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| Chairman's Address at IndianOil's 50th AGM |
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Dear Shareowners of IndianOil, Ladies and Gentleman,
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It gives me immense pleasure in welcoming you to the Golden Jubilee Annual General Meeting of your Corporation. On behalf of the Board of Directors and my colleagues at IndianOil, I thank you all for your kind presence here today.
The notice convening the meeting, the Directors' Report and the Annual Audited Accounts are already with you, and, with your permission, I take them as read.
You are all aware that indianOil is celebrating this year as the Golden Jubliee year. We are proud of 50 glorious years in the service of the nation. During these five decades, IndianOil has grown to emerge as the country’s largest commercial enterprise and India’s highest ranked company in the prestigious Fortune Global 500’ listing, at 105th position. It is truly an honor to be celebrating this special occasion. This milestone is a reflection of our long-standing commitment to provide value to our shareholders and clients. The collective contributions of our employees and our business partners give us the ability to successfully meet the strong demand for energy driving various sectors of the economy.
Keeping in view the expectations of our esteemed shareholders on the occasion of the Golden Jubilee of the Company, I am pleased to announce that the Board of Directors at their meeting held yesterday has recommended the issue of bonus shares in the ratio of 1 : 1. You may be aware that IndianOil Board has already announced a dividend of 75% for the shareholders.
Built on the vision of Pandit Jawaharlal Nehru, to be the ‘temples of modern India’, your Corporation has come a long way not only in its core areas of business but also in pursuing vertical integration into petrochemicals, oil exploration & production, as well as diversification into alternative green fuels. We have expanded our business beyond Indian shores, acquired corporates and merged some.
Your Corporation is proud of its ‘country first’ approach. Its strong presence across topographies reflects this – in deserts, mountains, plains, islands – we are there wherever people need us. We provide vital fuel supplies to our defence forces. Our assistance and succour to affected people in times of natural calamities has won us warm appreciation time and again.
Your Corporation has made rapid strides in the past decade, achieving a significant portion of the aspirations enunciated in the Vision – to emerge as ‘an integrated, diversified, transnational energy major. However, in the backdrop of a fast changing business scenario, your Corporation embarked upon a comprehensive exercise to re-visit the Vision. The new Vision sees IndianOil as ‘the energy of India’ and aspiring to be ‘a globally admired company,’ with Ethics, Customers, People, Technology, Innovation and Environment as its cornerstones.
The year that passed by was one of the most challenging for the world economy and businesses. Financial markets and economic conditions deteriorated substantially. It led to shrinkage of many of the developed economies and less than expected growth of emerging economies. Indian economy too was affected despite dominance of domestic sources of growth.
The current state of the global economy underlines the importance of energy in continuously improving the levels of prosperity and the standards of living. The Indian economy confronted severe external shocks in 2008-09 in the form of an intense global financial crisis coupled with a general recession, but exhibited resilience, with GDP growth at 6.7% as against a negative growth of 1.4% in the world. The Government today faces the dual challenge of controlling the budget deficit while at the same time improving industry performance. Your corporation, therefore, has the responsibility, in fact a tremendous challenge, to cater to the energy needs of a fast-growing nation.
For downstream oil companies like IndianOil, managing the day-to-day operations in an environment of high volatility in crude oil prices was a daunting task. During 2008-09 in particular, the peaking of crude oil prices and the sudden switch to a low-price regime dramatically affected the economics of the industry across the value chain.
The situation was further exacerbated by uncertainties in pricing issues. Petroleum products consumption during 2008-09 was over 133 million tones, registering a year-on-year growth of over 3.5%. In contrast, growth in MS and HSD was above 8%. The current pricing regime is, therefore, shifting the energy use pattern and your Corporation is facing an uphill challenge in managing the skewed growth of transport fuels.
While raw material costs are beyond the control of your Corporation, and with price realization for the high-volume products being administered, minimizing operational costs was the key challenge for maximising returns. In this context, IndianOil constantly strived for optimization of refining processes, logistics and supply chain management. Amidst all these, IndianOilPeople showed amazing resilience and continued to excel and even clocked a modest profit of Rs. 2,950 crore.
Looking at future prospects, crude oil is being forecast to stabilise in the near term. Whatever be the price, we would welcome such a development, since a stable price regime would give us an opportunity to plan our investments more rationally, optimise operations and drive growth into profitable areas to be able to enhance shareholder value.
With surplus refining capacity, the refining industry is at a crossroad in its history. A shift in energy use pattern in transport sector and stricter environment regulations require major investments in upgrading units. Adding to these challenges is processing of heavy and sour crudes to improve margins. However, with the addition of Bongaigaon as the eighth refinery, IndianOil refineries together achieved the highest ever throughput of over 51 million tones during 2008-09, registering a growth of 3.94% over the previous year.
The Pipelines Division too set a new record with the highest ever operational throughput of over 59 million tonnes of crude oil and finished products. The combined length of the cross-country pipelines network crossed the 10,000 km mark with the commissioning of the Paradip-Haldia crude oil pipeline system, the maiden LPG pipeline from Panipat to Jalandhar and the ATF pipeline from the Manali refinery to the Chennai airport.
During the year, your Corporation maintained its dominance in the market place and clocked the highest ever sales of over 66 million tonnes of petroleum products, registering a growth of 5.67% over the previous year. It was the only petroleum company among 100 other industrial giants to emerge as ‘The Most trusted Fuel Pump Brand’ in The Economic Times Brand Equity survey for the year 2008. It bagged the 7th position among service brands.
To serve our customers better and to enhance their convenience, an all-India toll-free number and electronic feedback system were introduced for the first time. Over 26 lakh new LPG customers were enrolled, taking the cumulative Indane population to 529 lakhs. Despite an overall drop in aviation fuel volumes owing to a downturn in the aviation business, market leadership was maintained with a 63% market share.
During the year, your Corporation leveraged its cutting-edge R&D and innovative customer support & services capabilities to register a 2.3% gain in the highly competitive lubricants market. Abroad, its world-class SERVO lubricants were launched in Oman through IOC Middle East FZE.
Your Corporation is continuously augmenting its production capacities and upgrading its technologies to meet the energy demands of the nation. As part of this, projects valued at over Rs. 60,000 crore are currently under implementation, including a grassroots refinery at Paradip.
Your Corporation believes in a culture of innovation for sustained growth. Accordingly, it has doubled the investment in R&D during an otherwise difficult year. The R&D Centre commercialised 153 lube formulations during the year. Approvals from original equipment manufacturers were received for 47 new lubricants and greases. Seventeen patents were filed, of which 10 were approved, including 6 US patents.
Two novel technologies for improving the quality of gasoline and diesel fuels to Euro-IV and Euro-V norms were rolled out during the year, besides a metal-tolerant FCC catalyst additive to enable processing of heavier, low-quality feed. Efficacy of unique DHDS and DHDT catalysts developed by the Centre has been successfully demonstrated in one of our refineries.
As part of its efforts to promote Hydrogen as an alternative fuel, IndianOil has set up the nation’s first commercial Hydrogen-CNG dispensing station at Delhi.
In spite of turbulence in business in the past few years, your Corporation continued its vigorous pursuit of expansion across the hydrocarbon value chain through integration and diversification initiatives.
Your Corporation achieved a significant milestone in its oil exploration & production efforts with the award of two on-land Type-S blocks in the Cambay basin, with 100% participating interest and operatorship, in the seventh round of the New Exploration Licensing Policy of the Government of India. In addition, a consortium of IndianOil and other companies was awarded a deepwater block in the Krishna-Godavari basin. In all, your Corporation now has participating interest in 11 domestic and 9 overseas blocks.
Your Corporation registered sales of 1.85 million tonnes of regassified LNG during the year. It signed a MoU with Oil India Limited for pursuing gas-related activities, including city gas distribution projects, in various parts of the country. Franchise agreements have been entered into with several gas producers for sale of CNG through IndianOil retail outlets.
With investments of over Rs. 20,000 crore in three world-scale plants and more projects on the anvil, petrochemicals will be a major driver of your Corporation’s future growth. With stabilization of production facilities and addition of new product lines and customers during the year, we expect 15 per cent of our revenues to come from this vertical within the next three years.
During the year, the domestic business of Linear Alkyl Benzene (LAB) was further consolidated and exports market expanded to 12 countries, thereby enabling the LAB plant at Koyali operate at 107% capacity. The domestic market for PTA grew by 9% during the year. The naphtha cracker with downstream polymer units at Panipat, being the largest petrochemicals project of your Corporation, is to be commissioned during the current fiscal.
Your Corporation formed a joint venture company with Chattisgarh Renewable Energy Development Agency for carrying out commercial bio-diesel plantation in the State. A pilot project for plantation of energy crops on revenue wasteland in Madhya Pradesh was launched during the year, and the first phase of jatropha plantation on 600 hectares is underway.
Thrust on green energy alternatives received a major boost with the commissioning of a 21-Megawatt wind-power project at Surajbari near Kandla in Gujarat. Two pilot charging stations for solar energy lanterns were set up in the premises of Kisan Seva Kendra outlets in Uttar Pradesh.
Global warming is becoming an important issue. IndianOil has adopted the most advanced clean technologies to minimise carbon dioxide emissions while at the same time reducing energy consumption, cutting down waste and increasing re-use of resources in refinery operations. We are also pursuing clean development mechanism projects at many of our installations.
Energy conservation continues to receive thrust at all IndianOil refineries through in-house process monitoring and keeping abreast with latest developments. As a result of various energy conservation measures undertaken, the energy index in terms of Thousand British Thermal Units/ Barrel/ Energy factor of IndianOil Refineries during the year is down to 64 as against the energy index of 67 in the previous year. Similarly, energy conservation schemes implemented during the year resulted in fuel savings to the tune of 73,000 MT/year valued at Rs. 168 crore.
Among the many accolades received during the year, your Corporation emerged as the only PSU among the top 25 ‘Best Employers in India’ in a nationwide survey conducted by Hewitt Associates and Outlook magazine.
In contrast to the recessionary trends in the industry, a record number of 900 engineering and management graduates and CAs were recruited during the year. For the first time in many years, experienced professionals were recruited at the middle-level to take up positions in petrochemicals and bio-fuels, which are at the take-off stage with large investments.
The process of integration of the countrywide operations of IBP with those of the parent company was completed during the year. So also was the amalgamation of the marketing operations of Assam Oil Division with IndianOil’s Marketing Division, for enhanced customer service and reduced costs in our north-eastern operations.
In a move that will considerably expand your Corporation’s comprehensive corporate social responsibility agenda, the ceiling on annual expenditure on such activities has been enhanced from 0.75% of the net profit to 2% of the retained profit of the previous year. This would enable us to focus on select areas that need attention to be able to make a difference.
A whistle-blower policy is now in place in your Corporation and a procedure formulated to enable employees report incidents of malpractices, if any, without fear of victimisation. The Integrity Pact programme in association with Transparency International India enabled enhance transparency, integrity and accountability in business transactions, contracts and procurement processes with the numerous domestic and international contractors, and vendors of goods and services. Your Corporation continued its efforts to promote employees’ participation in suggestions scheme, quality circles, safety and total productive maintenance during the year to help improve quality, productivity, cost effectiveness and system improvement.
The international oil & gas industry event, PETROTECH-2009, organised by your Corporation at New Delhi under the auspices of the Ministry of Petroleum & Natural Gas, was a grand success.
Apart from continuing successes in oil exploration and consultancy abroad, your Corporation’s three overseas subsidiaries have done well during the year 2008-09. The market share of IndianOil Mauritius Ltd. went up from 19% to 21.5%. Having achieved a financial break-even in this year, IOML continues to do well.
In recognition of its growing footprint in Sri Lanka, LIOC has been ranked No. 1 among Sri Lanka’s listed companies for the financial year 2007-08 by the nation’s leading business magazine, Lanka Monthly Digest.
As a responsible corporate citizen, your Corporation lays great emphasis on corporate governance, fully complying with the relevant guidelines of the Listing Agreement as detailed in the Annual Report. The network of offices of our Registrar & Transfer Agents across the country and the Corporation’s own Investor Service Cells at Mumbai and Delhi provide prompt services to the shareholders.
On behalf of the Board of Directors of your Corporation, I thank the millions of our customers in India and abroad for their unstinted loyalty and steadfast patronage of our products and services. I would also like to extend a special thanks to each and every shareowner of IndianOil, whose trust and confidence have been the motivating force in all our endeavours.
I also place on record our deep appreciation of the dedication and hard work of the members of the IndianOil family, which helped us succeed in a tough and 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.
At a time when the petroleum industry is moving towards new horizons, IndianOil too is seeking quantum leaps in its core business, adding on new and emerging segments on the way. Growth has always been on top of the agenda. Persistent endeavour in consolidating and expanding the core business, upgrading infrastructure in line with the challenging environmental norms, venturing into new businesses, have yielded remarkable results and facilitated the Corporation to be ‘the energy of India,’ and aspiring to emerge as ‘a globally admired company.’
Thank you.
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(Sarthak Behuria)
Chairman
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| Updated on September 14, 2009 |
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