The Communication Meeting for the period January – April 2008 was held at the Corporate Office in New Delhi. It was attended by Chairman, Functional Directors, and heads of departments, locations, State Offices, and overseas subsidiaries.

The excerpts of the meeting are placed below:

Chairman
Director (Planning & Business Development)
Director (Pipelines)
Director (R&D)
Director (Finance)
Director (HR)
Director (Marketing)
Director (Refineries)

Chairman:

• Complimented the IndianOilPeople for good all-round development and sustained efforts by all the divisions which helped improve margins.
• Chairman advised all concerned officials to look into the findings of Employee Engagement Survey, handle grievances with care, and work continually towards improving the engagement levels.
• Hoped to have a new Corporate Vision in place in a few months.
• Referring to IndianOil’s recent participation in the Ministerial delegation on Iran–Pakistan–India Gas Pipeline Project, Chairman expressed positive outcome of the bilateral meetings.
• Chairman informed that he had had the opportunity to lead the Indian delegation to the International Energy Business Forum in Rome. The Forum concluded that there is enough availability of energy resources. However, investments to the tune of $5.4 trillion are required to boost oil-related infrastructure up to the year 2030. The gas sector too requires huge investments over and above this.
• While expressing the need for enhanced internal communication, Chairman said the communication is the key to leverage our strengths. An interactive initiative has recently been unveiled to reach out to IndianOilPeople through video-conferencing across countywide locations. The initiative is titled Face2Face.
• Chairman expressed concern that there have been delays in the commissioning of the Paradip Haldia Crude Oil Pipeline. However, he also expressed confidence that our officers who are toiling hard, would not leave any stone unturned to commission the project soon.
• He expressed that the ongoing projects should not only be completed in time but utmost safety should also be ensured in construction and plant operations.

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Director (Planning & Business Development)

• Gas vertical - During 2007-08, IndianOil sold 1.91 million metric tonnes of R-LNG and 5,534 metric tonnes of LNG (‘LNG at the Doorstep’). A Gas Sale Purchase Agreement has been finalised with Petronet LNG Ltd. to supply LNG to Pragati Power from October 2009. GTA with GAIL is also under finalisation.
• Discussions are on with ONGC/other gas producers to secure gas from marginal fields / CBM blocks for small liquefaction plants. Plans are also being firmed up for setting up CNG stations in Bangladesh in collaboration with a local business entity.
• We have commissioned the technology innovation project “LNG at the Doorstep” to supply LNG directly to the consumers through cryogenic tankers for industrial and captive power applications. Supplies to two pilot project customers in Maharashtra and Gujarat have started.
• Petrochemicals vertical – During 2007-08, sale of IOCLAB has grown by 11.7% to clock 136 thousand metric tonnes (TMT), including exports of 39 TMT to eight countries. Two multinationals - Procter & Gamble and Colgate Palmolive – became our customers, marking a true global presence for IOCLAB.
• March 2008 marked the first financial year of PTA sales. 3,75,000 tonnes of PTA was sold during 2007-08 in the domestic market. Most of the customers reported PTA quality problems during Sept-Oct ’07, causing piling up of off-spec stocks at customers’ premises and our warehouses. However, consequent to persuasion and offer of additional discounts, the entire stock was disposed of. PTA supply contracts for 2008-09 have been finalised.
• In the Polymers business, detailing on marketing infrastructure, logistics and operations is currently in progress. Interviews have been conducted recently for induction of 25 mid-level Officers.
• Subsequent to Board approval for setting up a new Paraxylene unit at Gujarat Refinery, L&T Chiyoda is carrying out a detailed feasibility study, including assessing feasibility of an integrated PTA unit at Gujarat. The DFR study is expected to be completed in 28 weeks.
• The viability of the Styrene Butadiene Rubber (SBR) unit at Panipat based on Butadiene stream from Naphtha Cracker has been established. Envisaged as a tripartite joint venture of IndianOil, Taiwan Synthetic Rubber Corporation and Marubeni Corporation, the project is due for the in-principle approval of the respective Boards. Its completion is expected by the end of year 2010.
• Bio Fuels vertical - Activities are currently underway for the formation of a JV in Chhattisgarh. The estimated cost of plantation on 50,000 hectares and annual production of 50,000 tonnes of raw oil will be Rs. 233 crore over four years. A trans-esterification plant will be set up by IndianOil to process this feedstock into Bio-diesel. The Madhya Pradesh Govt. has allotted 2000 hectares of revenue wasteland in Jhabua district in January 2008 for starting plantation of energy-crops.
• Product Export – IndianOil exported 36.82 TMT of bulk bitumen to Bangladesh and 4.09 TMT to IRCON, Nepal, against long-term contracts, earning a revenue of Rs. 47.1 crore.
• In response to the keenness shown by Mozambique authorities to associate with IndianOil for developing downstream oil sector infrastructure in their country, we are in the process of executing an MoU with Petromoc, the national oil company of Mozambique.
• The technical services and manpower secondment agreements of over a decade with the Emirates National Oil Company, Dubai, have been extended by one more year. This shall be 10th consecutive year for MSA and 11th consecutive year for TSA.
• Training programmes have been conducted for engineers of Khartoum Refinery and Iraqi Officials. Personnel from Petronas’ Melaka Refinery, Malaysia and NOC, Libya, were also trained at Haldia Refinery.
• During the year, IndianOil has been formally re-inducted into Petroleum India International. After settlement of outstanding issues, IndianOil has received a dividend of Rs. 102 lakh for the year 2006-07, as well as equity shares of IBP.
• Gas discovery has been made in an Assam well held by the consortium of Hindustan Oil Exploration Company (Operator), IndianOil (43.5% Participating Interest) and OIL. The discovery in well Dirok#1 in the block AAP-ON-94/1 has been notified to the Directorate General of Hydrocarbons and conventional testing of the well has been completed. Gas has also been discovered in the domestic exploration block of Mahanadi offshore. The IndianOil-ONGC-OIL-GAIL consortium has submitted the appraisal plan for this discovery to DGH. 3D seismic survey has been carried out to find out the extent of the gas-bearing structure as well as to identify other structures present in the area.
• IndianOil and OIL have incorporated a Special Purpose Vehicle - Ind-OIL Overseas Ltd. - at Port Louis, Mauritius, to undertake acquisition of overseas E&P assets.
• In consortium with OIL, Medco Energi (Indonesia) and Kuwait Energy, IndianOil had won blocks 82 & 83 in the 3rd International Bid round in Yemen in December 2006. The Production Sharing Agreements for these blocks were signed with the Ministry of Oil & Minerals, Republic of Yemen, in April 2008.
• IndianOil, in consortium with OIL and Sonatrach (Algeria), was awarded the onland exploration Area 95-96 in Libya under the fourth bid round of Exploration & Production Sharing Agreement (EPSA). IndianOil and OIL hold a participating interest of 25% each in this Area and Sonatrach is the operator with 50%.
• For the year 2008-09, IndianOil has signed MoUs with subsidiaries (BRPL & CPCL) and with MoP&NG as per schedule.

Areas of concern –

• After the shutdown of PX-PTA plant at Panipat, problems are being faced in Para-Xylene production, leading to throughput loss in PTA. Thus, PTA stocks have dwindled, leading to dissatisfaction among our customers.
• Progress on Product Application Development Centre for polymers continues to be an area of concern.

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Director (Finance)

• He complimented all IOCians for a good performance in 2007-08 but expressed that the financial performance may not be in line with physical achievements due to pricing distortions.
• Currently, OMCs have a compensation mechanism whereby Govt. of India issues Oil Bonds to compensate for 42.7% of the under-recovery burden and the upstream companies bear 1/3rd (33.3%) of the burden. We are awaiting Govt. of India’s approval to receive Oil Bonds to the tune of 57% of the under-recoveries.
• In view of the high crude oil prices in the international market, the industry is expected to lose about Rs. 77,200 for the whole year (2007-08), out of which, IndianOil’s share is Rs. 43,000 crore. The Ministry of Finance has suggested that under-recoveries should be calculated not on the basis of import parity but on the cost of production. This means that we would virtually regress back to the APM regime. Based on this mode of calculation, the under-recoveries on industry basis would be Rs. 70,300 crore. However, the industry members have resisted this suggestion. In this scenario, the standalone refining companies are reaping the benefits of high crude oil prices whereas the integrated oil companies are bearing the brunt.
• In view of the historic price rise, the financial situation is quite alarming and there is no hope of respite in the form of price revision in the domestic market. Our borrowings are likely to go up to Rs. 38,000 crore by the end of May 2008.
• Keeping in view our working capital requirements and expenditure on ongoing / planned projects, we have sought Board approval to raise the Corporation’s borrowing limits to Rs. 80,000 crore. However, that could be difficult for lending institutions / banks to extend loans of such magnitude.
• In the current borrowing environment, interest rates, which were around 6% earlier, are now ruling at 8%. We were able to secure loans at 22-25 basis points of the LIBOR margins (London Inter-Bank Offer Rate), which has now increased. We are also constrained w.r.t to foreign currency borrowing since that is not permitted by the Government.
• The matter has been further aggravated by the imposition of entry tax by the State Governments of Assam, Bihar, Haryana and UP. Such moves could adversely affect our bottomline.
• As is said, one must reduce the weight and then attempt to tighten the belt. Similarly, I feel we need to reduce our inventory and other items of working capital.
• Besides the annual results of 2007-08, the financial results for the first quarter of 2008-09 are also a matter of concern. Since the upstream companies are not seeing an increase in their production capacity, even if they are helped by buoyant crude oil prices, the increased domestic demand of petroleum products may impact their subsidy share-out in a typical way.
• We need to find a combination of measures, including excise duty cuts, to mitigate the problem. In order to brainstorm over the possible solutions, the CEOs of OMCs are meeting in the first week of May 2008.
• Lanka IOC has posted good performance in 2007-08. Since it is also impacted by the high crude oil prices and insufficient pass-through of the impact to the retail consumers, it is losing approx. SLR 5-6 million every month. It is now reviewing a strategy to limit the sale of MS and HSD to their premium grades.
• He expressed happiness that IndianOil’s Corporate IS set-up at the IIPM complex has been accredited as a Certified Customer Competence Centre.

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Director (HR)
The HR Highlights for the period are as follows:

• Promotion/Placement exercise 2008 - As planned, the promotion/placement orders in all the Divisions were issued during February/March ’08 and the entire exercise was completed by 31st March 2008. Based on the feedback received, it is planned to complete the exercise next year by February end.
• Integration of Petroleum Marketing business in North-East - Since the time Assam Oil Company (AOC) was taken over by IndianOil in 1981 and Assam Oil Division (AOD) was constituted, the Marketing businesses of AOD and IndianOil were operating in parallel in the 7 states of North-East, resulting into sub-optimum utilisation of physical and manpower resources and a diffused business focus. Now, the Marketing businesses of AOD and IndianOil have been integrated w.e.f from 1st April 2008.
• Pay Revision Committee for Board level & below Board level officers in PSUs - Vide a notification dated 30th November 2006, the Department of Public Enterprises has constituted a Pay Revision Committee headed by Justice MJ Rao to recommend Pay Revision for Board-level and below Board-level officers within 18 months. It is expected to submit its Report by May end. The Pay Revision Commission for Govt. employees has already submitted its Report.
• Work Related Allowances – The work-related allowances for Officers as well as non-officers were due for revision w.e.f. 1st October 2005. For officers, these allowances have already been revised and the necessary administrative instructions have been issued for implementation. Various items include :
  i) Shift allowance
  ii) Daily allowance and local conveyance on tour
  iii) Transfer benefits
  iv) Tea allowance
  v) Tanker duty allowance
  
  In addition to the above work-related allowances, some other items that have been revised are:
  a) Children education allowance & hostel subsidy
  b) Professional updation allowance & newspaper allowance
  c) Expenses on school admission on transfer
  d) Hill-cum-Winter allowance to officers
  The revision in work-related allowances for Workmen is under discussion with recognised Unions. Efforts are being made to conclude the discussions at the earliest.
• In other endeavours aimed at streamlining perks, the per km rate of maintenance expenses on conveyance running has been revised w.e.f from 1.4.08 to Rs. 8 per km against Rs. 7.41 per km earlier. The entire scheme of providing telephones at residence of officers as well as mobile telephones has also been revised w.e.f. 1st April ’08. Detailed administrative instructions have been issued.
• Recoverable Advance to employees against Pay Revision – Since Pay Revision for Officers as well as non-officers is due from 1st January ’07, it was decided to give recoverable advance, which was fixed grade wise to employees against pay revision. While the recoverable advance has already been paid for the calendar year 2007, it has now been decided to extend the same proportionately on quarterly basis till pay revision.
• Attrition (Resignations) in 2007-08 and 2006-07 - During the period April ’07–March’08, 174 officers and 23 workmen have resigned. Amongst the officers that resigned, 85 were from refineries, 62 from marketing, 15 from pipelines, 6 from AOD, 4 from R&D and 2 from IBP divisions. During the period April’06–March’07, 164 officers and 32 workmen from IndianOil and 7 officers & 1 workman resigned from erstwhile IBP Company. Thus, attrition rate during last two years has been almost same.
  Attrition was the highest at Panipat refinery - 25 officers and 17 non-officers resigned from this location in 2007-08 and 32 officers and 25 workmen resigned in 2006-07.
• Recruitment of officers - During the year 2007-08, 515 Officers were recruited, which includes 152 from campus and balance through open advertisement. For the year 2008-09, we plan to recruit over 800 officers out of which, 426 have already been selected through campus interviews in 2007. We hope that they will start joining from May 2008 onwards.
• V2 Confluence Exercise – Present Status – Subsequent to the V2 Confluence exercise at IIPM on 17/18th October, ’07, it was decided to involve more people through workshops at different locations of the organisation. It was planned to conduct about 50 such workshops through internal coaches covering about 1500 IndianOilPeople. So far (April 28, 2008) 32 workshops have been conducted, in which, 989 IndianOilPeople have participated actively. The workshops are expected to be completed by 20th May 2008 and thereafter, the synthesis of the findings will be carried out.
• Training & Development - IIPM conducted a higher number of long duration development programmes such as Cutting Edge, Threshold, Senior Management Programme as well as specialised functional programmes like Project Management. With this, IiPM managed to clock 19,286 man days during 2007-08, which is 23.6% higher than 2006-07.
• Explosives & Cryogenic businesses of IBP – Due to dwindling orders of cartridge type explosives that are manufactured at the Korba Plant, it may be difficult to sustain it. However, we have entered into a five-year agreement with Coal India Limited for supply of bulk explosives on nomination basis. The cryogenics business of IBP is running satisfactorily.
• Eight IndianOil players have been selected to represent different teams in the ongoing Indian Premier League 20-20 tournament of BCCI.
• Safety, Health & Environment - During the year 2007-08, there were 6 fatalities - 1 employee and 5 contract workers - in various accidents, as compared to 8 (all contract workmen) during the year 2006-07. There was only 1 major fire incident during 2007-08 as compared to 5 in 2006-07. Thus, it reflects a marginal improvement in the incidence of fatal accidents and major fire. I request all of you to take the pledge that we shall work hard and take all necessary steps at our respective Units to achieve the target of zero fatal accident and major fire.

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Director (R&D)

• R&D plans to incur a capital expenditure of over Rs. 600 crore in the next four years in consolidating the ongoing initiatives and carrying out R&D in the frontier areas, viz., catalysts, nano-sciences, bio-sciences, biofuels, Hydrogen, petrochemicals and polymer research.
  
• Along with CPCL engineers, our team has developed a configuration for revamp of Cauvery Basin Refinery (CBR) using indigenously developed technologies. It envisages setting up demonstration units for Indalin, INDAdeptG, INDAdeptD, etc. as R&D expenditure at CBR for showcasing these technologies for commercialisation. The configuration also includes Indmax to upgrade the bottom of the barrel and enhance the GRM of this simple distillation refinery.
  
• An agreement has been signed with NRL for licencing of Needle Coke Technology to NRL. This will generate significant licensing fee and royalty on sale of needle coke.
  
• Our JV - Indo Cat Private Limited - is progressing well. The plant is expected to be commissioned by Jan. 2009 and novel catalysts and additives should be available in the market from March 2009 onwards.
  
• Our novel DHDT catalyst is slated for demonstration in CPCL. We have entered into an agreement with M/S Sud-Chemie India Limited for manufacturing the catalyst. It would be available in April 2008 and would be charged into the DHDT of CPCL in June 2008 for trial.
  
• An agreement was signed with the National Centre for Catalysis Research, IIT Madras, for development of a special grade alumina with specific properties for use in catalyst formulations.
  
• A new combi-distillation facility has been procured to enhance crude assay generation capability from 10-12 samples per year presently to 18-20 samples.
  
• In the area of Lube Technology, M/s. MAN B&W has accorded base oil inter-changeability clearance to marine shipboard oils, which will enable us to use base oils available globally.
  
• Studies have been conducted on production of second-generation bio-fuels by co-processing vegetable oil using Diesel hydroprocessing assets in refineries. Initial experiments conducted with 10% vegetable oil have shown cetane improvement of 3-4 units compared to 1-2 units in DHDS. Further work is in progress.
  
• Discussions were held with NREL, USA, for conducting joint studies on the lifecycle emissions of bio-diesel from Jatropha, and production of ethanol and bio-butanol from ligno-cellulose sources.
  
• Though the project of H-CNG dispensing station at Delhi is delayed by a few months, we are hopeful that the station will be commissioned by December 2008. It is planned to put up 2 more stations in Delhi before the Commonwealth Games in 2010.
  
• Petrochemicals and Polymers research: R&D in Polyolefins is being taken up on top priority, which includes setting up state-of-the-art polyolefin R&D infrastructure by 2009.
  
• During his visit to the R&D Centre, Chairman inaugurated an Air Quality Monitoring Van designed for monitoring CO, NOx, SO2, BTX, Hydrocarbons, Ozone and SPM in the vicinity of fuel retail outlets and at other locations in and around the city of Delhi.
  
• IndianOil would host the prestigious World Hydrogen Technology Convention (WHTC) - 2009 in Delhi, jointly with SIAM, IIT-Delhi and BHU.
  
• The very purpose of R&D activities is to work for continual improvement. All work and initiatives by IndianOil's R&D Centre are directed towards improving performance of the assets, products and services of our Corporation. With the fast changing product specifications, ever-increasing customer demand and environmental pressure, it is required to re-align our R&D strategies. While we work on the 11th Five Year Plan, we have to prepare ourselves for the year 2050. I propose to hold an exclusive R&D Strategy Meet involving all our business and operations leaders and thinkers.
  

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Director (Pipelines)

• The operational performance of Pipelines during the year 2007-08 was excellent. The pipeline throughput during the year was 56.79 million metric tonnes, which was 10.87% more than that of the previous year. He complimented all concerned for this remarkable achievement.
• A pioneering effort has been taken to implement Project SAPling (SAP Leave Integrated Online System) across the entire Pipelines Division. This initiative was launched by Director (Finance), at Noida on 3rd April 2008.
• The Western Region Pipelines Office has succeeded in realising a custom claim refund at Vadinar for a total amount of Rs. 46.76 crore during the year 2007-08.
• The crude oil terminal at Vadinar has performed very well during the year 2007-08 and handled 150 crude oil tankers at the two Single Point Mooring (SPM) systems, which included 70 VLCCs. During the year, the terminal has handled 9 new types of crude oil in low sulphur and high sulphur category.
• SPM-I is currently under scheduled maintenance for replacement of floating and under-buoy hoses and the rail track, and is expected to be completed by early May 2008. The buoy change-out operation at SPM-II was carried out the last year at Vadinar without affecting the tanker operations.
• Pilferage on pipelines has been one of the major areas of concern, especially in the states of Gujarat and Rajasthan. The patrolling arrangement has been reorganised during the day time in the identified sensitive areas with a view to ensuring that each spot of the Right-of-Way (ROW) is physically inspected at least once every day. Such reorganised day patrolling has been supplemented by night patrolling with armed guards. Subsequent to introduction of such strict arrangements in January 2008, there has not been a single pilferage attempt over the last three months in any of the pipelines in the Western and Northern Region Pipelines. It is planned to introduce a similar patrolling arrangement over other stretches of our ROW as well in the near future.
• The job of preparation of manuals on operation, maintenance & inspection of the pipeline system of Greater Nile Petroleum Operating Company (GNPOC), Sudan, has been executed.
• Another contract has been bagged to impart training to the new recruits of Greater Nile Petroleum Company (GNPOC), Sudan, in pipeline operations for 16 months and in maintenance for 14 months at their installations in Sudan. The total value of the contract is USD 7,38,000.
• Status of Projects -
  • Work on the first LPG pipeline from Panipat to Jalandhar and the first gas pipeline from Dadri to Panipat is progressing well. While the LPG pipeline is scheduled for commissioning in August 2008, the gas pipeline is slated for commissioning in January 2009.
  • The ATF line to the new international airport at Bengaluru is expected to be completed by the end of May 2008. The ATF pipeline to Chennai airport is expected to be ready by June 2008. The Marketing terminal at Ratlam along with Koyali-Ratlam Pipeline is expected to be commissioned in October 2008.
  • Work on the Chennai - Bengaluru Pipeline has been progressing well. The first stage clearance has been received for laying the pipeline over a 7 km stretch through Palmaner Reserve Forest area in Chittoor district of Andhra Pradesh.
• The IndianOil Board has accorded 1st stage clearance for de-bottlenecking of the SMPL system to ensure adequate supply of blended crude to the refineries at Gujarat, Mathura and Panipat, so as to enable them to run at their respective peak processing levels. Till such time this project gets completed, efforts are being made to enhance the crude transportation capability of the system by commissioning the MPPL (Mundra-Panipat Pipeline) augmentation project and by injection of Drag Reducing Agents (DRA) in the pipeline system.
• Areas of concern -
  • Non-completion of the Paradip-Haldia Crude Oil Pipeline project has been a cause of concern. All-out efforts are being made to complete the balance offshore works by 15th May 2008.
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