IndianOilXpress :: Meetings

Chairman:

New Year wishes to all. I welcome Mr. B N Bankapur, Director (Refineries) to his first Communication Meeting after joining the Board of IndianOil in October 2006. I also welcome Shri Vipin Kumar, who has joined IndianOil as Advisor (Security) on 1st December 2006.

The financial results for the third quarter are under consolidation. Easing of crude oil prices have reduced the pressure of under recoveries during the quarter though refining margins continue to suffer. The Net operating profit (estimated) during the period April to November 2006 is around Rs. 2050 crore, after considering loss sharing by upstream companies. We may not be able to sustain the profitability level of the previous year unless Government issues additional Oil Bonds, over and above the Bonds worth Rs. 7168 crore already received.
The under-realisation during the period 1st April 2006 to 15th January 2007 on the sale of the four major products is estimated to be around Rs. 7300 crore, without considering any loss sharing by upstream companies from 3rd quarter onwards. If 1/3rd loss sharing by upstream companies were considered, then this under-realization would reduce to around Rs. 6600 crore.
The average price of the Indian basket of crude oil (April ’06 to date) was about US$ 64.50 per barrel. In fact, from a record high of US$ 75.20 per barrel on 8th August, the price had dropped to a low of US$ 55.30 per barrel on 31st October, and has since been hovering in the range of US$ 58 - 60 per barrel. This definitely augurs well for the oil marketing companies.
IndianOil’s performance in Refining & Pipeline operations during April - November 2006 has been good. Our refineries have achieved a throughput of over 28 MMT, i.e. an increase of about 12% over the corresponding period of the previous year. Pipelines have achieved a throughput of 32.889 MMT, i.e. an increase of about 11% over the corresponding period of the previous year.
Market share continues to be a matter of concern. During the first six months of this fiscal, IndianOil’s market share among PSU players dropped to 47.8 %, i.e. a drop of about 1% w.r.t the corresponding period last year. We are hopeful that increased sale of Petcoke and Naphtha (imported) will boost our overall market share. We need to continue to be aggressive in our marketing endeavours. Though we have picked up a little in Retail, IBP has been losing consistently.
In another green initiative, Gujarat Refinery has commenced production of petrol conforming to Euro-III norms, with the commissioning of MS quality upgradation unit in November.
In another significant initiative, INDMAX (FCC) technology developed indigenously by R&D Centre will be deployed at the upcoming Paradip refinery-cum-petrochemicals complex. Compliments to the R&D and Refineries Division teams.
IndianOil will set up a Hydrogen-CNG dispensing station at Lodhi Road by March 2008, at an estimated cost of Rs. 5 crore, in association with the Ministry of Non-Conventional Energy Sources.
IndianOil has joined the league of select companies as a derivatives trading-cum-clearing member on the National Commodity & Derivatives Exchange (NCDEX). NCDEX offers us the possibility of hedging price risks in respect of indigenous crude oil purchases, inventories, etc., which were hitherto not possible using overseas over-the-counter (OTC) markets, due to regulatory constraints. Compliments to Director (Finance) and his team in International Trade and Corporate Finance.
A consortium comprising IndianOil, Oil India Ltd. (OIL), Kuwait Energy Company (KEC) and Medco Energi of Indonesia, has bagged two onshore exploration blocks in the productive Sayun-Marsilah Basin in Central Yemen.
IndianOil has finalised a deal with Eni of Italy and Calik Enerji of Turkey – who currently own Trans-Anatolian Pipeline Company on a 50-50 basis – for acquiring 12.5% of shares of the company, which has been formed to lay the 550-km Samsun - Ceyhan pipeline for export of crude oil from Black Sea to Mediterranean Sea.
Progress of our city gas distribution initiatives has also been quite encouraging, and we hope to see concrete results soon.
A ministerial meeting of five major energy-consuming countries – USA, China, India, Japan and Korea – was hosted by China at Beijing in December. I was part of the official Indian delegation to Beijing. On the occasion, IndianOil entered into an MoU with Sinopec. We already have an understanding with another Chinese company, Sinochem. These tie-ups envisage cooperation in various areas of the hydrocarbon sector.
Haldia Petrochemicals - Hearing in the matter by the Company Law Board was completed in October 2006 and the judgment is reserved. Final order in the matter is anticipated in January 2007.
Subsidiaries – a) IBP – A couple of individual shareholders had filed their objections with the Ministry of Company Affairs (MCA) against the scheme of merger of IBP with IndianOil. This is resulting in an unfortunate delay. A number of hearings have subsequently taken place. Meanwhile, activities to carry out the physical part of the merger have already begun.

b) BRPL – The Board of Directors of IndianOil & BRPL have approved Fair Exchange Ratio of 4 shares of IndianOil for every 37 shares of BRPL. After Govt. approval, steps would be initiated to file a petition with the Ministry of Company Affairs for convening the EGMs of IndianOil & BRPL.

c) Lanka IOC - The formula for settlement of outstanding subsidy dues by the Govt. of Sri Lanka in favour of LIOC has been approved by the Sri Lankan Cabinet. In line with the agreed formula, w.e.f 1st July 2006, the pricing of petrol and diesel has been de-regulated and the players have been allowed to fix the end prices reckoning market conditions. Consequently, no subsidy is payable by Sri Lankan Govt. beyond 30th June 2006. The Govt. has also agreed to settle fully the balance amount of SLR 5.16 billion (INR 215 crore).

Areas of concern –

a) Adulteration-related issues are cropping up regularly now. The recent Jettari retail outlet incident demonstrates that we could come under intense pressure from forces outside our organisation. We need to follow the laid down procedure in sampling, RO termination, etc. Though our decisions are right, proper procedure is not being followed, landing IndianOil in a spot.

b) Despite reiterating in various forums including ‘Straight Talk’ that there should be ‘nil’ safety lapses in our operations, fatalities involving contract workmen continue across the organization. I can only attribute this to non-observance of laid down systems & procedures, besides lack of management control. We need to reinforce safety consciousness culture and have proper monitoring systems in the organisation.

c) We need to be equally attentive on the environment front too. A recent incident involving issuance of show cause notice by State Pollution Control Board to one of our refineries reflects poorly on our entire organization.

d) We must now aspire to be an operator in the future E&P blocks.

Director (Pipelines):

:: Koyali – Dahej pipeline was commissioned in end December. This will facilitate timely and cost effective evacuation of surplus Naphtha ex Koyali, besides better export realisation. Pursuant to signing of an agreement with GCPTCL (Gujarat Chemical Port Terminal Company Ltd.) in December, Naphtha loading has started and surplus Naphtha is being pumped into the Koyali-Dahej Pipeline.

:: In the last few months, the operational performance has been good. Till December, we have pumped 13.84 MMT of products, 23.71 MMT of crude, i.e. a total throughput of 37.55 MMT has been achieved. With this, we hope to surpass last year’s performance.

:: Tanker berthing activity seems innocuous but its safe and timely operation holds immense significance. In 2006-07 up to December, 106 tankers have berthed at SMPL, Vadinar, and their number is 3667 since its inception, that too without any major incident. 168 tankers berthed at HBCPL Haldia up to Dec. 2006, with the total going up to 1155 tankers since its inception. This is indeed an achievement. At MPCPL, Mundra (which began operations this year), a total of 12 tankers berthed up to Dec’ 06.

:: For simultaneous pumping in Panipat-Bijwasan and Panipat-Ambal-Jalandhar sections, the station piping in Panipat has been completely modified.

:: Employee Engagement Survey for officers has been completed in the Division. 99.28% of the sample participated and the participation profile has been found to be very good.

:: We are taking steps in CDM (Clean Development Mechanism) and expect substantial returns from these initiatives.

:: With a view to improve the quality of medical facilities offered, we are ensuring that the doctors in our medical teams get additional degrees.

:: Corporate Safety & Environment Meet will be held at the corporate level shortly.

Areas of concern:

· Repeated pilferage attempts on WRPL continue to be a cause of concern. To nab the culprits and increase surveillance, the matter has been taken up at the highest levels in the Rajasthan and Gujarat Governments. Close coordination is required between the Marketing and Pipelines divisions in the region.

· Due to third party / terrorist activity, a blast occurred in GSPL in October 2006. A fatal accident involving a transporter’s crew occurred at the new construction site at Ratlam in December. Such repeated incidents are a cause of concern. Analysis of previous incidents reveals that main causes of accidents are improper metal scaffolding, absence of safety harness / belts, and unsafe driving habits.

· In the Panipat– Jalandhar LPG Pipeline, while statutory approvals have been obtained, our efforts to acquire land for right of way is encountering hindrance from villagers since our compensation levels are very low.

· In the Chennai–Bangalore Product Pipeline, the route passes through the Royala Elephant Reserve in Andhra Pradesh, necessitating clearance from National Board for Wildlife and Supreme Court’s Expert Committee. Re-routing is also being studied.

· The unprofessional attitude of the Iranian offshore contractor in the case of PHCPL is another matter of concern.

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b) Project Exports: IndianOil is pursuing business opportunities in the areas of refineries & pipelines in Turkey, Libya and Nigeria. Among other consultancy initiatives, we have announced our desire to participate in the Samsun-Ceyhan crude oil pipeline project by acquiring 12.5% of the shares of the Trans Anatolian Pipeline Company (TAPCO), Turkey.

c) Product Exports: During April-December 2006, IndianOil exported 197 TMT of white oil and 48 TMT bulk Bitumen. Subsequent to the export of 5 TMT Lube Oil Base Stock (LOBS) to Pakistan State Oil Company Ltd. in July 2006 from Haldia, another cargo of 4 TMT (LOBS), sourced from CPCL, was exported to IOC Middle East FZE during October 2006.

E&P-

a) Block OPL-205 in Nigeria- IndianOil and OIL have acquired 17.5% interest each in the onland block OPL- 205 in Nigeria operated by M/s Suntera. Exploration work is progressing as per the committed work programme in this block.

b) Farsi exploration Block, offshore Iran – Work is progressing as per schedule in the Farsi exploration block. All seismic jobs have been completed, three wells have been drilled and drilling of the fourth well is under progress.

c) In consortium with OIL, Medco Energi (Indonesia), and Kuwait Energy (Kuwait), IndianOil has won two on land exploration blocks in Yemen.

Gas –

a) Sale of R-LNG on Fall Back basis - Due to innovative marketing of R-LNG, the turnover up to December 2006 has been Rs. 1350 crore approximately as against Rs.1000 crore in the same period last year. Sale of R-LNG gas commenced in small quantities to a number of fallback customers, also being converted to regular customers.

b) Sale of R-LNG on Spot Basis - We have purchased around 125mmscm of gas during July - Dec 2006 from six spot cargoes imported by PLL. This gas has been sold to various customers, achieving a turnover of Rs. 222 crore up to December 2006.

c) City Gas Distribution Projects - Green Gas Limited, a JV of IndianOil and GAIL for distribution of city gas in Agra and Lucknow, has started CNG dispensation in the cities with three stations commissioned at Lucknow and one at Agra. Two more stations will be commissioned within this month. IndianOil is also pursuing city gas distribution projects in various other cities in India either on its own or with a suitable JV partner.

Petrochemicals -

A) i) LAB Marketing: - LAB sales (inclusive of exports) have registered a healthy growth of 10 % during Apr.-Dec. this year over same period last year, with sales surpassing production. Distribution network for LAB has been expanded and currently, we have six contracted depots located at Pondicherry, Kolkata, Delhi, Alwar, Pitampur and Mundhra.

ii) PTA Marketing –PTA sale is expected to reach 35000 MT in Dec’06, limited only by production. A Regional Sales Centre has been commissioned at Nagpur for stocking and sale of PTA. Our arrangement with CONCOR for transportation of PTA bags in full containers has given strength and reliability to our logistics capabilities. We expect to pack the 100,000th PTA bag in our Panipat warehouse soon.

B) Petrochemical Projects –

i) New Para-xylene unit - A feasibility study is underway by M/s Technip & UOP for production of Paraxylene at Gujarat Refinery.

ii) To increase our profit margins in LAB, we are considering production of Heavy Normal Paraffins (HNP) from the LAB unit at Gujarat refinery.

iii) We are also considering revamp / capacity augmentation of PTA unit at Panipat.

· Bio Fuels – The Bio-Fuels group has begun functioning at the Corporate Office. IndianOil has planned to have a presence across the entire value chain of Bio-diesel. Discussions are currently on with the State Governments of UP, Rajasthan, Andhra Pradesh, Chattisgarh and Uttaranchal.

· IndianOil has decided to examine the feasibility of setting up a 20-25 MW Wind Power project in the state of Gujarat.

a) GGL is facing a problem in getting NOC from UP Government for Lucknow. In contravention to Supreme Court’s ruling that Gas is a Central Government issue, the UP Cabinet gave licence to M/s Adani for a city gas project in Lucknow. A note is now being put-up to the UP Cabinet for taking a decision about the GGL project. Moreover, the Oil & Gas Regulator is expected to be in place by Jan 2007. As GGL has already placed its infrastructure, it is hopeful of getting a licence.

Director (Finance):

· OPEC has announced production cuts to the tune of 500,000 bpd w.e.f 1st Feb. 2007. This was in addition to the cut of 1.2 million barrels per day announced in Sept’06 Thus, oil availability may be a problem. Despite these cuts, International Trade Dept is trying to meet the crude oil requirements. However, there has been no significant impact on prices because of these cuts. The term contracts for LPG and crude oil for the year 2007-08 have been finalized. Term contracts have also been firmed up for SKO import.

· The last price revision (decrease) was announced by the Government in November 2006 due to steep fall in global prices of crude oil and products. The under realisation currently is about Rs. 50 crore per day as compared to about 110 crore per day prevailing in July / August (without considering upstream sharing and Bonds).

· We are losing Re.0.23 on MS (negative margin), Rs. 1.40 on HSD, Rs. 14.84 on SKO and Rs. 122 per LPG cylinder.

· Due to inability of RIL to pass on discounts, it was decided to do away with the discounts in Refinery Transfer Prices of SKO/LPG. However, MOP&NG has advised that we should take up this issue of discount with refineries again.

· IndianOil’s Q3 profit will depend upon the extent of sharing by upstream companies and the quantum of oil bonds. However, there would be positive impact on account of interim dividend from ONGC and appreciation of rupee vis-à-vis dollar.

· The IndianOil Board has declared an interim dividend of 60% for 2006-07.

· Our borrowings are at a level of Rs. 26,000 – Rs. 27,000 crore, and are expected to further go up due to huge capital expenditure envisaged in the next few months.

· Compliments to the Excise & Customs teams at Gujarat Refinery and Marketing HO and WR for resolution of the long-pending issue of of excise refund from IPCL. Compliments to Finance, Mktg HO for taking up the issue of unfavourable decision of Committee of disputes with regard to import of SKO at Haldia involving deposit of over Rs. 400 crore. Due to Chairman’s personal efforts with higher officials in Government, we could succeed in ensuring that this deposit was not required to be made.

Areas of concern –

a) We have received a demand on account of Sales tax from State Governments of Assam and UP. We need to tackle this issue appropriately.

b) In the forthcoming round of transfers & postings, we need to strengthen the teams in Excise & Customs / Finance departments in our locations.

c) Cooperation of all Divisions required to liquidate all audit points by March 2007.

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2. Recruitment & Induction

This year, we have recruited 412 officers (288 through open recruitment, 94 through campus selection, 15 CAs through campus and 15 officers for petrochemicals). For the first time, the open recruitment was conducted on-line, which considerably reduced the lead-time for induction.

The campus recruitment process has been reviewed and we are now going to the campuses earlier than previous years. The pre placement talks are now given by the alumni of the respective institutes so as to attract more students.

3. Employee Engagement Survey

We have undertaken a company-wide Employee Engagement Survey through IMI (International Management Institute), which was kicked off in Sept. ’06 to ascertain levels of employee engagement in IndianOil. Data collection for phase-I of the survey covering officers has since been completed and the draft report is expected by the 2nd week of Jan. ’07. Action is also being taken for launch of the survey for workmen, which will be completed by the 2nd week of April ’07.

4. Resignations

Resignation of Officers is definitely on increase. It was 45 in 2003-04, 47 in 2004-05 and 117 in 2005-06. In 2006-07, it has already reached to 112 between April-November 2006. Thus, the anticipated number in 2006-07 would be around 170. We are taking care of the higher number of resignations by ensuring additional recruitments.

5. Strengthening people-skills of Unit Heads

With the objective of strengthening people-related skills of Unit/Region/State/Functional Heads, who are leading big teams, we have designed a special four-day programme. The first such programme is scheduled during 26th Feb. - 1st March ’07 at IIPM. The programme would cover -

i) Policies/systems related to career progression of employees at various levels
ii) e-PMS – including hands-on
iii) Important Labour Laws
iv) Vigilance/CBI Matters
v) Reservation Matters
vi) Our obligations under RTI Act

This opportunity would also be utilised to deliberate other people-related issues of common interest.

6. Simplification of Systems and Procedures

(A) Under the Scheme for Furniture on Hire, the provision for reimbursement of R&M expenses stands modified from financial year 2007-08. As per the revised provisions, the annual entitlement of R&M expenses would be at a flat rate of 10% of the actual cost of furniture items procured, which would be in lieu of the existing entitlement of 5% of cost of furniture items and additional R&M for AC, washing machine, refrigerator and change of tapestry of sofa set etc.

The claim shall be submitted directly to Finance deptt. by 15th July each year; and would be reimbursed based on the actual cost of furniture items in the record, as on 30th June of the financial year. There would be no carry forward of unclaimed entitlement to next year.

(B) Payment of salary and perquisites to the employees posted inter-company with IndianOil Group of companies

Presently, varying practices are being followed in this regard. In most of the cases, all the bills are being forwarded to the parent company of employee for making payments. This consumes a lot of time and causes unnecessary delays. It has now been decided that employee related payments would be made from the place of posting.

7. Strike Call by Officers of PSU including Oil Sector

There was a call for indefinite strike from 22.12.06 by officers of various PSUs including Oil Sector. Officers’ Association of IndianOil decided not to join the same. This has been appreciated by the Govt. and the IndianOil Board.

8. Constitution of Pay Revision Committee

Vide Gazette Notification dated 30.11.06; the Government of India has constituted a Committee for Pay Revision of Public Sector Executives. Its Chairman is Justice MJ Rao and members are Dr. Nitish Sen Gupta, Shri PC Parikh and Shri RSSLN Bhaskarudu. Secretary, DPE, is its ex-Officio Member and Jt. Secy., DPE, is its Secretary. Its period is 18 months. On the advice of MOP&NG and on behalf of Oil Industry, we have commissioned a separate study to look into the special requirements of Oil Industry and have engaged M/s. Hewitt Associates as the Consultant. The Study Report would be presented before the Pay Revision Committee.

9. Mentoring for Newly Recruited Officers

It has been observed that a good number of officers who are recruited from the campuses and open recruitment are leaving the Company within first 3 to 4 years of joining the Company. In order to facilitate their adjustment with the organisation and its culture, it has been decided to introduce mentoring for the newly recruited officers of 2006 onwards. Officers in grade E & F will be undergoing a 2-day mentoring workshop before actually starting the mentoring process. About 60 mentors have been identified and one batch has already attended the workshop. The other batch will undergo the workshop by mid-January. All Unit & State Heads are requested to encourage mentoring as a process.

(A) Hybrid Programme On Project Management

As Chairman has already mentioned, to strengthen our Project handling capabilities, IIPM conducted a 15-week Hybrid Programme on Project Management in association with U21 Global. U21 is a conglomerate of 19 Universities across the world with its HQ at Singapore. We call it a Hybrid Programme because it is a combination of class-room as well as on-line learning. For major duration of the programme, the participants remain at their respective work places. The process as well as contents of the programme have been highly appreciated by the participants. A total of 47 officers participated. Two left IndianOil in between and other two could not get through the test at the end of the programme. These two officers would be allowed to re-appear in the test along with the 2nd batch which we plan to start sometime in February. As an incentive to the participants, two best officers have been selected for the gold and silver medals. The winners are - Mr. Rakesh Kumar Mishra, DM(Const), PREXPL, Jaipur, and Mr. Randhir Kumar, DMPJ, PL HO, NOIDA.

(B) Planning and Economics of Refinery Operations

As already communicated in the last meeting, we had signed MOU with IFP Training, France, for conducting specialised programmes in the area of Petroleum Refining for Oil Industry in association with IIPM. The first programme of one week on ‘Planning & Economics of Refinery Operations’ was conducted recently. More than 50% participants in this programme were from other Oil Companies.

11. Yearly Exercise on Promotions/Placements

The annual exercise of promotions and placements will be held in February and March. The first DPC for DGMs and GMs would be held in January end. The detailed schedule has been circulated to Divisions. All were requested to adhere to the schedule so that the total exercise is completed by March end.

12. Vigilance

a) A Vigilance Conference has been planned on 19.1.07 at the Corporate Office. CVC, other Vigilance Commissioners, Secretary, CVC, Secretary (P&NG), AS(P&NG), CVO(MOP&NG), CMDs, Directors (HR) and CVOs of all Oil Companies would participate in the conference.
b) Vigilance awareness week was observed from 6.11.06 to 10.11.06 to increase the awareness on Vigilance-related issues through interactions.
c) System Improvement undertaken: The following system studies have been undertaken which are expected to be completed by February 2007-

i) Materials Acceptance by Indenters
Ii) Inventory Control System
iii) Documents to be maintained by Engineer-in-Charge

(d) Following CVC Circulars issued during September to November ’06 were shared -
i) Regarding delay in completion of departmental proceedings, CVC has advised :
:: To make available documents related to the case in time.
:: Proper drafting of charge sheets with supporting documents.
:: Appointment of IO/POs considering their continued availability to complete the enquiry proceedings.

(ii) Regarding Tendering Process – negotiation with L-1
:: Organisations to take appropriate decision keeping guidelines vide CVC Circular No.37/10/06 dated 25.10.2005.
:: In case, organisations want to take action in deviation or modification of the guidelines, to suit their requirements, it is for them to do so by recording the reasons and obtaining the approval of the competent authority for the same. However, in no case should there be any compromise to transparency, equity or fair treatment to all the participants in the tender.

(iii) Regarding improving vigilance administration by leveraging technology - Increasing transparency through effective use of website in discharge of regulatory, enforcement and other functions of Government Organisations.

Director (Marketing) :

Industry sales have risen by 3.6% during April – Nov. 2006. IndianOil has achieved a growth of 3%. Growth is primarily driven by HSD, which has contributed, to 5.8% of the rise in growth. In terms of market share, IndianOil has lost 0.9% share among PSUs during the period April – Nov. 2006. However, during October – No. 2006, IndianOil has gained market share by 0.1% vis-à-vis a loss of 1.3% till Sept. 2006. Highlights as follows -

· Retail

i) Sales – IndianOil has generally performed well during the last two months and we gained market share in MS (R) and HSD (R). MS (R) market share has gone up by 0.2% among PSUs. HSD (R) market share of IndianOil continues to be down by 0.1% among PSUs. It is however up by 1.2% when private players are also considered. However, with short-term innovative strategies, we hope to catch up. XtraPremium 88 RON petrol has been rolled out in 263 markets at 524 ROs. This has contributed to a market share gain in the premium MS segment to 33.9%. i.e. up by 2.1%. XtraMile market share stands at 47.8% during November 2006.

ii) Business Initiatives – IndianOil has signed path-breaking MoUs with Future Group (formerly Pantaloon, which owns the Big Bazaar chain of stores), the Ansal Group, and with Indo-Gulf Fertilisers. 627 new ROs have been commissioned which include 356 KSKs. Thus, the KSK tally has touched 935. The current monthly average per pump throughput (PPT) per KSK is 40 kl against a target of 25 kl. To drive activation and usage of XtraPower fleet card, a Double Reward campaign has been launched w.e.f 1st October 2006 and would go on till 31st March 2007. So far, the number of active customers has crossed 2.25 lakh and no. of active customers has gone up by 16%.

· Consumer business

i) Sales Performance - Sales of FO have turned around with IndianOil’s market share going up by 2.4% during Oct.-Nov. 2006 among PSUs. The losing trend in Bitumen has also been corrected with loss restricted to 1.1% during Oct.-Nov. 2006 vis-à-vis 4.2% earlier. During April-Nov. 2006, non-domestic and LPG sales have grown by 26.1%. However, this is lower than growth achieved by other PSUs in this area. Thus, this area needs to be focused as a potential revenue earner. Auto LPG continues to be a high-growth area, which has seen growth by 79% approx. We need to penetrate new markets to protect our leadership position.

ii) Business Initiatives – IndianOil has tied up 350 MT of naphtha business with RGPPL, Dabhol, till March 2007. Petcoke sales have also commenced from Oct. 2006. 40 TMTPA fuel business tied up with the UB group for three years. In view of the Western naval Command shifting base from Mumbai to Karwar, additional tankage of 12 Tkl has been completed at Karwar bunkering terminal. LSHS / HSD business of 30 TMTPA expected.

· Aviation – New ATF business of an additional quantity of 35 TKl signed up with Shanghai Cargo, Thai Airways, GMG Airlines, etc. Marketing and technical services agreement with Air BP signed for two years.

· AutoLPG – 28 ALDS commissioned during Apr. – Dec. 2006, taking the total tally of ALDS to 106 in 35 cities.

· Lubes – Actions have been initiated to attain synergy between lube businesses of IndianOil and IBP. Blending of SERVO grades started at Budge Budge, storage of IBP grades at IndianOil CFAs and SERVO grades at IBP warehouses undertaken. In addition, IBP’s existing stockists are being revived for marketing auto and industrial grades of IBP lubes. Long-term agreements have been signed with ONGC, Hindustan Copper and Gabriel India for supply of lubes.

· Infrastructure – Construction work commenced at Lalkuan (Haldwani) grassroots depot and Cherlapalli IBP depot, to be commissioned by October 2008. IPPL’s bottling plant commissioned at Haldia resulting in phased shifting of bottling operations from Haldia Refinery to IPPL. With operationalising of 60 TMT CRMB (Crumb Rubber Modified Bitumen) plant at Haldia, IndianOil now has CRMB plants in the four regions.

· Supplies – Advance Winter Stocking completed before schedule. KESO / NESO maintained smooth supplies despite repeated bandhs.

· With the extensive use of video-conferencing facilities, regular interactions between HO and State Offices have commenced.

· Compliments to UPSO and PSO for speedy clearance of outstanding OVS cases on time except for a few which were beyond our control.

Areas of concern –

ii) Essar Oil refinery has commenced production in Nov. 2006 and is capable of producing better FO and sell with discounts. So, all State Offices to closely monitor FO sales.

iii) HSD (D) remains an area of concern where loss in market share among PSUs continues to be around 1.5% despite a growth of 9.7% during the last two months.

iv) Adverse media publicity generated on Q&Q issues. This necessitates active collaboration between corporate communications, retail sales groups and State Offices to project positive initiatives of IndianOil.

v) We also need to be careful in dealing with channel partners who have come through the social obligations route.

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Director (Refineries):

· Panipat Refinery Expansion Project is fully commissioned and stabilized. Other important projects like MSQ upgradation unit at Gujarat and PX/PTA plant at Panipat have also been commissioned and operating smoothly. Units are operating uninterrupted. Thanks to flawless commissioning. My compliments to the IndianOilPeople involved in these projects.

· Operational performance is quite good. Refinery operations are touching 135 TMT/day, which is equivalent to 47.2 MMTPA, i.e. more than the installed capacity of IndianOil refineries. After a gap of two years, we are confident of achieving the MoU targets of throughput. LAB plant is also operating at over 100% capacity.

· IndianOil Board has approved the Hydrocracker at Haldia Refinery at a cost of Rs.2869 crore to be commissioned by December 2009. Work progress is as per schedule. The Board has also approved an investment of Rs.14,439 crore on the Panipat Naphtha Cracker Unit. A dedicated team has been set up to monitor milestones to ensure that there is no slippage in commissioning / completion schedules.

· For the first time, IndianOil has engaged a foreign Project management Consultant, Foster & Wheeler (for Paradip Refinery Project). Till now, Indian firms like EIL and L&T were bagging the contracts. In another first, IndianOil has decided to deploy its indigenously developed INDAMX technology at Paradip. We should commission it successfully and meet all required guarantees. A joint task force comprising IOCians from Refineries Division and R&D Centre has been set up.

· A Process Engineering Cell is being set up at the Refineries Division HQs with the objective of processing engineering jobs for small projects in-house.

· A benchmarking study aimed at improvement of profitability, reliability and energy performance has been awarded to Shell Global Solutions at Mathura Refinery. This is expected to generate savings of Rs. 100 crore. The findings and experience will later be cascaded down to other refineries.

· CDM (Clean Development Mechanism) study has been taken up and for this, PWC has been engaged as the corporate level consultant. Each refinery will identify projects in the area. PWC will not only identify and review CDM projects but also carry out carbon trading activities for IndianOil. We anticipate annual savings in the range of Rs. 70-80 crore on account of CDM.

Areas of Concern –

· There have been fatal accidents at Gujarat and AOD. It is imperative that we inculcate a safety awareness culture. Proper implementation of procedures is extremely important.

· Present export infrastructure for Naphtha and MS is inadequate and threatens to constrain throughput. We need to expedite export facilities at Kandla so as to improve our profitability. Tanker sizes also need to be increased for faster evacuation. Crude blending facilities at Mundra should be expedited so that Panipat Refinery can process any type of crude and improve its profitability.

· Availability of Northeast crude is another area of concern. We need to see how we can improve margins by processing all kinds of crude.