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Chairman:
I welcome Mr. S V Narasimhan, Director (Finance) and Mr. V C Agrawal,
Director (HR), to their first Communication Meeting after joining the
Board of IndianOil.
You may be aware that IndianOil has moved up 19 places to the 170th
position in the recently released Fortune ‘Global 500’ listing. IndianOil
is now the 18th largest petroleum company in the world.
For the first time in its history, IndianOil posted a loss in the first
quarter of fiscal 2005-06. The loss is attributable mainly to the soaring
international crude oil prices, under-realisation on sale of petrol
and diesel, and subsidies on PDS kerosene and Domestic LPG. This trend
is likely to continue throughout this fiscal.
The hike in auto fuel prices in the first week of September, though
belated and not fully covering our costs is still welcome as it will
help us reduce our losses to some extent. The issue of subsidies on
Domestic LPG and PDS Kerosene, however, continues to remain unresolved.
It is anticipated that during the first six months of this fiscal, the
under-realisation of the sale of MS and HSD would be about Rs. 3552
crore, and that on the sale of Domestic LPG and PDS Kerosene would be
about Rs. 4722 crore. Therefore, the total under-realisation during
the first half of the year 2005-06 would touch a stupendous Rs. 8274
crore. Thus, any further delay in upward price revision of these four
products in line with Import Parity Pricing, would adversely affect
the financial performance of the Corporation in the current year too.
In addition, the resultant cascading effect, will severely impact our
working capital requirements, and inflate our borrowings too.
We need to focus on innovative ways of conducting our business to improve
operational efficiency and bringing down the costs further, thereby
improving our overall profitability. I am happy to share that some of
us have already made a beginning in this direction. For example, the
LPG Group in Marketing Division has achieved a reduction of Rs. 4.35
crore due to logistics optimization during the first quarter of 2005-06,
which is a significant achievement.
IndianOil took an initiative to organize the first-ever meeting of Boards
of all PSU OMCs on 5th Sept. 2005 to discuss issues related to under-recoveries,
subsidies, erosion of profitability, etc.
Government has announced issuance of oil bonds to the PSU OMCs to tide
over the under recoveries and subsidies.
Besides the above profitability related issues, we are facing many more
challenges. These include delay in commissioning the PREP, PX/PTA, quality
upgradation projects at various refineries, timely execution of the
Paradip-Haldia crude pipeline and Koyali-Dahej pipeline.
We need to maintain market leadership and continuously innovate customer
service offerings to retail customers. The need to develop skills and
competencies in the fledgling petrochemicals business is critical.
Safety continues to be a grave concern. We recently had a fatal accident
at Mathura Refinery. I am unhappy with our safety record and wish to
reiterate that there is a continuous need to rebuild safety consciousness
across the organisation.
The recent incident concerning supplies to Indian Army at Leh brought
negative publicity to IndianOil. Among other findings, investigations
revealed improper administrative procedures and lack of supervision
of our storage installations. We can ill-afford such lapses and negative
publicity in the face of stiff competition in the market place.
I compliment ED (AOD), ED (Supplies) and their teams for the wonderful
job done to maintain product supplies to Manipur during the prolonged
economic blockade of the state by Naga students’ associations.
As the nodal agency within the Indian hydrocarbon sector for ushering
in Hydrogen energy use in India, we are close to commissioning India’s
first Hydrogen-CNG dispensing pilot station. Compliments to colleagues
at R&D Centre for a job well done.
IndianOil lost out narrowly in its bid for acquiring the Turkish refining
company – Tupras. In a close finish, a consortium led by Shell outbid
us. We must continue our efforts for securing new business.
Merger of IOBL with IndianOil has been approved by CCEA (Cabinet Committee
on Economic Affairs) and BSE. After approval at the EGM, the scheme
of amalgamation would be implemented. Cabinet approval on merger on
IBP with IndianOil is expected shortly. The Boards of BRPL and IndianOil
have approved the merger of BRPL with IndianOil.
IndianOil’s core values – Care, Innovation, Passion and Trust, were
unveiled on the 42nd IndianOil Day across the locations.
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Director (Pipelines):
Performance up to Sept 2005, for 2005-06 is more than MoU targets (but
less than stretch targets) by over 5% in product pipeline throughput and
over 4% in crude pipeline throughput.
In case of product pipelines, this was due to less planning w.r.t. stretch
targets as well as heavy rains in Gujarat in July 2005. In case of crude
pipelines, lower performance is due to reduced processing by Koyali Refinery
due to FCCU shutdown and heavy rains. Loss in performance is also attributable
to a decline in processing by Barauni in August due to problems in FCC
and DHDT.
Key highlights of the last quarter include conversion of Sidhpur-Sanganer
section of KBPL from product to crude oil service, completion of first
phase of commissioning of CTM (Chennai-Trichy-Madurai) Pipeline, and commissioning
of Bagsuri-Ajmer pipeline from Sidhpur-Sanganer section of KVSSPL. Vadinar
is expected to receive the 3500th tanker in Nov. 2005.
After development of instrumented PIG (IPIG) in association with IndianOil’s
R&D Centre and BARC (Bhabha Atomic Research Centre), and completing
its run in the Patna-Mughalsarai section, second MoU is to be signed shortly
with BARC for development of 14”, 18” and 24” IPIG, etc.
Paradip-Haldia crude oil pipeline has been delayed due to heavy rains
in Orissa. Status: SPM along with accessories and coated submarine pipes
are available, installation to begin shortly. Foundations for 10 out of
15 crude oil tanks have been completed and shell welding in progress.
As you are aware, IndianOil pipped GAIL to bag the Dadri-Panipat regassified
LNG spur line project. Detailed planning and implementation will soon
commence on this Pipeline to synchronise its completion with the Naphtha
Cracker project. Augmentation of Mundra-Panipat crude oil pipeline to
9 MMTPA has been taken up for implementation to synchronise its completion
with the PREP.
Pipelines consultancy contract has been finalised with Greater Nile Petroleum
Operating Company (GNPOC) for an amount of USD 5,77,800.
The projected profit of Pipelines Division during 2005-06 is expected
to be Rs. 242.51 crore and during 2006-07, it is anticipated to go down
to Rs. 32.84 crore due to conversion of KBPL from product pipeline to
crude oil pipeline (as Refineries division is reimbursing only operating
cost excluding depreciation for crude oil pipelines).
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Director (Planning &
Business Development) :
Since Mr. N K Nayyar, Director (Planning & Business Development) was
unable to attend, the brief on developments in Business Development was
shared by Mr. Chandan Dasgupta, ED (BD-Gas).
GAS :
The Iran-Pakistan-India pipeline is being actively pursued by the Governments
of these countries. IndianOil and GAIL are negotiating the various technical,
commercial and legal terms. Special joint working groups have been formed
with members from India and Pakistan, to discuss and finalise various
aspects of the project. E&Y has been chosen as the financial consultant
to the project.
During the 3rd India-Iran Joint Working Group meeting at Teheran held
on 13th June 2005, it was conveyed that a phase in the North Pars gas
field might be awarded to the IndianOil-PetroPars consortium for developing
an integrated LNG project in Iran.
DFR completed in August 2005 for the LNG import terminal to be set up
at Ennore by IndianOil-CPCL. Separate MoUs with Ennore Port Ltd. and Govt.
of Tamil Nadu, detailing their supports, are being developed.
E&P :
Bids for 2 Myanmarese blocks have been submitted by the OIL-IndianOil-GAIL
consortium.
IndianOil-OIL consortium has submitted (unsuccessful) bids for five blocks
offered under NELP-V. For the first time, IndianOil has made a bid as
Operator, in consortium with Medco of Indonesia.
The IndianOil-OIL consortium has pre-qualified to participate in the 3rd
round of bids for 43 Libyan blocks.
After obtaining required approvals, IndianOil has initiated the process
to open a Branch office in Libya.
Petrochemicals :
On the LAB marketing front, IndianOil continues to sustain its market
share in the domestic market. Maiden exports of LAB – 1000 tonnes – were
made in August to Southeast Asia. Volumes of LAB exports expected to go
up substantially. Upcountry depots for LAB are being established through
hired tankage in different states. LAB tankage at Kolkata already commissioned.
On the PTA front, logistics plan for movement of PTA by road and rail
in bags / bulk has been finalised. Efforts are in progress to tie up customers
in the domestic market. Product supply agreements have been signed with
JBF Industries and Garden Silk Mills. Statements of Intent have been signed
with Sanghi Polyesters and Modern Petrofils. It is also proposed to seed
the market with PTA imports from various sources to facilitate trials
by customers.
Subsequent to continuous follow-up with Haldia Petrochemicals (HPL) and
the Govt. of West Bengal, HPL encashed IndianOil’s cheque of Rs. 150 crore
towards equity infusion in the Company, and allotted 150 million equity
shares of Rs. 10 at par to us.
Product Exports :
Product exports registered a growth of over 16% at 843 TMT as compared
to 724 TMT during the same period last year. IndianOil continues to pursue
opportunities for revamping and modernization projects in Ras Launf and
Azzawiya refineries in Libya as well as the Aden Refinery in Yemen.
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Director (Refineries)
: Gujarat Refinery is
currently operating @ 14 MMTPA with improved distillate yields after
commissioning of FCCU and HCU start-up. With this, IndianOil refineries
are operating at about 120 TMT/day of crude processing (equivalent to
42 MMTPA). To sustain this rate of throughput, increased product evacuation
is required. Therefore, all 3 Divisions as well as the Corporate Optimisation
Group need to work in tandem to ensure product evacuation, including
exports, as and when required.
Panipat and Mathura refineries could achieve higher rates of throughput,
which is indeed commendable.
Shell Global Solutions is carrying out a benchmarking study 2004-05
for all PSU refineries of India. Three task forces have been set up
to identify shortcomings and suggest remedial actions in the areas of
shutdown management, reliability improvement of P&U supply and instrumentation
interruptions, and improvement in reliability through elimination /
minimization of interruptions related to mechanical equipment. The reports
to be available within two months.
GRM (Gross Refining Margin) for August 2005 works out USD 5.70/bbl while
for Sept. 2005, it is USD 3.91/bbl. GRM has come down significantly
in Sept. 2005 due to reduction in RTP (Refinery Transfer Prices) of
MS and HSD on account of sharing of under-recoveries between Marketing
and Refineries Divisions.
MS Quality improvement project at Mathura and FCCU restoration project
at Gujarat were completed without any lost time incident. This could
be achieved due to structured toolbox talks every day before commencing
work, daily safety checks by site engineer, regular counter checks by
our engineers and 100% induction safety training to workmen.
The two fatal incidents in this quarter are ‘slip and fall’ accidents.
Therefore, we need to focus on the risk behaviour of employees and contract
labour, in addition to enforcing the laid down systems and procedures.
Safety is a 24x7x365 issue and cannot be dealt with casually.
IndianOil is conducting a feasibility study for development of India
as a ‘Refining Hub’.
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Director (Marketing)
: It is commendable that
the number of State Offices with a ‘very good’ rating as per MoU parameters
has gone up from 4 last year to 11 this year. Five State Offices - Bihar,
Northeast, Tamil Nadu, Orissa and Karnataka, have performed extremely
well.
While Industry sales went down by 976 TMTs (2.5%), IndianOil’s sales
decreased by 524 TMTs (2.6%). Our total market share went down by 0.1%.
However, if we exclude naphtha, our market share effectively rose by
0.4%. In August 2005, market share in MS (Retail) went up by 0.7% and
in HSD (Retail), it rose by 0.4%. During April-August 2005, IndianOil’s
market share in MS (Retail) rose by 0.2% and in HSD (Retail), it went
up by 0.1%. In the same period, our share in HSD (Direct), LDO, SKO
(Direct & Retail – PDS) and LPG also went up. However, we lost market
share in ATF (1%), Naphtha (6.6%), FO (1%), LSHS (3.4%) and Bitumen
(0.3%).
Eight State Offices viz. TNSO, UPSO, BSO, ORSO, NESO, APSO, DSO and
WBSO, registered growth in market share, while six State Offices gained
volumes.
The number of marketing locations that achieved a Safety Index of 100
for 3 years or more went up to 25 as on 1st Sept. 2005 as compared to
9 as on 1.4. 2004. The total number of locations that achieved a Safety
Index of 100 went up to 91 from 69 during the corresponding period last
year. Jodhpur terminal achieved Safety Index of 100 for the sixth consecutive
year, whereas Cuddapah Bottling Plant, Bhatinda and Sangrur Terminals
have maintained the trend for the last five years.
The average QC Index on an all-India basis went up to 98.8 on 1.9.2005
from 97.7 as on 1.4.2005. The number of locations registering a Quality
Control (QC) Index of 100 went up to 72 from 41 during the corresponding
period last year.
IndianOil signed an MoU with Nagarjuna Oil Corp. Ltd. (NOCL) on 5.9.2005
to procure products from its soon-to-come-up South India based refinery.
This agreement will help us to combat competition in South India.
The title sponsorship of the IndianOil Cup – a tri-nation cricket tournament
held in Sri Lanka recently – generated good visibility for IndianOil’s
brands - XtraPremium, XtraMile and SERVO, and ensured top-of-the-mind
recall for the brands by ensuring TRP ratings of 12.2, outshining leading
TV soaps on Star Plus. ‘Lucky in Lanka’ promotion was carried out through
SMS during the tournament, which was the first of its kind in the Indian
oil industry.
IndianOil commissioned 416 ROs, including 40 Kisan Seva Kendras (KSKs)
during April – August 2005, which translates into a 30.5% share of RO
commissioning. IndianOil’s Per Pump Throughput dropped by 21% against
a 23% drop in the case of RIL.
With the roll-out of 91 octane MS in Euro III cities w.e.f 1st April
2005, IndianOil launched XtraPremium with a new MFA (multifunctional
additive) P-914 with the characteristic ‘Friction Buster’ in 10 Euro
–III cities from August 2005. The reach of XtraMile was extended to
4388 ROs nationwide, while XtraPremium is now available at 1878 ROs.
With the elevation of 97 LPG Distributors of Delhi market as Indane
Star Distributors, the strength of branded Distributors has gone up
to 416. In AutoLPG sales, IndianOil maintained its market leadership
with a share of 41.1%.
New ATF business was gained from Oman Air, Paramount Airlines, Transmile
Air, Britannia Airways, American Airlines, and Kingfisher Airlines.
Agreements for consumer business were signed with 23 major customers
with a total volume tie-up of 310 TMT.
On 22.8.2005, IndianOil launched the indigenously developed marine engine
oils – SERVOMarine 7050 and SERVOMarine 0530 - approved by MAN B&W
for use in shipboard application. With this, IndianOil has joined the
select group of six global companies possessing this technology.
A long-term agreement signed with Tata group for supply of 12000 kl
lubes.
AOD : Sold 412 TMT of products during April-August
2005. MS (Retail) market share was maintained while that of HSD (Retail)
improved by 0.1%.
IBP : During April-August 2005, IBP’s market share
went down by 0.1%. Market share in MS (R) grew by 0.1% while that in
HSD (R) slid by 0.1%.
IndianOil (Mauritius) Ltd : achieved a PPT of 240
kl for the 5 ROs vis-à-vis 120 kl of industry. Business plans
are afoot to set up a product testing lab, additional tankage of 6 TMT
and 5 more ROs. During April – August 2005, IOML sold 47 TKl (thousand
kilolitre) of petroleum products, thereby achieving a market share of
12.8%.
IPPL (IndianOil Petronas Private Ltd) : registered
a PAT of Rs. 14.8 crore during April-August 2005, against a PAT of Rs.
9.56 crore during the corresponding period last year. IPPL also signed
two new agreements for reticulated LPG systems and is planning to enter
the AutoLPG business.
Areas of concern include gaps in demand-supply balance in LPG due to
an expected shortfall of 250 TMTs of LPG during Oct.-Dec. 2005. This
shortfall can be attributed, besides reasons of inadequate import, to
RIL shutting down its Refinery from Oct. 4 - Nov. 15, 2005. Therefore,
the Refineries need to step up their production of LPG. Release of new
LPG and DBC connections has been stopped. We also need to control diversion
of domestic LPG.
In view of high discounts being offered by competitors in Consumer business,
it is also important to arrive at inter-company consensus at State Office
levels to contain loss in revenue.
Besides improving per pump throughput (PPT), it is important to benchmark
retail offerings against private competitors.
We need to generate additional revenue and reduce costs. Such endeavours
to form part of CMC presentation by Finance every month and to be a
parameter for State Offices.
Before concluding, I would like to compliment the HR and Administration
team at the Mktg. HO for doing an excellent job during the Mumbai deluge.
Also, three of our sportstars – Abhinn Shyam Gupta, Deepak Thakur and
Sharath Kamal – were presented the country’s highest sporting honour,
the Arjuna award, by the Honb’le President of India.
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Director (R&D):
IndianOil is making vigorous attempts to commercialize the in-house
developed process technologies. A 50:50 JV agreement has been signed
with Intercat for setting up a 10,000 MT per annum FCC catalyst and
additive plant near Ankleswar. The plant will be ready within the next
2 years.
IndianOil has approved ABB Lummus for selling the INDMAX technology
worldwide as per a revenue sharing agreement. If the technology is sold
in India, IndianOil will get 60% of the royalty, whereas if the buyer
is foreign, ABB will earn 60% of the royalty.
IndianOil recently joined the select group of Marine Oil producers when
it launched the SERVO marine K series oils for DG sets and SERVO Marine
Oils for shipboard application.
R&D Scientists conducted a 4-day workshop at the Research Institute
of Petroleum Industry (RIPI), Iran and this is expected to lead to further
R&D collaboration between IndianOil and RIPI.
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Director (Finance)
:
The period from July’05 has been quite critical from liquidity point
of view with soaring crude oil and product prices coupled with under-recoveries
and loss due to subsidies. Borrowings have been climbing steadily and
have increased from about Rs. 17000 crore in June’05 to Rs. 21000 crore
currently, with most of the banks having exhausted their lending limits.
I would compliment Corporate Treasury Group for doing an excellent job
to mobilise resources in these adverse circumstances.
We have successfully mobilised Rs. 2225 crore through fixed and floating
rate bond issues in June’05 and Sept’05. The foreign currency syndicated
term loan facility of USD 200 million taken in Feb’04 was refinanced
with an all inclusive cost of 24.88 basis points over LIBOR (London
Inter Bank Offer Rate) which is lower by about 29 basis points compared
to the original margin. This has resulted in savings of Rs. 7 crore.
Since end June’05, the debt-equity ratio has increased from 0.65:1 to
0.84:1. As advised to all the Divisions, there is an urgent need to
bring down excess inventories of crude oil and products to improve the
resource position.
The Government has issued special bonds of Rs. 2380.81 crore with an
interest of 7% payable half yearly for a period of 7 years, towards
settlement of dues from pool account for the APM period.
The issue of under recoveries and the burden sharing has been under
discussion for quite sometime and based on the advice of MOP&NG,
we have discussed with refining companies for suitable sharing of the
burden and would soon finalise the extent of sharing in case of SKO
& LPG. In case of MS & HSD, it has been decided to fix the RTP
(Refinery Transfer Price) after adjusting the IPP (Import Price Parity)
by a factor equivalent to 40% of the difference between export parity
and import parity price at Jamnagar. This would mitigate the extent
of discount for the refineries situated away from Jamnagar.
The annual insurance cover is normally taken through the Public Sector
insurance companies. However this year, we have taken 100% insurance
from a private company due to their rates being lowest. This would yield
considerable savings.
SAP roll-out at IBP locations would be completed shortly. We plan to
engage a reputed professional accounting firm to audit the SAP system
in IndianOil / IBP.
The delay in processing of files for approval of competent authority
has been identified as one of the causes for delay in project completion.
With a view to avoid delay in Finance concurrence in Corporate Office,
we have decided that from August’05, the proposal received from the
Divisions for award of contracts, would be processed directly without
routing through PAG. Similar steps need to be taken in Divisions and
units to avoid multi-layer processing in Finance and Technical departments.
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Director
(HR) :
IndianOil has won five NPMP awards of excellence for 2003-04, in categories
of HRM, Women’s Development, and Creativity & Innovation.
As shared by Chairman earlier, we have announced the IndianOil Sports
Scholarship Scheme 2005-06 for promising players. This will encourage
talent and create a pool of sportspersons from which, we can select
sports appointees. A total of 55 sports scholarships will be given for
different games, viz. Cricket (10), TT (10), Badminton (10), Hockey
(10), Tennis (5), Chess (5) and Golf (5).
IndianOil’s core values were formally unveiled during the IndianOil
day celebrations at various units. To propagate these core values among
all employees, a series of workshops have been planned.
Issues of Project Implementation have been engaging the Board’s attention
for a while now. To study issues related to project implementation,
operating systems and procedures as well as deployment of DoA; we have
constituted a Committee comprising ED (Corp. Plg.), ED (Strategic Storage),
ED (Finance), Refineries HQ, GM (Engg, Mktg. HO) and GM (Projects),
Refineries HQ.
Despite comprehensive workshops on e-PMS (performance Management System),
the progress on performance planning has been far from satisfactory
till now. Only about 31% officers have submitted their performance plans
for the year 2005-06. Performance Plan submission needs to be expedited.
Areas of concern: Replying to VIP References on time is crucial. In
addition to this, we also need to ensure timely completion of disciplinary
cases.
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Advisor (Security)
:
The Security Week is due to be observed during
Sept. 30 – 6 October 2005. Conceived in 2003, the event is meant to
be a ‘mass inoculation’ programme to raise security awareness. Let us
observes the event in letter and spirit.
During the Security Week, we plan to unveil an excusive web page on
Security that will serve as a one-stop reference point for all manuals,
circulars, policies, etc. related to security.
I would advise all Heads of State Offices / Units to hold security review
meetings regularly
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CVO:
During June – August 2005, 9 vigilance workshops.
Training programmes conducted for about 142 employees.
It is proposed to dispose of minor penalty cases by taking prompt decision
on receipt of explanation from the concerned employee without holding
enquiry proceedings.
In the pilferage of oil at Leh case, it is proposed to replace the existing
system of transportation with a superior, foolproof one. Also ambiguity
regarding checking inventories and system of handling over/taking over
of master key to be removed by clearly communicating roles & responsibilities
of employees posted at locations. Terminals / Depots to be inspected by
State Office heads / senior officials regularly.
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