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Minutes
of
Communication Meeting held on 04.04.2006 (For the period January – March 2006) |
| The Quarterly Communication Meeting was held at the Corporate Office
on 4th April 2006. Chairman, IndianOil, presided over the meeting,
which 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.
Chairman: The year 2005-06 has been a mixed year for IndianOil. This is the first Communication Meeting of the new fiscal and is a good time to take stock of how we fared in the previous fiscal and to reflect on the challenges that lie ahead of us in 2006-07. I congratulate Refineries and Pipelines Divisions for achieving record throughputs and capacity utilisation during the year. The overall Gross Refining Margin during 2005-06 is expected to be about USD 4.4/bbl, against the earlier best of USD 6.25/bbl in 2004-05, the reasons for which are market-driven and beyond our control. The decline in our sales volume by 3.9% (i.e. from 48 MMTs in 2004-05 to 46.19 MMTs in 2005-06) is largely attributed to Naphtha substitution by natural gas. While financial results for 2005-06 are under consolidation, annual profits are anticipated to be less than last year’s due higher crude oil prices and under-realisation on sale of MS, HSD, PDS Kerosene and LPG (Domestic). IndianOil suffered a total under-recovery of Rs. 13,703 crore on sale of these four main products (against Rs. 8,455 crore in 2004-05). Issue of Oil Bonds and permission to sell our stake in ONGC and GAIL (after intense lobbying in Government circles) provided some relief. However, as you can see, relief is in spurts whereas under-recovery is on a daily basis. IndianOil and IBP received Rs. 6,571 crore and Rs. 421 crore respectively by way of Government’s Oil Bonds. IndianOil realized Rs. 562 crore by selling 50% of its stake in GAIL. We are waiting for better market conditions to offload our stake in ONGC. One of the biggest challenges facing us is to continue interacting at the highest levels in the Government’s policy-making bodies to ensure equitable sharing of subsidies, etc. to maintain our bottomline. The year ahead presents a plethora of challenges in terms of successful and timely commissioning of major projects; exploration of overseas farm-in opportunities; acquisition of E&P assets / companies; smooth merger and amalgamation of IOBL, IBP and BRPL with IndianOil, etc. On the issue of Haldia Petrochemicals Ltd (HPL), we are looking at a controlling stake and not a portfolio investment. While advising the TCG group and the Government of West Bengal for an ‘out of court’ settlement, the Company Law Board has called for a final hearing on the case during 3 – 5 July 2006. Among the areas of concern are our rapidly mounting under-recoveries; our retail and consumer businesses ceding market share to competitors who are not only ramping up their infrastructure but also launching new initiatives; need for innovations, image and quality improvement; need to consolidate our retail initiatives like XtraCare and Swagat; need to strengthen the anti-adulteration mechanism by automating our ROs and monitoring tank truck movement through global positioning system; as well as improving our safety record. We need to inculcate a culture of safety in the organisation. Lack of adherence to safety norms will be viewed seriously and would attract strict penal action. LIOC in Sri Lanka is also facing the problem of under-recoveries. Against an outstanding subsidy of USD 72 million on date, the Sri Lankan Govt. is releasing approx. USD 5 million per month. We are taking up this issue at the highest levels and hope to resolve it this fiscal. Other developments that took place during the previous quarter include
the IndianOil Board approval to 15 million tonne refinery-cum-grassroots
project at Paradip at an approx. investment of Rs. 25,000 crore; shifting
of the ownership of ISPRL (Indian Strategic Petroleum reserves Ltd.)
from IndianOil to OIDB; creation of an International Marketing department
in Marketing Division to coordinate downstream marketing activities
of IndianOil overseas; and upgrading our Regional Office at Dubai
to a wholly owned subsidiary (IOC Middle East Trading FZE) to provide
flexibility in blending operations, marketing & export of SERVO
lubes in Middle East and African markets. Director
(Pipelines):
During 2005-06, Pipelines Division achieved the highest ever throughput of 44.93 million tonnes. With the commissioning of Chennai-Trichy-Madurai Pipeline (CTMPL), Sidhpur-Sanganer product pipeline (SSPL), branch pipeline to Ajmer from SSPL and Mundra-Churwa crude oil pipeline, the total network of cross-country pipelines increased to 8,951 km. In view of some of the ongoing projects, it is expected that the pipeline network will go up to 10,000 km with a capacity of 75 MMTPA this fiscal. Southern region (Mktg. Division) has done excellent work in getting no-objection certificate for Trichy from State authorities. Part section of Kandla-Bhatinda Pipeline from Sidhpur to Sanganer was converted to crude oil service successfully to enhance crude oil availability to Mathura and Panipat refineries. For the first time, Mathura-Jalandhar Pipeline commenced pumping of super naphtha (Isomerate) from Mathura. The Line Balancing Tanks (LBT) LBT-04 and LBT-06 have been suitably modified to handle crude oil and have been re-commissioned to service Euro-III HSD from Panipat and Mathura Refineries. Important projects under implementation include Paradip-Haldia Crude Oil Pipeline, and conversion of Kandla-Panipat section of KBPL to crude oil service, which is synchronized with the Panipat Refinery Expansion. Both these projects are due for commissioning in the first quarter of this fiscal. Pilferage along the line is an area of concern. Recent cases of pilferage occurred in North Gujarat and Rajasthan. We need to enhance line patrolling. Some of the pipelines are under-utilised. An inter-Divisional committee has prepared an excellent report on how to improve utilisation of pipelines, which should be implemented wherever feasible. After deregulation, instead of utilizing the existing network of pipelines, OMCs are expanding their own networks, leading to duplication and wastage of national resources. The progress on the Dadri-Panipat R-LNG spur Pipeline needs to be spruced up. In view of problems in acquiring / maintaining Right of Way (ROW), there is a need to maintain good relations with the neighbourhood communities. TOP Director
(Planning & Business Development) :
The Business Development group achieved significant progress in various BD initiatives in the last quarter. GAS Iran-Pakistan-India Pipeline:A Pakistani delegation visited New Delhi on Dec. 16/17 ‘05 to discuss various issues relating to the project. Construction of the pipeline is likely to begin from mid-2007 and supplies from 2010. India is likely to get approximately 90 MMSCMD of gas from this project. Trilateral meetings are expected to commence from April 2006. CNG:A JVC named Green Gas has been incorporated for supply of CNG and city gas distribution in Agra and Lucknow. IOC and GAIL each have 25% equity in the company; the balance equity is being tied up. We are working on a similar JVC for Kolkata. Libya: The IOC-OIL consortium has bagged block 102/4 in the Sirte basin in the second round of bidding, which is adjacent to block 86 bagged in the first round earlier. Registration formalities for IOC’s branch office in Libya have been completed. LAB: Till Nov. ’05, we have sold 67 TMTs of LAB. Besides Thailand and Indonesia, we have also exported our product to Norway. PTA: Actions are in progress for out-sourcing various logistics activities related to evacuation of PTA from Panipat. PTA exports to Pakistan is also being explored. Market continues to show concern on availability of PTA from IOC. Delay beyond Mar. ’06 can significantly impact our marketing plans, as our competitor is likely to commission additional capacity of our size in Apr-May ’06. Petrochemical Hub at Panipat: In line with the MOU signed by us with the Government of Haryana (GoH) for creation of a Petrochemical Hub at Panipat, an incentive package for downstream industries setting up their plants in the hub has been notified by GoH. GoH has also agreed to issue a comfort letter for the rest of the incentives applicable at the time of the commissioning of the Naphtha Cracker. HSIDC has suggested creation of a SPV with equity participation from IOCL, HSIDC and private party(s) to meet the fund requirements for creation of the hub. Product Exports:Product exports during April-Nov. ’05 were 1305 TMT as compared to 1109.7 TMT during the same period last year, a growth of 17.6%. We intend to supply about 150 TMT MS and 350 TMT HSD to LIOC during 2006-07. We are also hopeful of supplying 200 TMT HSD to Bangladesh Petroleum Corporation during 2006. Lube Exports:We have taken Board approval for converting our Regional Office at Dubai to a wholly-owned subsidiary, so as to carry out all commercial activities. This way, we would have more flexibility for blending & marketing of SERVO Lubricants in the Middle East. Project Exports.IOC has executed an MoU with Calik Enerji, Turkey, in Nov. ‘05 for cooperation in downstream hydrocarbon sector in Turkey or in any other third country. IOCL has also been pre-qualified as a JV partner by Sonatrach, Algeria, for a new grassroots refinery at Algiers. It had earlier submitted its Expression of Interest to National Oil Corporation, Libya, for participation as a JV partner for revamping & upgradation projects of Ras Lanuf & Azzawiya refineries. IOC,
along with UOP, is pursuing a business opportunity for joint bidding
for Training and O&M jobs of Dung Quat Refinery of Petro Vietnam.
This 6.5 MMTPA refinery is to be commissioned in 2008. We propose a
floating manpower of around 100 officers for commissioning, training,
de-bottlenecking, maintenance, turnaround kind of arrangements etc.
Director (Refineries) : IndianOil
refineries achieved a crude processing of 25.4 MMT during the first
three quarters of 2005-06. For the full year, it is expected to be around
38.5 MMT as against MOU target of 39.2 MMT. Based on product demand
projections, including exports and refinery shutdown plans, the planned
crude processing level for 2006-07 is 44 MMT. A concerted effort is
needed from all concerned, i.e., Refineries, Marketing, Pipelines and
Optimisation Group, to meet the target. Insurance
Savings: A package Insurance policy to
cover plant & machinery, inventory and loss of profit has been taken
w.e.f. 01.10.2005 for a period of one year for Refineries Division,
including Digboi. Extension
of the tender to private sector insurers enabled us to get lower rates,
whereby we could achieve a savings of Rs.33 crore on yearly basis. Continuous
follow-up with Excise & Customs Department has resulted in receipt
of customs duty refunds amounting to Rs.10 crore at Gujarat Refinery
and Rs.9 crore at Mathura Refinery.
PX/-PTA: PTA plant has been mechanically
completed on Nov 16, ’05. PX-1
& PX-2 mechanical completion is expected by Jan. ’06. Haldia team successfully commissioned all facilities
under MS quality upgradation project on Oct. 18, ’05. The
Board has approved the Hydrocracker project at Haldia at a cost of Rs.
1,876 crore with commissioning schedule of Apr. ’09. This will also
enhance the crude processing capability of Haldia refinery to 7.5 MMTPA
from 6 MMTPA currently. There have been two cases of product quality
failures after certification at the refinery end, which tarnish our
corporate image besides financial loss and operational problems. Refineries
need to look-up their systems critically for quality assurance and take
immediate corrective actions.
Director (Marketing) : Fiscal 2005 was a satisfying year. Riding on crises and challenges, Marketing Division posted many milestones. Despite fall in sales volume by 3.9%( from 48 MMTs in 2004-05 to 46.19 MMTs in 2005-06), IndianOil emerged stronger – it became the Most trusted Fuel Pump Brand ET Brand Equity Survey), Most Trusted Gasoline Brand (Readers’ Digest – AC Neilsen Survey), besides climbing to the 97th position from 124 last year in the ET Brand Equity Survey. With the highest number of RO commissioning (1547, including 557 Kisan Seva Kendras), IndianOil group companies now have 15,247 ROs. XTRAPOWER fleet card crossed one million mark, with transactions touching Rs. 553 crore in March 2006. An upgraded version of XTRAPREMIUM with friction busters was launched, thus making IndianOil the second corporate in the world after TOTAL, France, to launch a fuel with friction buster additives. The reach of branded fuels was expanded to more IndianOil, IBP and AOD ROs. The highest growth was witnessed in non-domestic LPG (94%) and AutoLPG (192%). IndianOil led consortium – IndianOil Skytanking - won the contract for constructing aviation fuel facilities at the Bengaluru International Airport. In terms of overall MoU targets, the top five State Offices are Bihar, North East, Tamil Nadu, Orissa and UP. Three State Offices gained market share – UPSO, TNSO and NESO. Four State Offices gained volumes – TNSO, NESO, BSO and OSO. In MS (Retail), IndianOil’s market share went down by 1.2%, including private and PSU players. In HSD (Retail), lost 2.7% market share. It is in line with the market participation of IndianOil among PSUs. During April 2005 – Feb. 2006, private players increased their RO participation by 5.4% and gained a market share of 4.4% in MS ( R ) and 9.7% in HSD (R). Our market share in HSD (Direct) was 71.2%, including private and PSU players. In ATF business, we gained a cumulative volume of 263 TMT. In FO / LSHS, we lost a market share of 2.3% due to better discounts offered by OMCs to customers. IndianOil ceded a market share of 5.6% (888 TMTs) of Naphtha due to its substitution by natural gas. Four terminals viz,. Paradip, Jodhpur, Patna and Barauni, have QC Index of 100 since the last 3 years. 27 locations have achieved a Safety Index of 100 for the last 3 years. During April – February 2005-06, IBP commissioned 173 ROs. It lost 0.1% among PSUs and suffered an under-realisation of Rs. 856 crore. IOML sold 127 Tkl of products, registering a growth of 25%. It gained market share of 14.1%, an increase of 2.7% over last year. IPPL (IndianOil Petronas Pvt. Ltd.) handled 445 TMTs of LPG. LIOC sold 569 Tkl of products and clocked a growth of 9.6%. Besides cut-throat competition in all areas of marketing, other
areas of concern include: Chairman’s Remarks –
Director (Finance)
:
The crude oil prices recorded the highest levels on 3rd April with Brent reaching $ 67.5 per barrel, Dubai $ 61.89/bbl and the Indian basket $ 64.63/bbl. Product prices have also risen significantly. IndianOil’s under-recoveries during the 1st fortnight of April 2006 are estimated at Rs. 1000 crore. Therefore, the required price increase for the 1st fortnight of April 2006 is Rs. 3.24/litre for MS, Rs. 5.24/lire for Diesel, Rs. 13.63/litre for SKO and Rs. 191.96 per cylinder for LPG. Due to soaring crude oil prices, IndianOil’s borrowings have reached a high of over Rs. 26,000 crore. We need to make efforts to contain the working capital. Due to the problems in Nigeria, low sulphur crude availability had become a cause of concern. We are trying to substitute available crude oil for the contracted crude oil for our refineries. Internal Audit has updated the manual and the same will be submitted
to the Audit committee for approval. Pending pre MAC paras is a matter
of concern and Divisions are requested to expedite submission of replies
to liquidate the outstanding points. SAP audit by the consultant is
expected to be completed by mid April’06. TOP Director (HR) :
1. This Communication Meeting, being the first meeting after placements of 2006, I welcome all the new participants to the Meeting and hope that this would be a very effective forum for information sharing and discussion on important organisational issues. 2. Promotions and Placements 3. Recruitment Refineries Division has been assigned the task of open recruitment during this year. Advertisement for recruitment of 300 officers in Engg. disciplines, MBAs, CAs, ICWAs is just appearing in newspapers. It is a massive exercise and will take about 5-6 months up to the issue of appointment letters. To avoid delay in joining, based on our experience, we have decided to issue 15% extra appointment letters which shall be adjusted against the dropout candidates. 4. Important changes in HR-related policies: 5. e-PMS 6. Productivity Incentive Scheme 7. Performance Linked Incentive 8. IndianOil Institute of Petroleum Management (IIPM) :: 101 Programmes in 2005-06 / 79 in 2004-05 :: With the help of IIM-A, we have reviewed our
training and development activities keeping in mind the long-term
requirements of the organisation. The report is under discussion and
within a month or so, we shall finalise the plan. Some of the observations
of this study are: 9. Challenges/Important actions
TOP ED (R & D) In order to maintain competitiveness in the FCC additive market, the R&D Centre has developed I-MAX Supreme, a ZSM-5 additive for boosting LPG production. IndianOil will sign an MoU with Balmer Lawrie for oil recovery and bio-remediation from tank bottom sludge. This maiden area is expected to reduce maintenance time of the tanks and earn revenue for IndianOil. TOTAL, France has expressed interest in using IndianOil’s diesel stabilizer in their refineries. Rajasthan State Road Transport Corporation (RSRTC) has expressed interest in carrying out commercial trails of IndianOil-developed Diesel multi-functional additives (MFA) on all buses for six months. For this purpose, the required quantity of Diesel MFA would be produced at IndianOil’s Taloja Lube Complex. R&D Centre has proposed collaboration with the US Department of Energy lab. The Ministry of Non-conventional Energy Sources has sought IndianOil’s technical support for onsite Hydrogen generation and distribution from an IndianOil RO in Delhi. However, this will depend upon the availability of CNG for blending with Hydrogen. A triangular pouch for 2T oil has been developed in association with M/s. Amazing Networks, Delhi. The pouch has the potential to save around 10% cost of material, which translates to a monthly saving of over Rs. 4 lakh to IndianOil. Comprehensive specifications testing of these pouches will be taken up shortly. IndianOil Technologies Ltd. has sold the FCCMOD Simulation model
to M/s. Intercat for a consideration of approx. Rs. 63 lakh. Saudi
Aramco has expressed interest in IndianOil’s participation in technologies
for crude oil bio-desulphurisation and catalytic cracking of naphtha
to olefins. The matter is being pursued. Security instructions are being flouted or implementation is faulty. Thus, a lot of scope exists for proper implementation of security manuals / guidelines in the Corporation. Despite broadcasting to all intranet users, it is sad to learn that people deployed in units are still largely unaware of the Security page on IndianOil intranet. It is proposed that all major installations should have senior official dedicated to security matters. TOP There are some common irregularities observed during joint inspections ROs and LPG distributorships, which include non-display of correct rates of POL products, variation in stock, delivery of under-weight, water-filled, leaky cylinders, etc. A committee of CVOs of PSUs under MoP&NG was set up under the Chairmanship of CVO of IndianOil to submit a report on the extent of adulteration of POL products and methods to check it, integrity and economy measures in PSUs under MoP&NG, setting up of ROs for petroleum products. The Committee has submitted its report. With regard to expenditure incurred on community development projects,
proper norms need to be followed. Important CVC Circulars have been
circulated on subjects like vigilance angle, delay in departmental
proceedings, action against public servant serving as witness but
turning hostile in track and other cases of CBI, etc. ED (Operations) – On behalf of Director (Refineries): Refineries Division registered an excellent performance during the year with a record throughput of 38.5 million tonnes. Capacity utilization of 93.1% wt. was also the highest in the last six years. Our efforts towards efficient energy conservation helped us to achieve lowest ever overall energy consumption at 72 MBTU/BBL/NRGF (MBN). However, despite good efforts w.r.t throuhput, better product mix, improved operational costs, reduced energy consumption, etc., the overall Gross Refining Margin was USD 4.4 /bbl against USD 6.2 /bbl last year. This is due to subsidies on LPG/SK/MS/HSD and increased discounts/under recoveries. Six Sigma launched in all refineries is slowly yielding results. Nine Black Belt projects & four Green Belt projects have been approved by Motorola University. The financial gain from these projects is expected to be Rs. 15 crore annually on a recurring basis. The PTA plant at Panipat Refinery is ready for commissioning by the end of April 2006. The PX-1 and PX-2 are expected to be commissioned by end April’06 and 10th May 2006 respectively. In order to tide over the delay in PX commissioning and ensure timely operation of PTA plant to meet market requirements, a parcel of 9000 TMTs of PX has been imported and unloaded at Mundra. The same will reach Panipat by the 3rd week of April just in time for PTA operation. The IndianOil Board has approved 15 MMTPA refinery-cum-petrochemicals complex at Paradip at a cost of Rs.25,646 crore. Rs.1,146 crore has been sanctioned for pre-project activities. The year 2005-06 was a year of commissioning of projects. In this year,
we have successfully commissioned HGU/DHDT & MSQ at Mathura, MSQ
& Revamped CRU at Haldia and HGU, DHDT & HCU i.e. part of refinery
expansion project at Panipat. We have a great challenge ahead in terms of successful and safe commissioning
of balance units of PREP, PX/PTA at Panipat and MSQ project at Gujarat.
We also need to ensure timely completion of all actions so that our
major projects such as, Resid Upgradation project at Gujarat, Naphtha
Cracker at Panipat, Hydrocracker at Haldia & Paradip Refinery and
Petrochemicals Project move on fast track and approved schedules are
adhered to.
GAS: On the Iran-Pakistan-India pipeline, tripartite meetings are going on to discuss issues pertaining to project structure, gas pricing, pipe routing, technical parameters, etc. A contract has been signed with Petronet LNG Ltd. for supply of an additional 0.75 MMTPA Of regasified LNG through RasGas of Qatar, besides the existing contract for 1.5 MMTPA LNG. IndianOil has signed a Gas Sales Agreement with M/s. Torrent Power for supply of 1.5 MMSCMD of gas. Green Gas Ltd – a JV of IndianOil and GAIL – has commenced business on 31st March 2006. E&P: IndianOil-OIL consortium is pursuing farm-in opportunities in an exploration block in an African country. The consortium has also bid for two blocks in the first round of Egyptian International bids 2005. The consortium has been technically qualified to bid in the licensing round for Yemenese exploration blocks. PETROCHEMICALS: In the first full year in LAB business, IndianOil captured 34% of the market share with a volume of approx. 1,07,000 MTs including domestic sales and exports. Al logistics arrangements, personnel training and standardisation of operating manuals are in place for PTA. The investment proposal of Naphtha Cracker and downstream petrochemicals complex at Panipat is expected to be sent for Board approval this month. IndianOil is evaluating an equity investment opportunity in an Indonesian petrochemicals company. GLOBALISATION: IndianOil exported 139 TMT of HSD to Bangladesh during the year in addition to 47 TMT MS and 39 TMT HSD to LIOC. IndianOil has signed MoUs with Kuwait Petroleum Corporation and United Oil Projects Company for cooperation in hydrocarbon sector. IndianOil has planned to conduct training programmes in downstream petroleum for Iraqi officials. IndianOil has also submitted a pre-qualification document to Tunisian Government for setting up a crude oil refinery in Tunisia on BOO basis. In association with UOP, IndianOil is submitting a bid to Petro Vietnam for training and operation & maintenance of their 6.5 MMTPA Dung Quat Refinery that is scheduled to be commissioned in early 2008. IndianOil has signed an MoU with the Government of India as well as with the subsidiary companies for the year 2006-07. Chairman’s Remarks –
TOP
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