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| Chairman's Speech at IndianOil's 48th AGM |
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Dear Shareowners of IndianOil,
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It gives me great pleasure to welcome you all to the 48th Annual General Meeting of your Corporation. On behalf of the Board of Directors and my colleagues at IndianOil, I thank you for your kind presence at this important meeting.
The notice convening the meeting, the Directors' Report and the Annual Audited Accounts are already with you for some time now, and, with your permission, I take them as read.
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India @ 60
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India is celebrating the 60th anniversary of independence this year. Way back in 1947, there were many cynics across the world who did not give the fledgling nation even a slender chance of survival. However, India proved them wrong. Despite a difficult journey, it not only survived but also prospered as a thriving democracy.
The financial year 2006-07 marked the fourth consecutive year of high-growth performance by the Indian economy. Gross Domestic Product grew by a record 9.4%. Gains in exports, foreign direct investment inflows and foreign exchange reserves point to the growing integration of the Indian economy with the global economy. India is also doing well in other key indices such as global competitiveness, outsourcing services and capital markets. Today, India is attracting worldwide attention as a youthful, energetic nation and an emerging global power of the 21st century.
Doubling of capacity of IndianOil’s Panipat Refinery to 12 million tonnes per annum and commissioning of Essar Oil’s 10.5 million tonnes per annum refinery at Vadinar raised the country’s annual refining capacity to 149 million tonnes, making India the fifth largest refiner in the world, with a 3.4% share in the total refining capacity.
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Industry Scenario
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The Indian downstream petroleum sector had another eventful year in 2006-07. India consumed close to 120 million tonnes of petroleum products during the year, an increase of 5.7% over the previous year. The combined throughput of the Indian refineries was 141.5 million tonnes, an impressive growth of 11.4% over the previous year. Product exports of 32.4 million tonnes during the year made the petroleum sector the largest contributor to India’s export earnings, constituting about 14%.
Doubling of capacity of IndianOil’s Panipat Refinery to 12 million tonnes per annum and commissioning of Essar Oil’s 10.5 million tonnes per annum refinery at Vadinar raised the country’s annual refining capacity to 149 million tonnes, making India the fifth largest refiner in the world, with a 3.4% share in the total refining capacity.
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Exceeding Expectations
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IndianOil’s own performance in the financial year 2006-07 was a case of ‘exceeding expectations’ with both turnover and profits reaching new highs, product sales registering a quantum jump, and the refineries as well as pipelines network posting record throughputs. New projects worth about Rs. 10,000 crore were put on stream, new businesses of natural gas and petrochemicals began adding to the bottomline, and overseas subsidiaries expanded their business activities. All this was achieved against heavy odds and turbulence in the business environment brought on by high prices of crude oil and petroleum products in the international market and huge financial burden of net under-realisation.
The Corporation sold 53.4 million tonnes of petroleum products during the year as compared to 50.6 million tonnes in the previous year, including sales by the erstwhile IBP Co. Ltd. for both the years. In addition, the sale of natural gas went up to 1.48 million tonnes from 1.3 million tonnes in the previous year, and product exports to 3.13 million tonnes from 2.09 million tonnes in the previous year.
IndianOil’s seven refineries registered 98% capacity utilisation and the highest-ever throughput of 44 million tonnes during the year, an increase of 14% over the previous year, together with marked improvement in distillate yield and energy conservation. Sixteen new varieties of crude oil were added to the Corporation’s crude oil basket for flexibility in sourcing. Processing of low-priced heavy and sour crudes was maximised to improve refining margins. In a major policy shift, IndianOil received permanent approval from the Government of India to continue with ship chartering on its own for petroleum imports so as to optimise freight costs of group refineries.
Your Corporation’s cross-country pipelines network achieved the highest-ever throughput of 51.69 million tonnes, an increase of 14% over the previous year. The pipelines network was expanded to 9,273 km with a combined capacity of 61.72 million tonnes per annum.
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Financial Performance
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IndianOil set a new record for corporate India in 2006-07 by achieving a Gross Turnover of Rs. 2,20,779 crore, up by 20.5% as compared to the previous year. It also earned a record net profit of Rs. 7,499 crore, up by 52.6% over the previous year. The profit for 2006-07 includes a profit of Rs. 3,225 crore on sale of 20% equity holding in Oil & Natural Gas Corporation Ltd. and provision of Rs. 1,319 crore for diminution in investments in IBP, while the profit for 2005-06 included a profit of Rs. 438 crore on sale of equity holding in GAIL (India) Ltd.
The net under-realisation on account of sale of the four sensitive products – petrol, diesel, PDS kerosene and Domestic LPG – was Rs. 2,190 crore, after considering the compensation received in the form of Government of India subsidy and oil bonds, besides subsidy sharing by upstream companies.
The Board of Directors of your Corporation have recommended a final dividend of 130% for the year 2006-07, which is in addition to the interim dividend of 60% already paid during the year.
For the first quarter of the current fiscal, IndianOil registered a net profit of Rs. 1,468 crore, which includes the impact of exchange gain on loans as well as robust refining margins. In the absence of oil bonds, the Corporation suffered a net under-realisation of Rs. 4,879 crore on sale of the four sensitive products during the quarter.
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Customer Care
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IndianOil continued its dominance in the marketplace during the year 2006-07. Besides gaining volumes in bulk sales, it consolidated its position in the retail segment, opening 1,202 new petrol & diesel stations. With inclusion of 3,598 stations of IBP, the total number of IndianOil petrol & diesel stations touched 16,540. The Corporation plans to add 1,600 more stations this year.
As part of IndianOil’s efforts to ensure quality & quantity assurance of products for its valued customers, operations at about 2,000 retail stations are being fully automated by March 2008. The comprehensive automation programme would also enable its dealers to plan and manage inventory better and improve forecourt services. A GPS-based vehicle-tracking system is being put in place to monitor movement of tank trucks carrying products from bulk supply points to the retail stations, for strict compliance on quality & quantity parameters. Inspection by multi-disciplinary teams and third-party certification are being undertaken to ensure greater transparency and diligence. A unique marker system was also launched to curb adulteration of diesel with kerosene.
IndianOil’s branded fuels – XTRAPREMIUM petrol, XTRAMILE diesel and AUTOGAS LPG – emerged as leaders in their respective segments for the first time, with market share of 44%, 57% and 44% respectively as on date. IndianOil’s XTRAPOWER fleet card programme, with over 10 lakh members, transacts Rs. 7,500 crore per year.
IndianOil’s customer base for Indane LPG cooking gas grew to 471 lakhs. The Corporation continued to be the market leader in aviation fuelling and marine sales business, with an overall market share of 63% and 77% respectively.
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Expanding Horizons
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In keeping with IndianOil’s ambitious plans to grow across the entire hydrocarbon value chain, the year 2006-07 witnessed some major achievements, some of which I shall share with you.
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Downstream Integration
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India is one of the fastest growing petrochemicals markets in the world, with an average growth of 13-15% in the last two decades. Taking this into consideration, IndianOil is implementing a master plan envisaging investments of Rs. 30,000 crore by the year 2011-12 for integration into petrochemicals. By using captive streams from operating refineries, the proposed world scale petrochemical plants would ensure value addition and better exploitation of the hydrocarbon value chain.
With the commissioning of the 553,000 tonnes PX/PTA (Paraxylene/Purified Terephthalic Acid) plant at Panipat, IndianOil has emerged as a major petrochemicals player in the country. In addition, a world scale Naphtha Cracker project with downstream polymer units at Panipat is slated for commissioning by the end of 2009. An integrated refinery-cum-petrochemicals complex coming up at Paradip shall further enhance IndianOil’s downstream integration. Meanwhile, within two years of commencing marketing of Linear Alkyl Benzene, your Corporation has captured a significant share in the domestic market, besides making sizeable exports to Asia and Europe.
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Upstream integration
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IndianOil is actively pursuing upstream integration through exploration & production activities both within and outside the country. Its consortium approach with established players is paying off well in this high-risk business. During the year, the Corporation, along with consortium partners, farmed into an exploration block in Gabon, acquired participating interest in a block in Nigeria and two blocks in Yemen, and was awarded two blocks at home under the New Exploration Licencing Policy (NELP). With this, your Corporation now has an upstream portfolio comprising participatory interest in eight oil & gas blocks under NELP, two farm-in blocks in northeast India and two Coal Bed Methane blocks, in addition to seven oil & gas blocks overseas.
In another significant development, your Corporation received the approval of the Government of India for acquisition of 5% equity in Oil India Ltd.
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Diversification
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India is one of the largest emerging gas markets in the Asia-Pacific. The share of natural gas in the country’s energy mix has increased from 2.5% in the early 80s to around 8% in the year 2006, and is likely to go up to 20% by the year 2025. Having entered the natural gas business in August 2004, IndianOil is in the process of sourcing more LNG, building LNG infrastructure and expanding the customer base further. An LNG import terminal is planned at Ennore near Chennai. Green Gas Ltd., IndianOil’s joint venture with GAIL for city gas distribution, is operational in Agra and Lucknow and plans to expand to other cities in western UP. More city gas distribution projects are in the pipeline in partnership with GAIL and Great Eastern Energy Corporation Ltd. Recently, your Corporation commissioned, for the first time in India, pilot projects offering ‘LNG at the doorstep’ through cryogenic transport and storage facilities to customers located away from natural gas pipelines.
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Subsidiaries & JVs
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The marketing subsidiary, IBP Co. Ltd., merged with the parent company IndianOil with effect from 2nd May, 2007. Accordingly, IBP’s financials for 2006-07 were merged with those of IndianOil. The petroleum business of IBP has also been seamlessly integrated into the Marketing Division of IndianOil.
Decks have been cleared for the merger of the refining subsidiary, Bongaigaon Refinery & Petrochemicals Ltd. The Boards of Directors of both the companies have accorded approval to the Scheme of Amalgamation and the merger process is in progress.
Your Corporation’s overseas subsidiaries are faring well. Lanka IOC PLC launched branded petrol and diesel during the year to good acceptance. A lube blending plant is to be commissioned at Trincomalee soon. IndianOil (Mauritius) Ltd. recently commissioned Mauritius’ first state-of-the-art laboratory for testing of petroleum products. New agreements with air operators ensured a 40% growth in its aviation business. IndianOil Middle-East FZE commenced blending and marketing of SERVO lubricants in the Middle East and African countries.
The combined turnover of all subsidiaries (excluding IBP) for the year 2006-07 was Rs. 37,625 crore, registering a growth of 11.9% over the previous year. Their combined profit was Rs. 729 crore, an increase of 24.2% over the previous year. The joint ventures also fared well during the year, with their aggregate turnover reaching Rs. 6,265 crore, representing a 40.6% growth over the previous year. Their combined profits registered a 36% jump to Rs. 362 crore.
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Technology Offerings
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As the leader in research & development in the Indian downstream hydrocarbon sector, IndianOil is aggressively marketing its intellectual property as an additional revenue stream and is vigorously pursuing the promise of alternative fuels and technologies. Its in-house developed INDMAX technology has been selected for the Fluidised Catalytic Cracking (FCC) units at the upcoming refinery-cum-petrochemicals complex at Paradip, as well as at Bongaigaon Refinery. IndianOil has also licenced its Diesel Hydrotreating technology to these two refineries. With this, your Corporation has joined the select league of global technology providers. During the year, IndianOil also developed 180 new and cost-effective product formulations, of which 164 have been commercialised. Today, your Corporation also stands proudly in the company of six worldwide technology holders of shipboard marine oils.
As part of its efforts to promote Hydrogen as an alternative fuel, your Corporation is in the process of setting up the country’s first Hydrogen-CNG dispensing station at Delhi. Various demonstration projects on the use of H-CNG blends are also under implementation.
As you are aware, IndianOil is exploring the possibility of entering the entire value chain of bio-fuels, particularly Bio-diesel, starting from plantation of Jatropha to sale of the end product. I take this opportunity to thank all the shareholders for their overwhelming support through postal ballot for amending the Objects Clause of the Memorandum of Association of the Corporation to undertake activities relating to bio-fuels business.
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Growth Vision
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India is the fifth largest consumer of primary energy in the world today, after USA, China, Russia and Japan. With the economy in a new phase of high growth, the country’s energy demand is growing at the rate of 5-6% per annum, well above the world average. Consumption of petroleum products, which accounted for 37% of the energy basket in the year 2006, is also projected to grow at rates above the world average.
India’s plans for energy security in the future have to contend with high crude oil prices in the international market. From a range of $ 28-30 in the years 2002-04, crude oil price has climbed steeply in the past three years to reach an average of $ 62.46 in 2006-07. The Indian basket even spiked to an all-time high of $ 76.13 per barrel on 19th September, 2007.
Unlike the ‘oil shock’ of the early 1970s, the impact of spiraling crude oil and petroleum product prices on the Indian economy has been limited this time, signifying a new phase of economic growth. However, oil marketing companies, including IndianOil, have been suffering losses due to incomplete pass-through of prices of the four sensitive products to the consumers. Thankfully, subsidy reimbursement from the Government, discounts from upstream companies and the Government Oil Bonds have partially offset these losses. IndianOil, which prides itself as a national trust for economic prosperity, is however doing its best to enhance the bottomline in every possible way while continuing to serve the larger interests of the nation.
IndianOil is taking a number of steps to ensure that subsidised LPG and kerosene reach only the intended consumer groups. Its growing network of Autogas LPG stations will provide customers with a genuine, safe and economical alternative fuel, besides curbing diversion of subsidised LPG. ‘INDSOFT’, an online software package is being installed at the Indane distributors’ premises to help monitor all transactions. Plans are underway to track LPG cylinders through a new concept of RFID technology.
Meanwhile, competition in the marketplace is becoming more and more intense and the days ahead are only going to get tougher. Though your Corporation did maintain its market leadership in these challenging times, a lot more innovative, meticulous planning and hard work are needed to retain its numero uno status. It is, therefore, gearing itself to take on the impending challenges with investments of Rs. 43,250 crore over the next five years.
With the IndianOil Group set to enhance its refining capacity to about 80 million tonnes per annum by the year 2011-12, your Corporation aspires to play an active role in India’s bid to emerge as an export-oriented refining hub by taking advantage of its proximity to emerging energy markets in the region. It has also initiated steps for progressive increase in the processing of low-priced high-sulphur crude oils at its refineries from about 44% at present to about 75% in the next five years to enhance gross refinery margins. In fact, the Panipat Refinery Expansion Unit is already processing 100% high-sulphur crude oil. So will be the case with the future expansion of Panipat Refinery as well as the upcoming Paradip Refinery.
IndianOil’s pipelines network is also gearing up to strengthen the competitive advantage it provides to the marketing operations. New projects of over Rs. 2,300 crore, including LPG and R-LNG pipelines, are under implementation to reach 10,000 km and 75 million tonnes per annum capacity in the next two years.
On the marketing front, your Corporation’s emphasis is now on exploiting the potential of the vastly untapped rural sector, non-fuel revenues and the fast-growing pure retail business. While Indian cities have become increasingly integrated with the world economy, it is now the turn of our villages to join them. For the past two years, IndianOil has been focussing on reaching out to the rural masses through its innovative marketing initiative, the Kisan Seva Kendra (KSK) retail stations. As on date, over 1,500 KSKs are operational as unique, one-stop shops to serve our rural customers at their doorstep, and 1,000 KSKs shall be added every year in the near term to further consolidate our first-mover advantage in rural marketing. This new business model, which combines business commitment and social responsibility, has brought recognition to IndianOil as the ‘Most Admired Retailer of the Year’ in Rural Retailing category at the recent India Retail Forum, getting past several strong contenders.
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People Power
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Your Corporation recognises business strategies and robust HRD systems as the key elements for sustained growth of business. Having ventured into several new growth areas, it has fine-tuned the criteria for recruitment and induction into the organisation to suit the new skill sets required. Training & development is also being redefined with varied inputs on job knowledge as well as soft skills.
During the year 2006-07, IndianOil further strengthened its commitment to the core organisational values of Care, Innovation, Passion & Trust. An employee engagement survey was conducted during the year to chart the collective perspective and changing aspirations of the work force. Based on the findings of the survey, an action plan has been initiated for bringing about improvements in identified areas. As an equal opportunity employer, IndianOil has a sizeable number of women executives handling key jobs as well as challenging assignments in field locations.
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Beyond Profits
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Your Corporation is committed to conducting business with a strong environment conscience for sustainable growth, safe workplaces and enrichment of quality of life of employees, customers and the community at large. Its operating units can boast of the best procedures and practices of the industry to take care of safety and occupational health hazards. The environment management systems at its refineries, pipelines and major marketing installations are certified to ISO-14001 standards. Continuous in-house process improvements and technology upgradation ensure energy conservation and reduction of hydrocarbon loss on a recurring basis. Besides product quality upgradation projects at five IndianOil refineries, several Clean Development Mechanism projects have been taken up to reap the benefits of carbon trading by reduction of greenhouse gas emissions.
The Hon’ble Prime Minister of India, Dr. Manmohan Singh, recently outlined the role of corporates in what he called the ‘social charter.’ He said, “Indian industry must rise to the challenge of making our growth processes both efficient and inclusive. This is our endeavour in the government. It will have to be yours too… I invite corporate India to be a partner in making ours a more humane and just society.”
IndianOil has always made the concept of constructive partnership for socially responsible growth an integral part of its business strategies. Its own physical presence in every nook and corner of India provides it with an opportunity to directly engage with communities in the neighbourhood of its locations in synergistic business activities that can create livelihood for many and raise standards of living. IndianOil’s pioneering initiatives in developing and commercialising Bio-fuels have the potential to bring about greater social equity and in ‘mainstreaming’ the disadvantaged sections of rural India.
Your Corporation has also brought out its maiden Sustainability Report for the year 2005-06 presenting its performance on economic, social and environmental parameters based on the widely accepted ‘triple bottom line’ concept.
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Recognitions
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IndianOil’s excellent performance, notwithstanding the highly challenging and complex business environment, enabled it to maintain its position as India’s No. 1 Company in the Fortune ‘Global 500’ listing this year too. In fact, it moved up 18 places in the prestigious listing to occupy the 135th position besides becoming the 20th largest petroleum refining company in the world.
In addition, IndianOil has been ranked 2nd amongst the top 50 Most Valuable Brands in India by Brand Finance of UK, besides being chosen as India's ‘Most Trusted Fuel Pump Brand’ in The Economic Times Brand Equity - AC Nielsen Survey and ‘Trusted Brand in the Petrol Station Category’ in the Reader’s Digest - Nielsen Media Research Survey conducted recently.
IndianOil has also been conferred the Standing Conference of Public Enterprises (SCOPE) Award for Excellence & Outstanding Contribution to Public Sector Management in Institutional Category and the SCOPE Meritorious Award for Best Practices in Human Resource Management for the year 2005-06.
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Corporate Governance
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As a good corporate citizen, your Corporation lays great emphasis on Corporate Governance and endeavours to fully comply with the provisions thereof, both in letter and spirit. 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.
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Acknowledgements
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In conclusion, on behalf of the Board of Directors of your Corporation, I thank the millions of our loyal customers in India and abroad for their continued patronage and support, which was largely responsible for our excellent performance in a difficult year. The trust and confidence reposed by over 96,000 shareowners of IndianOil continue to be the inspiration behind all our endeavours. I would also like to acknowledge the commitment and dedication of the 31,700-strong IndianOil team for the excellent performance of the Corporation during the year 2006-07.
The Board of Directors 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 and vendors for their continued support and confidence reposed in the Corporation.
The Board also wishes to place on record its appreciation of the significant contributions and valuable services rendered by Shri Jaspal Singh, Shri A.M.Uplenchwar and Shri Anil Razdan during their tenure on the IndianOil Board.
With India’s energy needs projected to rise rapidly in the next five years, the future indeed is full of promise for your Corporation. IndianOil is eyeing growth through development of its core competencies along with new businesses and is determined to strengthen itself to face the highly competitive hydrocarbon industry worldwide.
Thank you. I now move the Annual Accounts for adoption.
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(Sarthak Behuria)
Chairman
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