It gives me immense pleasure to extend a very warm welcome to you all to the 52nd Annual General Meeting of your Corporation. On behalf of the Board of Directors, as well as my colleagues at IndianOil, 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. The Notice convening the meeting, the Directors' Report and the Annual Audited Accounts have been with you for some time now and with your permission, I take them as read.
Global Economic Environment
The global economy has been passing through testing times in recent years. The year 2010 saw the global economy grow at 3.8%, which was a significant improvement from the deceleration of (-) 2.2% in 2009. US and Euro Area returned to growth in the year from the downtrend of 2009. Developing countries grew by 7.3% vis-à-vis 1.9% in 2009. Clearly, while there were some signs of recovery, emergence of a new set of geo-political developments have clouded the environment again. The internal strife in certain countries in North Africa and Middle East is not fully over. The US having suffered an unprecedented debt rating downgrade by S&P and now the expanding debt crisis in Europe continues to make the world wary of a deeper crisis. The two large economies of Asia, namely China and India are caught in the midst of rising inflation causing worries to their growth momentum. Despite these challenges, the developing countries especially China and India are expected to register healthy growth, albeit at lower levels, though it is still not clear whether they will be able to return to their earlier levels of high growth or suffer from the slowing impact of the economic uncertainty in the developed world.
Indian Economic Scenario
The Indian economy grew @ 8.5% in 2010-11, up from 8% in 2009-10. The recent forecasts by RBI, however, suggest that the growth may decelerate to 7.9% in 2011-12. While seemingly the lower rate of growth is still impressive, it will have to weather through the developing economic situation in Europe and other countries including inflationary pressures at home. On the positive side, however, the Indian growth story has largely been led by domestic consumption and one can hope that we continue to register handsome growth in future. This will, however, require innovative policy interventions by the Government and optimal interplay of market and economic considerations. One does hope that such interventions will take place in time.
Oil and Gas Sector
As the Indian economy grows, the consumption of energy will continue to expand for energy is the essential engine of growth. The Oil & Gas sector contributes 40.3% to the energy basket of India - oil 29.7% and gas 10.6%. The consumption of petroleum products has been rising at a Compounded Annual Growth Rate (CAGR) of 3.2% over the last 3 years with the 2010-11 consumption aggregating to 141.7 MMT. The transportation fuels alone accounted for 79.3 MMT of the consumption. With the economy continuing to grow at a healthy pace, the demand growth for petro-products is expected to remain robust. IndianOil will therefore, continue to play an important role in meeting the growing demand to fuel the growth of the Nation.
Expanding Market Reach
Your Corporation recognises that the only way it can succeed and contribute to the Indian growth story is by expanding its market reach and better delivery of services to its customers. With 19,463 Retail Outlets (46.4% of the industry), 5,456 LPG distributors (51.8% of industry), 3,960 SKO/LDO dealers (60% of industry) and 140 terminals/depots, your Corporation takes pride in the fact that it constantly meets the fuel needs of its customers throughout the nook and corner of the country, covering distant and remote locations, from Kashmir to Kanyakumari and from Kohima to Kutch, every single day of the year, regardless of the difficulties in reaching some of the very remote locations. Realising that its rural customers have to still travel long distances to take supplies of fuel, your Corporation has taken the initiative of launching its Retail Outlets in rural areas under the brand "Kisan Seva Kendras" (KSKs). 3517 KSKs are already under operation and the programme is being expanded to have a significant presence in the rural segment.
Making cooking fuel (LPG) available in rural areas is another initiative taken by your Corporation. Even today millions of Indians are under-served with energy products and still continue to use fuel-wood in their smoky chullahs. Expanding the reach of LPG availability in rural areas and serving the hitherto unserved areas is a priority programme undertaken by your Corporation through the scheme of Rajiv Gandhi Gramin LPG Vitran Yojana. With this service, we propose to expand our existing customer base of 61.8 million LPG customers (the largest number of customers served by any corporate in the country) to a significantly higher level.
Integration & Diversification
Growth through backward and forward integration is one of the key business philosophies of your Corporation. The first forward step in moving up the Petrochemical value chain was taken by your Corporation with the setting up of 120 TMTPA Linear Alkyl Benzene (LAB) plant at Gujarat Refinery in 2004. This was followed by 350 TMTPA Paraxylene (PX) plant integrated with 553 TMTPA Purified Terephthalic Acid (PTA) plant at Panipat (Haryana) in 2006. You will be happy to know that your Corporation achieved another landmark by commissioning the Naphtha Cracker and Petrochemical Complex at Panipat during the year 2010-11. With the setting up of these units, your Corporation commands 24% capacity of LAB; 14% capacity of PX/PTA and 19% capacity of Polymer (PP, HDPE, LLDPE) in the country. The demand for LAB has been rising @ 5.5%; PX/PTA @ 9% and Polymers @ 12% over the last five years and is expected to further grow by 6.5%, 12%, and 15% respectively in the future. With the rate of growth of the economy continuing to expand at a healthy pace, your Corporation aims to benefit with the demand growth in the petrochemical segment of business and launch further value-added products in the future.
In the area of backward integration especially in Exploration and Production of hydrocarbons, your Corporation has joined hands with other upstream players in the country and acquired participation in 23 exploration blocks (13 domestic + 10 overseas). During the year, your Corporation successfully acquired minor participating interest with Oil India Ltd. and ONGC Videsh Ltd. in a discovered field (Carabobo Project) in the heavy oil belt of Venezuela. Your Company aims to strengthen its expertise in the E&P segment with a view to build an appropriate organisation for taking up more such projects in future.
Expanding presence in the gas business is one of the key focus of your Corporation. The demand for gas is expected to grow in the industrial, power and other sectors due to the inherent cost and efficiency advantages. To seize these opportunities, your Corporation has already registered its presence in gas business by marketing the re-gassified LNG received at Dahej by Petronet LNG Ltd., a company in which your Corporation is one of the promoters. Your Corporation also proposes to set up a 5 MMTPA LNG receiving terminal at Ennore, Tamil Nadu. The project has received support and approvals from the State Government of Tamil Nadu and your Corporation now proposes to fast track its implementation. The Corporation is also looking at opportunities in the LNG and Gas segment at other suitable locations.
Alternative Energy
In the face of growing energy needs of the Indian economy, rising prices of conventional energy and maintaining better environment balance, your Corporation has taken a series of initiatives in the renewable & alternative energy segment such as scaling up the 21 MW wind power capacity to 70 MW and setting up its first 5 MW Solar power plant. Your Corporation is also investing significantly in the research for second generation bio-fuels. Your Corporation has also entered in the nuclear power segment and during the year, a Joint Venture Company named NPCIL-IndianOil Nuclear Energy Corporation Limited was incorporated for garnering opportunities in nuclear energy in the coming years. The joint venture with Nuclear Power Corporation of India, at this stage, envisages power generation of 2X700 MW at Rajasthan Atomic Power Project, RAPP 7&8, at Rawatbhata with an equity participation of ' 961 crore representing 26% share in the paid up capital of the JV.
Refinery Initiatives
Your Corporation believes that refining and marketing will continue to be its core area of activity. With a view to improve its competitive edge, your Corporation has taken a series of steps aimed at reducing the cost of sourcing of crude oil, improving distillate yield and achieving higher energy efficiency.
Your Corporation has inducted state-of-the-art technology into various processes and specifically to process high sulphur crude with a view to benefit from the price differentials between sweet and sour crudes. The Corporation proposes to develop further capability to process a large slate of heavier and sour crudes to take advantage of the price differentials. Your Corporation added 3 MMTPA of refining capacity during the year taking the refining capacity to 54.2 MMTPA and the IndianOil Group refining capacity to 65.7 MMTPA. With these milestones, your Corporation has regained the No.1 slot of being the largest refiner in the country. Your Corporation is also in the midst of implementing its largest 15 MMTPA grassroots refinery project on the east coast at Paradip (Odisha).
Operating Performance
I am happy to share with you that despite the challenges, your Corporation continued to retain its leadership position and registered sales growth of 4.3% over the last year to 72.92 million tonnes of products. Your Corporation's overall petro-product market share went up to 49.6%, though various specific petro-product segments continue to face a tough challenge. The refineries achieved a throughput of 52.96 MMT, an increase of 4.5% during the year, which was possible with achieving a capacity utilisation of 102%. Your Corporation has achieved the highest-ever distillate yield of 75.4%, and all time best energy index of 59 MBN. The pipelines registered the highest-ever operational throughput of 68.52 million tonnes, a growth of 5.4%. Your Corporation added 358 Kms of pipeline length largely by commissioning four new pipelines during the year. With the commissioning of these new pipelines, the total network of crude, products and gas pipelines has increased to 10,899 km.
R&D
R&D continues to drive your Corporation's innovations. During the year, 132 new product formulations were developed, approvals for 46 Original Equipment Manufacturers and six new patents were obtained. Our R&D initiatives are being widened to define and design strategies for development in newer areas. During the year, your Corporation took decisive steps to be a major player in the petrochemicals and polymer business and set-up its state-of-the-art R&D infrastructure for supporting the petrochemical plant operations. In the alternative energy space, research work has been initiated in the area of second generation bio-fuels, co-processing of vegetable oils with refinery streams, algae oil, and bio-hydrogen.
The R&D Centre of your Corporation has also developed a unique product called Servo Agrospray oil which is environment friendly, non-toxic and biodegradable. This product was bestowed with the "CSIR award for Science and Technology Innovations for Rural Development". It could replace harmful and toxic pesticides being used for controlling pests and insects in the crops.
Financial Performance
During the year, your Corporation's sales turnover (inclusive of excise duty) touched an all time high of Rs. 3,28,744 crore while profit after tax touched Rs. 7,445 crore. The Earning Per Share for the year is Rs. 30.67. As you are aware, your Corporation has been consistently declaring dividend for the past 44 years and this year too, the Board of Directors have recommended a dividend of Rs. 9.50 per equity share of Rs. 10 each. So far, your Corporation has paid a cumulative dividend of Rs. 18,575 crore. This is excluding a dividend of Rs. 2,307 crore, payable for the year 2010-11, subject to approval by the shareholders. Your Corporation makes large contribution to the Exchequer in the form of duties and taxes and during the year, Rs. 77,622 crore was our contribution to the state and central exchequer.
Talent Management
Your Corporation realises the need of nurturing talent. To meet the competitive needs, your Corporation constantly assists the employees to enhance their skills. Our belief in our human capital assets has prompted us to intervene through a structured process that will help identify exceptional performers at an early stage in their career. The course of action being implemented, we feel, would stand the test of time with the best of persons being identified and trained to take over leadership positions in the future.
Corporate Governance
Your Corporation maintains the highest standards of Corporate Governance by ensuring transparency in all aspects of its operations. A report on Corporate Governance has been incorporated as a separate section in the Annual Report. Your Corporation complies with the Corporate Governance guidelines for Public Sector Enterprises as enunciated by the Department of Public Enterprises, Govt. of India. In fact, your Corporation is driven by the values of Care, Innovation, Passion and Trust. The translation of these closely held values by the IndianOilPeople at the workplace has a larger benefit in terms of a transparent, ethical and principled work culture.
Making a Difference to Society
Your Corporation's strong commitment and sense of corporate social responsibility is reflected in the commitment to earmark 2% of the annual retained profits towards the annual Corporate Social Responsibility (CSR) expenditure. Your Corporation provides a wide range of socio-economic services and benefits to the underprivileged sections, such as grant of 2600 annual scholarships to needy students pursuing ITI, Engineering, Medical and Management degrees; 150 scholarships to upcoming sportspersons; contributing to projects in the area of clean drinking water, health & medical care, education in rural areas and provision of LPG for community kitchens.
Your Corporation is committed to sustainable business practices. Specific carbon footprint mapping exercise has been carried out at seven different locations which have helped identify target areas for better environment management. With this and various other initiatives, the Corporation has achieved significant successes in its environment improvement practices.
Opportunities Ahead
As India grows, it would need more energy. The oil companies will have to invest constantly in the existing and future opportunities in the energy horizon. The IEA-World Energy Outlook 2010 has estimated that the cumulative investment required, only in the petroleum refining segment in India, up to the year 2035 shall be about USD 139 billion. This has to obviously come from domestic and international markets, from a cross section of sources - Public and Private, investing community as well as foreign direct investments. As a developing country, the allocation of precious resources while meeting the demand of various sectors has to be on extremely prudent basis. The Oil & Gas sector being the engine of growth has to get its rightful share of investments - both through internal generation and market capital. For this, we need to create a mutually beneficial template that will be win-win for investors and consumers alike, built on a paradigm of a predictable business landscape in terms of pricing and subsidies. We do hope that such a paradigm gets incorporated in the relevant policy formulations and we continue to generate healthy internal accruals for meeting our investment needs for product and process efficiency improvement, capacity additions, market expansion, and integration & diversification projects.
Acknowledgements
The Board of Directors places on record its deepest appreciation of the valuable services and dedicated efforts rendered by the members of the IndianOil family all across - the untiring employees, dedicated dealers and distributors, loyal customers and other stakeholders, in achieving the high performance objectives during the year 2010-11. The Board of Directors 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, consultants, technology licensors, contractors and vendors for their continued support and confidence reposed in the Corporation. The Board of Directors also wishes to place on record, its appreciation for the commendable performance and significant contribution rendered by Shri B.M. Bansal, Shri S.V. Narasimhan, Shri V.C. Agrawal and Shri B.N. Bankapur, during their tenure on the Board. Finally,
I would like to sincerely thank each one of our shareowners for unstinted support.
Thank You,
I now move the Annual Accounts for adoption.
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