Dear Shareholders of IndianOil,
Ladies and Gentlemen
It gives me immense pleasure to extend a very warm welcome to you all to the 55th Annual General Meeting of your Corporation. On behalf of the Board of Directors, it is my privilege to thank each one of you for making it convenient to attend this important meeting and register solidarity with your Corporation. This is my first opportunity to speak to you after taking over as Chairman, IndianOil. With your support, it will be my endeavour to take the Corporation forward, and provide greater value to the stakeholders.
The notice convening the meeting, the Annual Report for the financial year ended 31st March, 2014 alongwith Annual Audited Accounts and Auditors’ Report have been with you for some time now, and with your permission, I take them as read.
The year 2013-14 was equally challenging and the aftermath of recession was clearly visible across the globe in its growth trends as well as outputs. Nevertheless, the year 2013-14 brought some cause for cheer as compared to 2012-13 with Euro Zone seeming to come out of recession and registering positive growth in the second quarter of 2013, and US too showing signs of strengthening of the economy, although complete economic turnaround was elusive in the end. During the year 2013, the Global GDP growth decelerated to 3.0 per cent from 3.2 per cent in 2012. Emerging economies were also hit by financial turbulences due to withdrawal of currencies as a result of tapering of Quantitative Easing. But, there is a silver lining with more positive outlook for 2014 and 2015 with projected growth rate of 3.4 per cent and 4.0 per cent respectively.
We live in an increasingly interconnected world than ever before. Indian economy too going through a tough time, expanded at 4.7 per cent in 2013-14, marking a second straight year of below 5 per cent growth. Industrial growth remained in negative territory. Consequently, the Indian auto industry witnessed a decline in both passenger vehicles and in commercial vehicles sales segment by 4.6 per cent and 18.7 per cent respectively. For most of the last year, the economy was hamstrung by rising inflation rates although slightly lower than the previous year. Fuel inflation remained in double digits in the last three quarters due to rationalization of tariff for electricity in many states, in addition to the policy of allowing greater pass-through in diesel prices and depreciation of the Indian rupee against the US dollar. Rupee depreciated to
Rs. 68.85 to a US dollar on 28th August 2013, triggered by the expected taper of Quantitative Easing in the United States; however, it gradually strengthened and the year ended with the exchange rate averaging
Rs. 60.47 per US dollar, owing to measures taken by the government and the Reserve Bank of India (RBI).
Yet, the developments on the macro stabilization front, particularly the dramatic improvement in the external economic situation with the Current Account Deficit (CAD) declining to manageable levels after two years of worryingly high levels was the redeeming feature of 2013-14. The year ended with a CAD of 1.7 per cent of GDP as against 4.7 per cent in 2012-13. Foreign exchange reserves increased from US$ 275 billion in early September 2013 to US$ 303.7 billion on 28th March 2014.
The Index of Industrial Production (IIP) shows a positive growth, which otherwise performed poorly last year. The GDP outlook of 5.4 per cent
to 5.9 per cent projected for 2014-15 portends for revival of the economy.
Oil and Gas Sector
The Oil and Gas Sector has gone through severe turbulence during the year due to geopolitical unrest and resultant oil price fluctuations.
Although economic activity remained slump across the world, primary energy consumption grew by 2.3 per cent in 2013, increasing from 1.8 per cent in 2012. Global oil demand increased by 1.3 mbpd in 2013 to the level of 91.4 mbpd, driven mainly by the combined effects of a growing world population and rising per capita income levels in the developing countries. Global natural gas production also grew by 1.1 per cent in 2013 following a 1.9 per cent growth in 2012.
During FY 2013-14, average international crude oil prices fell, with Brent price moderating to US$ 107.6/bbl in 2013-14 from US$ 110.1 /bbl in 2012-13. However, the crude oil price had gone through a series of fluctuations during the year mainly because of geo-political events and supply outages in Syria, Libya, Nigeria, Iraq, Iran etc. and a crisis that broke out between Ukraine and Russia.
Another development on the international oil price front has been the narrowing of the Brent-WTI gap, which fell significantly on an average to US$ 8.55/bbl from
US$ 18.2/bbl in 2012-13.
Today, the world energy market is navigating a new era and there is room for optimism. China, India and other emerging markets are expected to drive the global energy consumption. It is projected by India Brand Equity Foundation (IBEF) that China and India will be the world’s largest oil importers in the near future.
During the year, refined petroleum products demand in India was hit severely, with total consumption of
158.2 MMT and the growth in consumption fell to 0.7
per cent, which is the lowest since the 0.4 per cent growth recorded in 2001-02. Barring LPG, MS, ATF and Petcoke, consumption of all other major products declined during the year. The main factor that restrained petroleum demand in the country was the weakening economic growth and in particular decline in industrial output.
However, the New Year has started with positive notes, registering growth in POL consumption. India is the World’s fourth-largest energy consumer. The country's energy demand is expected to double by 2035 from 2011 level. For a nation undergoing transformational change, a simple and forward-looking policy to encourage investment that maximises domestic oil and gas production would be a key enabler.
Now, I would like to highlight the performance of your Corporation in the year 2013-14.
Despite the challenges, your Corporation remained the highest ranked (96th) Indian corporate in the prestigious ‘Fortune Global 500’ listing in the year 2014 because of its strong foundation, efficient workforce, use of technology and knowledge. With dominant share of national refining, pipeline capacities and petroleum products’, your corporation recorded a turnover Rs. 4,57,553 crore and profit of Rs. 7,019 crore for the year 2013-14. The Corporation has proposed a dividend of Rs. 8.70 per share for your approval. I am pleased to inform that the Corporation has registered a profit of Rs. 2,523 crore during the first quarter of the current financial year.
Your corporation is the 'Leading Refiner' in the country, achieving a combined crude oil throughput of 53.13 million tonnes during the year. The refineries achieved the combined distillate yield of 78.1 wt% during the year and also recorded the lowest ever specific energy consumption of 55.8 MBN*(MBTU/BBL/NRGF) and registered a gross refining margin of $ 4.24/bbl during the year.
[*MBN–Thousand British Thermal Unit / Barrel / Energy Factor (MBTU/BBL/NRGF)]
The year 2013-14 was a significant year for your Corporation’s Refineries Division as many initiatives were taken to improve plant reliability and consolidation of operations in pursuit of excellence. Nine new crude oil grades (including high-TAN crudes such as Marlim and Dalia) were processed by the Corporation’s refineries for the first time during the year. 26 new crudes were introduced during the year which widened the crude basket to 168 for de-risking supply sources and to improve the margins.
Global benchmarking study was undertaken through
M/s. Solomon Associates to enhance operational efficiency. This will indeed help our refineries to scale new heights.
The 15 MMTPA state-of-the-art Paradip Refinery is nearing completion and is likely to be commissioned during the current financial year.
Your Corporation’s pipelines network achieved a throughput of 73.07 million tonnes in 2013-14. The combined length of your Corporation’s network of crude oil, product and gas pipelines is 11,214 km. The crude oil pipelines have consistently achieved over 100% capacity utilisation. During the year, the Corporation added crude oil tankage of 425 TKL to facilitate blending of heavy crudes and enhancing capability to transport heavy and viscous crudes which provide better refining margins. Currently, the Pipelines Division is implementing 13 projects at a cost of over Rs. 6,800 crore to further expand its network of crude oil. The gas pipeline recorded the highest ever throughput of 1168 MMSCM, surpassing the previous highest throughput of 960 MMSCM achieved during the previous year. The Corporation handled 98 tankers at Paradip during 2013-14 – highest in a year at the East coast, compared to 75 tankers during 2012-13.
With a market share of 47.1%, your Corporation has maintained its leadership position for the year 2013-14 with domestic sales of 67.14 million tonnes of petroleum products. Although, overall volumes registered a drop of 1.5 million tonnes as compared to the previous year on account of the prevailing dual-pricing policy in diesel resulting in decline in bulk sales of diesel, the Corporation performed well in retail sales of diesel.
To keep pace with the high growth in the retail business, your corporation has further fortified its presence in retail segment with commissioning of 1,717 retail outlets, including 764 Kisan Seva Kendra Outlets, raising total number of Retail Outlets to 23,993. Your corporations KSK bouquet includes a network of over 6000 outlets.
In the LPG segment, your Corporation increased its market share during the year and released a record number of new connections, besides augmenting its bottling and storage capacities and expanding its distributorship network, especially in the rural areas. New initiatives, such as portability of LPG connections within and across companies, and sale of 5-kg free-trade LPG cylinders through select ROs and kirana stores were also launched to enhance product availability and customer convenience. Between June 2013 and January 2014, the Aadhaar based DBTL (Direct Benefit Transfer in LPG) Scheme for subsidy transfer directly to the beneficiaries was introduced in 6 phases, covering 3,732 distributors and 4.24 crore Indane consumers of IndianOil. Under this unique scheme, 12.1 million consumers were benefited and more than Rs. 2,230 crore was transferred to the Aadhaar linked bank account of individual consumers. At present, the scheme has been kept in abeyance and a committee has been constituted to review the scheme for better implementation.
IndianOil’s Aviation Service maintained its leadership position during the year by improving its market share to an all-time high of 64.5 per cent. Against the Industry growth of 4.4 per cent, IndianOil aviation fuel sales registered a volume growth of 6 per cent during the year. SERVO brand of your Corporation remains the market leader in the domestic Lubes market. In a highly competitive market, SERVO outperformed the industry and has improved its market share by 0.5 per cent.
Your Corporation places strong emphasis on customer satisfaction by delivering quality products and quality services. Towards this, it is the Corporation’s endeavour to automate its entire distribution chain, terminal & depot facilities. During the year, 1700 ROs were brought under automation, taking the total number of automated retail outlets to 6077. A professional training initiative for Customer Attendants - Project CHETNA was also launched during the year to enhance service standards of customer attendants on the forecourt. Various mobile applications were also launched during the year such as X-Sparsh for enhancing dealers’ productivity and X-Snehash for provision of relevant information on-the-go for retail customers. Such unique initiatives of the Corporation are aimed at profit-oriented approach.
As a testimony of the trust that millions of customers bestow upon IndianOil, the Readers Digest ‘Trusted Brand Award 2013’, for the seventh consecutive year was bestowed upon IndianOil.
Research & Development
Your Corporation’s state-of-the-art R&D Centre at Faridabad is a pioneer in lubricant formulations, refinery processes, pipeline transportation and alternative fuels. During the year, significant progress was made in demonstration and commercialisation of some of the technologies developed in-house. The Centre expanded the OEM approval base of SERVO lubricants with the development of new formulations of low-viscosity and energy-efficient lubricants. The IndMax technology developed by the Centre is being actively considered by refineries of other Oil Companies besides the 4.17 million tonnes per annum IndMax unit at your Corporation’s Paradip Refinery. The R&D Centre has developed a process “OCTAMAX” for upgradation of C4 hydrocarbons from refinery LPG stream to high-octane gasoline blending stock. Initiatives are being taken for setting up of an IndianOil Centre for Renewable Energy (i-CARE) at Manesar. The Centre will focus upon gasification technology, solar, thermal, hydrogen including fuel cells and Bio-energy. With 292 patents to its credit, more than half of them registered overseas, including the US, the Centre aspires to emerge as a world-class technology solutions provider in the petroleum sector.
Beyond its core business, the Corporation has been straddling across the energy value chain in line with its vision. The Corporation’s endeavour is to emerge as an Integrated Energy Company providing clean and sustainable energy solution to its customers.
In the domestic petrochemicals circuit, your corporation is now the second largest player in the country with an all time high petrochemicals sales of 2.12 million tonnes including exports in 2013-14 with a domestic market share of 19.4 per cent. New overseas markets, covering 16 countries in Africa, Latin America & Europe, were added to the export list during the year.
During the year, your Corporation entered the niche product segments like Styrene Butadiene Rubber (SBR), Butene-1 and Butadiene. The Corporation’s JV Company became the first in the country to produce SBR, a 100 per cent import substitution product.
Your Corporation is making determined effort to expand its natural gas marketing initiatives in a big way, with focus on import, transportation and infrastructure development. At IndianOil, we see natural gas as a transition fuel to a low carbon era. During the year, the gas sales grew by 5.7 per cent, reaching 1.94 million tonnes against sales of 1.83 million tonnes achieved in the previous year.
Steps have been initiated to have a significant share in the country’s gas business through participation in upcoming gas pipelines and planned import storage and regasification terminal at Ennore near Chennai. Your Corporation’s endeavour in strengthening its presence in the gas infrastructure and delivery capability in the country received a major boost as its consortium with other partners was awarded authorisation for city gas distribution projects in the cities of Chandigarh & Allahabad.
Exploration & Production (E&P)
To reduce external dependence and to meet its own and country’s energy requirements, your corporation has started acquiring hydrocarbon producing upstream assets overseas, either alone or in consortium with other Oil companies.
Your Corporation has currently a portfolio of 13 domestic and 11 overseas blocks. The Corporation has consolidated its foray in upstream segment by acquisition of 10 per cent participating interest in the multibillion dollar integrated upstream and LNG project- Pacific North West LNG in Canada with initial investment of USD 1 billion. This is the Corporation’s biggest overseas acquisition so far. It is a producing asset and will have access to assured LNG supply of 1.2 million tonnes per annum from this project for a minimum period of 20 years.
Your Corporation has been expanding its presence in the alternative energy space. During the year, the Corporation commissioned a 14.7 MW capacity wind energy project at Gandikota in Andhra Pradesh. With this, total renewable installed capacity of the Corporation reached 68 MW, which includes 63 MW of wind and 5 MW of solar energy.
Sustainable Development is a key tenet of the business philosophy of your Corporation. Your corporation is determined to reduce emission of greenhouse gases (GHG), lower down the consumption of water and reduce waste generation in its business operations at all locations. During the year, the Corporation solarised 887 retail outlets taking the total number of solarised retail outlets to 1265. With a view to reduce the water footprint of the organisation and to increase water availability for daily operations through rainwater harvesting, the Corporation commissioned rainwater-harvesting systems in 54 locations during the year. Energy audit was completed for 51 office buildings in various locations.
Health, Safety & Environment (HS&E)
Your Corporation is deeply conscious of the risk potential of the safety hazards in the hydrocarbon industry. In our efforts to ensure safety and security of our people and assets, we have adapted best-in-class technologies and stringent standard operating procedures. Rigorous monitoring systems are also in place to ensure safety in day-to-day operations and all stakeholders undergo unit-specific training on safety, health and environment issues. A safety culture improvement project named ‘SEED’ – Safety in Each & Every Deed’ was launched during the year.
Your Corporation believes that its Human Capital is an invaluable asset that gives it a competitive edge and enables the consistent high performance over the years. Besides, maintaining cordial industrial relations, your Corporation continued to provide comprehensive welfare facilities to all members of the IndianOil family. A number of strategic interventions were initiated during the year to rejuvenate the organisation, bringing in cumulative as against repetitive business experience impacting upon the overall employee lifecycle. Some of the key initiatives that were implemented include succession planning, new accelerated career progression scheme, comprehensive transfer policy and career path model.
Corporate Social Responsibility
Corporate Social Responsibility has been one of the avowed objectives of your Corporation right from inception. The Corporation with its vast presence and reach, sees itself as an essential part of society and understands its responsibility towards improving quality of life of the communities at large. Its various programmes are constantly engaging with those who are found to be in need. A report on your Corporation’s CSR activities has been incorporated as a separate section forming part of the Annual Report.
Your Corporation recognises that good Governance is a continuous exercise and maintains highest standards of Corporate Governance by ensuring transparency in all aspects of its operations. The Corporation believes that good Corporate Governance practices ensure ethical and efficient conduct of the affairs of the Company and also help in maximizing value for all its stakeholders like customers, employees and society at large. Your Corporation complies with the Corporate Governance guidelines for Public Sector Enterprises as enunciated by Department of Public Enterprise, Govt. of India. In order to ensure effective implementation of Governance practices, well defined policy framework is in place. A report on Corporate Governance has been included in the Annual Report.
The Government's focus on development and boost to the manufacturing industries besides the positive sentiments for higher GDP growth in the coming years augurs well for robust growth of the Oil, Gas and Petrochemical sectors. Your Corporation is well tuned to the changing market needs and to take advantage of the growing opportunities. The Corporation continued with its investments in value-addition projects despite the severe financial crunch in the past few years so that it would contribute to future growth and expansion of business. Planned capital investment of about Rs. 16,700 crore was done in the year 2013-14 and an investment of about Rs. 12,000 crore has been planned for the year 2014-15. Your Corporation has a Capex target of Rs. 56,200 crore for various projects in XIIth Five Year Period. Commissioning of Paradip refinery this financial year would enable us to meet the spiralling domestic demand of petroleum products in eastern India and beyond. Future investments would continue to be maintained in a robust manner in all the core business areas.
Your Corporation has been serving the Nation for over five decades now, acknowledged as the most reliable provider in the strategic Energy sector. We have steadfastly pursued key areas that would aid in the overall growth of the Corporation and provide sustained value to all its stakeholders. While challenges abound and competition grows, the focus of your corporation would remain on maintaining the leadership position. The significant business development has enabled the corporation to redefine the core business to include petrochemicals and natural gas besides refining, pipeline transportation and marketing of petroleum products.
As one of the largest customer service organizations in the world, customer centricity has been a major focus and we would strive to consolidate our position of being the 'Company of Choice' for the customers. Operational Excellence towards safe and reliable operations is another key quest. We would like to further improve our position as a responsible energy provider with sustainable growth reflecting our core values of Care, Innovation, Passion and Trust.
The Board of Directors would like to place on record its deep appreciation for the dedication and hard work of the members of the IndianOil family, which helped us succeed through the turbulent year. The Board also wishes to thank the Government of India, particularly the Ministry of Petroleum & Natural Gas, and the various State Governments, regulatory and statutory authorities for their valuable guidance and support. The Board is also grateful to the Corporation’s bankers, investors, customers and vendors for their continued support and confidence reposed in the Corporation.
The Board wishes to place on record its appreciation for the commendable performance and significant contributions made by
Shri R.S.Butola, Dr. R. K.Malhotra, Shri Rajkumar Ghosh,
Shri A.M.K.Sinha and Dr. Sudhakar Rao during their tenure on the Board.
The Board would also like to pay tribute to Shri Sudhir Bhalla, who passed away on May 22, 2014 and acknowledge the significant contribution made by him during his service at IndianOil.
At a time when the country is poised to achieve greater heights and the petroleum industry is moving towards new horizons, IndianOil too is seeking quantum leaps in its core business, adding new and emerging segments on its way to achieving greater progress.
For and on Behalf of the Board