The Communication Meeting was held at the Corporate Office on the 7^th January 2010 and was attended by the Chairman, Functional Directors, 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 (R&D)

Chairman:

• Chairman informed the house that the Maharatna status for IndianOil is under active consideration.
• Speaking on the tragic Jaipur fire incident, he remarked that laxity in implementing stringent systems and procedures exposes us to the risks of fires and explosions. Post-Jaipur, a committee of the Board on Safety, Health & Environment has been constituted with three functional directors and three independent directors as members, he added. He informed plans to strengthen and empower the Corporate SH&E department to ensure vigorous and purposeful inspections for maintaining foolproof systems.
• He informed the house that under-recoveries have shot up to over Rs. 17,000 crore, refining margin has shrunk to USD 5.36 and borrowings continue to be at significantly high levels.
• Mentioning that the petrochemicals and gas verticals were adding to IndianOil’s profitability, he said that RasGas, Qatar, has enhanced India’s current annual gas import to 7.5 million tonnes.
• Chairman mentioned about the process being underway for the creation of a Sustainability Group at the Corporate Office level to formulate policy on sustainable development issues.

Area of concern:

• Delay in commissioning fuel quality projects in refineries. Need to reschedule product placement strategy for Euro III and IV compliant products.
• He expressed concern about the surplus stocks of MS that have been impacting throughput at some of our refineries whereas; MS is being bought from other refiners to meet local demand. To top it, MS demand has registered a growth of over 20% in the previous month. He asked for increased levels of coordination between the divisions and careful advance planning.

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Director (Planning & Business Development)

• Sharing the financial performance of the BD group, he remarked that the period April – December 2009 has been better than the same period last year.
• Gas: Sales of 1.356 million tonnes was recorded during April – December 2009. To expand the business, IndianOil is increasing its RLNG offtake from Petronet LNG Ltd. by 30%. Along with BPCL and GAIL, IndianOil has signed gas sale agreements with NTPC for supply of 1.2 MTPA of R-LNG for a period of 20 years.
• To implement city gas distribution project in Aurangabad by supplying gas through LNG at Doorstep scheme, IndianOil is seeking PNGRB’s approval. IndianOil is also in discussion with Gujarat State Petronet Ltd. For jointly setting up inter-state gas pipelines.
• Petrochemicals: A marginal growth of 0.6% has been recorded in PTA sales during April – December 2009 as compared to the same period last year. 9 million tonnes of LAB was exported. With the addition of Yemen and Bangladesh this year, IndianOil’s LAB export portfolio has expanded to 14 countries. PTA sales grew by 55% during this period.
• Preparations for polymer marketing are in full swing.
• Petrochemical Projects: Board has approved the additional DFR scope of PX/PTA project at Gujarat mainly through undertaking modifications in the Sulphur Recovery - Catalytic Reforming Unit and Naphtha Hydrotreater. Licensor selection is underway for the PTA unit. Board has also approved investment in Styrene Butadiene Rubber Unit (SBR) and Butadiene Extraction Unit (BDEU) at Panipat. The SBR unit is being executed through a JV with TSRC, Taiwan.
• Bio-fuels: Plantation of 1.6 million Jatropha saplings on 894 hectares of revenue wasteland in MP and Chattisgarh has generated rural employment of 1,45,000 man days and annual carbon sequestration of approx. 13,000 tonnes of CO2. Board approval is being sought for Jatropha plantation on 50,000 hectares of wasteland in Jhansi and Lalitpur districts in UP in a consortium with M/s. Ruchi Soya Ltd. ndianOil has signed an MoU with Petro Algae LLC, USA, for collaboration on commercial production of bio-diesel form algae.
• The Government of India has released the National Bio-fuel policy that aims at mainstreaming bio-fuels and envisions a central role for it in the energy and transportation sectors in the coming decades. It aims to ensure market availability of a minimum quantity of bio-fuels and proposes a target of 20% blending of bio-fuels – both for Bio-diesel and Bio-ethanol – by the year 2017.
• Globalisation: IndianOil is supplying 45,000 tonnes of Bulk Bitumen annually from Haldia Refinery to M/s. Bay Terminal under a two-year contract. Under the Technical Services Agreement with ENOC, Dubai, IndianOil has submitted a pre-feasibility report for de-bottlenecking of two condensate distillation units.
• E&P: Discussions are underway with the National Iranian Oil Company on draft Mater Development Plan and Development Service Contract of Farsi block. Discoveries made in Mahanadi Offshore and Assam-Arunachal Pradesh onshore blocks. In Area 86 in Libya, drilling of the first exploration well is in progress. The process of drilling is in progress in the Bokaro and North Karanpura Coal Bed Methane blocks.
• Corporate Planning & Economic Studies: Hon’ble PM presented the MoU Excellence Award to IndianOil in Oct. 2009 (for the year 2007-08). For the year 2008-09, the MoU performance rating is Excellent. The capital expenditure up to November 2009 is 114% of budgeted expenditure for the period.
• Renewable Energy – The 21 MW wind farm in Gujarat has generated over 4.34 crore units (KWH) by Dec. 2009. Action has been initiated to seek CDM benefits on this project. Approx. 1800 solar lanterns have been sold through Orissa and Karnataka State Offices and a solar charging station has been set up in Puri, Orissa. An MoU has been inked with the Nuclear Power Corporation to diversify into nuclear power.
• Sustainability initiative: He informed EC’s decision to create a Sustainability Group under CP&ES to drive sustainability issues.

Area of concern:

• Problem in inducting suitable technical manpower (geoscientists).

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Director (Finance)

• During the period April – December 2009, IndianOil’s financial performance has not been encouraging because the mechanism of compensating for LPG / SKO under-recoveries was not approved by the Government. IndianOil suffered under-recoveries of Rs. 4000 crore in the second quarter, and approx. Rs. 7000 crore upto Sept. 2009. Despite this, we closed the first six months of this fiscal with a Rs. 4000 crore net profit (translates to approx. 5600 crore profit before tax). This is on account of inventory gains and foreign exchange gains on our loans.
• During Q3, the cumulative under-recoveries (on MS, HSD, SKO and LPG) are approx. Rs. 12,000 crore and Rs. 7000 crore on LPG and SKO alone. We have raised the issue of compensating under-recoveries with the Government. We need atleast 90% compensation of our under-recoveries in the current year on LPG and SKO otherwise IndianOil won’t be able to post profits commensurate to its size.
• Dr. Kirit Parikh committee has been appointed by the Government to look into the aspects of pricing of petroleum products and particularly, the financial health of the oil companies. IndianOil has made a presentation on behalf of the industry and proposed deregulation of MS & HSD prices with a guarantee that under-recoveries on SKO & LPG will be fully compensated. IndianOil also made a separate presentation to the Committee on hedging operations. The Committee’s report is expected by end-January.
• During April – December, our borrowings were brought down sizeably by disposing off the oil bonds worth approx. Rs. 15000 crore – Rs. 7500 crore through RBI’s special market operations and the balance directly. Borrowings have come down to a level of Rs. 45,000 crore as on 31st December 2009. Low level of borrowings is also attributed to the fact that IndianOil built up inventories when the crude oil prices were low till Sept. 2009. We need to monitor situation so as not to close the year with high-value inventory.
• IndianOil is vulnerable because with every dollar increase in the crude oil prices, the borrowings go up by Rs. 450 crore. The financial position would be comfortable if the crude oil prices remain in the range of USD 70-80 per barrel.
• To meet the fund requirement on project financing, we intend to target overseas market shortly to raise USD 500 million through a bond issue. IndianOil would be the first corporate to go to the bond market.
• The Business Continuity Centre (BCC) has been completely destroyed in the Jaipur fire. An alternative location is being explored. It is hoped that a short-term BCC would be up by March-end and a full-fledged one within the next three years.
• IndianOil has an opportunity to demonstrate its transparency in the award of tenders / contracts. The Independent External Monitors have been holding regular structured meetings. There has been all-round appreciation of the way IndianOil has gone about it.
• Regarding Chairman’s concern of surplus MS stocks, D (F) informed that the situation is being closely monitored. However, buying MS from other oil companies in some markets is inevitable due to the logistics, especially in Gujarat.

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Director (HR)

• Speaking of collectives, D (HR) said that subsequent to a recent election, a new set of office-bearers have been elected by the IndianOil Officers’ Association (IOOA). Negotiations have commenced with the Workmen Unions on their charter of demands.
• Details of some employee welfare measures taken during the period April-December 2009 were shared with the house. This included raising the income ceiling for dependent parents for medical facilities and revision of the lease accommodation facility. As per the DPE guidelines, the perks, allowances & infrastructure benefits have been monetized, and the differential amount on perks & allowances short of 50% of basic pay (w.e.f 26.11.08) is being paid to officers.
• Effective appraisal year 2008-09, the countersigning authority has been delegated. The reports of officers in grade ‘F’ will be countersigned by EDs in Marketing and Refineries Divisions. In Pipelines Division and R&D Centre, there will be no change. The countersigning authority for officers in Grade ‘G’ will be respective Divisional Directors for all Divisions. For officers in Grades ‘F’ and ‘G’ posted in Corporate Office, there will be no change and the appraisal reports will continue to be signed by (respective) Directors and Chairman respectively.
• During the year 2009, 708 officers including 138 engineers with previous experience and 100 MBA graduates were recruited. About 525 engineers will join from June 2010 onwards.
• The Board has approved an amount of Rs. 5.62 crore as the first installment towards setting up the Assam centre of the Rajiv Gandhi Institute of Petroleum Technology (Rae Bareilly). It has also approved Rs.10.80 crore towards setting up a 50-bed hospital in district Lakhimpur Kheri in the memory of Late S. Manjunath and Rs. 3.14 crore for setting up a senior secondary School in UP.
• The CDA rules regarding dealing in shares have been modified.
• Prestigious training programmes such as Certified Leadership Business Program, Certificate in Project Management and Hybrid Certificate Program in Project Management were conducted.
• The Explosives Business Group has generated a profit of Rs. 8.36 crore during April – November 2009 against a loss of Rs. 12.53 crore during the same period last year.
• The Anti Adulteration Cell inspected 2706 ROs and 255 LPG Distributorships during July – December 2009. 5 sample failures and 426 short deliveries were observed. The dealerships of three ROs have been terminated and a penalty of Rs.54.84 lakh was imposed during the period.

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Director (R&D)

S,H&E:

• During the year 2009, 19 fatal accidents were recorded across IndianOil. Actions taken post-Jaipur were shared with the house. He added that a Sub-Committee of the Board has been constituted on Safety, Health & Environment. It comprised Prof. Gautam Barua, Prof. Indira Parikh, Shri N K Poddar, D (Marketing), D (Refineries) and D (R&D & i/c S,H&E).
• He mentioned that while the refineries have well-established S,H&E systems, Pipelines and Marketing installations need to improve theirs.
• Speaking of ensuring safety in operations, he spoke at length about the need to report all near-miss incidents and bring a cultural change within IndianOil to prevent Jaipur like incidents. To start with, the SH&E function needs a radical restructuring, and functionally, it has to be a corporate entity like the HR and Finance functions of the Corporation with greater empowerment and accountability.
• He also urged all to determine sound actions to curtail carbon emissions.

R&D:

• The milestones of R&D Centre in the areas of refining / pipeline / lubricant technology, catalyst / additive formulation, fuel additives, biotechnology, etc., were shared with the house. Ground covered w.r.t research in commercialisation of alternative energy options and hydrogen were also mentioned. He said that so far, an amount of over Rs. 1000 crore had been invested in R&D during the last decade.
• D(R&D) informed that the current focus was on research, development & deployment in the frontier areas of fuels, refining, energy & lubricant technologies.
• Sharing that IndianOil plans to invest Rs. 2800 crore on R&D till the year 2022, he said that demonstration and commercialisation of in-house technologies would be the key focus. Areas of future research ranged from developing new capabilities in Indmax, gasification & coal-to-liquid, lubricants, fuel additives, etc. to reducing carbon footprint of refining operations as well other areas such as petrochemicals, polymers, nanotechnology, bio jet fuels, etc.

Chairman added:

• CH advised D (R&D) to check safety compliance across IndianOil on a regular basis and if required consider hiring some fire specialists.