IndianOilXpress :: Meetings

The Quarterly Communication Meeting was held at the Corporate Office, Sadiq Nagar, on June 28, 2005. Presided over by the Chairman, the meeting was attended by Functional Directors, Advisor (Security), CVO, Departmental Heads in Divisional Headquarters, unit heads of Refineries, Marketing, Pipelines and R&D Centre, and State Office Heads of Marketing Division.

The following are excerpts from the observations made by the participants at the meeting:

Chairman:

Our performance during 2004-05 has generally been good. We have emerged as the first Indian corporate to breach the Rs.150,000 crore mark in sales turnover. While the turnover marked a jump of over 15%, the Profit After Tax registered a dip of about 30% compared to the previous year. You very well know the reasons. In spite of it, the IndianOil Board has recommended a final dividend of 100%, subject to ratification by shareholders. Considering the interim dividend of 45% paid earlier, the total dividend for 2004-05 works out to 145%.

We achieved significant growth in operational parameters during 2004-05. Our Gross Refining Margin registered an increase of about a dollar per barrel compared to the previous year; domestic sales volume grew by 2.9%, while product exports increased by 8%. For the first time, our product sales, including exports, crossed the 50 million tonne mark, despite stiff competition in the market place. On behalf of the IndianOil Board, let me compliment all of you and your teams, for the excellent performance.

Our seven subsidiary companies also fared well during 2004-05, by increasing their aggregate turnover about one and a half times, i.e., from Rs. 23,937 crore to Rs. 36,000 crore, and profits by about 30%, i.e. from Rs.947 crore to Rs. 1,233 crore. While CPCL and BRPL increased their profit 1.5 times, Lanka IOC profits were up more than three-fold. IBP also managed to register a profit of Rs. 59 crore despite huge under-realisation. Its operational performance has been commendable. IndianOil Mauritius and IndianOil Technologies have also come out of the red and registered profits in 2004-05.

Our Joint Ventures have also done well, their aggregate turnover going up more than 5 times, from Rs. 513 crore to Rs.2644 crore. While IndianOil Petronas Pvt. Ltd., Indian Oiltanking Ltd., and Avi-Oil registered growth in profits, Petronet LNG registered a loss, the year 2004-05 being its first year of commercial operations and due to high depreciation.

The recent hike in auto fuel prices, though belated and not fully covering our costs. will help us reduce our losses to some extent. The issue of subsidies on Domestic LPG and PDS Kerosene, however, remains unresolved. Against this background, we need to focus on innovative ways of conducting our business for improving operational efficiency and bringing down the costs further. Meanwhile, at our level, we have been continuously highlighting the issues of under-realization and subsidies, through various forums, including the Standing Committee on Petroleum & Natural Gas, the Hon’ble Members of Parliament, and the national print and electronic media, impressing upon them the impact of the rising crude oil prices, the possible solutions for the Government and the oil companies. My personal hunch is that it would become increasing difficult to increase consumer level prices. We should also contend with high crude oil prices, with at the most $2 – 3 fluctuation. Refinery margins are going to continue to be robust, which is a good thing.

I was part of an official Indian delegation to Pakistan led by the Hon’ble Minister of Petroleum & Natural Gas recently to explore opportunities for collaboration in the hydrocarbon sector. I made a presentation on the export opportunities for IndianOil to the Pakistani Minister for Petroleum & Natural Resources. We have formally placed our request with the Pakistani Government to include Diesel in their “positive list” of imports and have even offered to initially export 325,000 tonnes of Diesel to Pakistan, commencing October 2005. The two countries have also agreed to work jointly on the Iran-Pakistan-India Pipeline Project. We have also signed a Sale & Purchase Agreement with Iran for LNG, which Director (P&BD) will elaborate upon.

These new ventures augur well for our future growth and development both in India and abroad. But then, we have many immediate challenges facing us. There has been criticism at the Board level, the Ministry and in the media about project delays. I urge the Refineries Projects team to look at how we can expedite critical projects like Panipat Refinery Expansion, the PX/PTA Project and the quality upgradation projects at various refineries.

Safety continues to be a matter of grave concern. We had yet another fire accident at Koyali this month. Another fatal accident involving a casual worker was reported at Barauni Refinery, besides a flash fire incident at Karnal Bottling Plant. We need to bring in a culture and discipline of maintaining good safety record, and there is no better way to do this than by fixing responsibility. Let us do whatever is required to enhance safety. Let there be no short cuts and non-adherence to safety procedures.

I am happy to share with you that a Ship Chartering Cell has become operational at the Refineries Headquarters from 15th June 2005, and they have successfully chartered three crude tankers and two product tankers till date.

We had a Strategy Meet of the Board at Shimla on 19th & 20th of this month. The Board deliberated at length on key issues concerning our growth plans, the marketing challenges faced by us in retail and consumer business, the business plans of R&D, the types of business risks encountered by our Corporation, and implementation of Performance Management Systems. We intend following this up with a post-Strategy Meet workshop at IIPM soon, wherein the strategies formulated by the Board shall be shared with all key executives of the Corporation, to enable them deliberate upon the issues and the challenges which need to be addressed while implementing the strategies, and to chalk out a road map for implementation.

Last year, we had sponsored the Asia Cup in Sri Lanka, which earned us good mileage. You will be happy to know that IndianOil will be the prime sponsor of the ensuing Tri-series Cricket Tournament in Sri Lanka; this will also be the first time that an ICC Championship will be named after IndianOil, and it will be called the ‘IndianOil Cup’.

Regarding the merger of IOBL with IndianOil, the final approval of the Government for the merger is expected any day. As regards merger of IBP, some more issues raised by the Government recently, need to be clarified, and these are being attended to on priority.

On the issue of acquisition of stake in Haldia Petrochemicals, legal notice has been issued to Haldia Petrochemicals for allotment of shares in respect of subscription money given by IndianOil. Director (P&BD) shall be taking the issue further.

Shri AS Lamba has joined us as Chief Vigilance Officer on 10th June 2005. He is an IAS Officer of the West Bengal cadre and I welcome him heartily into the IndianOil family.

This will be the last Communication Meeting for Shri P Sugavanam, who will be superannuating on 30th June, and Shri PK Agarwal, who will be superannuating on 31st July. All of us are fully aware of the immense contribution made by these two stalwarts to the growth and development of the Company. We wish them the same success, health and happiness in their post-retirement years.

With refining margins likely to be around $ 5-6 per barrel in the medium term, the earliest we commission our Panipat refinery expansion the better it will be for us. Cash resource crunch is a problem area. The Corporate Finance team made a success of a recent bond issue for Rs. 1,000 crore to raise working capital. While we have no clue of how the Q1 results are going to shape up, sharing of one-third burden of under-recoveries by upstream companies is a must.

SAP shall become operational at IBP from July 1, 2005. We need to improve our MS and data mining skills through SAP for enhanced performance. The first phase of implementation of optimisation solutions is also coming to an end. The second phase is more focussed on refining, in association with Tata Honeywell. The Optimisation and the Refineries groups must interact closely and frequently to ensure that this phase too is implemented early so as to reap rich benefits. The Optimisation group is the best thing to have happened to IndianOil – we are one of the few organisations in the world to have such a group.

My sincere thanks to all of you for making my function easier and enjoyable.

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Broadband Internet Connectivity: Senior Executives in Grade H and above are entitled to avail of Internet connectivity at ‘office at residence’ up to a maximum of 250 hours per annum. As an alternative to the existing provision, it has been decided to allow Broadband Internet Connectivity on the computer where such service is available. Reimbursement of expenses shall be within the annual ceiling of Rs.7000 + Service tax. In addition, executives shall also be entitled to reimbursement of one-time installation charges.

Collectives: Chairman addressed the Communication meetings that were held with AICEC of IOOA on 1.6.2005 at New Delhi and with recognised Unions on 26.6.2005 at Mumbai.

Voluntary Retirement: The response to the current VR scheme operative up to 30th June 2005 has been fairly low at 55:

e-PMS go-live: The e-enabled Performance Management System, developed in association with M/s Hewitt Associates and to be implemented for all officers, has gone ‘live’ from 20.06.05. The first go-live workshop was held at Marketing NRO on 20th June, followed by the second one at Delhi State Office on 21st. The workshops, which will be held at various locations, will lead to performance planning for the financial year 2005-06. The scheme will now be in line with the financial year and not calendar year. It would be more meaningful if it were implemented in time.

RAPA award for 'Elephant Train' TV commercial: IndianOil's 'Elephant Train' TV commercial, which was run on various prominent TV channels last year, has bagged this year's prestigious RAPA (Radio & TV Advertising Practitioners Association of India) Award.

Since this will be the last Communication meeting I shall be attending, I take this opportunity to thank you all for the cooperation I received in the discharge of my duties. Your support was always there with me, which made my tenure all the more enjoyable.

Gas: There were a number of developments in our gas business during the first quarter of fiscal 2005-06. On 13th June, we signed a 25-year SPA with NIGEC, Iran, for import of 1.75 MMTPA of LNG from the last quarter of 2009. In the meanwhile, we have indicated our interest jointly with GAIL to import another 2.5 MMTPA LNG from Iran. Iran is also considering allotment of a phase in their North Pars gas field to the IndianOil-Petropars consortium. This is a very prestigious project and will place us on a different league in the global LNG market.

IndianOil, with CPCL, has been mandated by MOP&NG as the lead promoter for the proposed LNG import terminal at Ennore. DFR for the project is in an advanced stage and is scheduled for completion by August 2005. We are also developing MOUs with Ennore Port Ltd. and the Govt. of Tamil Nadu for their support and assistance for the project.

MOP&NG mandate has also been received for laying the Dadri-Panipart pipeline, allowing us to make forays into gas transportation business.

CNG: A JV agreement was signed with GAIL on 11th May 2005 to enter CNG market in Agra and Lucknow. Besides targeting to deliver CNG to customers by December 2005, we shall also be able to sell our liquid fuels from these CNG stations.

E&P: The consortium of OIL-IOC-GAIL has submitted the bids for two blocks in Myanmar on 9th June. IOC-OIL are participating jointly in the exploration round announced by Nigeria on 11th March. 75 blocks have been offered in this bid round. In NELP-V, bids for five blocks were submitted in May 2005 in consortium with OIL. In addition, IOC for the first time made a bid as operator for an onshore block in Cambay, in consortium with Medco, Indonesia.

Petrochemicals: During May 2005, we crossed the 9,000 MT mark in LAB production and achieved the highest domestic sales of 8893 MTs. 325 MTs were also exported during the month, thus registering a total sales of 9218 MTs. Recently, one of our LAB customers has rated IndianOil at 98.5% under ISO: 9001-2000 in the areas of quality and timely delivery.

IndianOil refineries registered a gross refining margin of $ 6.3/bbl in the current fiscal as compared to $ 6.2 in 2004-05. This is another reason for maximisation of refinery capacity utilisation.

Mathura Refinery commissioned the Motor Spirit Quality Upgradation (MSQ) Unit when the country’s first PENEX Unit went on stream on 17th June, 2005. The Diesel Hydrotreater Unit for producing Euro-III Grade Diesel, which was commissioned on 2nd May 2005, is now operating at 110% of capacity. For implementation of DHDT (Diesel Hydrotreater) and MSQ projects more than 28 million safe man-hours were achieved.

To utilise the surplus capacity of DHDT at Mathura and increase the crude throughput of Panipat Refinery, movement of DHDT feed from Panipat commenced from 5th June ’05 with active support from Marketing Division. Already, six rakes have been moved.

With permission to charter our own ships, a Ship Chartering Cell began functioning at Refineries Headquarter from 15th June ’05. We have also tied up with SCI for transport of 9 million tonnes of crude oil from the Gulf region in the current fiscal.

Major mishaps at Koyali and Barauni Refineries and other places are not only causing loss to life and property but affecting our profitability and image. This is mostly due to neglect of laid-down safety procedures. We need to closely monitor and curb shortcuts to avoid loss to life and property. We should also benefit from drawing lessons from near-misses by giving them good publicity across the company.

The DFR and a detailed cost estimate for a petrochemical refinery at Paradip shall be ready by August’05. The project is expected to be completed by the end of 2009.

Under Six-sigma, implemented at all the refineries, several green-belt and black-belt projects have been taken up. Digboi Refinery has already achieved gains of up to Rs.60 lakh per annum by implementing the first such project.

Several technologies developed by IOC-R&D are finding acceptability at refineries. Indmax technology is under evaluation at BRPL, AOD, Paradeep and Rajasthan wellhead refineries. IOC-R&D is working on development of Super Indmax to take advantage of the spread between low and high sulphur crude oils.

Needle coke produced with IOC-R&D technology at BRPL during the last run has found acceptability among our customers. BRPL is implementing a 1.2 MMTPA DHDT unit based on joint technology of IOC-R&D and EIL on nomination basis.

IOC has approved in-principle a JV proposal (unincorporated) along with OIL for 40,000 MTPA condensate-based Indalin+ unit at a cost of Rs. 59 crore.

INDE Treat/ INDE Sweet is already under implementation by several IOC and non-IOC refineries such as KRL, HPCL, etc. The Naphtha hydrocracking technology is being modified to low LPG conversion to find more acceptability by refineries.

IndianOil Technologies Ltd. (ITL) obtained business worth Rs. 2.72 crore by promoting IOC-R&D developed technologies and has earned a profit of Rs 42 lakh (after tax) during its first full year of operation.

A Saudi Aramco team, including their R&D Chief and Vice President, visited R&D on 11th May 05. An MOC has been signed between IOC-R&D and Saudi Aramco in the areas of bio-desulphurisation and Naphtha cracking. A similar exercise is being done with the Research Institute of Petroleum Iran (RIPI) / NIOC.

400 MT of multigrade bitumen produced in CPCL has been found meeting the specification and field trial for performance evaluation has now been lined up jointly with marketing at Leh and Barhmer along with Border Roads Organization & CRRI. An Indian patent has been granted to Multigrade Bitumen.

Based on the successful evaluation of B5 diesel in 20 buses of Haryana Roadways for the last 9 months, the Govt. of Haryana has cleared use of B5 diesel for the entire fleet of Gurgaon & Nuh depots with immediate effect. Arrangements for blending B5 diesel have been made at Rewari Terminal to promote use of Bio-diesel in STUs and give exclusivity to IndianOil Corporation for the diesel business of Haryana Roadways.

There is intense competition in white oils from private oil companies and in black oil from PSUs in the market place.

The number of State Offices with “Very Good” rating on MOU scores has gone up from 4 last year to 10 in the current year. The top five State Offices for the period April-May 2005 are KESO, BSO, NESO, UPSO and OSO. Market share is up in UPSO, TNSO, NESO, APSO and BSO. Volume gainers are OSO, KESO, NESO and BSO. From the above, it can be seen that NESO and BSO have done very well in all the three areas.

New Business tie-ups include 100% OE fill business with Mahindra & Mahindra, Eicher Motors, etc., MoU with L&T for three years, and 100% lubes business of MSRTC. In lubes, new international OE approvals obtained from M/S Wartsila, FL Smith, Germany, AEL Corp Technologies P Ltd, etc., with large incremental potential.

During April-May 2005, IndianOil commissioned 158 ROs, accounting for 33.5% of industry commissioning. 37 Kisan Seva Kendras were commissioned so far with average sales of 47 kl/month. Target of 1000 for the current fiscal to be achieved positively.

Both the Quality Index and Safety Index of Marketing installations have gone up. The number of installations with safety index of 100 has gone up from 69 to 88, and that of quality index from 41 to 59.

During 2004-05, private players sold 13.2 million tonnes of products. 818 ROs were commissioned by private players so far with a retail market share at 6.1%. By offering huge discounts to large volume customers, they have also achieved 8.9% HSD (D) market share.

Chairman: Marketing Division to put issues of concern needing assistance of Corporate Office and other Divisions from the next meeting.

Advisor (Security):

The Security Department has developed a security manual, listing the dos and don’ts in maintaining security at various installations in great detail. Similarly, a training CD for security personnel and training manual for security supervisors were also developed. The Security department has also proposed awards for improved security of units. However, all these steps will not have the desired effect if the guidelines are not followed in daily practice. Moreover, in the absence of disciplinary action against erring officers, it is difficult to bring in accountability in safety procedures and operations. It is suggested that the Management form a committee to examine security proposals put forth by the Security Department. Approved proposals can then be put on the fast track, and not as impositions by the Security Department.

Chairman: Security at remote locations needs improvement. There are no issues on procurement of safety equipment.

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CVO:

During January-May 2005, 15 vigilance workshops/interaction programmes were conducted at Regions/Units in which 280 employees participated. A meeting was held in Mumbai with Marketing Division on 15.6.2005 to review the progress of vigilance cases pertaining to the Division. M/s DNV have confirmed continuation of ISO 9001:2000 Certification of the Vigilance Department for another 6 months up to Sept. 2005 after conducting a second surveillance audit of six Vigilance locations, including Corporate Vigilance, from 25-27 April 2005.

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