| "In this last communication of the eventful and challenging year of 2008...I would like to compliment you all for having done very well”, Chairman |
 |
| December 2008 |
 |
My Dear Colleagues,
In this last communication of the eventful and challenging year of 2008, which saw high stress and volatility in the business scenario, I would like to compliment you all for having done very well. The year tested our resilience and collective strength to weather the turmoil that hit major financial markets across the world and shook the foundations of even established giants, leading to a clearly discernable global economic meltdown.
Its negative impact on oil demand, together with strengthening of the dollar, is driving the big fall in oil prices we see today. With crude oil prices continuing to tumble, the average price of the Indian basket fell from about $ 50 in November ‘08 to about $ 40 in December ‘08, touching the fiscal’s lowest mark of $ 35.83 a barrel on 24th December. There is also cheer on the under-recoveries front; in spite of reduction of prices, petrol and diesel have retained positive margins.
While both these are welcome trends, the sharp drop of product prices in the international market is a new concern. Today, most products, except HSD and SKO, are being traded near or below crude prices, paring down refining margins considerably. In such a situation, compounded by high interest costs on borrowings and inventory carrying costs, I do not see any significant improvement in profitability during the current quarter. This is in spite of our excellent performance in terms of physical parameters such as capacity utilisation, energy consumption, pipelines throughput and all-time high product sales. In new businesses too, sale of gas and petrochemicals has been quite satisfactory.
Among other developments this month, we have signed production-sharing contracts for three NELP-VII blocks (two Type-S blocks in Cambay basin and one deepwater block in KG basin) awarded to us by the Government of India on December 22nd. The Government of Timor Leste (formerly East Timor, near Indonesia) has also approved the assignment of 12.5% participating interest to IndianOil for partnering Reliance Industries in an off-shore block.
As part of our many initiatives to expand business through strategic alliances, we signed an MOU with Adani Energy Ltd. on Dec. 8th for setting up a joint venture enterprise for city gas distribution in select markets of Haryana, Punjab, Rajasthan and Uttar Pradesh. The joint venture will also look at setting up State-wise subsidiaries for supplying CNG for the automotive sector and natural gas for domestic, commercial and industrial sectors. IndianOil and Adani already have tie-ups for import and storage facilities for crude oil at Mundra Port and sale of CNG from several IndianOil retail outlets in Gujarat.
IndianOil entered into a joint venture tie-up with Tata Power on December 18 for production of coal-based power in Paradip. This will meet the captive power needs of Paradip Refinery and the balance will be sold on commercial terms. The IndianOil Board has also approved formation of a joint venture company between IndianOil and Chattisgarh Renewable Development Agency for production of 50,000 tonnes of bio-diesel per annum by the year 2015 through Jatropha plantation on 30,000 hectares of wasteland in the State.
In tandem with the brisk progress of the Naphtha Cracker complex coming up at Panipat, IndianOil is gearing up for an ambitious entry into the polymer marketing business by the end of the year 2009. For this, we have taken up organisation structuring, policy and systems for channel selection, and establishment of a Polymer Application Development Centre. McKinsey is working with us on designing a suitable business model. We are also carrying out another round of recruitments at middle-management positions for infusion of the desired skills sets in Petrochemicals as well as Bio-fuels into the organisation in line with our business expansion plans.
Moving on to organisational issues, I feel concerned that terrorist attacks like those in Mumbai last month could spell catastrophe for an industry like ours. Let us, therefore, re-visit our preparedness in preventing such incidents, and scale up security standards and apparatus wherever necessary. Let us ensure that we have working systems, equipment and trained people in place for handling crises through anti-terror squads and fool-proof coordination between first aid, fire & other emergency services.
Safety at our work places also needs the same level of sensitivity as security. Fatal accidents continue to occur despite our best efforts. Recurrence of similar incidents within a gap of a few months clearly points to non-adherence to safe operational practices. Accidents happen when we ignore laid-down procedures and practices. Therefore, I once again urge all of you to make safety a habit, and an integral part of daily routine, to prevent accidents. For Safety and security of our assets everyone has a role to play.
Let me also share my thoughts on improving operational efficiency. Having recognised that communication is key to quick decision-making and operations, we must integrate and enhance the use of digital media such as audio and video-conferencing, web-casting, websites and portals for communication of a routine nature within the organisation and with our vendors, suppliers and contractors. Such facilities are already in use, for instance in Vadinar for pipeline operations and between Marketing HO and State Offices. These need to be scaled up to not only fill communication gaps but build a better reporting network and put a check on avoidable travel expenses. Similarly, let us make full use of the state-of-the-art access control systems at our units to usher in further improvements in our work culture.
In conclusion, I am very happy to share with you that the single point mooring (SPM) of the 330-km Paradip-Haldia pipeline was commissioned on 28th December. We have also made a beginning on our wind-power project in Kutch district of Gujarat with the commissioning of six of the 14 wind electric generators on 26th December.
As we stand at the doorstep of yet another year of challenges, let me wish you all and members of your families the very best of health, happiness and prosperity in the New Year 2009.
Sarthak Behuria
Chairman |
| |
| |
|
|
 |
|