The exercise was aimed at sharing information across Divisions, primarily focussing on common organisational issues, systems improvements and value addition to the bottom line effected by the Divisions in their respective areas.

The meeting began with the Chairman welcoming the participants to the Communication Meeting.

The following are excerpts from the observations made by the participants at the meeting:

Chairman

Our Corporation's Fortune ranking has improved to 191 from 226, a matter of pride for all IndianOilPeople.

The net profit for Q1 has also improved to over Rs. 900 crore as compared to over Rs. 600 crore for Q1 last year. This is very good sign because this was achieved despite massive under-recovery of Rs. 1,100 crore on account of the differential between the sales price of SKO and LPG and the price paid to the refineries. I should add here that the increase in POL prices added to the profitability.

The subsidy amount has been slashed for the year 2003-04 because of the Finance Ministry's argument that there should be no subsidies at the end of three years. We are suffering under-recoveries due to this. Even though we have shown good performance during Q1, July onwards will be a challenging period. Because, even if we sustain the current profits for the next three quarters (900 x 4), it may not be adequate against last year's (2002-03) net profit of Rs. 6,115 crore.

I can assure you that everybody is keenly watching the PSU scrips, including that of IndianOil. Our performance is being keenly followed in depth even by the media. While we should see that the Government does not impose more under-recoveries, we also need to find ways to improve our bottomline.

In yesterday's (30.7.03) Board meeting, all Directors expressed concern over the decline in sales. In the last quarter alone, our sales have gone down by 4.2%. Two years in a row, we are selling less than the previous year. We have been explaining away our loss in market share and volumes as 'potential loss' but nobody will be convinced about this explanation. If we continue this way, we shall lose our market dominance of over 50% market share. Our stakeholders are concerned about our continued growth and nothing else. While the Divisions concerned have to pull up their socks and perform better, other Divisions should also look at ways to increase profit margins and reduce costs.

The Board members in yesterday's meeting felt that substantial savings can still be achieved by reducing costs. Our consultants have put the figure at around Rs. 2,500 crore per annum. Major earnings of up to about Rs. 1,200 to 1,500 crore are to come from enhancing refinery capacity utilisation to 100%. Our refineries, therefore, should seize this opportunity, besides focussing on increasing yield value, producing high-value products, and cutting costs so as to remain competitive. In addition to stretch targets put in place since last year, the Divisions have signed MOUs with respective units this year with enhanced targets.

When we are losing market share as at present when there is no real challenge or competition in the market place, imagine what would happen when the actual competition begins after the entry of MNC and private players in the market.

Reliance is putting up a large terminal at Haldia, and one in Rewari, and feels that it can still be competitive in spite of our extensive infrastructure, include pipeline network, already in place. This shows that in future years, we have to be the 'least cost supplier' in the market. For this, our production and distribution costs have to be brought down further. The Board, on its part, is going to have a full cost review soon. Our competitors are working to commission about 300 retail outlets before the coming Diwali. We need to first improve our existing customer management in order to improve our market share.

New Opportunities

There is some criticism that we are not grabbing opportunities. This calls for great presence of mind and analytical ability on our part. I am reminded of a quote:

"Catch opportunity by its forelocks; it is bald behind."
-- Bunyan in Pilgrim's Progress

I have tried to share the Company's future plans with colleagues through several platforms. Let me repeat the same again here:

REFINERIES:

The expansion of our Barauni refinery to 6 MTPA has been completed. We have similar plans for Haldia refinery. With availability of 4.5 MTPA of Assam crude and 1.5 MTPA of Ravva crude, we are able to turn around the performance of our Northeast refineries. CPCL is completing expansion of its capacity from 7 to 10 MTPA. Koyali refinery expansion is complete but it is currently operating at lower capacity as per needs.

Expansion of our Panipat refinery from 6 to 12 MTPA will be completed by January 2005. The Board has approved feasibility study for further expansion of the capacity to 15 MTPA at a reduced cost of Rs. 750 crore. This is a very good thing.

Our Paradeep refinery project may not be possible in the X Plan but we shall take it up in the XI Plan period. There are very good signs that the Orissa Government will restore all sales tax concessions as per original proposal. Now the Petroleum Ministry has communicated to the Chief Secretary of Orissa that such concessions/incentives are necessary to make the project viable.

UPSTREAM:

In the last three years, our performance has been very good. In Iran, in return for purchase of 5 MTPA gas, they will give us access to their semi- and fully discovered oil fields. They are offering very aggressive prices for LNG, which will be marketed by IOC and GAIL on a 50:50 basis. This project will come up in 5 to 6 years. We are aware that LNG may replace liquid fuels. However, if we do not do it, someone else will. We must, therefore, be constantly on the lookout for new products, new technologies, that come our way and grab those opportunities before someone else does.

In Saudi Arabia, IOC and ONGC have made presentations for the South Gohar oil fields. Similarly, British Petroleum will join IOC and ONGC Videsh to bid for E&P projects in North Kuwait.

DOWNSTREAM:

You are already aware of our proposal to put up a worldsize naphtha cracker and petrochemicals unit (0.8 to 1 MTPA) at Panipat. EIL is currently doing a detail study. I see this as an excellent growth opportunity. However, it demands large-scale efforts on our part.

However, in downstream, my chief concern is maintaining our competitiveness. We need to make serious efforts to maintain our market dominance.

R&D:

On 8th August, our Hon'ble Minister of Petroleum will be formally launching our new subsidiary, IndianOil Technologies Limited, which will market the intellectual property rights that our R&D Centre has established (subsidiary company successfully launched on given date). Till now, IndianOil used these innovations and technologies in-house; they will now be marketed outside. We have also signed an agreement with TOTAL of France for cooperation in various R&D and marketing activities.

Director (Finance)

To what the Chairman said about Q1 profits, I would only like to add that about Rs. 250 crore was due to arrears from APM period and Rs. 100 crore from foreign exchange variation, which means that our operating profits are not so good. During the period April-June 2003, we have been able to reduce our outstanding loans by about Rs. 4,000 crore. Besides a US $ 75 million loan for executing the PX/PTA plant at Panipat, we are also planning to avail of a US $ 100 million syndicated loan soon.

On the International Trade front, we have sourced new sweet crudes from Brunei, tying up with an MNC for the first time. We are also entering into a similar tie-up with British Petroleum. These steps will no doubt reduce costs and enhance oil security. A team is visiting Iraq soon and we are hopeful of sourcing crude from there from October onwards.

I once again reiterate that we can effectively add to our bottomline by reducing costs. Each Division has already identified areas for cost reduction and initiated actions. My request is that these actions and initiatives should be pursued to their logical end so as to result in net benefits.

On the Systems front, Project Manthan is progressing, but not to the extent desirable. There is no longer any doubt that SAP will deliver competitive advantage. However, communication connectivity is posing hurdles in day-to-day operations. While we are devising ways to circumvent these issues, keeping our past experience in mind, all State Offices should ensure that the communication links between their bulk storage points and the SAP central server at IIPM are foolproof.

DOT has also approved expansion of the existing V-SAT bandwidth for SAP connectivity, and this is likely to come through in the next 15-20 days. This is needed before our big expansion to non-SAP units during Oct-Dec. 2003. More than that, we need huge efforts from the Marketing Division for implementing SAP in the large number of its units scattered across the country. There has to be lots of hard work, handholding and cooperation by the States and Divisions to ensure a smooth switchover to SAP.

On the Marketing side, I fully agree with the Chairman that our sales volumes have to really pick up fast, especially since our market share has gone down in those areas where our strength lies. This calls for dedicated efforts on the part of the State Heads. Corporate Office is ready to help in all possible ways -- revising the DOA, more powers to the State Offices, etc. I expect the State Heads to come out with their problems to arrive at possible solutions.

I would also like to focus on recent cases of poor product quality and accidents, where we are exposed to outsiders' complaints, which is not only in bad taste but needs careful introspection on the part of those involved. Marketing Division, which does the final delivery, has to not only own responsibility for quality failures but also put in extra efforts to smoothen the business back to normal.

Similarly, we should identify what best we can do to improve the safety of our products (like LPG) and our premises. I am afraid that quality and safety aspects, which are the basic foundations of our business, are getting neglected, even though there are groups of officers and staff who are responsible for these basic duties. A Fortune-500 company like ours cannot afford this. We need to go 'back to the basics' and build on such strengths. I expect the State heads to take immediate corrective action on this aspect.

Director (Pipelines)

To begin with, I would like to report that while our crude oil pipelines are doing OK, product pipelines are doing less than planned capacities due to non-availability of product, industry logistics plan (ILP) and ullage at TOPs. Scaling down of the MoU/stretched targets, for whatever reasons, is also not a happy situation.

Unprecedented rains and inundation in Kandla area due to the current monsoon had affected pumping operations. Kandla Port Trust was closed down for lack of power. KBPL pumping operations were maintained on emergency generators to meet product requirements of Salawas and Sanganer TOPs.

There has been a sea change in the upkeep of the pipeline pump stations, inspired by institution of annual awards. Among the 56 pipeline pump stations, the Patna pumping-cum-delivery station was adjudged the best for the second year running. Similarly, HBCPL (Haldia) and KBPL (Salawas) have also won awards this year in the categories of large pump stations with tank farm area and delivery station respectively.

The Government of India had recently put out an advertisement to announce the intention of Reliance group to put up 6 pipelines. Keeping the business potential in mind, we should examine whether IndianOil has any interest in taking up any capacity in any of these projects. Our Marketing Division is working out further details.

The Chennai-Trichy-Madurai product pipeline project has been cleared by the Board yesterday for implementation by IndianOil on its own. The project will be completed in 24 months.

The Viramgam-Koyali pipeline has been completed. On conversion of the existing 18" crude oil pipeline to product service, there is provision for pumping products from Koyali to the North, and hence the need to work out new marketing plans. I would also like to reiterate that efforts should be made to use pipelines to the maximum extent so as to add to the bottomline.

I would also request the IT, Shipping, Refinery-Technical and Pipelines groups to go into the issue of detention of VLCCs at Vadinar to determine the most economical option, i.e., to pay demurrage vis-à-vis price reduction in crude oil for one month delivery. Balancing of pumping/delivery to depots and terminals along the Vadinar-Viramgam route also needs to be looked into.

I would support Director (Finance)'s views about the unfortunate accidents at Gokavaram and Digboi recently, which is a cause of worry. We should ensure that such things do not recur again. I would also like to urge all units to report even minor accidents, from which lessons can be learnt to avoid major catastrophes.

Director (HR)

The structured system of employee communication on organizational issues begun in the first quarter of 2003-04 in all Divisions has been well received.

The Computer Advance and Maintenance Reimbursement issue has been resolved after protracted negotiations with the Unions. It has been agreed that the advance, given once in the entire career, will be up to a maximum of Rs. 35,000, out of which Rs. 6,000 would be interest bearing @ 2.5% pa. No maintenance allowance would be paid. The issue of rationalisation adjustment allowance will be taken up along with discussion on work related allowances.

A modified Voluntary Retirement Scheme has been opened from 4th July and will remain effective till 31st Dec. 2003. Divisions have been asked to ensure that the number of VRS-optees does not fall short of their respective projections in this regard.

Our Chairman has been awarded the 'FIIE Corporate Excellence Award for the Best Corporate Man of the Year- 2002'. The award was presented by Dr. Sahib Singh Verma, Hon'ble Union Minister for Labour, Government of India at New Delhi on 29th July 2003 in the presence of Shri Subodh Mohite, Hon'ble Union Minister for Heavy Industry & PSEs, and other dignitaries.

IndianOil bagged the following NPMP Awards for the year 2001-2002:

a) NPMP Award for Excellence in Information Technology
b) NPMP Award for Excellence in Women's Development
c) NPMP Award for Excellence in Project Management
d) NPMP Award for Excellence in Creativity & Innovation

Director (Refineries)

The 100-TMTPA capacity IndMax unit at Guwahati refinery has been successfully commissioned by in-house experts from Refineries supported by technologists from R&D Centre. Refineries and R&D teams need to be complimented for this fantastic achievement. The plant, which shall maximise production of LPG and MS from low-value heavy residue, has been operating smoothly at 100% throughput without any interruption since the feed was first cut in. IOC Premium production has also commenced at Guwahati, with Barauni refinery to follow suit next week.

The Solvent De-waxing Unit at Digboi Refinery has been re-commissioned after corrective engineering. Digboi refinery is also speeding up the process of sourcing selective high wax content Assam crudes to maximise wax production.

The Catalytic Iso De-waxing unit of Haldia Refinery has produced 18,000 MT of premier Group II lube oil base stock (LOBS) so far. Effective utilisation of Group-II oils will enable full exploitation of Haldia's potential in producing this premier quality oil.

While the refineries performance in respect of throughput in Q1 has been marginally better, plant interruptions continue as in the past, which is a source of concern. This has impacted distillate yields affecting gross margins. This goes to prove that we need to further focus on improving monitoring of operations, preventive maintenance and supervision. To surpass the achievement of the previous year in the current year, we need greater focus on uninterrupted unit operations, reduction in input cost, optimisation of manpower and other areas requiring cost reduction and profit maximisation.

Even though all the refineries have put in place some initiatives to improve margins, the results are yet to start flowing. We need to increase the scope and pace of these initiatives to achieve the targets.

Stream-sharing, started from Jan. 2003, offers tremendous scope for smaller refineries to upgrade their various streams by optimum utilisation of the facilities available in nearby refineries. This concept, in full flow between Digboi and Guwahati refineries with sharing of five streams, has already started yielding results in terms of profits.

We are doing rather badly on the safety front. A spate of accidents at Mathura, Guwahati, etc., point to lack of adherence to laid-down systems and procedures. The quality of the investigative reports also leaves much to be desired. Unless the nail is hit on the head and serious lapses pointed out with clarity, we cannot prepare and equip ourselves to avoid major mishaps.

Advisor (Security)

Post 9/11, suicide attacks on business establishments and installations are no longer just fanciful ideas. Terrorists are not restricted only to J&K or the Northeast. They are everywhere, waiting for a signal to strike. The recent incidents at Jammu and Saudi Arabia have shown how effective the terrorists can be even against heavily guarded targets - arriving in army/police uniforms, neutralising entry point security, gaining entry and causing mayhem.

We at IndianOil too cannot take the security of our installations for granted. The question is, are we going to wait for the disaster to strike or prepare ourselves in advance? Based on security studies at our units, we have come out with a 5-point security plan, which is being intimated to all units.

My second concern relates to submission of Action Taken Reports on security gaps identified in inspections without actually carrying out remedial action. Such lapses should be seen as a potential loss to life and property and strict action taken, on the same scale as in cases of financial irregularities.

All of you are pre-occupied with your core functions. However, taking care of security of your unit is a basic pre-requisite. To drive home this point, we have decided to observe Security Week across the organisation from the first Monday of October this year onwards. Far from restricting it to a routine of pledges, lectures and workshops, we shall attempt a through review of the security system of each unit during the week to remedy the situation. Units will be encouraged to conduct mock drills, film shows and guest lectures by experts on security during the week.

A security manual for the organisation is ready and will be unveiled during the Security Week. We are hopeful that apart from answering all questions on security, the manual will usher in uniform security practices across the organisation, improve accountability and raise security standards in the organisation as a whole.

Chairman's Response: Our Advisor (Security) is right in pointing out that we are operating in a surcharged environment. Our locations, especially in the Northeast, are highly vulnerable. Keeping this in mind, we are implementing elaborate access control systems with proximity cards, swipe cards, and even fingerprinting for sensitive locations. I suggest that the Divisions should organise surprise checks to not only identify and fill breaches but also recognise units that have the best security systems during the Security Week. I would also like cases of imperfect ATRs brought to my notice.

Chief Vigilance Officer

In the previous Communication Meeting, I had talked about the short-term and long-term measures initiated by the Vigilance Department.

As part of short-term measures, we had free and frank discussions with the officers concerned, resulting in greater transparency and opportunity to everyone to explain their version, removal of the sense of injustice/undue harassment, and realisation of mistakes and reform taking roots.

As part of long-term measures for systems improvement, we had brainstorming sessions on several key issues affecting the morale of the officers. Based on such feedback, we have sent a report on the issue of reconstitution/benami operation of ROs, SKO and LPG distributorships. Similarly, we are also finalising a report this month on the amendments needed in the Marketing Discipline Guidelines-2001. We are also working on a simple and transparent system for procurement of land for ROs. Many such studies and suggestions are underway.

Other initiatives taken by Vigilance include discussions with dealers and distributors, individually and collectively, to see how best to integrate them into the IndianOil family, and grievance redressal meetings with customers and bulk consumers to understand their viewpoint and for seeking constructive suggestions. We are also in the process of developing customised system software for MIS and accreditation of the upgraded version of ISO 9001.

In all this, our stress is on Preventive Vigilance rather than Punitive Vigilance and our focus is on major issues rather than petty matters.

Chairman's Response: Excellent, progressive and proactive measures.

News from Refinery units

Haldia Refinery

  Commissioned Hydrogen Unit after major revamp for capacity augmentation.
  Performance guarantee exercise for ISO-Dewaxing Unit completed with LSTK contractor for check on equipment performance and hydraulics. Guarantee test run of this unit will be taken up with process licensor in Aug/Sept '03.
  Haldia has started production of Group I and Group II oils in July '03 after turnaround of the refinery.

Koyali Refinery

  Koyali Refinery has achieved 27% high sulphur crude processing; target is to reach 30% after monsoon when bitumen sales expected to pick up.
  Innovative step taken to increase suction pressure of Hydrocracker feed surge drum by pressurising through fuel gas instead of Nitrogen. This will help in increasing Hydrocracker capacity once the unit gets commissioned after the on-going turnaround. Refinery achieved better gross margin compared to Stretched Target.

Mathura Refinery

  Allahabad High Court granted stay on payment of imported crude oil to UP Govt. for 2003-04. The demand-cum-show cause notice in respect of CENVAT has been settled in June '03 in favour of Mathura Refinery amounting to Rs. 64.91 crore.

Barauni Refinery

  Barauni Refinery exceeds crude throughput target and distillate yield for Q-I.
  Saving of Rs.27.5 crore on crude entry tax demand resulting from favourable order of Patna High Court granting 50% exemption on the same.
  Progressive increase in High Sulphur crude processing, but limited by local calciners' demand of low sulphur RPC.

Panipat Refinery

  Panipat Refinery completes three years of accident free operations.
  CII consultant has given clearance for TPM kick-off for implementation in the whole refinery scheduled on 4.8.03.
  Highest ever LPG production of 21.8 TMT per month during May 2003
  Highest ever bitumen despatch of 58 TMT during June '03

Guwahati Refinery

  Guwahati Refinery achieves smooth functioning of INDMAX. This unit is currently operating at 95% capacity with LPG yield of 23%. MS production is maximised from this unit (35% yield against design of 13%) to enhance profitability.
  5 stream sharings with Digboi for value addition.

Digboi Refinery

  Gross margin highest among refineries because of value added products.
  Distillate yield lower by 6%, which is to be further improved.
  Despatch operations at BRPL handed over to Marketing Division.
  Marketing Depot at Jorhat closed down for cost savings.

News from Pipelines units

NRPL effectively utilised available shutdown periods for hook-up of KRN pipeline with MJPL at Kurukshetra and KVS pipeline with KBPL at Sidhpur. Quite a few entries are being sent for NPMP awards for the excellent, innovative work done by the teams concerned. Instrumented pig survey of SV section of SMPL brings out excellent maintenance of pipeline even after 20 years. CO decision on common security at Pipelines and Marketing installations on KBPL route under implementation. British Safety Award-2002 bagged by both MJPL and KBPL.

WRPL replaced 8.2 km section of the Viramgam-Koyali pipeline without major disruption to the refinery supplies. Crude oil retrieved at Viramgam through air pigging in an innovative way. Region held case study-oriented maintenance workshop on mainline engines and pumps with participation from all regions.

ERPL reports operations costs well within stipulated targets for all locations. ERPL team won 7th place in the All-India National Management Games for business management simulation organised by AIMA.

News from Marketing units

  NRO reports 17% reduction in overtime in NR locations. Entire Delhi State Office locations brought under SAP, Punjab State Office following suit.
  ERO plans closure of four depots to effect cost savings, alternative supplies to be arranged from AOD
  APSO plans to commission 40 ROs by Sept. 2003.
  MSO reports popularity of Diesel Super in Maharashtra, 6% sales of HSD coming from Super, seeks introduction of IOC Premium in Mumbai and Pune markets
  DSO to commission 12 ROs in August 2003, seeks LVFO supplies, cites problems in LDO quality from Northeast refineries.

Treasury operations

  Term contracts for crude signed with Saudi Arabia, Kuwait, Abu Dhabi, Iran and Malaysia.
  New term contract with Brunei signed in July 2003.
  Conscious decision taken by IndianOil refineries to process high-sulphur crude has brought down of low-sulphur crude purchases.

Project Manthan

  SAP implemented at 77 locations as on July 1, 2003; 64 sites by PwC-IOC team and 13 sites by IOC itself
  V-SAT bandwidth for SAP transactions increased, data transfer through V-SATs to improve fourfold; V-SAT commissioning under Phase-II to be completed by Aug. 2003 end
  SAP replication at Marketing units by service providers to commence from Oct. 1, 2003; State Heads to confirm availability of leased lines by Sept. 1
  IS heads of Marketing ROs/SOs undergo training in SAP, to act as nodal officers for SAP implementation in State Offices
  SAP-compatible TDM developed and tested to take over and maintain supplies during communication link breakdown with central server. Going live at Okha terminal this week
  SAP audit at all refineries completed, 27 SAP reports being disabled after critical review for system improvement

Chairman's concluding remarks

  The Board is very much concerned about our declining market share and volumes. Instead of giving reasons for such decline, State Offices must come out with what they need - more powers, facilities, etc., -- from the Management to improve market share at their level. I am willing to provide all the support

  We are striking a deal with BSNL to give cell phones to our field force to enable them to perform better

  MIS reporting has to improve. Henceforth, all refineries should give gross margin improvements, with details of MoU targets, stretch targets and actual achievement, along with performance on targets for reduction of operating cost

  Marketing and Refineries groups should sort out HSD containment issue

  All Refineries/Marketing/Pipelines divisions and units to keep their sales tax accounting in perfect order so that Sate Governments do not bleed them for funds

  All Divisions should make attempts to field teams for National Management Games for young managers

  As members of the senior management, this group needs to keep track of what is happening within and outside the organisation so as to communicate down the line. Our website (www.iocl.com) and internal communication portal (www.indianoilxpress.com) have a wealth of information on these issues updated on a daily basis. Similarly, the IT & Treasury site on the Refineries Division intranet carries details of crude oil and product price movements. I want all of you to browse these sites and e-mail your responses and suggestions for improvement to me or Director (Finance) or DGM (CC)

  The IndianOilxpress portal has been well received by our colleagues, even as far away as Malaysia, as an excellent source to keep oneself updated on what is happening across the organisation and elsewhere on a daily basis.

  My 'Straight Talk' column has elicited several responses from colleagues from Refineries and Pipelines Division; I am looking forward to similar feedback from colleagues in Marketing Division.