SYNOPSIS

TOPIC: The Business strategies of Oil sector companies in India.

OBJECTIVE: To determine and analyze the business policies and strategies of the oil
companies in fulfilling the proper supply and distribution for the customers benefit.

RESEARCH METHODOLOGY:

 Type of Research: Analytical Research

 Method of Data Collection : Secondary Data
 Source of Data: Internet, Magazine, Journal and Newspapers.

Internal Guide: Dr.Taruna Gautam.

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 INTRODUCTION

The Republic of India (India), the world's sixth largest energy consumer, plans major
energy infrastructure investments to keep up with increasing demand--particularly for
electric power. India also is the world's third-largest producer of coal, and relies on coal
for more than half of its total energy needs.

Background:

India's economic growth is continuing its recovery from a slowdown

that took place in
2002, which was mainly attributable to weak demand for
manufactured exports and the
effects of a drought on agricultural output.
Real growth in the country's gross domestic product (GDP) was 4.0%
for 2002, surging
to 8.2% in 2003 and a projected 6.4% for2004 and 6.2% for 2005 (the
Indian fiscal
year for economic statistics begins on April1.

In addition to strong economic growth, India has made substantial

progress toward a
reduction of political tensions with Pakistan restoring trade and travel
links, and
resuming high-level contacts between the two governments.
After many years of pursuing economic policies based on import
substitution and

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state ownership of key industries, India's government embarked on a
series of economic reforms in the mid-1990s. The reforms included a
relaxation of restrictions on foreign ownership in some sectors, and
privatization of some industrial enterprises. After the most recent
parliamentary elections, which took place in April and May 2004, a new
government led by the Congress party was sworn in under the
leadership of Prime Minister Manmohan Singh.

While the new government has taken some symbolic steps away from
the economic policies of the previous Bharatiya Janata Party (BJP)-led
government, such as abolishing
the Ministry of Disinvestment, the process of economic reforms is
expected to continue,
but possibly at a slower pace. In the energy sector, the largest impact
has been the abandonment of full privatization of the state-owned
petroleum sector while reforms in the electric utilities sector under the
Electricity Act of 2003 are continuing.

India has implemented a series of policy changes since the mid-1990s to encourage
foreign investment. Tariffs on imported capital goods have been lowered, and in some
cases eliminated. Restrictions on foreign ownership have been relaxed, though there has
been discussion of reinstating a few of them in key sectors.

Previously, foreign ownership usually had been limited to a minority

ownership stake. Annual foreign direct investment (FDI) in India has
hovered in the range of $3-$5 billion
over the last several years, compared to roughly $40-$50 billion per
year of FDI in China.

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India has had a longstanding territorial dispute with Pakistan over the
ownership of Kashmir, which has led to a tense relationship between
the two countries since the partition of British India in 1947.

After a large-scale mobilization of military forces along their border

during most of 2002, tensions eased somewhat late in the year, and
both sides pulled back most of their forces
from the border in phased withdrawals during 2003. Further
confidence-building
measures on both sides have taken place since then, and a nuclear
"hotline" between the
two governments is planned. India's rivalry with Pakistan has direct
relevance to the
country's energy sector, as it impedes plans for regional natural gas
and pipelines(i.e, from ran or Central Asia).

Oil:

Oil accounts for about 30% of India's total energy consumption. The
majority of India's roughly 5.4 billion barrels in oil reserves are located
in the Mumbai High,Upper Assam,
Cambay, Krishna- Godavari, and Cauvery basins The offshore Mumbai
High field is by far India's largest producing field with current output of
around 260,000 barrels per day.
India's average oil production level (total liquids) for 2003 was
819,000 bbl/d, of which

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 660,000 bbl/d was crude oil. India had net oil imports of over 1.4
million bbl/d in 2003.

Future oil consumption in India is expected to grow rapidly, to 2.8

million bbl/d by 2010 from2.2 million bbl/d in 2003. India is attempting
to limit its dependence on oil imports
somewhat by expanding domestic exploration and production. To this
end, the Indian government is pursuing the New Exploration Licensing
Policy (NELP), first announced in 1997 which permits foreign involment
in exploration an activity long restricted to Indian state-owned firms.
While the initial response to the 1999 tender was disappointing, with
no bids received from the major multinational oil companies (causing
an extension
of the deadline for submission of bids), India proceeded with the
award of 25 oil
exploration blocks in early January 2000. The largest winner in the
bidding round was
India's domestic Reliance Industries, in partnership with independent
Niko Resources of Canada, which received 12 blocks. British
independent Cairn Energy, Russia's Gazprom,
the U.S. firm Mosbacher Energy, and Geopetrol of France were all
awarded single blocks in partnership with Indian firms. India's state-
owned Oil and Natural Gas Corporation(ONGC) was awarded eight
blocks, three of which it will hold in partnership
with other public-sector Indian firms. A second round of bidding, with a
total of 25 blocks offered, concluded in March 2001.

Sixteen of the blocks have been awarded to ONGC, and four blocks to
Hardy Oil of the United Kingdom, in partnership with India's Reliance
Petroleum. The others were either

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awarded to smaller independent firms or failed to receive bids. As with
the first round,
no bids were received from major international oil companies. Bids for
the third round
were received in August 2002, with a total of 27 blocks offered. Awards
under this third round were made in February 2003, with domestic
Indian firms receiving most of the
blocks. Reliance Industries received nine offshore blocks, one adjacent
to the
Krishna-Godavari Basin. ONGC was awarded 13 blocks, five offshore
and eight onshore.
The Gujarat State Petroleum Corporation received one. Blocks offered
during
the fourth round in 2003 received relatively little foreign interest.
Awards for 15 blocks were made in February 2004, with 14 going to
ONGC a one going to Reliance Industries.
A sixth round of bidding opened in August 2004. Low drilling recovery
rates are a major of the oil supply problem for India. Historically,
recovery rates have averaged only around30% in currently producing
Indian oilfields, well below the world average.
It is hoped that allowing foreign investment will bring in technology
that is not
available to Indian state firms, thereby increasing overall recovery
rates. ONGC currently is undertaking a project to increase recovery
rates in the Bombay High offshore field and several others as well,
aiming to boost the overall recovery rate for its production assets from
28% to 40%.
One area which has shown promise is western Rajasthan. Cairn Energy
(UK) has been drilling the area since 2001, and has reported several
successful wells in 2004. The Mangala field has been estimated to
contain as much as 320 million barrels of recoverable reserves, and

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the “N-A” field has estimated recoverable reserves of 80 million
barrels.Cairn is planning to bring the field into production by 2007, with
an
expected volume of 60,000 to 100,000bbl/d.
In February 2002, BG purchased a 30% stake in the Panna, Mukta, and
Tapti offshore oil and gas fields, which had previously been held by
Enron. A dispute between BG and ONGC which owns a 40% interest in
the fields. over which firm would operate them was resolved in
February 2003 with a "joint operatorship agreement." Reliance
Industries holds the other 30% stake.

Downstream/Refining:

For most of the 1990s, India imported a large quantity of refined

products, lacking the refining capacity to keep up with growing
demand. In 1999, refinery construction allowed India to close the gap.
At the end of 2003, India had a total of 2.1 million bbl/d in refining
capacity, an increase of970,000 bbl/d since 1998. The largest single
addition was Reliance Petroleum's huge
Jamnagar refinery, which began operation in 1999. It has since reached
its full capacity
of 540,000 bbl/d. Jamnagar sells its products through three of the
state-owned firms, and
is in the process of building a retail network of its own, which is
expected to include 2000

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retail outlets by the end of 2005.

Another major downstream infrastructure development is the

construction of pipelines being undertaken by Petronet India, a
company created by an agreement in 1998 between India's state
owned refineries. This construction is expected to add 500,000 bbl/d to
India’s current 325,000 bbl/d capacity for pipeline transportation of
refined products.
Pipelines between refineries and major urban centers are replacing rail
cars as the main mode of transportation in India.

While state firms still control retail gasoline sales, several

multinationals have entered the Indian lubricants market, which was
deregulated five years ago. Firms such as Shell,
ExxonMobil, and Caltex currently hold over one-third of the market.
While these operations are relatively small, they are seen as allowing
the majors to study th Indian market, establish brand recognition, and
prepare for the eventual deregulation of the
Indian retail petroleum products sector. Still, a requirement that
foreign firms invest at
least $400 million before entering the downstream market has served
to limit their entry
into petroleum products retailing. Shell met this requirement in early
2004, and intends
to open a few retail outlets beginning in 2005.

Industry Restructuring and Price

Deregulation:

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The Indian government officially ended the Administered Pricing
Mechanism (APM) for petroleum product prices in April 2002. Prior to
this deregulation, the Indian government
had tried to offset the effects of price changes in crude oil by
maintaining an Oil Pool Account, which was to build financial reserves
when crude oil prices fell and release them back as increased subsidies
when crude oil prices rose. In practice, though, the April 2002 reforms
have not completely removed government influence on petroleum
product prices. Subsidies have been maintained on some products,
such as kerosene,
which is commonly used as a cooking fuel by low-income households in
India.

State-owned downstream companies also still must submit proposed

price changes to the
Ministry of Petroleum and Natural Gas for approval. This has, in
practice, limited movements in retail prices in response to fluctuations
in world oil prices.
The previously planned sell off of government stakes in Hindustan
Petroleum (HPCL) and Bharat Petroleum (BPCL) appear unlikely to
move forward in the near future.
The policy of the new Congress-led government is to avoid most
further privatizations
of public companies which are making a profit. The new Congress-led
government has reportedly been considering a restructuring of state
owned assets in the petroleum sector,
which would consolidate IOC, ONGC, HPCL, and BPCL into two
vertically-integrated
major oil companies. No final decision has yet been made on such a
restructuring.

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India is planning to set up a strategic petroleum reserve equal to 15
days of the country's oil consumption. The state-owned refiner Indian
Oil Corporation (IOC) is likely to take
the lead in the central government by means of a tax on petroleum
product sales.

Natural Gas:

Indian consumption of natural gas has risen faster than any other fuel
in recent years. From only 0.6 trillion cubic feet (Tcf) per year in 1995,
natural gas use was nearly 0.9 Tcf in 2002 and is projected to reach
1.2 Tcf in 2010 and 1.6 Tcf in 2015. A major
development in December 2002 was the announcement by Reliance
Industries of its
discovery of a large amount of natural gas in the Krishna-Godavari
Basin offshore
from Andhra Pradesh along India's southeast coast. New reserves from
this find are estimated at about 7 Tcf. Reliance reported another find
offshore from Orissa in June 2004 with estimated reserves of 1 Tcf.
Cairn Energy also reported natural gas finds in late
2002 offshore from Andhra Pradesh as well as Gujarat, which contain
reserves estimated at nearly 2 Tcf. The main market impacts from the
new finds will be on India's east
coast, which currently lacks extensive natural gas infrastructure.
.

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Even with these new reserves, India's domestic natural gas supply is
not likely to keep pace with demand, and the country will have to
import much of its natural gas, either via pipeline or as liquefied
natural gas (LNG). While EIA's current forecast in the International
Energy Outlook 2004 predicts a 4.8% annual growth rate in natural gas
consumption, this reflects a substantial downward revision from
previous forecasts, which had projected consumption of as much as
2.7 Tcf per yearby 2010.Problems with
financing LNG import projects have dimmed some of the previous
prospects for explosive growth in naturalgas consumption in India, and
helped to revive interest in
pipeline import options. Financial problems in the power sector, the
main consumer of natural gas, also have a negative effect.

Most of India's current natural gas production takes place in the

Mumbai High basin and the state of Gujarat. Current projects include
enhancing natural gas production at the Tapti fields in Gujarat and
recovering previously flared natural gas at the Mumbai High oil field.
India is investing heavily in the infrastructure required to support
increased use of natural gas. Gas Authority of India Limited (GAIL), a
government-owned entity, is in

the process of doubling the throughput capacity on its main Hazira-

Bijaipur -Jagdishpur (HBJ) Pipeline. Work on the capacity expansion
began in 2002, and will eventually raise the capacity of the line from
about 1.1 billion cubic feet per day (Bcf/d) to 2.1 Bcf/d.

GAIL also plans a new distribution network in West Bengal and a

pipeline which would connect Calcutta with Chennai. Shell has signed a

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memorandum of understanding with the state government of Uttar
Pradesh in northern India for the development of a
natural gas distribution infrastructure. India's Foreign Investment
Promotion Board (FIPB) had approved 12 prospective LNG import
terminal projects in the mid-to-late-
1990s, but it was never considered likely that all would be built in the
near future, as
their combined capacity would have exceeded even the most
optimistic demand projections. The Indian government froze approvals
of new LNG terminals in 2001, and
payment problems at the Enron-backed Dabhol Power Plant in
Maharashtra led many to question the financial viability of some of the
LNG import projects. Reforms currently
being undertaken in the electric power sector may eventually change
this situation.

The largest state sector projects are to be conducted by Petronet, a

joint venture between ONGC, IOC, the Gas Authority of India Ltd.
(GAIL), the National Thermal Power
Corporation (NTPC), and Gaz de France. Each of the state firms owns a
12.5% stake,
the Gujarat state government owns a 5% stake, and the rest is owned
by private investors,
including a 10% stake held by Gaz de France Petronet plans two import
terminals, one at
Dahej and the other at Cochin. The import terminal at Dahej began
operation earlier this year, receiving India's first cargo of LNG on
January 30, 2004.
The Dahej terminal had major advantages over some of the other
proposed projects, because it is tied in with the main state-owned
natural gas company, GAIL, and the existing HBJ pipeline network.

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Petronet is scheduled to start construction on its second terminal, at
Kochi in Kerala state,in late 2005.Shell also has began construction of
its LNG import terminal at Hazira in Gujarat, and has contracted for
LNG supplies from Oman.

The facility is scheduled to begin operation in November 2004. Like the

Petronet Dahej terminal, it is to be linked into existing natural gas
pipelines.
The Dabhol LNG terminal was nearly finished at the time construction
was halted in June 2001, and it will likely be completed eventually,
since construction was about 90%
completed. Two American firms involved in the project, General
Electric and Bechtel,
purchased Enron's 65% stake in the project. At present, international
arbitration is still pending over the financial terms of the project,
mainly involving the government guarantees, and it is unclear when
work on completing the facility will begin.

In the wake of the problems with Dabhol, firms backing several other
LNG projects pulled out of India in the second half of 2001. Dhaksin
Bharat Energy, a consortium including CMS Energy and Unocal, also
announced the cancellation of its planned
LNG project at Ennore. Total has suspended further action on its
planned LNG import
terminal at Trombay. These LNG projects were cancelled largely in
response to the Indian government's decision not to extend sovereign
payment guarantees to power
projects which were to have been among the import terminals’ largest
customers. Another proposed project in Andhra Pradesh on India's east
coast may be jeopardized by

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cheaper natural gas supplies which will become available once
Reliance Industries new
offshore finds are developed.

The BP-led consortium backing the project has switched the proposed
location from Kakinada to Krishnapatnam, about 250 miles to the
south.
Aside from LNG imports, imports of natural gas by pipeline may
eventually play a role in satisfying India's gas needs. One possibility
would supply India with natural gas from Iran’s huge South Pars field
via a pipeline, either subsea or through Pakistan. Iran has
discussed the proposal with India and Pakistan. Australia's Broken Hill
Proprietary (BHP) is the main foreign backer of the idea. An offshore
route bypassing Pakistan also has been studied. Pakistan had said in
early 2001 that it would allow supplies to cross its

territory, and Iran would bear the contractual responsibility for assuring
gas supplies to India. With the thaw in India-Pakistan relations over
the last year, the idea is again gaining some interest.

Supplies of LNG from Iran might also be an option in the future, and
IOC has opened
discussions with the National Iranian Oil Company (NIOC) on a possible
LNG export deal.
Another possible import route would link the natural gas reserves of
Bangladesh into the Indian gas grid. Current proven reserves of natural
gas in Bangladesh are at least 14 Tcf,
but the foreign firms involved in natural gas exploration in Bangladesh,
which includes

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Unocal, believe that reserves are higher. Shell, which backs exports to
India, has estimated Bangladeshi natural gas reserves at 38 Tcf, and a
study by the U.S. Geological
Survey put the country's probable reserves at 32 Tcf.

Bangladesh has been reluctant to approve exports to India, however,

until all questions about reserves and its domestic supply have been
resolved. After years of delays, Unocol
effectivelyshelved the project in March 2004.
Finally, a new natural gas find in Burma also has attracted interest as a
potential source of supply for India. Indian companies ONGC and GAIL
own a total of 30% equity in the
reserves, and Bangladeshi officials stated in June 2004 that they would
be willing to consider a pipeline running across Bangladeshi territory
from Burma to West Bengal in India, provided agreement could be
reached on terms and transit fees.
India's government has been considering reforms in its natural gas
pricing mechanism, which is currently set by the government.
Deregulation has been delayed several times,
and buyers of natural gas from private sources such as the LNG
terminal at Dahej pay
prices much higher than those purchasing from the state-owned
suppliers. With the shortage of natural gas and willingness of some
consumers to pay more, deregulation
would likely lead to higher prices if implemented.

Petroleum and Energy overview:

Energy-Related Ministries:

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Coal—Manmohan Singh (held by Prime Minister)
Petroleum and Natural Gas—Mani Shankar Aiyar;
Electric Power—P.M. Sayeed
Proven Oil Reserves (1/1/04E): 5.4 billion barrels
Oil Production (2003E): 819,000 barrels per day (bbl/d), of which 660,000 bbl/d was
crude oil
Oil Consumption (2003E): 2.2 million bbl/d
Net Oil Imports (2003E): 1.4 million bbl/d
Crude Oil Refining Capacity (1/1/04E): 2.1 million bbl/d
Natural Gas Reserves (1/1/04E): 30.1 trillion cubic feet (Tcf)
Natural Gas Production (2002E): 883 Bcf
Natural Gas Consumption (2002E): 883 Bcf
Recoverable Coal Reserves (2001E): 93.0 billion short tons
Coal Production (2002E): 393 million short tons (Mmst)
Coal Consumption (2002E): 421 Mmst
Net Coal Imports (2002E): 28 Mmst

Petroleum and Energy Industry:

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Organization:
Petroleum - Oil and Natural Gas Corporation (ONGC), Oil India Ltd.
(OIL), Indian
Oil Corporation (IOC); Bharat Petroleum Company Ltd (BPCL) and
Hindustan Petroleum Company Ltd.
Natural Gas - Gas Authority of India Limited (GAIL)
Coal - Coal India Limited (CIL)
Electric Power - National Thermal Power Corporation (NTPC), National
Hydroelectric Power Corporation, State Electricity Boards.
Major Oil Terminals: Bombay, Cochin, Haldia, Kandla, Madras, Vizag
Major Oil Refineries (1/1/04 capacity): Reliance-Jamnagar ,
540,000 bbl/d, Koyali-Gujarat,185,100 bbl/d; Mangalore, 180,000 bbl/d,
Mathura-Uttar Pradesh, 156,000 bbl/d; Mahul-Bombay(Bharat
Petroleum), 120,000 bbl/d; Madras, 130,660 bbl/d, Mahul-Bombay
(Hindustan Petroleum),111,700 bbl/d
Major Pipelines:
Oil--Salaya-New Delhi, Barauni-Digboi, Kandla-Bhatindu (products).
NaturalGas--Hazira-Bijapur-Jagdishpur (HBJ).

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Global Oil hunt in India:

For the past five years, ever since it was set up, ONGC Videsh Ltd (OVL) has been
slugging it out with its Chinese counterparts, bidding for equity in oilfields abroad.
Not very successfully, admittedly, with China National Offshore Oil Corporation
(CNOOC) and China National Petroleum Corporation (CNPC) snatching up the best
fields and deals almost every time.

But now, Indian delegations have visited China, exploring areas where information,
research findings and strategies can be shared. India's Petroleum and Natural Gas
Minister Mani Shankar Aiyar's visit to Beijing next month is likely to result in an
overarching agreement of cooperation in the energy sector, with at least four or five
memoranda of understanding being signed between Indian and Chinese companies.

2006 will be the year of friendship between India and China, based on the five principles
of cooperation," emphasises the minister, referring to the panchsheel agreement between
the two countries.
Clearly, the rules of the game have changed. Why? The short answer lies in another
catchphrase: energy security. Both countries consume far more oil than they produce,
leaving them heavily dependent on imports.

According to Petrol World, at present, China imports over 30 per cent of its oil supplies,
consuming 5.46 mi llion barrels a day (mbd); that's 7 per cent of world demand. India
imports a frightening 75 per cent of its oil, using up 2 mbd.
Figures from the International Energy Agency place world oil demand in 2030 at 121.3
mbd, with China and India accounting for 12 per cent and 5.6 per cent, respectively. By
then, it predicts, India's oil import dependency will climb to 94 per cent.

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Meanwhile, oil prices have been on the up and up, too: from $34.69 a barrel in October
1990 (source: www.petroleumbazaar.com), to an all-time high of $70 a barrel (September
2005), to just over $57 on December 1, 2005.
In its April 2005 issue, the McKinsey Quarterly warned grimly: "Asia has limited
strategic reserves which can soften the impact on prices in the event of a sudden supply
shortage."

How are India and China responding to their common problem?

Given how this story has been explained so far with buzzwords, allow us one more for
the answer - increasing resource nationalism.
In plain English, that means both countries are trying to gain as much control as possible
over the source of the scarce resource, oil. But the gameplans of both countries have been
hugely different - although that looks set to change now.
"One is a hungry dragon and the other, a dancing elephant," says an industry observer.
"China has gone more aggressively in terms of pricing and risk-taking," agrees Subir
Raha, chairman and managing director, ONGC (the parent company of OVL) and OVL.

Money matters:

Both countries started their global conquest at different times. China began looking
outward back in the 1990s, a decade before OVL, and according to energy sector
analysts, has acquired 60 million metric tonnes (mmt) of crude through overseas
investments. The corresponding figure for OVL in 2004-05: 5.07 mmt.
According to the petroleum ministry, OVL has a target to acquire 20 mmt of oil and oil
equivalent gas a year by 2010 - a fraction of what China's decade-old headstart has
produced.
That's because you get what you pay for. "China is like a European family on holiday in
India. It can afford to splurge," says Abhay Mehta, a Mumbai-based energy expert.

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"India's plight is that of a middle class family out on a picnic to Europe; it has to make do
within its tiny budget." The budgets? OVL has an investment commitment of just over $3
billion, compared to China's $35-40 billion. More money helps China muscle its way into
any deal - sometimes even after it's been struck.

Consider the Petrokazakh (the third largest oil field in Kazakhstan) sale in August 2005.
Aiyar had then alleged that India's $ 3.98 billion bid was the highest when bids closed on
Friday, August 19. But when the announcement was made before offices opened after the
weekend - on a Monday - CNPC had revised its bid to $ 4.18 billion and the sale was
announced.
India's lost other deals to China, in the past: EnCana's oilfield in Ecuador; stakes in five
Indonesian oilfields; and an exploration deal in Angola (although that was tied in with aid
- more on that later).

Brand Ambassadors :

Could Shah Rukh Khan and Amitabh Bachchan have helped swing the deal for India?
Bollywood has a huge fan following in the regions where India is pitching for oil -
Central Asia and the Caspian Sea region, and Africa. So much so that, says a senior oil
PSU executive, a proposal is being seriously considered to include these superstars in a
future Indian delegation to these places.

The go-ahead on that is still awaited. Meanwhile, India has roped in celebrity NRI for
future oil deals. OVL's parent ONGC tied up with billionaire steel magnate Lakshmi N
Mittal's. Mittal Investment Sarl in October, to form ONGC Mittal Energy (OMEL) and
ONGC Mittal Energy Services (OMESL).
Both companies have invested $100 million in these ventures. OMEL has already swung
into action: it has bagged a deal with Nigeria to produce an average 650,000 barrels a day
of oil and oil equivalent gas over 25 years, from deepwater exploration blocks to be
allocated by the Nigerian government.

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"The Nigerian deal is a healthy mix between a private organisation - which brings
nimbleness with it - and a PSU, which brings national interest and expertise" says Arvind
Mahajan, partner, IBM Business Consulting Services.

State support:

The bigger West Asian oilfields were cornered years ago by the Western oil giants. That's
left India and China scrambling for a piece of the action in the Caspian Sea, West Africa
and Central Asia. Unfortunately, these regions aren't exactly known for their political
stability, which makes business here fraught with uncertainty.
That's where, more than the company's clout, it is the country's power that matters. "The
Nigeria deal happened mostly because of government to government influence," points
out IBM's Mahajan.

For its part, China certainly protects its own. In 2004, when the United Nations toyed
with imposing restrictions on Sudan for human-rights abuse, China - a permanent
member of the UN security council - threatened to veto the sanctions. It had a powerful
reason: China has invested $15 billion in Sudanese oil projects and the country supplies
about 7 per cent of China's oil imports (source: Time).
"The bids put in by Chinese companies are strongly backed by their government," agrees
Raha.

That may mean sweetening oil deals with much more than money. In Angola, Shell
wanted to sell its stake to OVL, but China swept the deal by offering aid of about $2
billion for several projects in Angola, while India offered only $200 million for
developing that country's railways.
"China has used more than pure financial muscle to acquire petroleum interests. It has
also bundled oil investments with several economic and other packages outside the
purview of the oil sector," says Partho Bardhan, head, energy and natural resources,
KPMG.

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What’s ahead?

So, is that the way ahead for India? OVL is a minnow compared to CNOOC and CNPC,
but for a five-year-old, its track record isn't too bad: turnover of Rs 1,081.5 crore and a
presence in 13 countries.
Granted, the size of its acquisitions is small, but consultants believe that may be the
preferred option. "Strategically India should try and buy off smaller oil companies,
instead of just acquiring reserves," advises IBM's Mahajan.

Buying integrated companies will give India access to experience across the entire value
chain, besides bringing it more level with China. After all, that's also the strategy China
follows (not always successfully; witness the recent failed attempt by CNOOC to buy the
US-based Unocal).
Other public sector oil companies like Indian Oil, HPCL and GAIL are also exploring the
possibility of expanding their overseas presence, as are private companies like Reliance
and Videocon. The Indian oil story is only just beginning, say consultants. But the lack of
coordination between themselves and with other players will take its toll, they warn.
That's where the new mantra of cooperation assumes greater importance. Sino-Indian
collaborations in oil have already taken off. There is the Yadavaran gas field in Iran,
where OVL has a 20 per cent stake and China has 50 per cent; the estimated production is
300,000 barrels a day. The Sudan Greater Nile Oil Project is also a joint venture between
CNPC (40 per cent equity) and OVL (25 per cent).

Last month was the turn of Al-Furat in Syria, where OVL and CNPC have submitted a
joint bid for Petro-Canada's 38 per cent stake. "India and China are significant players
and will combine scale. When we go out aggressively, the seller is at an advantage," says
Aiyar.
This way, then, seems like a win-win.

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 OBJECTIVE OF THE RESEARCH
The objectives of this dissertation project are:

 To determine the business strategies and policies of the oil companies.

 The oil companies must achieve their business policies within the set time so that
they can give proper supply to the end consumers and withdraw the subsidies that
the companies have been paying for long time.

 To provide quality and quick service to the consumers during the high demand
period.

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 RESEARCH METHODOLOGY

The research methodology applied here in this project is analytical i.e. it takes into
consideration all the use facts or information already available and analyze these to make
a critical evaluation of the material. The secondary data was collected from different
Magazines, Newspapers, Journals and Internet.

Type of Research : Analytical Research.

Methods of Data Collection : Secondary Data.

Sources of Data : Magazines, Newspapers, Journals and Internet.

24
 OIL AND NATURAL GAS CORPORATION

Is Asia’s best Oil & Gas Company, as per a recent survey conducted by US-based
magazine ‘Global Finance. Ranks as the 2nd biggest E&P company (and 1st in terms of
profits), as per the Platts Energy Business Technology (EBT) Survey 2004.
Ranks 24th among Global Energy Companies by Market Capitalization in PFC Energy
50 (December 2004). [ONGC was ranked 17th till March 2004, before the shares prices
dropped marginally for external reason.
Is placed at the top of all Indian Corporates listed in Forbes 400 Global Corporates (rank
133rd) and Financial Times Global 500 (rank 326th), by Market Capitalization.
Is recognized as the Most Valuable Indian Corporate, by Market Capitalization, Net
Worth and Net Profits, in current listings of Economic Times 500 (4th time in a row),
Business Today 500, Business Baron 500 and Business Week.
Has created the highest-ever Market Value-Added (MVA) of Rs. 24,258 Crore and the
fourth-highest Economic Value-Added (EVA) of Rs. 596 Crore, as assessed in the 5th
Business Today-Stern Stewart study (April 2003), ahead of private sector leaders like
Reliance and Infosys. ONGC is the only Public Sector Enterprise to achieve a positive
MV A as well as EVA.

Is targeting to have all its installations (offshore and onshore) accredited (certified) by
March 2005. This will make ONGC the only company in the world in this regard.
Owns and operates more than 11000 kilometers of pipelines in India, including nearly
3200 kilometers of sub-sea pipelines. No other company in India operates even 50 per
cent of this route length. Crossed the landmark of earning Net Profit exceeding
Rs.10,000 Crore, the first to do so among all Indian Corporates, and a remarkable Net
Profit to Revenue ratio of 29.8 per cent. The growth in ONGC's profits is not solely due
to deregulation in crude prices in India, as deregulation has affected all the oil companies,
upstream as well as downstream, but it is only ONGC which has exhibited such a
performance (of doubling turnover and profits).

25
Has paid the highest-ever dividend in the Indian corporate history.
Its 10 per cent equity sale (India's highest-ever equity offer) received unprecedented
Global Investor recognition. This was a landmark in Indian equity market, establishing
beyond doubt, the respect ONGC's professional management commands among the
global investor community. According to a report published in 'The Asian Wall Street
Journal (Hongkong)', ONGC's Public Issue brought in 20 Foreign Institutional Investors
(FIls) to India, as (it was reported), 'they could not ignore the company representing
India's energy security'.

The Market Capitalization of the ONGC Group (ONGC & MRPL) constitutes 10 per cent
of the total market capitalization on the Bombay Stock Exchange (BSE). ONGC has an
equity weightage of 5 per cent in Sensex; 15 per cent in the Nifty (the only Indian
corporate with a two-digit presence there); ONGC commands a 7 per cent weightage in
the Morgan Stanley Capital International (MSCI) Index.
The growth in ONGC's Market Capitalization (from Rs. 18,500 Crore before May 2001
to Rs. 1,25,000 Crore in January 2004) is unprecedented and except Wipro (who had a
higher market capitalization temporarily), no other Indian company (either in public or
private sector) has seen such a phenomenal growth.
ONGC has come a long way from the day (a few years back) when India and ONGC did
not figure on the global oil and gas map. Today, ONGC Group has 14 properties in 10
foreign countries. Going by the investments (Committed: USD 2.708 billion, and Actual:
USD 1.919 billion), ONGC is the biggest Indian Multinational Corporation (MNC).
ONGC ended the sectoral regime in the Indian hydrocarbon industry and benchmarked
the globally- established integrated business model; it took up 71.6 per cent equity in the
Mangalore Refinery & Petrochemicals Limited (MRPL), and also took up a 23 per cent
stake in the 364-km-long Mangalore-Hasan-Bangalore product Pipeline, connecting the
refinery to the Karnataka hinterland. By turning around MRPL in 368 days, ONGC has
set standards of public sector companies reviving joint (or private) sector companies,
proving that in business, professionalism matters, not ownership.

26
ONGC Represents India’s Energy Security:

ONGC has single-handedly scripted India’s hydrocarbon saga by :

Establishing 6 billion tonnes of In-place hydrocarbon reserves with more than 300
discoveries of oil and gas; in fact, 5 out of the 6 producing basins have been discovered
by ONGC: out of these In-place hydrocarbons in domestic acreage, Ultimate Reserves
are 2.1 Billion Metric Tonnes (BMT) of Oil Plus Oil Equivalent Gas (O+OEG).

Cumulatively producing 685 Million Metric Tonnes (MMT) of crude and 375 Billion
Cubic Meters (BCM) of Natural Gas, from 115 fields. India’s Most Valuable Company
With a market capitalization having exceeded Rs 1 trillion, ONGC retains it’s position as
the most valuable company in India in various listings.
As per 5th Business Today Stern-Stewart study, ONGC was the biggest Wealth Creator
during 1998-2003 (Rs 226.30 billion). It was again the highest wealth creator during
1999-2004, as per Motilal Oswal Securities.
ONGC’s mega Public Offer (India’s biggest-ever equity offer worth more than Rs 100
billion was over subscribed 5.88 times.
ONGC is the only Indian company to have earned a Net Profit of over Rs 10,000 crores
(2002-03). The market capitalization of the ONGC group constitutes 8% of the market
capitalization of BSE.

ONGC added 49.06 MMT of ultimate reserves of O+OEG during 2003-04 (including
overseas acquisitions), maintaining the trend of positive accretion for the third
consecutive year.

ONGC’s Pioneering Efforts:

ONGC is the only fully–integrated petroleum company in India, operating along the
entire hydrocarbon value chain :
Holds largest share (57.2 per cent) of hydrocarbon acreages in India.
Contributes over 84 per cent of Indian’s oil and gas production.

27
Every sixth LPG cylinder comes from ONGC. About one-tenth of Indian refining
capacity.
Created a record of sorts by turning Mangalore Refinery and Petrochemicals Limited
around from being a stretcher case for referral to BIFR to among the BSE Top 30, within
a year.
Owns 23% of Mangalore-Hasan-Bangalore Product Pipeline (MHBPL), connecting
MRPL to the Karnataka hinterland.

Competitive Strength:

All crudes are sweet and most (76%) are light, with sulphur percentage ranging from
0.02-0.10, API gravity ranging from 26°-46° and hence attracts a premium in the market.
Strong intellectual property base, information, knowledge, skills and experience.
Maximum number of Exploration Licenses, including competitive NELP rounds.
ONGC owns and operates more than 11000 kilometers of pipelines in India, including
nearly 3200 kilometers of sub-sea pipelines. No other company in India operates even 50
per cent of this route length.

Strategic Vision: 2001-2020

Focusing on core business of E&P, ONGC has set strategic objectives of :

Doubling reserves (i.e. accreting 6 billion tonnes of O+OEG) by 2020; out of this 4
billion tonnes are targeted from the Deep-waters.
Improving average recovery from 28 per cent to 40 per cent.
Tie-up 20 MMTPA of equity Hydrocarbon from abroad.
The focus of management will be to monetize the assets as well as to assetise the money.

28
Sagar Sammriddhi: Biggest Global Deepwater Campaign

ONGC launched ‘Sagar Sammriddhi’, the biggest deep-water exploration campaign ever
undertaken by a single operator, anywhere in the world.
Strategic plan to accrete 4 billion tones of reserves by 2020. US$0.75 million per day
investment. Integrated Well Completion approach.
Plans to drill 47 deepwater wells up to water depths of 3 kms.

Leveraging Technology :

To attain the strategic objective of improving the Recovery Factor from 28 per cent to 40
per cent, ONGC has focused on prudent reservoir management as well as effective
implementation of technologies for incremental recovery to maximize production over
the entire life cycle of existing fields
Improved Oil Recovery (IOR) and Enhanced Oil Recovery (EOR) schemes are being
implemented:
In 15 fields including Mumbai offshore. At a total investment exceeding US $2.5 billion.
Yielding incremental 120 MMT of O+OEG over 20 years.

Sourcing Equity Oil Abroad :

ONGC's overseas arm ONGC Videsh Limited (OVL), has laid strong foothold in a
number of lucrative acreages, some of them against stiff competition from international
oil majors.
OVL has so far, acquired 15 properties in 14 foreign countries, and striving to reach out
further. OVL’s projects are spread out in Vietnam, Russia, Sudan, Iraq, Iran, Lybia,
Syria, Myanmar, Australia, and Ivory Coast. It is further pursuing Oil and gas exploration
blocks in Algeria, Australia, Indonesia, Nepal, Iran, Russia, UAE and Venezuela.

29
Production Sharing Contract in Vietnam for gas field having reserves of 2.04 TCF, with
45 per cent stake in partnership with BP and Petro Vietnam. Gas production has
commenced from January 2003.
20 per cent holding in the Sakhalin–1 Production Sharing Agreement. The US $ 1.77
billion investment in Sakhalin offshore field is the single largest foreign investment by
India in any overseas venture and the single largest foreign investment in Russia. It is
scheduled to go on production during 2005-06.
Acquired 25 per cent of equity in the Greater Nile Oil Project in Sudan, the first
producing oil property. ONGC Nile Ganga BV, a wholly-owned subsidiary, has been set
up in the Netherlands to manage this property. Around 3 Million Tonnes of crude oil is
coming to India annually from this project. This is the first time that equity crude of a
group of companies in India is being imported into India for refining by the group.
Discovered a world-class giant gas field ‘Shwe” in Block A-1(where OVL has 20 per
cent share) in Myanmar, with estimated recoverable reserve of 4 to 6 trillion cubic feet of
gas.

Besides taking equity in oil & gas blocks and looking for stakes in E&P companies, OVL
is also bagging prospective contracts (like the refinery upgradation and pipeline contracts
in Sudan, awarded to OVL on nomination basis due to its performance in that country),
which will increase ONGC’s equity oil basket. ONGC’s strategic objective of sourcing
20 million tones of equity oil abroad per year is likely to be fulfilled much before 2020.
In fact, OVL is now eyeing a long-term target of 60 MMT of Oil equivalent per year by
2025.
Going by the investments (Committed: US $ 4.3 billion, and Actual: US $ 2.75 billion),
ONGC is the biggest Indian Multinational Corporation (MNC).

30
Frontiers of Technology:

Uses one of the Top Ten virtual Reality Interpretation facilities in the world.
Rolled out ICE, one of the biggest ERP implementation facilities in the world
Best In Class Infrastructure And Facilities
ONGC’s success rate is at par with the global norm and is elevating its operations to the
best-in-class level, with the modernization of its fleet of drilling rigs and related
equipment, at an investment of around US $ 400 million.
ONGC has adopted Best-in-class business practices for modernization, expansion and
integration of all Info-com systems with investment of around US $ 125 million.

Onshore

Production Installation: - 225

Pipeline Network (km) :- 7900

Major Offshore Terminals (including CFU, LPG, Gas, Sweetening plants, Storage Tanks)
:-2

Drilling Rigs: - 75

Work Over rigs: - 66

Seismic Units: - 33

Logging Units: - 35

31
Offshore

Well Platforms: - 131

Well-cum-Process Platforms: - 5

Process Platforms: - 28

Drilling/ Jack-up-Rigs: - 18

Pipeline Networks (km):- 3200

Offshore Supply Vessels: - 32

Special Application Vessels: - 4

Financial (2003-04):

 Highest-ever dividend paid to shareholders (US$ 930 million)

 Practically zero debt Corporate.

 Contributed over US $ 20 billion to the exchequer.

The Road Ahead:

ONGC is entering LNG (regasification), Petrochemicals, Power Generation, as well as

Crude & Gas shipping, to have presence along the entire hydrocarbon value-chain. While
remaining focused on its core business of oil & gas E&P, it is also looking at the future
and promoting an applied R&D in alternate fuels (which can be commercially brought to
market). These efforts in integration is basically to exploit the core competency of the
organization – knowledge of hydrocarbons, gained over the five decades.

32
 New Business:

ONGC has also ventured into Coal Bed Methane (CBM) and Underground Coal
Gasification (UCG); CBM production would commence in 2006-07 and UCG in 2008-
09. ONGC is also looking at Gas Hydrates, as it is one possible source that could make
India self-sufficient in energy, on a sustained basis.

Continuing On the Growth Trajectory:

The ONGC Group has doubled its turnover from 5 billion US dollars to 10 billion US
dollars (from Rs 23,238 Crore to Rs 48,368 Crore) in the last 3 years (2001- 2004); and it
aims to go to 50 billion US dollars in the next 5 years. As this implies a commendable
annual growth rate (compounded) of 40-50 per cent, this objective of ONGC, when
realized, would be an outstanding achievement, by any standards.

ONGC Is Now Geared To Meet Its Vision:

To be an Indian Integrated Energy Multinational (PSU); Target: A Turnover of 50 Billion

US dollars in 5 years.

33
 ONGC in today’s context:

ONGC today, is repositioning itself to foster the principle of relational enterprise through
partnerships/ strategic alliances / joint ventures with preferred partners and adopt a
business strategy which relies on company skills and positional assets with focus on core
business. .

The Corporation, both in medium and long term, will continue to access E&P business
both in the domestic and international sectors.
Strive to reach out to opportunities specific related business of downstream sector, core
competence services business, energy and other sectors in general.

Joint Venture Groups:

ONGC has recognized the need to expand its business through profitable ventures related
to petroleum and energy sectors by entering into joint ventures with other Indian and
foreign companies. ONGC-Joint venture group (ONGC-JVG) has been formed to give
impetus to joint venture activities in areas other than E&P.

ONGC-JVG is responsible for identification and developing new business opportunities in

IndiIndian and foreign companies in following areas:
Par participation in downstream projects like refining/ gas processing /LNG/ power projects.

Par participation in construction projects, pipelines, process plants etc.

34
LNG Import & Marketing:

A joint venture company, PETRONET LNG LIMITED is in place with ONGC having
12.5% equity interest for import and marketing of LNG in India. Other partners in this
venture are IOC, GAIL and BPCL each with 12.5% equity. The remaining 50% equity willll
be offered to strategic partners, financial institutions and public.The Company is planning t t
install two LNG terminals (Dahej in Gujarat and Cochin in Kerala) on western coast of
India with total capacity of 7.5 MMTPA.

The EXPLORATION CONTRACT MONITORING (EXCOM) Group is the exclusive

business face of ONGC for jointly operated oil & gas exploration and production
ventures within India. It is the nodal agency of ONGC for single window E&P business
communication with companies and the government. It’s functions include:
Evaluation and negotiations of bids pertaining to exploration acreages and development
of discovered fields under joint venture.
Negotiations, of production sharing contracts (PCS) and joint operation agreements
(JOA) with parties to the contract.
Providing opportunities to companies for assessment of prospectively of Indian basins
and investment decisions through its New Delhi office.

35
Strategic / Business Alliances:

Oil and Natural Gas Corporation Ltd. (ONGC) is engaged in E&P activities both in
Onshore and Offshore. The Corporation is now venturing out to new areas i.e.
deepwater exploration and drilling, exploration in frontier basins, marginal field
development, optimization of field evelopment plan field recovery and other allied
areas of service sector. Engagements in these areas will require best-in-class
technology, processes and practices and savvy use of the R&D assets to their fullest
advantage.

ONGC is looking towards companies / service providers established in the industry

for technology transfer and absorption, and technological collaboration and support.
We intend to achieve this objective through alliances and sustained relationship.

36
 INDIAN OIL CORPORATION LIMITED

Indian Oil Corporation Limited (IOCL) is the

country's largest commercial enterprise, with a
sales turnover of Rs. 1, 30,203 crore (US$ 29.8
billion) and profits of Rs. 7,005 crore (US$ 1,603
million)for fiscal 2003.
Indian Oil is India’s No.1 Company in Fortune's
prestigious listing of the world's 500 largest
corporations, ranked 189 for the year 2004 based on fiscal 2003 performance. It is also
the 19th largest petroleum company in the world.
Indian Oil has also been adjudged No.1 in
petroleum trading among the national oil
companies in the Asia-Pacific region.

India's Flagship National Oil Company

Beginning in 1959 as Indian Oil Company Ltd., Indian Oil Corporation Ltd. was formed
in 1964 with the merger of Indian Refineries Ltd. (Estd. 1958).
As India's flagship national oil company, IndianOil accounts for 56% petroleum products
market share among PSU companies, 42% national refining capacity and 69%
downstream pipeline throughput capacity.
The IndianOil group of companies owns and operates 10 of India's 18 refineries with a
current combined rated capacity of 54.20 million metric tonnes per annum (MMTPA) or
one million barrels per day (bpd). These include two refineries of subsidiary Chennai
Petroleum Corporation Ltd and one of Bongaigaon Refinery and Petrochemicals Limited.
IndianOil owns and operates the country’s largest network of cross-country crude oil and
product pipelines of nearly 8,0000 km, with a combined capacity of 56.85 MMTPA.

37
 VISION & MISSION:

Vision
A major diversified, transnational, integrated energy company, with national leadership and a
strong environment conscience, playing a national role in oil security& public distribution.

Mission

To achieve international standards of excellence in all aspects of energy and diversified business
with focus on customer
delight through value of products and services, and cost reduction.
To maximise creation of wealth, value and satisfaction for the stakeholders.
To attain leadership in developing, adopting and assimilating state-of- the-art technology for
competitive advantage.
To provide technology and services through sustained Research and Development.
To foster a culture of participation and innovation for employee growth and contribution.
To cultivate high standards of business ethics and Total Quality Management for a strong
corporate identity and brand equity.
To help enrich the quality of life of the community and preserve ecological balance and heritage
through a strong environment conscience.

PERFORMANCE AT A GLANCE:

38
39
PERFORMANCE GRAPHS 2003-04:

40
41
42
43
SALES
Product wise For FY 2002-04 (provisional)

PRODUCT 2003-04 2002-03

Figures in TMT
LPG 4036.0 4390.0
NAPHTHA/NGL 4051.0 3646.0
MOTOR SPIRIT (Gasoline / Petrol) 2744.0 2828.0
OTHERS Light Ends (includes Benzene, 17.0 27.0
RPC and CBFS)
SUB-TOTAL L.E. 10848.0 10891.0
ATF (Jet Fuel) / JPS 1534.0 1663.0
SKO 5792.0 5634.0
HIGH SPEED DIESEL (Gas Oil) 17528.0 17366.0
LIGHT DIESEL OIL / MLO 910.0 721.0
OTHERS M.D 245.0 205.0
SUB-TOTAL (Middle Distillates) 26009.0 25589.0
LUBES / GREASES 386.0 431.0
FURNACE OIL / LSHS 7203.0 7421.0
BITUMEN 1661.0 2137.0
RPC 159.0 161.0

44
OTHERS H.E 196.0 168.0
SUB-TOTAL Heavy Ends 9605.0 10318.0
ALL PRODUCTS 46462.0 46798.0
The above figures include sales of IndianOil and Assam Oil Division.
Sales of subsidiaries were as under:
2003-04 2002-03
IBP 3768.8 4164.7
CPCL 607 343.1
BRPL 88.8 82.7
Total 4464.6 4590.5

MARKETING:
THE MARKETING NETWORK

Indian Oil’s Marketing Network is spread throughout the country with over 22,000 sales
points (the largest in the country). These include petrol / diesel stations, consumer outlets,
lube distributors, SERVO SHOPS, SKO/LDO dealers, LPG distributors, etc. The
Regional offices look after the North, East, West and Southern Regions of India, and
Assam Oil Division supplements operations in the NorthEast. A number of State Level,
Divisional and Indane Area offices have been established in each Region.
Petroleum products are essential inputs to the industrial, transportation, commercial and
household sectors. Our marketing share is about 53.2% among oil Public Sector
UndertakingsinIndia.The extensive network of sales points is made of:

Number /
Unit
Quantity
Divisional Offices 44
LPG Area Offices 35
State Offices 15
Terminals and Depots 162
Aviation Fuel Stations 94

45
 Total Product Tankage 68.74 Lakh kl.
LPG (Indane) Bottling Plants 87
3674 Tonnes
LPG Bottling Capacity
p.a.
Petrol / Diesel Stations 9138
SKO/LDO Dealers 3521
Indane Distributors 4350
SERVO Stockists 204
Bulk Consumer Outlets 4858

The Marketing Mantra for IndianOil is to continuously provide the best products and
services at the most reasonable cost. The "New Look" petrol / diesel service stations
selectively have "ConveniO" shopping stores, snap services, quick Lube change,
automatic car wash and multi-product dispensing pumps. To facilitate
easy transaction, many of our stations accept major credit cards. In fact,
IndianOil and Citibank have launched a special co-brand card, the
"IndianOil Citibank Card" which is not only accepted at IndianOil
petrol stations but at many restaurants, shops, airlines, etc. Also,
IndianOil's tie-up with Coca-Cola ensures that selects petrol stations
stock and dispenses "Coke" - thus quenching the thirst of the vehicles
and the motorists!

A new concept of "Jubilee Retail Outlets" has also been launched to set up petrol /
diesel stations on highways with comprehensive value added facilities for various
customer segments, namely truckers, farmers, tourists and passenger transport. These
include motels, restaurants, parking lots, weighbridges, sale of tyres, batteries, acessories,
agricultural machinery repairs and recreational facilities provided selectively. The first
such retail outlet was commissioned at Ongole, District Prakasam, Andhra Pradesh in
August 1998.

46
IndianOil's "INDANE LPG" is being marketed in as many as 2064 towns with a
customer population of 349 lakh served by a network of 4120 distributors - one of the
largest networks in the world.

SERVO ® lubricant range is the largest selling lubricant brand in India. IndianOil's
Aviation Service continues to be the market leader in the aviation fuel business with a
market share of nearly 67.7%. IndianOil was the first to introduce Hydrant Refueling
System in India. IndianOil is also bunkering all types of marine fuels and lubricants
required by the Shipping Industry in India.

THE MARKETING SERVICES:

Technical Services

Marketing Planning, Coordination, Scheduling & Facilities

Planning
Concept to Commissioning of Modern Automated Terminals
with State-of-the-art Technology
Designing of State-of-the-art Retail Outlets
Setting Up of LPG Bottling Plants
Development of State-of-the-art LPG Import Storage Facilities and Mobile LPG
Marketing Unit
Design of Mounted Storage at LPG Bottling Plants
Development of LPG Import and Storage Facilities with Refrigeration System, Mounted
Pressure Vessels fully Automated for Receipt, Storage and Despatches, On-line Blending
of Propane and Butane, Automated Sprinkler Systems and Foam Generation
Up gradation of Lube Blending plants
Technical assistance in aviation refueling and construction of hydrant refueling system
Supply of Indair package for aviation operation documentation
Pre-sales and post sales technical services in lubes and fuel

47
 Lubrication survey for new equipment, plants and energy audit
Assistance in obtaining ISO 9002 accreditation

Operation And Maintenance

Operation of Storage Terminals and Depots for Receipt, Storage and Distribution of
Petroleum Products
Stock Loss Management
Tanker Operations
Transport Management
Safety Aspects
Bunker Operation

Techno-Economic Feasibility / Special Studies

Up gradation / Automation of Existing Oil Terminals

Setting Up and Operation of Hydrant Refueling System
Setting Up and Operation of Lube Blending Plants
Setting Up and Operation of Marketing Terminals
Lubrication Survey for Recommending Lubricants in Existing Plants
Development of New Grades for Specific Applications

Quality Control

Setting Up Quality Control Systems through Manualised Procedures

Provide Testing Facilities for Quality Assessment and Customers Confidence

Shipping and Commercial

48
 Import and Export of Petroleum Products
Handling of Import / Export Tankers and Upliftments / Loading
Lighter age Operation of Import of C&F Cargoes in Addition to FOB Cargoes
Virtual Jetty Projects

RECOGNITION:

Fortune Ranking
As per Fortune’s Global 500 listing of the world’s largest Corporations for the year
2004 :
Ranking improved to 189, based on fiscal 2003 performance, from 191 in the previous
year and 226 the year before.
Ranked 144 among the ‘Global 500’ in terms of profits.
Among the 32 petroleum companies in the 'Global 500'
19th largest company.
16th in terms of profits.
14th in terms of profits as percentage of revenues (6%).
5th in terms of profits as percentage of assets (12%).
No. 1 Company in Oil Trading in Asia Pacific Region
IndianOil emerged as the top company in oil trading amongst national oil companies in
the Asia Pacific region, as per the annual survey conducted by Applied Trading Systems
(ATS), Singapore for the year 2003.
In the latest survey, IOC is placed at the top of the list followed by Petronas of
Malaysia, ENOC of United Arab Emirates, KPC of Kuwait and Saudi Petroleum of Saudi
Arabia.

49
 The survey covered 80 major petroleum trading companies in the Asia Pacific region.
IndianOil among top global stock picks: Deutsche Bank
In a recent oil strategy report, the prestigious Deutsche Bank has chosen IndianOil as
one of the top global stock picks in the oil & gas sector.
IndianOil is also the only Asian company to be featured in the list of top global stocks
by Deutsche Bank.
In the report titled 'Global Oil 2005: Unforgettable Fire', IndianOil has also been
included as one of the top five recommendations of Deutsche Bank for the Indian market
for the year 2005.

GROUP COMPANIES:
Indian Oil Blending Ltd (IOBL)

Indian Oil Blending Ltd (IOBL) is a fully-owned subsidiary of IndianOil,

engaged in the manufacturing of lubricants and greases and catering to the
defense, railways, state transport among others.
During 2001-02, IOBL earned a net profit of US $ 1.40 million on a total income of
US $ 10 million. In the same year, it achieved a production of 3400 barrels per day
(170,00 MT) and a capacity utilisation of 101%.

Lanka IOC Private Limited (LIOC)

LIOC, IndianOil’s wholly owned subsidiary in Sri Lanka, is the only private oil company
other than the state-owned Ceylon Petroleum Corporation (CPC) that operates retail
petrol stations in Sri Lanka.
It has been incorporated to carry out retail marketing of petroleum products, bulk supply
to industrial consumers, building and operating storage facilities at the Trincomalee Tank
farm, etc., thereby not only providing energy security and supply stability for Sri Lanka
but also upgrading the overall standards of service, particularly in the retail sector.
LIOC is making phased investments to the tune of Rs 172 crore (US $ 100 million) to
provide world-class quality petroleum products and services at the most competitive
prices to the Sri Lankan customers.

50
IndianOil Mauritius Ltd.

IndianOil Mauritius Ltd. (IOML) is IndianOil’s wholly owned subsidiary in

Mauritius. IndianOil is investing US$ 18 million in Mauritius to set up a range of
marketing infrastructure.
A state-of-the-art petroleum storage terminal with 15,500 metric tonnes capacity
has already been commissioned at Mer Rouge to serve as the supply base of petroleum
products. This microprocessor-controlled facility is the first-of-its-kind in Mauritius with
automated product level monitoring, truck loading and computerised access control. As
part of this project, separate import lines for Motor Gasoline (petrol), Gas Oil (Diesel),
Jet Fuel (Aviation Fuel) and Fuel Oil have also been laid.
IndianOil Technologies Limited

IndianOil Technologies Limited (ITL) is a wholly owned subsidiary of Indian Oil

Corporation. ITL is the technology-marketing arm for the entire range of technologies
developed at IndianOil’s R&D Centre. The Centre, which was set up over three decades
ago, has developed several technologies and technical expertise both in refining and
lubricant sector.
IndianOil has nurtured technology by nurturing human talent. This approach has worked
well since the hydrocarbon sector is both technology and knowledge intensive. As a
result, the Corporation is now in a position to offer a bouquet of technologies, products,
processes and solutions that are aimed at improving performance and profitability.

IBP Co. Limited (IBP)

IBP Co. Limited, a subsidiary of IndianOil, is a stand-alone petroleum marketing

company with exclusive business groups for Petroleum, Explosives and Cryogenics.
As an enduring petroleum retailing company, IBP’s marketing efforts are fully focused
on improving its retail market share in petrol and diesel, which has continued to grow and
reached a new high during 2004-05. The Company achieved a growth of 12.3 % in MS
(retail) with a market share of 8.89%, and 12% in HSD (retail) with a market share of
10.7%. The growth is nearly three times the Industry growth.

51
Chennai Petroleum Corporation Limited (CPCL)

Chennai Petroleum Corporation Limited (CPCL), a group company of IndianOil, has a

refining capacity of 10.5 Million Metric Tons Per Annum (MMTPA), making it the
largest refinery in South India. The year 2004-05 was a landmark year in the growth of
CPCL.
CPCL’s 3MMTPA Refinery Expansion cum Modernization Project, which went on
stream in March’04, was completely operationalized and the refining capacity at Manali
now stands at 9.5 MMTPA. The second refinery at Nagapattinam, Tamil Nadu, has a
refining capacity of 1.0 MMTPA.

Bongaigaon Refineries and Petrochemicals Limited (BRPL)

Bongaigaon Refinery & Petrochemicals Ltd. (BRPL) was incorporated on 20th February,
1974 as a Govt. Company fully owned by the Central Government.
The Company was registered with an authorised equity share capital of Rs. 50 crore,
which was subsequently increased to Rs. 200 crore by December 1983. As on
31.03.2005, the total paid up capital of the company stood at Rs. 199.82 crore.

Lubes and Greases:

Automotive Lubricating Oils

Two Stroke Engine Oils For Petrol Engines

SERVO 2T SUPREME
Largest selling, easy mixing, easy starting
Specially designed for two stroke engines
Keeps oil costs low, increases engine life
Proven product under Indian driving conditions

52
 Use at 2% dosage. Meets API TC - JASO FC level

Recommended For:
All makers of Two Stroke two- and three-wheelers with "petroil" system; new
generation scooters and motorcycles.

Available Packing:
20ml, 40ml and 60ml pouches, 1/2 ltr, 1ltr, and 5 ltr sealed containers and 210 ltr steel
drums.

BAJAJ SERVO GENUINE 2T ZOOM

Exclusively developed for Bajaj vehicles
Easy start and and smooth ride, reduces deposits
Better cleaning and lubricity extends engine life
Higher mileage reduces oil consumption and low smoke
2% dosage, meets API TC, JASO FC levels

Recommended For:
All makers of Two Stroke two- and three-wheelers with "petroil" system; new generation
vehicles with separate oil injection systems.

Available Packing:
40ml and 60ml pouches, 1/2 ltr containers and 210 ltr steel drums.

KINETIC HONDA GENUINE 2T OIL

Approved by Honda
Superior performance compared to conventional 2Toils

53
 Better cleaning and reduces deposits, reduces smoke
Enhances engine life and gives maximum power output
Meets API TC, JASO FC levels

Recommended For:
Two stroke vehicles with oil injection lubrication system; all makes of two- and three-
wheelers with "Petroil" system.

Available Packing:
1/2 ltr sealed containers and 210 ltr steel drums.

KINETIC SERVO GENUINE 2T ZOOM

Specially formulated for Kinetic mopeds
Easy mixing with petrol, simple starting and better cleaning
Extends engine life
Higher mileage and low oil consumption; low smoke
3% dosage, meets API TC, JASO FC levels

Recommended For:
All makers of Two Stroke two- and three-wheelers with "Petroil" and oil-injection
lubrication system.

Available Packing:
30ml and 60ml pouches, 1/2 ltr sealed containers and 210 ltr steel drums.

Four Stroke Engine Oils For Petrol Engines

54
SERVO SUPER MULTIGRADE 20W - 40
All-weather performance oil
Fuel Economy and low oil top up

THE LUBRICANT INDUSTRY

The lube industry market in India is worth Rs 5,500 crore approximately. Though it is
dwarfed by the fuel market (petrol, diesel etc.), nevertheless it comprises a sizeable chunk
of the sales volume. India constitutes the 6th largest market for lubricating oil world-wide.
The major Indian companies having a strong presence in this lubricating oil market are
Indian Oil Corporation Limited (IOCL), Hindustan Petroleum Corporation Limited
(HPCL), Bharat Petroleum Corporation Limited (BPCL) & Balmer Lawrie & Co. Other
companies like Shell, Castrol & Caltex are crossing swords with the Indian companies for
capturing market share. Exxon Mobil has been a new entrant in the Indian market in the
last 6-7 years & is equally keen on capturing market share. Compared to the average
world consumption of 35 million tonnes per annum & Asia-Pacific region consumption
of 7.5 million tonnes, the Indian lubricating oil industry have an annual demand of 1
million tonnes. Prior to liberalization, the Indian Public Sector Undertakings IOCL,
HPCL, BPCL used to have a market share of more than 90 % of the lubricating oil
market. Among these, IOCL alone used to command a market share of 54 % of the total
90 %. The Government policy of deregulation, followed be the entry of multinationals

55
through joint ventures, altered the prevailing scenario. Though the Indian PSUs, led by
IOCL, collectively continued to enjoy the largest market share, the market turned more
volatile.

The lubricant market can be divided into 2 major segments – retail & institutional. The
retail category refers to the automotive & other industrial buyers, who buy lubricants
from the retail outlets like roadside filling stations & the lube-shops of the market. The
institutional category refers to the market of the major clients like the Defence, Railways,
State Transport Undertakings, Steel Plants, Power Plants, Chemical, Fertilizers, Heavy
Engineering Industries, industries in the private sector like car makers & shipping
companies. Of these, the largest institutional buyer happens to be the Indian Railways.

Brands of Indian Oil Corporation:

SERVO:
SERVO is India's largest selling lubricant brand. SERVO range of lubricants enjoy
approvals from major Original Equipment Manufacturers (OEMs) including new
generation cars. 9,000 Retail Outlets and a countrywide network of SERVO SSls and
SSAs Bazaar traders offer SERVO range of lubricants to customers.
The SERVO range of lubricants is used in almost every application covering automotive,
industrial and marine sectors. SERVO range of lubricants is fast emerging as a Global
Brand with wide acceptance in UAE, Malaysra, Mauritius, Bangladesh, Bahrain, Sri
Lanka, Nepal, Yemen, Kenya, Kuwait, Burkina Faso, Reunion Islands and other markets.
SERVO has been designated as a SUPERBRAND. SERVO has genuine oil tie ups with
a wide range of companies like Hyundai, Maruti, Bajaj, Lancer. Anil Kumble, the ever
dependable sporting icon is SERVO Brand Ambassador.
Developed exclusively at IndianOil's world-class R&D Centre at Faridabad, there is a
SERVO lubricant for virtually every single application. With over 42% market share and
450 grades, the country's leading SERVO brand lubricants from IndianOil are sold
through over 8,100 IndianOil petrol/diesel stations, over 1,300 SERVO Shops and a
countrywide network of bazaar traders.

56
INDANE LP GAS:

IndianOil Indane LPGas is used in 40 Million homes as cooking fuel and commands over
48% market share in India. Indane LPGas is marketed through a network of 4350 Indane
distributors. Widely used in commercial sectors like industries, hotels & restaurants,
medical labs, etc. 87 Indane Bottling Plants are spread across the country with a
combined bottling capacity of 3.77 MMTPA. New and convenient 5 kg Indane LPGas
cylinders introduced in rural and hilly regions for wider use by economically weaker
sections. IndianOil's auto LPG brand Autogas is the leader in the segment. Marketed
through a network 48 stations out of an industry total of 103 Auto LPG Dispensing
Stations.

INDIAN OIL AVIATION SERVICE:

Meets complete Aviation Fuel requirements of the Defence Services and for over 75
Domestic and International airlines besides private aircraft operators. IndianOilAviation
Servicess is ISO 9002 certified and entrusted with WIP refueling for national and
overseas dignitaries. IndianOil's prompt, courteous and 'No-Delay' Aviation Fuel Service
has received accolades from major customers. Always on call for providing services in
exigencies of war and peace.

IndianOil Aviation Services has a market share of 65% with a network of 95 Aviation
Fuel Stations (AFS) IndianOil Aviation Services is not only the largest aviation fuel
marketer in the country but also the most preferred supplier of jet fuel for customers in
India and abroad. IndianOil Aviation Services serves over 71 International airlines
besides the domestic airlines in India. From Thiruvananthapuram in the South, to Leh in

57
the North. From Porbandar in the West to Ziro in the East.

IndianOil Aviation Services covers India like no one else. In fact, every 1.6 minutes, an
aircraft is being refuelled by IndianOil Aviation Services, somewhere in the country. It
also caters to over 90% demand of the Indian Defence services, besides the sensitive
requirements of WIP flights at all the airports and at remote helipads/helibases across the
Indian subcontinent. IndianOil Aviation Services not only maintains world-class
standards in operations and safety but also conforms to the stringent global quality
requirements of Aviation Fuel storage and handling.

Presently, IndianOil has earned this accreditation for thirteen major Aviation Fuel
Stations including at all international airports. Eleven of the fourteen quality control
laboratories have also earned this accreditation. IndianOil is also the first in India to have
adopted a Quality Control Index System based on a quality audit. Fourteen DGCA
approved IndianOil laboratories spread across the country carry out full specification
tests for Aviation Fuels.

IndianOil's Aviation Services, with 68% market share, meets the fuel and lubricants
needs of domestic and international flag carriers, Defence Services and private aircraft
operators through 93 aviation fuelling stations. Between one sunrise and the next,
IndianOil refuels over 900 aircrafts. In fact, the refueling never stops and neither does our
customer service, which is round the clock. The wing’s foreign exchange earnings during
the year 2002-03 touched Rs. 898 crore.

AUTO GAS:

Autogas (LPG) has been introduced in Hyderabad, Bangalore and Mumbai markets. This

58
alternative fuel is a good business proposition in the long term, and IndianOil intends to
further expand its marketing in a big way.

PREMIUM FUELS:

IndianOil offers XtraPemium Petrol and XtraMile Diesel, which are the best your vehicle
can get. India's first 91 Octane petrol, XtraPremium is reinforced with multifunctional
additives including 'Friction Buster'. Available at nearly 2000 Retail Outlets nationwide.

XtraPremium offers :

 Super Mileage and Super Pick-up.

 Enhances cleaning of engines.
 Minimizes exhaust emissions.
 Restores peak engine power and acceleration.
 Reduces maintenance cost.

XtraMile, IndianOil's new generation High Speed Diesel with world-class additives has
taken a leadership position in the market. Available at nearly 4400 Retail Outlets
nationwide

XtraMile offers :

59
  Extra mileage -Greater Acceleration.
 Faster pick-up -Lower maintenance Costs.
 Longer engine life -Enhanced overall performance.
 Eliminates engine knockings .

Launched on Sept. 24, 2002, the premium auto fuels - XtraPremium and XtraMile
(originally IOC Premium and Diesel Super respectively), mark a new beginning for
IndianOil and offer a new genre of convenience and enhanced comfort for our customers.

XTRA POWER :

IndianOil's XtraPower Fleet Card Program is a complete fleet management solution for
Fleet Owners / Operators and Corporates. XtraPower is a Smart Card based Fleet Card
Program, which facilitates cashless purchase of fuel & lubes from designated retail
outlets of IndianOil through flexible prepaid and credit facilities. The fleet card program
also offers an exciting Rewards Program and unique benefits like personal accident
insurance cover and vehicle tracking facilities. Every time you fill your fleet with fuel &
lubes using your XtraPower fleet cards at designated retail outlets of IndianOil, you earn
XTRA Points. You can exchange your accumulated XTRA Points for attractive gifts
from XtraPower Rewards Catalogue including free fuel & lubes. In short, the XtraPower
Fleet Card Program offers you, not just amazing convenience & security but also an

60
opportunity to translate all your dreams into a reality.

Swagat Highway Flagship Retail Outlets:

To cater the high growth areas of National Highways forming a part of Golden
Quadrilateral and N-S, E-W corridors, IndianOil has launched Flagship Outlets, which
have been branded as “Swagat” Retail Outlets.

The facilities in the Swagat outlets is designed for, Best Q&Q standards in the industry
through Retail Outlet site and tank truck automation Third party certification through
Bureau Veritas Fortnight sampling thru Quality Audit Officers Training through a
professional agency for the Dealer

Incentives available on fuel purchases in the form of loyalty points redeemable against
fuel/lubes and other rewards.

Non-fueling offering through ‘Best-in-class’ alliance on exclusive basis wherever

possible (communication, food/rest, healthcare, parking, vehicle care.)

There are 111 such ‘Swagat’ Flagship ROs planned across the country of which 45
‘Swagat’ Flagships have already been commissioned with a complement of fuel and non-
fuel.

XTRA CARE:
The launch of XtraCare was the culmination of a series of plans in retail design, product
and service upgradation, capability training, automation, loyalty programme, retail site
management techniques all benchmarked to global standards. While the industry standard
is to take samples on a quarterly basis, IndianOil has moved several steps ahead by
introducing fortnightly random sampling with specific importance given to RON
(Research Octane Number) sampling which is truly the definitive test for quality and
quantity. The surveillance audits by BV are being done on a more comprehensive basis.

61
In another pioneering move, the third party certification, by BV, is also being done, for
the first time, on a range of parameters that include hygiene, service, efficiency of fore
court, allied services and customer satisfaction.

The non-fuel services are being given a major fillip in the IndianOil XtraCare plan with a
wide range of loyalty programme with -XtraRewards, XtraPower and co-branded cards
like IndianOil-Citibank credit cards. The automation project of XtraCare is by far the
most state-of-the-art in the country. The cutting edge technology includes automatic tank
level gauges, temperature sensors, density measurement sensors, back-office server with
DU controls, automatic bill printing facility, customer database, etc.

The Tank Truck automation - Sealed Parcel Delivery System (SPDS) - will also include
electronic locking of TTs carrying loads to these ROs. The real time density sensors and
the sealed parcel delivery system is superior to mere GPS-based tracking systems because
it not only tracks where the Tank Truck is but what is happening to the Tank Truck
consignments. SPDS ensures that the quality of the fuel would be ensured from “Supply
point to the Customers”.

As a precursor to the IndianOil XtraCare launch, IndianOil had recently introduced the
Platinum Circle and Gold Circle - top of the line, exclusive clubs for high selling retail
outlet dealers. These elite IndianOil dealers have emerged as peer leaders and are an
integral part of the XtraCare dealer ‘sensitisation’ strategy.

During the year, IndianOil has already introduced modern and dedicated networked
highway outlets with multifarious offerings, under the brand name ‘Swagat’ which are
IndianOil’s flagship Retail Outlets. So far over 400 XtraCare ROs have been set up;
around 1500 XtraCare ROs will be ready by end 2006.

Rest and Refreshment Dhaba

62
Communications STD/ Fax facilities
Health care Health checkup for STD thru a tie-up with
Gates Foundation
Security Secured Parking Space
Vehicle Care OEM Service Station in alliance with Tata
Motors Limited
C-Store Convenience store thru alliance partners of
choice

HINDUSTAN PETROLEUM CORPORATION LIMITED

The major impact faced by the oil industry was huge rise in the crude oil prices from a
level of around $32 per barrel to $49 per barrel between March 2004 and March 2005.
The trend continued during the current year with the crude oil prices breaching the level
of $70 and even hovering around $60 plus. The government has taken several steps to
compensate the oil companies by revising the product prices, changing the duty structure
as well as implementing schemes for sharing the burden by upstream companies.

Company’s physical and financial performance:

 The turnover during 2004-05 is Rs 64690 crores as compared to 56333 crores in

2003-04 recording an increase of 14.8%.
 The marketing volumes achieved were the highest ever at 20.09 MMT as
compared to 19.53 MMT for the previous year.

63
  The growth trend in MS/HSD has been successively increasing. It have registered
highest growth rates in industry in MS 4.5% against 3.7% of industry and in HSD
4.5% against 3.6% of industry.
 Aviation and lubes business lines have also made distinct impact in terms of value
and growth in the market. In both these business lines HPCL has recorded the
highest growth rates in the industry.
- In ATF it has grown at 48.7% during the year against industry growth of 13.5%.
- In Lubes the growth has been 3.1% against 1.6% of the industry.
 Mumbai Refinery and Visakh Refinery together recorded the highest ever
throughput of 13.94 MMT as compared to 13.70 MMT for the previous year.
 GRMs of both the refineries have also been the highest ever. Mumbai Refinery
has recorded a GRM of $5.6/bbl and Visakh Refinery $5.06/bbl as against 4.26
&4.61 of last year. The combined margins for the year have gone up to $5.30/bbl
from the earlier of $4.45 /bbl easing the pressures of reduced marketing margins.

 The company has registered a gross profit of Rs2382 crores as against Rs3643
crores in 2003-04. The profit after tax was of Rs1277 crores as compared to
Rs1904 crores in the previous year a decline of 33%.

 The corporation has borne a total subsidy impact of Rs2533 crores on account of
SKO/LPG and lower marketing margin of Rs 466 crores for the year 2004-05.

Rural Segment:

The number of low cost retail rural outlets during the year for supply of quality diesel
which are called “HamaraPumps”. This has been improvised asa multipurpose “Kisan
Vikas Kendras” offering a Single window supply point for the farmers to source their
fuels, seeds and pesticides. “Rasoi Ghar” the community kitchen has made a deep
impact in the rural market by making LPG available at an affordable price. During the

64
year HPCL opened additional Rasoi Ghars all over the country bringing the total to close
to 1400.

Refining:
There are several plans on the anvil for improving the refinery performance such as
improving the capability of refinery to process the low cost high sulfer crudes, production
of value added products such as propylene, xylenes, wax. The production of high value
light distillates LPG has increased by about an average of 20% from earlier levels and
that of motor spirit by 10%.
The new auto-fuel policy announced by the government of India mandated Euro III
norms for eleven major cities with effect from April 2005, requiring changes in petrol
and diesel quality including reduction in sulphur limits. The refineries are currently
implementing the Green Fuel projects at a total cost of around Rs.3500 crores which
when completed would enable them to produce Motor Spirit and high Speed Diesel to
meet the new Euro Specifications. Visakh Refinery and Mumbai refinery are also

Debottlenecking the existing facilities and adding certain new facilities whereby the
crude processing capacities would be enhanced by about 3MMT per annum.
The two major product pipeline projects connecting Mundra and Delhi and Loni and
Solapur at an estimated cost of Rs 1960 crores which when completed will enhance the
supply capabilities to meet the consumer demand and reduce the logistic costs. The
company also spends Rs 1400 crores towards upgradation, automation and modernization
of retail outlets and other facilities.

Exploration and Production:

It is collaborating with upstream companies like Oil and ONGC as well as through
building expertise in Prize Petroleum. The company has tasted early success through the
bidding process in NELP IV and V blocks. Similar efforts are on for entry into gas .It
already has a JV company with GAIL and others for marketing CNG in Andhra Pradesh.

65
In the downstream of the Grass root refinery project at Bathinda has received a major
fillip with the signing of the Deed of Assurance with the Government of Punjab for fiscal
benefits for the refinery projects. The Visakh project is exploring the feasibility of setting
up an integrated Refinery and Petroleum complex in the Special Economic Zone near
Visakhapatnam neat Andhra Pradesh.

Joint Venture Companies:

The joint venture companies are doing very well. The notable progress has been made by
the M/s.Prize Petroleum Company, M/s SA LPG ltd and M/s HINCOL. M/s Prize
Petroleum is the E&P Company and it has moved significantly over the last one year.
Prize Petroleum is operating three marginal fields awarded by ONGC. Another oilfield in
Sanganpur, Gujarat where stake was acquired by Prize Petroleum has also realized
positive results.

At SALPG it is constructing a cavern which is progressing well with targeted physical

completion by December 2006. The cavern has been dug up to a depth of 150 meters.
HINCOL a JV with M/s Colas of France for manufacturing and marketing bitumen
emulsions is reporting very good prospects with clearly laid down growth strategies. The
JV has grown many folds and currently there are six plants each producing 40 TMT per
annum. During the year two plants have been set up at Visakhapatnam and Mangalore.
Another area the company is actively pursuing is in Bio-Diesel which promises an
opportunity to harness the vast waste lands of our country to produce seeds for producing
Bio-Diesel. HPCL is tying up with Maharashtra State Farming Corporation for growing
Jatropha plants for producing Bio-Diesel.

Corporate Social Responsibility:

66
HPCL has always been committed to the virtues of Corporate Governance including
Corporate Social Responsibility. It has been always been in the forefront towards
contributing for the welfare of the weaker of the weaker sections of the society. It is
actively concentrating on primary education, healthcare, drinking water, income
generating vocational training schemes. In the last 5 years HPCL has spent around Rs30
crores towards various activities on CSR. The company has also received its due
recognition and was the recipient of the Good Corporate Citizen award from PHD
Chamber of Commerce and Industry.
As an integral part of the triple bottom line concept ,HPCL has been according highest
priority to the various aspects of Safety, Health and Environment. The Mumbai and
Visakh Refineries have been accorded level 8 rating and the LPG installation at
Mangalore has been rated at level 7.

Oil Industry Scenario:

• The industry in the past has grown at 5-6%, currently having 100 mmt p.a.
capacity.
• Recent refinery additions have resulted in surpluses in certain products like diesel,
naphtha, etc.
• Stand alone refineries like Kochi, Bongaigaon, Chennai and Numaligarh are
going through restructuring. Mostly they are merged with big PSU players.
• Retail fuel market poised for total deregulation by April 2002.

ABOUT HPCL

• Formed in 1974 on nationalization of ESSO India operations, HPCL is now the

2nd largest player in Indian Oil Sector and in highly competitive lubricants market.

67
Indian Refinery Capacity Market Shares

Particulars % share

IOC / BRPL / CPCL 40%

RPL 24%

HPCL / MRPL 19%

BPCL / NRL / KRL 17%

Indian Domestic Product Sales Market Share

Particulars % share

IOC / AOD 54%

BPCL 21%

HPCL 20%

IBP / OTHERS 05%

Infrastructure

68
 Refineries At Mumbai – 5.5 mmt

At Visakh - 7.5 mmt

At Mangalore (JV) – 9.0 mmt

Pipelines Mumbai Pune – 3.8 mmt

Visakh Vijaywada – 4.1 mmt

Marketing Domestic sales – 18.0 mmt

Exports – 0.4 mmt

Retail Volume – 10.7 mmt

Direct Sales – 5.6 mmt

LPG volume – 1.6 mmt

Market share in the areas of operation

Areas of operations % change

LPG 27%

Retail 24%

Lubes 33%

Bulk 16%

Network – a huge network, reasonably spread geographically

69
HPCL has 4600 retail pump outlets, tankages – 2.9 mn. KI, LPG plants – 37, LPG dealers
– 1607 and Terminals / Depots – 120.

PERFORMANCE DURING THE YEAR

(Rs. in crore)

Particulars 2003-04 2002-2003 % change

FINANCIAL

Sales Turnover 47179.93 34368.03 37.29%

PBDIT 2140.90 1727.88 23.90%

Depreciation (433.38) (303.91) 42.60%

Interest (387.33) (150.40) 157.53%

PBT 1320.20 1273.57 3.66%

70
Provision for Taxation (232.19) (216.16) 7.42%

PAT 1088.01 1057.41 2.89%

PHYSICAL (Million tons)

Market Sales (incl. Exports) 18.39 17.50 5.09%

Crude Thruput

Mumbai Refinery 5.57 6.00 (7.17%)

Visakh Refinery 6.41 4.55 40.88%

SHAREHOLDER VALUE

EPS (Rs.) 32.12 40.82*

Cash EPS (Rs.) 44.91 52.55*

Book Value per share (Rs.) 191.47 170.38

(*- On average share capital of Rs. 259.07 crore)

• The company’s not so encouraging performance for FY 2004 should be viewed in

the backdrop of the following reasons apart from the commonly known factors
such as high interest cost and sharp ramp up in global crude oil prices –
• HPCL gets its crude oil requirement from Nigeria for which higher freight
charges are incurred. But it is not adequately compensated for this. HPCL has
made strong representations to the Government in this regard. It expects
favourable outcome in this regard soon. Crude procurement till recently has
continued to be canalized with IOC being the canalizing agency in India.
• HPCL’s product slate especially at its Mumbai refinery is skewed more in favour
of heavy ends. It concentrates on the export of the same (exports in FY 2004
stood at Rs. 415 crores). But in the absence of commercially prudent input /
output norms for importing duty free crude against such exports, HPCL looses out

71
 considerable advantage accruing through this. However, with such favourable
norms being set now things should improve
• Combined refinery thruput increased by 14%.
• Outperformed Industry sales growth in all sectors.

Particulars HPCL Industry

Auto Fuel sales 1.9% 1.8%

Bulk sales 2.6% (3.7%)

Lubes (1.9%) (12.7%)

LPG 13.9% 9.6%

Marketing per products showed the following mix

Marketing Mix % change

LPG 34%

Lubes 21%

Retail 19%

Industrial 18%

Pipelines 08%

BUSINESS HIGHLIGHTS

72
Activity in different sectors

Sector Highlights

RETAIL Retail Outlet Portfolio Restructured261

Dealers converted, 86 outlets commissioned,
50 unviable outlets re-sited, 45 rebuilds
done.ConsumerConveniencesAdded 54cyber
cafes, 19 C-stores,17ATM’sestablishedPetro
card launched

LPG 2.6 mio. new customers added taking total at

14.4 mio., 53 LPG distributors added, 75% of
dealers computerized, 615 dealers showrooms
standardized

LUBES 60 TMT state-of-art lube blending plant at

Silvassa commissioned, lube dealer network
expanded – 25 CFA’s added, 30 new products
launched, market penetration of HP lubes in
Bazaar trade.

BULK SALES Exported 479 tmt of products – equivalent to

Rs. 415 crore during the year.

Strategies

Refining & With decanalization of crude procurement,

trading HPCL is setting up trading division for
procurement and product exports giving more
focus, gradually company may reduce its
production from Mumbai refinery and increase
production from Punjab and contemplating to
outsource from RPL, optimize crude / product
mix to maximize margins, improve yield of
value added products and reduce fuel losses and
control costs.

Pipelines Capacity and expansion of Visakh-Vijaywada

pipeline further to Secunderabad at an estimated
cost of Rs. 378 crore to be completed by May
02, 364 km long Mangalore-Bangalore pipeline

73
 construction under progress thru Petronet MHB
(JV of HPCL/PIL/MRPL) with a designed
capacity thruput of 5.6 MMTPA, expected
mechanical completion by Feb 02, current
pipeline tariff only 44% of actual cost of
transportation hence upside after decontrol.

Marketing Ensuring product availability via refining

capacity & product tankage, product SBUs
formed to improve customer focus, emphasis on
managing large industrial customers by
providing "one stop" service, using lube
experience to formulate marketing strategies and
brand development

Learning from Highly competitive market with about 30 large

Lube players including PSUs like IOC, BPCL & IBP,
experience MNCs like Castrol / BP, Shell, Caltex etc and
about 5000 small blenders. However, HPCL has
consolidated its position as 2nd largest marketer
thru research & segmenting market needs, new
product launches, strengthening & extending
distribution channels and focussed brand
building.

Auto Fuels Company owned / leased outlets increased from

48% to 56% in 00-01, to be increased to 65% by
02, closed unviable outlets, added higher volume
potential outlets, has metro ownership over 90%.
Focus on needs of motorists by giving quality &
quantity, ATM facilities, bill collection facilities
and availability of tyre, batteries & accessories.
Retail upgradation by setting up multi point
dispensers, major rebuild, facility upgradation
and consumer conveniences.

LPG Fastest growing product forming 9% of HPCL

volumes, waiting list nearly wiped out, limited
growth prospects for new players, market
initiatives to deliver improved service to existing

74
 captive customer base thru development of
infrastructure, independent business thru SBU
structure and dealer computerization. LPG
volumes have increased from around 1.08 MMT
(mkt. Share – 23.5%) in 97-98 to around 1.65
MMT (mkt. Share – 24.5%) in 00-01.

FUTURE INVESTMENTS

• Company has earmarked Rs. 8,360 crore for capex program over the next 5 years.
The allocation of this amount is as under.

Capex allocation % of amount

Marketing 45%

Refineries 19%

Bhatinda(100% subsidiary) 24%

JVs 08%

Pipelines 04%

Table below indicates as to how much amount will be spend on HPCL

and JVs

HPCL Rs. in In JVs Rs. in

crore crore

Refinery 1,560 Bhatinda 2,000

Retail 1,220 Prize Petroleum 300

Tankages 680 South Asia LPG 30

LPG 650 Others 100

75
 Pipelines 310

Others 1,210

Punjab Refinery Project

• HPCL is planning a new refinery project at Bhatinda with capacity of 9 MMTPA

with scheduled completion / commissioning by mid 2005. Initially it will be
100% subsidiary of HPCL with equity capital around Rs. 4000 crore. However,
HPCL has government permission to rope in partner at a later date. Refinery will
have captive power plant and crude oil pipeline and total project cost is estimated
at Rs. 9,806 crore. Refinery will enable HPCL to meet the demand generated by
high growing Northern region by 2005. The refinery will have an added
advantage of better freight economies for supplying to inland location.

Other Joint Ventures

JV Features

Prize Petroleum Other JV partners – ICICI, ICICI Ventures &

Corporation Ltd HDFC.
for Oil
Exploration & Will undertake process of identifying oil & gas
Prodn. fields with a view to acquire stake in them.

Initial equity capital of Rs. 20 crore with 50%

participation each by HPCL and JV partners.
Authorised Capital would be eventually raised to
about Rs. 1000 crore to meet business
requirement.

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 South Asia LPG JV partner - Total Gas & Power India Ltd.
Co.
Construction of a LPG import terminal including
underground cavern storage of 60,000 mt
capacity at Visakh, expected to be completed in
2003-04.

Total cost project cost estimated at Rs. 200 crore

including a foreign exchange component of Rs.
34 crore.

Hindustan Colas JV partner – Colas SA, France for producing and

Ltd. marketing Bitumen Emulsions.

Sale of HINCOL emulsions has increased to

31,283 MT in FY 01 as against 25,984 MT in
FY 00, growth of 20%.

Generated profits since inception and declared

dividends since FY 2000.

Investment Rationale

• Secured product supplies through own refining.

• Low cost, demand centered refineries.
• Mumbai refinery – caters to western region.
• Visakh refinery and MRPL JV – caters to Southern and eastern region.
• New Bhatinda refinery – will cater to northern region.
• Strong and low cost marketing network with significant entry barriers.
• Potential upside from forthcoming retail deregulation.
• Government equity already at 51%.
• Premium energy stock, high liquidity and reasonable valuation.
• Trading at discount: EV / Replacement cost – 0.50.

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 • Book value / Replacement cost – 0.60.

Dismantling of Administered Pricing Mechanism

• Petrol, Diesel, Kerosene and LPG prices are expected to be deregulated as per
schedule i.e. 1st April 2002. Company expects margins on these products to
increase by 3-5.5 times post deregulation. This optimism is based on increase in
margins of Furnace Oil, Naphtha, Lube Base Oils, etc. deregulated effective 1st
April 1998. The following table shows that margins on these deregulated products
have remained firm even now.

Products deregulated Improvement in Marketing Margins

Furnace oil In 98-99, the year after deregulation, margins jumped by

3.5 times over margins in regulated period, while in 00-
01 margins have declined but are still higher by 3 times.

LSHS 98-99, margins jumped by 3.75 times, while in 00-01

margins have declined but are still higher by 3.5 times

Naphtha 98-99, margins jumped by 3 times and in 00-01 they are

up more than 3.5 times

BHARAT PETROLEUM CORPORATION LIMITED

BPC has been recognized by ‘Fortune’ magazine as one of the global giants giving it the
450th rank in the prestigious Fortune 500 list. BPC stands second amongst the four Indian
companies featuring in the list. BPC stands tall as a Super brand, having been ranked as
one of the outstanding brands in the country. It has improved its position in the Fortune
list moving up 21 notches, from 450th last year to 429th this year. The year 2004-05 is an
important year for BPC as the refinery at Mumbai is completing 50 years of operation
during the year. The refinery started with a capacity of 1.8 million metric tones per
annum (MMPTA) in 1955 and by the end of this financial year would reach a capacity of
12 MMPTA of crude processing.

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Domestic oil sector:

The country produced about 37MMT of crude oil and total crude processing was at 127
MMT. Thus 90MMT of crude oil representing nearly 70% was imported. High spreads
between crude oil and products have made exports a viable option. BPC also exported
some Naptha and Fuel oil. The sector grew at 3.7% and the petroleum products like MS,
HSD, ATF, LPG, Naphtha Fuel oils registered a growth in demand. The new auto fuels
policy, environment friendly grades were introduced by all marketing companies
effective 1st April 2005. This included Euro III grades for 11 cities and BS II grades for
the rest of the country. The conversion from one grade to another was a challenging task.

Performance:

The group companies BPC, Kochi Refineries Limited (KRL) and Numaligarh Refinery
Limited have recorded their highest profits ever. The group turnover increased from
Rs569.25 billion to Rs 625.70 billion. Group profit after tax increased by 30% from Rs
18.22 billion to Rs 23.64 billion. BPC achieved 11% growth in sales turnover from
Rs472.38 billion to Rs 525.16 billion. In 2004-05 the BPC group showed improved
physical performance in both refining and marketing. The consolidated crude throughout
increased from 18.8 MMT to 19.1 MMT. Market sales increased from 20.9 MMT to 21.8
MMT. The group’s net profit reduced by about 12% from Rs 23.64billion to Rs 20.74
billion. A number of new outlets were commissioned and new initiatives like the new
Retail Visual Identity (RVI) have also been taken up to bring in more customers. BPC

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also introduced the branded version of HSD under the name ‘Hi Speed Diesel’. BPC
participated in Petronet LPG and successfully marketed the entire regassified LNG
available to it. BPC has also commissioned the city gas distribution project in
Gandhinagar district of Gujarat and is now looking forward to entering the Mehsana and
Sabarkantha districts , both in Gujarat.

Retail Revolution:

BPC’s response to customers increasing retail aspirations has been the ‘Errand Mall’
proposition branded as ‘In and Out’. The ‘In and Out’initiative was launched in February
2001 across 13 stores in Mumbai and Chennai. Today ‘In and Out’ is a 234 store network
and is the single largest retail chain in the country. The ‘In and Out’ initiative is expected
to expand to over 400 stores by March 2005.

Rural Marketing:

BPC has been the forerunner of various marketing initiatives benefiting the customers as
well as the company. Some of the new initiatives introduced so far have benefited both ,
the urban and the rural customers. BPC has decided to tie-up with ITC Limited in their
‘e-choupal’ programme. The aim of the ‘e-choupal’ programme is to cover one lakh
Indian villages and link them electronically to the world. The tie up includes LPG
cylinders, diesel and lubricants.

Branded Fuels:

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BPC main success has been the propagation and establishment of ‘Branded’ fuels in the
country. BPC introduced the concept of branded fuels to the domestic market. ‘Speed’
has nearly 50% of the branded petrol market in the country. The prominent market share
has been a result of the high values perceived by ‘Speed’ customers consistently.

Refinery Modernisation:

The project consists of four main units Crude/Vacuum Distillation unit, Hydro-cracker
unit, Hydrogen unit and Sulphur unit along with utilities and offsite facilities. Execution
of this project in the existing working refinery with its space constraints was a major
challenge. The project would enhance the refinery capacity to 12 MMPTA. At the end of
the year the refinery would be able to make 50% of the MS-HSD production with a
product quality matching Euro III levels.

Businesses and projects:

BPC has added LNG as one of the products being offered to the industrial customers. The
LNG field is one of the most promising fields. During NELP IV, BPC has acquired
stakes in three exploration blocks. Agreements have been signed with GAIL for
participating in joint ventures in two gas distribution projects- one in Pune and another in
Kanpur. BPC is also undertaking gas distribution projects in the Gandhinagar, Mehsana
and sabarkanta districts of Gujarat.
BPC is progressing the extension of the Mumbai-Indore pipeline to Delhi with tap off
points at Kota, Mathura and Piyala. The project is being undertaken at a cost of Rs 8000

81
million and would help us to meet the requirements of the economical Northern Region
markets. The refinery is putting up a project to manufacture Lube Oil Base Stock.

Refinery Performance of BPCL:

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 2003-04 2002-03 2001-02 2000-01 1999-00 1998-99
Crude oil Processed (TMT)
Imported 4543 3230 3587 2743 2546 1731
Indigenous 4214 5481 5183 5919 6323 7205
Total 8757 8711 8770 8662 8869 8936

Production ('000MT) 2003-04 2002 -03 2001-02 2000-01 1999-00 1998-99

Light Distillates
Naptha 1106 1072 1085 1111 1118 1184
LPG 367 377 353 365 341 363
Motor Spirit 859 883 856 847 791 939
Special Boiling Point 30 31 35 45 45 57
Spirit /Hexane
Benzene 43 70 56 75 76 70
Toluene 13 20 17 16 20 17
Polypropylene Feedstock 16 7 4 4 3 1
Others 24 25 21 19 20 17
Sub Total 2458 2485 2427 2482 2414 2648

Middle distillates
Aviation Turbine Fuel 336 298 279 224 219 200
Superior Kerosene Oil 762 807 811 766 610 718
High Speed Diesel 2746 2824 2938 2919 3547 3611
Light Diesel Oil 132 199 112 128 99 90
Mineral Turpentine Oil 92 105 94 97 124 117
Sub Total 4068 4233 4234 4134 4599 4736

Heavy Ends
Furnace Oil 990 608 649 707 566 290
Low Sulphur Heavy Stock 465 534 615 585 580 626
Bitumen 278 361 354 295 274 274
Sub Total 1733 1503 1618 1587 1420 1190

Grand Total 8259 8221 8279 8203 8433 8574

Refinery Future Plans:-

Refinery has plans for massive expansion & modernization to increase capacity and
efficiency, improve safety, decrease energy consumption and to meet stringent future
product specifications.

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