The Communication Meeting was held at the Corporate Office in New Delhi. It was attended by Chairman, Functional Directors, and heads of departments, locations, and State Offices.

The excerpts of the meeting are placed below:

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

Chairman:

• Setting the tone for the meeting being held towards the end of calendar year, he said that 2008 had been very eventful for IndianOil as it witnessed high volatility in crude prices besides chartering new avenues to meet the future challenges.
• While expressing on the overall excellent operational performance, he expressed concern that despite posting positive margins and falling under-recoveries, IndianOil continues to witness falling profitability due to high inventory carrying costs, lower refining margins and high borrowing costs, and that the situation is not expected to improve this quarter.
• Expressing satisfaction at the progress of Koyali-Ratlam and Chennai-Bengaluru pipelines, he reflected on the strategic importance of pipelines and the need to scale up the pipeline network rapidly. For instance, the feasibility of establishing the second SBM at Paradip or Vadinar-Kandla connectivity needs to be examined fast.
• Advising R&D to leverage their activities to develop new catalysts/ processes to optimize operations in order to support refining as well as stretching the activities to new frontiers to drive IndianOil’s business.
• Talking of new businesses, he said that the Production Sharing Contracts for the three NELP-VII blocks are scheduled for signing soon. On the petrochemicals business, he added that M/s. McKinsey has been assigned the task to suggest a suitable business model for the Polymer Marketing business. Stressing upon the need for collaborative partnerships, he said that IndianOil has entered into joint ventures with Tata Power to produce coal based power in Paradip, and with Chhattisgarh Renewable Development Agency for production of Bio-diesel on 30,000 hectares waste land in the state.
• Mentioning the anticipated strike of the IOOA, while he said he empathised with the officers’ community, he advised that the report of the Justice Rao committee has been accepted by the Cabinet with some modifications and accordingly, DPE guidelines have been issued. Urging the officers to be patient, he added that the Directors (HR) of CPSEs had met recently to address the issues related to pay fixation and would take up the anomalies with DPE as well as with the concerned administrative ministries.
• Stressing on the critical need to maintain communication lines within the organisation to foster quick decisions and smoother operations, he said that use of digital media such as video-conferencing should be scaled up and routinely used, which would also help in checking travel-related expenses within IndianOil. He added that SAP needed to be optimally used by all especially the HR group to reflect the true online status of travel logistics. On the same note, he added that effective 1st January 2009, all leave applications across divisions should be put up and approved only on SAP.
• Referring to the Materials Managers’ Meet held in September to deliberate various issues related to procurement and inventory management, he spoke about large variations in material handling procedures that exist across divisions. Stressing the need to have common procedures, he said a beginning should be made by ensuring that material procurement files should move on SAP and no purchase order placement should take over 90 days. Advising the Finance department to take the lead and ensure all files are processed only on SAP effective January 2009, he stressed that the concerned Functional Directors must justify the reasons in case of placing purchase order beyond the stipulated 3 months of the process.

Areas of concern:

• In the wake of the ghastly attacks on Mumbai recently, he expressed concern and asked for the security preparedness to be revisited. He said he expected zero tolerance on security and stressed the need to have systems for crisis handling through anti terror squads and proper coordination between various emergency services. He requested Advisor (Security) to look into the matter and take necessary action. He also expressed that there was a strong case to operate at the corporate level for safety & security of our installations. Therefore, the need of the hour is constitution of a multidivisional common cadre for safety and security functions, he added.
• Citing poor safety performance, he expressed serious concern on incidents such as two major fires - in Pipelines HO at NOIDA and at a Retail Outlet at Jaipur – as well as six accidents resulting in seven fatalities of contract workmen. He urged everyone to make safety a habit to prevent accidents.

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Director (Planning & Business Development)

• Starting with sharing information on the gas business, he said that during Apr-Nov ’08, 1.22 MMT of R-LNG was sold and the gross turnover was Rs. 1720.04 crore as against Rs. 1598.13 Cr during the same period last year. He added that subsequent to the impending expiry of Gas Sales Agreements (GSAs) with customers by year-end, new GSAs would take effect from 1st Jan. 2009 based on pooled pricing that will vary on a month-to-month basis.
• IndianOil plans to submit bids to PNGRB for setting up city gas distribution (CGD) business in Sonepat & Meerut. Emphasising collaborative approach to grow the gas business in the absence of access to adequate sources of gas, he shared information on MoU signed with gas players such as OIL, Reliance Gas Corporation Ltd., Adani Energy Ltd. (AEL) and with ONGC for taking up multifarious activities related to gas business.
• Mentioning the role of BD team in developing and signing franchisee agreement for IndianOil ROs for CNG dispensing, he urged the State Heads to refer any such opportunities arising in their states with other city gas players to BD Group in order to have consistency in franchisee agreements.
• Subsequent to IndianOil’s contract with Petronet LNG Ltd. to expand LNG loading capacity in road tankers, five new customers have been identified for supplying “LNG at doorstep” through these road tankers.
• Coming to the petrochemicals business, he shared that LAB sales during April-Nov. 2008 fell to 78,500 MTs as compared to 86,644 MTs during the same period last year due to the overall drop in global demand. However, the highest ever gross margin per tonne has been recorded and LAB has been exported for the first time in a major way to M/s Procter & Gamble, Saudi Arabia.
• Referring to the recession in the polymer industry during July’08- Sept’08, he stated that the sales of 2,13,791 MT of PTA was achieved during Apr-Nov’08 against 2,25,972 MT last year. Adding that 5000 MT of PX has been moved to Mundra for exports, he said the market is witnessing a gradual revival since Oct. 2008.
• Expressing satisfaction, he shared that preparations for polymer marketing are in full swing and all aspects including establishment of a Polymer Application Development Centre are being worked on. On the subject of petrochemical projects, he spoke about the new PX unit at Gujarat refinery, joint venture with Tata Power for setting up a 500 MW coal based captive power plant in Orissa, Styrene Butadiene Rubber (SBR) unit at Panipat in JV, value addition projects based on C4/C5 streams as well as pursuing coal-to-liquid projects.
• Coming to bio-fuels business, he informed that IndianOil has entered into an agreement with the Govt. of Chhattisgarh and Chhattisgarh Renewable Development Agency (CREDA) for straddling the entire value chain and producing 50,000 MTPA of Biodiesel by 2015 on 30,000 ha revenue waste land through a joint venture company. The Government of MP has allotted 2000 hectares of watelnd for plantation of energy crops. The first phase of pilot plantation of jatropha has been approved on 600 ha. In UP, he added that IndianOil has signed an MoU with M/s Ruchi Soya Industries Limited (RSIL) to jointly explore feasibility of forming a consortium for establishing a model Biodiesel value chain in UP.
• Meanwhile, a consultant has been appointed to develop an Ethanol business plan for IndianOil, he shared. In addition, ImdianOil is expanding bio-fuel cultivation in other states such as Rajasthan. He shared that three parties have offered to supply biodiesel at government specified price of Rs.26.50 per litre due to decline in the prices of crude palm oil, and advised the Marketing Division to take up proposals for early launch of Biodiesel blended fuel.
• While sharing information about proposals to explore CNG retailing in Bangladesh, he said that IndianOil and GAIL may form a consortium with international oil & gas companies or a local Nigerian Company to participate in the bidding process for implementing the Nigerian Gas master plan. He also spoke about examining an opportunity in Tanzania for developing Petroleum Product Storage, Distribution & Marketing facilities and renewal of manpower secondment agreements with the Emirates National Oil Company (ENOC). He requested the Divisions to release people for deputation abroad for developing relationships and motivating the manpower.
• Sharing information about the developments in E&P business, he said that the formal award of three NELP-VII blocks, including two Type-S blocks in Cambay basin and one deepwater block in KG basin, has been received from MoP&NG. The Production Sharing Contracts for the above blocks are being initiated and are scheduled for signing soon. On overseas blocks, he said that the commerciality of gas discovery in Farsi block has been accepted by National Iranian Oil Company (NIOC) and after receipt of clearance from NIOC, the Master Development Plan (MDP) for the gas discovery will be submitted.
• He added that the Government of Timor-Leste has approved the assignment of 12.5% participating interest (each) for farm in the Reliance deepwater block in Timor-Leste.
• Expressing happiness, he said that IndianOil had achieved an unprecedented excellent MoU score of 1.01. He added that For the period April–November 2008, the Plan Capital Expenditure was Rs. 5,996 crore achieving 72% of the total BE 2008-09 (of Rs. 8,500.00 crore). For the period April–November 2008, the Non-Plan Capital Expenditure was Rs. 970 crore achieving 48% of the total BE 2008-09 (of Rs 2,000.00 crore).

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Director (Finance)

• Starting with a reference to Chairman’s statement on current problems and turmoil, he said that during July-Sept. 2008, IndianOil posted losses of over Rs. 7000 crore due to a combination of factors such as falling refining margins, huge inventory losses (on 5 MMT of inventory) and currency devaluation. The crude prices that were in the region of USD 120-125 in June 2008 had fallen to USD 85 per bbl by Sept. 2008.
• Since IndianOil had a foreign currency loan of USD 3 billion, depreciation of rupee to Rs. 44-47 levels led to increase in cost of borrowings. Our borrowings that were about Rs. 35,000 crore in June 2008 has swelled to Rs. 60,000 crore by Sept. 2008 and to Rs. 67,000 crore by Oct. 2008, he added.
• Borrowing also increased since the Oil Bonds that were due to IndianOil in Jan. 2008 were not issued by the Government. In fact, Oil Bonds worth over Rs.20,000 crore are yet to be received Meanwhile our under-recoveries on the four main products were also putting pressure on the working capital. On the borrowings position, he added that Oct. 2008 onwards, IndianOil witnessed lot of turmoil since bank interest rates were shooting up. Traditionally, IndianOil enjoys a prime lending rate (PLR) of upto 2-3% lower than the market rates. However, we faced trouble in borrowing at competitive rates during these times, he added.
• He said that ideally, IndianOil’s borrowing should be less than its net worth. However, due to erosion in IndianOil’s net worth, lately, the liquidity ratio has been 1.7-1.8 as compared to 0.7-0.8 earlier. He expressed hope that if RBI introduced special market operations and purchased our oil bonds at par / premium, IndianOil’s borrowings position could improve.
• He expressed concern that during the period Oct. – Dc. 2008, IndianOil’s losses would be huge and the profits earned by the Refineries Division during the first quarter would be potentially wiped out n the six-month period till December 2008.
• Since crude oil prices have fallen quite a bit in the period Oct.-Dec. 2008, the component of burden sharing from upstream companies may not be forthcoming. Expressing hope, he said that upon IndianOil’s request, the MoP&NG is considering revisiting the burden sharing mechanism in view of the current scenario.
• Crude oil prices continue to fall – from a peak of USD147 per bbl early this year to USD 37 now. Commenting upon OPEC’s recent announcement to cut production by 2.2 billion bpd, he said that the crude prices could rise if all OPEC countries implement the cut.
• Urging all to exercise financial prudence, he said it is required to take a call on new projects. All ongoing projects are bunched for completion in 2009-2010. Therefore, 2009 would be a very critical year for IndianOil as projects expenses, which are in the region of Rs. 8500 crore currently, would go up to Rs. 12,000 crore next year.
• Talking about other areas, excellent performance by the Pricing & Taxation team resulted in IndianOil achieving benefit on products re-processed at Panipat. The SAP team is also doing a good job in Sri Lanka with CPSTL.
• The hearings before the Ministry of Corporate Affairs (MCA) have been concluded and the final order sanctioning the merger with BRPL are also expected shortly.
• LIOC has emerged as the largest private enterprise in Sri Lanka No. 1 Company among Sri Lanka's leading listed companies for the financial year 2007-08. It has done exceedingly well and registered the highest-ever profit in 2007-08 as also in the first half of 2008-09.

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Director (HR)

• Director (HR) announced that the third edition of IndianOil’s annual Sustainability Report has been prepared by the collective efforts of teams from four departments viz., Safety, Health and Environment, Human Resources, Corporate Planning & Economic Studies and Corporate Communications. For the first time, the Sustainability Report has been prepared in line with the GRI-G3 guidelines aiming at Application Level-A as an entirely in-house effort, he added. On the subject, he expressed happiness in sharing that the Standing Conference of Public Enterprises (SCOPE) recently bestowed on IndianOil the Gold Trophy for Environmental Excellence & Sustainable Development in a significant recognition of Corporation's sustainability endeavours. The book was then released by Chairman and the copies were distributed to all present.
• On the formulation of a new corporate vision, he said that the companywide exercise was started in October 2007, and after collating the inputs received from IndianOilPeople through workshops, the same was discussed in the Board’s Meeting. After factoring in their inputs, it is proposed to go back to the Board in January 2009.
• IndianOil is organizing the 8th edition of PETROTECH-2009 under the aegis of the MoP&NG during January 11-15, 2009 at Vigyan Bhavan (Conference) and Pragati Maidan (Exhibition). Nodal Committees have been constituted under IndianOil’s Functional Directors to organize the event, he shared. In addition to other events, an exclusive ‘CEOs Conclave’ is being organised for the first time, he added. Good response has come in with regards to booking of 7,347 sq. m of space and no. of participating companies (273), which is unprecedented so far.
• He said that IndianOil has been recruiting through a combination of direct interviews, campus recruitments and open advertisements. This year, 850 candidates have been selected as against 448 last year. To ensure proper induction, a two-week corporate induction module is being held at IiPM.
• Talking of training, he added that IiPM has clocked the highest training man days of about 15,600 this year (as compared to 12,600 last year and 11,200 in 2006). This has resulted in an increased requirement of infrastructure, such as rooms, construction of which is underway.
• He said that attrition is seeing a downward trend. As compared to resignations of 122 officers and 14 non-officers in 2007, IndianOil received resignations of 84 officers and 14 non-officers this year.
• On erstwhile IBP’s businesses, he said that subsequent to the decision to close down the Korba explosives plant, a plan is being made to redeploy the manpower productively. The Cryogenic plant at Nashik has received orders from some units of IndianOil’s Refineries and Marketing Divisions.
• Speaking of improving employee benefits, he said that on the lump sum LFA facility introduced in July 2007, the officers would now be given one more opportunity to switch and come back to LTC facility during their service. He added that the facility of Maternity Leave of up to 135 days for women employees would now be extended to cases of adoption by women employees.
• Sharing information about e-PMS, he said that the corporate average score had steadily climbed from 3.68 in 2005-06 to 4.14 in 2006-07 to 4.30 in 2007-08. The average stretch during the last three years also improved form 0.82 (2005-06) to 0.889 (2006-07) to 0.916 in 2007-08.
• Sharing information about the Manesar project, he said that over 200 acres of land was allotted to erstwhile IBP by the Haryana Government for setting up an explosives plant. Out of it, only 30 acres is available and the balance has been notified as forest land by the Government. After discussions, the Executive Committee has decided to develop educational facilities on it and has engaged UPES (University of Petroleum and Energy Studies) to conduct feasibility of the same.
• Expressing concern on the number of accidents, he said that 11 fatalities have occurred this year mainly due to carelessness and non-adherence to safety guidelines. On anti-adulteration, he added that during the period August-November 2008, 1719 inspections were carried out which included 1600 ROs. He was happy to remark that the trend of short-delivery was on the decline as only 11.6% inspected were suspected of short delivery as against 13.6% ROs inspected last year.

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Director (R&D)

• All commercial additives for Diesel MFA (Multi Function Additive) developed by IndianOil have been evaluated and Gasoline additive samples have been sent to SWRI, US, for engine performance evaluation. The Diesel MFA is being improved further.
• Talking about R&D’s continued support to other Divisions, he said that that during the last four months, 3985 man days have been spent in providing technical services w.r.t material failure analysis (including regenrator secondary cyclone of INDMAX, reformer tube of Hydrogen unit at NRL, water wall tubes of boiler at Haldia, etc.), lubricants, refining, lubricants. 50 catalysts have also been evaluated during July-Nov. 2008.
• Expressing happiness at the work done on the INDMAX unit at Guwahati Refinery by the R&D scientists, he said that due to engine modification based on particle-based research, the catalyst loss at the unit has come down significantly resulting in savings of over Rs. 2 crore.
• He shared that the expertise of IOC R&D scientists has been sought by Essar Oil Refinery too in solving the problem of frequent failure of SKO and ATF.
• Based on extensive research, a new scheme of using an additive has been found to reduce sulphur in FCC gasoline. At Mathura Refinery, it has been seen that sulphur content is reduced by 24-30% by using 10% HR RFCCU-E-cat without any appreciable deterioration in yield pattern, he added.
• Talking about the projected Shale oil reserves in India, he said that if these reserves are commercially exploited, India could well join OPEC by the year 2040 – 2050. While DGH is taking steps for geological mapping and assessment of total reserves, IndianOil scientists are examining the samples. OIDB has decided to set up a demonstration plant at Digboi refinery, he added.
• Sharing information about deployment of technology, he said that after achieving success in Guwahati, INDMAX technology is being licensed to two international customers. A new technology has been developed to remove sulphur from gasoline and diesel and is being scaled-up for commercialisation by EIL. Catalyst systems are being developed for improvement in diesel quality with minimum Naphtha generation and lower Hydrogen consumption.
• Talking about the growing importance of catalysts for high yields and speedy processes, he said that the catalyst business is growing at 6% and the global market is over USD 16 billion. Sharing information about the JV Indocat (with Intercat of USA), he said that Shri R K Ghosh has been appointed as its non-executive Chairman and would work to propel the catalysts business.
• On the lubricants business, he shared that 68 formulations have been developed during April-Nov. 2008 out of which, 56 have ben commercialized by the Lubes department at Mktg. HO. 16 new approvals have also been obtained from OEMs / various users on SERVO. Leadin tractor manufacturer – M/s. Punjab Tractors has approved SERVO Transtrac 30 for wide scale field validation. Sharing good news on marine oils, he added that based on the presentations made by R&D scientists to MAN B&W (Germany) and SEMT Pielstick (France), the stipulations for the first two stages of their lab trials has been waived off, thus not only resulting in saving of time but also brining IndianOil closer to a new business opportunity in marine oils.
• Speaking about undertaking research in algal bio-fuels and conversion of lignocellulose to ethanol, he said that IndianOil has tied up with NREL,USA, for the same and soon, India will have the first pilot plant for testing the second generation bio-fuels. Sharing information about life cycle analysis of bio-diesel from Jatropha, he added that the first and most comprehensive report compiled so far shows that emission of greenhouse gases is reduced by 1% through use of 5% bio-diesel blends, by 3% through use of B-10 and by 6% through use of B-20 blends.
• R&D is collaborating with M/s. Basell and Nova Chemicals and other companies for collection of samples equivalent to the 50 grades of polymers proposed to produced by IndianOil. These are being analysed and work is going on to create the necessary infrastructure for polymer-related research.
• Expressing happiness, he said that during the period July-Nov., three US patents and one UK patent has been granted to IndianOil R&D. This is in addition to the US patent granted on Indalin+ process, which came after a long wait and effort.
• He concluded by outlining the initiatives taken into new frontiers of research in IndianOil such as CTL, Shale Oil, Petrochemicals, Carbon Sequestration, Hydrogen and Nanotechnology.

Areas of concern:

• Expressing serious concern about lack of proper succession planning, he said that by the year 2014, there would be dearth of enough eligible candidates to be promoted as GMs to lead the various functions.
• Development of a scientist has a longer gestation period compared to developing a core operating competency, therefore, recruitment of the right set of scientists needs to be expedited.

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