interest received on Fixed Deposits - - Interest received on Investments - - Dividend received - - Net Cash from Investing Activities ( B ) (58.60) 20.61
54th Annual Report 2005-06 204 Cash Flow Statement for the Year ended 31st March, 2006
Rupees in Millions 2005-06 2004-05 C. Cash Flow from Financing Activities Proceeds from issue of Share Capital : - Share Allotment/Call monies (incl.Share Premium) - 34.20 - Excess Share Application Money (adj.) - - - Share Application money pending allotment 42.90 - Proposed public issue expenses - - Repayment of Loans - - Loans raised during the year - - Interest other than for Long Term Loans - - Interest on Long Term Loans (including interest capitalised) - - Dividends paid - - Net Cash from financing activities ( C ) 42.90 34.20 Net Increase / (Decreass) in Cash and Cash Equivalents (A) + (B) + ( C) 3.24 (0.46) Cash and Cash Equivalents as on 1st April (Opening) : Cash on Hand 0.10 0.14 Balances with Scheduled Banks - On Current Accounts - - - Others - 0.42 Balances with other Banks - - Overdrafts from Banks - - 0.10 0.56 Cash and Cash Equivalents as on 31st March (Closing): Cash on Hand 0.10 0.10 Balances with Scheduled Banks - - - On Current Accounts 3.24 - - Others - - Balances with other Banks - - Overdrafts from Banks - - 3.34 0.10 Net Increase / (Decrease) in Cash and Cash Equivalents 3.24 (0.46)
For Rawla & Company Chartered Accountants
Y.P. Rawla S. Malhotra Partner DGM- Finance
Place : New Delhi Date : May 03, 2006
54th Annual Report 2005-06 205 C & AG’s Comments
COMMENTS OF THE COMPTROLLER & AUDITOR GENERAL OF INDIA U/S 619 (4) OF THE COMPANIES ACT, 1956 ON THE ACCOUNTS OF THE GURU GOBIND SINGH REFINERIES LIMITED FOR THE YEAR ENDED 31ST MARCH, 2006.
I have to state that the Comptroller and Auditor General of India has no comments upon or supplement to the Auditors’ Report under Section 619(4) of the Companies Act, 1956 on the accounts of Guru Gobind Singh Refineries Limited for the year ended 31st March, 2006.
(A.K.SINGH) Principal Director of Commercial Audit & ex-officio Member, Audit Board-II, New Delhi
Place : New Delhi Date : 23-06-2006
REVIEW OF ACCOUNTS OF GURU GOBIND SINGH REFINERIES LIMITED FOR THE YEAR ENDED 31ST MARCH 2006 BY THE COMPTROLLER AND AUDITOR GENERAL OF INDIA Note: Review of Accounts has been prepared without taking into account the qualifications contained in the Statutory Auditor’s Report. 1 FINANCIAL POSITION The table below summarises the financial position of the company under broad headings for the last three years: Rs./Crores As at As at As at 31st March, 31st March, 31st March, 2004 2005 2006 LIABILITIES a) Paid up Capital i) Government - - - ii) Others 292.29 295.71 295.71 iii) Share Application Pending Allotment - - 4.29 b) Reserves & Surplus i) Free Reserves & Surplus - - - ii) Share Premium Account - - - iii) Capital Reserve - - - c) Borrowings from i) Govt. of India - - - ii) OIDB - - - iii) Foreign Currency Loans - - - iv) Cash Credit - - - v) Others - - - d) i) Current Liabilities & Provisions 15.61 12.34 8.84 ii) Provision for Gratuity - - - Total 307.90 308.05 308.84
54th Annual Report 2005-06 206 Review of Accounts by C & AG
Rs. /Crores As at As at As at 31st March, 31st March, 31st March, 2004 2005 2006 ASSETS f) Gross Block 162.70 164.06 167.02 Less: Depreciation 4.12 6.25 8.38 g) Net Block 158.58 157.81 158.64 h) Capital work in progress 138.72 137.42 140.47 i) i) Producing properties: - - - ii) Less: Depletion - - - iii) Net Amount - - - j) Pre-producing properties - - - k) Investment - - - l) Deferred Tax Asset - - - m) Current Assets, Loans & Advances 8.00 10.22 5.14 n) Misc. Expenditure not written off 2.60 2.60 4.59 (Accumulated project expenditure) o) Accumulated loss
Total 307.90 308.05 308.84 p) Working capital (m-d(i)) (7.61) (2.12) (3.70) q) Capital employed (g+i+k+p) 150.97 155.69 154.94 r) Net worth (a+b(i)+b(ii)-n-o) 289.69 293.11 295.41 s) Net worth per rupee of Paid up Capital (in Rs.) 0.99 0.99 0.98
1) The working capital of the Company has increased from (-) Rs. 7.61 Crore in 2003-04 to (-) Rs.3.70 Crores in 2005-06.
2) The Capital employed of the Company has increased from Rs.150.97 Crore in 2003-04 to Rs. 154.94 Crores in 2005-06.
3) The net worth of the Company has increased from Rs.289.69 Crore in 2003-04 to Rs.295.41 Crores in 2005-06. The increase was due to increase in paid up capital of the Company.
54th Annual Report 2005-06 207 Review of Accounts by C & AG
2 WORKING RESULTS Working results of the company during the last three years are given below: Rs./Crores 2003-04 2004-05 2005-06 i) Sales _ _ - ii) Less : Excise Duty - - - iii) Net Sales - - - iv) Other or Misc. Income - - - v) Profit/Loss before tax and prior period adjustment - - - vi) Prior period adjustment - - - vii) Profit/Loss before tax and after prior period adjustment - - - viii) Tax provisions - - - ix) Profit after tax - - - x) Prepaid dividend - - - The Company has not prepared Profit & Loss Account since it was under construction stage during the year.
3 RATIO ANALYSIS
Some important ratios on the financial health and working of the Company at the end of last 3 years are given below: ( in Percentage ) 2003-04 2004-05 2005-06 A) Liquidity Ratio Current Ratio: (Current Assets to Current 0.51 0.83 0.58 Liabilities & Provisions and Interest Accured & due but excluding Provision for Gratuity)
B) Debt Equity Ratio Nil Nil Nil Long Term Debt to Net Worth [c (i) to c (v) but excluding the Short-Term Loans]
C) Profitability Ratio Nil Nil Nil Profit before tax to a) i) Capital Employed ii) Net Worth iii) Sales b) Profit after tax to equity capital c) Earnings per share (in Rs.) of Rs. 100 each
54th Annual Report 2005-06 208 Review of Accounts by C & AG
4. SOURCES AND USES OF FUNDS Rs./Crores Sources of Funds (Equity contribution) 4.29 Funds from operations - Profit after tax - - Capital reserve addition - - Project Expenditure written off - - Depreciation (Increase) 2.13 Deferred Tax Asset - Increase in Borrowings - Total 6.42 Utilisation of funds Increase in Fixed Assets 2.96 Increase in Working Capital (1.58) Investment - Repayment of OIDB Loan - Increase in Misc. expenditure (Project Expenditure) 1.99 Increase in Capital work-in-progress 3.05 Total 6.42
5. SUNDRY DEBTORS Rs./Crores Year Debts Provision for Total Sales Percentage Considered Doubtful Debtors of Debtors good Debts. to Sales 2003-04 2.95 - 2.95 - - 2004-05 6.76 - 6.76 - - 2005-06 1.40 - 1.40 - - The Sundry debtors have decreased from Rs. 6.76 Crore in 2004-2005 to Rs. 1.40 Crore in 2005-2006. 6. INVENTORY Rs./Crores Inventory position as at the last three years was as follows: 2003-04 2004-05 2005-06 i) Stores and Spares - - - ii) Capital Stores - - - iii) Stock in trade - - - iv) Other - - - The Company has not prepared Profit & Loss Account since it was under construction stage during the year.
(A. K. SINGH) Principal Director of Commercial Audit & ex-officio Member, Audit Board-II, New Delhi Place : New Delhi Date : 23-06-2006
54th Annual Report 2005-06 209 Corporate Governance
Your Company adopts the best corporate governance practices in order to maintain transparency, accountability and ethics. A. Board Meetings : During the year ended 31st March, 2006, five Board Meetings were held on the following dates : 20th April, 2005 9th May, 2005 28th July, 2005 26th October, 2005 25th January, 2006
These meetings were attended by the members of the Board, as under :
Names of Academic No. of No. of Attendance Details of Memberships Directors Qualifications Board Meetings at the Directorships held in Meetings attended last AGM in Committees as held Companies specified in Clause 49 of the Listing Agreement Shri M.B Lal B.E (Chem), 5 3 Yes 1. HPCL Nil Chairman PGDBM 2. HINCOL (IIM,Ahemdabad) 3. PPCL
Shri B.S. Sant* B.E. (Mech.) Managing Director DMS, MFM. 1 1 - Nil Nil Shri M.A. Tankiwala** B.E (Mech.) 4 4 - Nil Member- Audit Director Committee: a) GGSRL Shri D.S Mathur*** B.Tech, 2 1 - 1. HPCL Member-Audit Director M.Sc,PGDPE 2. PPCL Committee: a) GGSRL Shri C. Ramulu B.Com, ACA, 5 5 No 1. HPCL Chairman- Audit Director ACS, 2. HINCOL Committee: MBA (Leeds, UK) 3. PPCL a) HINCOL b) PPCL Member Audit Committee a) GGSRL Shri C.B. Singh**** M.A.(Eco.), 1 1 - 1. Oil India Limited Member Audit Director MBA Committee: a) GGSRL Shri T.L Sankar IAS, M.Sc.(Chem.), 5 2 No 1. Rain Calcining Ltd. Chairman Audit Director MA (Dev.Eco.), 2. KSK Energy Committee: Ventures Ltd. a) HPCL 3. HPCL b) Rain 4. Delhi Calcining Ltd. Power Co. Ltd. c) GGSRL
54th Annual Report 2005-06 210 Corporate Governance
Names of Academic No. of No. of Attendance Details of Memberships Directors Qualifications Board Meetings at the Directorships held in Meetings attended last AGM in Committees as held Companies specified in Clause 49 of the Listing Agreement 5. Small Scale Member Sustainable Remuneration Infrastructure Committee: Development a) Rain Board Calcining Ltd. Shareholders Investor Committee a) Rain Calcining Ltd. Shri S.P. Chaudhry B.E. (Mech.) 5 2 Yes Nil Nil Director M.B.A * Shri B.S. Sant sppointed as Managing Director w.e.f 23/01/2006. ** Shri M.A. Tankiwala was Managing Director till 31/08/2005 and thereafter appointed as Director with effect from 26/10/2005. *** Shri D.S. Mathur retired on attaining the age of superannuation on 31/05/2005. **** Shri C.B. Singh appointed as Director effective 25/11/2005. B. Audit Committee : An Audit Committee has been constituted comprising of the following members: 1. Shri T.L Sankar, Director - Chairman of the Audit Committee 2. Shri C.B. Singh, Director - Member of the Audit Committee 3. Shri C. Ramulu, Director - Member of the Audit Committee 4. Shri M.A. Tankiwala - Member of the Audit Committee C. Details of Annual General Meetings : Location and time, where last two Annual General Meetings of the Company held : Year Location Date Time 2003-04 Petroleum House, 29.09.2004 3.00 p.m 17, Jamshedji Tata Road, Mumbai- 400 020 2004-05 Petroleum House, 20.09.2005 12.30 p.m 17, Jamshedji Tata Road, Mumbai- 400 020
54th Annual Report 2005-06 211 54th Annual Report 2005-06 212