| Minutes
of Communication Meeting held on 28.9.2006 (For the period July – September 2006) |
| The Quarterly
Communication Meeting was held at the Corporate Office in New Delhi
on 28th September 2006. Mr. Sarthak Behuria, Chairman, IndianOil, presided
over the meeting. Functional Directors, departmental heads in divisional
headquarters, unit heads of Refineries, Marketing, Pipelines and R&D
Centre, heads of overseas subsidiaries, and State Office heads of Marketing
Division, attended.
Here are excerpts from the observations made by the participants at the meeting: Chairman Director (Pipelines) Director (Refineries) Director (Planning & Business Development) Director (Finance) Director (HR) Director (Marketing) Chief Vigilance Officer Presentations Manjunath Award Chairman:
Recent achievements in project implementation include commissioning of the PTA plant, Delayed Coker Unit and Sulphur Recovery Unit at Panipat. All those who worked very hard to ensure smooth commissioning of these mega projects deserve our compliments I also compliment those IndianOilPeople who toiled hard to maintain POL supplies in flood-affected areas of the country in recent months. The financial results for the second quarter are yet to be consolidated; IndianOil may post operating losses this quarter too even after considering loss sharing by upstream companies but without considering issue of Oil Bonds by the Government. This is due to under-realisation on sale of the four major products, which stands at Rs. 12,430 crore for the first two quarters. This is, of course, without considering loss sharing by upstream companies during the second quarter. September 2006 brought a welcome respite for the beleaguered oil marketing companies in the form of decline in the price of the Indian basket of crude oil. From a high of US$ 75.20 per barrel on 8th August, the price has dropped to a low of US$56.98 per barrel on 27th Sept. 2006. An i-2-i (intent-to-implementation) workshop was held at IiPM to share the business strategies that were deliberated upon at the Strategy Meet and to prepare action plans for their implementation. These discussions have resulted in the setting up of a dedicated team under the Business Development group to carry forward our bio-diesel related initiatives. We shall also be engaging consultants to study pure retailing business and to prepare a road map for IndianOil’s entry into it. Also, ‘best practices in administration’ will be benchmarked within six months. To perpetuate the memory of the late IOCian Manjunath Shanmugham, IndianOil has instituted the Manjunath Award for excellence in retail business from the financial year 2005-06, which would be presented for the first time to Divisional Offices today. In the murder case, examination & cross-examination of the witnesses took place on 21st and 22nd Sept. 2006 at Lakhimpur Kheri court, and all except one accused have been denied bail. On IBP merger, after the shareholders of both the companies approved the swap ratio, the final petitions are resting with the Ministry of Company Affairs. The final order in the matter is expected by the third week of October 2006. In the case of BRPL merger, independent valuers are currently working on the swap ratio that would be presented to the Boards of IndianOil and BRPL by 30th October 2006. Our Sri Lankan subsidiary, Lanka IOC (LIOC), has
reached a settlement agreement with the Sri Lankan Government to tide
over the financial crunch that arose due to non-settlement of outstanding
subsidy claims. The agreement envisages payment of Sri Lankan Rupees
(SLR) 1 billion in cash and the balance of about SLR 4.44 billion in
Sri Lankan bonds with coupon rate of 11%. Of this, SLR 300 million has
already been released by the Government in cash. I compliment Managing
Director, LIOC, our Director (Finance) and ED (Corporate Affairs) for
solving a vexing issue that had serious political and diplomatic connotations
for India and IndianOil. Subsequently, the Sri Lankan Government has
deregulated the downstream petroleum sector w.e.f. 1st August 2006 and
the marketing companies are now free to fix prices.
IndianOil Skytanking – a consortium of IndianOil, Indian Oiltanking and Skytanking GmbH – was registered on 21st August, 2006 with an authorised share capital of Rs. 50 crore and all three partners holding equal equity. Formed to design, construct and operate aviation fuel facilities at the upcoming Bengaluru international airport, the Company held its first Board meeting on 5th September 2006. It may also offer its services to other new and to-be-revamped airports. The final judgment in the allotment of Haldia Petrochemicals Ltd. shares to IndianOil has been reserved by the Chairman of Company Law Board. IndianOil has entered into a Memorandum of Agreement with the Government of West Bengal to be the ‘anchor investor’ for developing a Petroleum, Chemical & Petrochemicals Investment Region (PCPIR) at Haldia. The State Govt. has earmarked 10,000 acres of land for this purpose. Under the Right to Information (RTI) Act which is nearly one year old now, IndianOil handled over 500 requests for information, besides dealing with appeals filed with Appellate Authorities. In one of the RTI workshops, the Information Commissioner has stressed on the need to review the ‘retention schedule’ of documents by the Corporation. I was part of the Indian delegation led by Hon’ble Petroleum Minister to Vienna and Cambridge to attend the 3rd OPEC International Seminar and the 5th Eurasian Conference respectively. We also used the opportunity to hold bilateral meetings with Nigeria, Iraq and Qatar to push for enhanced cooperation in the energy sector. At the Eurasian Conference, the Indian delegation asked the Caspian producers to reorient their crude oil export strategy towards Asian nations like India & China, which are emerging as new and viable export outlets for Caspian crude oil. Areas of concern: a) IndianOil’s market share among PSU OMCs is a matter of concern as we could not succeed in capturing additional volumes arising out of the near pullout of Reliance from the market. b) Security lapses at our sensitive installations. There is absolutely no scope for security breaches in our kind of operations and we need to fully vigilant to ensure safety of our units. Director
(Pipelines):
During the second quarter, the performance of our crude oil and product pipelines was better than the MoU target as well as the stretched targets. The conversion of the entire Kandla-Bhatinda product pipeline to crude oil service has been completed and crude oil was delivered to Panipat Refinery synchronising with its expansion to 12 MMTPA. Subsequent to this conversion, the length of our pipeline network crossed 9,000 km with a capacity of 59.12 MMTPA. We hope to cross 10,000 km in length and 70 MMTPA in capacity soon. After effecting certain modifications in the pipelines system, simultaneous delivery of POL was undertaken at Bijwasan ex-Mathura and Panipat refineries. To meet the minimum batch length requirement of Euro-III MS for Panipat-Rewari Pipeline (PRPL) and to tide over the dry-out situation at Rewari, Euro-III MS was injected for the first time at Panipat. SMPL (Salaya-Mathura Pipeline), Vadinar, has earned the unique distinction of handling 3,623 tankers since its inception. The development of 12” instrumented PIG (IPIG) is in the last stages of finalisation with BARC. Pipelines have displayed good S&EP performance during the quarter with nil accidents reported. Pipeline re-routing work is in progress at Sardar Sarovar Canal on SMPL and at Meni river crossing on KAPL (Koyali-Ahmedabad Pipeline). CISF has been de-inducted in WRPL and personnel through DGR-sponsored agencies have been deployed at 10 locations in the region. GNPOC has entrusted IndianOil with the job of training their engineers in operation & maintenance of mainline engines and pumps and other pipeline-related jobs. The total contract value for these training programmes is US$ 5,77,800. We have been invited to bid for manualisation, review of operating procedures, etc., by GNPOC which is roughly over US$ 500,000 in value. In Projects, the Paradip-Haldia crude oil pipeline is progressing well and we hope to complete it by December 2006. Work on the Koyali-Dahej product pipeline is in the final stages. Environmental clearance has been obtained for the Koyali-Ratlam product pipeline. Areas of concern: a) Repeated pilferage attempts by organised gangs in WRPL continue to be an area of concern. We have also discussed the matter with police, Ministry as well as ONGC, HPCL and BPCL, and have started night-patrolling b) While selecting land for IndianOil use, we need to see if it is un-encumbered. This is especially in view of the land dispute at Bangrod and the problem of encroachment at Ratlam for the Koyali-Ratlam product pipeline and Jasidih c) Need for reduction of human errors leading to accidents due to short length of bolts, handling of material and instruments, line vibration, dry grass accumulation, etc. d) Identify projects that can earn us carbon credits. This will help offset IRRs of refineries. TOP Director (Refineries) : With the commissioning of the Delayed Coking Unit (DCU), the Panipat Refinery Expansion Project (PREP) has become fully operational. The PX/PTA plant is also fully operational now and approx. 23,500 MT of PTA has been produced till date. With a spurt in international prices of both PX and PTA, I believe our entry into the market, though delayed, has been at a very opportune time when profitability of the business is highest in this year. Maiden despatch of a major new product – fuel grade petroleum coke (Petcoke) will commence shortly. Our refining capacity utilisation during the second quarter has improved to 97% as compared to 93% last year. With PREP operations streamlined, we can expect to operate at 47-48 MMTPA during the second half of this year. The Gross Refinery Margin (GRM) during the first quarter was USD 6.70/barrel compared to USD 6.15/barrel during Q1 of the previous year. Q2 commenced with robust GRMs, but cooled off due to fall in the international prices of crude oil. Shell Global International, engaged to evaluate and benchmark the performance of PSU refineries, has concluded its study. The study shows that for the year 2004-05, out of 22 parameters compared with Asia-Pacific, Panipat was in the 1st tercile in seven parameters, Gujarat and Haldia in five parameters and Mathura in four parameters. Commissioning activities of the Rs. 490 crore MSQ Upgradation project at Gujarat Refinery are in an advanced stage. The process design of the Rs. 806 crore Panipat Refinery Additional Expansion Project (from 12 to 15 MMTPA) is complete, and engineering/procurement/tendering work is in progress. Delivery of equipment and bulk material has commenced at the project site. For the Rs. 3,940 crore Residue Upgradation Project at Gujarat Refinery, the PMC (Project Management Consultant) and Licensors have been selected. The project will be executed through multi-LSTK packages. For the Rs. 1876 crore Hydrocracker project at Haldia Refinery, tendering activities are in progress. The Rs. 12,138 crore mega project for setting up Naphtha. Cracker unit at Panipat is progressing on schedule. The selection of process licensors for various units of the 15 MMTPA grassroots Paradip Refinery project is also in progress. New Initiatives a) Subsequent to the launch of Six-Sigma initiatives in Refineries Division, 18 black belt and 14 green belt projects have been certified by Motorola University. Implementation of these projects has resulted in cost savings and streamlining of operations. b) For continuous improvement in S&EP system, and to derive the benefits of Clean Development Mechanism, all refineries have taken up one project each c) To improve safety awareness among IOCians and inculcate safety culture, Dupont has been engaged to undertake a safety culture foundation building exercise. d) Mid-level induction of 20 experienced engineers is being undertaken for the Naphtha Cracker plant. Offers of appointment will be issued in October 2006. I would be superannuating this month-end. I thank all
IOCians for their cooperation and wish them success in all their endeavours. Director (Planning & Business Development): Gas Besides the contracted supply of regassified LNG from Qatar, IndianOil is procuring and selling spot cargoes in the domestic market through Petronet LNG Ltd. (PLL), thus generating additional revenues of Rs. 63 crore. Secretary-level discussions are in progress on the Iran-Pakistan-India gas pipeline to thrash out issues pertaining to pricing and project structure. M/s. Gaffney, Cline & Associates have been engaged as a common consultant to work out a reasonable gas price. Sourcing efforts are in progress, including discussions with M-LNG of Malaysia, for the proposed 2.5 MMTPA import terminal at Ennore. IndianOil has entered into an MoU with Great Eastern Energy Corporation Ltd. for city gas distribution at Asansol, Durgapur and Raniganj in West Bengal. It is also pursuing city gas distribution projects in other Indian cities on its own or in joint venture with RIL and GAIL. For the first phase of the pilot project on LNG though virtual pipeline, a contract has been signed with PLL to offtake LNG from Dahej. Special cryogenic containers have been imported from Chart-USA to transport LNG by road, and sale purchase agreements (SPA) have been recently signed with two customers - H&R Johnson and Schott Glass India. The second phase would involve LNG on-board applications for automobiles. E&P The IndianOil-OIL consortium will acquire 17.5% interest each from M/s. Sunetra (Operator) in the onland block OPL-205 in Nigeria. A share purchase agreement has been signed to this effect. Under NELP-VI, IndianOil has submitted bids for five blocks in consortium with foreign and domestic partners. The bids are under evaluation currently. IndianOil has also bid for two CBM blocks – at Birbhum and Mand Raigarh – in consortium with ONGC. The IndianOil-OIL consortium has technically qualified to bid in the licencing round for a Yemenese exploration block. Petrochemicals Techno-economic feasibility studies have been initiated for setting up Paraxylene units at Gujarat, Haldia and Chennai. UOP and IndianOil’s R&D Centre are studying the possibility of production of Heavy Normal Paraffins (HNP) at the LAB unit in Gujarat, which would fetch higher profits on implementation. As part of the MoU between IndianOil and HSIDC (Haryana State Industrial Development Corporation) for the development of petrochemicals hub at Panipat, M/s. AT Kearney has been appointed as a consultant. Despite product glut in the world market, this year, IOCLAB has registered an encouraging 5.3% growth with sale of about 55,000 MTs, including exports to Norway, Indonesia, Vietnam, Thailand and Turkey. Commercial sale of PTA has started this month. Challenges a) Continued focus on PTA quality, reliable deliveries and customer service in an extremely competitive market b) Since most of the PTA customers are located away from Panipat, we need to optimise transportation costs. c) In a buoyant international market, we need to maximise PTA production since its prices are good these days. Bio-diesel The Petrochemicals Group is steering the bio-diesel initiative. The vision is to build capability to produce one million tonnes of bio-diesel by the year 2009. Towards this, we are interacting with the State Governments of Uttaranchal, Chhattisgarh, Andhra Pradesh, Rajasathan and Tamil Nadu to identify suitable land, plant jatropha in one million hectare of land, generate awareness, obtain incentives, etc. Globalisation HSD exports have grown by 36% during this quarter as compared to the corresponding quarter last year. 31 TMT of bulk bitumen was also exported in the first half of the current fiscal to Bangladesh and Lanka IOC. Maiden export of 10 TMT of Group II Lube Oil Base Stock (LOBS) was undertaken to Pakistan. 4 TMT of Group-I LOBS is being exported to our subsidiary IOC Middle East FZE during October 2006. We expect a decision shortly from the Federal Government of Nigeria on the matter concerning IndianOil setting up a grassroots refinery in Nigeria in lieu of allotment of equity oil to us. IndianOil is one of the companies short-listed to form a JV with the National Oil Corporation of Libya (NOC) to revamp, upgrade and modernise Libyan refineries. Bids would be submitted to NOC shortly. IndianOil and Calik Enerji propose to set up a grassroots integrated refinery-cum-petrochemicals complex at Ceyhan in Turkey. Application for the license has been submitted to the Turkish Energy Market Regulatory Authority. IndianOil is also in the process of entering into an MoU with EN-Italy and Calik Enerji-Turkey for participation in the proposed trans-Anatolian crude oil pipeline project in Turkey. TOP Director (Finance)
:
Oil bonds worth Rs. 7,000 crore are expected from the Government of India before the closing of results for the second quarter. Considering the bonds, Q2 profit would be quite good; otherwise our operating losses could be over Rs. 4,000 crore up to the second quarter. With regard to discounts on LPG and Kerosene, Reliance has expressed its inability to offer any discount in the current year and has also stopped supplying kerosene from June 2006. IndianOil’s borrowings have reached a level of about Rs. 27,000 crore despite inflow of about Rs. 3,700 crore on account of sale of 20% of IndianOil’s equity stake in ONGC and liquidation of oil bonds to the extent of about Rs. 4,000 crore. With falling crude oil & product prices, our working capital requirement should reduce, which will give some respite to our liquidity concerns. We have successfully off-loaded the Government oil bonds of the tenure of 6 years and 9 years on 27th Sept. to the extent of Rs. 1,450 crore. With this, the total liquidation of oil bonds is to the extent of Rs. 4,000 crore during the current financial. We have pledged oil bonds of about Rs. 4,000 crore with the Clearing Corporation of India Ltd. against which we are borrowing in call market at a cheap rate. The balance bonds available for disposal are about Rs. 900 crore. My compliments to the Treasury team for this excellent achievement. In a ceremony held in Mumbai on 27th Sept, 2006, SAP has conferred the Customer Excellence Award on IndianOil for the fastest and largest rollout of SAP package in a single year (at about 300 sites between Dec. 2003 and Dec. 2004). My compliments to the entire Manthan team and the user departments who had made this possible. Hon’ble Supreme Court has given a favourable decision on the issue of exemption from payment of excise duty on captive consumption of LSHS at Gujarat and Barauni refineries, setting aside the demand and penalty of Rs. 115 crore. My compliments to the teams concerned from Western Region and Marketing HO. This would help us in other similar cases as well. Areas of concern: a) Despite the fall in international prices of crude oil and products, we are carrying huge inventories of crude oil in our system bought at high prices; this will impact our refining margins and the second quarter results. b) The Board is concerned about utilisation of Plan funds. The entire system of bills processing cycle needs to be reviewed to ensure that suppliers and contractors are promptly paid. All Finance Heads may review the accounts payable outstanding in a structured way. c) There is an urgent need to review the increase in stores and spares. Surplus material needs to be identified and disposed of expeditiously. d) Outstanding CAG audit paras are being reviewed at Secretary, MOP&NG’s level periodically and it is essential to ensure that paras are not only replied expeditiously but appropriate steps taken in this regard. TOP Director (HR) :
In recent changes at senior management level, Mr. MBL Aggarwal on superannuation has been replaced by Mr. V K Sood as ED (Internal Audit), CO. Mr. Sood’s position has been filled by Mr. SR Jha as GM (RS), Northern Region. Mr. R Malhotra from IBP has joined as GM (CC), CO and Mr. R Jhingan will replace Mr. B B Vohra on superannuation as ED (I/C -M) IBP, CO. Mr. B B Choudhary has been posted as head of the Bio-fuel group in CO. The process of recruitment of officers through campus and open advertisement has been restructured. Open recruitments are now being conducted exclusively through the Internet with good results. 285 Engineers and 16 CAs are joining IndianOil on 5th October 2006. They will initially undergo corporate induction programme at the Marketing HO & five refinery locations, after which they shall be assigned to their divisions where they will undergo further division/function specific training programmes. On 28th August, 80 officers joined IndianOil through campus recruitments and have already been assigned to their respective divisions after completing a common corporate induction-training module. MoP&NG has advised IndianOil to develop a framework of compensation structure for oil sector executives on behalf of the oil sector PSUs. IndianOil is engaging a consultant to evolve the structure and this study is expected to be completed by 15th December, 2006. The Government of India is in the process of constituting a Pay Committee for PSU executives. We intend to present the findings of this study before the Committee. The PIS payments for the year 2005-06 have been released. The Corporate average is 14.06%. However in case of officers, since the ePMS scores of all officers have not been finalised, an ad hoc payment of 85% of team performance is being released now. The officers will be paid individual performance-related incentive on completion of appraisals of all officers. Based on the composite MOU score achieved by the Corporation and the profitability in the year 2005-06, the PLI (Performance-Linked Incentive) was paid @ 9.45% of base pay. The Oil Sector Officers’ Association (OSOA), had served an indefinite strike call from 5th Sept. 2006 till their demands pertaining to periodicity of pay revision, removal of stagnation, 100% DA neutralisation from January 1, 1996 and 50% DA merger with BP are met. All these issues are in the domain of the Department of Public Enterprises (DPE), Government of India. IndianOil Chairman and Indian Oil Officers Association played active and lead role in averting the strike threat. On 4th Sept. 2006, Hon’ble Minister of Petroleum & Natural Gas, along with Secretary (MOP&NG), CMDs / Directors (HR) of oil PSUs, met the representatives of Oil Sector Officers’ Association at New Delhi. They were assured that MOP&NG would pursue with DPE and Cabinet with regard to the proposal of 50% merger of DA in BP initiated by DPE. Payment will be made in three weeks after getting approval from the Government. Each oil company may re-examine what more benefits can be given against Performance Related Incentives within DPE guidelines, particularly for the years 2002-03 and 2003-04. They were also assured that stagnation relief in the form of lump sum equivalent amount would be given to those employees who are not able to draw their annual increments after drawal of the third stagnation increment. Medical benefits for dependents of deceased employees have been reviewed. Against earlier rules in which, in case of death of serving employee, though the spouse was eligible for PRMAS but dependent children were not entitled to medical facilities; it has now been decided to allow medical coverage under PRMAS to the dependent children as well, for whom medical facility was availed of by the deceased employee before death, alongwith the spouse. IndianOil has announced 450 Scholarships (on IndianOil Day) for meritorious students all over India, under the IndianOil Scholarships Scheme for the academic year 2006-07. The number of scholarships has been increased from 350 to 450 this year. The scheme provides for attractive scholarships to bright students selected on 'merit-cum-means' basis covering the first year students of 10+ / ITI, Engineering, MBBS and MBA. We have recently launched the first-ever Hybrid Certificate Programme for Project Management through a tie-up with Universites-21, Singapore, the world’s premier online graduate school that offers globally recognised graduate programmes. The 15-week programme, a fusion of online learning and classroom environment, is customised to equip our project management professionals with a wide range of proficiencies. To begin with, the programme offers 47 officers working in the projects groups in Refineries, Marketing, Pipelines and R&D as well as our subsidiary company, BRPL, an opportunity to interact and learn from globally renowned faculty. The feedback form the participants has been extremely good. IiPM and IFP Training (IFPT), a training arm of IFP, France, have recently entered into an agreement to organise and host public courses on Petroleum Management in India. Through this agreement, IndianOil will gain by developing its internal faculty through IFPT, who, in turn, will deliver IFPT courses within India through IiPM. Security Week will be held during 3-9 October 2006 on the theme ‘Security today for a secure tomorrow’. Area of concern Attrition of officers is an area of concern since the number of resignations is going up slowly. The average resignations till 2004-05 were 49 officers per year. In 2005-06, the figure rose to 139. Based on the resignations up to end-August 06, the figure is expected to be about 218 for 2006-07. TOP Director
(Marketing) : Chief Vigilance Officer: The Vigilance Group conducted 12 workshops, training and interaction programmes during June-August 2006 in which 185 IndianOil officials took part. A meeting was held with Marketing HO’s HR group in August 2006 for expeditious disposal of vigilance cases. Several initiatives were taken as part of preventive vigilance activities. These include a drive to carry out inspections of ROs during late hours, scrutiny of files and surprise inspections at Marketing locations, etc. Presentations: Presentations were also made by Executive Director (Optimisation), Executive Director (Corporate Finance), Executive Director (R&D) and General Manager (International Trade) highlighting the developments in their respective functions during the second quarter. Manjunath Award: In a touching moment that brought back memories of the brave IndianOil officer, Shri S Manjunath, the maiden ‘Manjunath Award for Retail Excellence’ for the year 2005-06 was presented to the Sambhalpur Divisional Office, under Orissa State. The runners-up award went to the Bengaluru DO. Amidst thunderous applause, Mr. Sarthak Behuria, Chairman, IndianOil, presented the award, to Mr. H Haque, Divisional Manager (Retail Sales), Sambhalpur DO, in the presence of functional Directors of IndianOil, and the top management team after the Communication Meeting. Mr. Samson Chacko, CDRSM, Bengaluru DO, received the runners-up certificate from Mr. G C Daga, Director (Marketing), IndianOil. The award has been instituted from the year 2005-06 to perpetuate the memory of the intrepid IndianOil Officer, Late Manjunath, who laid down his life going beyond the call of duty on November 19, 2005. The award is an exclusive incentive-driven transparent measurable system to evaluate and award the best performing Retail Divisional Office teams, which in today’s extremely competitive marketplace, are IndianOil’s frontline units taking on competition. The first prize consists of a rolling trophy made of sterling silver and a cash award of Rs. 5 lakh (to be divided equally amongst all the members of the winning DO team. The runner-up carries a citation and a certificate. Sharing his thoughts on the occasion, Mr. Chacko said, “My 20-member team is a cohesive network of individuals with a focussed team goal. Of course, the wonderful support and coordination with Karnataka State Office has been a boon.”The Divisional Offices are evaluated on a set of stringent parameters that include volume growth, volume retention, branded fuel conversion, volume realised from commissioned network, commissioning of branded ROs, etc. With a view to propagating the values Manjunath stood for, a separate parameter on ‘Q&Q enforcement’ has also been included.
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