hindustan petroleum corporation limited, india - at a glance · 2019. 4. 21. · 4 54th annual...

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54th Annual Report 2005-06

At a GlanceAt a GlanceAt a GlanceAt a GlanceAt a Glance

Dear Shareholder

It gives me pleasure to present before you the following significant details of your Corporation :

HOW YOUR CORPORATION PERFORMED :

Area of Performance 2005-06 2004-05

Crude Thruput (MMT) 13.82 13.94

Market Sales (MMT) 19.48 20.09

Gross Sales (Rs. Crores) 74,044 64,690

Gross Profit (Rs. Crores) 1,134.07 2,382

Net Profit (Rs. Crores) 405.63 1,277

Dividend (%age) 30 150

Net Worth (Rs. Crores) 8,736 8,441

Earnings Per Share (Rs.) 11.97 37.69

YOUR CORPORATION’S INFRASTRUCTURE :

Refineries at Mumbai & Visakhapatnam Depots - 92

Product Pipelines- ASFs - 13

*Mumbai-Pune Retail Outlets - 7313

*Visakh-Vijayawada-Secunderabad SKO/LDO Dealers - 1648

Regional Office - 85 LPG Distributors - 2202

Terminals/Installations/TOPs - 37 LPG Customers - 2.28 (crores)

CURRENT MAJOR PROJECTS :

Upgradation of facilities at Mumbai & Visakh Refineries of an expenditure of Rs. 4000 Crores.

New Pipeline between Mundra & Delhi and Extension of Mumbai-Pune Pipeline to Solapur of anexpenditure of Rs. 1960 Crores.

Upgradation, Automation and New facilities for the Marketing Division to strengthen marketinginfrastructure at an expenditure of Rs. 1400 Crores.

Expansion and Diversification on own and through ventures and tie-ups.

Important current activities, future plans and detailed overview of HPCL as well as Petroleum Sector havebeen covered by me separately.

Your Corporation would continue to perform strongly and thereby instill confidence in you to continue yourassociation for a long time.

M. B. Lal

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Recent EventsRecent EventsRecent EventsRecent EventsRecent Events

Hon’ble Minister of Petroleum & Natural Gas, Shri Murli Deora, Hon’ble ChiefMinister of Maharashtra, Shri Vilasrao Deshmukh, Secretary - MOP&NG,Shri M.S. Srinivasan, C&MD, HPCL, Shri M.B. Lal, C&MD, BPCL, ShriAshok Sinha, seen together at a recent industry related meeting.

Hon’ble Minister of Petroleum & Natural Gas, Shri Murli Deoracoordinating relief activities for the bomb blast victims at Mumbai

Hon’ble Minister of Petroleum & Natural Gas , Shri Murli Deora is seeninaugurating a renovated garden at Chembur. Also seen in the photographare Shri Gurudas Kamat, Hon’ble Member of Parliament, Shri M.B. Lal,C&MD, HPCL.

Shri M B Lal C&MD receiving the Honorary Fellowship of The EnergyInstitute, which is the highest level of professional recognition that theEnergy Institute awards. It is reserved for those who have made anotable & distinguished contribution to the Energy Industry in theirparticular field of expertise.

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Chairman‘s Message ....................................................... 04

Our Directors..................................................................09

Senior Corporate Officers ................................................ 10

Offices, Auditors & Bankers .............................................. 11

Notice of AGM................................................................ 12

Performance Profile ......................................................... 18

Director’s Report .............................................................28

Annexure to Director’s Report .......................................... 33

Management Discussion & Analysis Report .......................45

Special Focus Areas ........................................................ 81

Human Resources Accounting .......................................... 95

Auditor’s Report ..............................................................96

Balance Sheet ............................................................... 102

Profit & Loss Account .................................................... 103

Schedules to Accounts .................................................. 104

Cash Flow Statement ...................................................... 127

Social Welfare................................................................ 131

C & AG’s Comments ....................................................... 132

Review of Accounts by C & AG ....................................... 133

Joint Venture Companies ................................................ 138

Consolidated Financial Statements .................................. 139

Corporate Governance Report ....................................... 156

Annual Report of Guru Gobind SinghRefineries Limited (Subsidiary Company) ........................ 185

ContentsContentsContentsContentsContents

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Dear Shareholder,

Your Corporation recorded a net profit of Rs.406 crores for the financial year 2005-06 as against Rs.1277crores for the earlier year 2004-05. The major factors that impacted the profitability were the steep andunprecedented increase in crude oil prices. The Indian Basket of Crude Oil Prices moved up almost by 25%between March 2005 and March 2006 with continuing under-recoveries on major product lines like Motor Spirit(MS) , High Speed Diesel Oil (HSD), Liquified Petroleum Gas (LPG) and Superior Kerosene Oil (SKO). I musthowever, hasten to add, that, the Government has contributed in no small measure towards sharing the burdenof subsidy in these products. This has helped your company in posting a profit at the end of the year despitethe losses in the first three quarters of 2005-06.Your Corporation, however, recorded positive operational performance reflecting its core strengths in Refiningand Marketing. These have been covered in the subsequent sections. Though the year 2005-06 was a year ofplanned turnaround and shut-down for routine maintenance at both Mumbai and Visakh refineries, the refineriesachieved 106% of their capacities. Similarly, in Marketing, our main line products like MS and HSD registeredthe best growth amongst the PSUs in a highly competitive market. The turnover during 2005-06 was Rs.76920crores as against Rs.65218 crores in 2004-05, registering an increase of 18%.In its drive to achieve operational excellence, the Corporation has been constantly focusing its attention onareas like infrastructure enhancement, productivity improvement, cost reduction, all aimed at achieving enhancedcontribution and global standards. The endeavour always has been towards nurturing and developing HPCL asa Company, which is fundamentally strong and transparent in its operations and caring for its “Customers andits Stakeholders”.Your Corporation is also taking several initiatives for sustaining growth by foraying into various revenue streamsto meet the challenges in the existing business lines. Some of these include efforts towards matching ourrefining capacities with marketing requirements, venturing into E&P and Gas Sectors, new / export marketsand developing capabilities to enhance the production of value added products.REFININGDuring 2005-06 our Refineries at Mumbai and Visakh recorded a combined thruput of 13.82 MMT against acapacity of 13 MMT per annum. As already explained, this is only marginally lower than the thruput of last year

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despite the long turnarounds and other factors mentioned earlier. The strong refinery performance post shutdowncan be judged from the thruput achieved during the six months period January – June 2006 which is 8.25 MMTcorresponding to an annualized thruput of 16.5 MMT.In pursuit of our goal of delivering best value from our existing assets, concerted efforts were made to enhancethe output and contribution from our Refineries. With this objective in mind, steps were taken to de-bottleneckand achieve higher capacities with relatively minor changes in plant operations and capabilities. Not only didwe achieve higher thruputs in our plants but also achieved significant enhancements in yields of superior valueproducts such as LPG and MS in Mumbai Refinery. The increase in LPG production has been approx. 25%over the past and that in MS is about 35% from the secondary units.With the refining segment continuing to record positive contributions, steps are also being taken to enhancethe current infrastructure of both Mumbai Refinery and Visakh Refinery. Both the Refineries are currentlyimplementing the Green Fuel Projects at a total cost of Rs.4000 crores and which, when completed, wouldenable them to produce Motor Spirit to meet the new Euro III specifications. The refineries are already producingHSD of Euro III Specifications.In Visakh Refinery, we have been able to increase the proportion of the less expensive High Sulphur crude inthe total crude mix by about 20%, which has helped in enhancing gross margins of Refineries. Several Energyefficiency measures have been implemented which has contributed to significant savings in energy consumption.Measures taken for cost efficiency included reduced Specific Fuel Consumption in captive power plants, useof improved catalysts and additives in Secondary Processing Units, optimization of crude freight by use ofVLCCs for long haul crude, development of local vendors for import substitution of critical spares, preventivemaintenance measures for critical equipment and optimizing consumption of chemicals by implementing lowcost improvement schemes. Another significant initiative during the year has been the commencement of OilPrice Risk Management (OPRM). We have imparted technical training to select staff for trading and hedgingactivities and initiated the process for a hands-on experience. Eventually upon implementation on a full scale,OPRM will help us to manage the Oil Price Risks.MARKETINGLesser product availability due to the major refinery turnarounds resulted in marketing volumes at 19.48 MMTwhich were marginally lower than the previous year volumes of 20.09 MMT. However, it is heartening to notethat, with the renewed focus on the customer, the Corporation has been able to achieve the following :• Highest growth rate amongst PSUs in the highly competitive Retail Sector viz. MS and HSD.• Highest growth in Aviation for the second year in succession.• Highest growth rate in Lube Sales amongst all PSUs.Your Corporation today is known for its high quality products and services and for its commitment to provide“Total Customer & Vehicle Care.” In our continuing efforts to realize our Vision of “Customer Delight”, we havebeen paying special attention to “Quality & Quantity”(Q&Q) and “Customer-Centric-Approach” in all ourendeavours. In fact “Q&Q” assurance has become our guiding philosophy and not just a business or marketrequirement. In order to fulfill this basic hygiene factor of Q&Q, we have rolled out number of initiatives, manyof them first of its kind in the Industry.• HPCL is a leader in the automation of retail outlets. In addition to the 425 retail outlets currently being

automated, we have plans to roll out the same to over 1000 outlets by March 2007.• All our 150 company tank trucks are today fitted with Vehicle Management Systems using Global Positioning

System(GPS), which facilitate monitoring of the tank trucks right from the moment the tank truck leavesthe supply point till it reaches the intended destination. Plans are also under implementation for installingthe same on dealer owned as well as contractor tank trucks in a phased manner.

• In addition to surprise inspections and sample testing through our mobile Labs and Certification of ouroutlets through M/S Bureau Veritas, we also have an independent quality control cell that conducts surprise

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inspections for combating adulteration and ensuring quality of our deliveries.• Improving the customer conveniences and value added propositions, technical support to our major industrial

customers and the desire to benchmark our service standards to international levels have been the othermajor thrust areas.

All these initiatives have been very well received in the market and HPCL’s volume growth rates reinforce fullythe belief in our brands. These initiatives have started bearing fruit, not only in the form of prestigious awardsand recognitions but also as reflected in market share for both MS, HSD, Aviation fuel and Lubes.Business opportunities in the area of “Allied Retail Business” are being constantly explored for generatingadditional income and meeting customer needs. The Corporation has entered into several strategic allianceswith best in class non fuel partners viz. MacDonald’s, Kamath Group of Hotels, Marry Brown, Caffe CoffeeDay, US Pizza etc.New Lubes SBULubricant is a product which is in the free pricing segment in our business. In fact, lubes was the first segmentthat was taken out of the Administered Pricing Mechanism. This is a growing market, both at the lower end aswell as in the niche segment. Having regard to the fact that the Lubes business line needs a focused attention,it was decided to set up a separate SBU for Lubes. This SBU is endeavouring for blending and marketing highquality lubricants, higher market share from core sectors like Railways, Defence etc., specialized tie-ups withOriginal Equipment Manufacturers (OEM) and with reputed automobile companies. These steps have alreadyshown positive results and the SBU expects to register an even more improved performance in the year 2006-07.MAJOR ONGOING PROJECTSThe Green Fuels Projects under implementation at Mumbai and Visakh Refineries for upgradation of processingfacilities at a total cost of Rs.4000 crores are being targeted for completion around the first half of 2007.The two major pipeline Projects one between Mundra and Delhi and the other which is an extension of MumbaiPune Pipeline (MPPL) up to Solapur are estimated to cost nearly Rs.2000 crores and scheduled for completionby May 2007 and December 2006 respectivelyThe proposed 9 MMTPA grass-root Refinery Project at Bhatinda, in Punjab which is being implemented by ourSubsidiary Company Guru Gobind Singh Refineries Limited (GGSRL) is in the process of achieving financialclosure. While infrastructure facilities like land, roads, lighting are already in place, the other preliminaryactivities like selection of process licensors etc. are currently progressing. This project is targeted for completionby 2010.HUMAN RESOURCESWe believe that the key to the success of any business strategy lies in an energized and aligned work force,alive to the changing customer needs and requirements. By providing customer delight and satisfaction,organizations can hope to achieve the goal of maximizing shareholder value.In line with this belief, the Organisational Transformation initiative that has been going on for the last two yearsin a phased manner has almost covered all the main functions. This has resulted in greater coordinated effortand improved focus on common goals such as “Q&Q” and “Customer Service & Conveniences”. One aspectthat gets emphasized in all these initiatives has been the need for all Line and Staff Functions to own andappreciate the “Customer Perspective” while discharging their roles and responsibilities in their respectivejurisdiction.HR Initiatives like “Competency Mapping” to enhance employee capabilities, “Balanced Scorecard” to fixperformance targets and evaluation of performance so as to achieve the strategic intent of the organisation,“Six Sigma approach” for quality improvement are continuing and will cover most of the functions within theCorporation.Today we can all feel proud of the achievements of our colleagues in HPCL, be it in Refining, Marketing orSupport Functions and together we aspire with renewed confidence to make HPCL an organization which not


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only meets, but also exceeds the expectations of its stakeholders arising out of its status as a ‘Navratna’.STRATEGIC INITIATIVES :For continued long term growth, apart from the ongoing projects, several new initiatives are on the anvil.Your Corporation is taking several initiatives in the existing and new business lines for sustaining value andachieving growth. The major projects include:• Green field refinery at Bhatinda of 9 MMTPA capacity integrated with value added petrochemical products• Brownfield expansion of Visakh Refinery to 15 MMTPA Capacity• LOBS upgradation to Group II at Mumbai Refinery• Delayed Coker Unit at Visakh Refinery for upgradation of heavy ends.• Aromatics Projects being developed for implementation at Visakhapatnam.• Production of mixed Xylenes at Mumbai and Visakh Refineries.• Production of Propylene at Mumbai Refinery and enhancement of Propylene production at Visakh Refinery.We are also taking steps to play a lead role in Visakhapatnam and its vicinity as an anchor developer of thelocation (SEZ) short listed by the Government of Andhra Pradesh for Petrochemical and Petroleum Investment.Entry into E&P and overseas markets through foreign collaborations / tie ups has been yet another major areaof thrust for us. Some of the significant development in this area are:• Our Joint Venture Company M/s. Prize Petroleum, having acquired the status of an independent upstream

Operator for onshore fields, has been successful in enhancing production in the marginal oil wells ofONGC awarded to it in the State of Gujarat .

• HPCL in consortium with M/s. Prize Petroleum and M/s. Trenergy of Malaysia has been awarded cluster7 off shore marginal field by ONGC.

• HPCL has also secured a maiden share in an on-shore oil block in Oman along with other joint bidders.• HPCL has also bid for an off-shore block in Australia in consortium with other partners.• MOUs have been entered into with M/s.OILEX, Australia, and M/s.GAIL(INDIA) LTD., to jointly explore and

bid for opportunities in upstream.• MOU has also been signed with Chinese Oil major M/s. Sinopec for jointly exploring opportunities in

upstream, R&D, Crude sourcing , product trading and consultancy.Gas is emerging as the fuel of the future and is also eco friendly. Your corporation has taken initiatives to enterin this business line through collaborative partnership with GAIL(India) Limited. Your Corporation is alreadymarketing gas through its joint venture, M/s. Bhagyanagar Gas Limited in the state of AP. A new company,M/s. Aavantika Gas, has been incorporated for gas distribution in the State of MP, (initially at Indore). We arealso in discussion to form a JVC for similar business ventures in the State of Rajasthan.Your Corporation has already commissioned one mother station and nine daughter stations at existing retailoutlets in Ahmedabad for CNG distribution by sourcing the gas from M/s. GSPCL.Your corporation intends to expand the business in newer high potential markets abroad and as a first step,has signed an MOU with M/s. Petrosen of Senegal for setting up of retail outlets in Senegal.We are noticing positive outcome from the above initiatives. When these projects are scaled up and startcontributing, your Corporation would see diverse revenue flows which would balance the current uncertainties.CORPORATE SOCIAL RESPONSIBILITYYour Corporation strongly believes that no business organization can exist in a vacuum without looking at theneeds of the larger society in which it exists and from which it derives its sustenance.As in previous years, your Corporation has continued to carry out a number of Welfare / Developmentalactivities for SC/ST / Weaker Sections of the society and spent over Rupees four crores during 2005-06 forsuch causes. The activities include support for Primary / Secondary, Graduation and Post Graduation education,


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Health care, Augmentation of drinking water facilities, Family welfare, Vocational training, Income generatingschemes, Rehabilitation of persons with disabilities, Scholarships to students, Provision of computers toEducational Institutes etc.As a measure of our commitment to the society, we have enhanced our outlay and activities for social causes.We have also embarked upon a new initiative as a part of CSR by distinctly identifying Projects touching thevarious needy sections of the society with a defined target. These projects relate to AIDS prevention, Vocationaltraining for unemployed youth, education of rural children, computer training, education for rural girl children,health care facilities for weaker section of the society etc. In order that these Projects receive continued focus,a ‘HPCL Foundation’ has been set up with a corpus of Rupees seven crores to finance these Projects. TheFoundation would also monitor implementation of these schemes. Reputed service organizations and NGOsare co-partnering us in this unique effort.AWARDS/RECOGNITIONI am pleased to inform that your Corporation has been a proud recipient of many accolades and awards in allrelated fields such as Environment, Safety, Innovation, Brand, Customer orientation etc. From the Governmentside, OISD award from MOP&NG for the best performer in Group III (LPG marketing organization) for the year2003/04 and in Group VII(Best performer in Lube oil Blending) for the years 2003/04 and 2004/05 and IndiraGandhi Rajbhasha Puraskar for outstanding contribution in usage of Hindi have been received during the year. Whilethe long list of the awards are covered in detail separately, I would like to make a mention of some of the awardsviz., “Platts Global energy Awards 2005” – Good fuel promise campaign, “Most Trusted Brand 2006”Platinum Award from Readers Digest and the recent “Awaaz Consumer Award 2006” from CNBC TV forIndia’s Most Preferred Auto Fuel. You may be pleased to note that all these awards were based on surveys inthe market and feed back from customers. I am sure that this will give immense satisfaction to you as ourshareholders, as it has given to all of us as employees.THE FUTUREThe future is full of challenges and opportunities. The Oil and Energy Sector would continue to witness adynamic environment in periods to come in all components of the sector viz. Exploration & Production, Gas,Downstream, Refining and Marketing. The impact of unabated surge in the crude prices, the issues involved ingas sourcing / pricing, storage / distribution, the huge investments that are required for Exploration & Productionactivities are some of the major challenges that we need to address through our strategies. At the same timethe integration and globalization of the economies and new technological inventions provide us ample opportunityto grow into the diverse fields highlighted above. In addition, alternate energy sources like Bio-diesel and WindPower are also areas which would continue to be looked at seriously.Initial steps have been taken on different fronts as explained will be scaled up based on the outcome of suchefforts. These will be undertaken either on our own or through JV / Consortium arrangement with known andreputed parties. Your Corporation is looking at the right mix of these options to sustain its growth momentumand profitability.YOUR SUPPORTWe are grateful to all our esteemed shareholders, our stakeholders like dealers, customers, vendors, contractors,business associates, employees and all others who have reposed their faith in HPCL. Our AdministrativeMinistry, Ministry of Petroleum & Natural Gas, has been providing continuous guidance and support in ourefforts. We, on our part, would continue to take HPCL further towards growth and profitability by meeting thechallenges that we face and on capitalizing the opportunities that arise. We look forward to your continuedsupport in this ongoing journey.Thank you,

M.B. LAL


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Our DirectorsOur DirectorsOur DirectorsOur DirectorsOur Directors

Shri I M PandeyDirector (From 09.12.05)

Shri Arun BalakrishnanDirector - Human Resources

Shri M B LalChairman & Managing Director

Shri C RamuluDirector - Finance

Shri M A TankiwalaDirector - Refineries (From 01.06.05)

Shri Rajesh V ShahDirector

Shri P K SinhaDirector (From 01.03.06)

Shri Prabh DasDirector (From 03.05.05)

Shri M NandagopalDirector

Shri D S MathurDirector Refineries (Till 31.05.05)

Shri M S SrinivasanDirector (Till 20.06.05)

Shri C B SinghDirector (Till 28.02.06)

Shri S Roy ChoudhuryDirector - Marketing

Shri T L SankarDirector

Shri Raja G KulkarniDirector (Till 02.03.06)

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Senior Corporate OfficersSenior Corporate OfficersSenior Corporate OfficersSenior Corporate OfficersSenior Corporate Officers

Shri B R MandalChief Vigilance Officer

Shri S K MukherjeeExecutive Director - SH&E

Shri K MuraliExecutive Director - R & D

Shri N R NarayananCompany Secretary

Shri A K BhideExecutive Director - CF

Shri V Vizia SaradhiExecutive Director - IR

Shri K S R PrasadExecutive Director – IA&JVC

Ms. Nishi VasudevaExecutive Director – IT&ERP

Shri B MukherjeeExecutive Director – HRD

Shri O P PradhanGeneral Manager – CP&S

Shri S P GuptaFinancial Controller

Shri Sandeep JosephGeneral Manager - HR

(Special Activities)

Shri G HariharanGeneral Manager - Legal

Shri Rakesh KumarGeneral Manager – Treasury,

Payroll & Reimbursement

Shri D M SabaleGeneral Manager – SH&E

Shri S T SathiavageeswaranGeneral Manager – ERP

Shri M V SreeramGeneral Manager – IT

(Corporate)

Shri R GanesanGeneral Manager – Tax

Shri D K HotaGeneral Manager –

Project ACE

Shri Ajit SinghDGM (I/C)- Delhi

Coordination Office

Shri L M MotwaniDGM - PR&CC

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Registered Office & Headquarters Office

Petroleum House,

17, Jamshedji Tata Road,

Mumbai - 400 020.

e-mail: [email protected]

website: www.hindustanpetroleum.com

Marketing Headquarters

Hindustan Bhavan,

8, Shoorji Vallabhdas Marg,

Ballard Estate, Mumbai - 400 001.

Mumbai Refinery

B.D. Patil Marg, Chembur,

Mumbai - 400 074.

Visakh Refinery

Post Box No. 15,

Visakhapatnam - 530 001.

BankersState Bank of IndiaUnion Bank of India

Punjab National BankStandard Chartered Bank

Bank of BarodaBank of IndiaCitibank N.A.

Corporation BankICICI BankHDFC Bank

Company Secretary

Shri N. R. Narayanan

Zonal Offices

East Zone

6, Church Lane,Post Box No.146,Kolkata 700 001.

West Zone

R&C Building,Sir J.J. Road, Byculla,

Mumbai - 400 008.

North Zone

6th & 7th floor,Core 1 & 2, North Tower,

Scope Minar,Laxmi Nagar,

Delhi - 110 092.

South Zone

Thalamuthu Natarajan Building,4th Floor, 8,Gandhi Irwin Road,

Post Box No.3045, Egmore,Chennai - 600 008.

Statutory Auditors

N.M. Raiji & Co.Chartered Accountants

Mumbai

Sudit K. Parekh & Co.Chartered Accountants

Mumbai

Branch AuditorsB.V. Rao & Co.

Chartered AccountantsVisakhapatnam

Offices, Auditors & Bankers

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HINDUSTAN PETROLEUM CORPORATION LIMITED(A Government of India Enterprise)

REGISTERED OFFICE : 17 JAMSHEDJI TATA ROAD, MUMBAI 400 020

NOTICE

NOTICE is hereby given that the 54th ANNUAL GENERAL MEETING of the Members of Hindustan Petroleum

Corporation Limited will be held on Thursday, September 14, 2006, at 3.00 P.M. at Y.B. Chavan Auditorium,

General Jagannath Bhosale Marg, Next to Sachivalaya Gymkhana, Mumbai 400 021, to transact the

following business:

ORDINARY BUSINESS:

1. To receive, consider and adopt the Balance Sheet as on March 31, 2006, Profit and Loss Account for the

year ended on that date and Reports of the Board of Directors and Auditors thereon.

2. To declare equity dividend for the financial year 2005-2006.

3. To appoint a Director in place of Shri M. Nandagopal, who retires by rotation and is eligible for reappointment.

4. To appoint a Director in place of Shri Arun Balakrishnan, who retires by rotation and is eligible for

reappointment.

5. To appoint a Director in place of Shri S. Roy Choudhury, who retires by rotation and is eligible for

reappointment.

6. To approve payment of Rs.13 Lakhs as remuneration to the Statutory Auditors of the Company appointed

by the Comptroller & Auditor General of India for auditing the Accounts of the Company for the Financial

Year 2006-07.

SPECIAL BUSINESS :

APPOINTMENT OF DIRECTORS :

7. To consider and, if thought fit, to pass, with or without modification(s), the following resolution as an

Ordinary Resolution.

“RESOLVED that Shri I.M. Pandey who was appointed as an Additional Director of the Company by the

Board of Directors under Article 112 of the Articles of Association of the Company with effect from

December 09, 2005 and who holds office under the said Article and pursuant to Section 260 of the

Companies Act, 1956 only upto the date of this Annual General Meeting, and who is eligible for re-

appointment under the relevant provisions of the Companies Act, 1956, and in respect of whom the

Company has received a notice in writing from a member signifying his intention to propose him as a

candidate for the office of the Director, be and is hereby appointed as a Director of the Company liable

to retire by rotation.”

Notice of Annual General MeetingNotice of Annual General MeetingNotice of Annual General MeetingNotice of Annual General MeetingNotice of Annual General Meeting

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8. To consider and, if thought fit, to pass, with or without modification(s), the following resolution as anOrdinary Resolution.

“RESOLVED that Shri P.K. Sinha who was appointed as an Additional Director of the Company by theBoard of Directors under Article 112 of the Articles of Association of the Company with effect fromMarch 01, 2006 and who holds office under the said Article and pursuant to Section 260 of the CompaniesAct, 1956 only upto the date of this Annual General Meeting, and who is eligible for re-appointment underthe relevant provisions of the Companies Act, 1956, and in respect of whom the Company has receiveda notice in writing from a member signifying his intention to propose him as a candidate for the office ofthe Director, be and is hereby appointed as a Director of the Company liable to retire by rotation.”

9. Delisting of shares from Delhi, Kolkatta & Chennai Stock Exchanges:

“RESOLVED THAT subject to the provisions of the Companies Act, 1956 (including any statutorymodification(s) or re-enactment thereof for the time being in force and as may be enacted hereinafter),The Securities Contracts (Regulations) Act, and the Rules framed thereunder, SEBI Guidelines, ListingAgreements and all other applicable laws, rules, regulations and guidelines and subject to such approvals,permissions and sanctions, as may be necessary and subject to such conditions and modifications asmay be prescribed or imposed by any authority while granting such approvals, the approval of theshareholders be and is hereby accorded to delist the equity shares of the Company from The Delhi StockExchange Association Limited, Kolkatta Stock Exchange Ltd., and Madras Stock Exchange Ltd.”

BY THE ORDER OF THE BOARD

N.R.Narayanan Company Secretary

Date : 03-08-2006Regd.Office : 17, Jamshedji Tata Road

Churchgate, Mumbai - 400 020

NOTES :

1. A MEMBER ENTITLED TO ATTEND AND VOTE AT THE MEETING IS ENTITLED TO APPOINT APROXY TO ATTEND AND VOTE INSTEAD OF HIMSELF AND SUCH PROXY NEED NOT BE A MEMBEROF THE COMPANY. Proxies, in order to be effective, must be deposited at the Registered Office of theCompany not less than 48 hours before the time of the meeting.

2. The Explanatory Statement made pursuant to Section 173(2) of the Companies Act, 1956 in respect ofthe item Nos. 6 to 9 of the Notice is annexed herewith.

3. Dividend on Equity Shares as recommended by the Directors for the year ended March 31, 2006, ifapproved at the meeting, will be payable to those eligible members whose names appear :

(1) As Beneficial owners, as on August 21, 2006 as per the list to be furnished by National SecuritiesDepository Ltd. and Central Depository Services (India) Ltd. in respect of shares held in electronicform, and

(2) As Members in the Register of Members of the Company after giving effect to all valid sharetransfers in physical form lodged with the Company on or before August 21, 2006.

4. Members are requested to bring their copies of the Annual Report to the Meeting. Members / Proxiesattending the Meeting should bring the Attendance Slip, duly filled, for handing over at the venue of themeeting.


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5. (a) Members are requested to note change in R & T Agents from M/s. MCS Limited toM/s.Intime Spectrum Registry Limited (ISRL).

(b) Members holding shares in physical form are requested to advise immediately change in theiraddress, if any, quoting their Folio number(s), to M/s. ISRL, the Registrars at their address givenbelow.

(c) Shareholders holding shares in dematerialised form are requested to advise immediately change inaddress, if any, quoting their respective Client ID / DP ID Nos., to their respective DepositoryParticipants and not to M/s.ISRL or to the Company.

6. (a) Members holding shares in physical form, who have not given the Bank Particulars / Mandate,ECS Mandates earlier or if there is any change in the details, are requested to send the samequoting the Folio number(s), to our Registrars M/s.ISRL on or before August 21, 2006.

(b) All Shareholders who are holding shares in Dematerialised form are requested to advise change, ifany, in details of their bank account / ECS mandates to their respective Depository Participantsimmediately to enable the Company to pay the dividend accordingly.

7. Members are hereby informed that Dividends which remain unclaimed / unencashed over a period of 7years have to be transferred by the Company to Investor Education & Protection Fund constituted by theCentral Government under Section 205A and 205C of the Companies Act, 1956.

We give below the details of Dividends paid by the Company and their respective due dates of transfer tothe Fund of the Central Government if they remain unencashed.

Date of declaration Dividend for the year Month & year of

of Dividend transfer to the Fund

09.09.1999 1998-1999 Oct.2006

30.03.2000 1999-2000 (Interim) May 2007

08.09.2000 1999-2000 (Final) Oct.2007

28.09.2001 2000-2001 Oct.2008

28.08.2002 2001-02 (Final) Sep.2009

30.01.2003 2002-03 (Interim) Feb.2010

24.09.2003 2002-03 (Final) Oct.2010

22.12.2003 2003-04 (Interim) Jan.2011

09.09.2004 2003-04 (Final) Oct.2011

09.12.2004 2004-05 (Interim) Jan.2012

26.09.2005 2004-05 (Final) Oct. 2012

It may please be noted that no claim can be made by the shareholders for the unclaimed Dividends whichhave been transferred to the credit of the Investor Education & Protection Fund of the Central Governmentunder the amended provisions of Section 205B of the Companies Act, 1956.


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In view of the above regulation, the shareholders who are yet to encash the dividend are advised to sendrequests for duplicate dividend warrants in case they have not received the Dividend Warrants for any ofthe above mentioned financial years and / or revalidation of unencashed Dividend Warrants still held bythem to the Registrars and Transfer Agents of the Company so that demand drafts can be sent to theShareholders.

8. The address of Registrars and Transfer Agents of the Company is as follows :

M/s.INTIME SPECTRUM REGISTRY LTD.

Unit:HINDUSTAN PETROLEUM CORPORATION LTD.

C-13, Pannalal Silk Mills Compound,

LBS Marg, Bhandup (West), Mumbai - 400 078

Telephone No.: 022 – 25963838

Fax No.: 022 - 25946969

9. Appointment / Re-appointment of Directors :

At the ensuing Annual General Meeting, S / Shri M. Nandagopal, Arun Balakrishnan and S. Roy Choudhury

retire by rotation and being eligible, offer themselves for re-appointment.

Shri I.M. Pandey and Shri P.K. Sinha who were appointed as Additional Directors during the year are

being recommended for appointment as Directors liable to retire by rotation.

EXPLANATORY STATEMENT IN PURSUANCE OF SECTION 173(2) OF THE COMPANIES ACT, 1956.

6. HPCL is a Government Company within the meaning of Section 617 of the Companies Act, 1956. In

terms of the provisions of Section 619 of the Companies Act, 1956, Statutory Auditor/s for a Government

Company is/are appointed by the Comptroller & Auditor General of India (C&AG). In terms of Section

224 (8) (aa) of the Companies Act 1956, the remuneration of the Auditors is required to be fixed by the

Company in a General Meeting or in such a manner as the Company in a General Meeting may determine.

The Board of Directors of the Company have recommended a remuneration of Rs.13 Lakhs plus out of

pocket expenses to the Statutory Auditors (including Joint / Branch Auditors, if any) of the Company

appointed by the C&AG for auditing the Accounts of the Company for the Financial Year 2006-07 for the

approval of the shareholders.

7. Shri I.M. Pandey was appointed as an Additional Director on the Board effective 09.12.2005. In terms of

Section 260 of the Companies Act, 1956 and Article 112 of the Articles of Association of the Company,

he holds office upto the date of next Annual General Meeting and is eligible for re-appointment. The

Company has received a notice proposing the candidature of Shri I.M. Pandey for the office of a Director

in terms of Sections 255 & 257 of the Companies Act, 1956.

Shri I.M. Pandey, is a Professor in the Indian Institute of Management, Ahmedabad. The Board

recommends appointment of Shri I.M. Pandey.

None of the Directors other than Shri I.M. Pandey are interested in the Resolution.


1 6


8. Shri P.K. Sinha was appointed as an Additional Director on the Board effective 01.03.2006. In terms ofSection 260 of the Companies Act, 1956 and Article 112 of the Articles of Association of the Company, heholds office upto the date of next Annual General Meeting and is eligible for re-appointment. The Companyhas received a notice proposing the candidature of Shri P.K. Sinha for the office of a Director in terms ofSections 255 & 257 of the Companies Act, 1956.

Shri P.K. Sinha is Joint Secretary & Financial Advisor in the Ministry of Petroleum & Natural Gas, NewDelhi. The Board recommends appointment of Shri P.K. Sinha.

None of the Directors other than Shri P.K. Sinha are interested in the Resolution.

9. Delisting of shares from Delhi, Kolkatta & Chennai Stock Exchanges :

Pursuant to the development of extensive networking by the Stock Exchanges of Mumbai and NationalStock Exchange by setting up of terminalling facilities across the country, bulk of trading in the equityshares of the Corporation is taking place through these facilities. Compared to this, there is almostmarginal / Nil trading in the Stock Exchanges of Delhi, Kolkatta and Madras. The investors located in theregions of Delhi, Kolkatta and Chennai have access to trading of HPCL shares through the Stock Exchangeof Mumbai and National Stock Exchange networks.

Keeping in view almost marginal / Nil trading in the Stock Exchanges of Delhi, Kolkatta and Chennai, itis proposed to delist the shares of the Corporation from the Stock Exchanges of Delhi, Kolkatta andChennai. However, the shares of the company would continue to be listed on the Stock Exchange ofMumbai, which is a Regional Stock Exchange for the Corporation as well as the National Stock Exchange,which would enable investors across the country to trade in the shares of the Company.

None of the Directors are interested in the Resolution.

BY THE ORDER OF THE BOARD

N.R.Narayanan

Company Secretary

Date : 03-08-2006Regd. Office : 17, Jamshedji Tata Road,

Churchgate,Mumbai - 400 020.


1 7


ANNEXURE TO ITEMS 3 TO 5 & 7 TO 8 OF THE NOTICE

Details of Directors seeking appointment / reappointment at the 54th Annual General Meeting (inpursuance of Clause 49 of the Listing Agreement)

Name of the Director Arun Balakrishnan S.Roy Choudhury M. Nandagopal I.M. Pandey P.K. SinhaDate of Birth 25.07.1950 01.03.1954 09.06.1939 25.08.1947 18.07.1955Nationality Indian Indian Indian Indian IndianDate ofAppointmenton the Board 25.01.2002 10.05.2004 21.01.1999 09.12.2005 01.03.2006Qualifications B.E. (Chem). B.E. (Mech.) B.Sc. (Agriculture) Ph.D in Finance IAS, M.Phil in

PGDBM (IIM & Accounting Social Science,Bangalore) from Delhi Master

School Diploma in of Economics Public Admn.

List of • Petronet • Hindustan • Mohan • Industrial • Indian OilDirectorships India Ltd. Colas Ltd. Breweries Finance Corporationheld in other • MRPL • Petronet & Distilleries Corporation Ltd.Companies (MHB) Ltd. Ltd. of India Ltd. • Bharat

• Bhagyanagar • Thirumagal • Cochin PetroleumGas Ltd. Mills Ltd. Shipyard Corporation

• MRPL • D1 Mohan Ltd. Ltd.Bio Oils Ltd.

• MohanMeakin Ltd.

• ArtosBreweries Ltd.

• S.V.Sugar Mills Ltd.• Vestas RRB Ltd.• Mira Textiles

& Industries(India) Ltd.

• Binny Engg. Ltd.• TCP Ltd.• Bhankerpur

Distilleries Ltd.• Sagar

Sugars &AlliedProducts Ltd.

• Binny Ltd.• Balaji

Breweries Ltd.


1 8


Performance ProfilePerformance ProfilePerformance ProfilePerformance ProfilePerformance Profile

Market Sales (Incl. Export)

Turnover

1 9


2005-06 2005-06 2004-05 2003-04 2002-03 2001-02

FINANCIAL US$ Million Rs./ Crores

Sales / Income from operations 17,147 76,920.26 65,218.33 57,511.13 54,259.48 44,456.98

Gross Profit 253 1,134.07 2,381.83 3,642.66 3,139.06 2,046.69

Depreciation 154 690.23 659.59 606.58 574.25 529.47

Interest 35 158.74 81.64 55.65 153.02 294.74

Tax (Incl. Def Tax) (29) (131.91) 363.27 1,076.49 874.43 434.50

Provision for Fringe Benefit Tax 3 11.38 - - - -

Net Profit 90 405.63 1,277.33 1,903.94 1,537.36 787.98

Dividend 23 101.80 509.00 746.81 678.66 339.33

Tax on Distributed Profits 3 14.28 71.15 95.65 78.26 -

Retained Earnings 65 289.55 697.18 1,061.48 780.44 448.65

INTERNAL RESOURCES GENERATED 221 989.47 1,277.44 1,722.10 1,375.76 1,112.56

VALUE ADDED 937 4,201.23 5,208.06 6,061.19 5,115.14 4,101.87

WHAT CORPORATION OWNS

Gross Fixed Assets 3,005 13,479.25 12,393.17 11,387.43 10,754.32 10,244.85

Depreciation 1,369 6,141.85 5,449.53 4,809.32 4,319.12 3,759.87

Net Fixed Assets 1,636 7,337.40 6,943.64 6,578.11 6,435.20 6,484.98

Capital Work in Progress 527 2,363.88 786.84 496.14 347.68 304.38

Investments - JVCs & Subsidiary 184 825.76 825.76 817.34 784.14 652.34

- Others 714 3,201.88 931.08 1,231.08 1,231.08 1,481.08

Net Current Assets 681 3,055.09 2,513.63 1,775.02 646.72 1,319.49

Deferred Tax Liability (309) (1,384.44) (1,374.75) (1,454.08) (1,400.04) (1,173.05)

Total 3,433 15,399.57 10,626.20 9,443.61 8,044.78 9,069.22

WHAT CORPORATION OWES

Net Worth 1,948 8,735.74 8,440.85 7,742.81 6,678.85 5,897.68

Share Capital 76 338.94 338.93 338.90 338.83 338.81

Reserves 1,872 8,396.80 8,101.92 7,403.91 6,340.02 5,558.87

Borrowings 1,485 6,663.83 2,185.35 1,700.80 1,365.93 3,171.54

Total 3,433 15,399.57 10,626.20 9,443.61 8,044.78 9,069.22

PHYSICAL Million Tonnes

Crude Thruput 13.82 13.94 13.70 12.93 12.33

- Mumbai Refinery 6.25 6.12 6.11 6.08 5.63

- Visakh Refinery 7.57 7.82 7.59 6.85 6.70

Pipeline Thruput 5.65 6.05 6.14 6.11 6.47

Market Sales 19.48 20.09 19.53 18.84 18.02

Notes:1. Previous year figures have been regrouped/reclassified wherever necessary2. 1 US$ = Rs. 44.86 (Exchange Rate as on 31.03.2006)


2 0



Contribution to Exchequer

Distribution of Earnings 2005-2006

FY02 FY03 FY04 FY05 FY06

2 1


2005-06 2005-06 2004-05 2003-04 2002-03 2001-02FUND FLOW STATEMENT US$ Million Rs./ Crores

Sources of Funds :

Profit after Tax 90 405.63 1,277.33 1,903.94 1,537.36 787.98Depreciation 154 690.23 659.59 606.58 574.25 529.47LPG Deposits 28 124.57 175.92 172.12 177.87 272.72Borrowings (Net) 963 4,322.23 307.37 382.32 - -Share Capital 0 0.01 0.03 0.07 0.02 -Share Premium 0 0.39 0.83 2.41 0.70 1.34Redemption of Oil bonds 189 850.00 300.00 - 250.00 -Receipt of Capital Grants from OIDB 1 4.94 - - - -Redemption/Sale of Investment - - - 0.21 9.00 -Provision for Deferred Tax 2 9.69 (79.33) 54.04 226.99 134.44Adj. on account of sale/ deletion ofAssets & Provision for dimunition inInvestment 0 1.66 6.81 43.37 7.92 (11.68)

Total 1,429 6,409.35 2,648.55 3,165.06 2,784.11 1,714.27

Utilisation of Funds :

Dividend 23 101.80 509.00 746.81 678.66 339.33Tax on Distributed Profits 3 14.28 71.15 95.65 78.26 -Capital Expenditure 601 2,694.43 1,322.63 941.32 577.58 790.43Working capital : Increase/ (Decrease) 102 456.75 738.65 1,347.07 699.82 (1,580.42)Repayment of Loans (Net) - - - - 640.91 574.20Investment - JVCs (Incl. Adv. towardsEquity & Share app. Moneypending allotment) 5 21.29 7.12 34.21 108.88 110.58Investment - Oil Bonds 696 3,120.80 - - - -Investment - Others - - - - - 1,481.00Misc. Exps. (Public Issue exps.) - - - - - (0.85)

Total 1,429 6,409.35 2,648.55 3,165.06 2,784.11 1,714.27

CONTRIBUTION TO EXCHEQUERExcise Duty 1,305 5,852.34 6,189.05 6,128.99 5,661.39 4,667.00Customs Duty 317 1,423.52 1,397.73 1,139.70 872.57 768.11Sales Tax 1,964 8,811.86 7,977.27 6,986.11 6,168.46 5,318.10Service Tax 2 11.13 6.74 0.15 - -Income Tax (32) (141.49) 629.82 617.70 433.91 493.40Fringe Benefit Tax 2 11.07 - - - -

Total 3,558 15,968.43 16,200.61 14,872.65 13,136.33 11,246.61

RATIOSGross Profit/Sales ( % ) 1.47 3.65 6.33 5.79 4.60Net Profit/Sales ( % ) 0.53 1.96 3.31 2.83 1.77Earnings Per Share (Rs.) 11.97 37.69 56.18 45.37 23.26Cash Earnings Per Share (Rs.) 32.62 54.81 75.67 62.94 42.85Avg. Sales/Employee (Rs. Crores) 6.87 6.13 5.08 4.70 3.99Avg. Net Profit/Employee (Rs. Crores) 0.04 0.12 0.17 0.14 0.07Debt Equity Ratio (Long term debt to equity) 0.13:1 0.02:1 0.05:1 0.09:1 0.19:1

MANPOWER (NOs.) 10778 10561 11088 11213 11357


2 2


2005-06 2005-06 2004-05 2003-04 2002-03 2001-02

VALUE ADDITION: US$ Million Rs./ Crores

Income :

Sales / Income from operations 17,147 76,920.26 65,218.33 57,511.13 54,259.48 44,456.98

Add: Increase/(Decrease) in Inventory 314 1,408.96 34.87 357.50 1,187.90 (258.47)

17,461 78,329.22 65,253.20 57,868.63 55,447.38 44,198.51

Cost of Raw materials:

Raw Material Consumption 5,703 25,582.18 20,576.22 14,940.83 14,366.80 10,719.31Purchase for resale 9,402 42,178.12 33,842.86 30,304.41 29,936.30 24,379.88

Packages 21 95.99 90.38 79.15 68.60 55.39Stores & Spares 19 85.84 70.77 67.87 52.88 48.31

Utilities 28 126.52 114.34 104.10 107.40 93.36

15,173 68,068.65 54,694.57 45,496.36 44,531.98 35,296.25

Duties applicable to products: 1,351 6,059.34 5,350.57 6,311.08 5,800.26 4,800.39

Total Value added : 937 4,201.23 5,208.06 6,061.19 5,115.14 4,101.87

OperationsOperating & Service Costs 530 2,377.65 2,113.82 1,848.97 1,429.95 1,502.56

Employees’ Benefits 154 689.51 712.41 569.56 546.13 552.62

Providers of CapitalInterest on borrowings 35 158.74 81.64 55.65 153.02 294.74Dividend 26 116.08 580.15 842.46 756.92 339.33

Income Tax/Fringe Benefit Tax (27) (120.53) 363.27 1,076.49 874.43 434.50

Re-deployment in BusinessRetained Profit 65 289.55 697.18 1,061.48 780.44 448.65Depreciation 154 690.23 659.59 606.58 574.25 529.47

Total Value distributed 937 4,201.23 5,208.06 6,061.19 5,115.14 4,101.87


2 3


2005-06 2004-05 2003-04 2002-03 2001-02

SALES VOLUME * 000 Tonnes

Light DistillatesLiquified Petroleum Gas 2,526.37 2,510.97 2,282.47 2,025.44 1,817.93Naphtha 1,876.85 2,160.90 2,245.74 1,966.02 1,727.74Motor Spirit 2,078.61 2,035.96 1,948.79 1,873.63 1,765.62Hexane 27.40 42.64 44.50 36.28 40.27Propylene 31.75 32.61 31.58 30.00 21.26

Sub-total 6,540.98 6,783.08 6,553.08 5,931.37 5,372.82

Middle DistillatesMineral Turpentine Oil 41.35 56.74 47.96 47.68 48.86Aviation Turbine Fuel 504.18 409.34 277.95 224.55 224.01Superior Kerosene oil 1,732.63 1,766.41 1,792.98 1,840.18 1,920.26High Speed Diesel 7,353.38 7,632.80 7,453.77 7,539.97 7,508.61JBO/WO 4.83 6.91 8.50 8.24 7.85Light Diesel oil 196.27 289.98 309.69 342.78 299.60

Sub-total 9,832.64 10,162.18 9,890.85 10,003.40 10,009.19

Lubes & Greases 347.77 254.25 334.08 329.23 259.67Heavy EndsFurnace oil 1,685.15 1,726.04 1,429.23 1,425.61 1,389.21Low Sulphur Heavy Stock 388.03 457.25 554.14 570.86 531.25Bitumen 543.48 574.31 656.79 506.42 404.30Others 139.60 131.53 108.00 77.07 54.70Sub-total 2,756.26 2,889.13 2,748.16 2,579.96 2,379.46

Total 19,477.65 20,088.64 19,526.17 18,843.96 18,021.14

* Including Exports

MARKETING NETWORK Numbers

Regional Offices 85 85 81 76 76Terminals/Installations/TOPs 37 36 36 35 35Depots 92 100 89 92 90LPG Bottling Plants 41 40 40 40 39ASFs 13 10 10 10 10Retail Outlets 7313 6667 5502 4863 4729SKO/LDO Dealers 1648 1648 1647 1644 1638LPG Distributors 2202 2153 1993 1898 1822LPG Customers (in crores) 2.28 2.17 1.99 1.77 1.60


2 4



Production Volume - MR



5

4

3

2

1

0

MM

TM

MT

Crude Thruput - MR

2 5



2005-06 2004-05 2003-04 2002-03 2001-02

PRODUCTION VOLUME - MUMBAI REFINERY 000 Tonnes

Light Distillates

Liquified Petroleum Gas 193.00 172.20 161.50 154.50 164.20

Naphtha 714.90 744.30 695.40 659.80 585.50

Motor Spirit 280.40 308.40 259.00 253.40 263.20

Hexane 35.30 38.90 42.80 36.10 36.90

Propylene - - - - -

Solvent 1425 6.10 8.90 11.20 11.20 11.90

Sub-total 1,229.70 1,272.70 1,169.90 1,115.00 1,061.70

Middle Distillates

Mineral Turpentine Oil 44.60 54.00 50.80 44.80 44.10

Aviation Turbine Fuel 571.40 492.30 475.70 435.40 412.20

Superior Kerosene oil 279.40 335.90 392.10 491.80 453.20

High Speed Diesel 1,689.80 1,608.90 1,518.70 1,427.30 1,392.70

JBO/WO - - - - -

Light Diesel oil 174.40 241.50 287.70 282.70 269.20

Sub-total 2,759.60 2,732.60 2,725.00 2,682.00 2,571.40

LOBS/TOBS 279.70 214.00 277.60 305.50 274.40

Heavy Ends

Furnace oil 976.60 933.50 976.20 1,046.70 904.70

Low Sulphur Heavy Stock 96.40 192.60 174.60 202.70 125.30

Bitumen 401.20 324.80 338.30 273.40 246.40

Others (Incl. input of BH Gas) 55.80 49.50 47.10 39.00 42.10

Sub-total 1,530.00 1,500.40 1,536.20 1,561.80 1,318.50

Total 5,799.00 5,719.70 5,708.70 5,664.30 5,226.00

Intermediate Stock Differential 27.10 (3.90) (0.60) (3.20) 21.80

Fuel & Loss 422.50 402.20 400.20 418.20 383.80

Total 6,248.60 6,118.00 6,108.30 6,079.30 5,631.60

2 6



Crude Thruput - VR

Production Volume - VR



7

6

5

4

3

2

1

0

MM

T

2 7


2005-06 2004-05 2003-04 2002-03 2001-02

PRODUCTION VOLUME - VISAKH REFINERY 000 Tonnes

Light Distillates

Liquified Petroleum Gas 273.76 296.81 323.55 279.40 293.10

Naphtha 928.74 812.59 845.98 602.70 601.50

Motor Spirit 661.81 677.37 734.83 676.30 715.00

Hexane - - - - -

Propylene 32.92 32.15 31.66 29.70 22.20

Solvent 1425 - - - - -

Sub-total 1,897.23 1,818.92 1,936.02 1,588.10 1,631.80

Middle Distillates

Mineral Turpentine Oil - - 1.71 1.10 7.60

Aviation Turbine Fuel 39.40 37.90 94.94 51.70 33.00

Superior Kerosene oil 824.17 715.32 731.81 637.30 676.00

High Speed Diesel 2,975.37 3,226.13 2,729.32 2,742.90 2,784.20

JBO/WO 3.62 5.38 7.75 7.30 8.10

CO 28.05 - - - -

Light Diesel oil 63.71 89.21 110.54 113.80 50.50

Sub-total 3,934.32 4,073.94 3,676.07 3,554.10 3,559.40

Heavy Ends

Furnace oil 839.31 926.45 848.47 623.00 624.60

Low Sulphur Heavy Stock 290.97 266.50 384.63 388.40 404.10

Bitumen 156.75 240.09 288.51 220.90 106.70

Others 8.78 11.68 11.32 11.10 7.00

Sub-total 1,295.81 1,444.72 1,532.93 1,243.40 1,142.40

Total 7,127.36 7,337.58 7,145.02 6,385.60 6,333.60

Intermediate Stock Differential (6.66) 7.01 (18.86) 58.20 (36.20)

Fuel & Loss 453.60 477.59 465.32 407.50 408.90

Total 7,574.30 7,822.18 7,591.48 6,851.30 6,706.30


2 8


TO THE MEMBERS

On behalf of the Board of Directors, I have great pleasure in presenting to you the fifty fourth Annual Report onthe working of the Company, together with the Audited Accounts for the year ended 31st March 2006.

HIGHLIGHTS

FINANCIAL (Rs./Crores) 2005-06 2004-05

Sales/Income from Operation 76,920.26 65,218.33Profit before Depreciation,Interest and Tax 1,134.07 2,381.83Depreciation (690.23) (659.59 )Interest (158.74) (81.64)Profit before Tax 285.10 1,640.60Provision for Tax

♦ Current Tax (78.45) (589.71)♦ Deferred Tax (9.69) 79.33♦ Taxation of earlier years written back 220.05 147.11♦ Fringe Benefit Tax (11.38) -

Profit after Tax 405.63 1,277.33Transfer from Debenture Redemption Reserve - 100.00

Appropriations

General Reserve (40.56) (127.73)Proposed Dividend : Interim - (169.67)

Final (101.80) (339.33)Tax on distributed profits (14.28) (71.15)

Balance carried forward 248.99 669.45

PHYSICAL (Million Tonnes)

Market Sales (incl. Exports) 19.48 20.09Crude Thruput:

- Mumbai Refinery 6.25 6.12- Visakh Refinery 7.57 7.82

SHAREHOLDER VALUE (Rupees)

Earnings per Share 11.97 37.69Cash Earnings per Share 32.62 54.81Book Value per Share 257.74 249.05

DIVIDEND

Your Directors, after taking into account the financial results of the Company during the year, have recommendeddividend of 30% for the year 2005-06 as against 150% dividend paid for the year 2004-05 (including interimdividend of 50%). The dividend for 2005-06, including dividend tax provision will absorb Rs. 116.08 crores(2004-05: Rs. 580.15 crores).

Directors’ ReportDirectors’ ReportDirectors’ ReportDirectors’ ReportDirectors’ Report

2 9


SALES/INCOME FROM OPERATIONSYour Company has achieved sales/income from operations of Rs. 76,920.26 crores as compared toRs. 65,218.33 crores in 2004-05.PROFITYour Company has earned gross profit of Rs.1,134.07 crores as against Rs. 2,381.83 crores in 2004-05 andprofit after tax of Rs.405.63 crores as compared to Rs.1,277.33 crores in 2004-05.INTERNAL RESOURCES GENERATIONThe Internal Resources generated were Rs.989.47 crores as compared to Rs. 1,277.44 crores in 2004-05.CONTRIBUTION TO EX-CHEQUERYour Company has contributed a sum of Rs. 15,968.43 crores to the exchequer by way of duties and taxes,as compared to Rs. 16,200.61 crores in 2004-05.DIRECTORS’ RESPONSIBILITY STATEMENTIn terms of Section 217(2AA) of the Companies Act, 1956, your Directors state that:(i) In the preparation of the Annual Accounts, all the applicable Accounting Standards have been followed

along with proper explanation relating to material departures.(ii) The Company has selected such Accounting Policies and applied them consistently and made judgments

and estimates that are reasonable and prudent so as to give a true and fair view of the State of Affairs ofthe company as on 31st March 2006 and of the Profit & Loss Account of the company for the year endedon that date.

(iii) The Company has taken proper and sufficient care for the maintenance of adequate accounting recordsin accordance with the provisions of the Companies Act, 1956 for safeguarding the assets of the companyand for preventing and detecting fraud and other irregularities.

(iv) These Accounts have been prepared on a going concern basis.MEMORANDUM OF UNDERSTANDING WITH GOVERNMENT OF INDIAThe Corporation has been achieving an all round “Excellent” rating vis-à-vis MOU targets for fourteen


Photograph taken on the occasion of signing of MOU with Govt. of India for the year 2006-07. Seen in the photograph are Shri M.S. Srinivasan, Secretary - MOP&NG,Shri Anil Razdan,Addl. Secretary, MOP&NG, Shri M.B. Lal, C&MD, Shri Arun Balakrishnan, Director (HR) and Shri C. Ramulu, Director (Finance).

3 0


consecutive years upto 2004-05 as a result of the concerted efforts of all the employees. The performance ofthe Corporation for the year 2005-06 also qualifies for “Excellent” rating basis self assessment. The detailsof performance vis-à-vis MOU 2005-06 targets are enclosed (Annexure I).

REFINERY PERFORMANCE

HPCL refineries achieved the combined crude thruput of 13.82 MMT as against 13.94 MMT achieved during2004-05.

Mumbai Refinery achieved a Crude thruput of 6.25 MMT against 6.12 MMT achieved during 2004-05, whichcorresponds to 113.6% capacity utilization of installed capacity (5.5 MMT). The Fuel and loss at MumbaiRefinery was 6.76%, which is better than the MOU excellent target of 7.00%

Visakh Refinery achieved the Crude thruput of 7.57 MMT against 7.82 MMT achieved during 2004-05, whichcorresponds to 101% capacity utilization of installed capacity (7.5 MMT). The Fuel and loss at Visakh Refinerywas 5.98%, which is better than the MOU excellent target of 6.80%.

Gross refining margins of Mumbai Refinery averaged at $ 3.22 per barrel as against $ 5.60 per barrel for theyear 2004-05. Gross refining margins of Visakh Refinery averaged at $ 2.56 per barrel as against $ 5.06 perbarrel for the year 2004-05. Both the refineries have initiated steps to put up new facilities to produce fuels tomeet future specifications.

MARKETING PERFORMANCE

The market sales (including exports) registered 19.48 MMT corresponding to Rs. 74,044.11 crores during theyear as against 20.09 MMT corresponding to Rs.64,689.51 crores during 2004-05.

VIGILANCE

During the current year various newinitiatives were taken up. This includessubstantial increase in surprise checksof the retail outlets for ensuring qualityand quantity of the product delivered,reduction in lead time in investigationof complaints, direct interaction with theofficers complained against, standardstructured checklist for the fieldvigilance officers to make theinspections more meaningful andtransparent, posting of the tenders inthe website, opening of tenders in thepresence of the tenderers etc. Duringthe vigilance awareness week from 7th

to 11th of November 2005, various


Shri B.R. Mandal, Chief Vigilance Officer, HPCL seen at aVigilance Meet

3 1


interactive sessions were conducted across the length and breadth of the country in various offices of HPCL toincrease the awareness among the employees and other stakeholders at large about the specific role andfunctions of vigilance department in the organisation.

INDUSTRIAL RELATIONS

The Industrial Relations climate during the year 2005-06 continued to be generally harmonious in the Corporation.

OFFICIAL LANGUAGE IMPLEMENTATION

Progressive use of Hindi in the Corporation continues to receive due importance. More details are given undersegment “Special Focus Areas”.

SC / ST LIAISON

The overall representation of SC / ST employees in the Corporation is 27.69%. During the year, your Corporationhas carried out a number of Welfare / Development activities. Further details are given in the ManagementDiscussion & Analysis Report.

CORPORATE GOVERNANCE

The Corporation has complied with the various requirements of Corporate Governance. The details in thisregard form part of this Annual Report.

MANAGEMENT DISCUSSION & ANALYSIS REPORT

This report has been given separately.

PARTICULARS OF EMPLOYEES

A statement providing the information as required under Section 217 (2A) of the Companies Act, 1956 isannexed herewith (Annexure IV). The details regarding the number of women employee’s vis-à-vis the totalnumber of employees in each group is also annexed (Annexure V).

DIRECTORS

HPCL Board presently comprises of 11 Directors. The Whole-time Directors are S/Shri M.B. Lal, C&MD, ArunBalakrishnan, Director-Human Resources, C. Ramulu, Director-Finance, S. Roy Choudhury, Director-Marketingand M.A. Tankiwala, Director-Refineries.

The Part-time Directors are S/Shri P.K. Sinha, Prabh Das, T.L. Sankar, Rajesh V. Shah, M.Nandagopal andI.M. Pandey. The following are the changes in directorships that occurred during the year.

Shri M.S. Srinivasan, currently Secretary, MOP&NG who joined the HPCL Board in 13.12.2002 ceased to beDirector with effect from 20.06.05.

Shri C.B. Singh, currently joint Advisor, MOP&NG who joined the HPCL Board in 03.05.05 ceased to beDirector with effect from 01.03.06.

Shri Raja G. Kulkarni, who joined the HPCL Board in 21.01.99, resigned on health grounds and has ceased tobe Director with effect from 03.03.06.


3 2


Shri P.K. Sinha, Joint Secretary & Financial Advisor, MOP&NG was appointed as a Director with effect from01.03.06 who has been co-opted as an Additional Director liable to retire at the next Annual General Meetingand is eligible for reappointment.

Shri Prabh Das, Joint Secretary, MOP&NG who joined the HPCL Board in 03.05.05 continues to be ex-officioPart-time Director of the Corporation.

Shri I.M. Pandey, Professor, Indian Institute of Management, Ahmedabad has been appointed as a Directorwith effect from 09.12.05 who has been co-opted as an Additional Director liable to retire at the next AnnualGeneral Meeting and is eligible for reappointment.

S/Shri T.L. Sankar, Rajesh V. Shah and M. Nandagopal continue to be part-time non-official Directors of theCorporation.

S/Shri M.B. Lal, Chairman & Managing Director, Arun Balakrishnan, Director-Human Resources, C. Ramulu,Director-Finance, S. Roy Choudhury, Director-Marketing and M.A. Tankiwala, Director-Refineries continue asthe whole time Directors of the Corporation.

As per the provisions of Section 256 of the Companies Act, 1956, S/Shri M. Nandagopal, Arun Balakrishnanand S. Roy Choudhury, are the Directors who will retire by rotation at the next AGM and are eligible forreappointment.

The Board of Directors place on record their sincere appreciation of the valuable services rendered by S/ShriM.S. Srinivasan, C.B. Singh and Raja G. Kulkarni during their tenure on the Board.

ACKNOWLEDGEMENTS

The Directors gratefully acknowledge the valuable guidance and support extended by the Government of India,Ministry of Petroleum and Natural Gas, other Ministries, Petroleum Planning & Analysis Cell and the StateGovernments.

The Directors also acknowledge the contribution made by the large number of dealers and distributors spreadall over the country towards improving the service to our valued customers as well as for the overall performanceof the Company.

The employees of the Company have continued to display their total commitment towards the pursuit ofexcellence. Your Directors take this opportunity to place on record their appreciation for the valuable contributionmade by the employees and look forward to their services with zeal and dedication in the years ahead toenable the Company to scale even greater heights.

Your Directors are thankful to the shareholders for their faith and continued support in the endeavours of theCompany.

For and on behalf of the Board of Directors

M. B. LALChairman & Managing Director

May 25, 2006


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ANNEXURE - I

MOU TARGETS VERSUS ACTUAL PERFORMANCE : 2005-06

CRITERIA UNIT Target Actual“Excellent” Achieved

Level

COMMON PARAMETERS (A)

I. STATIC FINANCIAL PARAMETERS :

a) Financial Performance Indicators:

i) Gross Margin / Gross Block % 12.01 12.62

ii) Net Profit / Net Worth % 5.59 8.20

iii) Gross Profit / Capital Employed % 9.11 9.73

b) Financial Indicators (size):

i) Gross Margin Rs. Crs. 1600 1702

ii) Gross Sales Rs. Crs. 64260 74044

c) Financial Returns:

i) PBDIT / Total Employment Rs. Lakhs 14.82 15.79

ii) Added Value / Gross Sales % 1.11 1.03

II. DYNAMIC PARAMETERS :

EMPLOYEE TRAINING & MOTIVATION

No. of Training Programmes Designed Nos. 5 11

Balanced Score card – Level III Score cards completion % 80 100

Competency Profiling for Officers No. of officers 140 733

Six sigma Projects No. of Projects 4 6

Learning Organisation Workshops No. of workshops 24 29

(For Non-management Employees)

III. CUSTOMER SATISFACTION :

Retail % 98 98

LPG % 98 98

Direct Sales % 98 98

Aviation % 98 98

IV. R & D for Sustained & Continuous Innovation :

No. of Products launched /R&D efforts Nos. 5 5

Filing of Patents Dates 31-01-2006 01-12-2005

Annexure to Directors’ ReportAnnexure to Directors’ ReportAnnexure to Directors’ ReportAnnexure to Directors’ ReportAnnexure to Directors’ Report

3 4



Level

V. Project Implementation / Modernisation :

MR-Green Fuels & Emission Control Project

Date of Approval : 16/10/2002, Approved Cost : Rs. 1152 Crs.

Procurement of Exchangers (83 Nos.) for Revamp &

Treating units Dates Nov-05 Nov-05

Procurement of columns (10 NOs.)/Vessels (20) for

Revamp & Treating units Dates 31-Jan-06 Jan-06

Completion of Nitrogen Plant Dates 31-Jan-06 Jan-06

VR-Clean fuels & Emission control Project

Date of Approval : 30/4/2003, Approved cost : Rs. 1635 crs

Erection of 2nd GTG at site for Captive Power Plant Dates 31-Jan-06 6-Dec-05

Erection of DHDS Reactor in position Dates Sep-05 June-05

Procurement of Exchangers (13 Nos) for non licensed units Dates 31-Jan-06 Jan-06

Loni – Solapur Pipeline Project

Date of Approval : 30/1/2004, Approved cost: Rs. 335.17 Crs.

Mainline Pumps – Issuance of LOI Dates Aug-05 July-05

Pipeline laying – Status as of 31st March 2006 KMs 100 165

Mundra-Delhi Pipeline Project

Date of Approval : 28/7/2004, Approved cost : Rs. 1623.84 Crs.

Mainline Pumps – Issuance of LOI Dates Nov-05 Nov-05

Physical Progress: Foundation work- steel structural

building at the terminal locations- status as of 31/3/2006 % 90 90

Line Pipes- Issuance of LOI Dates Dec-05 July-05

ERP Implementation (all HPCL locations going live) Month Dec-05 Dec-05

SAFETY PARAMETERS :

Reportable accidents in Refineries Accident/Million 0.40 0.20

Man Hrs.

Number of surveillance Safety Audits to be conducted by

SH&E Dept. Nos. 24 32

EXTENT OF GLOBALISATION (Internationalisation,

Foreign JV’s exports strategic alliances etc.)

Infusion of additional Equity into Prize Petroleum through

induction of strategic partners Dates 01-Feb-06 Jan-06


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Level

SPECIFIC PARAMETERS (B)

I. Sector Specific :

Crude Thruput :

Mumbai Refinery MMT 6.00 6.25Visakh Refinery MMT 7.50 7.57

Distillate Yields :

Mumbai Refinery Wt% 68.50 71.35Visakh Refinery Wt% 76.70 76.71

Fuel & Loss :

Mumbai Refinery Wt% 7.00 6.76Visakh Refinery Wt% 6.80 5.98

Market Share:

MS - Retail % 25.71 25.38HSD - Retail % 23.65 23.44

II. Enterprise Specific & Efficiency Parameters :

Addition of Retail Outlets % 50 71Addition of LPG Distributorships % 75 83Branding of Retail Outlets (Club HP) Nos. 2800 3015Average Refining cost(Excl. depreciation, turnaround & one time expenses) Rs./MT 381 350Average Marketing cost (Excluding depreciation) Rs./MT 553 528Development of Customer Service Index Dates Dec-05 Jan-06

OVERALL RATING (A) + (B) EXCELLENT


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ANNEXURE – II

Particulars with respect to Conservation of Energy, Technology Absorption and Foreign Exchange Earning/Outgo as per Companies (Disclosure of Particulars in the Report of Board of Directors) Rules, 1988.

ENERGY CONSERVATION & TECHNOLOGY ABSORPTION

I. CONSERVATION OF ENERGY

a) Energy Conservation measures undertaken and Additional Investment / proposals for implementationon conservation of energy

Mumbai and Visakh Refineries accorded highest priority to energy conservation and have undertakenseveral Encon measures by operational improvements and implementing Encon projects. VariousEncon measures undertaken during 2005-06 are as follows:

Mumbai Refinery

i. Replaced CDU & VDU rotary Air Pre-heaters with stationery Air pre- heaters which improved thefurnace efficiency by about 3%.

ii. Modified / replaced steam traps of Dehydrator & SEU-III fuel oil system, which reduced steamconsumption by 2 tons /hr.

iii. Applied the state of the art ceramic coating in the radiation section of SEU-II & HGU reformer,which improved furnace efficiency by 2%.

iv. Routed DHDS sweet gas to fuel gas header and reduced flare loss by 330 kg/hr.

v. Implemented partly Zero Steam Leak Module for minimizing the steam leak through steam trapsand achieved steam saving of 1 Ton / hr.

vi. Proposals have been developed to Install Secondary seals in 18 nos. of floating roof storage tanksto reduce tank emission losses.

vii. Schemes have been developed to convert FRE & LR –VDU natural draft furnace to balance draft.

viii. Proposal has been developed to generate approx. 6 tons/hr low pressure flash steam from LightEnds Unit condensate .

ix. It has been planned to rout CDU-I & II vacuum column off gas to respective CDU furnaces.

x. Organised Oil Conservation Fortnight during January 15 to 31, 2005 to generate mass awarenessin public for conservation of petroleum products. During the fortnight, several activities like freePUC check up for vehicles, display of oil conservation posters & slogan/quiz drawing competitionsin various schools in Chembur area were conducted

Visakh Refinery

i. Commissioned CDU-I condensate recovery system and achieved estimated energy saving worthRs. 10.15 crores per year.

ii. Carried out comprehensive refinery’s air leak survey by engaging an external agency. Survey identifiedpotential energy saving of 1623 SRFT, which amounts to Rs 2.2 crores.

iii. It has been planned to route CDU-I and II Hot-Well off gas to respective furnaces, which will saveestimated energy of 12600 SRFT, worth Rs 17.8 crores per year.

iv. Initiatives have been undertaken to reduce CPP specific Fuel consumption from 0.39 units to 0.38units, it will save estimated energy of 3828 SRFT, which amounts to Rs 8.33 crores per year.


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v. Proposal has been developed to recover CDU-II and FCC-II condensate which will save estimatedenergy of 161.7 SRFT, worth Rs 0.23 crore per year.

vi. Furnace efficiency Joint survey was carried out by CHT nominated team during the Oil ConservationFortnight in January 2006.

vii. Implemented condensate recovery from steam traps in CDU-I and achieved estimated recovery of2 Tons / hr.

b) Impact of above on energy conservation measures and consequent impact on cost of production ofgoods.

Various measures undertaken during the year 2005-06 would result in estimated energy savings ofapprox. 37949 SRFT, which is equivalent to Rs 53.87 crores.

c) Total energy consumption and energy consumption per unit of production : Please refer Form - A ofthe Annexure to the Directors’ Report.

II. TECHNOLOGY ABSORPTION, ADAPTATION & INNOVATION

a) Efforts made towards technology absorption, adaptation & innovationInformation with respect to adaptation & Innovation is given in Form - B

b) Imported Technology (Imported during last 5 years): - Absorption

Technology Imported Year Whether fully If not absorbed,of Import absorbed Reasons

Diesel Hydro De-sulfurisation Unit 2nd Reactor at MR 2004 Yes -

Diesel Hydro De-sulfurisation Unit 2nd Reactor at VR 2005 Yes -

III. FOREIGN EXCHANGE EARNING AND OUTGO

a) Activities relating to exports:

Various initiatives have been taken to increase exports and for development of new Exportmarkets for products and services. Efforts are on to access international Markets and to tapexport potential for free trade products and lubricants.

b) Total Foreign Exchange used and earned:

Please refer Notes to Accounts – Schedule 19 B, Note 10 G, H, I & J


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FORM - A

FORM FOR DISCLOSURE OF PARTICULARS WITH RESPECT TO CONSERVATION OF ENERGY

MUMBAI REFINERY

(A) Power and Fuel Consumption 2005-06 2004-05

1. (a) Electricity PurchasedUnits (Million KWH) 36.36 10.47Total Amount (Rs. Crores) 22.12 12.36Rate Per Unit for energy charges (Rs/KWH) 3.61 3.90Maximum Demand Charges (Rs. Crores) 9.01 8.28

(b) Own GenerationThrough Steam Turbine / GeneratorUnits (Million KWH) 257.06 279.89Units per ton of fuel 2538.11 2636.02Cost per unit (Rs/KWH) 7.32 5.82

2. Furnace oil / LSHSQuantity (TMT) 165.00 152.37Total amount (Rs. Crores) 231.50 153.31Average rate (Rs/ Ton) 14030.00 10062.00

3. NaphthaQuantity (TMT) 130.54 126.70Total amount (Rs. Crores) 280.28 217.87Average rate (Rs/Ton) 21471.00 17196.00

4. LPGQuantity (TMT) 2.73 5.08Total amount (Rs. Crores) 6.21 9.54Average rate (Rs/ Ton) 22743.00 18777.00

5. Refinery GasQuantity (TMT) 39.09 41.81Total amount (Rs. Crores) 54.84 42.06Average rate (Rs/ Ton) 14030.00 10062.00

6. BH GasQuantity (TMT) 8.98 9.99Total amount (Rs. Crores) 3.65 4.35Average rate (Rs/ Ton) 4066.00 4455.00

7. CokeQuantity (TMT) 21.96 28.70Total amount (Rs. Crores) 30.81 28.88Average rate (Rs/ Ton) 14030.00 10062.00

(B) Consumption per Unit of ProductionElectricity (KWH/Ton of crude) 46.96 47.46Fuel Oil (Tons/TMT of crude) 47.30 45.61Gas (Tons/TMT of crude) 8.13 9.30Coke (Tons/TMT of crude) 3.51 4.69


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VISAKH REFINERY

(A) Power and Fuel Consumption 2005-06 2004-05

1. (a) Electricity purchased

Units (Million KWH) 4.57 3.38

Total amount (Rs. Crores) 4.60 4.87

Rate Per Unit (Rs. /KWH) 10.06 14.42

Electricity Exported (Million KWH) 0.01 0.21

Maximum Demand charges ( Rs. crores) 2.43 2.43

(b) Own Generation (CPP)

Units (Million KWH) 248.99 252.42

Units Per Ton of Fuel 2558.40 2460.15

Cost Per Unit (Rs./KWH) 4.83 5.26

2. Furnace Oil /LSHS

Quantity (TMT) 128.38 140.12


Average Rate (Rs./Ton) 14205.38 10438.17

3. CPP Fuel

Quantity (TMT) 97.32 102.60



4. Naphtha (DHDS)




5. Refinery Gas



Average Rate (Rs./Tons) 14398.35 10460.79

6. Coke




(B) Consumption per unit of production:

Electricity KWH/Ton of Crude 33.90 32.67

Liquid fuel (Tons/TMT of Crude) 33.83 34.41

Gas fuel (Tons/TMT of Crude) 11.87 10.95

Coke Fuel ( Tons / TMT of Crude ) 9.45 9.11


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FORM B

FORM FOR DISCLOSURE OF PARTICULARS WITH RESPECT TO ADAPTATION & INNOVATION

1. RESEARCH & DEVELOPMENT (R&D)

• COLLABORATIVE R&D PROJECTS

MOU have been finalized with Research collaborators for the following projects:

a. Energy efficient Deasphalting process using supercritical solvent recovery (With IIP, EIL &CHT)

In the energy efficient super-critical approach the solvent recovery in the unit is done undersupercritical process conditions, resulting in an overall energy savings of about 20 to 40 percent(mainly in utilities) and lower solvent losses. After incorporating the required hardwaremodification in the Mumbai Refinery PDA unit, the benefit expected is approx. Rs. 2 crores /annum.

A test run under supercritical condition is planned during 2006-07.

b. Optimization studies of Hexane manufacturing unit and feasibility study for producing polymer-grade Hexane (With IIP)

Study was initiated along with IIP during 2004-05 for optimizing the existing Mumbai RefineryHexane plant operating conditions to explore the possibility to produce WHO and Polymergrade Hexane, which have more stringent quality specification w.r.t sulfur & benzene content.

c. Optimization studies of NMP Lube Extraction Unit (With IIP)

Study was initiated along with IIP during 2004-05 to optimize Mumbai Refinery NMP LubeExtraction Unit operating parameters to obtain specific product quality & thruput maximization.Improvement in colour, sulfur and saturates is also expected by increasing severity of hydrofiningand thru usage of suitable catalyst. A substantial energy saving is also expected by pinchanalysis of heat exchangers in the unit.

A controlled test run was conducted during 2005 with the participation of IIP-HPCL personnel.The test run samples are being analyzed by IIP for Physico Chemical Characterization.

d. Improvement of Propylene Purity (With IICT Hyderabad)

Proposal have been signed with IICT Hyderabad to improve the purity of Propylene throughmembrane separation.

e. Implementation of Advance Process Control technology

Visakh refinery has engaged M/s Honeywell to Implement Advance Process Control Technologyin all process units.

f. Collaborative Research Projects with IIT-Kanpur/ Chevron / ART

MOU has been signed between HPCL, Chevron, IIT Kanpur and Advance Refining Technologiesfor various R&D activities.


4 1


• EXPENDITURE ON R&D :

Capital Expenditure : Rs. 0.78 Crores

Revenue Expenditure: Rs. 0.71 Crores

2. UPGRADATION INITIATIVES

MUMBAI REFINERY

a. Refinery carried out short term revamp of existing FCC unit and improved thruput capacity from 0.65MMTPA to 0.90 MMTPA. This also enabled to enhance the production of value added products likeLPG by 42 % and MS by 29 %.

b. Refinery installed / Commissioned DHDS second reactor & commenced EURO-III grade HSD supplyin line with Auto Fuel policy during the year. Refinery is now capable of supplying entire HSD ofEURO-III grade.

c. Refinery Altered CDU-II process parameters suitably to maximize ATF pool by blending MH/PGATF. It has improved ATF production substantially. It resulted highest-ever ATF production of 571.4TMT during the year against previous best of 492.2 TMT during 2004-05.

d. Refinery replaced PDU De-Waxing aid as cost reduction measures, which will result in annualsaving of approx. Rs 7 Lakhs.

VISAKH REFINERY

a. Used Gasoline Sulphur reduction additive in FCC catalyst and replaced 100 TMT of LS crude withmedium sulphur crude to meet BIS-II MS specs.

b. Developed synergy between Mumbai and Visakh Refineries and moved surplus secondary unit feedstock from VR to MR and vis-à-vis to maximize distillate yields.

c. Commissioned LPG Merox caustic regeneration facility to reduce chemical consumption to improveproduct quality.

ANNEXURE - III

Control of Pollution & other Environment initiatives.

The Control of Pollution & other initiatives taken by Refineries are as follows.

MUMBAI REFINERY1. In a major thrust to the solid waste management, Mumbai Refinery has processed approx 5,900 M3

of sludge during the year 2005-06 and recovered 3,025 M3 of potential oil in the sludge usingmechanical separation method.

2. Mumbai Refinery has taken initiative for treating the tank sludge in an environmental friendly mannerwithout removal of the sludge from tank and with reduced tank down time. In this direction, in-situcleaning by M/s Balmer Lawrie & Co. Ltd. using BLABO technology has been completed in CrudeTank-115 during the year and recovered 3333 M3 of Oil out of 3830 M3 of sludge present in the tank.

3. Bio-remediation process of 600 M3 of Sludge Cake ( having oil content less than 10 %) out of 2000M3 has been completed and the balance is in progress.

4. In line with the Hazardous Waste Management rules and Honorable Supreme Court directive, MumbaiRefinery has become a member of M/s Mumbai Waste Management Ltd., and disposed off about226 MT different hazardous wastes such as spent catalyst from FCCU, DHDS, Lube Hydo-finersand SRU have been disposed off.


4 2


5. Air Emission Control & Monitoring :

� The present Ambient Air Analyzers (SO2, NOx, SPM & CO) which have become obsolete havebeen replaced with latest State-of-art technology analyzers.

� Action initiated for display of Stack emission data (6 stns) on HPCL Refinery Web site. Display ofstack emission data for two stns successfully done.

6. Effluent Water Treatment & Control :

� Replacement of existing ETP-I & ETP-II with new Integrated ETP by adopting Cyclic ActivatedSludge treatment followed by Membrane Bio-Reactor and TP is in progress.

� Two nos of Rotary Drum Skimmers (RDS) are proposed to be implemented during 2006-07 upstreamof Old & New API separators for better recovery of free oil and reduce load on API Separators.

� Tankfarm modifications are planned to be carried out to segregate oily water & rain water andreduce load on New Integrated ETP / API Separators.

7. ISO 14001 Renewal :

� Refinery has undergone the “Final Certification Audit” process during March 22 – 24, 2006 and wasrecommended by the Certification Agency M/s. SGS India Pvt. Ltd. for “Renewal of Certification” ofEMS/ ISO-14001 for implementing & operating the “Environmental Management System” (EMS),with continual improvement.

8. Public awareness activities :

As a part of public awareness campaign, following environmental awareness activities were carried out:

� Refinery observed Earth Day (22nd April) event which was organized jointly by HPCL and MPCB inHP Nagar-East premises. The Chief Guest, Dr. D. B. Boralkar, Member Secretary, MPCB, highlightedthe importance of protecting the Mother Earth.

� ‘World Environment Day’ was observed on June 05, 2005. On this occasion two lectures wereconducted for refinery employees on the topics viz, ‘Environmental Aspects & Impacts’ and ‘LegalAspects & Implications’. The lectures were delivered by Maharashtra Pollution Control Board seniorofficials namely Mr. R. G. Pethe, Water Pollution Abatement Engineer (WPAE) and Mr Ashok Jain,Legal Advisor.

� HPCL sponsored Environment Film “CHAKACHAK” made by Director Sai Paranjpye. The film hasbeen screened in 2 cinema theaters in Mumbai as well as HP Nagar residential complex. Thechildren from various schools watched the film and it was well received by them.

� As a part of knowledge sharing program, following Technical papers about various initiatives takenby Mumbai Refinery in the field of environment and related areas, were presented in both national aswell international forums

• Technical papers presented in 13th Refinery Technology Meet (RTM) held in Hyderabad.1. In-situ cleaning of sludge by using “BLABO” Technology.

2. Comprehensive hazardous wastes management & handling program.


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• Technical papers presented in World Petroleum Congress held in Johannesburg South Africaduring 25 – 29th Sept’ 2005.

1. Sea cooling water new treatment process.

2. Improved boiler water treatment program.

3. Leveraging FCCU benefits with catalyst and additives.

VISAKH REFINERY

Pollution control measures initiated :

� Routing of Hot well gases to furnaces in CDU-I & CDU II. The objective of the project is to reduce smellaround the process units by diverting the gases and burning off in the furnace. The project is inadvanced stage of completion and planned date for commissioning is Nov-2006.

� Excess oil ingress project.

� The objective of the project is to improve the quality of treated effluents. The project is in advancedstage and planned to go on stream by Dec-06.

� Disposal of hazardous waste through transit storage and disposal facility.

� Refinery has planned to have an agreement with pollution control board approved transit storage anddisposal facility for disposing of hazardous waste.

Pollution control measures completed :

� Drum washing facility.

� Inline with hazardous waste management rules, all used chemical drums are rinsed prior disposal.The facility was commissioned in Dec-05.

� Commissioning of auto samplers in effluent treatment units.

� Auto samplers are provided on the outlet of treatment plants for accurate sampling. The samplerswere commissioned in Oct-05.

� Provision of fountain system in effluent treatment plant-2.

� Refinery provided a fountain network in guard pond for better aeration to improve the quality of treatedwater in Dec-05.

� 800 MT of crude tank sludge treatment completed using “BLABO” technology.

Other initiatives

� ISO 14001 re-certification audit completed in Mar-06.

� Zero effluent discharge study is in process of completion by EIL.� Volatile organic compounds (VOC) inventorization completed.


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Annexure - VStatement Showing Women Employees as on March 31, 2006

Group Total No. of No. of Women % of WomenEmployees Employees Employees

A 3849 245 6.36B* - - -C 6256 410 6.55D 673 26 4.83Total 10778 681 6.36

*HPCL has no posts classified under group ‘B’ as the entry in non-management grades has been re-classified in group ‘C’ effective 1.1.1994.

1 2 3 4 5 6 7 8 9

Sr. Name Designation / Remuneration Qualifications Exper- Date of Age Last EmployementNo Nature of Duties ience Joining

(Years)

1 ADINARYANA K LAB ANALYST 401,466 LICENSIATE IN MECH. ENGG. 14 16-DEC-1991 60 -

2 AJITHBABU H V MANAGER - MARKETING 779,679 BE(MEHANICAL) 22 30-APR- 1984 47 BHARAT EARTH MOVERS LTD.

3 BAGWE RAJKUMAR B SR. MAINT. TECH. 426,848 SSC/SSLC 22 19-OCT-1983 60 -

4 BHUSHAN BANALA NAGA MGR - PROJ 1,007,792 B TECH (MECHANICAL), 18 2-JAN-1988 42 -

POST GRADUATE DIP. IN IE

5 BORAGE S N GEN.SERVICE ASST. 321,247 NON SSC 20 2-DEC-1985 60 -

6 CHANDRASEKHARAN P D SECURITY GUARD (SG) 291,832 NON SSC 23 26-NOV-1982 60 INDIAN ARMY

7 CHAUDHURI SUBROTO SENIOR MANAGER - PAD/FR 707,047 BE (CHEMICAL) 21 11-MAY-1984 45 -

8 CHERIYARIMMAL MANAGER - ERP 668,110 B TECH(INSTRUMENTN.) 14 28-OCT-1991 36 -

UNNIKRISHNAN GOV

9 DOSHI NIRANJAN J EXE OPNS OFFICER 1,219,460 BSC 34 12-MAR-1971 60 -

10 D’SOUZA DENNIS SR. PLANT OPERATOR(SG) 860,538 SSC/SSLC 31 2-DEC-1975 60 -

11 GOTPAGAR PRAKASH SR MGR-QC 977,800 MSC 30 20-NOV-1975 60 OGALE GLASS WORKS LTD.

12 JAYASHANKARARAO N SR. LPG OPERATOR(SG) 452,954 SSC/SSLC 19 12-APR-1986 60 INDIAN ARMY

13 JOSEPH D M SR TECHNICAL ASSISTANT 812,836 NON SSC 30 1-AUG-1975 60 PRABHAKAR AUTOMOBILES

14 JOSHI ASHOK GANESH EXE OPNS OFF 1,355,328 DME 36 19-FEB-1970 60 -

15 KALMANE D V DY. GENERAL MANAGER- 1,307,268 BSC 37 18-NOV-1968 60 SADHANA CHEMICAL

FIRE & SAFETY INDUSTRIES,MUMBAI

16 KOMPELLA SRINIVAS SENIOR MANAGER - ERP 818,804 B TECH (ELECTRICAL) 18 28-DEC-1987 40 -

RAVI DURGA

17 MAHAJAN VISHWAS DIGAMBER EXE.DIRECTOR - RCD 2,109,352 BE(MEHANICAL) 37 18-NOV-1968 60 BURMAH SHELL REFINERIES,MUMBAI

18 MATHUR D S DIR-REFINERIES 1,782,401 B TECH (CIVIL),MSC 37 16-DEC-1968 60 LUBE INDIA LIMITED

19 MOHANAN M P MANAGER-INSTL. 1,184,948 B.COM 37 14-JULY-1969 60 BANK OF BARODA

20 NAIK NANDKUMAR GANPAT CHIEF ADMIN. ASST. 753,717 27 3-JAN-1979 60 -

21 NARASIMHARAO C EXECUTIVE DIRECTOR - 1,812,165 B.COM,LLB,ACS, 23 28-MAR-1983 60 TISCO LIMITED

IT & PLANNING FCA/ACA,ICWA

22 NAYAK RADHAKRISHNA S SENIOR MANAGER - FINANCE 1,494,850 DBM,MA 35 29-JULY-1971 60 UNIVERSAL CHEMICALS INDUSTRIES

23 PARWANI SUNIL K SENIOR MANAGER - ERP 1,200,881 BE(MEHANICAL),DSM 22 9-OCT-1984 45 RALLIS INDIA LTD

24 RAMANNA VIJAY KUMAR SENIOR MANAGER - INSPECTION 859,757 BOE,BE(MEHANICAL) 17 21-JUNE-1989 46 WEST COAST PAPER MILLS LTD.

25 ROY RAJIV DY MGR-PROJECT 563,641 BE(MEHANICAL) 14 28-OCT-1991 36 -

26 SARDAR PROVASH GEN SERVICE ASST 653,641 38 1-JULY-1967 60 ESSO

27 SAWANT V G PLANT OPERATOR 251,013 NON SSC 19 14-OCT-1986 42 -

28 SEEDI VENKATESWARA RA CH MGR - MEDICAL SERVICES 2,065,370 MBBS 27 19-OCT-1978 60 SOUTH EASTERN RAILWAYS

29 SHAH ATUL BHAICHAND MANAGER - R&D 856,918 MSC-CHEMISTRY 13 10-AUG-1992 47 LUBRIZOL INDIA LIMITED

30 SHETYE SURESH BHIKAJI OFFICER ON SPECIAL DUTY 1,087,723 BSC,DIP IN ORM 37 12-FEB-1968 60 CALICO CHEMICALS & PLASTICS,MUMBAI

31 SHINDE SHIVAJI VITHOBA SR. TECH. OPERATOR 402,082 34 6-AUG-1972 58 -

32 SINGH HARNEK SR MOBILE ASST (SG) 327,216 NON SSC 22 2-JAN-1984 60 KARTAR DRIVING SCHOOL,CHANDIGARH

33 WANVE N D DIP/SO/WB OPTR 796,068 SSC/SSLC 21 9-FEB-1985 60 INDIAN NAVY

1 Employees listed in the statement were employed for part of the year and were in receipt of remuneration at the rate of not less than Rs.2,00,000/- permonth.

2 Employment in the corporation is non-contratual.3 Employment provides for termination of services by either party giving one month’s notice.4. None of the Employees are related to any of the Directors’.

Information as per Section 217(2A), read with Companies (Particulars of Employment) Rules, 1975 andforming part of the Directors’ Report for the period 1st, April 2005 to 31st March 2006.


Annexure - IV

4 5


Future Plans

• Infrastructure upgradation• Increase in Refining capacity and Marketing infrastructure• Operations improvement to meet Global Standards• Sustain existing Market Share• Cost Reduction/Improvement in Efficiency• Leverage IT and ERP to enhance business initiatives• Continued foray in E&P, Gas, Power, Bio-diesel and Non-conventional energy• New Business Opportunities in India and Outside

“““““At a Glance………….”At a Glance………….”At a Glance………….”At a Glance………….”At a Glance………….”

Performance for the year

• Physical performance in line with targets• Financial performance below targets• Major ongoing projects progressing satisfactorily• Several new initiatives in different SBU’s• Awards/ Recognitions from different forums

Concerns

• Substantial increase in Crude Oil price• Impact on margin due to subsidy on products• Non revision in price of the products with the rise in Crude Oil price• Dynamics of oil market / Growing Competition• Macroeconomic issues• Global Geopolitics

ManagManagManagManagManagement Discussion & Analysis Reportement Discussion & Analysis Reportement Discussion & Analysis Reportement Discussion & Analysis Reportement Discussion & Analysis Report

4 6


ECONOMIC SCENARIO

Continuing the trend of 7-8% growth of last two years, the Indian economy is projected to grow 8.4% in 2005-06.Crude oil prices have continued to rise, rising from about $50/barrel in March 2005 to $65/barrel in March 2006 dueto combination of tight demand-supply balance and geopolitical tensions in global oil markets. The impact of highprices on the economy was, however, contained through a policy of sharing the burden between the Government ofIndia, Oil Companies and the consumer. The Sensex continued setting new records reflecting the confidence in theperformance of the economy and the corporate sector.

Agriculture sector is projected to record a modest recovery of 2.3% in 2005-06 against an anaemic 0.7% growthin 2003-04. Industry is projected to grow by 9% over and above 8.6% growth in 2004-05. Within the industrysector, Construction is estimated to record around 12% growth, continuing the double-digit growth trend of thelast two years. Housing, Real Estate and Retail continue to provide support for construction. Manufacturing GDPis projected to have expanded by more than 9% in 2005-06 against 8.1% growth in 2003-04. The Services sectoris expected to maintain its growth momentum at around 10%. Within services sector, trades, hotels, transportand communication are projected to record double-digit growth of around 11% while financial services are likelyto grow by 9.5%. Services sector share in GDP has gone up from around 50% in 2000-01 to 54% in 2005-06.This increase has been at the expense of the agriculture sector. Industry sector’s share has remained largelyconstant, increasing marginally from 25.9% to 26.2% between 2000-01 and 2005-06.

Petroleum product consumption has been stagnant rising by just 0.3% in 2005-06.With a booming Aviationsector, ATF consumption continued its high growth trajectory, increasing by 17% over and above 13% growthrecorded in 2004-05. Petrol demand continued the trend of 4-5% growth. Diesel consumption after growing by7% in 2004-05 reverted to marginal growth trend, clocking a growth of only 1.3% in 2005-06. Naphthaconsumption declined by 12% in 2005-06 vis-à-vis 18% growth in 2004-05. Bitumen consumption reversed itsdecline of 2004-05, increasing by 5.3% in 2005-06. SKO and LDO consumption continued to decline in 2005-06 too while LPG consumption increased marginally by 0.6%.

On the external front, exports recorded a growth of 23% during 2005-06. Rising commodity prices improvedunit realization for exports. Petroleum product exports increased by 18% in 2005-06, rising from 18.2 MMT in2004-05 to 21.5 MMT in 2005-06. In value terms, petroleum product exports went up by more than 200%.Realization was $10.7 billion in 2005-06 against $6.6 billion in 2004-05.

Imports went up by 32% in the first eleven months of 2005-06 with POL imports increasing by 49%. Amongnon- POL imports, iron & steel, non-electrical machinery, machine tools, metaliferrous ores & metal scrap,pearls, precious & semi-precious stones have seen high growth recording increase ranging from 30-90%.Crude and petroleum product imports in 2005-06 were around 111 MMT compared to 105 MMT in 2004-05. Invalue terms, POL imports in 2005-06 were about $45 billion vis-à-vis $29 billion in 2004-05.

Current account deficit in first three quarters of 2005-06 was $10.6 billion, an all time high. Earlier, the highestcurrent account deficit was recorded at $9.7 billion for the fiscal year 1990-91. Strong capital inflows financedthe current account deficit. Foreign exchange reserves stood at $145 billion at the end of the financial year, anaccrual of $9.5 billion over reserves in 2004-05. Average rupee exchange rate vis-à-vis US $ was 44.13 in 2005-06 against 44.84 in 2004-05. Financial year ended with exchange rate at Rs. 44.6 per US $.


4 7


The Inflation rate was lower at 4.5% in 2005-06 compared to 6.5% in 2004-05. Higher crop production and only

partial pass-through of high oil prices to the economy helped rein in inflation.

Projections indicate that the economy is likely to maintain current high rates going forward which should be a

positive for the Oil Sector.

SECTOR OVERVIEW

Demand growth in the petroleum has been sluggish in 2005-06 increasing by just 0.3% reversing 3.5% growth

rate trend of last three years. Petroleum products consumption in the country was around 112 MMT in 2005-06.

On the supply side, however, refining capacity, at around 133 MMT, continues to outstrip demand. As a result,

nearly 22 MMT petroleum products were exported. Refining margins have been good though not as high as

previous year, as easing of China’s explosive 15% demand growth to 2.4% reduced demand-supply imbalance.

Oil prices have continued to increase over the years. Hurricanes in the Gulf of Mexico, turmoil in Nigeria,

Venezuela and Iraq and rising geopolitical tensions over Iran and limited spare capacity in Saudi Arabia have

pushed the prices up. Further, constraints in the refining system have pushed up the product prices that fed

through to crude prices. In most of the developing countries including India, economy has been shielded from

high prices. Indian oil companies have had to contend with higher under-recoveries affecting their financials.

Among private oil companies, sale of HSD by Reliance has reached 3.6 MMT, indicating all-India market share

of almost 9%. In MS, nearly 75% of incremental sales have gone to private oil companies while in retail HSD,

PSU oil companies’ sales have declined to be picked up by private marketers.

LNG has augmented gas availability in the country and has contributed to decline in Naphtha sales.

Growing competition from new entrants and alternate fuels, high oil prices, increasing costs relating to

environmental compliance, under-recoveries from the sale of auto fuels, SKO and LPG and increasing expenditure

requirements relating to projects and marketing translate into a challenging operating environment. HPCL has

developed a strategy involving a judicious mix of product differentiation, developing a strong brand equity,

network expansion and vertical integration and diversification into gas to protect and grow its business.

MOU PERFORMANCE:

The Corporation has been achieving an all round “Excellent” rating vis-à-vis MOU targets for fourteen consecutive

years upto 2004-05 as a result of the concerted efforts of all the employees. The performance of the Corporation

for the year 2005-06 also qualifies for “Excellent” rating basis self assessment.

OPERATIONAL AND FINANCIAL PERFORMANCE

The operational performance of the Corporation has been significant. The turnover during 2005-06 is Rs.76920.26

crores as compared to Rs.65218.33 crores in 2004-05 showing 18% increase. The marketing volumes achieved

were at 19.48 MMT as compared to 20.09 MMT for the previous year. Our Mumbai Refinery and Visakh

Refinery together recorded the thruput of 13.82 MMT as compared to 13.94 MMT for the previous year. The

growth trend in MS/HSD our main product line have been successively increasing by registering highest

growth rates in the industry. Similarly the Aviation and Lubes business Line have also made distinct impact in

terms of value and growth in the market.


4 8


REFINERIESRefineries Team


Crude thruput and Capacity utilization

Mumbai Refinery (MR)

Mumbai Refinery achieved a Crude thruput of 6.25 MMT against installed capacity of 5.5 MMT, which representsa capacity utilization of 113.6%.

Visakh Refinery (VR)

Visakh Refinery achieved a crude thruput of 7.57 MMT against installed capacity of 7.5 MMT, which correspondsto capacity utilization of 101.0%.

Fuel & Loss

Mumbai Refinery achieved Fuel & loss of 6.76 % during the year, which was better than MOU Excellent Targetof 7.0 %.

Similarly Visakh Refinery achieved Fuel & loss of 5.98 % during the year, which was better than MOU ExcellentTarget of 6.8 %.

Shri S V SahniExecutive Director – CE

(Refineries)

Shri D K DeshpandeExecutive Director - MR

Shri A B SatheExecutive Director – IT&S

Shri A S RaoExecutive Director - VR

Shri P A B RajuGeneral Manager -

Operations, VR

Shri B K NamdeoGeneral Manager - CE

(Refineries)

Shri K V RaoGeneral Manager -

Finance, VR

Shri S C MehtaGeneral Manager –

Operations, MR

Shri V S RaoGeneral Manager –

Technical, VR

Shri V JagannathanGeneral Manager – Spl.

Assignment, VR

Shri K SrinivasanGeneral Manager –

Projects, MR

Shri R M N MararGeneral Manager –

Projects, VR

4 9


Mumbai Refinery Green Fuels & Emission Control Project (MR-GFECP)

Refinery has undertaken mega project at an approved cost of Rs.1850crores to meet the MS / HSD of EURO-III grade in Metro / Megacities and Bharat stage–II grade in the rest of the country.

The project also envisages to enhance refining capacity from currentlevel of 5.5 MMTPA to 7.9 MMTPA.

Refinery has already installed & commissioned DHDS 2nd reactor inMay 2005, which facilitated to upgrade their HSD production to EURO-III grade.

The major facilities proposed under this project are to upgrade theMS to EURO-III grade and enhance crude refining capacity of NHT/CCR, Isomerization unit, FCC Gasoline Hydrotreater unit withassociated auxiliaries and revamp of existing CDU-I/VDUs and FCCUnits.

The project is expected to be completed mechanically by December2006.

Visakh Refinery Clean Fuels Project

Similarly Visakh Refinery has undertaken Clean Fuels Project atan approved cost of Rs.2147.8 Crores to meet the MS / HSD ofEURO-III grade in Metro / Mega cities and Bharat stage– II grade inthe rest of the country.

Under this project, it is also envisaged to increase the refining capacityto 8.33 MMTPA from current level of 7.5 MMTPA.

The major facilities proposed under this project are NHT/CCR/NIU/FCC NHT in MS block, Flue gas Desulphurization project and revampof existing FCCU-II and DHDS Units.

The project is expected to be completed mechanically by December, 2006.

Introduction of EURO-III & BS-II MS / HSD

In line with Auto Fuel Policy, Government of India revised MS / HSDspecs to EURO-III grade MS / HSD in Metros / Mega Cities and BS-II grade MS /HSD in rest of the country from April 1, 2005.

Accordingly, Mumbai Refinery commenced BS-II MS / HSD productionfrom January, 2005 & EURO-III HSD production from May, 2005.However production of EURO-III MS will commence afterimplementation of on-going Green Fuel Emission Project. Meanwhile,HPC Marketing is procuring EURO-III MS from industry sources formeeting the Mumbai region demand.

Similarly Visakh Refinery commenced BS-II / EURO-III HSD & BS-II MS production from January, 2005. Withrespect to EURO-III MS production/supply, it is expected to commence after implementation of on going CleanFuel Project. Meanwhile, Euro-III MS demand of Hyderabad region is being met by the refinery by utilizingappropriate crude mix and blending of streams.


Shri M.B. Lal, C&MD alongwith other HPCL officialsat Visakh Refinery

Shri M B Lal C&MD was conferred the LifetimeAchievement Award for his contribution to the refiningsector by the Chemtech Foundation. Seen above isthe Trophy.

5 0


AWARDS / ACHIEVEMENTS

Mumbai Refinery

• Achieved highest ever production of LPG, ATF & 500 N (Lube Oil Base Stock) during the year.• Received National safety Award – 2004 for lowest accident frequency rate.• Awarded “Environment Excellence Management – Green-Tech Gold Award - 2003-04” for outstanding

achievement in “Environment Management” in Petroleum Sector by Greentech Foundation, New Delhi.• Achieved 2.13 million safe man-hours as on 31st March 2006.• Successfully commissioned new cooling towers, which has improved the efficiency of refinery units.• Installed DHDS 2nd Reactor and commenced EURO-III HSD production.

Visakh Refinery

• Undertook DHDS shutdown and installed 2nd Reactor to meet EURO-III HSD demand and also enhancedDHDS thruput capacity by 40%.

• Achieved lowest ever Specific Energy Consumption of 93.3 MBTU/BBL/NRGF during the year againstprevious best of 100.8 MBTU/BBL/NRGF during 2004-05. Specific Energy Consumption has improvedconsistently during the last 5 years.

• Exported highest ever 1053 TMT petroleum products during the year ( Naphtha / MS / HSD /FO ) against769 TMT during 2004-05.

• Achieved 2.20 million safe man-hours as on 31st March 2006.• Implemented Process Management System conforming to US OSHA PSM 1010.119 and USEPA Risk

Management Program (EPA RMP) is under implementation.• Carried out various safety promotional activities to create awareness among HPCL / CISF employees

and Contractors.


Shri Prabh Das, Jt Secretary, MOP&NG during a visit to MR. Also seenin the photograph are Shri M.A. Tankiwala, Director (Refineries), ShriD.K. Deshpande, Executive Director - Mumbai Refinery.

Construction of a unit of GFEC Project in progress at Mumbai Refinery

Construction of units of Clean Fuels Projects in Progress at Visakh Refinery

5 1


CENTRAL ENGINEERING CELL (CEC)In line with HPCL’s vision for growth, huge investments have been planned on new projects especially in theRefineries. It is essential to choose state-of-the-art technologies for these projects to control their cost andtime of execution, in order to sustain our competitive edge in the market and to ensure adequate and assuredreturn on our investments. One strategy that has been adopted by HPCL to achieve this is to bring the entiregamut of major project activities under a Centralised Engineering Cell which will handle all such projects fromconcept to completion.

The Central Engineering group has been functioning since last 6 months. It has identified and prioritizedrefinery projects worth about Rs.19500 crores, slated for completion in phases from end 2007 to early 2011,with a potential to add about Rs.3600 crores to the Corporation’s net revenues.

Some of the major projects identified are:

• Petrochemical complex at Visakh

• Visakh Refinery expansion to 15 MMTPA

• Single Point Mooring facilities at Visakh for importing crude oil in VLCC class carriers

• Crude oil terminals at Visakh and Mundra (Gujarat)

• Production of Grade II lubes at Mumbai Refinery

• Mixed Xylene and Propylene production at Mumbai and Visakh refineries

The cell has also taken steps to implement HPCL’s plans to add to the “green power” generating capacity ofthe country through installation of Wind Electric Generators, which will contribute to the augmentation of thecountry’s power generation capacity protecting the environment.

To realize its Vision to be recognized as a global player in the energy sector, HPCL has undertaken the taskof benchmarking various operating parameters, Safety & Environment practices and operational efficiencyfactors in its Refineries with the globally best companies, for continuous improvement and to become worldclass. It is the constant endeavor of Central Engineering to help the Refineries succeed in this mission byputting in place best-in-class technology and infrastructure.

CRUDE OIL PROCUREMENTHPCL’s two refineries at Mumbai and Visakhapatnam processed 13.82 MMT of crude oil during 2005-06. Ofthis 3.32 MMT was from indigenous source while the balance quantity of 10.5 MMT was imported. 7.21 MMTof crude was imported on term contract basis from M/s. Saudi Aramco ( Saudi Arabia), M/s. Somo (Iraq),M/s. Adnoc (U.A.E.) and Petronas (Malaysia) while the balance quantity was purchased on spot basis. Termcontracts with SOMO and Petronas were enhanced during the year.

During the year, 10.46 million MT of imported crude oil worth CIF value Rs.18,964 crores was purchased.

Mumbai and Visakh refineries achieved lower GRMs of 3.22 and 2.56 $/bbl respectively during the year 2005-06vis-à-vis 2004-05 (MR- 5.60 $/bbl, VR-5.06 $/bbl), mainly due to lower duty protection, discounts extendedto marketing companies on major products LPG/MS/SKO/HSD, to compensate for under recoveries on account

of non revision of retail sales price and higher exports.

During the year, IT & S imported 646 TMT of bulk petroleum products worth CFR value Rs.1,669 crores.

On the exports front, a growth of around 23% in volume and 67% in rupee value terms was achieved in2005-06 as compared to the previous year. This year, over 1140 TMT of bulk petroleum products worth Rs.2,376crores were exported. Export incentives in the form of advance license were obtained against the exportsmade which would enable savings in customs duty on import of crude oil to the extent of Rs.116 crores.


5 2


OIL PRICE RISK MANAGEMENT :

HPCL, being a refining and marketing company, is exposed to risk on account of fluctuation in crude oil andproduct prices. Oil Price Risk Management was identified as an important activity for protecting margins in thenew economic and competitive environment and the risk management policy was developed thru the processof risk identification and definition of risk management vision. The risk management is in advanced stage ofcompletion and the derivatives trading activities will commence shortly.

MARKETING

Marketing Team

Shri S P ChaudhryExecutive Director –

Retail

Shri S K BiswasExecutive Director - P&P

Shri G A ShirwaikarExecutive Director - LPG

Shri S M PalavGeneral Manager – IT

(Mktg)

Shri A B ThosarGeneral Manager -

Pipelines

Shri R Sudhakara RaoGeneral Manager -

Lubes

Shri B GururajanGeneral Manager -

South Zone

Shri M S DamleGeneral Manager -

West Zone

Shri A B PaiGeneral Manager -

East Zone

Shri Y K GawaliGeneral Manager – O&D

Shri S K SavlaGeneral Manager - E&P

Shri S Y NarvekarGeneral Manager – I&C

Shri C S KrishnaswamyGeneral Manager –

QC&R&D

Shri P RajendranGeneral Manager – MRA&P

Shri S P SinghDGM – Aviation

Shri Rakesh MisriDGM (I/C), North Zone


5 3


RETAIL BUSINESS

Fuel retailing has seen paradigm shift in the last 2 to 3 years. While, the customers have seen a lot of positivechanges in the industry, the industry has seen intense competition with rapid network buildup by both privateand public sector companies. Customers have started viewing Retail experiences as “One Stop Shops” andare demanding more from each Retail Interaction.

As companies adopt a more customer centric approach, some notable changes in the industry are increasedbranding spends by oil retailers, investment in enhancing the visual identity of outlets, steps to improvedelivery around quality and quantity and focus on non fuel business. There is a marked change in approachas companies are experimenting with options to offer customers more than just fuels – in terms of products aswell as services.

Branding has emerged as one of the important drivers for top line growth and creates differentiation necessaryto attract and retain customers. The oil companies have moved from being commodity players to provider ofbranded products and services. Focus on innovative ways to create customer delight continues to be a priorityfor oil companies.

RETAIL SBURetail constitutes nearly 57 % of HPCL’s business. It is also the face of the Organization from the customerperspective and, therefore, receives special focus of the Top Management as well as involvement of variouscross functions. HPC enjoys significant market share of nearly 23.9 % among PSU Oil Companies while21.8 % on total Industry basis including private players in combined petrol and diesel in retail.

Retail SBU vision

• Highest Performer in Sales Growth over Industry.

• Sustained Profitability through increased Sales, Non Fuel earnings, Cost optimization,

Branded Fuels and Branded Lubricants.

• Absolute Customer Delight at the point of interface. Fulfilling the stated and latent needs

of the customers through innovative products and services.

• Competent, committed and empowered employees.

• Sense of pride and mutual trust and camaraderie. Conducting business in a fair, transparentand ethical manner.

To achieve the Retail Vision, we have developed a Retail Value Proposition by keeping “customer experience”as the core of our strategy. We have developed deeper insights of customer needs and identified ten customersegments based on psychographics, lifestyle and behavior. This has helped us craft attractive value propositionsfor the distinct customer segments comprising fuel and non fuel offers. The offers would be delivered throughseven standard formats, each targeted at specific segments. These formats will help standardize and ensureconsistent delivery of relevant bouquet of products and services to the target segments.

We have also aligned our brand strategy with our customers by focusing on key driver brands – Club HP,Power, Turbojet and the loyalty cards. Through these initiatives, we would deliver relevant, compelling,differentiated and consistent experience to the customers visiting our retail outlets.


5 4


Retail Initiatives

Retail Branding:

HPCL has branded its Retail outlets under the name “Club HP” positioned on the platform of “OutstandingCustomer & Vehicle Care”. During 2005-06, 771 outlets were Branded as “Club HP” taking the totalnumber to 3018 as on 31.3.2006. Club HP outlets constitute 41% of total Retail network and generate morethan 50% of total MS/HSD sales. To enhance the level of Customer Services to our valued customers anaggressive expansion programme is underway. To ensure consistent delivery of superior Customer services,all the Club HP Outlets are certified by Third Party Inspection Agency.Branded Fuels :“Turbojet”- the Branded diesel from HPCL continues to be the market leader.During 2005-06 “Turbojet” was added at 1177 Retail Outlets taking the total number to 2537 as on 31.3.06.“Turbojet” sales constitute 11.4% of total HSD sales of March 06. In view of increasing Customer loyalty forthis product we have aggressive plans to penetrate on Highways and also in select Rural markets.During 2005-06 “Power” was added at 603 Retail Outlets taking the total number to 1824 as on 31.3.06.“Power” sales constitute 15.1% of total MS sales of March 06. This is testimony to the acceptance of thispremium product by the customers.Loyalty Based Card ProgramIn its continued efforts to build consumer loyalty, Retail SBU is running a powerful card based loyalty programmewith various card products such as Credit card/Debit card/Smart 1 card/Fleet cards etc.During 2005-06, 2.6 million Loyalty Card Customers were enrolled taking the total number to over 5 million ason 31.3.2006.Retail SBU will also shortly launch a coalition loyalty programme that will offer rewards even to cash customers.In addition, the members will also get an option to accumulate points at other coalition member establishments.Quality Assurance:Retail SBU has taken several initiatives, many of them, first in the Industry towards quality assurance underthe banner of “Good Fuel Promise” at the Retail outlets.• 10 exclusive Mobile Labs were added during 2005-06 taking the total number to 30. These labs have

strengthened our capabilities of carrying out surprise checks at the outlets.


HPCL Outlet at the Mumbai - Pune Express Way

5 5


• Third party Surveillance Audit by M/s. Bureau Veritas was completed at 3215 Club HP outlets during2005-06 which has resulted in remarkable improvement in the quality and service standards at the outlets.

• 369 Retail outlets received ISO certification during 2005-06, taking total number to 732 as of March 31,2006.

• Customer Satisfaction Index (CSI) survey was undertaken by the Regional Offices covering 4246 Retailoutlets across the country during 2005-06, as a mechanism to receive customer feedback

• Retail SBU has taken unique initiative in launching Quality/ Quantity awareness campaigns under theClub HP offering of Good Fuel Promise. During 2005-06 more than 150 such campaigns were conductedby Regions across the country. This has created trust and confidence in customers.

Leveraging on Technology to enhance Quality.

• Retail Automation

HPCL has pioneered the concept of e-fuel stations in India, having fully automated over 40 Retailoutlets in Mumbai/Vashi. Quality Assurance through Quality control is an international practice.Retail Automation focuses on monitoring the stocks, sales and inventory controls at Retail outlets bycapturing, collating and analyzing all the transactions electronically.

Retail Automation at 425 sites, mainly on Highways, is in progress. We are targeting to complete over1000 sites in about a years time.

• Vehicle Management System

As a step towards ensuring quality of products during transportation to the Retail outlets, HPCL has takenthe pioneering step to monitor tank truck movements on real time basis through a technology basedVehicle Management System (VMS). We have already installed the system on all 160 Company ownedTank trucks engaged for transporting MS/HSD. In addition to this we have also installed VMS on 68 Tanktrucks transporting SKO under “Jan Kerosene Pariyojna” scheme. We are pursuing aggressive plans toinstall Vehicle Management system on all the Tank Trucks for transportation of MS/HSD.

New Visual Retail Identity – “Project Aakarshan”

HPCL Retail SBU is the first to introduce the concept of New Visual Retail Identity to give attractive look andappearance to its Retail outlets as per world class standards which stand out in the Oil Industry. More than600 outlets have been provided with new Visual Retail Identity with rapid expansion in progress.

Network Expansion

During 2005 – 06 we have commissioned 647 Retail Outlets with focus on Highways and Rural markets. As onMarch 31, 2006 we have a network of total 7313 Retail Outlets.

Assessment and improvement of Network Productivity

To assess the health of our network and identify improvement opportunities, we have developed a ‘site evaluationtool’. We are in the process to administer the tool on a large sample of outlets and take suitable action basedon the findings.

Rural Initiative :

As a part of Rural initiative, 206 “Hamara Pumps” were commissioned during 2005-06 taking the totalnumber to 602. Seeds, Pesticides and fertilizers are also being sold to the farmers through 60 “Kisan VikasKendras” set up at select “Hamara Pump” outlets. We are targeting to reach a mark of over 1100 HamaraPumps by March 2007.


5 6


Non Fuel Business

Market research shows that there are certain non fuel offerings that customers demand at fuel outlets. It

provides a great opportunity for HPCL, as, in addition to deliver customer needs it is an additional revenue

option at the Retail Outlet real estate. The focus is now to partner with the best in class brands in the relevant

categories. Currently we have agreements with brands like Café Coffee Day, Crossword Book Stores,

Music World, Subway, Pizza Corner and e-Ticketing for Air Deccan and Spice Jet. We have expanded

the number of partners by entering into tie-up with reputed brands like Marry Brown and Kamats. Aggressive

plans are underway to operationalize the arrangements in large number of Highway outlets.

Training / Motivation of Dealers & Dealermen:

Gurukul:

Training Centres for “in-house” training programs are being developed at prominently located company-owned

model retail outlets in each Region for training Dealers/Dealermen on a regular basis. 41 such training centers

have been commissioned one in each Region.

Dealermen Training:

Dealermen training “customer first” conducted covering 14982 dealer men on all India basis in 1085 training

programmes held by professional agencies during 2005-06. In addition to above, “In-sit-U” training programme

conducted covering 4061 dealer men through 507 training programmes across the Regions.

Dealer men motivation:

1494 dealermen awarded under the scheme “Spot & Reward”, which aims at giving immediate recognitions for

the good work by the dealermen. Similarly, 38 Dealermen children were given scholarships during 2005-06

across Regions.

Retail SBU Performance

Due to various marketing initiatives, Retail SBU

has achieved land mark performance in the year

2005-06. HPCL has recorded highest sales growth

among major PSUs both in MS and HSD during

the year 2005-06. We have gained Market Share

by 0.16 % in MS and 0.24% in HSD. This gain in

Market Share in MS & HSD is for the second

successive year. Our loss in sales and market

share to Private players is the least in comparison

to major PSUs. HPCL Market share in MS+HSD

Retail, on total Industry basis (including private

players) is 21.8% as on 31.3.2006


HPCL Auto Fuel was voted as India’s most preferred auto fuel in the auto Fuelcategory at the Awaaz Consumer Award, 2006. Awaaz is the member of the Worldwide CNBC Network. Shri M B Lal, C&MD, receiving award from Shri L. Mansingh,Secretary, Consumer Affairs, Government of India. Also seen in the picture areShri S. Roy Choudhury, Director Marketing & Shri S P Chaudhry, ED-Retail.

5 7


Opportunities and Future Challenges

The key challenges that we foresee are pressure on margins for the retail business - rising crude price beinga major factor impacting our profitability. Rapid network buildup by the industry and consequent drop in thruputper outlet is a concern that we face and we are gearing up to emerge ahead of competition – by building on ourstrengths and launching attractive customer centric initiatives.

We see opportunities in the area of branded fuels and expect a significant increase in our branded fuelsbusiness in the coming years.

We also see opportunity in alternate fuels – especially CNG and Auto LPG. We are committed to expand inthis field with more and more vehicles adopting gaseous fuel options.

HPCL sees great opportunity in the non fuels business. Our understanding of customers through on-goingmarket research, new formats, tying up with best in class operators gives us confidence that there are significantgains expected from non fuels business. This will remain one of our key thrust area.

We have plans to diversify into some overseas markets and are exploring retail opportunities through the routeof a Joint Venture.

Growing purchasing power in rural India and current absence of competition presents an opportunity for oilretailers and HPCL plans to capture this opportunity and be a market leader in this segment.

In summary, the key to success is a differentiated service at the forecourt and the winner will be the one whoultimately delivers the promises of his Brand. In order to succeed, it is, therefore, essential that we anticipatethe future, initiate revolutionary innovations and change the historical pattern of management by aligningstrategy, structure, people, culture, processes and ultimately working in teams to meet the contemporarybusiness imperatives. Retail SBU in HPCL understands the challenges ahead and the entire Retail teamstands committed to achieve the co-created vision, which is in full alignment with Corporate Vision.


Another HPCL outlet recently commissioned at Pune - Mumbai segment of Express way

5 8


LPG SBU

The LPG Business line accounts for approximately 11% of the total volume base of HPCL. LPG Marketing has

undergone tremendous change in the last few years with our country getting distinction of having the largest

number of domestic consumers being served through bottles. During the year 2005-06, LPG SBU has marketed

2.51 Million Metric Tonnes achieving an all time record Non Domestic packed sales of 93 TMT notching a

growth of 98% in this sector. 44 new LPG distributorships were commissioned during the year taking the total

distributorships to 2188. Eleven Lakh new connections were given during the year taking the customer base to

nearly 2.3 Crores.

Due to spiralling costs and critical availability of LPG, the focus area of LPG SBU for the year was genuine refill

supplies to genuine customer and Conservation of LPG. LPG SBU took many steps of surveillance to arrest

diversion and steps towards conservation of LPG.

Marketing initiatives:

HPCL was the first Company to brand LPG

Marketing under the platform of “Ji Haan” focusing

on instant service to LPG customers and further

consolidated with introduction of single number

help line and offered the customer, the choice of

verifying the correct weight of the cylinder at the

doorstep which was not only followed by the

Industry but also very well appreciated by the

public at large. This year again HPCL became

the first Oil Company to introduce co-branded

“Green Label series LPG Stoves” having high

thermal efficiency resulting in saving of precious

LPG for the country.

Thrust Area:

Major thrust area this year was to reduce the losses due to subsidy on Domestic LPG. HPCL has taken steps

to bridge this gap by focusing on Genuine Refill supplies to genuine customers with strict controls & surveillance

and put all out efforts in Non-Domestic Sales to strengthen our hold in the Industrial & commercial sector

besides generating revenue in this sector. Number of steps were taken such as reducing costs through

independent product sourcing, inventory optimization, aggressive credit and discount policy etc. LPG SBU

also successfully converted 100 industries from alternative fuels to LPG, generating additional ND volume of

1000 MTs per month.

The ‘HP Gas Rasoi Ghar’ concept was further extended at Hospitals and forest areas. Today, we have Rasoi

Ghars covering all major hospitals in Metro cities. Our commitment to provide a clean eco-friendly fuel to our

rural population was appreciated not only by the users but received laurels at international level. Today, there

are over 1500 Rasoi Ghars operating across the country benefiting over 20,000 families.


HPCL officials demonstrating weighment of filled LPG cylinders . Seen in thephotograph are Shri M.S. Srinivasan, Secretary, Petroleum & Natural Gas, ShriAnil Razdan, Additional Secretary, Petroleum & Natural Gas, Shri M.B. Lal,C&MD at the recent Strategy Meet.

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LPG SBU Vision

• HP Gas is the market leader in growth and profitability in the industry.

• HP Gas is the world class and most preferred brand by the customers for the quality,appearance, innovations, services and offering total energy solutions for all gaseousfuel applications.

• HP Gas is global in entire gamut of LPG Marketing and trading with massive presencein rural sector.

• HP Gas is a caring organization with a strong bond with its customers, dealers and allother stakeholders.

• HP Gas is a team of highly motivated, competent and disciplined employees andconducts its business in ethical and transparent manner.

• HP Gas is totally committed to safety, health and environment.

Safety, Conservation & Environment:

Safety has always been accorded the highest priority in HPCL and to reaffirm the same the current year wasobserved as ‘Customer Safety Awareness year’ all over India. To convert HP GAS consumers as “SurakshaUsers” for enhanced safety, Suraksha Rubber hoses were promoted thru campaigns with awareness programslike street plays, banners, posters, leaflets etc., involving NGOs, Self Help Groups & Tribal Groups. During theyear converted 14% of HP Gas consumers as Suraksha hose users. Apart from these campaigns, 19027Safety Clinics were conducted for Conservation & Safety education in schools, colleges, housing societies,women welfare centers across the country.

Recognizing the need to promote environment friendly alternative fuel, HPCL has been the front-runner in thefield of Auto LPG. HPCL, which was the first company to introduce Auto LPG in India, commissioned 8 moreALDs during the year taking the total numbers to 39, which has resulted in sales of more than 18000 MTs.

HPCL also commissioned its first independent CNG Station at Ahmedabad. With 1 mother station & 9 daughterstations, achieved volume of 1235 MT during the year, besides significantly contributing towards reducingenvironmental pollution.

Our Mangalore LPG Import Facility achieved the globally acclaimed OSHAS 18001:2004 & ISRS Level-8certificate demonstrating the excellent, safety, health environment & quality systems under practice. MLIF isthe first and the only terminal in the entire Oil Industry to achieve this feat.

To conform to environmental standards, all our LPG locations are working towards ISO 14001 certification forEnvironment Management System (EMS). At the close of year, a total of 31 Bottling Plants have either beenaccredited or recommended under ISO 14001.

Facility Up-gradation and System Improvements:

HPCL’s strength had always been its infrastructure and to further consolidate the same commissioned bottlingplant at Mumbai, with a total capacity of 88 TMTPA. This plant would help HPCL in significantly reducinglogistics cost of feeding Mumbai market. To meet increased demand, capacity augmentation of Unnao, Madurai& Khapri LPG Plants were completed during the year. This will boost our total bottling capacity of LPG plantsby 164 TMT to 2154 TMT. Currently, more than 50% of plants are having electronic carousels while Industryhas just started this activity.


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ERP & IT Initiatives:

During the year, ERP implementation completed for all the Regional Offices, Plants & locations.

Distributor computerization programme completed across the country. This would enable us to provide efficientservice to consumers and also help us to roll out IT enabled value added services such as single number refillbooking service, SMS based refill booking, internet services, net based transactions with Corporation andbuild up centralized consumer database.

Learning & Growth:

LPG SBU also marked this year as Learning and Growth Year and completed Functional Intensive Training forall officers in Sales and Operation streams including Regional Managers & Plants Managers, reinforcingfunctional fundamentals for clarity and uniformity in understanding of SBU policies and Governing principlesfacilitating consistent approach in LPG Marketing across the country.

Training programme “Project Pragati” launched for Distributors as an extension to earlier programme “MillenniumDistributorship” to sensitize them for genuine use of LPG and preparing them for competitive scenario of NDsegment.

Completed training of all Mechanics and show room staff of LPG distributorships across the country under“Project Jee Haan Seva” a Training Module launched for training on behavioural aspects along with functionaltraining.

As a Corporate Social Citizen:

Jammu LPG RO organized “Relief Material distribution” to earthquake victims thru Army in the valley, atSrinagar.

Artificial limbs to physically challenged persons were distributed at MLIF as part of SC / ST special componentplan. Similarly, 834 sets of uniforms, 35 Desks and benches were distributed to 417 students of HigherSecondary School, Khapri Railway and Jamtha village, Nagpur.

The period ahead:

Keeping in mind the opportunities available to HPCL, LPG SBU has chalked out elaborate future plans for theLPG business. Revenue generation thru non fuel business will be the major focus area.

LPG SBU has also plans to enter overseas markets in various fields of gaseous fuels such as CNG and AutoLPG besides targeting polluted cities within the country for setting up city gas distribution and CNG facilities.

DIRECT SALES SBULUBES BUSINESS - LINE

India is the 6th largest lubricant market in the world with an annual sales of over Rs.6500 crores. The presentmarket size is approximately 1.25 MMTPA.

Of the above market, the automotive segment comprises of about 0.75 MMTPA and the industrial/direct segmentcontributes to the tune of 0.50 MMTPA. The core/large sector industries account for around 50% of the


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industrial/direct market, and the balance is distributed across diverse sectors such as sugar, marine, fisheries,fertilizers, etc.

In line with the attractive growth potential in automotive and industrial sectors in the country, the Corporationhas demarcated its Lubes Division as a Strategic Business Unit.

During the year, HPCL has marketed 354 TMT of lubricant products including base oils during the year.

CATEGORY TMT

AUTOMOTIVE GRADES 71

SALE TO INDUSTRIAL / DIRECT CONSUMERS 80

BASE OILS 203

TOTAL 354

Lubes Business Line Vision

• HP DS(Lubes) Is market leader in growth and profitability.

• HP DS (Lubes) is most preferred supplier of quality products at right price and time.

• HP DS is a learning organization with committed, competent and professional team.

• HP DS (Lubes) is delighting the customers by value added services.

• HP DS (I&G) is the market leader in growth with focus on profitability.

• HP DS (Lubes) is a professional and empowered team for quick response to customers.

• HP DS ensures consumer loyalty through differentiated services.

Important Awards & Recognition:

• Golden Peacock Award for Innovation for 2004-05 (In-house manufacturing of VI Improver)

• HPCL Lube Blending Plants ranked “FIRST” for OISD award for 2004-05

• Greentech Award for the year 2004-05 for Safety & Environment to Mazagaon

OTHER INITIATIVES:New Products Launched:• HP No 1 – Euro III Compliant engine oil meeting API CH 4 & Volvo VDS 3 Specifications for high end

commercial vehicles.

• HP AP-3 Grease – Superior Grade Grease with longer life, outstanding protection from rust and superiorwashout resistance.

• HP Grape Spray Oil – Effective environment friendly pest control oil for grape farmers.

• Supertran OIB – Combined transmission and hydraulic oil for new generation tractors.

Brand Building:

HPCL continued to promote its major brands through innovative above and below the line promotional activities.Cricketer Zaheer Khan endorsed HP Racer 4, the company’s four stroke bike engine oil. Zaheer’s endorsementwas effectively leveraged to promote the brand in all major markets.


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Core Sectors:

HPCL improved its participation in core sectors (Army,Railways, Coal, Steel etc.) by 4% during the year. This willcontinue to be a major focus area for the Corporation.

Distribution Network:

HPCL focused on expanding the reach of its Distributor networkwhile at the same time improving sales at its countrywidenetwork of over 7000 retail outlets. The Corporation will continueto work for improving its supply chain so as to increase itsservice level to customers.

Genuine Oil Tie-Ups:

HPCL continues its Genuine Oil tie-ups with Tata Motors andKinetic Engineering. The Corporation is in the process of finalizing similar tie ups with other major OEMs.

The Lubes SBU’s plans for the year 2006-07 will include:

• Development of new products to meet changing customer needs.

• Development of high end automotive grades to cater to emerging vehicle technologies.

• Focusing on Core Sectors like Railways, Defence, Coal, Steel, State Transport Undertakings, Cement etc.

• Building and sustaining a strong brand identity through above and below the line promotional activities.

• Establishing a foothold in lucrative international markets.

• Genuine Oil Tie-ups with OEMs.

• Enhancing Sales Channel Networks.

• Modernising the supply chain to give improved service to customers.


Shri S. Roy Choudhury, Director (Marketing), showing ShriM.B. Lal, C&MD, the various brands of Lubes at the recentLubes SBU Meet

Section of Participants at the Lubes Meet Shri M.B. Lal, C&MD, Shri Arun Balakrishnan, Director (HR), Shri S .RoyChoudhury, Director (Marketing), and Shri B.R. Mandal , Chief VigilanceOfficer, examining intensely the new Lubes package.

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I & C BUSINESS LINEIndustrial and Consumer (I & C) business line primarily meets the requirement of wide range of direct consumersof Fuels, Special Products and Bitumen. This business line caters to the requirement of consumers in sectorslike power, fertilizer plants, Industrial units, cement, steel, coal, glass, road construction, transportation, paint,Solvent Extraction, tyre etc.

During the year 2005-06 we have recorded a sales volume of 4579 TMT. HPCL holds market share of about14.33%. The business is transacted through 18 Regional Offices spread all over the country, with the complementof competent and technically strong staff catering to the varied needs of our customers.

HPCL has a market share of (Major products) 20.6% in Naphtha, 19.95% in LDO, 19.6% in FO, 16% in Bitumenand 7.5% in HSD.

I&C business line has achieved Furnace oil sales of 1612 TMT which is the highest ever sales in one year. Thishas enabled us to ensure sustained Furnace oil evacuation from refineries. This was possible due to solicitationof new businesses as well as retaining the existing business. Refinery evacuation was ensured inspite of hugefluctuation of production.

HPCL has signed Memorandum of Understanding and Confidentiality Agreement with Fuel & Marine MarketingLLC (FAMM), subsidiary of Chevron, USA on November 11, 2005 towards enhancing HPCL’s bunkering prospectsin India through Techno Commercial support ofFAMM.

HPCL has the distinction of being the first to introduce380 cSt Furnace Oil bunkering in India.

Retained Naphtha business of RCF (550 TMTPA)against stiff Global Competition and also obtainedDFRC from DGFT towards supplies effected in theprevious financial year.

Fresh Agreement for supply of Propylene (34 TMTPA)was signed with M/s. Andhra Petrochemicals Ltd.on November 7, 2005.

Tank wagon loading facility for Black Oil wascommissioned at Haldia on June 10, 2005.

MOU was signed with G B Pant University ofAgriculture & Technology on January 20, 2006 forjoint programme of Jatropha cultivation and production of Biodiesel through transestrification.

The Central and State Governments have been laying special emphasis on road infrastructure development dueto which we continue to pay special focus on marketing of Bitumen and Bituminous products. We havestrengthened our relationship with Border Roads Organization by participating in their co-ordination meets atLeh and Shilong.

To enhance customer relationship, 6 seminars were conducted for Hexane and 8 for Bitumen.

During the year 1300 MT Lubes was exported to Kenya, Bangladesh and Nepal and also 2260 MT Furnace Oilto Nepal.

The Score Cards of Product Line Managers at Headquarters were finalized. Competency mapping for all fieldofficers was completed and Individual Development Plans were drawn out.


Signing of MOU with G.B. Pant University of Agriculture and Technology forJatropha Cultivation. Seen in the photograph are Shri S. Roy Choudhury,Director (Marketing), officials of Pant University and HPCL.

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AVIATIONHP Aviation is the fastest growing supplierin India which is only because of customercentric initiatives taken by HP Aviationresulting in a compounded annual growth of35% and the over all market share increasefrom 9.8% to 15.4%. During this period thecustomer base of international airlinesincreased from 3 to 30 and the market shareincreased from 3.8% to 22%.

It started in December 2002, when theManagement visualized that the Aviation sectorin India was poised for substantial growth anddecided that the Aviation Fuel business needed to be one of the thrustareas and formed a separate Aviation SBU.

A core team was formed in the SBU with emphasis on drawing up aroad map for the future. While the main intention was to boost salesand enhance market share, the key measures to be taken for achievingthis were identified as under:

• Create a unique identity for HP Aviation.• Augment and upgrade facilities.• Train manpower.• Improve Service and Safety Standards.• Improve Customer Focus.• To be a responsible corporate citizen.Various measures were taken to create a uniqueidentity for HP Aviation and it created differentiationin the market while providing the services to its airlinecustomers in India. To cater and to have better reachto airline customers, new locations were identifiedand facilities at Bangalore, Goa and Dehradun werecommissioned during 2005-06. Facilities at existinglocations have been upgraded to ensure that the sameare in line with stringent international standards withspecial emphasis on refueling equipments.

HP Aviation Vision

• HP Aviation is the market leader in profitability and growth through a wider networkamong the industry.

• HP Aviation has the second largest market share in both domestic and internationalbusiness in the country.

• HP Aviation has a highly motivated, inspired and dynamic team, which takes pride inbeing part of the SBU.

• HP Aviation inspires confidence in customers by providing the best quality in productand service.

• HP Aviation practices the highest standards of health, safety and environment in theindustry.


Shri S.P. Singh , Head Aviation SBU seen with group of children for whom afantasy flight was organised - courtesy : Jet Airways

Inauguration of Bangalore Aviation facility . Seen in the photograph areShri M.B. Lal, C&MD, Shri S. Roy Choudhury, Director (Mktg).

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Manpower training is being given special emphasis which includes in house courses conducted by experiencedpersonnel from within the Aviation SBU as well as those conducted by trainers from Chevron Global Aviation(CGA). HPCL officers are also sent to CGA facilities outside the country to acclimatize them with the prevalentinternational norms and practices.

Efforts were also made to bring a more intense customer focus in the business by running promotional campaignwith the airlines highlighting both the airlines as well as HP Aviation apart from supporting airlines in initiallaunch and anniversary celebrations. Also the e-ticketing have been launched thru retail outlets in major citiesfor Air Deccan and Spicejet airlines during the year. Only HP Aviation provides such value added services to itsairline customers in Industry.

Being a responsible corporate citizen, HP Aviation has been regularly associated with events with a cause likespecial flights for the underprivileged children, etc. As part of efforts made to ensure that its operations causeno harm to the environment, all the major locations follow prudent Safety, Health and Environment practicesculminating in their certification to international environment standards (ISO 14001) resulting in HP Aviationbeing the only Indian Aviation Fuel company to win the Golden Peacock award for Environment Management2004-05 & 2005-06.

OPERATIONS & DISTRIBUTION• NEW GRASS ROOT DEPOT AT RAMAGUNDAM, A.P.

A land area of approx.18 Acres was acquired at Kundanpalli Village, adjacent to Rajiv Rahadhari StateHighway and a new Depot with total Tankage of 7974 KL for MS, HSD and SKO together, with productreceipt through Railway Tank Wagons from Vijayawada Terminal has been completed in all respects at acost of Rs.11.47 Crores. The Depot will meet the requirement of Nizamabad, Adilabad & Karimnagar.

The facilities were constructed in the extremely difficult terrain involving extensive Rock cutting. Thesiding facilities were completed by re-routing 2 Nos. 132 KV HT Towers in the shortest possible time. TheDepot has been commissioned in September, 2005.

• ADDITIONAL TANKAGE AT HASSAN TERMINAL

2 x 10000 KL and 1 x 15000 KL Additional Product Tankage for premium grades completed at HassanTerminal in May’05.

• ASF

New Aviation Service Facilities at Bangalore and Goa have been commissioned with 880 KL and 400 KLTankage respectively.

• NEW OFFICE CUM LABORATORY BUILDING AT BUDGE BUDGE TERMINAL

New Office / Laboratory Building (Approx. 21000 Sft) with interiors completed in November, 2005 atBudge Budge Terminal - I and Building is occupied by Budge Budge Terminal.

• 40 KL CAPACITY NEW GENERATION TANK TRUCK

HPCL is first in Oil Industry to propose and obtain CCOE approval for a period of 6 months trial operationof Aluminium Alloyed tank truck of 40 KL capacity on Volvo FM 9 X 340, 6 X 4 Trailer Chassis foroperating between Vashi Terminal and Retail Outlet at Sajgaon on Mumbai Pune Express Highway. TheTruck is ready in all respects and ready for commissioning.

In addition several safety/security systems such as bottom loading arrangement with vapour recoverysystem, vehicle management system for monitoring vehicles in transit and anti lock braking system forprevention of skidding of the vehicle due to sudden braking are some of the features of this tank truck.


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• ADDITIONAL TANKAGE COMMISSIONED

A total of 44,254 KL (16 Nos.Tanks) additional tankage has been completed / commissioned at variouslocations during 2005-06.

• WIND / SOLAR HYBRID SYSTEM AT LONI TERMINAL

15 Kw Wind/Solar Hybrid Power Plant to support a connected Lighting load of 6 KW for a working periodof 6 to 8 hours per day is nearing completion at Loni terminal as a part of Renewable Energy Projects.Subsidy to the tune of 50 % has been obtained from MoNES (Ministry of Non Conventional EnergySources) through MEDA (Maharashtra Energy Development Agency).

• ENERGY SAVING PROJECTS

Energy Saving System consisting of VFDs (Variable Frequency Drives) and automation for TT loadingPumps has been installed and commissioned at 15 Locations out of 32 locations at a cost of Rs.160Lakhs. The estimated energy saving from these 15 locations would be Rs.90 Lakhs and the simple payback period is 1.8 years. Commissioning activities are in progress at balance locations.

• VEHICLE MANAGEMENT SYSTEM IN CO. OWNED T/Ts

Vehicle Management System completed and commissioned in 148 Company owned T/Ts at 60 Locationsall over India in phases.

ONGOING MAJOR PIPELINE PROJECTS

• MUNDRA DELHI PIPELINE PROJECT:

The project approved in July 2004 at a cost of Rs.1623.84 crores is under execution, with an objective tocommission the new infrastructure by May, 2007, which would be a back bone for supplies and distributionto Northern Part of India. The cross country pipeline will have a capacity of 5 MMTPA and originates fromWest coast location at Mundra (Gujarat) and passes through Rajasthan, Haryana and terminates atBahadurgarh to cater to market in North India. The Main pipeline is 18" / 16" dia size from MundraDespatch terminal to Bahadurgarh Receipt terminal with length of 1048 KM. Further 3 nos of 8" dia spurlines for dedicated supply for MS/HSD/SKO are proposed from Bahadurgarh to Tikkrikalan for a length ofapproximately 12 KM. At Bahadurgarh receipt terminal, Railway loading facility is planned to facilitatesupplies to other markets in UP / Himachal Pradesh / Uttaranchal / Madhya Pradesh (northern part)/Jammu & Kashmir by Rail Wagons.


A new generation tank truck feeding HPCL outlet.

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The main pipeline enroute also envisages supplies to Palanpur (Gujarat), Ajmer & Jaipur (Rajasthan) &Rewari (Haryana) through tap-off terminals with storage & distribution Facilities. In line with the guidelinesof MOP&NG the pipeline is also planned for common usage for other users for 25% of the pipelinecapacity.

• PUNE SOLAPUR PIPELINE PROJECTThe project approved in January 2004 at a cost of Rs.335.17 crores is expected to be mechanicallycompleted by September, 2006. On completion of the project, Industry requirements in the districts ofKolhapur, Solapur, Sangli and Gulbarga will be catered.The project envisages derating of Trombay - Vashi Section of Mumbai Pune Pipeline involving changes inconfiguration of Trombay Mainline Pumps and providing a new pumping station at Vashi Tap Off. Extensionpart involves laying 343 Kms. long multi product cross country pipeline from Loni to Pakni via Hazarwadiand setting up a pumping station at Loni, Tap Off Facility at Hazarwadi, Receipt Station at Pakni nearSolapur and additional product storage tanks at Hazarwadi and Pakni.

RESEARCH & DEVELOPMENT (R&D)••••• COLLABORATIVE R&D PROJECTS

MOU have been finalized with Research collaborators for the following projects:a. Energy efficient Deasphalting process using supercritical solvent recovery (With IIP, EIL &

CHT)In the energy efficient super-critical approach the solvent recovery in the unit is done under supercriticalprocess conditions, resulting in an overall energy savings of about 20 to 40 percent (mainly inutilities) and lower solvent losses. After incorporating the required hardware modification in theMumbai Refinery PDA unit, the benefit expected is approx. Rs.2 crores / annum.A test run under supercritical condition is planned during 2006-07.

b. Optimization studies of Hexane manufacturing unit and feasibility study for producingpolymer-grade Hexane (With IIP)Study was initiated along with IIP during 2004-05 for optimizing the existing Mumbai Refinery Hexaneplant operating conditions to explore the possibility to produce WHO and Polymer grade Hexane,which have more stringent quality specification with reference to sulphur and benzene content.

c. Optimization studies of NMP Lube Extraction Unit (With IIP)Study was initiated along with IIP during 2004-05 to optimize Mumbai Refinery NMP Lube ExtractionUnit operating parameters to obtain specific product quality & thruput maximization. Improvementin colour, sulphur and saturates is also expected by increasing severity of hydrofining and thruusage of suitable catalyst. A substantial energy saving is also expected by pinch analysis of heatexchangers in the unit.A controlled test run was conducted during 2005 with the participation of IIP-HPCL personnel. Thetest run samples are being analyzed by IIP for Physico Chemical Characterization.

d. Improvement of Propylene Purity (With IICT Hyderabad)Agreement entered with IICT Hyderabad to improve the purity of Propylene through membraneseparation.

e. Implementation of Advance Process Control technologyVisakh refinery has engaged M/s.Honeywell to Implement Advance Process Control Technology inall process units.

f. Collaborative Research Projects with IIT-Kanpur/ Chevron / ARTMOU has been signed between HPCL, Chevron, IIT Kanpur and Advance Refining Technologies forvarious R&D activities.


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UPGRADATION INITIATIVES

MUMBAI REFINERY

• Refinery carried out short term revamp of existing FCC unit and improved thruput capacity from 0.65MMTPA to 0.90 MMTPA. This also enabled to enhance the production of value added products like LPGby 42 % and MS by 29 %.

• Refinery installed / Commissioned DHDS second reactor & commenced EURO-III grade HSD supply inline with Auto Fuel policy during the year.Refinery is now capable of supplying entire HSD of EURO-IIIgrade .

• Refinery altered CDU-II process parameters suitably to maximize ATF pool by blending MH ATF to PGATF. It has improved ATF production substantially. It resulted highest-ever ATF production of 571.4 TMTduring the year against previous best of 492.2 TMT during 2004-05.

• Refinery replaced PDU De-Waxing aid as cost reduction measures , which will result in annual saving ofapprox. Rs. 7 Lakhs.

VISAKH REFINERY

a) Used Gasoline Sulphur reduction additive in FCC catalyst and replaced 100 TMT of LS crude with mediumsulphur crude to meet BIS-II MS specification.

b) Developed synergy between Mumbai and Visakh Refineries and moved surplus secondary unit feedstock from VR to MR and vis-à-vis to maximize distillate yields.

c) Commissioned LPG Merox caustic regeneration facility to reduce chemical consumption to improveproduct quality.

Imported Technology (Imported during last 5 years):

Technology Imported Year of Import Whetherfully absorbed

Diesel Hydro De-sulfurisation Unit 2nd Reactor at MR 2004 Yes

Diesel Hydro De-sulfurisation Unit 2nd Reactor at VR 2005 Yes

JOINT VENTURES

Mangalore Refinery and Petrochemicals Ltd. (MRPL)

MRPL with a capacity of 3 MMTPA was commissioned in March 1996. The capacity of the refinery was

enhanced to 9 MMTPA during 1999-2000. ONGC acquired the entire equity stake of IRIL in MRPL on 03.03.2003


Shri T K KalyanaramanGeneral Manager

Shri A V SarmaGeneral Manager

Shri R K GuptaGeneral Manager

Shri Rajan K PillaiGeneral Manager

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and also infused Rs.600 crores into MRPL as additional equity on 30.03.2003. The FIs/Lenders of MRPLconverted Rs.365 crores of debt into equity and Rs.160 crores debt into ZCBs. Consequent to the above,HPCL’s equity stands at 16.95% after which a fresh Shareholder Agreement dated 03.03.2003 has beensigned by HPCL with ONGC to take care of the interests of HPCL. MRPL declared a dividend of 7% for thefinancial year 2005-06. HPCL and MRPL have been exchanging intermediate process streams between theirrefineries to supplement efforts to meet new environmental norms in respect of products like MS and HSD onmutually agreed terms

Hindustan Colas Ltd. (HINCOL)

The performance of HINCOL, a Joint Venture Company jointly promoted with M/s COLAS SA, France continuesto be encouraging. HINCOL currently operates sixmanufacturing plants across India, manufacturinginternational quality value-added bituminous productssuch as bitumen emulsions & cutbacks and modifiedbitumen.

During the year, HINCOL consolidated its growth furtherby achieving a 25% growth in volumes and a 34% growthin profitability. The products of HINCOL are used byagencies associated with road construction. The outlookfor road sector being bright, HINCOL is confident of gainingfrom the increased opportunities in the forthcoming years.The Joint Venture company maintained the dividend of15% during the year 2005-06.

South Asia LPG Co. Pvt. Ltd. (SALPG)

This Joint Venture Company with Total Gas and Power India (a wholly owned subsidiary of Total of France) wasincorporated on November 16, 1999, with HPCL’s equity participation of 50%. SALPG is constructing the firstunderground cavern storage facility in the country. The SALPG project envisages the construction of a 60,000MT LPG Underground Mined Cavern with its associated receiving & despatch facilities at Visakhapatnam. Thestorage will be the largest LPG storage facility in South Asia and would enable meeting the growing demandof LPG in India and also the export of LPG to the deficit markets in South Asia/South East Asia.

The financial outlay for the project is Rs.333.30 crores and it is being financed through Debt-Equity of 2.33:1.Debt is fully tied up with a consortium of seven banks lead by State Bank of India. The financial closure of theproject has already been achieved.

The SALPG cavern would be the second deepest mined cavern in the world. Geostock of France is theconsultant for the project and the facility is being constructed by Larsen and Toubro Ltd. Excavation of the topheading of the Main Cavern Gallery is in progress.

Petronet India Ltd. (PIL)

Petronet India Ltd. (PIL) was formed in May 1997 as a joint venture company with 50% equity by oil PSUs andbalance 50% being taken by private companies/financial institutions. Special Purpose Vehicles (SPVs) werefloated by PIL with oil companies for implementing individual pipeline projects, viz, Petronet MHB, PetronetCCK and Petronet VK which are operating companies.

Since oil companies are now having pipelines independently, PIL has initiated action to disinvest its equityholding in individual JVCs.


A view of the HINCOL Plant

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Petronet MHB Ltd. (PMHBL)

HPCL, alongwith Petronet India Ltd.(PIL) had promoted Petronet MHB Ltd for the construction and operationof Mangalore–Hassan-Banglore pipeline. ONGC has joined as a strategic partner in the Company by taking23% equity. The product pipeline from Manglore to Banglore, with a tap off point at Hassan, has been executedat a cost of 639 crores. The pipeline is meeting the transportation needs between Manglore, Hassan andBanglore. Due to lower thruput and pipeline tariff, the operational and financial viability of the project has beenaffected. Financial restructuring of PMHBL is in progress.

Prize Petroleum Co. Ltd.

HPCL, in partnership with ICICI and HDFC, had formed this Joint Venture E&P Company viz Prize PetroleumCompany Ltd for participating in exploration and production of hydrocarbons. Prize Petroleum in consortiumwith GSPC Ltd., Jubilant Enpro and Geo-global Resources Ltd has been awarded the Block CB-ONN-2002-/3in the Cambay Area under NELP-IV bidding process,

Prize Petroleum has been successful in getting award of an offshore field cluster consisting of three fields(Cluster-7) from ONGC under Service Contract. The Company has started a drilling programme for onshorefields of Hirapur and Khambel as well as Sanganpur Fields.

Also, the first well drilled on a prospect (P1) by the Company, is producing 320 barrels per day through arestricted 6 mm bean. The well was drilled by the Company by a non damaging drilling fluid which has beenused for the first time in Cambay Basin

Bhagyanagar Gas Ltd.

Bhagyanagar Gas Ltd. (BGL) has been incorporated on August 22, 2003 as a Joint Venture Company by GAILand HPCL for distribution and marketing of environmental friendly fuels (green fuels) viz. CNG and Auto LPG foruse in the transportation, domestic, commercial and industrial sectors, in the state of Andhra Pradesh. HPCLand GAIL would hold 22.5% of the equity while 5% would be held by the Government of Andhra Pradesh and50% by Strategic/Financial investors.

BGL has commissioned and operating 3 Auto LPG Outlets – 2 in Hyderabad and one in Tirupati. BGL alsocommissioned the first CNG mother station in August 2005 , followed up with commissioning of 2 daughterstations in existing HPCL retail oulets.

Discussions with APSRTC for supplying of CNG to their buses in Vijaywada are in progress.


Outlets set up recently by Bhagyanagar Gas Ltd

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Aavantika Gas Ltd.

HPCL signed a Joint Venture Agreement on November 16, 2005 with GAIL for the distribution and marketing ofCNG and Auto LPG, for use by consumers in automotive sectors and natural gas for use by consumers inresidential, commercial and industrial sectors. Towards implementation of this project in the State of MadhyaPradesh, a company by name “Aavantika Gas Limited” has been incorporated on June 07, 2006.

INTERNAL CONTROL SYSTEMSHPCL believes that a strong internal control is necessary for good Corporate Governance and freedom ofmanagement should be exercised within a framework of appropriate checks and balances. It has got addedimportance with the roll out of ERP system at almost all locations throughout the country. The Corporationremains committed to ensuring an effective internal control environment that provides assurance on the efficiencyof operations and security of assets. It has got adequate internal control system commensurate with its sizeand nature of business and has well laid down documented manuals, policies and guidelines covering variousaspects of business, processes and operations. It has an independent Internal Audit Department comprisingof financial, technical and IT professionals having varied experience in their respective functional areas.

The focus of internal audit is to review the adequacy of internal controls, compliance with Corporation’s policiesand guidelines highlighting areas which would result in optimum utilization of assets and financial resources,increase in profitability and operational excellence. The Internal Audit activity encompasses carrying out testcheck of all major locations, Refineries, controlling offices and major operating functions on annual basis.

The Annual Audit Programme is reviewed and approved by Chairman and Managing Director and the AuditCommittee of the Board. The significant audit findings are reviewed by the top Management and Audit Committeeand directions where necessary, are given for follow up action in line with the audit findings.

BUSINESS DEVELOPMENT INITIATIVESOVERSEAS INITIATIVESInitiatives being taken by HPCL to acquire/put up assets overseas :

• MOU with Petrosen (Senegal):

HPCL has initiated dialogue with Petrosen for acquisition of part stake in the refinery and for setting up ofmarketing network in Senegal. An MoU has been signed on 30th Dec. 2005 for the following broad areasof co-operation :

i) Petrosen will use reasonable endeavours through dialogue with its co-promoters for HPCL’s equityparticipation in the SAR refinery and HPCL will evaluate the proposal and work towards an agreementon mutually acceptable terms and conditions

ii) Jointly develop an action plan for undertaking project for expansion of existing refinery, if necessary

iii) HPCL and Petrosen would jointly work towards promoting network for distribution and marketing ofpetroleum products in Senegal

iv) Joint Venture Company should optimise value to be leveraged from capability and resources of theparties

Discussions are in progress to finalize the draft joint venture agreement with M/s. Petrosen.

• MOU with SINOPEC, China :

HPCL & SINOPEC have signed an MoU on 13th March 2006 for cooperation in upstream, R&D crudesourcing, product trading and consultancy. Discussions are in progress to carry forward the businessactivity in the areas identified in the MOU.


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• VR Expansion Project and Aromatics Project:HPCL and Total had entered into a Memorandum of Understanding on 16th August 2005, for the study andevaluation of certain refining and marketing projects in India and other areas of Asia as well as evaluationof opportunities for HPCL’s participation in Total’s Refining and Marketing assets overseas.

Negotiations are in progress with M/s. TOTAL for jointly promoting HPCL’s Visakh Refinery ExpansionProject from current capacity to 15 MMPTA along with Aromatics Project.

Feasibility study of Refinery expansion project as well as Aromatics Project is in progress.

• HPCL MoU with M/s GAIL (India) Ltd. :i) MOU signed for jointly promoting CNG & City Gas. Distribution in States of Madhya Pradesh,

Rajasthan and Gujarat.

ii) JVA signed for State of Madhya Pradesh to start with, for CNG & Gas distribution at Indore. The JVCompany with the name, Aavantika Gas has already been incorporated for pursuing this business.

iii) Board approval is being sought for signing a JVA for distribution of City Gas & CNG gasdistribution in Rajasthan.

iv) MOU signed with GAIL for joint participation in E&P opportunities in India and overseas.

• HPCL PARTICIPATION IN M/s SHELL LNG TERMINAL AT HAZIRA :HPCL entered into a Memorandum of Understanding on 8th March, 2004 with M/s. Shell India Pvt. Ltd., forproducts infrastructure and facility sharing between both the Companies. The scope of MOU also envisagedthat M/s. Shell, its affiliate Companies and HPCL would evaluate and work towards an agreement forHPCL to participate in LNG business in India.

HPCL has evinced interest for taking equity participation in Shell LNG Terminal at Hazira. The duediligence of Hazira Terminal has been completed and non-binding offer submitted. Negotiations are inprogress to finalize the deal.

• DFR STUDY FOR 5 MMTPA LNG IMPORT TERMINAL AT MUNDRA:A detailed feasibility study has been conducted for setting up of 5 MMTPA capacity ‘LNG’ import terminalat Mundra.

The scope also includes associated gas evacuation pipelines from Mundra to Delhi respectively. Discussionsare in progress to source LNG for this project.

• ACQUISITION OF M/s GREATER CALCUTTA GAS CO. LTD.:In order to enter into natural gas business in the East zone, HPCL has decided to acquire Gas supplyCompany located in Eastern Zone of India.

HPCL has engaged a consultant to conduct due diligence of this opportunity. The techno-economicevaluation of this opportunity is in progress.


Shri M.S. Srinivasan,Secretary, Petroleum &Natural Gas addressing theStrategy Meet of theCorporation held recently.

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INITIATIVES IN UPSTREAM E&P BUSINESS

• Award of onshore block in Assam:

HPCL in consortium with Oil India Ltd. and someother interested parties had participated in biddingprocess for few high potential blocks in onshore,shallow water & deep water categories underNELP-V. A MOU to this effect was signed withOil India Ltd., on 20th May, 2005.

OIL-HPCL consortium has been awarded one onshare block, AA-ONN-2003/3, in Assam. AProduction Sharing Contract has been signed withGovt. of India on 23rd September 2005 for thedevelopment of this block and the Joint OperatingAgreement was signed with OIL on 5th Nov. 2005. An application seeking the Petroleum ExplorationLicense has been submitted to the Govt. of Assam.

• Award of ONGC offshore marginal fields :

Oil and Natural Gas Corporation of India (ONGC) had offered award of service contract for developmentof nineteen (19) offshore fields in nine (9) clusters in Mumbai High area.

HPCL participated in the bidding in consortium with Prize Petroleum Company Ltd., and M/s Trenergyof Malaysia for two clusters (# 7 & 8). The consortium has been awarded one cluster # 7, in March2006.

• HPCL MoU with M/s Oilex, Australia:

HPCL / Prize and M/s Oilex of Australia entered into an MOU on 10th October 2005 at New Delhi, forinternational alliance in various E&P activities in India as well as abroad, with an objective of ascertainingblock prospectivity and defining appropriate work program bids.

M/s. Prize Petroleum participated in the bidding for two exploration blocks (WO5-3 and WO5-16) in theAustralian E&P round in consortium with OILEX NL, Australia, GSPC & GAIL INDIA LTD. However, thisconsortium was not awarded the blocks.

• Joint Bidding in Oman for E&P blocks:

HPCL in consortium with Oilex, Gail (India) Limited, Videocon Industries Limited and BPCL .had participatedin the bidding for block Nos. 56 & 58 at Oman.

The participating interests of the parties is as under :-

OILEX 25% VIL 25% GAIL 25% HPCL 12.5% BPCL 12.5%

The consortium has been awarded one block-56 during March 2006.

EPSA Agreement is expected to be signed with the Sultanate of Oman by end June 2006.

5. Bidding for blocks in Australia:

HPCL has participated in Australian bidding round two for blocks in Carnarvon basin in consortium withM/s. OILEX Australia, GSPC, Videcon Industries Ltd., and BPCL.


Shri M.B. Lal , C&MD, at the site of Hirapur onshore marginal field, KhedaDist., Gujarat. Also present at the site are Dr. M. N. Prasad, CEO - PrizePetroleum and Shri. O. P. Pradhan, GM - CP&S, HPCL.

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FINANCE

During the year 2005-06, there has been substantial rise in crude / product prices in international market. Theworking capital requirements of the Corporation have gone up on account of high crude oil prices due toinability of the oil marketing companies to pass on the increased product prices to consumers and subsidyburden on SKO and LPG. The Government of India has issued oil bonds to the oil marketing companies toshare the burden of subsidy on LPG and SKO. The average working capital borrowing requirement went up by68%. The funds requirements were also higher on account of the major projects like Green Fuel Projects ofMumbai and Visakh Refinery, as also the Mundra - Delhi and Pune - Solapur pipelines and retail modernisation.The working capital requirements have been met by short term borrowings. The Corporation has madearrangement of funds through medium and long term borrowings for capital expenditure. During the year, theCorporation has signed its maiden External Commercial Borrowing agreement for US$ 200 million.

The year 2005-06 saw global and local interest rates firming up sharply. As a result, the weighted average costof borrowings to meet working capital requirement during the year increased to 5.77%.

During 2005-06, Foreign Exchange Market has been volatile. However, the Corporation took suitable steps toensure that adverse impact is minimised by timely hedging / forward cover.

During 2005-06, Corporation offered fixed price contracts to customers by taking appropriate hedge ininternational commodity market. Steps are being taken to offer new hedging structures like options to customers.This has been profitable for both customer and the Corporation.

With progressive implementation of Enterprise Resource Planning and increased implementation of core bankingby major banks, it has now become possible to implement e-banking. To leverage ERP and Core BankingSystem in banking sector, a pilot was taken in the Mumbai Refinery and supplier payments through electronicmode were implemented.

ENTERPRISE RESOURCE PLANNING (ERP)

Enterprise Resource Planning (ERP) system has now been introduced across the Corporation to support corebusiness processes. This strategic initiative leverages the Information Technology for the benefit of businessand is a step in meeting the challenges being faced consequent to the liberalisation of the oil industry.

ERP system would effectively manage the information needs of the Corporation. The system would aid thedecision makers in taking timely business decisions based on on-line and accurate information that would beavailable from the system. Tracking of cost of operations would become easy with the implementation of thissystem. There would be an improvement in management control due to standardisation of various businessprocesses. More details on ERP is given under the segment Special Focus Areas.

HUMAN RESOURCE DEVELOPMENT

The Training Department has been endeavouring to play the role of strategic business partner, in this dynamiccontext, which is characterised by the following :-

� Achievement of HPCL vision

� PSU strategy/reforms

� Increasing customer requirements and expectations

� Intensifying domestic competition

� Volatile supply situation

� Emergence of new technologies


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This emerging environment calls for re-defining and enhancing of employees’ competencies. The strategy ofthe Training Department, in this context, can be briefly articulated as under :-

� Enhancing competencies to realise vision

� Developing current and future capabilities

� Create avenues for fast and continual learning

� Facilitate adapting to change

� Providing support to business initiatives

The process followed by the Training Department hasbeen largely through a series of competency basedtraining initiatives. Throughout the financial year,Training Department has been interacting with variousSBUs to ascertain the training needs and designingthe programs to address these needs. The trainingprograms designed, developed and delivered during theyear are :-

� “Building High Performance Teams” - Programbased on Leadership Competency Framework forofficers in Salary Grades D/E/G throughInternational GE.

� “Management Development Program” for officers in Retail SBU through IIM-A.

� “Excellence in Lube Blending Plant Operations” for officers in Lube

� “Meeting Challenges in Marine Sales”

� “International Trade and Finance”

� “Refresher program on LPG Sales/Operations/Maintenance.

� Refinery Technical Programs ( Excellence inRefinery Operations / Refinery Economics /Storage Tanks etc.)

� “Program on Marketing Quality Control” for QualityControl Cell Officers.

� “Media Training” for senior management

� IT related training programs (Hummingbird and ITIL).

� “Program on Project Management

� “Programs on Safety , Health and Environment”

We have designed all the above programs customisedto our organisation and have also engaged the servicesof reputed institutions like IIM-Ahmedabad, International GE, Achieve Global, Indian School of Petroleum etc.

Officers have also been sent for various external and foreign training programs like Advanced ManagementProgram, Accelerated Management Program etc to reputed institutions. Officers were also nominated forEMBA program conducted by S.P. Jain Institute of Management & Research (SPJIMR). We have nominated10 officers in the Batch-3 of this EMBA program. Officers were also nominated for online certification programin ‘Project Management’ offered by Universitas 21.


Shri Arun Balakrishnan, Director (HR) being conferred Fellowship by AllIndia Institute of Management Association in recognition of his contributionin the field of Management.

Hon’ble Chief Minister, New Delhi, Smt. Sheela Dixit presenting to ShriM.B. Lal, C&MD, HPCL, the Golden Peacock Award 2005 of the Instituteof Directors for Corporate Social Responsibility.

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With a view to enhance the quality of service and interaction with our various stakeholders, a program on

‘Customer Delight’ was designed and rolled out across all the locations for non-management staff and DGR

sponsored / contract security guards.

To facilitate continual learning Training Department has also introduced the following innovations :-

� The Training Portal was upgraded to make the same more user-friendly, interactive and personalized. It

has strong features for Knowledge Management, has real time integration with the ERP system and

facilitate blended learning.

� Gave impetus to development of internal faculty. This was facilitated by conduct of “Train the Trainer”

program for internal faculty and increasing the utilisation of internal faculty for programs.

� Customized business portal ‘Knowledge on Demand’ was launched in collaboration with Centre for

Monitoring Indian Economy.

� Six e-learning courses in management topics were introduced through ManageMentor site.

� Facilities in HP-MDI, Nigdi were upgraded and new facilities added to create a more conducive learning

environment.

The average number of training man-days per officer was 6.4 mandays for the current year.

INDUSTRIAL RELATIONS

The Industrial Relations climate for the financial year April 2005 to March 2006, continued to be generally

harmonious in all units of Marketing Division, Mumbai Refinery and Visakh Refinery and there was no loss of

production. Due to our endeavour and the positive approach of the 15 different unions operating in the Marketing

Division and Refineries, the overall Industrial Relations scenario witnessed active cooperation from the employees

and strengthened industrial peace which in-turn enhanced the productivity. “ERP / Automation / Modernisation

Implementation” settlement has been signed with All-India Marketing Unions in January 2006 with various

productivity improvements including adjustment of surplus manpower thru redeployments/transfers, introduction

of access control systems, stricter controls on unauthorised absentees etc.


All India Employees Sports Meet

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During the financial year 2005-2006, 5 settlements have been signed with Marketing Unions for improvement of

productivity at 5 different LPG Plants. The broad features of these settlements are upgradation of technology,

additional production, outsourcing of non-core activities etc.

Proactive-IR

(a) Learning Organisation Workshops

In order to build teams and imbibe the spirit of team work etc, IR organised “Learning Organisation”

workshops for workmen during the year 2005-2006. The concept of the workshop is based on Peter M

Senge’s book “Fifth Discipline”. A total of 29 such workshops have been conducted during the

year 2005-2006 against MOU target of 24 by Team of Internal Coaches.

(b) Employee Engagement Survey for workmen :

For the first time in the Corporation, the subject survey was proposed to be undertaken. On a pilot

basis, the subject survey was carried out at 29 locations under South Zone, during the period Jan-Mar

2006. Before conducting the actual survey, the line management and union leaders were briefed on

the purpose of the survey and future plans. The analysis of the questionnaires is being done. The

subject survey is proposed for other Zones in the current year i.e. 2006-2007.

(c) Others

With a view to enhance the customer focus amongst the workmen, a unique program “Project

Customer Delight” was designed covering all non-management employees. Through this program,

around 2000 non-management employees have been covered (Security, Clerical, Stenography, Canteen

etc).

With a view to proactively deal with the HR related issues, concept titled “HR Aapka Dwar” was

introduced at Mumbai Refinery during the year.

A total of 217 workmen have been redeployed during the year 2005-2006 and most of the manpower

requirements have been met through re-deployments.

As a part of our continued endeavour to delight our internal customers, a policy was developed for

extending the financial assistance to the retired employees who are involved in CBI/quasi-criminal

cases (both accused as well as witnesses). The same was implemented in the year 2005-2006.

MANPOWER DATA

The manpower statistics of our Corporation for the past 5 years is as under :

Year-wise No. of Management No. of Non-

Manpower as on Employees Management Employees Total Strength

31.03.2002 3571 7786 11357

31.03.2003 3583 7630 11213

31.03.2004 3594 7494 11088

31.03.2005 3562 6999 10561

31.03.2006 3849 6929 10778


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RECRUITMENT OF LAST 5 YEARS

Year-wise Recruitment Recruitment of Recruitment of Total Recruitment

Officers Non-Management

2001-2002 38 41 79

2002-2003 27 11 38

2003-2004 63 1 64

2004-2005 80 6 86

2005-2006 378 38 416

BREAK-UP OF EMPLOYEES (As of 31.3.2006)

Total Strength 10778

SC/ST 2984

Persons with Disabilities 126

Ex-Servicemen 595

Women Employees 681

Sportsmen 2

Shri M.B. Lal, C&MD lighting the lamp on the occasion of launch ofCSR initiatives by HPCL. Also seen in the photograph are Shri ArunBalakrishnan, Director (HR), Shri C. Ramulu, Director (F), and ShriM.A. Tankiwala, Director (Refineries).


Former Union Minister of Petroleum and Natural Gas & Panchayat RajShri Mani Shankar Aiyar distributing relief materials to the Tsunami affectedpeople in Tamilnadu.

Special Component Plan / Tribal Sub Plan &Welfare Plan for Weaker Sections :

During the year 2005 - 2006, our Corporation has

carried out a number of Welfare/Developmental

activities at various locations inhabited by SC/ST/

Weaker Sections in the vicinity of operating business

locations and Refineries at Mumbai and Visakhapatnam

at a total cost of over Rs. 4.19 crores. The said activities

include Primary / Secondary / Graduation & Post-

Graduation education, health care, augmentation of

drinking water facilities, family welfare, vocationaltraining, income generating schemes, rehabilitation

of Persons With Disabilities (PWD), Scholarships to

students of SC/ST/Weaker Sections including students

with disabilities and provision of computers to the

Educational Institutes.

Corporate Social Responsibilities :

HPCL, as a Socially Responsible Corporate Citizen,

is undertaking CSR Activities in a focused and

systematic manner on the principle of Triple Bottom

Line. This envisages enlarging the scope of existing

activities and not limiting the benefits to the SC/STs

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alone, but to reach the other sections of the Society, who need support and also certain initiatives in the

environment protection. In order that these Projects receive continued focus, an HPCL Foundation has been

setup with a corpus of Rs. 7 crores to finance these projects. The Foundation would also monitor implementation

of these schemes. More details have been given under the segment Special Focus Areas.

OFFICIAL LANGUAGE IMPLEMENTATION

Progressive use of Hindi in the Corporation continues to receive due importance. Details are given under the

segment Special Focus Areas.

CORPORATE GOVERNANCE :

The Corporation has been taking required steps to comply with the various requirements of Corporate Governance

regulations including the requirements relating to compliance of Clause 49 of the listing guidelines , as notified

by SEBI. A separate segment on Corporate Governance has been included in the Annual Report.

The Future – Opportunities & Threats and our Initiatives to counter :

The downstream companies in the Oil and Gas Sector which are basically engaged in Refining crude and

marketing petroleum products has experienced a steep fall in profits in 2005-06. Unless there is a significant

fall either in the crude price or significant increase in the product prices , particularly the LPG and Kerosene,

the profitability would continue to be affected in the period to come. It has thus become necessary for the

Corporation to pursue vigorously its initiatives both in its current area of activities and in new areas, as explained

above with greater focus in the E&P and Gas segments. Our initial steps in the E&P segment on our own as

well as thru the JV Prize Petroleum are showing positive signs. The Corporation is looking for opportunities in

Oil and Gas fields both within the country as well as outside. MOUs have been signed with well known

companies in the field for undertaking joint initiatives. Even a moderate success could result in a positive

revenue flow to the Company.

Corporation receiving the Aashirwad Rajbhasha Puraskar. Hon’ble Dy.ChiefMinister, Maharashtra, Shri R.R. Patil handing over the award to HPCLTeam.

Shri M B Lal, C&MD receiving Indira Gandhi Rajbhasha Shield from ShriManikrao H Gavit, Hon’ble Minister of State, Home Affairs. Also seen inthe picture is Shri Shivraj Patil, Hon’ble Union Home Minister.


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In the Refining segment , both MR and VR have completed extensive turnaround involving maintenance,

upgradation of facilities . This has resulted in improved unit performance and yield improvement. The Green

Fuels Project at both the Refineries are expected to be completed by the year end which will enable them to

produce products meeting EURO III norms.

Both the Refineries are benchmarking their activities to Shell Global Solutions. Actions have already been

taken in the area of energy and loss management, maintenance performance, reliability improvement and

environment performance.

The Marketing segment continues to focus for achieving “Customer Delight” in each of its SBUs. The retail

segment aims to enhance sales volume thru greater focus in the rural and highway segment apart from

consolidating its urban market share. The Lube and Industrial Oil segment would continue to provide thrust on

value added products. The need for specialized products of large customers like Railway, Defence and other

major Industries meeting stringent quality norms would be met with, to the satisfaction of such important

customers. The aim would be to gain their full confidence and trust and thereby make HPCL as their “preferred

supplier” for their special product requirement. The Aviation SBU which has recorded significant performance

for the last 2 years would continue to strive for further market share in the Aviation segment. The LPG SBU

which is facing continued pressure on Margins due to non revision of price in line with the import cost would

focus to look for business opportunities in alternate LPG applications with greater thrust towards increasing

non domestic sales.

The various HR initiatives that are in progress for the last 2 years, would further enhance the employee

capabilities / competency in discharging their responsibilities to face the challenges and lead the company

towards sustained growth and profitability in future.

CAUTIONARY STATEMENT

Matters covered in the Management Discussion and Analysis describing the Company’s objectives, projections,

estimates, expectations may be “forward looking statements” within the meaning of applicable securities,

laws and regulations. The actual performance could vary from those projected or implied. Important or unforeseen

factors that could make a difference to the Company’s operations include economic conditions affecting

demand / supply and price conditions in the domestic market in which the Company predominantly operates,

changes in regulations, and other incidental factors.

The road ahead is challenging. The Corporation could continue to face pressures on margins. The scenario

calls for action plans not only to sustain in current position but also to look for avenues to sustain the growth

and development. The various initiatives that have been highlighted would provide the platform to the Corporation

to chart its activities aligned to its Corporation Vision. The Corporation with its strong fundamentals and growth

plans is confident of meeting the challenges ahead and live up to the expectations of all segments of its

Stakeholders.


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HPCL’S CONSTANT ENDEAVOUR

• Aim for sustained Growth and Productivity to reward consistently our shareholders and stakeholders

• Ensure highest standards of Safety in all our operations

• Function in harmony with Environment and the Society

• Be known for highest standards of Ethics and Transparency in operations

• Earn the trust of all sections with whom the company operates for an enduring relationship aimed atmutual benefit

• Produce Quality products and services to meet the stated and latent needs of customers

• Set up infrastructure with “state of the art” facilities

• Ensure highest standards of maintenance to ensure reliability of plants / units and enhance MTBF (MeanTime Between Failures)

• Be a learning organization with constant measures to upgrade skills and competencies to respond to theever changing market scenario

• Creating an environment of Trust, Pride and Camaraderie within the organisation

• To be seen as a ‘Company that Cares’

Special Focus AreasSpecial Focus AreasSpecial Focus AreasSpecial Focus AreasSpecial Focus Areas

Setting goals,Setting goals,Setting goals,Setting goals,Setting goals,

Raising the barRaising the barRaising the barRaising the barRaising the bar,,,,,

Looking beyond the obvious,Looking beyond the obvious,Looking beyond the obvious,Looking beyond the obvious,Looking beyond the obvious,

Courting the impossible,Courting the impossible,Courting the impossible,Courting the impossible,Courting the impossible,

Dreams that chartDreams that chartDreams that chartDreams that chartDreams that chart

The course of our future,The course of our future,The course of our future,The course of our future,The course of our future,

That’That’That’That’That’s the HP ws the HP ws the HP ws the HP ws the HP wayayayayay

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CORPORATE SOCIAL RESPONSIBILITYHPCL, as a Socially Responsible Corporate Citizen, has undertaken CSR Activities in a more focused andsystematic manner on the principle of Triple Bottom Line. This envisages enlarging the scope of existingactivities and not limiting the benefits to the SC/STs alone, but to reach the other sections of the Society, whoneed support and also certain initiatives in the environment protection.

In order that these Projects received continued focus, an HPCL Foundation has been setup with a corpus ofRs. 7 crores to finance these projects. The Foundation would also monitor implementation of these schemes.For implementation of the CSR projects, MoUs between Operating Partners (reputed NGOs) and ProjectPartners were signed in the month of January/February 2006 in Delhi & Mumbai. The following nine projectshave been launched :

1) SURAKSHA : This project is partnered with Hindustan Latex Limited, focussed on prevention of AIDSacross truckers, who are considered to be high risk population. Highway Retail Outlets across 13 Statesare being identified where Condom Vending Machines (CVM) will be installed. M/s. Hindustan Latex Ltd.has already supplied 45 CVMs. Organisation for Socio-Economic & Rural Development (OSERD), Patna,for East Zone, “Kanan” Delhi for North Zone, “Association For Rural Mass India (ARM)”, VillupuramDistrict, Tamil Nadu for South Zone and “Sevadham Trust”, Pune for West Zone have been identified forcarrying out the activities to train the forecourt operators as “peer educator” and various other campaigns.

2) SWAVALAMBAN : This project is partnered with Confederation of Indian Industry (CII), New Delhi, aimedat 1100 unemployed youth to be self-reliant through vocational training.

Initially, the programme will cover 250 persons in Bhiwadi (near Delhi), Dehradun and Rae Bareilly, wherethe centres are finalised.

3) NAYA NETRITWA : This project is partnered with Organisation Dynamics (OD), New Delhi. Out of a totalof 400 students of 4 schools from Mumbai / Delhi to be covered on Leadership Lectures, 350 studentsare already covered. The participants have voluntarily agreed to help poor children of rural India by donatingused books and interacting with them.

4) UNNATI : This project is partnered with NIIT Limited to provide computer training to 3000 students ofClass VII - IX, so that they are better equipped to move to higher classes. This project is being implementedat Visakh and Mumbai schools.

5 schools from Visakh covering 1500 students have been provided computer training. 4 schools at Mumbaihave been identified for providing computer training.

5) NANHI KALI : This project is partnered with K. C. Mahindra Education Trust (KCMET), Mumbai. Thisproject is focussed towards education of 500 girl children in Andhra Pradesh through sponsorship. Allsuch children will be provided notebooks, stationery, uniforms and other learning materials.

6) MUSKAN : This project is partnered with PRAYAS Juvenile Centre (JAC) Society, New Delhi. 100 streetchildren are targeted for bringing back their lost childhood through basic support such as food, clothes,shelter, healthcare, vocational training etc. 68 such children have been identified, who are placed inshelter homes of Tughalakabad and Jahangirpuri.


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7) VIKAS (Bihar Development Initiative) : This project is partnered with Confederation of Indian Industry(CII), New Delhi, focussed on improvement of learning /literacy levels of 5000 children from poor familiesof rural Bihar through innovative teaching methods like crafts, films, team activities etc.

4000 children have been identified for remedial classes which are launched with the help of village youth.Orders for books are placed to set 30 libraries.

8) LEADERSHIP LECTURE : This is a project partnered with Organisation Dynamics (OD), New Delhi.About 12000 young students across 25 cities are planned to be covered to influence the minds of schoolchildren towards national issues and ignite their leadership qualities. The lecture series will commenceat 12 cities.

9) NAVJYOT : This project is partnered with Navjyoti Delhi Police Foundation, New Delhi. Through thisproject, healthcare facilities are being provided to slum rehabilitated families around Delhi.

4 health camps are organised and approximately 1400 children have been identified for monitoring theirperiodical health checkups. 261 families are registered at health centres.

Out of a total of 698 New Retail Outlet and LPG distributorships commissioned during the year, 169 wereallotted to SC/ST category and 18 were allotted to Persons with Disabilities (PWD) category.

Special Focus Areas

Glimpses of CSR initiatives

8 4


SAFETY, HEALTH & ENVIRONMENT CAREThe Corporation is committed to conducting business with a strong focus on preserving the environment,sustainable development, safe workplaces and enrichment of the quality of life of employees, customers andthe community. Systems, procedures and practices are in place at all operating units and installations to takecare of safety, occupational health and protection of the environment. Existing facilities are periodically auditedand upgraded to maintain excellence. Environment management systems at the refineries and major marketinginstallations are certified to ISO-14001 standards.

The Visakh and Mumbai Refinery’s Quality Control Laboratories have approval from “The Director, DirectorateGeneral of Civil Aviation (DGCA)”, for Testing, Storage & Supply of Aviation Turbine Fuel (ATF).

The Corporation continues to strive for improvement in Safety, Health & Environmental performance by not onlymeeting industry standards, but also by going beyond the expectations of these standards and other regulatorybodies.

The Corporation’s efforts on continual improvement in the field of Safety, Health & Environment are not onlyrecognized at local level but also on National level as seen from the number of awards that have beenpresented to the Corporation. These efforts have gone a long way in building a strong safety culture in theCorporation.

The Corporation’s major Safety, Health & Environment achievements include:

Safety

• Mumbai Refinery completed 2.13 Safe Million Man Hours without any Lost Time Accident.

• Visakh Refinery completed 2.20 Safe Million Man Hours without any Lost Time Accident.

• Mangalore LPG Import Facilities situated at Mangalore has been awarded International Safety RatingSystem (ISRS) level 8 certificate from M/s DNV, a globally accredited certifying agency.

• Raipur & Jatni LPG Plants have been awarded ISRS level 6 certificate from M/s DNV.

• Mumbai & Visakh Refineries have already been certified for ISRS Level 8 from M/s DNV.

Environment

• Adopting eco–friendly technologies such as change over from phenol to NMP solvent and change overfrom Oleum to NMP. These initiatives have been widely appreciated and have won for HPCL variousNational & International awards / citations. Diesel Desulphurisation facilities are fully operational in boththe refineries.

• Significant reduction in SO2 emission has been brought about in both the Refineries through design andoperating strategies.

• Both the Refineries have commenced supply of BIS – II MS / HSD and EURO – III HSD from January2005 and May 2005 respectively. Project for Euro – III MS is under implementation.

• Both the Refineries have taken initiative for treating the crude tank sludge in an environment-friendlymanner using in-situ BLABO technology of M/s. Balmer Lawrie & Co. Ltd.

• Over 75% of the petroleum products from the Refineries are being evacuated through pipelines. Dependenceon road transport for evacuation of products has been reduced significantly, resulting in considerablereduction in auto emissions to atmosphere.


8 5


• Extensive green coverage has been provided in and around the Refineries and Housing Colonies.

Health

• No cases of occupational illness diagnosed and reported.

• Periodical Medical Examinations for employees completed as per schedule.

• Carried out Special Medical check up for Canteen, Welders and F&S Personnel.

• Health awareness programmes such as Heart Diseases, Diabetes, Yoga, Meditation, etc, organized for

employees and their family.

• Organized Tetanus Toxid, Hepatitis B, Typhoid Vaccination programs for food handlers and Medical

Personnel.

• Training Programs organized on Cardio Pulmonary Resuscitation (CPR), First Aid & Occupational Health.

• Special training program for Medical Personnel on handling Cardiac Emergencies and Cardio Pulmonary

Resuscitation (CPR) conducted.

• Study on Cleaning and Hygiene practices covering Canteens & Guest houses had been carried out to

find out the gap and to take remedial measures.


Mock safety drill in LPG Plant

8 6


ENTERPRISE RESOURCES PLANNING (ERP)

Enterprise Resource Planning (ERP) system has now been introduced across the Corporation to support corebusiness processes. This strategic initiative leverages the Information Technology for the benefit of businessand is a step in meeting the challenges being faced consequent to the liberalisation of the Oil Industry.

ERP system would effectively manage the information needs of the Corporation. The system would aid thedecision makers in taking timely business decisions based on on-line and accurate information that would beavailable from the system. Tracking of cost of operations would become easy with the implementation of thissystem. There would be an improvement in management control due to standardisation of various businessprocesses.

Project Parivartan is HPCL’s initiative to implement JD Edwards OneWorldTMXe, a leading world class ERPsolution. The implementation covers all the modules of the ERP software viz. Sales & Distribution, Manufacturing,Finance and HR. Customised modules to suit HPCL processes have been developed for employeecompensation & benefits and also Payroll and both integrated with Finance and HR modules of the software.

Roll out across all HPCL locations has been completed during December 2005 in line with the MOU target inthe ‘Excellent’ category. This has covered more than 430 locations. Roll out at Marketing & Corporate HQOhas been completed in April 2006.

ERP system has been interfaced with the maintenance systems at the Refineries, automation system at themarketing locations, electronic weighbridges for weight based loading of Bitumen, FO and LPG tank trucks.These interfaces have simplified the operations and reduced the human intervention thereby reducing errors.

During the roll out, comprehensive training has been imparted to the users at the site. This is being followedby refresher courses. Additional training programmes are also arranged from time to time for focused trainingto specific user groups such as Regional Managers, Finance functionaries, location In-charges, clerical staff,etc.

A state-of-the-art data centre in the Head Office at Mumbai hosts powerful enterprise servers, which managesthe entire data and applications in a centralised architecture. The connectivity to the locations has beenestablished by using various available communication channels such as leased lines, VSATs, ISDN, VPN,radio links and dial-ups. A separate Disaster Recovery Centre (DRC) is being set up in Hyderabad for providinga back-up in the event of any physical contingency at the primary site. This DRC would mirror the main serverand would be in a position to take over in case of any disaster at the primary site as well as to enable anymaintenance shutdown to the primary server.

New initiatives in Parivartan

Based on the real-time information available in the ERP system, various new initiatives have been implementedand sustained efforts continue to bring in more of these to reality. A dedicated portal has been designed todisplay the information related to despatch details & statement of accounts of a customer. This portal alsogives details of sales for the last 3 years. A customer logs in through internet using a secure user-id andpassword. The portal is available for all SBUs and is a step towards enhancing customer satisfaction.


8 7


We have implemented another ERP based initiative, viz. the electronic payment system (e-payment), forsmoother and faster payment to the vendors, contractors, transporters and other service providers. ERPserver communicates directly with the bank server to enable payment information to flow seamlessly. Thepayment is effected by the bank through ECS, account transfer, EFT or by cheque. E-payment would bringabout transparency in the payment process and at the same time ensure timely payment to all vendors.

Post ERP implementation, HPCL’s dealers and distributors get the information by SMS and e-mail on theloads sent to them. This information is sent to them immediately on printing of the invoice and thus enablesthem to keep track of their indents.

Generation of daily sales reports for Regional Managers, Sales Field Officers; document archival system forcritical documents like invoices, purchase orders, cheques etc; electronic data transmission to a foreignairline on sales are some of the other initiatives that have already been implemented.

More and more ways are being explored to harness the on-line information from the ERP system to provideimproved customer service and to provide visibility of information to other stakeholders.


Communication network in ERP

8 8


PROJECT ORGANISATIONAL TRANSFORMATIONOrganizational Transformation is a continuous journey, not a destination to reach. HPCL embarked upon thisjourney in March 2003 with co-creation of a Corporate Vision by the top management. One of the elements ofthis vision was to transform HPCL into a Learning Organization. In order to achieve this vision, a separatedepartment – Project Organization Transformation- was set up under the overall leadership of Director-HR anda team of appropriately trained Internal Coaches was formed. The team has so far conducted more than 250Workshops covering more than 4000 employees in the Company. An essential feature of these workshops isthe co-creation of the team vision and alignment of the team with the Corporate Vision.

Inspired performance is a function of employees operating with a vision and purpose in well-conceivedorganizational structures, those that are designed primarily to foster the creation of a collective vision and tochannelise the creative energies of everyone towards producing the results to which they are all committed.

Team Leaders, who have been put in charge of making the destiny of the company, need to have the skill ofsystemic thinking, courage to challenge and change mental models and belief systems and do things differentlyto get extraordinary results.

With focus on these objectives, ‘Leadership Self Development Programs’ for Regional Managers and otherteam leaders from Marketing as well as from Refineries have been conducted in-house thus setting in motiona Leadership Engine whereby every team leader assumes the role of Leader cum Coach developing futureleaders at all levels - the leaders who can effectively create change, not just react to change.

In our endeavor to soften functional boundaries across SBUs, the Leadership Self Development Programswere also conducted together for the team leaders from the Refineries and Direct Sales aiming towardsbringing in a sense of collaboration and camaraderie and appreciation of each others’ perspective therebycreating an environment where a common understanding on customer needs could be brought out throughdiscussions and sharing of thoughts.

In recognition of the fact that no change initiative can be sustained in an organization without the activeinvolvement of the grass root employees, Learning Organization Workshops have been conducted for non-management staff across the SBUs. The Workshops have not only resulted in their alignment with the corporatevision but have also helped them in identifying its anchor in their personal vision and values.

Structure influences behavior which in turn influences performance. Recognizing this fact, an Executive Councilfor top management and Business Councils at SBU level have been constituted to bring about alignment ofvarious SBUs towards organizational vision.

Learning and growth is an intangible component of human and organizational progress that is difficult tomeasure. However, the manifestations of learning and growth can be seen in the shift of mind from reactiveorientation to creative orientation; from focus on sales growth to focus on customer delight; from only shortterm gains to long term strategy; from building silos of excellence to team based working; from the focus on‘who said it’ to ‘what has been said’ and from lack of trust with dealers to a spirit of business partnership.

At the 2nd Global Forum of Society for Organizational Learning (SOL) at Vienna during September 13 - 16,2005, three of our Internal Coaches presented the article “Empowerment and Learning in Organizations”.Society for Organizational Learning had selected this article contributed by our Internal Coaches. A brochure“The Beauty of Transformation” carrying the views and interviews of Top Management and articles from InternalCoaches on the subject topic was distributed to SOL members, as a part of the presentation.


8 9


The efforts of HPCL in its quest for excellence was appreciated by the group of over 400 worldwide Consultants,Practitioners, company representatives, etc., who had gathered for the event. Further in view of fast changingmarket environment and competitive landscape, a need was felt to reformulate the Retail strategy throughactive participation of cross functional Managers together with the Regional Managers in Retail SBU. Accordingly,cross functional teams were formed at Regional and Zonal levels to work out appropriate strategies for theirrespective areas which would ultimately result into a comprehensive strategy for the Retail SBU.

The year 2005-06 has truly been memorable and eventful in our journey of transformation and the icing on thecake was the acknowledgement of our efforts by none other than the father of the concepts of the LearningOrganization, Dr. Peter Senge who presented an award to our C&MD in the category of “Organizations thatcreate Learning Culture” to HPCL in Mumbai in November 2005.


ACE group alongwith Shri M.B. Lal, C&MD,Shri Arun Balakrishnan, Director (HR) andDr. Peter Senge

Shri M.B. Lal, C&MD receiving“Creating Learning Culture Award”from the noted Management Guru and Author ofthe book - Fifth Discipline, Dr.Peter Senge

9 0


OFFICIAL LANGUAGE IMPLEMENTATION 2005-2006Official Language Implementation continues to receive utmost importance in the Corporation. Efforts taken inthe direction of associating Official Language with productivity of various Strategic Business Units of theOrganisation further gained the momentum. As a result, Hindustan Petroleum Corporation Limited was honouredwith “Indira Gandhi Rajbhasha” (third prize) for the year 2003-04. A Social, Literary and CulturalInstitution - “Ashirwad” awarded HPCL a special prize for Official Language implementation for 2004-05.“Hindi Pakhwada” was celebrated from 14-28 September, 2005 to create an awareness about Official LanguageImplementation and to motivate employees. To further enhance the vocabulary and knowledge of OfficialLanguage among the employees and to encourage the hidden talents of our employees, various competitionssuch as group discussions, news reading, sentence formation were organised. Eminent personalities dedicatedtowards propagation of Hindi were invited as Judges. Various activities were carried out during the year. Someof the important activities are :-• MS Office 2003 Hindi Computer training• Workshops and Conferences for the Officers/Clerical Staff to encourage employees for implementation

of Official Language as also to rejuvenate their capabilities in Official Language.• Hindi Essay Writing Competition and Slogan Competition organised on all India level and the winners

were awarded.• Head Quarters Office also organised an All India Hindi Mahotsav 2006 in which employees of the four

Zones and both the Refineries participated alongwith their family members.• Inspections were carried out by the Sub-Committee of the Parliament Committee on Official Language

at various locations and the efforts of our Corporation in this regard was appreciated.• GMO, East Zone received first prize from Regional Official Language Department, Kolkata under ‘C’

Region. Patna Regional Office also received first prize from Official Language Dept under ‘A’ Region.• The Corporation continues to head the Town Official Language Implementation Committee (TOLIC) in

Mumbai for Government Undertakings/Corporations since its formation. Half yearly meetings were heldas per the schedule. Both the TOLIC Meetings were headed by Shri M.B. Lal. During TOLIC Meetings,the progress of implementation of TOLIC members is reviewed and they discuss on effectiveimplementation of Official Language and share their experiences so that others can benefit from it.Besides, “CHAUPALS” were conducted under the banner of ‘TOLIC’ at the offices of various memberOrganisations. A number of competitions were conducted by various member Organisations under theaegis of TOLIC. HPCL also organised a Training program ‘Self Leadership Management’ for TOLICmembers.

• Activities about Hindi Pakhwada and Hindi Utsav were published in In-House magazine ‘HP News’ andother activities performed by TOLIC members were also published in “TOLIC” News.


Shri M.B. Lal, C&MD addressing the meeting of TownOfficial Languages Implementation Committee (TOLIC)

9 1


RASOI GHAR• HP GAS pioneered the launch of the Rasoi Ghar concept for providing lower strata of the society with

cheap and alternate fuel for cooking at affordable price.

• It provides the villagers with a ready to cook facility that eliminates the cost of one time deposit as wellas the recurring refill cost as they are required to pay basis the usage time only.

• The innovative concept of Rasoi Ghar, or community kitchen has been appreciated by all sections ofsociety including voluntary organizations and women groups.

• These Rasoi ghars also help in meeting the aspirations of rural population who could not afford to have anLPG connection on their own.

• The Rasoi Ghar concept has now been expanded to public utility area such as hospitals etc. Some of theimportant locations covered are AIIMS, Delhi, King George™s Hospital, Visakh, Tata Memorial Hospital,Mumbai and Lal Ded, Srinagar to ensure cooking of hygienic food at affordable prices for the relatives ofpatients who normally accompany the patient.

• Restricting felling of trees and protecting environment thereon has been another key benefit from theseRasoi Ghars. In a pilot project undertaken in the Yavatmal district of Maharashtra, 100 Rasoi Ghars wereset up in the forest area in co-ordination with the forest department. It resulted in savings of nearly 36,000trees per Rasoi Ghar.

• Further, temporary Rasoi Ghars were also set up at all major rural melas such as Pushkar, Sonpur, Ujjainetc. to benefit pilgrims and floating population and at the same time to popularize the concept as well asto increase awareness of the benefits of LPG.

• Appreciating this novel initiative, NDTV Profit Channel has done a special feature covering the completeconcept and operations. Further the concept has also been widely covered by several dailies, periodicalsand magazines.

• For this innovative concept, HPCL has been awarded the prestigious ‘Golden Peacock Award’ for ecoinnovation and has also been awarded the ‘National Excellence Award for Innovative Techniques’for improving access of a modern fuel to rural women.

• HPCL would endeavour to promote the scheme further for the benefit of wider spectrum of the society andin particular the weaker sections of the society.

The Scheme has made a deep impact on the quality of living of rural people who otherwise were dependent oncharcoal, firewood etc., for heating with associated health and environmental hazards.

The ‘HP Gas Rasoi Ghar’ concept was further extended to Hospitals and forest areas. Today, we have RasoiGhars covering all major hospitals in Metro cities.

Our commitment to provide a clean eco-friendly fuel to our rural population was appreciated not only by theusers but received laurels at international level. Today, there are over 1500 Rasoi Ghars operating across thecountry benefiting over 20,000 families.


9 2


INDIA’s FIRST UNDERGROUND (CAVERN) LPG STORAGE FACILITY• JV between HPCL and M/s. TOTAL of FRANCE ( 50 : 50 ) called South Asia LPG Pvt. Ltd.• Underground LPG Cavern facility at Visakh 60,000 MTs.• First in South Asia.• LPG imports in large size 40,000 MT tankers resulting in freight savings.• Project cost : Rs.333 crores.• Completion : June 2007.• Storage facility is located at a depth of 160 mtrs. below the earth’s surface and is fully isolated.• Technologically proven methodology.• By far the safest and environment friendly means of storing LPG.• Principle of containment ensures no leakage or contamination.• Safety hazards on account of sabotage, storms, earthquakes and explosions are minimised.• External fires will not affect storage.• Surface land requirement is low in view of reduced safety distances.• Caverns by their very nature require very low maintenance and hence safety is in-built.• The required low capital cost per tonne of storage.


Progress of abovementioned project.Also seen is Shri M.S.Srinivasan , Secretary,Petroleum & NaturalGas on a visit to the site.

9 3


AWARDS / RECOGNITIONS• Greentech Safety Awards for 2004-2005 from Shri Kamaleshwar Sharan – President of Greentech

Foundation for outstanding achievements in the field of Safety:

Gold award bagged by Mumbai Refinery/Mazagaon Lube Plant/MLIF

Silver award bagged by Santacruz ASF/Palam ASF/Cochin ASF

Bronze Award bagged by Kolkatta ASF

• NSCI Safety Award – “Suraksha Puraskar” from National Safety Council for Performance in OccupationalSafety and Health Management Services by Dr.Olla Ullsten, Former Prime Minister of Sweden – Chairmanof World Council on Sustainable Development & World Council for Corporate Governance, UK.

• Golden Peacock Environment Management Award for the year 2004-05 from Institute of Directors forInnovative and pioneering initiatives taken by HP GAS for setting up Rasoi Ghars in Pandarkawda ForestRange in Yavatmal District.

• Excellent Service Award from ‘The Kashmir Chamber of Commerce & Industries’ for Excellent serviceand supply of LPG cylinders to the consumers in Kashmir Valley even during heavy snow fall duringFebruary 2005 by Shri Jenab Mohiuddin, Minister for Consumer Affairs & Public Distribution.

• NPMP Award for the year 2003-04 from National Petroleum Management Programme for Excellence inInternal Communication.

• Excellence Award on outstanding contributions to Petroleum Industry from Delhi Telugu Academy receivedfrom Shri Shivraj V. Patil, Hon’ble Minister of Home Affairs, Govt. of India.

• Indira Gandhi Rajbhasha Puraskar on outstanding contribution in usage of Hindi from Govt. of Indiareceived from Shri Shivraj V. Patil, Hon’ble Minister of Home Affairs, Govt. of India.

• Strong Commitment to HR Excellence Award on various HR initiatives from Confederation of Indian Industry– Western Region received from Shri V.K. Jairath, Secretary – Industries, Govt. of Maharashtra.

• Certificate of Excellence to Mangalore LPG Import Facility on Handling highest quantity of 11.35 Lakhtons of LPG during 2005-06 received from Shri Tamilvannan Chairman – New Mangalore Port Trust.

• Rajbhasha Puraskar for the year 2004-05 on outstanding contribution in usage of Hindi from Aashirwadreceived from Shri R.R. Patil, Dy. Chief Minister – Govt. of Maharashtra.

• Environment Excellence – Gold Award on outstanding achievement in Environment Management receivedfrom Shri C.P. Jain – C&MD-NTPC for the year 2004-05 :

Mumbai Refinery; Santacruz ASF, Mumbai; Palam ASF, Delhi; Chennai ASF

• The Golden Peacock National Training Award for the year 2005 in recognition of organizations withcontemporary and outstanding practices in Training & Development from Institute of Directors, NewDelhi.

• Oil Industry Safety Award for Best Performer in Group-III (LPG Marketing Organisation) for the year 2003-04 from Oil Industry Safety Directorate, MOP&NG, New Delhi.

• Oil Industry Safety Award for Best Performer in Group-VII (Lube Oil Blending Plants) for the years 2003-04 & 2004-05 from Oil Industry Safety Directorate, MOP&NG, New Delhi.

• Indira Business Strategy Award for Creating a Learning Culture from Indira Group of Institutes, Pune byShri Peter Senge Chairperson of the Society for Organisation Learning (SoL) and a Sr. Lecturer at theMasachusetts Institute of Technology.

• Honorary Fellowship on Shri M.B. Lal, C&MD for the Highest Professional Recognition the Energy Instituteawards for notable and distinguished contribution to the energy industry from Energy Institute (E) London,UK from Mr.Lawrence Slade of Fellowship of the Energy Institute, UK.


9 4


• Leadership & Excellence Award on Outstanding Achievement in Oil Refining from Oceantex 2006(Chemtech Foundation) from Shri S.C. Tripathi – Former Secretary, MOP&NG.

• Golden Peacock Award on Corporate Social Responsibility from Institute of Directors, New Delhi receivedfrom Smt. Sheila Dixit – Hon’ble Chief Minister, Delhi.

9 Greentech Safety Awards – 2006 from the Greentech Foundation :Gold Award – Mangalore POL, Mazgaon Lube Plant, Santacruz ASF, MLIF, Mumbai RefinerySilver Award – Loni LPG Plant, Palam ASF, Dumdum ASFBronze Award – Chennai ASF

• Green Industry Award to Jammu LPG RO for survey conducted by the Board on Pollution Control, GreeneryDevelopment and various steps for creating awareness for a neat & clean environment from Jammu &Kashmir State Pollution Control from Mayor of Jammu, Shri Bharti Bahkshi.

• Reader’s Digest Trusted Brand Platinum Award for Club HP – Brand from Reader’s Digest from Ms.Rosemarie Wallace, Managing Director, Reader’s Digest, Asia Pacific.

• Green-Tech Environmental Gold award 2004-05 : for excellence in environment management.• Housing colony at Mumbai has received various awards from “National Society of the Friends of the

Trees and Tree Authority & Brihan Mumbai Maha Nagarpalika” under different category of “GardenCompetitions.”

• National Excellence Award for innovation in Rural Technology for Rasoi Ghar to LPG SBU.


Presentation of Oil Iindustry Safety Award for the years 2003-04 &2004-05 . Seen in the photograph are Shri S. Roy Choudhury, Director(Marketing) alongwith other HPCL Officials

Shri Arjun Singh , Hon’ble Union Minister for HRD handing over theGolden Peacock National Training Award for the year 2005 of theInstitute of Directors, New Delhi to Shri Arun Balakrishnan, Director(HR).

Shri M.B. Lal, C&MD receiving the Golden Peacock EnvironmentManagement Award for the Year 2004-05 of Institute of Directorsfrom Dr. Olla Ulsten, former Prime Minister of Sweden.

Shri P.T. Suresh, DGM-ARB and Shri T.S. Sawhney, DGM-HighwayRetailing receiving the Reader’s Digest Award for “Most TrustedBrand”

9 5


HPCL considers human dimension as the key to organisation’s success. Several initiatives for development of

human resources to meet new challenges in the competitive business environment have gained momentum.

HPCL recognises the value of its human assets who are committed to achieve excellence in all spheres. The

Human Resource Profile given below in table shows that HPCL has a mix of energetic youth and experienced

seniors who harmonise the efforts to achieve the Corporation’s goals.

Age

21 - 30 31 - 40 41 - 50 Above 50 Total

No. Of Employees 681 2644 5344 2109 10778

Management 560 1167 1551 588 3866

Non Management 121 1477 3793 1521 6912

Average Age 44

Accounting For Human Assets

The Lev & Schwartz model is being used by our Company to compute the value of Human Resources. The

evaluation as on 31st March 2006 is based on the present value of future earnings of the employees on the

following assum ptions.

1. Employees’ compensation represented by direct & indirect benefits earned by them on cost to company

basis.

2. Earnings upto the age of superannuation are considered on incremental basis taking the corporation’s

policies into consideration.

3. Such future earnings are discounted @ 8% (2004-05 : 8%).

Rs./ Crores

2005-06 2004-05

VALUE OF HUMAN RESOURCES

Management employees 6,162 5,598

Non Management employees 4,444 4,445

10,606 10,043

Human Assets vis-a-vis Total Assets

No. Of Employees 10778 10561

Value of Human Assets 10,606 10,043

Net Fixed Asset 9,701 7,731

Investments 4,028 1,757

Net Current Asset 3,171 2,514

27,506 22,045

Employee Cost ( incl. VRS compensation for 2004-05) 691 714

Net Profit Before Tax 285 1641

Ratios (in %)

PBT to Human Resource 2.69 16.34

Employee Cost to Human Resource 6.51 7.11

Human Resource to Total Resource 38.56 45.56

Human Resource AccountingHuman Resource AccountingHuman Resource AccountingHuman Resource AccountingHuman Resource Accounting

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TO THE MEMBERS OF HINDUSTAN PETROLEUM CORPORATION LIMITED1. We have audited the attached Balance Sheet of Hindustan Petroleum Corporation Limited as at

March 31, 2006, and also the Profit and Loss Account and Cash Flow Statement of the Company for theyear ended on that date annexed thereto. These financial statements are the responsibility of the Company’smanagement. Our responsibility is to express an opinion on these financial statements based on our audit.

2. We conducted our audit in accordance with auditing standards generally accepted in India. TheseStandards require that we plan and perform the audit to obtain reasonable assurance about whether thefinancial statements are free of material misstatements. An audit includes examining, on a test basis,evidence supporting the amounts and disclosures in the financial statements. An audit also includesassessing the accounting principles used and significant estimates made by management, as well asevaluating the overall financial statement presentation. We believe that our audit provides a reasonablebasis for our opinion.

3. As required by the Companies (Auditors’ Report) Order, 2003, (“Order”), issued by the Central Governmentof India in terms of sub-section (4A) of Section 227 of the Companies Act, 1956, we enclose in theAnnexure, a statement on the matters specified in paragraphs 4 and 5 of the said Order.

4. Further to our comments in the Annexure referred to in paragraph 3 above, we report that:

(a) We have obtained all the information and explanations which, to the best of our knowledge andbelief, were necessary for the purpose of the audit;

(b) In our opinion, proper books of account, as required by law, have been kept by the Company, so faras it appears from our examination of these books, and proper returns, adequate for the purposesof our audit, have been received from the branches;

(c) The Branch Auditors’ report, made available to us, has been appropriately dealt with while preparingour report;

(d) The Balance Sheet, Profit and Loss Account and Cash Flow Statement dealt by this report are inagreement with the books of account;

(e) The Balance Sheet, Profit and Loss Account and Cash Flow Statement dealt with by this reportcomply with the Accounting Standards referred to in sub-section (3C) of Section 211 of the CompaniesAct, 1956;

(f) On the basis of the written representations received from directors of the Company, as at March 31,2006 and taken on record by the Board of Directors, we report that none of the directors is disqualifiedas at March 31, 2006, from being appointed as a director in terms of clause (g) of sub-section (1) ofSection 274 of the Companies Act, 1956; and

(g) In our opinion, and to the best of our information and according to the explanations given to us andread with Note No. 8 to Schedule 19B, regarding treatment of certain Income tax benefits, the saidaccounts give the information required by the Companies Act, 1956, in the manner so required andgive a true and fair view in conformity with the accounting principles generally accepted in India;

(i) in the case of the Balance Sheet, of the state of affairs of the Company as at March 31, 2006;(ii) in the case of the Profit and Loss Account, of the profit for the year ended on that date; and(iii) in the case of the Cash Flow Statement, of the cash flows for the year ended on that date.

For N.M. Raiji & Co. For Sudit K. Parekh & Co.Chartered Accountants Chartered Accountants

Vinay D. Balse Srikant V. JillaPartner PartnerMembership No. 39434 Membership No. 39461

Place : New DelhiDate : May 25, 2006

Auditors’ ReportAuditors’ ReportAuditors’ ReportAuditors’ ReportAuditors’ Report

9 7


(Referred to in paragraph 3 of our Report of even date)

1. (a) The Company has maintained proper records showing full particulars including quantitative detailsand situation of fixed assets except for items like pipes, valves, meters, instruments and othersimilar items peculiar to a continuous process industry.

(b) As explained to us, the Company, having regard to the size and nature of its business, has adopteda practice of carrying out physical verification of its fixed assets, except LPG cylinders and fixedassets of the erstwhile Kosan Gas Company undertaking, not handed over, on a staggered basis,over a period of three years in the case of Plant and Machinery and other assets, and over a periodof five years in the case of furniture, fixtures and office equipment. We were informed that discrepanciesnoticed on such verification as compared to the book records have been properly dealt with in thebooks of account. The existence of fixed assets situated at the residence of employees has,however, been ascertained on a self-declaration basis.

(c) Fixed Assets disposed off during the year were not substantial and, therefore, do not affect thegoing concern assumption.

2. (a) As explained to us, the inventories were physically verified during the year by the Management atreasonable intervals.

(b) The procedures of physical verification of stocks followed by the management are reasonable andadequate in relation to the size of the Company and the nature of its business. In the case ofmaterials lying with third parties, certificates confirming stocks held have been received fromthem.

(c) The Company has maintained proper records of inventory. We were informed that discrepanciesnoticed on such verification, as compared to the book records, were not material and have beenproperly dealt with in the books of account.

3. Based on the audit procedures applied by us and according to the information and explanations given tous, the Company has neither granted nor taken loans, secured or unsecured to/from companies, firms orother parties covered in the register maintained under Section 301 of the Companies Act, 1956.Consequently, sub clauses (b), (c), (d), (e), (f) and (g) of sub-para (iii) of para 4 of the Order are notapplicable.

4. In our opinion and according to the information and explanations given to us, and having regard to theexplanations that some of the items are of a specialized nature, in respect of which suitable alternativesources do not exist for obtaining comparative quotations, there are adequate internal control procedurescommensurate with the size of the Company and nature of its business for the purchase of inventoryand fixed assets and for the sale of goods and services.

5. (a) To the best of our knowledge and belief and according to the information and explanations given tous, there were no transactions that needed to be entered in the Register in pursuance of Section301 of the Companies Act, 1956.

(b) As there have been no transactions that needed to be entered in the register maintained underSection 301 of the Companies Act, 1956, during the year, no comments are required to be offered inrespect of reasonability of prices at which such transactions have entered into at the relevant time.

Annexure to the Auditors’ ReportAnnexure to the Auditors’ ReportAnnexure to the Auditors’ ReportAnnexure to the Auditors’ ReportAnnexure to the Auditors’ Report

9 8


6. In our opinion, and according to the information and explanations given to us, the Company has compliedwith the directives issued by the Reserve Bank of India and the provisions of Section 58A and Section58AA or any other relevant provisions of the Companies Act, 1956, and the rules framed thereunder withregard to deposits accepted from the public. We have been informed that no order has been passed bythe Company Law Board or National Company Law Tribunal or Reserve Bank of India.

7. In our opinion, the Company has an internal audit system commensurate with its size and the nature ofits business.

8. We have broadly reviewed the books of account maintained by the Company in respect of productswhere, pursuant to the Rules made by the Central Government, the maintenance of cost records hasbeen prescribed under Section 209 (1) (d) of the Companies Act, 1956. We are of the opinion thatprima-facie the prescribed accounts and records have been maintained and are being made. We havenot, however, made a detailed examination of the records with a view to determine whether they areaccurate or complete.

9. (a) According to the information and explanations given to us and on the basis of our examination of thebooks of account, the Company has, during the year, been generally regular in depositing with theappropriate authorities, undisputed statutory dues, including Provident Fund, Investor Educationand Protection Fund, Employees’ State Insurance, Income Tax, Sales Tax, Wealth Tax, ServiceTax, Custom Duty, Excise Duty, Cess and any other material statutory dues.

(b) According to the information and explanations given to us and on the basis of our examination ofthe books of account, no undisputed amounts payable in respect of Income Tax, Sales Tax, WealthTax, Service Tax, Custom Duty, Excise Duty, Cess were in arrears, as at March 31, 2006, for aperiod of more than six months from the date they became payable.

(c) According to the information and explanations given to us, dues relating to Sales Tax/Custom Duty/Wealth Tax/Service Tax/Excise Duty/Cess, which have not been deposited on account of disputeswith the related authorities, have been reflected in the table herebelow:

STATUTE FORUM AMOUNT YEARRs./Crores

Central Excise Commissioner (Appeals) 19.75 1993 - 2002 3.40 1994 - 2002 0.83 2002 - 2006 0.01 1997 - 1998 0.24 2002 - 2003

28.82 2003 - 20040.23 2004 - 2005

53.28 Assistant Commissioner 1.78 1994 - 2002

12.25 2000 - 20011.66 2001 - 20024.15 2001 - 20032.14 2003 - 2004

21.98


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STATUTE FORUM AMOUNT YEARRs./Crores

Department of Revenue 0.77 1994 - 1997

0.11 1994 - 1999

5.05 2000 - 2002

2.73 2001 - 2002

1.57 2001 - 2002

10.23

CESTAT 285.49 1994 - 2002

0.39 1997 - 1998

2.70 2001 - 2002

38.24 1998 - 1999

0.01 1999 - 2000

1.41 2002 - 2003

308.64 2002 - 2006

17.22 2003 - 2004

5.20 2004 - 2005

659.30

Appellate Tribunal 1.74 1998 -1999

Supreme Court 25.26 1993

Total – Central Excise (A) 771.79

Sales Tax Sales Tax Appellate

Tribunal

Gujarat State MST/CST 1.07 1994 - 1998Bihar State CST/GST/Finance Act/Works Contract Tax 4.17 1985 - 1998Uttar Pradesh CST 0.31 1987 - 1998Andhra Pradesh State GST/CST 120.90 1993 - 2002Karnataka State KST/CST/Entry Tax/GST 262.89 1994 - 2002Haryana CST 19.90 1997 - 2000Jammu and Kashmir State 0.21Orissa State 4.08 2001 - 2002Kerala State 1.23 1996 - 1997West Bengal State 5.75 1994 - 1995Haryana State Purchase Tax 9.49 1994 - 1995

to 1997Karnataka State GST 6.98 1996 - 1997

Subtotal (B) (i) 436.98


1 0 0


STATUTE FORUM AMOUNT YEAR

Rs./Crores

Commissioner/

DCCT/ADC/JCCT

Gujarat State MST 1.05 1987 - 2000

Maharashtra State GST/CST 1,100.90 1999 - 2001

Maharashtra Sales Tax 34.09 1985 - 1986

West Bengal Sales Tax/CST 36.44 1996 - 2003

Orissa CST/OST/Entry Tax 1.93 1998 - 1999

Assam State CST 3.83 1996 - 2000

Uttar Pradesh CST 0.15 1994 - 1995

Delhi State CST 0.81 1976 – 1977

to 2002

Rajasthan State 13.99 1999 - 2003

Andhra Pradesh State GST/CST 23.70 1993 - 2005

Kerala CST/GST 12.14 1987 - 1999

Karnataka CST/GST 11.65 1998 - 2004

Jammu and Kashmir State 0.08 1989 – 1990

to 2002 – 2003

Jharkhand CST/Finance Act 0.04

Sub total (B) (ii) 1,240.80

Board of Revenue

Assam State GST 66.43 1993 - 1999

Madhya Pradesh 0.18 1985 - 1987

Sub total (B) (iii) 66.61

High Courts

Kerala State Kerala High Court 16.31 1987-1988

to 1995-1996

Karnataka Sales Tax Act Karnataka High Court 0.06 1979 - 1987

Uttar Pradesh CST/Works Contract Tax Allahabad High Court 10.69 1994 - 2003

Sub total (B) (iv) 27.06

Total – Sales Tax Act

(B) (i+ii+iii+iv) 1,771.45

Custom Duty CESTAT

31.60 1994 - 2002

0.07 2000 - 2001

Total – Custom Duty (C) 31.67

Grand Total (A+B+C) 2,574.91


1 0 1


10. The Company does not have any accumulated losses at the end of the financial year and has notincurred cash losses in the financial year and in the financial year immediately preceding such financialyear.

11. According to the information and explanations given to us, and based on checks carried out by us, theCompany has not defaulted in repayment of dues to financial institutions or banks or debenture holders.

12. According to the information and explanations given to us, the Company has not granted loans andadvances on the basis of security by way of pledge of shares, debentures and other securities.

13. In our opinion and according to information and explanations given to us, the Company is not a chit fundor a nidhi/mutual benefit fund/society. Therefore the provisions of sub-para (xiii) of para 4 of the Order arenot applicable to the Company.

14. According to the information and explanations given to us, the Company is not dealing or trading inshares, securities, debentures and other investments. Therefore the provisions of sub-para (xiv) of para 4of the Order are not applicable to the Company.

15. In our opinion and according to information and explanations provided to us, the Company has notprovided guarantees for loans taken by others from banks and financial institutions.

16. In our opinion, the term loans taken during the year have been applied for the purpose for which they wereraised.

17. According to the information and explanations given to us, and on an overall examination of the BalanceSheet of the Company, funds raised on short-term basis have, prima facie, not been used during the yearfor making long-term investments.

18. According to the information and explanations given to us, during the year the Company has not madeany preferential allotment of shares to parties and companies covered in the Register maintained underSection 301 of the Companies Act, 1956.

19. The Company has not raised any monies by way of issue of debentures. Therefore, the provisions of sub-para (xix) of para 4 of the Order are not applicable to the Company.

20. The Company has not made any public issue of securities during the year.

21. According to information and explanations given to us and based on audit procedures performed andrepresentations obtained from the management, we report that no fraud on or by the Company, havingmaterial misstatement on the financial statements has been noticed or reported during the year underaudit.





1 0 2


Balance Sheet as at 31st March, 2006Balance Sheet as at 31st March, 2006Balance Sheet as at 31st March, 2006Balance Sheet as at 31st March, 2006Balance Sheet as at 31st March, 2006

SCHEDULE 2005-06 2004-05SOURCES OF FUNDSShareholders’ Funds:

a) Capital 1 338.94 338.93b) Reserves and Surplus 2 8,396.80 8,101.92

8,735.74 8,440.85Loan Funds:

a) Secured Loans 3 1,486.16 319.91b) Unsecured Loans 4 5,177.67 1,865.44

6,663.83 2,185.35Deferred Tax Liability 1,384.44 1,374.75TOTAL 16,784.01 12,000.95

APPLICATION OF FUNDSFixed Assets: 5

a) Gross Block 13,479.25 12,393.17b) Less: Depreciation 6,141.85 5,449.53c) Net Block 7,337.40 6,943.64d) Capital Work-in-Progress 6 2,363.88 786.84

9,701.28 7,730.48

Investments 7 4,027.64 1,756.84

Current Assets, Loans and Advances:a) Inventories 8 7,810.29 5,682.21b) Sundry Debtors 9 1,392.26 1,048.61c) Cash and Bank Balances 10 42.59 201.63d) Other Current Assets 11 11.38 0.35e) Loans and Advances 12 1,753.46 2,569.50

11,009.98 9,502.30Less:Current Liabilities and Provisions: 13

a) Liabilities 7,394.74 6,177.82b) Provisions 560.15 810.85

7,954.89 6,988.67

Net Current Assets 3,055.09 2,513.63

TOTAL 16,784.01 12,000.95

STATEMENT OF SIGNIFICANT ACCOUNTING POLICIESAND NOTES FORMING PART OF ACCOUNTS 19

M.B. LALChairman & Managing Director

C.RAMULU FOR N.M.RAIJI & CO. FOR SUDIT K. PAREKH & CO.Director-Finance Chartered Accountants Chartered Accountants

N.R. NARAYANAN VINAY D. BALSE SRIKANT V. JILLACompany Secretary Partner Partner


Rs./ Crores

1 0 3


Profit and Loss Account for the year ended 31st March, 2006Profit and Loss Account for the year ended 31st March, 2006Profit and Loss Account for the year ended 31st March, 2006Profit and Loss Account for the year ended 31st March, 2006Profit and Loss Account for the year ended 31st March, 2006

SCHEDULE 2005-06 2004-05INCOME

Sale of Products 74,044.11 64,689.51(Net of Discount Rs. 564.67 crores; 2004-05 Rs.462.60 crores)Less : Excise Duty Paid 5,882.34 5,359.59Net Sales 68,161.77 59,329.92Net Recovery from/(Payment to) Industry Pool Accounts - (7.86)Recovery under Subsidy Schemes 2,876.15 536.68Other Income 14 328.45 329.53

71,366.37 60,188.27INCREASE /(DECREASE) IN INVENTORY 15 1,408.96 34.87EXPENDITURE AND CHARGES

Purchase of Products for resale 42,178.12 33,842.86Raw materials consumed 25,582.18 20,576.22Packages consumed 95.99 90.38Excise Duty on Inventory differential 177.00 (9.02)Transhipping Expenses 1,520.14 1,384.00Payments to and provisions for Employees 16 690.77 713.62Exploration Expenses 12.42 0.79Other Operating Expenses 17 1,385.90 1,243.67Depreciation/Amortisation 688.97 658.38Interest 18 158.74 81.64

72,490.23 58,582.54PROFIT BEFORE TAXES 285.10 1,640.60

PROVISION FOR CURRENT TAXATION 78.45 589.71PROVISION FOR DEFERRED TAXATION (NET) 9.69 (79.33)PROVISION FOR TAXATION OF EARLIER YEARS WRITTEN BACK (220.05) (147.11)PROVISION FOR FRINGE BENEFIT TAX 11.38 -

PROFIT AFTER TAXES 405.63 1,277.33Balance brought forward 5,937.64 5,268.19Transfer from Debenture Redemption Reserve - 100.00

PROFIT AVAILABLE FOR APPROPRIATION 6,343.27 6,645.52APPROPRIATED FOR:General Reserve 40.56 127.73Interim Dividend - 169.67Proposed Final Dividend 101.80 339.33Tax on Distributed Profits 14.28 71.15

BALANCE CARRIED FORWARD 6,186.63 5,937.64EARNINGS PER SHARE (in Rs.) - Basic & Diluted 11.97 37.69

(2005-06 : EPS = Net Profit - Rs. 405.63 crores / Weighted avg. no. of shares - 33.894 crores; 2004-05 : EPS = Net Profit - Rs. 1,277.33 crores / Weighted avg. no. of shares - 33.893 crores)

STATEMENT OF SIGNIFICANT ACCOUNTING POLICIESAND NOTES FORMING PART OF ACCOUNTS 19

Rs./ Crores





1 0 4


2005-06 2004-051. CAPITAL

A. Authorised :75,000 Cumulative Redeemable Preference Shares of Rs. 100/- each 0.75 0.7534,92,50,000 Equity Shares of Rs.10/- each 349.25 349.25

350.00 350.00B. Issued, Subscribed & Called up :

33,93,30,000 Equity Shares of Rs.10/- each fully paid up 339.33 339.33Less: Calls unpaid by Others 0.39 0.40

338.94 338.93NOTES :-(1) 77,50,000 fully paid up equity shares of Rs. 10/- each were allotted to

the shareholders of Lube India Limited on the amalgamation of that

company for consideration other than cash.

(2) 52,00,000 fully paid up equity shares of Rs. 10/- each were allotted to

the President of India, for consideration other than cash, on the

amalgamation of Caltex Oil Refining India Limited with the Company.

(3) 26,44,30,000 shares of Rs. 10/- each were allotted as fully paid bonus

shares by capitalisation of Capital Reserve, Capital Redemption

Reserve and accumulated profits.

2. RESERVES AND SURPLUSShare Premium AccountAs per last Balance Sheet 1,164.12 1,164.12Less : Calls Unpaid 12.88 13.27

1,151.24 1,150.85Debenture Redemption ReserveAs per last Balance Sheet - 100.00Less: Transfer to Profit & Loss Account - 100.00

- -Capital GrantReceived during the year 5.02 -Less: Amortised during the year 0.08 -

4.94 -General ReserveAs per last Balance Sheet 1,013.43 885.70Add : Transfer from Profit & Loss Account 40.56 127.73

1,053.99 1,013.43

Profit and Loss Account Surplus as per Account annexed 6,186.63 5,937.64

8,396.80 8,101.92

Schedules forming part of the Balance SheetSchedules forming part of the Balance SheetSchedules forming part of the Balance SheetSchedules forming part of the Balance SheetSchedules forming part of the Balance Sheet

Rs./ Crores

1 0 5


2005-06 2004-053. SECURED LOANS

i. Collateral Borrowing and Lending Obligation (CBLO) 1,010.00 -(Secured by Pledge of Oil Bonds)(Due for repayment within one year - Rs. 1010 crores;2004-05 : Rs. Nil)

ii. Overdrafts from Banks 476.16 319.91(Secured by hypothecation of Stock-in-Trade)

1,486.16 319.91

4. UNSECURED LOANS

Fixed Deposits 0.02 0.11

Clean Loans from Banks 2,300.00 -(Due for repayment within one year - Rs. 2300 crores;2004-05 : Rs. Nil)

Short Term Loans from Banks 1,768.05 1,665.33(Due for repayment within one year - Rs. 1768.05 crores;2004-05 : Rs. 1665.33 crores)

From Oil Industry Development Board 650.00 200.00(Due for repayment within one year - Rs. Nil; 2004-05: Rs. Nil)

Syndicated Loans from Foreign Banks (repayable in foreign currency) 459.60 -(Due for repayment within one year - Rs. Nil; 2004-05: Rs. Nil)

5,177.67 1,865.44

Rs./ Crores


1 0 6


5. FIXED ASSETS (A & B) Rs. /CroresGross Block Additions/ Deductions/ Gross Block Depreciation Total Net Net

at cost Reclassifi- Reclassifi- at cost and Depreciation Block Blockas at cations cations as at Amortisation and as at as at

01-04-2005 31-03-2006 for the year Amortisation 31-03-2006 31-03-20052005-2006 upto

31-03-2006

A. OTHER THAN INTANGIBLE ASSETS 1. Land - Freehold (C) 185.69 25.75 0.45 210.99 - - 210.99 185.69

2. Roads and Culverts (E & F) 552.22 94.70 3.04 643.88 9.29 57.07 586.81 504.39

3. Buildings (D & F) 1068.47 172.01 3.18 1237.30 23.38 156.68 1080.62 934.24

4. Leasehold Property-Land 88.06 5.06 0.02 93.10 2.84 20.03 73.07 70.87

5. Railway Siding and (E) 271.58 3.18 - 274.76 12.78 114.38 160.38 169.97

- Rolling Stock

6. Plant and Equipment (E & F) 9832.05 770.97 21.01 10582.01 607.61 5561.90 5020.11 4884.63

7. Furniture, Fixtures 278.33 29.95 6.43 301.85 23.38 156.66 145.19 141.24

and Office/Lab.

Equipment

8. Transport Equipment 77.35 15.01 1.11 91.25 5.32 47.06 44.19 35.66

9. Unallocated capital 0.20 - - 0.20 - 0.20 - -

Expenditure on

Land Development

Total (A) 12353.95 1116.63 35.24 13435.34 684.60 6113.98 7321.36 6926.69

B. INTANGIBLE ASSETS 1. Right of Way 1.72 - - 1.72 - - 1.72 1.72

2. Technical / Process Licences 6.24 3.23 - 9.47 0.81 2.59 6.88 4.46

3. Software 31.26 1.48 0.02 32.72 4.82 25.28 7.44 10.77

Total (B) 39.22 4.71 0.02 43.91 5.63 27.87 16.04 16.95

GRAND TOTAL (A+B) 12393.17 1121.34 35.26 13479.25 690.23 6141.85 7337.40 6943.64

Previous Year 11387.43 1035.29 29.55 12393.17 659.59 5449.53 6943.64

A. Includes assets costing Rs. 0.14 Crores (2004-2005: Rs. 0.14 Crores) of erstwhile Kosan Gas Companynot handed over to the Corporation consisting of: Freehold Land Rs. 76191/- (2004-2005: Rs. 76191/-)Building Rs. 0.06 Crores (2004-2005 : Rs. 0.06 Crores ) Plant & Equipment Rs.0.75 Crores (2004-2005: Rs. 0.75 Crores). Consequently, cumulative Depreciation on the Fixed Assets amounting to Rs. 0.12Crores (2004-2005: Rs. 0.12 Crores) has not been provided for.

B. Includes Rs. 63.66 Crores (2004-2005: Rs.62.05 Crores) being the Corporation’s Share of Cost of Land& Other Assets jointly owned with Other Oil Companies.

C. Title Deeds to some of the lands acquired are still to be obtained.

D. Includes Rs. 1000/- (2004-2005: Rs. 1000/-) being share application money in Co-operative HousingSocieties.

E. Includes Rs 40.50 Crores towards Plant and Machinery, Roads & Culverts and Railway Sidings & RollingStock, ownership of which does not vest with the Corporation. These assets are amortised at the rate ofdepreciation specified in Schedule XIV of the Companies Act,1956.

F. Includes following assets which are used for distribution of PDS Kerosene under Jana Kalyan Pariyojanaagainst which financial assistance in the form of Capital Grant is being provided by OIDB.

Description Original Cost (Rs/Crores)Roads & culverts 0.16Buildings 1.70Plant & Equipment 3.30Total 5.16


1 0 7



2005-06 2004-056. CAPITAL WORK-IN-PROGRESS (at Cost)

Unallocated Capital Expenditureand Materials at Site 1,609.56 648.16Advances for Capital Expenditure 91.24 57.91Capital Stores 423.87 47.88Capital Stores lying with Contractors 117.60 4.45Capital goods in transit 40.38 2.03

2,282.65 760.43Construction period expenses pending apportionment(Net of recovery) :Establishment charges 39.14 25.71Borrowing Cost 42.01 0.70Depreciation 0.08 -

81.23 26.412,363.88 786.84

7. INVESTMENTS

I. LONG TERM INVESTMENTS (at Cost):

A. TRADE INVESTMENTS

Quoted1. Mangalore Refinery and Petrochemicals Ltd.

29,71,53,518 Equity Shares of Rs. 10/- each fully paid up 471.68 471.682. 6.96% Oil Companies Government Of India Special Bonds 2009* 81.00 931.00

7.00% Oil Companies Government Of India Special Bonds 2009* 777.02 -Unquoted1. Guru Gobind Singh Refineries Ltd. (Wholly owned subsidiary)

29,57,10,000 Equity Shares of Rs. 10/- each fully paid-up 295.71 295.712. Hindustan Colas Ltd.

47,25,000 Equity Shares of Rs. 10/- each fully paid up 4.73 4.733. Petronet India Ltd.

1,59,99,999 Equity Shares of Rs. 10/- each fully paid up 16.00 16.004. Petronet MHB Ltd.

1,30,000 Equity Shares of Rs. 10/- each fully paid up 0.13 0.135. Prize Petroleum Co. Ltd

99,99,600 Equity Shares of Rs. 10/- each fully paid up 10.00 10.006. South Asia LPG Co. Pvt. Ltd.

2,75,00,000 Equity Shares of Rs. 10/- each fully paid up 27.50 27.507. Bhagyanagar Gas Ltd.

12,497 Equity Shares of Rs. 10/- each fully paid up 0.01 0.01

Total (A) 1,683.78 1,756.76

Rs./ Crores

1 0 8


2005-06 2004-05

B. OTHER INVESTMENTS

Quoted

1. Government Securities of the face value of Rs. 0.02 crores

(2004-05 : Rs. 0.02 crores)

Deposited with Others 0.02 0.02

On hand - Rs. 0.25 lakhs ( 2004-05 : Rs. 0.25 lakhs) 0.00 0.00

2. Scooters India Ltd.

10,000 Equity Shares of Rs. 10 each fully paid up 0.01 0.01

Unquoted

1. Government Securities of the face value of Rs. 0.24 lakhs

(2004-05 : Rs. 0.24 lakhs)

Deposited with Others - Rs. 0.10 lakhs ( 2004-05 : Rs. 0.10 lakhs) 0.00 0.00

On hand** - Rs. 0.14 lakhs ( 2004-05 : Rs. 0.14 lakhs) 0.00 0.00

2. East India Clinic Ltd.

1/2% Debenture of face value of Rs.0.15 lakhs - Rs.0.15 lakhs

(2004-05: Rs.0.15 lakhs) 0.00 0.00

5% Debenture of face value of Rs.0.07 lakhs - Rs.0.07 lakhs

(2004-05: Rs.0.07 lakhs) 0.00 0.00

3. Shushrusha Citizen Co-operative Hospital Limited

100 Equity Shares of Rs. 100/- each fully paid up - Rs. 0.10 lakhs

(2003-04: Rs. 0.10 lakhs) 0.00 0.00

4. Petroleum India International (Association of Persons)***

Contribution towards Seed Capital 0.05 0.05

TOTAL (B) 0.08 0.08

TOTAL LONG TERM INVESTMENTS 1,683.86 1,756.84

Less: Provision for loss on Investments** - Rs. 0.14 lakh 0.00 0.00

(2004-05 : Rs. 0.14 lakh)

TOTAL: (I) 1,683.86 1,756.84


Rs./ Crores

1 0 9


2005-06 2004-05II. CURRENT INVESTMENTS (at Cost or Fair Value whichever is lower)

A. TRADE INVESTMENTS.Quoted

7.07% Oil Marketing Companies’ GOI Special Bonds, 2009 400.00 -7.33% Oil Marketing Companies’ GOI Special Bonds, 2009 398.92 -7.44% Oil Marketing Companies’ GOI Special Bonds, 2012 400.00 -7.47% Oil Marketing Companies’ GOI Special Bonds, 2012* 400.00 -7.59% Oil Marketing Companies’ GOI Special Bonds, 2015 344.74 -7.61% Oil Marketing Companies’ GOI Special Bonds, 2015 400.12 -

TOTAL CURRENT INVESTMENTS - (II) 2,343.78 -

4,027.64 1,756.84

Cost Market / Redemption Value

2005-06 2004-05 2005-06 2004-05Aggregate of quoted Investments 3,674.59 1,402.71 4,458.23 2,354.23Aggregate of unquoted Investments 354.13 354.13

4,028.72 1,756.84

* Pledged with Clearing Corporation of India Limited against CBLO Loan** Includes Rs. 0.14 lakhs (2004-05 : Rs. 0.14 lakhs) not in the possession of

the Company*** Members in Petroleum India International (AOP) where Hindustan Petroleum

Corporation Ltd., Bharat Petroleum Corporation Ltd., Bongaigaon Refinery& Petrochemicals Ltd., Kochi Refineries Ltd., Engineers India Ltd.,IBP Co.Ltd., Indian Petrochemicals Corporation Ltd., Chennai Petroleum CorporationLtd. have a share of 12.50 % each

8. INVENTORIES(As per Inventory taken, valued and certified by the Management)Raw Materials (Including in-transit - Rs. 649.49 crores;2004-05 : Rs. 221.93 crores) 1,852.02 1,166.24Finished Products(Including in-transit between locations - Rs. 636.83 crores;2004-05:Rs. 449.54 crores) 5,384.74 4,107.17Stock in Process 406.47 275.07Packages 6.36 7.96

7,649.59 5,556.44Stores and Spares * (Including in-transit - Rs. 7.35 crores;2004-05:Rs. 13.25 crores) 160.70 125.77

7,810.29 5,682.21* Includes stock lying with contractors Rs. 1.39 crores

(2004-05 : Rs. 1.39 crores)


Rs./ Crores

1 1 0


2005-06 2004-059. SUNDRY DEBTORS : (Unsecured)

Over six months :

Considered good 294.89 303.39

Considered doubtful 36.58 31.56

Others :

Considered good 1,097.37 745.22

1,428.84 1,080.17

Less: Provision for Doubtful Debts 36.58 31.56

1,392.26 1,048.61

10. CASH AND BANK BALANCES

Cash on hand 1.21 1.21

Cheques Awaiting Deposit 2.09 0.59

With Scheduled Banks:

On Current Accounts 36.11 196.74

On Non-operative Current Accounts* 0.01 0.01

On Fixed Deposit Accounts ** 3.11 3.02

With Others:

In Current Account with Municipal Co-operative

Bank Ltd. (maximum balance during the year

Rs. 0.09 crores, 2004-05 : Rs. 0.13 crores) 0.06 0.06

42.59 201.63

* Represents amount deposited as per Court Order pending

final disposal.

** Includes lodged as security deposit

with Mumbai Port Trust - Rs. 0.54 crores (2004-05 : Rs.0.54 crores)

and with IAAI - Rs. 0.24 crores (2004-05 : Rs.0.24 crores).

11. OTHER CURRENT ASSETS

Interest accrued on Bank Deposits and Investments 11.38 0.35


Rs./ Crores

1 1 1


2005-06 2004-0512. LOANS AND ADVANCES

Secured, considered good :

Advances recoverable in cash or in kind or

for value to be received* 359.23 365.48

Interest Accrued thereon 114.44 102.77

Unsecured, considered good :

Advances recoverable in cash or in kind or

for value to be received ** 50.09 46.81

Balances with Excise, Customs, Port Trust etc. 256.77 296.66

Other Deposits 142.57 148.40

Prepaid Expenses 7.18 7.40

Amounts recoverable under Subsidy Schemes 41.11 832.86

Share application money pending allotment 61.27 44.98

Advance towards equity 13.00 8.00

Other Accounts Receivable *** 707.80 716.14

Unsecured, considered doubtful :

Accounts Receivable & Deposits 2.99 4.17

1,756.45 2,573.67

Less : Provision for Doubtful Receivables 2.99 4.17

1,753.46 2,569.50

* Includes Rs. 0.31 crores, (2004-05: Rs.0.33 crores) due from Directors;

maximum balance - Rs. 0.33 crores, (2004-05: Rs.0.35 crores) and Rs.

0.01 crore (2004-05: Rs. 0.02 crore) due from an Officer; maximum balance

- Rs. 0.01 crore, (2004-05 Rs.0.01 crore).

** Includes Rs.Nil (2004-05: Rs. Nil ) due from Directors; maximum balance

Rs. Nil, (2004-05: Rs Nil ) and Rs. Nil (2004-05: Rs. Nil) due from an Officer;

maximum balance Rs.Nil, (2004-05 Rs.Nil).

*** Includes Rs. 10.83 crores (2004-05 : Rs.10.28 crores) being amount due

towards Company’s share of profit in Petroleum India International.


Rs./ Crores

1 1 2



M/s PYRO ELECTRIC INSTRUMENTS, M/s S.K.M.L. ENTERPRISES, M/s NEWAGE INDUSTRIES, M/s M. SAGAR, M/s KEVIN ENTERPRISESPRIVATE LTD., M/s SRI MANOJ ELECTRICAL WORKS, M/s K.V. FIRE CHEMICALS (INDIA), M/s SRI TRINADHA ELECTRICAL WORKS, M/s JOSEPHLESLIE DRAGER MFG.PVT. LTD., M/s LEVCON INST. PVT. LTD., M/s GASKETS (INDIA) PRIVATE LTD, M/s CHEMTROLS ENGINEERING LTD, M/s EX-PROTECTA, M/s REMI PROCESS PLANT & MACHINERY, M/s SHANMUKA ENGINEERING WORKS, M/s SRI BALAJI ASSOCIATES, M/s EBYFASTENERS, M/s PACKINGS & JOINTINGS GASKET, M/s CDC CARBOLINE INDIA PVT LTD., M/s SOUTHERN GASKET PRODUCTS, M/s A.K. DEY& COMPANY, M/s IGP ENGINEERS PVT LIMITED, M/s HYDRO - PNEUMATICS, M/s MADRAS INDUSTRIAL PRODUCTS, M/s DEMBLA VALVES PVT.LIMITED, M/s GOODRICH GASKET (P) LIMITED, M/s H. GURU INDUSTRIES, M/s SEBIM VALVES INDIA PVT. LTD., M/s A.N. INSTRUMENTS PRIVATELTD, M/s VIRGO ENGINEERS LIMITED, M/s JAYALAKSHMI ENGINEERING CON, M/s FLOWAY VALVES PVT. LIMITED, M/s PRECISION ENGINEERINGWORKS, M/s J R U CONTROLS PVT. LTD., M/s COASTAL AMMONIA PRIVATE LTD, M/s GUJARAT INFRAPIPES PVT LTD., M/s ASSOCIATEDSUPPLIERS, M/s M.S. FITTINGS MANUFACTURING, M/s PRIME MOVER GOVERNER SERVICES, M/s A.V. VALVES LIMITED, M/s SRIRAM & CO, MsECONO VALVES PRIVATE LIMITED, M/s X TECHS, M/s CHAUDHRY HAMMER WORKS PVT.LTD., M/s COROMANDEL PAINTS & CHEMICALS, M/sFLASH FORGE PVT LIMITED, M/s GEETHA ENTERPRISES, M/s SWARAN SINGH & CO, M/s RAO WELDING WORKS, M/s PRESIDENTENGINEERING WORKS, M/s LEAK STOP EXPERTS, M/s MULTITHREAD FASTENERS, M/s PRECISION MANAGEMENT COUNCIL, M/s AEPCOMPANY, M/s NCON TURBO TECH (PVT) LTD, M/s PTD FASTENERS PVT. LIMITED, M/s GANGOTRI TURBO TECH. ENGG., M/s NIREKAENGINEERING & CO.PVT LTD., M/s MODERN ELECTRICAL WORKS, M/s MAHALAKSHMI ENGINEERS, Ms SRI GAJALAKSHMI INDUSTRIES, M/sPAVANI ENTERPRISES, M/s VOLTAMP TRANSFORMERS PVT. LTD., M/s GOPAL ENGINEERING WORKS, Ms WAAREE INSTRUMENTS LTD, M/sPRAVASI ENTERPRISES, M/s GANESH ENGINEERING WORKS, M/s MASTAN ENGINEERING WORKS, M/s SABARI ENGINEERING CONTRACT, M/s TAS ENGINEERING CO PVT LTD, M/s USHA ENGINEERING WORKS, M/s TECHNIKA, M/s SRI SANARI ELECTRICAL & ENG, M/s GLOBALENTERPRISES, M/s SHIVA JYOTHI ENTERPRISES, M/s M. SOMESWARA RAO, M/s SRI GANESH ELE & REWINDING, M/s RAMAKRISHNAELECTRICAL WIND, M/s S. VENKATA RAO, M/s PRATHYUSHA SAFETY MFG. CO, M/s UNITED ELECTRICAL & REWINDING, M/s PIPEFITENGINEERS, M/s S.K. AHMED, M/s SOHAN ENGINEERING ENTERPRISES, M/s INMACRO, Ms CARTAL TECHNICAL SERIVCES, M/s STEELSAMRAT (India), M/s PAVAN KUMAR BLASTINGS, M/s J.J. INDUSTRIES, M/s AES ENERGY WORKS(P) LTD, M/s SURESH ENGINEERING WORKS,M/s H.M. TECHNOLOGIES, M/s IGP ENGINEERS LTD., M/s PREM ENTERPRISES, M/s SWAN ENTERPRISES PVT. LTD., M/s MICROCARECOMPUTERS PVT LTD, M/s RANK CONTROLS & INSTRUMENTS, M/s MIKROFLO FILTERS (P) LTD., M/s C & I SYSTEMS, M/s CHHABI ELECTRICALS,M/s FIX FIT FASTENERS MFG PVT. LTD., M/s EVANS ELECTRICALS, M/s PAVING STONE, M/s HI-TEC VALVES, M/s SHARP TANKS & STRUCTUREPVT. LTD., M/s TECHNO PROCESS EQUIPMENTS LTD, M/s PACE ENGINEERS INDL., M/s TEEKAY TUBES PVT. LTD.The above information is given to the extent available with the Company.** No amount is due as at the end of the year for credit to Investors’ Education and Protection Fund.

* OUTSTANDING DUES OF SMALL SCALE UNDERTAKINGS FOR MORE THAN 30 DAYS

2005-06 2004-0513. CURRENT LIABILITIES AND PROVISIONS

A. Current LiabilitiesSundry Creditorsi) Total outstanding dues of small scale industrial undertakings * 3.38 4.41ii) Total outstanding dues of creditors other than small scale industrial 3,373.66 2,094.84

undertakingsDeposits from Dealers/Consumers for LPG Cylinders 2,673.90 2,549.33Other Deposits 103.48 90.28Accrued Charges/Credits 122.83 200.39Interest accrued but not due on loans 25.59 5.79Preference share capital redeemed remaining unclaimed/unencashed 0.01 0.01Unclaimed Dividend** 11.19 10.84Other Liabilities 1,080.70 1,221.93

7,394.74 6,177.82B. Provisions

Provision for Tax (Net) 301.78 301.91Provision For Dividend 101.80 339.33Provision for Pension 39.84 37.04Provision for other Retirement Benefits 102.14 84.98Provision for Fringe Benefit Tax 0.31 -Tax on Distributed Profits 14.28 47.59

560.15 810.85

7,954.89 6,988.67

Rs./ Crores

1 1 3


2005-06 2004-05

14. OTHER INCOMEInterest (Gross): *

On Investments 73.56 74.77On Deposits 0.15 3.85On Staff Loans 16.75 14.76On Customers’ Accounts 17.55 4.11On Others 12.46 20.19

120.47 117.68Dividend income 30.42 0.71Share of Profit from Petroleum India International (AOP) 1.03 0.67Rent Recoveries 36.51 33.31Profit on sale of Long Term Investments 4.78 6.60Exchange rate variation (Net) 20.22 77.88Miscellaneous Income ** 115.02 92.68

207.98 211.85328.45 329.53

Note:* Tax deducted at source amounts to Rs. Nil (2004-05: Rs.0.78 crores)** Miscellaneous Income Includes Rs. 0.08 crores on account of

amortisation of capital grant and Rs. 4.95 crores on account ofrecognition of revenue grant from OIDB during the year (2004-05: Nil)

15. INCREASE / (DECREASE) IN INVENTORY

Closing Stock:Stock in Process 406.46 275.07Finished Products 5,384.74 4,107.17

5,791.20 4,382.24Less: Opening Stock:

Stock in Process 275.07 197.68Finished Products 4,107.17 4,149.69

4,382.24 4,347.371,408.96 34.87

16. PAYMENTS TO AND PROVISIONS FOR EMPLOYEES

Salaries, Wages, Bonus, etc. * 456.29 454.01Contribution to Provident Fund 36.37 35.19Pension, Gratuity etc. 24.16 23.17Voluntary Retirement Compensation - 41.98Employee Welfare Expenses ** 178.80 163.60Less: Recoveries 4.85 4.33

173.95 159.27

690.77 713.62* Includes Rs. 12.89 crores (2004-05: Rs.16.79 crores) towards Leave

Encashment on the basis of actuarial valuation** Includes Rs. 4.28 crores (2004-05 : Rs. 1.75 crores) towards Post retirement

medical benefits on the basis of actuarial valuation

Schedules forming part of the Profit and Loss AccountSchedules forming part of the Profit and Loss AccountSchedules forming part of the Profit and Loss AccountSchedules forming part of the Profit and Loss AccountSchedules forming part of the Profit and Loss Account

Rs./ Crores

1 1 4


2005-06 2004-05

17. OTHER OPERATING EXPENSES

Consumption of Stores, Spares and Chemicals 85.84 70.82Power and Fuel 1,306.32 969.53Less : Fuel of own production consumed 1,287.65 956.76

18.67 12.77Repairs and Maintenance - Buildings 11.37 9.93Repairs and Maintenance - Plant & Machinery 277.84 234.57Repairs and Maintenance - other assets 6.63 5.34Insurance 20.15 29.71Rates and Taxes 21.88 20.91Irrecoverable Taxes and Other Levies 257.90 300.07Equipment Hire Charges 2.08 1.04Rent 67.99 55.82Travelling and Conveyance 68.09 59.39Printing and Stationery 8.68 9.63Electricity and Water 107.85 101.57Charities and Donations 8.91 21.13Stores & spares written off 2.48 3.12Provision for Dimunition in value of Current Investments 1.08 -Write off of Goodwill on acquiring LPG Business of PITCL & DGL - 1.22Provision for Doubtful Receivables written back (1.18) (3.13) (After adjusting provision no longer required written back Rs. 1.22 crores , 2004-05 : Rs. 3.13 crores)Provision for Doubtful Debts and write-offs 5.02 2.91 (After adjusting provision no longer required written back Rs. 3.76 crores , 2004-05 : Rs.0.11 crore )Provision for assets under reconciliation no longer required (7.68) -Loss on Sale/ write off of Fixed Assets/ CWIP 7.59 4.02Security Charges 31.53 27.43Advertisement & Publicity 105.30 94.60Sundry Expenses and Charges (Not otherwise classified) 245.26 157.46Consultancy & Technical Services 32.62 23.34

1,385.90 1,243.67

18. INTEREST

On Short Term Loans 149.60 78.37On Overdraft from Banks 9.07 3.13On Fixed Deposits - 0.13Others 0.07 0.01

158.74 81.64

Schedules forming part of the Profit and Loss AccountSchedules forming part of the Profit and Loss AccountSchedules forming part of the Profit and Loss AccountSchedules forming part of the Profit and Loss AccountSchedules forming part of the Profit and Loss Account

Rs./ Crores

1 1 5


19. A. SIGNIFICANT ACCOUNTING POLICIES

Accounts are prepared under the historical cost convention in accordance with Generally AcceptedAccounting Principles (GAAP), Accounting Standards issued by The Institute of CharteredAccountants of India (ICAI) and the provisions of the Companies Act, 1956. All income andexpenditure having material bearing are recognised on accrual basis, except where otherwise stated.Necessary estimates & assumptions of income & expenditure are made during the reporting periodand difference between the actuals and the estimates are recognised in the period in which theresults materialise.

1. FIXED ASSETS

Land acquired on lease for 99 years or more is treated as freehold land.

2. INTANGIBLE ASSETS

a. Cost of Right of Way for laying pipelines is capitalised as Intangible Asset and being perpetualin nature is not amortised.

b. Costs incurred on technical know-how / license fee relating to process design / plants / facilitiesare capitalised as Intangible Assets.

c. Cost of Software directly identified with hardware is capitalised along with the cost of hardware.Application software is capitalised as Intangible Asset.

3. CONSTRUCTION PERIOD EXPENSES ON PROJECTS

a. Related expenditure (including temporary facilities and crop compensation expenses) incurredduring construction period in respect of plan projects and major non-plan projects are capitalised.

b. Financing cost incurred during the construction period on loans specifically borrowed andutilised for projects is capitalised.

c. Financing cost, if any, incurred on general borrowings used for projects is capitalised at theweighted average cost.

4. DEPRECIATION

a. Depreciation on Fixed Assets is provided on straight line method, in the manner and at ratesprescribed under Schedule XIV to the Companies Act, 1956 and is charged pro rata on monthlybasis on assets, from / upto and inclusive of the month of capitalisation / sale, disposal ordeletion during the year.

b. All assets costing upto Rs. 5000/-, other than LPG cylinders and pressure regulators, are fullydepreciated in the year of capitalisation.

c. Premium on leasehold land is amortised over the period of lease.

d. Machinery Spares which can be used only in connection with an item of fixed asset and theuse of which is expected to be irregular, are depreciated over a period not exceeding theuseful life of the principal item of fixed asset. Replacement of such spares is charged torevenue.

e. Intangible Assets other than Application Software are amortised on a straight line basis overthe useful life of the Parent Asset.

f. Application software are normally amortised over a period of four years or over its useful lifebefore it becomes obsolete, whichever is earlier.

Statement of Significant Accounting Policies and Notes forming part of AccountsStatement of Significant Accounting Policies and Notes forming part of AccountsStatement of Significant Accounting Policies and Notes forming part of AccountsStatement of Significant Accounting Policies and Notes forming part of AccountsStatement of Significant Accounting Policies and Notes forming part of Accounts

1 1 6


5. IMPAIRMENT OF ASSETS

At each balance sheet date an assessment is made of whether there is any indication of impairment.An impairment loss is recognised whenever the carrying amount of assets of cash generatingunits(CGU) exceeds their recoverable amount.

6. FOREIGN CURRENCY TRANSACTIONS

a. Foreign Currency transactions during the year are recorded at the rates of exchange prevailingon the dates of transactions.

b. All foreign currency assets, liabilities and forward contracts are restated at the rates ruling atthe year end.

c. All exchange differences are dealt with in the Profit and Loss Account, except those relatingto acquisition of fixed assets, which are adjusted in the cost of assets and those covered byforward contract rates, where the premium / discount arising from such contracts are recognisedover the period of contracts.

7. INVESTMENTS

a. Long-term investments are valued at cost and provision for diminution in value thereof ismade, wherever such diminution is other than temporary.

b. Current investments are valued at the lower of cost and fair value.

8. INVENTORIES

a. Crude oil is valued at cost on First In First Out (FIFO) basis or at net realisable value, whicheveris lower.

b. Raw material for lubricants and Finished lubricants are valued at weighted average cost or atnet realisable value whichever is lower.

c. Stock-in process is valued at raw material cost plus cost of conversion or at net realisablevalue, whichever is lower.

d. Finished products other than Lubricants are valued at cost (on FIFO basis) or at net realisablevalue, whichever is lower.

e. Empty packages are valued at weighted average cost.

f. Stores and spares are valued at weighted average cost.

g. Value of surplus, obsolete and slow moving stores and spares, if any, is reduced to netrealisable value. Surplus items, when transferred from completed projects are valued at cost/ estimated value, pending periodic assessment / ascertainment of condition.

9. DUTIES ON BONDED STOCKS

Excise / Customs duty is provided on stocks stored in Bonded Warehouses (excluding goodsexempted from duty / exports or where liability to pay duty is transferred to consignee).


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10. GRANTS

a. In case of Depreciable Assets, the cost of the asset is shown at gross value and grantthereon is treated as Capital Grants which are recognised in the Profit and Loss Account overthe period and in the proportion in which depreciation is charged.

b. Grants received against revenue items are recognised as income.

11. PROVISIONS

A provision is recognised when there is a present obligation as a result of a past event and it isprobable that an outflow of resources will be required to settle the obligation in respect of which areliable estimate can be made.

12. EXPLORATION & PRODUCTION EXPENDITURE

“Successful Efforts Method” of accounting is followed for Oil & Gas exploration and productionactivities as stated below:

a. Cost of surveys, studies, carrying and retaining undeveloped properties are expensed out inthe year of incurrence.

b. Cost of acquisition, drilling and development are treated as capital work-in-progress whenincurred and capitalised when the well is ready to commence commercial production.

c. Accumulated costs on exploratory wells in progress are expensed out in the year in whichthey are determined to be dry.

The proportionate share in the assets, liabilities, income and expenditure of joint operations areaccounted as per the participating interest in such joint operations.

13. RETIREMENT BENEFITS

Liability towards leave encashment, pension, post - retirement medical benefits and gratuity toemployees is determined on actuarial valuation done at the year end. Liability so determined isfunded in the case of gratuity and provided for in other cases.

14. SALE OF PRODUCTS

Sales are net of discount, include applicable excise duty, surcharge and other elements as allowedto be recovered as part of the price but exclude VAT/sales tax.

15. RESEARCH & DEVELOPMENT

Expenditure incurred on research activities are charged off in the year they are incurred. Expensesdirectly related to development activities which are capable of generating future economic resourcesare treated as intangible assets.

16. TAXES ON INCOME

a. Provision for current tax is made in accordance with the provisions of the Income Tax Act,1961.

b. Deferred tax on account of timing difference between taxable and accounting income is providedby using tax rates and tax laws enacted or substantively enacted as at the balance sheetdate.


1 1 8


17. CONTINGENT LIABILITIES AND CAPITAL COMMITMENTS

Contingent Liabilities and Capital Commitments are considered only for items exceeding Rs.1.00Lakh in each case. Contingent Liabilities in respect of show cause notices are considered onlywhen converted into demands.

18. ACCOUNTING/CLASSIFICATION OF EXPENDITURE AND INCOME

a. Insurance claims are accounted on acceptance basis.

b. All other claims/entitlements are accounted on the merits of each case/realisation.

c. Raw materials consumed are net of discount towards sharing of under recoveries.

d. Prior Period items :

Income and expenditure over Rs.1.00 Lakh in each case pertaining to prior period items arising inthe current period are considered as prior period items.

19 B. NOTES FORMING PART OF ACCOUNTS

1. In respect of sale of sensitive products (MS, HSD LPG (Domestic) and SKO (PDS)), as advised bythe Ministry of Petroleum & Natural Gas, a part of the under-recovery suffered by the Oil MarketingCompanies during the year was compensated by ONGC and GAIL, by offering discounts on pricesof crude, SKO and LPG purchased from them. Accordingly, the Corporation has accounted thediscount received as follows:

(a) Rs.2,531.11 crores (2004-05: Rs.490.66 crores) discount received, on crude oil purchasedfrom ONGC, has been adjusted against ‘Raw Material Cost’.

(b) Rs.690.48 crores (2004-05: Rs.787.68 crores) discount received on purchase of SKO (PDS)and LPG (Domestic) from ONGC and GAIL has been adjusted against ‘Purchase of Productfor Resale’.

2. Oil Bonds issued by the Government of India towards under-recoveries suffered by OMCs on sale ofsensitive products during 2005-06 for Rs.2,344.86 crores (2004-05 : Nil), have been accountedunder ‘Recovery under Subsidy Schemes’.

3. During the year, provision of Rs. 7.68 crores (2004-05: Nil) has been written back, based on actualshortages/overages, as against the provision of Rs. 24.55 crores made in the year 2003-04 towardsvariation, based on physical verification of assets in the marketing locations.

4. The Corporation has, as at the Balance Sheet date, entered into Forward Contracts amounting toUSD 389.13 million to hedge its foreign currency exposure towards loans/Export Earnings. TheCorporation does not generally hedge the risks on account of foreign currency exposure for thepayment of Crude. Exposures not hedged as of Balance Sheet date amounted toUSD 403.99 million towards purchase of crude and USD 50 million in respect of loans taken.

5. (a) Inter-Oil Company transactions are reconciled on continuous basis.

However, year end balances are subject to confirmation/reconciliation.

(b) Customers’ Accounts are reconciled on an ongoing basis and are not likely to have a materialimpact on the outstanding or classification of the accounts.


1 1 9


6. Deferred Tax Assets/(Liabilities) arising due to timing differences comprise of :Rs./Crores

2005-06 2004-05Deferred Tax Asset

Provision for Pension 13.41 12.47Provision For Medical Benefits 4.16 2.72Provision For Leave Encashment 22.99 18.65Others 36.25 36.05

TOTAL (A) 76.81 69.89

Deferred Tax Liability

Depreciation (1,418.89) (1,412.54)Others (42.36) (32.10)

TOTAL (B) (1,461.25) (1,444.64)

Deferred Tax Liability (A + B) (1,384.44) (1,374.75)

7. Related Party disclosure:Rs. /Crores

Subsidiary Company Joint Venture Companies Total

2005-06 2004-05 2005-06 2004-05 2005-06 2004-05

Sales - - 267.02 91.53 267.02 91.53Purchases 6.16 14.00 6,907.32 5,039.64 6,913.48 5,053.64Investment - 2.12 - - - 2.12Advance towards Equity - - 5.00 5.00 5.00 5.00Other Advances - - - - - -Share applicationpending allotment 4.29 - 12.00 - 16.29 -Interest - - 0.90 0.34 0.90 0.34Services - 2.07 (1.36) 2.83 (1.36) 4.90Others 2.69 0.18 2.28 4.44 4.97 4.62Closing Balances (1.40) (6.76) (193.15) (240.12) (194.55) (246.88)

The names of parties are as follows:

Subsidiary Company: Guru Gobind Singh Refineries Ltd.

Joint Venture Companies :

Mangalore Refinery and Petrochemicals Ltd., Hindustan Colas Ltd., Prize Petroleum Co. Ltd.,Petronet India Ltd., Petronet MHB Ltd., South Asia LPG Co. Pvt. Ltd. and Bhagyanagar Gas Ltd.

Key Management Personnel :Shri M. B. Lal, Chairman & Managing DirectorShri D. S. Mathur, Director - Refineries (till May 30, 2005)Shri Arun Balakrishnan, Director- Human ResourcesShri C. Ramulu, Director - FinanceShri S. Roy Choudhury, Director- MarketingShri M.A. Tankiwala, Director- Refineries (from June 01, 2005)Details of remuneration to directors are given in note 10F of Notes to Accounts.


1 2 0


8. Considering the uncertainties attached to certain benefits under the Income Tax Act, the Corporationhas been accounting for such tax benefits in the year they are allowed in the assessments.Accordingly, the Corporation, upon completion of assessment for the financial year 2002-03(assessment year 2003-04) has reversed provision for tax amounting to Rs. 217.36 crores (previousyear: Rs. 47.52 crores).

9. Previous year’s figures have been regrouped/reclassified wherever necessary.

Rs. / Crores

2005-06 2004-0510. A. Estimated amount of contracts remaining to be

executed on Capital Account not provided for 3,492.52 1,071.21B. No provision has been made in the accounts in

respect of the following disputed demands/claimssince they are subject to appeals/representationsfiled by the Corporationi. Income Tax - -ii. Sales Tax/Octroi 1,811.78 632.05iii. Excise/Customs 788.64 910.58iv. Land Rentals & Licence Fees 64.38 41.36v. Others 20.06 19.90

C. Contingent Liabilities not provided for in respectof appeals filed against the Corporationi. Income Tax 10.55 10.55ii. Sales Tax/Octroi 84.53 83.72iii. Excise/Customs 69.59 111.32iv. Employee Benefits/Demands

(to the extent quantifiable) 82.81 69.48v. Guarantees on behalf of others 158.53 166.82vi. Claims against the Corporation not

acknowledged as debts 185.09 197.84591.10 639.74

D. Payment to Auditors:-Audit fees 0.11 0.10-Tax audit fees 0.01 0.02- Other Services 0.05 0.05- Reimbursement of expenses 0.03 0.03

0.20 0.19E. Items included under Employee Welfare Expenses

- Salaries, Wages, Bonus etc. 5.36 2.80- Contribution to Provident Funds 0.37 0.38- Stores & Provision 8.54 7.94- Electricity and Water (Net of recoveries) 2.84 3.04


1 2 1


2005-06 2004-05

- Repairs and Maintenance - Buildings 7.81 4.50

- Repairs and Maintenance - Plant & Machinery 2.86 1.95

- Repairs and Maintenance - Other Assets 0.35 0.15

- Pension / Gratuity / Medical expenses 6.71 2.62

- Rates and Taxes 1.49 1.19

- Rent (Net of Recoveries) 36.54 42.18

- Depreciation 1.26 1.21

- Medical Expenses 51.90 44.86

- Uniform / Work clothes 26.92 25.67

- Insurance 3.55 2.59

- Security 0.32 0.76

- Others (Net) 17.13 17.43

173.95 159.27

F. Managerial Remuneration :

- Salary and Allowances 0.52 0.43

- Contribution to Provident Fund and other funds 0.05 0.04

- Pension and Gratuity 0.02 0.02

- Other benefits 0.14 0.12

G. C.I.F.value of imports during the year(excludes

canalised imports):

- Raw materials 19,923.73 13,867.05

- Stores, Spares and Chemicals 53.93 38.36

- Capital Goods, Components and Spares 85.16 42.75

H. (i) Expenditure in foreign currency on account of:

Engineering, Technical and other services, demurrage

charges, royalties and other matters 105.79 64.01

(ii) Foreign Currency payments for crude 19,058.79 13,849.09

I. Earnings in foreign exchange:(On accrual basis)

Export of goods calculated on FOB basis 3,271.39 1,943.51

Includes Rs. 453.11 crores (2004-05 : Rs. 330.56 crores)

received in Indian currency out of repatriable funds

of foreign airlines customer

Rs./ Crores


1 2 2


2005-06 2004-05

J. Value of Raw Materials, Spare Parts andComponents consumed(i) Raw Materials

- Imported (in %) 81.75 73.26- Imported (in Value) 20,913.10 15,073.62- Indigenous (in %) 18.25 26.74- Indigenous (in Value) 4,669.08 5,502.60

(ii) Spare Parts & Components:- Imported (in %) 22.02 37.54- Imported (in Value) 26.90 30.50- Indigenous (in %) 77.98 62.46- Indigenous (in Value) 95.27 50.76

K. Licensed capacity at year end in Metric Tonnes p.a.(a) Petroleum fuel and lube products 13,000,000 13,000,000(b) Lubricating Oils 122,173 122,173(c) Textile Auxiliaries 3,391 3,391(d) Hydraulic Brake Fluid 556 556(e) Insecticides 782 782(f) Greases 5,913 5,913

L. Installed capacity at year end in Metric Tonnes per annumas certified by the Management on which the Auditors haverelied upon:(a) Petroleum fuel and lube products 13,000,000 13,000,000(b) Lubricating Oils,Greases and Textile Auxiliaries * 319,779 319,779(c) Hydraulic Brake Fluid and Insecticides 4,062 4,062* Product manufacturing facilities are interchangeable

M. Production in Metric Tonnes:(a) Petroleum fuel and lube products

i. Bulk Petroluem Products 12,734,631 12,821,603ii. Lubricating Oil Base Stocks(including

Transformer Oil Base Stocks) 279,757 214,023iii. Carbon Black Feed Stock 27,818 29,346iv. Axle Oil - 277v. Rubber Processing oil 22,555 20,811

(b) Lubricating Oils 130,519 176,863(c) Textile Auxiliaries 554 106(d) Hydraulic Brake Fluid 425 -(e) Insecticides 360 238(f) Greases 2,100 3,273


Rs./ Crores

1 2 3


N. Information for each class of goods purchased, sold and stocks during the year :

Rs./Crores

OPENING STOCK PURCHASES SALES CLOSING STOCK

2005-06 2004-05 2005-06 2004-05 2005-06 2004-05 2005-06 2004-05Bulk

Petroleum M.T. 1556197 2112103 13555011 14697636 25903093 28082980 1892101 1556197

Products Value 3,876.43 3,961.87 42,136.65 33,842.86 72,373.63 63,703.18 5,160.43 3,876.43

Lubricating M.T. 31033 25870 - - 58486 38340 18634 31033

Oil Base Stocks Value 61.95 51.50 - - 216.61 98.61 58.99 61.95

(including

Transformer oil

Base stock)

Carbon Black M.T. 193 2332 26852 - 53301 31283 1157 193

Feed Stock Value 0.24 2.47 41.47 - 97.48 39.59 1.98 0.24

Axle Oil M.T. 40 48 - - 12 285 28 40

Value 0.13 0.15 - - 0.03 0.73 0.13 0.13

Lubricating M.T. 31308 27664 - - 274479 173194 24223 31308

Oils Value 155.88 123.56 - - 1,334.01 824.66 147.87 155.88

Textile M.T. 33 46 - - 546 119 41 33

Auxiliaries Value 0.14 0.17 - - 3.00 0.58 0.24 0.14

Insecticides M.T. 584 725 - - 547 379 397 584

Value 2.99 2.34 - - 3.89 2.87 3.43 2.99

Greases M.T. 1985 1848 - - 2191 3133 1894 1985

Value 9.30 7.52 - - 15.46 19.29 11.67 9.30

Automotive

Accessories Value 0.11 0.12 - - - - - 0.11

Total 4,107.17 4,149.69 42,178.12 33,842.86 74,044.11 64,689.51 5,384.74 4,107.17

No adjustments for transit/operational/temperature variations/consumption for own operation have been made in regard to quantitative information.


1 2 4


Rs. / Crores

2005-06 2004-05

O. Raw Materials consumed:

(a) Crude Oil Processed:

- Tonnes 13,795,237 13,942,043

- Value 25,342.40 20,316.50

(b) Other Petroleum Products

- Tonnes 51,879 43,049

- Value 150.06 83.68

(c) Additives, Inhibitors and Chemicals:

- Value 73.03 99.36

(d) Non-Petroleum Products:

- Value 16.69 76.68

P. Expenditure incurred on Research and Development- Capital 0.78 0.47- Revenue 0.71 1.28

Q. Interest on Project specific borrowings capitalised 41.31 0.10

R . Exchange Differences

i) Adjusted in the carrying amount of Fixed Assets during 0.13 0.70the accounting period.

ii) In respect of Forward Exchange contracts to be recognised 94.66 1.08in Profit or Loss for one or more subsequent accountingperiods


1 2 5


S. Information regarding Primary Segment Reporting as per AS-17 for the year ended March 31, 2006is as under:

Rs. / Crores2005-06 2004-05

Downstream Exploration Total Downstream Exploration TotalPetroleum & Production Petroleum & Production

RevenueExternal Revenue 71,209.67 - 71,209.67 60,062.60 - 60,062.60Inter-segment Revenue - - - -Total Revenue 71,209.67 - 71,209.67 60,062.60 - 60,062.60ResultSegment Results 300.64 (12.42) 288.22 1,600.03 (3.45) 1,596.58Less: Unallocated Expenses - - - - - -Net of unallocated Income - - - - - -Operating Profit 300.64 (12.42) 288.22 1,600.03 (3.45) 1,596.58Less:Interest Expenditure 158.74 - 158.74 81.64 - 81.64Provision fordimunition ininvestments 1.08 -Add:Interest/Dividend(Incl Share of profit from PII) 151.92 119.06Profit on Sale ofInvestments 4.78 6.60Profit before Tax 285.10 1,640.60Less: Taxes(including Deferred tax / FBT) (120.53) 363.27Profit after Tax 405.63 1,277.33Other InformationSegment Assets 20,151.95 - 20,151.95 16,711.21 - 16,711.21Corporate Assets 4,586.95 2,278.41Total Assets 24,738.90 18,989.62Segment Liabilities 14,173.48 15.87 14,189.35 8,470.89 3.45 8,474.34Corporate Liabilities 1,813.81 2,074.43Total Liabilities 16,003.16 10,548.77Capital Expenditure 2,694.43 - 2,694.43 1,322.63 - 1,322.63Depreciation 690.23 - 690.23 659.59 - 659.59

Notes:1. The Company is engaged in the following business segments:

a) Downstream i.e. Refining and Marketing of Petroleum Productsb) Exploration and Production of Hydrocarbons

Segments have been identified taking into account the nature of activities and the nature of risksand returns.

2. Segment Revenue comprises the following:a) Turnover (Net of Excise Duties)b) Subsidy from Government of Indiac) Net Claim/(surrender to) PPAC/GOId) Other income (excluding interest income, dividend income and investment income)

3. There are no geographical segments.


1 2 6


T. In compliance of AS-27 ‘Reporting of Financial Interests in Joint Ventures’, the requiredinformation is as under:

a) Jointly Controlled Entities

Country of Percentage of Percentage ofIncorporation ownership ownership

interest interestas on 31-03-06 as on 31-03-05

Hindustan Colas Limited India 50.00 50.00South Asia LPG Company Pvt. Limited India 50.00 50.00Prize Petroleum Company Limited India 50.00 50.00Mangalore Refinery and Petrochemicals Limited India 16.95 16.95Bhagyanagar Gas Limited India 25.00 25.00Petronet India Limited India 16.00 16.00Petronet MHB Limited India 26.00 26.00

b) In respect of jointly controlled entities, the Corporation’s share of assets, liabilities, income,expenses, contingent liabilities and capital commitments as furnished below, have beenincluded on the basis of unaudited/audited financial received from these joint venturecompanies:

Rs. / Crores2005-06 2004-05

(i) Assets- Long Term Assets 977.88 958.43- Investments 13.00 8.07- Current Assets 674.22 651.71

(ii) Liabilities- Loans (Secured & Unsecured) 741.76 741.29- Current Liabilities & Provisions 414.85 432.58- Deffered Tax Liability 9.75 24.63

(iii) Income 4,298.58 3,250.11(iv) Expenses * 4,252.14 3,111.81(v) Contingent Liabilities 777.57 581.23(vi) Capital Commitments 352.98 286.38

* Including Tax


1 2 7


2005-06 2004-05A. Cash Flow From Operating Activities

Net Profit before Tax & Extraordinary items 285.10 1,640.60Adjustments for :

Depreciation / Amortisation 690.23 659.59Provision for assets under reconciliation no longer required (7.68) -Loss on Sale/write off of Fixed Assets/ CWIP 7.59 4.02Amortisation of capital grant (0.08) -Spares written off 2.48 -Provision for dimunition in the value of current investments 1.08 -Interest Expense 158.74 81.64Exchange rate difference on loans 24.85 10.14Provision for Doubtful Receivables written back (1.18) -Provision for Doubtful Debts 5.02 (0.22)Interest Income (73.72) (78.62)Share of Profit from PII (1.03) (0.67)Dividend Received (30.42) (0.71)Profit on sale of Oil bonds (4.78) (6.60)

Operating Profit before Working Capital Changes 1,056.20 2,309.17(Increase) / Decrease in Working Capital :Trade Receivables (348.67) (51.23)Other Receivables 838.52 261.23Inventories (2,098.81) (279.69)Trade and other Payables 1,073.85 (291.63)

(535.11) (361.31)

Cash generated from operations 521.09 1,947.86Direct Taxes / FBT refund / (paid) - Net 130.41 (629.82)

Cash Flow before extraordinary items 651.50 1,318.03Extraordinary items - -

Net Cash from Operating Activities ( A ) 651.50 1,318.03

B. Cash Flow From Investing ActivitiesPurchase of Fixed Assets (incl. Capital Workin Progress / excluding interest capitalised) (2,529.81) (1,284.86)Sale of Fixed Assets 1.74 2.79Purchase of Investment (Including share application moneypending allotment/Adv. towards Equity) (3,143.17) (7.13)Sale Proceeds of Oil bonds 854.78 306.60Interest received 62.69 78.59Dividend Received 30.42 0.71Share of profit from PII 1.03 0.67

Net Cash from Investing Activities ( B ) (4,722.32) (902.63)

Cash Flow Statement for the year ended 31st March, 2006Cash Flow Statement for the year ended 31st March, 2006Cash Flow Statement for the year ended 31st March, 2006Cash Flow Statement for the year ended 31st March, 2006Cash Flow Statement for the year ended 31st March, 2006

Rs./ Crores

1 2 8


C. Cash Flow From Financing Activities 2005-06 2004-05Proceeds from Calls in Arrear(Net) 0.40 0.86Long term loans raised 902.00 200.00Fixed deposits / Debentures repaid (0.09) (402.68)Short term loans raised / (repaid) 3,408.81 498.22Interest paid on Loans (174.03) (81.64)Dividend paid (including Dividend Distribution Tax) (386.57) (804.92)Capital grant against purchase of assets 5.02 -

Net Cash from Financing Activities ( C ) 3,755.54 (590.17)Net Increase / (Decrease) in Cash andCash Equivalents (A) + (B) + ( C) (315.28) (174.76)

Cash and Cash Equivalents as on 1st April (Opening) :

Cash / Cheques on Hand 1.80 1.36Balances with Scheduled Banks

- On Current Accounts 196.74 194.85- Others 3.03 2.95

Balances with other Banks 0.06 0.05201.63 199.21

Overdrafts from Banks (319.91) (142.73)(118.28) 56.48

Cash and Cash Equivalents as on 31st March (Closing):Cash / Cheques on Hand 3.31 1.80Balances with Scheduled Banks


Balances with other Banks 0.06 0.0642.60 201.63

Overdrafts from Banks (476.16) (319.91)(433.56) (118.28)

Net Increase / (Decrease) in Cash and Cash Equivalents (315.28) (174.76)Note: Previous year’s figures have been regrouped / reclassified wherever necessary.

Cash Flow Statement for the year ended 31st March, 2006Cash Flow Statement for the year ended 31st March, 2006Cash Flow Statement for the year ended 31st March, 2006Cash Flow Statement for the year ended 31st March, 2006Cash Flow Statement for the year ended 31st March, 2006

Rs./ Crores

FOR AND ON BEHALF OF THE BOARD





1 2 9


Balance Sheet Abstract and Company’Balance Sheet Abstract and Company’Balance Sheet Abstract and Company’Balance Sheet Abstract and Company’Balance Sheet Abstract and Company’s General Business Prs General Business Prs General Business Prs General Business Prs General Business Profileofileofileofileofile

I. REGISTRATION DETAILSREGISTRATION NO. : 0 8 8 5 8 STATE CODE: 1 1BALANCE SHEET DATE: 3 1 0 3 2 0 0 6

II. CAPITAL RAISED DURING THE YEAR (Amount in Rs.Thousands)PUBLIC ISSUE RIGHTS ISSUE

N I L N I LBONUS ISSUE PRIVATE PLACEMENT

N I L N I LIII. POSITION OF MOBILISATION AND DEPLOYMENT OF FUNDS (Amount in Rs.Thousands)

TOTAL LIABILITIES TOTAL ASSETS1 6 7 8 4 0 1 5 6 1 6 7 8 4 0 1 5 6

SOURCES OF FUNDSPAID -UP CAPITAL RESERVES & SURPLUS

3 3 8 9 3 9 7 8 3 9 6 8 0 3 1SECURED LOANS UNSECURED LOANS

1 4 8 6 1 5 5 9 5 1 7 7 6 7 5 2DEFFERED TAX LIABILITY

1 3 8 4 4 4 1 7APPLICATION OF FUNDS

NET FIXED ASSETS INVESTMENTS9 7 0 1 2 8 5 7 4 0 2 7 6 3 8 7

NET CURRENT ASSETS MISC.EXPENDITURE3 0 5 5 0 9 1 2 N I L

ACCUMULATED LOSSESN I L

IV. PERFORMANCE OF THE COMPANY (Amount in Rs.Thousands)TURNOVER TOTAL EXPENDITURE

7 4 0 4 4 1 1 4 6 7 1 0 8 1 2 7 5 1PROFIT /LOSS BEFORE TAX PROFIT /LOSS AFTER TAX

+ 2 8 5 0 9 6 3 + 4 0 5 6 3 3 3EARNINGS PER SHARE IN RS. DIVIDEND RATE %

1 1 . 9 7 3 0V. GENERIC NAMES OF THREE PRINCIPAL

PRODUCTS OF THE COMPANY(as per monetary terms )Item Code No. (ITC Code) 2 7 1 0Product Description B U L K P E T R O L E U M

P R O D U C T S

Item Code No. (ITC Code) 2 7 1 0 0 0 4 1 / 6 1Product Description L U B R I C A N T S

Item Code No. (ITC Code) 2 9 0 1 2 2 0 0Product Description P R O P Y L E N E

M.B. LAL C. RAMULU N.R.NARAYANANChairman & Managing Director Director - Finance Company Secretary


1 3 0


Statement pursuant to Section 212 of the Companies Act, 1956 relating toStatement pursuant to Section 212 of the Companies Act, 1956 relating toStatement pursuant to Section 212 of the Companies Act, 1956 relating toStatement pursuant to Section 212 of the Companies Act, 1956 relating toStatement pursuant to Section 212 of the Companies Act, 1956 relating toSubsidiary Companies.Subsidiary Companies.Subsidiary Companies.Subsidiary Companies.Subsidiary Companies.

1. Name of the Subsidiary company Guru Gobind Singh Refineries Ltd.

2. Financial period of the subsidiary company ended 31st March 2006

3. Total issued Share Capital of the subsidiary company 29,57,10,000 Equity Shares of Rs. 10 each

4. Number of shares held in the subsidiary company 29,57,10,000 Equity Shares of Rs. 10 each

5. Percentage of shares held in the subscribedcapital of the subsidiary 100%

6. The net aggregate amount, so far as it concerns themembers of the company and is not dealt within theaccounts, of the Subsidiary’s

i) Profit / (Loss) for the year ended 31st March 2006 NIL

ii) Profit / (Loss) of the previous financial years of thesubsidiary since it became the Company’s subsidiary NIL

7. The net aggregate amount, so far as it concerns themembers of the Company and is dealt within theCompany’s accounts, of the subsidiary’s

i) Profit / (Loss) for the year ended 31st March 2006 NIL

ii) Profit / (Loss) of the previous financial years of thesubsidiary since it became the Company’s subsidiary NIL

For and on behalf of the Board

M.B. Lal C. Ramulu N.R. Narayanan

Chairman & Managing Director Director - Finance Company Secretary

Place : New Delhi

Date : May 25, 2006

1 3 1


INCOME AND EXPENDITURE ACCOUNT FOR TOWNSHIPS, EDUCATION, MEDICAL AND OTHER SOCIALWELFARE FACILITIES FOR THE YEAR ENDED 31ST MARCH, 2006

Rs./ Crores

2005-06 2004-05

Income :

Recovery of house rent 1.84 3.37Recovery of utilities 0.22 0.32Other recoveries 0.40 0.66Excess of expenditure over income 173.95 159.27

176.41 163.62

Expenditure :

Salaries, wages, bonus etc. 5.36 4.79Contribution to provident funds 0.37 0.38Consumption of stores, spares and chemicals 8.54 8.26Electricity and water 2.94 3.15Repairs and maintenance to buildings 7.81 4.49Repairs and maintenance to plant & machinery 2.86 1.95Repairs and maintenance to other assets 0.35 0.15Pension / gratuity 6.84 2.62Rates & taxes 1.49 1.19Rent 38.39 45.56Depreciation 1.26 1.21Medical expenses 51.90 44.86Uniform / work clothes 26.93 25.67Insurance 3.55 2.59Security 0.33 0.76Others 17.53 15.97

176.41 163.62

Social WSocial WSocial WSocial WSocial Welfarelfarelfarelfarelfareeeee

SCHEDULE OF FIXED ASSETS (TOWNSHIP) Rs./ Crores

Gross Block Additions/ Deductions/ Gross Block Depreciation Total Net Netat cost Reclassifi Reclassifi at cost and Depreciation Balance Balance

as at -cations -cations as at Amortisation and as at as at1.4.2005 31.3.2006 for the year Amortisation 31.3.2006 31.3.2005

2005-06 upto 31.3.2006

1. Land - Freehold 0.10 - - 0.10 - - 0.10 0.102. Buildings, Roads, etc. 25.43 0.08 - 25.51 0.41 6.88 18.63 19.043. Plant and Machinery 4.15 0.01 - 4.16 0.16 2.71 1.45 1.604. Furniture, Fixturesand Office/LaboratoryEquipment 4.42 0.56 0.11 4.87 0.07 0.59 4.28 3.725. TransportEquipment 0.01 - - 0.01 0.01 0.01 0.00 0.01Total 34.11 0.65 0.11 34.65 0.65 10.19 24.46 24.47Previous Year 33.55 0.58 0.02 34.11 0.64 9.64 24.47

1 3 2


COMMENTS OF THE COMPTROLLER & AUDITOR GENERAL OF INDIA U/S 619 (4) OF THE COMPANIES

ACT, 1956 ON THE ACCOUNTS OF THE HINDUSTAN PETROLEUM CORPORATION LIMITED FOR THE

YEAR ENDED 31ST MARCH, 2006.

I have to state that the Comptroller and Auditor General of India has no comments upon or supplement to the

Auditors’ Report under Section 619(4) of the Companies Act, 1956 on the accounts of Hindustan Petroleum

Corporation Limited for the year ended 31st March, 2006.

Revathy Iyer

Principal Director of Commercial Audit

& ex-officio Member, Audit Board-II, Mumbai.

Place: Mumbai

Date: July 4, 2006

C & AC & AC & AC & AC & AG’G’G’G’G’s Commentss Commentss Commentss Commentss Comments

1 3 3


REVIEW OF ACCOUNTS OF HINDUSTAN PETROLEUM CORPORATION LIMITED FOR THE YEAR ENDED31ST MARCH 2006 BY THE COMPTROLLER AND AUDITOR GENERAL OF INDIA.

Note: Review of Accounts has been prepared without taking into account comments under Sec.619 (4) of theCompanies Act, 1956, if any, and qualifications contained in the Statutory Auditors’ Report.1. FINANCIAL POSITION

The table below summarises the financial position of the Company under broad headings for the lastthree years. :-

Rs. / Crores

LIABILITIES 2003-04 2004-05 2005-06

(a) Paid Up Capital :(i) Government 173.08 173.08 173.08(ii) Others 165.82 165.85 165.86

(b) Reserves & Surplus(i) Free Reserves & Surplus(Other than Share Premium) 6253.89 6951.07 7245.56(ii) Share Premium Account 1150.02 1150.85 1151.24

(c) Share Application MoneyPending Allotment - - -

(d) Borrowings from(i) Issue of Debentures 400.00 - -(ii) Cash Credit/Overdrafts from Bank 142.73 319.91 476.16(iii) Others 1158.07 1865.44 6187.67

(e) (i) Current Liabilities & Provision 7655.15 6988.67 7954.89(ii) Deferred Tax Liability 1454.08 1374.75 1384.44

Total 18552.84 18989.62 24738.90

ASSETS

(f) Gross Block 11387.43 12393.17 13479.25(g) Less: Cumulative Depreciation 4809.32 5449.53 6141.85(h) Net Block 6578.11 6943.64 7337.40(i) Capital Work-in-progress 496.14 786.84 2363.88(j) Investments 2048.42 1756.84 4027.64(k) Current Assets, Loans & Advance

(i) Inventories 5402.53 5682.21 7810.29(ii) Sundry Debtors 1000.29 1048.61 1392.26(iii) Cash & Bank Balances 199.21 201.63 42.59(iv) Loans & Advances 2827.82 2569.50 1753.46(v) Other Current Assets 0.32 0.35 11.38

(l) Miscellaneous Expenditures to theextent not written off or adjusted - - -

Total 18552.84 18989.62 24738.90

Review of Accounts by C & AReview of Accounts by C & AReview of Accounts by C & AReview of Accounts by C & AReview of Accounts by C & AGGGGG

1 3 4


Rs. / Crores

2003-04 2004-05 2005-06

(m) Working Capital [k-e(i)] 1775.02 2513.63 3055.09

(n) Capital employed (h+m) 8353.13 9457.27 10392.49

(o) Net Worth (a+b(i)+b(ii)-l) 7742.81 8440.85 8735.74

(p) Net worth per Rupee of

Equity capital (Rs.)(o/a) 22.85 24.90 25.77

2. RATIO ANALYSIS

Some important financial ratios on the financial health and working of the Company at the end of last

three years are as under:

Rs. / Crores

2003-04 2004-05 2005-06

A. Liquidity Ratio

Current Ratio (%) 123.19 135.97 138.41

B. Debt Equity Ratio 0.05:1 0.02:1 0.13:1

C. Profitability Ratios (%)

a) Profit before tax to

i) Capital employed 35.68 17.35 2.74

ii) Net worth 38.49 19.44 3.26

iii) Sales 5.79 2.74 0.40

b) Net Profit after tax to Net worth 24.59 15.13 4.64

3. RESERVES & SURPLUS

The free Reserves and Surplus of the company were 24.77 times the paid-up capital as on 31st March,

2006 as against 23.90 times as on 31st March, 2005 and 21.85 times as on 31st March, 2004.

4. INVESTMENTS

The Company has made Rs. Nil investments in their subsidiaries during the year.

5. DUES FROM PP&AC

As of March 2006, dues towards various pool claims pertaining to the APM period (i.e., up to March

31, 2002) to the Company from PP&AC is Rs. Nil.


1 3 5


6. SOURCES AND UTILISATION OF FUNDS

Funds amounting to Rs. 6441.12 crores from internal and external sources were realised and utilised

during the year as follows:

Rs. / Crores

2005-06

SOURCES OF FUNDS

Funds from operations :

Profit after tax 405.63

Depreciation 690.23

Deferred tax 9.69

Adjustment on sale/deletion of Fixed Assets/CWIP 1.66

Share Capital 0.01

Share Premium 0.39

Receipt of Capital Grant from OIDB 4.94

Long Term Loan raised 909.60

Short Term Loans raised 3412.72

Increase in Bank Overdraft 156.25

Redemption of Oil Bonds 850.00

Total 6441.12

UTILISATION OF FUNDS

Public Deposit Repaid 0.09

Capital Expenditure during the year 2694.43

Investments made during the year 3120.80

Dividend Paid 116.08

Increase in working capital 509.72

Total 6441.12

7. WORKING CAPITAL

i) The working capital of the Company as on 31st March for the year 2003-04, 2004-05 and 2005-06

was Rs.1775.02 crores, Rs.2513.63 crores and Rs. 3055.09 crores respectively.

ii) The percentage of working capital to capital employed during the three years 2003-04, 2004-05 and

2005-06 was 21.25, 26.58 and 29.39 respectively.


1 3 6


8. WORKING RESULTS

The working results of the company during the last three years are given below:

Rs. / Crores

2003-04 2004-05 2005-06

1 Net Sales (excl. excise duty & including

payments to pool accounts) 51517.66 59858.74 71037.92

2 Profit before tax 2980.43 1640.60 285.10

3 Profit after tax 1903.94 1277.33 405.63

9. INVENTORY

The inventory position as at the end of last three years was as follows:

Rs. / Crores

2003-04 2004-05 2005-06

i) Raw Materials 931.53 1166.24 1852.02

ii) Stores & Spares 110.21 125.77 160.70

iii) Stock in Process 197.68 275.07 406.47

iv) Finished Goods 4149.69 4107.17 5384.74

v) Packages 13.42 7.96 6.36

The stock of raw materials at the close of each year was equivalent to about 26 days’ consumption in

2005-06 as against 21 days consumption in 2004-05 and 23 days consumption in 2003-04.

The stores, spares and packages at the end of 2005-06 represented 335 days’ consumption as against

303 days’ consumption in 2004-05 and 301 days’ in 2003-04.

Finished Goods at the end of the year was equivalent to 29 days’ sales during 2005-06 as against 25

days’ sales during 2004-05 and 30 days’ during 2003-04.

10. SUNDRY DEBTORS

The position of sundry debtors for the last three years ending 31st March 2006 stood as follows:

Rs. / Crores

Year Sundry Considered Percentage

Debtors Doubtful & Of debtors

Provided for To sales

2003-04 1028.94 28.65 1.83

2004-05 1080.17 31.56 1.67

2005-06 1428.84 36.58 1.93


1 3 7


The following table indicates the debts outstanding for more than one year as on 31st March 2006: -

Rs. / Crores

Government Others Total

Departments

Debts over one year but less than two years 4.48 5.81 10.29

Debts over two years but less than three years 0.11 3.69 3.80

Debts outstanding for more than three years 6.86 37.85 44.71

11. DIVIDEND

The proposed dividend for the year 2005-06 is 30% on equity as compared to 150% paid for 2004-05 and

220% paid for 2003-04. The dividend payout ratio after considering the tax on distributed profits, calculated

as a percentage of total dividend paid/proposed to profit after tax, during the last three years 2005-06,

2004-05 and 2003-04 was 28.62%, 45.42% and 44.23% respectively.

Revathy IyerPrincipal Director of Commercial Audit

& ex-officio Member, Audit Board-II, Mumbai.Place : MumbaiDate : July 4, 2006


1 3 8


Joint VJoint VJoint VJoint VJoint Venturenturenturenturentureseseseses

Sl. Name of the Date of Major Shareholdings Nature of OperationsNo Joint Venture Incorporation1. Mangalore Refinery & 07.03.1988 ONGC - 71,62% Refining of petro products

Petrochemicals Ltd. HPCL - 16.95%

2. Hindustan Colas Ltd. 17.07.1995 HPCL - 50.00% Manufacture and

COLASIE - 50.00% Marketing of Bitumen

Emulsions & Modified

Bitumen

3. Petronet India Ltd. 26.05.1997 HPCL - 16.00% To act as nodal agency

Financial / for developing identified

Strategic and prioritised petroleum

Investors - 50.00% product pipelines in the

Other PSUs - 34.00% country.

4. Petronet MHB Ltd.* 31.07.1998 HPCL - 26.00% Operation and

Petronet maintenance of

India Ltd. - 26.00% petroleum pipeline

ONGC - 23.00% between Mangalore-

Financial / Hassan-Bangalore

Strategic

Investors - 25.00%

* Company is undergoing the process of financial restructuring

5. Prize Petroleum Co. Ltd. 28.10.1988 HPCL - 50.00% Exploration and

ICICI & production activities in

Associates - 45.00% the oil and gas sector

HDFC - 5.00%

6. South Asia LPG Co. Pvt.Ltd. 16.11.1999 HPCL - 50.00% Construction of LPG

TOTAL - 50.00% underground cavern

storage of 60000 MT

capacity and associated

receiving and dispatch

facilities at

Visakhapatnam

7. Bhagyanagar Gas Ltd. 22.08.2003 HPCL - 25.00% Distribution and marketing

GAIL - 25.00% of environmental friendly

AP Govt - 50.00% fuels (green fuels) viz.

CNG and Auto LPG in

the state of Andhra

Pradesh.

1 3 9


Auditors’ ReportAuditors’ ReportAuditors’ ReportAuditors’ ReportAuditors’ Report

AUDITORS’ REPORT TO THE BOARD OF DIRECTORS OF HINDUSTAN PETROLEUM CORPORATION LIMITED ONTHE CONSOLIDATED FINANCIAL STATEMENTS OF HINDUSTAN PETROLEUM CORPORATION LIMITED, ITSSUBSIDIARY AND ITS INTERESTS IN JOINT VENTURE COMPANIES

1. We have audited the attached Consolidated Balance Sheet of Hindustan Petroleum Corporation Limited, itsSubsidiary and its interests in Joint Venture Companies as at March 31, 2006, the Consolidated Profit and LossAccount and Consolidated Cash Flow Statement for the year ended on that date annexed thereto, which wehave signed under reference to this report. These Financial Statements are the responsibility of the HindustanPetroleum Corporation Limited’s Management. Our responsibility is to express an opinion on these FinancialStatements based on our audit.

2. We conducted our audit in accordance with Generally Accepted Auditing Standards in India. These Standardsrequire that we plan and perform the audit to obtain reasonable assurance whether the Financial Statementsare prepared, in all material respects, in accordance with an identified financial reporting framework and arefree of material misstatement. An audit includes examining, on a test basis, evidence supporting the amountsand disclosures in the Financial Statements. An audit also includes assessing the accounting principles usedand significant estimates made by management, as well as evaluating the overall financial statementpresentation. We believe that our audit provides a reasonable basis for our opinion.

3. The Audited Financial Statements of the Subsidiary reflecting total assets of Rs. 304.24 crores as at March 31,2006 and Rs. Nil revenue for the year ended on that date and of five of the Joint Venture Companies reflectingtotal assets of Rs. 241.57 crores as at March 31, 2006 and revenue of Rs. 53.48 crores for the year ended on thatdate, have been audited by other auditors, on which we have relied. We have also relied on unaudited provisionalfinancial statements of two other Joint Venture Companies, viz. Mangalore Refinery & Petrochemicals Ltd andPetronet India Limited, reflecting total assets of Rs. 1,423.53 crores as at March 31, 2006 and revenues of Rs.4245.10 crores for the year ended on that date, for the purpose of our examination of the Consolidated FinancialStatements.

4. We report that the Consolidated Financial Statements have been prepared by the Company in accordance withthe requirements of Accounting Standard 21 “Consolidated Financial Statements” and Accounting Standard 27“Financial Reporting of Interests in Joint Ventures”, issued by the Institute of Chartered Accountants of India, onthe basis of separate audited financial statements of Hindustan Petroleum Corporation Limited, its subsidiaryand five Joint Venture Companies and unaudited provisional financial statements of two Joint VentureCompanies.

5. On the basis of information and explanations given to us and read with note no. 7 of Schedule 20 regardingtreatment of Income Tax benefits, and in consideration of separate audit reports on individual FinancialStatements, of Hindustan Petroleum Corporation Limited, its Subsidiary and Joint Venture Companies, in ouropinion, the consolidated financial statements give a true and fair view in conformity with the accountingprinciples generally accepted in India:

(a) in the case of the Consolidated Balance Sheet, of the consolidated state of affairs of Hindustan PetroleumCorporation Limited, its Subsidiary and its Joint Venture Companies as at March 31, 2006;

(b) in the case of the Consolidated Profit and Loss Account, of the consolidated results of operations ofHindustan Petroleum Corporation Limited, its Subsidiary and its Joint Venture Companies for the yearended on that date; and

(c) in the case of the Consolidated Cash Flow Statement, of the consolidated cash flows of HindustanPetroleum Corporation Limited, and its Subsidiary and seven Joint Venture Companies for the yearended on that date.




1 4 0


Consolidated Balance Sheet as at 31st March, 2006Consolidated Balance Sheet as at 31st March, 2006Consolidated Balance Sheet as at 31st March, 2006Consolidated Balance Sheet as at 31st March, 2006Consolidated Balance Sheet as at 31st March, 2006

Rs./Crores

SCHEDULE 2005-06 2004-05SOURCES OF FUNDSShareholders’ Funds:

a) Capital 1 340.50 340.49b) Reserves and Surplus 2 8,318.00 7,977.50

8,658.50 8,317.99Shares Application Money Pending Allotment 28.40 22.40Loan Funds:

a) Secured Loans 3 1,753.82 616.10b) Unsecured Loans 4 5,648.44 2,308.40

7,402.26 2,924.50Deferred Tax Liability 1,394.19 1,350.12

TOTAL 17,483.35 12,615.01

APPLICATION OF FUNDSFixed Assets: 5

a) Gross Block 14,983.13 13,884.19b) Less: Depreciation 6,640.22 5,874.13c) Net Block 8,342.91 8,010.06d) Capital Work-in-Progress 6 2,635.36 974.09

10,978.27 8,984.15Investments 7 3,214.87 939.15Current Assets, Loans and Advances:

a) Inventories 8 8,133.69 6,008.44b) Sundry Debtors 9 1,594.41 1,215.19c) Cash and Bank Balances 10 56.01 211.91d) Other Current Assets 11 11.55 0.64e) Loans and Advances 12 1,853.13 2,692.67

11,648.79 10,128.85Less:Current Liabilities and Provisions: 13

a) Liabilities 7,808.54 6,601.72b) Provisions 554.75 844.16

8,363.29 7,445.88Net Current Assets 3,285.50 2,682.97Miscellaneous Expenditure to the extent not written off or adjusted :

Expenses including commission or brokerageon underwriting or subscription of shares 4.71 8.74

TOTAL 17,483.35 12,615.01NOTES FORMING PART OF CONSOLIDATED ACCOUNTS 20

M.B. LAL FOR N.M.RAIJI & CO. FOR SUDIT K. PAREKH & CO.Chairman & Managing Director Chartered Accountants Chartered Accountants

C. RAMULU VINAY D. BALSE SRIKANT V. JILLADirector-Finance Partner Partner

N.R. NARAYANANCompany Secretary


1 4 1


Rs./Crores

SCHEDULE 2005-06 2004-05INCOME

Sale of Products 78,881.98 68,239.88Less : Excise duty Paid 6,443.18 5,735.27Net Sales 72,438.80 62,504.61Net Recovery from/(Payment to) Industry Pool Accounts - (7.86)Recovery under Subsidy Schemes 2,876.15 536.68Other Income 14 337.93 371.38

75,652.88 63,404.81INCREASE / (DECREASE) IN INVENTORY 15 1,359.64 68.43EXPENDITURE AND CHARGES

Purchase of Products for resale 42,180.80 33,843.49Raw materials consumed 29,481.32 23,359.55Packages consumed 101.28 94.23Excise duty on inventory differential 171.95 (5.89)Transhipping Expenses 1,520.15 1,384.00Payments to and provisions for Employees 16 701.12 723.08Exploration Expenses 12.44 0.79Other Operating Expenses 17 1,499.39 1,327.40Depreciation/Amortisation 760.81 736.73Interest 18 203.77 133.28Miscellaneous Expenditure written off 6.01 5.38

76,639.04 61,602.04PROFIT FOR THE YEAR BEFORE PRIOR PERIOD ADJUSTMENTS & TAXES 373.48 1,871.20

PRIOR PERIOD DEBITS / (CREDITS) (NET) 19 - (0.05)PROFIT BEFORE TAXES 373.48 1,871.25

PROVISION FOR CURRENT TAXATION 85.54 602.49PROVISION FOR DEFERRED TAXATION (NET) 44.07 0.69PROVISION FOR TAXATION IN EARLIER YEARS WRITTEN BACK (219.88) (147.57)PROVISION FOR FRINGE BENEFIT TAX 11.68 -

PROFIT AFTER TAXES 452.07 1,415.64BALANCE BROUGHT FORWARD 5,926.50 5,153.51

Transfer from Debenture Redemption Reserve - 100.00PROFIT AVAILABLE FOR APPROPRIATION 6,378.57 6,669.15

APPROPRIATED FOR:General Reserve 40.67 127.81Interim Dividend - 169.67Proposed Final Dividend 102.51 369.75Tax on Distributed Profits 14.38 75.42

BALANCE CARRIED FORWARD 6,221.01 5,926.50EARNINGS PER SHARE (in Rs.) 13.34 41.77

(2005-06 : EPS = Net Profit - Rs. 452.07 crores / Weighted avg. no. of shares - 33.894 crores; 2004-05 : EPS = Net Profit - Rs. 1415.64 crores / Weighted avg. no. of shares - 33.893 crores )

NOTES FORMING PART OF CONSOLIDATED ACCOUNTS 20

M.B. LAL FOR N.M.RAIJI & CO. FOR SUDIT K. PAREKH & CO.Chairman & Managing Director Chartered Accountants Chartered Accountants




Consolidated Profit & Loss Account for the year ended 31st March, 2006Consolidated Profit & Loss Account for the year ended 31st March, 2006Consolidated Profit & Loss Account for the year ended 31st March, 2006Consolidated Profit & Loss Account for the year ended 31st March, 2006Consolidated Profit & Loss Account for the year ended 31st March, 2006

1 4 2


Rs./Crores

2005-06 2004-051. CAPITAL

A. Authorised:75,000 Cumulative RedeemablePreference Shares of Rs. 100/- each 0.75 0.7534,92,50,000 Equity Shares of Rs.10/- each 349.25 349.25

350.00 350.00B. Issued, Subscribed & Called up :

33,93,30,000 Equity Shares of Rs.10/- each fully paid up 339.33 339.33Less : Calls unpaid by Others 0.39 0.40

338.94 338.93Non-Cumulative, Redeemable Preference Shares 1.56 1.56

340.50 340.492. RESERVES AND SURPLUS

Share Premium AccountAs per last Balance Sheet 1,048.72 1,048.72Less : Calls Unpaid 12.93 13.31

1,035.79 1,035.41Capital GrantReceived during the year 5.02 -Less : Amortised during the year 0.08 -

4.94 -Debenture Redemption ReserveAs per last Balance Sheet - 100.00Less : Transfer to Profit & Loss Account - 100.00

- -Capital Reserve 0.08 0.08

Market Development Reserve 1.40 1.40

General ReserveAs per last Balance Sheet 1,014.11 886.30Add : Transfer from Profit & Loss Account 40.67 127.81

1,054.78 1,014.11Profit & Loss Account Surplus as per Account annexed 6,221.01 5,926.50

8,318.00 7,977.503. SECURED LOANS

Collateral Borrowing and Lending Obligation (CBLO) 1,010.00 -(Secured by Pledge of Oil Bonds)Overdrafts from Banks 476.16 320.13Rupee Term Loan 26.32 48.17Long Term Loans from Banks 138.16 123.45Interest accrued and due 11.34 2.55Foreign Currency Loans 64.02 79.91

1,726.00 574.21Others 27.82 41.89

1,753.82 616.10

Schedules forming part of the Consolidated Balance SheetSchedules forming part of the Consolidated Balance SheetSchedules forming part of the Consolidated Balance SheetSchedules forming part of the Consolidated Balance SheetSchedules forming part of the Consolidated Balance Sheet

1 4 3


Rs./Crores

2005-06 2004-054. UNSECURED LOANS

Fixed Deposits 0.02 0.11From Oil Industry Development Board 650.00 200.00Clean Loans 2,300.00 -(Due for Repayment within one year - Rs. 2300 crores;2004-05: Rs. Nil)

Syndicated Loans from Foreign Banks 459.60 -(Repayable in Foreign Currency)Foreign Currency Loans 186.38 166.98Advance towards Equity 2.64 1.40Interest Accrued & Due 1.05 1.05Short Term Loans from Banks 1,770.93 1,667.83(Due for Repayment within one year - Rs. 1770.93 crores;2004-05 : Rs. 1667.83)

Sales Tax Deferment Loan 23.57 16.78Others 254.25 254.25

5,648.44 2,308.40

A. OTHER THAN INTANGIBLE ASSETS1. Land - Freehold 274.75 25.82 0.45 300.12 - - 300.12 274.752. Roads and Culverts 573.20 94.77 3.05 664.92 9.64 58.43 606.49 524.363. Buildings 1,126.48 172.57 3.20 1,295.85 24.68 165.59 1,130.26 984.644. Leasehold Property

- Land 127.32 5.21 0.02 132.51 4.15 24.86 107.65 106.615. Railway Siding and

Rolling Stock 271.59 3.18 - 274.77 12.78 114.38 160.39 169.996. Plant and Machinery 11,092.92 800.09 41.81 11,851.20 678.21 6,042.59 5,808.61 5,735.027. Furniture, Fixtures

and Office/LaboratoryEquipment 286.51 30.71 6.47 310.75 23.91 158.66 152.09 147.94

8. Transport Equipment 79.01 15.23 1.43 92.81 5.47 47.60 45.21 36.849. Unallocated Capital Expenditure

on Land Development 0.20 - - 0.20 - 0.20 - -

Total (A) 13,831.98 1,147.58 56.43 14,923.13 758.84 6,612.31 8,310.82 7,980.15

B. INTANGIBLE ASSETS1. Right of Way 14.65 3.10 - 17.75 - - 17.75 14.642. Technical/Process Licences 6.24 3.23 - 9.47 0.81 2.59 6.88 4.463. Software 31.32 1.48 0.02 32.78 4.83 25.32 7.46 10.81

Total (B) 52.21 7.81 0.02 60.00 5.64 27.91 32.09 29.91

GRAND TOTAL (A+B) 13,884.19 1,155.39 56.45 14,983.13 764.48 6,640.22 8,342.91 8,010.06

Previous Year 12,865.87 1,100.90 82.58 13,884.19 740.19 5,874.13 8,010.06

Gross Blockat cost

as at01-04-2005

Additions/Reclassifi-

cations

Gross Blockat cost

as at31-03-2006

Depreciationand

Amortisationfor the year

2005-2006

Deductions/Reclassifi-

cations

TotalDepreciation

andAmortisation

upto31-03-2006

Net Blockas at

31-03-2006

Net Blockas at

31-03-2005


5. FIXED ASSETS Rs./Crores

1 4 4


Rs./Crores

2005-06 2004-056. CAPITAL WORK-IN-PROGRESS (at Cost)

Unallocated Capital Expenditure and Materials at Site 1,792.97 765.82Advances for Capital Expenditure 93.52 60.67Capital Stores 426.72 50.72Capital Stores lying with Contractors 117.60 4.46Capital goods in transit 40.38 2.03

2,471.19 883.70Construction period expenses pendingapportionment (Net of recovery) 0.22 0.65Establishment charges 121.86 89.04Borrowing Cost 42.01 0.70Depreciation 0.08 -

164.17 90.39

2,635.36 974.097. INVESTMENTS

I. LONG TERM INVESTMENTS (at cost):


Quoted

6.96% Oil Companies Government Of India Special Bonds 2009* 81.00 931.007.00% Oil Companies Government Of India Special Bonds 2009* 781.64 -

Unquoted

1. Petronet MHB Limited 0.05 0.052. Petronet VK Limited 4.16 4.163. Petronet CCK Limited 4.16 4.164. Petronet CI Limited 0.60 0.17

Total (A) 871.61 939.54

B. OTHER INVESTMENTS

Quoted

1. Government Securities of the face value of Rs. 0.02 crores(2004-05 : 0.02 crores)Deposited with Others 0.02 0.02On hand - Rs. 0.25 lakhs (2004-05 : 0.25 lakhs) - -

2. Scooters India Ltd.10,000 Equity Shares of Rs. 10 each fully paid up 0.01 0.01

Unquoted

1. Government Securities of the face value of Rs. 0.24 lakhs(2004-05 : 0.24 lakhs)Deposited with Others - Rs. 0.10 lakhs (2004-05 : 0.10 lakhs) - -On hand** - Rs. 0.14 lakhs (2004-05 : 0.14 lakhs) - -

2. East India Clinic Ltd.1/2% Debentures of face value of Rs. 0.15 lakhs (2004-05 : 0.15 lakhs) - -5% Debentures of face value of Rs. 0.07 lakhs (2004-05 : 0.07 lakhs) - -


1 4 5


Rs./Crores

2005-06 2004-053. Shushrusha Citizen Co-operative Hospital Limited

100 Equity Shares of Rs. 100/- each fully paid up Rs. 0.10 lakhs(2004-05 : 0.10 lakhs) - -

4. Petroleum India International (Association of Persons)***Contribution towards Seed Capital 0.05 0.05

Total (B) 0.08 0.08

TOTAL LONG TERM INVESTMENTS [(A)+(B)] 871.69 939.62

Less: Provision for loss on Investments 0.60 0.47

TOTAL : (I) 871.09 939.15

II. CURRENT INVESTMENTS(at Cost or Fair Value whichever is lower)


Quoted

7.07% Oil Marketing Companies’ GOI Special Bonds, 2009 400.00 -



7.47% Oil Marketing Companies’ GOI Special Bonds, 2012 * 400.00 -



TOTAL CURRENT INVESTMENTS - (II) 2,343.78 -

TOTAL (I) + (II) 3,214.87 939.15

* Pledged with Clearing Corporation of India Limited against CBLO Loan

** Includes Rs. 0.14 lakhs (2004-05 : Rs. 0.14 lakhs) not in the possessionof the Company

*** Members in Petroleum India International (AOP) where HindustanPetroleum Corporation Ltd., Bharat Petroleum Corporation Ltd.,Bongaigaon Refinery & Petrochemicals Ltd., Kochi Refineries Ltd.,Engineers India Ltd., IBP Co. Ltd., Indian Petrochemicals CorporationLtd., Chennai Petroleum Corporation Ltd. have a share of 12.50 % each


1 4 6


Rs./Crores

2005-06 2004-058. INVENTORIES

Raw Materials 2,058.43 1,329.90

Finished Products 5,477.17 4,241.54

Stock in Process 420.52 296.61

Packages 6.44 8.08

7,962.56 5,876.13

Stores and Spares 171.13 132.31

8,133.69 6,008.44

9. SUNDRY DEBTORS : (Unsecured)Over six months :

Considered good 317.22 317.25Considered doubtful 39.63 31.97

Others :Considered good 1,277.19 897.94Considered doubtful 0.17 7.28

1,634.21 1,254.44Less: Provision for Doubtful Debts 39.80 39.25

1,594.41 1,215.19

10. CASH AND BANK BALANCESCash on hand 1.23 1.24Cash & Cheques Awaiting Deposit 2.79 0.85With Scheduled Banks:

On Current Accounts 42.13 199.62On Non-operative Current Accounts 0.39 0.03On Fixed Deposit Accounts 9.41 10.11

With Others:In Current Account with Municipal Co-operativeBank Ltd. (maximum balance during the yearRs. 0.09 crore ; 2004-05 : Rs. 0.13 crore) 0.06 0.06

56.01 211.9111. OTHER CURRENT ASSETS

Interest accrued on Bank Deposits and Investments 11.55 0.64


1 4 7


Rs./Crores

2005-06 2004-0512. LOANS AND ADVANCES

Secured, considered good :Advances recoverable in cash or inkind or for value to be received 362.64 367.31Interest Accrued thereon 114.44 102.77

Unsecured, considered good :Advances recoverable in cash or in kindor for value to be received 85.85 94.98Balances with Excise,Customs,Port Trust etc. 266.20 306.40Other Deposits 145.13 150.71Prepaid Expenses 7.30 7.48Amounts recoverable under Subsidy Schemes 41.11 832.86Advance towards Equity 9.67 5.92Share Application Money Pending Allotment 46.21 40.51Other Accounts Receivable 774.58 783.73

Unsecured, considered doubtful :Accounts Receivable & Deposits 3.16 4.36

1,856.29 2,697.03

Less : Provision for Doubtful Receivables 3.16 4.361,853.13 2,692.67

13. CURRENT LIABILITIES AND PROVISIONSA. Current Liabilities

Sundry Creditorsi) Total outstanding dues of small scale

industrial undertakings 3.45 4.45ii) Total outstanding dues of creditors

other than small scale industrial undertakings 3,751.54 2,484.23Deposits from Dealers/Consumers for LPG Cylinders 2,673.90 2,549.33Other Deposits 108.00 97.80Accrued Charges/Credits 122.83 200.39Interest accrued but not due on loans 26.26 7.38Interest accrued and due on Unpaid Debentures 0.86 1.18Preference share capital redeemedremaining unclaimed/uncashed 0.01 0.01Unclaimed Dividend * 11.19 10.84Unpaid Matured Debentures 2.33 2.80Other Liabilities 1,108.17 1,243.31

7,808.54 6,601.72B. Provisions

Provision for Tax (Net) 294.03 299.14Proposed Dividend 102.51 369.75Provision for Gratuity / Pension 39.90 37.08Provision for other Retirement Benefits 103.61 86.33Provision for Fringe Benefit Tax 0.32 -Tax on Distributed Profits 14.38 51.86

554.75 844.168,363.29 7,445.88

* No amount is due as at the end of the year for credit to Investors’ Education and Protection Fund.


1 4 8


Rs./Crores

2005-06 2004-0514. OTHER INCOME

Interest (Gross):On Investments 73.57 74.77On Deposits 0.40 4.31On Staff Loans 16.74 14.76On Customers’ Accounts 17.55 4.11On Others 15.14 22.83

123.40 120.78

Dividend Income 30.42 0.71Share of Profit from Petroleum India International (AOP) 1.03 0.67Rent Recoveries 36.51 33.31Export benefit under duty free entitilement scheme - 23.17Profit on sale of Investments 4.78 6.60Exchange rate variation (Net) 8.17 78.94Miscellaneous Income 133.62 107.20

214.53 250.60

337.93 371.38

15. INCREASE / (DECREASE) IN INVENTORYClosing Stock:

Stock in Process 420.52 296.61Finished Products 5,477.27 4,241.54

5,897.79 4,538.15Less: Opening Stock:

Stock in Process 296.61 219.07 Finished Products 4,241.54 4,250.65

4,538.15 4,469.72

1,359.64 68.43

16. PAYMENTS TO AND PROVISIONS FOR EMPLOYEES

Salaries, Wages, Bonus, etc. 465.45 461.82Contribution to Provident Fund 37.04 35.81Pension, Gratuity etc. 24.17 23.18Voluntary Retirement Compensation - 41.98Employee Welfare Expenses 179.31 164.62Less: Recoveries 4.85 4.33

174.46 160.29701.12 723.08

Schedules forming part of the Consolidated Profit & Loss AccountSchedules forming part of the Consolidated Profit & Loss AccountSchedules forming part of the Consolidated Profit & Loss AccountSchedules forming part of the Consolidated Profit & Loss AccountSchedules forming part of the Consolidated Profit & Loss Account

1 4 9


Rs./Crores

2005-06 2004-0517. OTHER OPERATING EXPENSES

Consumption of Stores, Spares and Chemicals 94.99 74.18Power and Fuel 1,468.94 1,076.46Less : Fuel of own production consumed 1,447.67 1,060.76

21.27 15.70Repairs and Maintenance - Buildings 11.42 10.00Repairs and Maintenance - Plant & Machinery 282.80 239.10Repairs and Maintenance - other assets 7.98 6.31Insurance 22.54 32.28Rates and Taxes 22.43 21.23Irrecoverable Taxes and Other Levies 335.40 348.58Equipment Hire Charges 2.08 1.04Rent 69.19 56.80Travelling and Conveyance 68.61 59.87Printing and Stationery 8.72 9.66Electricity and Water 108.13 101.76Charities and Donations 8.91 21.13Loss on Sale/ write off of Fixed Assets/ CWIP 7.71 4.12Stores & spares written off 2.50 3.15Provision for Dimunition in value of Current Investments 1.21 -Write off of Goodwill on acquiring LPG Business of PITCL & DGL - 1.22Provision for Doubtful Debts and write-offs 6.52 10.23Provision for Doubtful Receivables written back (1.17) (3.10)Provision for assets under reconciliation no longer required (7.68) -Security Charges 31.63 27.52Advertisement & Publicity 105.40 94.69Consultancy and Technical Services 33.03 23.75Sundry Expenses and Charges (Not otherwise classified) 255.77 168.18

1,499.39 1,327.40

18. INTERESTOn Long Term Loans 33.87 39.99On Short Term Loans 149.79 78.37On Overdraft from Banks 9.07 3.13On Fixed Deposits - 0.13Others 11.04 11.66

203.77 133.28

19. PRIOR PERIOD DEBITS/(CREDITS)Interest on Deposits - (0.05)

Schedules forming part of the Consolidated Profit & Loss AccountSchedules forming part of the Consolidated Profit & Loss AccountSchedules forming part of the Consolidated Profit & Loss AccountSchedules forming part of the Consolidated Profit & Loss AccountSchedules forming part of the Consolidated Profit & Loss Account

1 5 0


20. Notes forming part of the Consolidated Financial Statements for the year ended 31st March, 2006

1. Basis of preparation

The company has prepared the Consolidated Financial Statements by consolidating its accounts with itswholly owned subsidiary Guru Gobind Singh Refineries Limited in accordance with Accounting Standard21 (Consolidated Financial Statements) and its Joint Ventures in accordance with Accounting Standard27 (Reporting for Financial Interests in Joint Ventures).

2. Principles of Consolidation

The Financial Statements of all these companies are prepared according to uniform accounting policies,in accordance with Generally Accepted Accounting Principles in India.

3. Companies included in Consolidation % Holding

Subsidiary

Guru Gobind Singh Refineries Limited 100.00

Joint Ventures

Hindustan Colas Limited 50.00

South Asia LPG Co. Pvt. Ltd., 50.00

Prize Petroleum Company Pvt. Limited 50.00

Mangalore Refinery and Petrochemicals Limited 16.95

Bhagyanagar Gas Limited 25.00

Petronet India Limited 16.00

Petronet MHB Limited 26.00

4. Other Significant Accounting Policies and additional information

The other significant accounting policies have been set out in the notes to accounts of the parent companyHindustan Petroleum Corporation Limited as the same have been applied to the accounts of the parent,subsidiary and joint ventures. Additional information not impacted by consolidation is also set out in thenotes to the accounts of the parent company.

5. Figures pertaining to the Subsidiary company and Joint Ventures have been reclassified wherever necessaryto confirm to the Company’s Financial Statements.

6. Related Party disclosure:

Rs./Crores

Joint Venture Companies

2005-06 2004-05

Sales 267.02 91.53Purchases 6,907.41 5,043.35Dividend 0.71 0.71Advance towards equity 5.00 5.00Share application money pending allotment 12.00 -Interest 0.90 0.34

Notes forming part of the Consolidated Financial StatementsNotes forming part of the Consolidated Financial StatementsNotes forming part of the Consolidated Financial StatementsNotes forming part of the Consolidated Financial StatementsNotes forming part of the Consolidated Financial Statements

1 5 1


Rs./Crores

Joint Venture Companies

2005-06 2004-05

Services (1.20) 2.83

Others 2.28 4.44

Interest paid - 0.01

Services received 1.30 1.50

Closing Balances (193.12) (240.98)

The names of parties are as follows :Joint Venture Companies: Mangalore Refinery and Petrochemicals Ltd., Hindustan Colas Ltd., PrizePetroleum Co. Ltd., Petronet India Ltd., Petronet MHB Ltd., South Asia LPG Co. Pvt. Ltd., BhagyanagarGas Ltd., M/s Colasie, M/s Colas SAKey Management Personnel :Shri M. B. Lal, Chairman & Managing DirectorShri M. A. Tankiwala, Director – Refineries(from June 01, 2005)Shri Arun Balakrishnan, Director- Human ResourcesShri C. Ramulu, Director - FinanceShri S. Roy Choudhury, Director- Marketing

7. Considering the uncertainties attached to certain benefits under the Income Tax Act, the Parent Company(Hindustan Petroleum Corporation Limited) has been accounting for such tax benefits in the year they areallowed in the assessments. Accordingly, the Parent Company, upon completion of assessment for theFinancial year 2002-03 (Assessment year 2003-04) has reversed provision for tax amounting to Rs.217.36 crores (Previous year: Rs. 47.52 crores).

8. Previous year’s figures have been regrouped/reclassified wherever necessary.

Rs./Crores

2005-06 2004-059. A. Estimated amount of contracts remaining to be

executed on Capital Account not provided for 3,669.64 1,192.85

B. No provision has been made in the accountsin respect of the following disputed demands/claimssince they are subject to appeals / representationsand a substantial portion thereof is recoverablefrom Pool Account

i) Sales Tax/Octroi 1,811.78 632.05

ii) Excise/Customs 788.64 910.58

iii) Land Rentals & Licence Fees 64.38 41.36

iv) Others 20.06 19.90


1 5 2


Rs./Crores

2005-06 2004-05C. Contingent Liabilities not provided for in respect of

i) Income Tax 25.27 25.19ii) Sales Tax/Octroi 131.53 128.64iii) Excise/Customs 102.60 114.09iv) Employee Benefits/Demands 82.81 69.48

(to the extent quantifiable)v) Guarantees on behalf of others 171.17 184.41vi) Claims against the Corporation not

acknowledged as debts 231.24 237.77vii) Enhancement of Compensation against land acquired 23.00 173.26viii) Service Tax 0.08 0.08ix) Others 2.24 1.72

D. Payment to Auditors:- Audit fees 0.17 0.16- Tax audit fees 0.02 0.02- Other services 0.04 0.05- Reimbursement of expenses 0.07 0.05

E. Managerial Remuneration :- Salary and Allowances 0.69 0.65- Contribution to Provident Fund and other funds 0.06 0.05- Pension and Gratuity 0.02 0.02- Other benefits 0.20 0.16

F. Deferred Tax Assets/(Liabilities) arising due to timingdifferences comprises of:Deferred Tax AssetsProvision for Gratuity/Pension 13.43 12.48Provision for Medical Benefits 4.16 2.72Provision for Leave Encashment 22.99 18.65Provision for doubtful debts 0.04 0.01Unabsorbed Losses and Allowances 156.88 193.66Others 39.90 40.00Total 237.41 267.52Deferred Tax LiabilitiesDepreciation 1,577.94 1,571.65Lease Finance 11.30 12.58Deferred Revenue Expenditure - 1.30Others 42.36 32.10Total 1,631.60 1,617.63Deferred Tax Asset/(Liability) (1,394.19) (1,350.12)


1 5 3


G. Information regarding Primary Segment Reporting as per AS-17 for the year ended March 31, 2006 is asunder: Rs./Crores

2005-06 2004-05Downstream Exploration Total Downstream Exploration Total

Petroleum & Production Petroleum & ProductionRevenueExternal Revenue 75,493.25 75,493.25 63,283.91 63,283.91Inter-segment Revenue - - - -Total Revenue 75,493.25 - 75,493.25 63,283.91 - 63,283.91ResultSegment Results 431.27 (12.44) 418.83 1,879.22 (3.45) 1,875.77Less: Unallocated Expenses - - - - - - (Net of unallocated Income) - - - - - -Operating Profit 431.27 (12.44) 418.83 1,879.22 (3.45) 1,875.77Less:Interest Expenditure 203.77 - 203.77 133.28 - 133.28Provision for dimunition in value ofcurrent investments 1.21 -Add:Interest/Dividend(Incl Share of profit from PII) 154.85 122.16Profit on Sale of Investments 4.78 6.60Profit before Tax 373.48 1,871.25Less: Taxes(including Deferred tax / FBT) (78.59) 455.61Profit after Tax 452.07 1,415.64Other InformationSegment Assets 22,082.55 - 22,082.55 18,595.85 - 18,595.85Corporate Assets 3,764.09 1,465.04Total Assets 25,846.64 20,060.89Segment Liabilities 15,327.22 15.89 15,343.11 9,635.33 3.45 9,638.78Corporate Liabilities 1,816.63 2,081.72Total Liabilities 17,159.74 11,720.50Capital Expenditure 2,753.47 - 2,753.47 1,353.12 - 1,353.12Depreciation 762.07 762.07 737.94 737.94

Notes:1. The Group is engaged in the following Business Segments:

a) Downstream i.e. Refining and Marketing of Petroleum Productsb) Exploration and Production of Hydrocarbons Segments have been identified taking into account the

nature of activities and the nature of risks and returns.2. Segment Revenue comprises the following:

a) Turnover (Net of Excise Duties)b) Subsidy from Government of Indiac) Net Claim/(surrender to) PPAC/GOId) Other income (excluding interest income, dividend income and investment income)

3. There are no geographical segments.


1 5 4


Rs./Crores

2005-06 2004-05A. Cash Flow from Operating Activities

Net Profit before Tax & Extraordinary items 373.48 1,871.25Adjustments for :

Depreciation / Amortisation 760.81 736.73Miscellaneous Expenditure written off 6.01 5.38Provision for assets under reconciliation written back (7.68) -Loss on Sale/write off of Fixed Assets/ CWIP 7.71 4.12Amortisation of capital grant (0.09) -Spares written off 2.50 3.15Provision for dimunition in the value of current investments 1.21 -Interest Expense 203.77 133.28Provision for Doubtful Receivables written back (1.17) (3.10)Provision for Doubtful Debts 6.52 10.23Interest Income (123.40) (120.78)Share of Profit from PII (1.03) (0.67)Dividend Received (30.42) (0.71)Profit on sale of Oil bonds (4.78) (6.60)

Operating Profit before Working Capital Changes 1,193.44 2,632.28(Increase) / Decrease in Working Capital :Trade Receivables (385.74) (82.90)Other Receivables 850.16 224.60Inventories (2,096.00) (406.09)Trade and other Payables 1,099.74 (129.02)

(531.84) (393.41)

Cash generated from operations 661.60 2,238.87Direct Taxes / FBT refund / (paid) - Net 117.87 (644.94)

Cash Flow before extraordinary items 779.47 1,593.93Extra Ordinary Items - -

Net Cash from Operating Activities ( A ) 779.47 1,593.93

B. Cash Flow from Investing ActivitiesPurchase of Fixed Assets (incl. Capital Workin Progress / excluding interest capitalised) (2,626.31) (1,354.22)Sale of Fixed Assets 1.85 2.88Purchase of Investment(Including Share Application moneypending allotment/Adv. towards Equity) (3,136.38) -Misc Expenditure incurred by GGSRL (1.98) -Sale Proceeds of Oil bonds 854.78 306.60Interest received 112.49 120.52Dividend Received 30.42 0.71Share of profit from PII 1.03 0.67

Net Cash from Investing Activities ( B ) (4,764.10) (922.84)

Consolidated Cash Flow Statement for the year ended 31st March, 2006Consolidated Cash Flow Statement for the year ended 31st March, 2006Consolidated Cash Flow Statement for the year ended 31st March, 2006Consolidated Cash Flow Statement for the year ended 31st March, 2006Consolidated Cash Flow Statement for the year ended 31st March, 2006

1 5 5


Rs./Crores

2005-06 2004-05C. Cash Flow from Financing Activities

Proceeds from Calls in Arrear(Net) 0.39 0.92Share application money received 6.00 -Advance towards equity received 1.24 -Long term loans raised 924.31 225.07Fixed deposits / Debentures repaid (36.01) (409.23)Short term loans raised / (repaid) 3,423.40 264.37Interest paid on Loans (230.39) (133.30)Dividend paid (including Dividend Distribution Tax) (421.26) (805.73)Capital grant against purchase of assets 5.02 -

Net Cash from Financing Activities ( C ) 3,672.70 (857.90)

Net Increase / (Decrease) in Cash and

Cash Equivalents (A) + (B) + ( C) (311.93) (186.81)

Cash and Cash Equivalents as on 1st April (Opening)Cash / Cheques on Hand 2.09 2.23Balances with Scheduled Banks


Balances with other Banks 0.06 0.05

211.91 221.32Overdrafts from Banks (320.13) (142.73)

(108.22) 78.59Cash and Cash Equivalents as on 31st March (Closing):

Cash / Cheques on Hand 4.02 2.09Balances with Scheduled Banks


Balances with other Banks 0.06 0.06

56.01 211.91Overdrafts from Banks (476.16) (320.13)

(420.15) (108.22)Net Increase / (Decrease) in Cash and Cash Equivalents (311.93) (186.81)

Note: Previous year’s figures have been regrouped / reclassifiedwherever necessary

FOR AND ON BEHALF OF THE BOARDM.B. LAL FOR N.M.RAIJI & CO. FOR SUDIT K. PAREKH & CO.Chairman & Managing Director Chartered Accountants Chartered Accountants




Consolidated Cash Flow Statement for the year ended 31st March, 2006Consolidated Cash Flow Statement for the year ended 31st March, 2006Consolidated Cash Flow Statement for the year ended 31st March, 2006Consolidated Cash Flow Statement for the year ended 31st March, 2006Consolidated Cash Flow Statement for the year ended 31st March, 2006

1 5 6


Corporate Governance (CG)......... as defined by experts :

♦ OECD Principles of Corporate Governance :

The Organisation for Economic Cooperation and Development (OECD) countries took early initiatives to

address Corporate Governance (CG) issues. OECD has defined Corporate Governance to mean “A

system by which business corporations are directed and controlled towards achieving the following :

� Ensuring the basis for an effective Corporate Governance framework.

� The rights of shareholders and key ownership functions

� The equitable treatment of shareholders

� The role of stakeholders in Corporate Governance

� Disclosure and Transparency

� Defining the responsibilities of the Board

♦ Noble laureate Milton Friedman defined Corporate Governance, in the narrowest sense as, “the conduct

of business in accordance with shareholders’ desires, which generally is to make as much money as

possible while conforming to the basic rules of the society embodied in law and local customs”.

♦ James D Wolfensohn, President of World Bank, defined CG as “Corporate Governance is about

promoting corporate fairness, transparency and accountability”.

♦ Standard and Poor has defined Corporate Governance as “the way a company is organised and managed

to ensure that all financial stakeholders (shareholders and creditors) receive their fair share of a company’s

earnings and assets”.

♦ “Cadbury Committee, UK has defined Corporate Governance as follows :

� Fulfilling long term strategic goals of owners

� Taking care of the interests of employees

� A consideration for the environment and local community

� Maintaining excellent relations with customers and suppliers

� Proper compliance with all the applicable legal and regulatory requirements”

♦ “CII - Desirable Corporate Governance Code defined Corporate Governance as follows:

Corporate Governance deals with laws, procedures, practices and implicit rules that determine a company’s

ability to take informed managerial decisions vis-a-vis its claimants - in particular, its shareholders,

creditors, customers, the State and employees. There is a global consensus about the objective of

‘good’ corporate governance : maximising long term shareholder value”

♦ The Kumarmangalam Birla Committee constituted by The Securities Exchange and Board of India

(SEBI) has observed that “strong corporate governance is indispensable to resilient and vibrant capital

markets and is an important instrument of investor protection. It is the blood that fills the veins of

transparent corporate disclosure and high quality accounting practices. It is the muscle that moves a

viable and accessible financial reporting structure”.

♦ Shri N.R. Narayana Murthy Committee on Corporate Governance constituted by SEBI has observed

that “Corporate Governance is the acceptance by management of the inalienable rights of shareholders

as the true owners of the Corporation and of their own role as trustees on behalf of the shareholders. It

is about commitment to values, about ethical business conduct and about making a distinction between

personal and corporate funds in the management of a company”.

♦ The Institute of Company Secretaries of India also defined the term Corporate Governance as under:

“Corporate Governance is the application of best management practices, compliance of law in true letter

and spirit and adherence to ethical standards for effective management and distribution of wealth and

discharge of social responsibility for sustainable development of all stakeholders”.

Corporate GovernanceCorporate GovernanceCorporate GovernanceCorporate GovernanceCorporate Governance

1 5 7


(Source : Corporate Governance {Models of Best Practices} 6th edition published by The Institute of

Company Secretaries of India, New Delhi).

♦ Corporate Governance in India :

The evolution of Corporate Governance in India began in early 90s. The starting point was the

recommendations of the Cadbury Committee Report after which followed various committees as

enumerated above, leading to a formal Corporate Governance Code. This code was notified by Securities

Exchange Board of India (SEBI) by inserting a new Clause 49 in the Listing Guidelines to the Stock

Exchanges making it mandatory for the listed companies to follow the requirements of Clause 49. The

said clause was further modified which became effective from January 01, 2006. The major areas of

compliance in Clause 49 are as under:

� Appointment of required number of independent directors.

� Larger role of Audit Committee.

� CEO/CFO Certification of Accounts (will become applicable for 2005-06 Accounts).

� Code of Conduct for Board / Senior Management .

� Risk Minimization Report to the Board.

� Legal Compliance Report to the Board.

� Compliance relating to Subsidiary Companies.

� Information items to Board

HPCL has taken necessary steps to comply with the requirement of the above mentioned matters.

HPCL, lays special emphasis on conducting its affairs within the framework policies, internal and external

regulations and in a transparent manner. Being a Government Company, its activities are subject to review by

several external authorities like the Comptroller & Auditor General of India (CAG), the Central Vigilance

Commission (CVC), Parliamentary Committees, etc.

Decision making process:

Like any other corporate, at the apex level is the HPCL Board of Directors (The Board). The Board has

constituted several sub-committees, such as the Committee of Functional Directors (CFD), the Audit Committee,

the Investment Committee, the HR Committee, the Investor Grievance Committee, etc. The composition of

these Committees is given in this Report. The meetings of these committees are convened on need basis and

minutes of these meetings are placed for information of the Board. Majority of the members of the Committees

except the CFD are Independent Non-Executive or Government nominated Directors with the Whole Time

Directors playing a facilitating role.

The Corporation has constituted an Executive Council comprising of Chairman & Managing Director, the

Functional Directors and the SBU Heads of the Corporation. This council discusses important issues concerning

the organization, analyses the same and recommends the ‘way forward’ in respect of matters discussed.

Emphasis is laid on team approach, mutual support of functions and joint deliberations on issues by the

council which has enhanced further the decision making process. It has thus facilitated an integrated thinking

process and an aligned approach across the Corporation for achieving the Corporate Vision and each one of

the aspirational aspects contained in the Vision Statement.

Advisory Council :In the context of a highly competitive and dynamic environment of the Oil and Gas Sector, the Corporation feltthat an external Committee comprising of eminent people could be constituted to seek their views and guidance,not only on the various ongoing activities, but also on its strategic initiatives aimed towards growth anddevelopment. With this background, this Committee called as Advisory Council was constituted in July, 2005with the approval of the Board.


1 5 8


The Committee comprises of the following members :

Shri V.K. Shunglu Shri N.R. Narayana MurthyEx-CAG Chairman and Chief Mentor

Infosys Technologies Limited

Ms. Shailaja Chandra Shri Manab BoseChairperson Managing DirectorPublic Grievance Commission Connectivity Consulting (P) Ltd

Shri Naresh Narad Ms. Rama BijapurkarMember Marketing ConsultantPublic Enterprise Selection Board Strategic Marketing Consulting

This Council has met twice so far on October, 01, 2005 and February 20, 2006. Aspects related to performanceof the Corporation, HPCL’s endeavour for global standards for various operations, initiatives under the areas ofCorporate Governance, Corporate Social Responsibilities etc. were placed before this council. The suggestions/observations made by the Council is being progressed further by the Corporation.

The advice from this highly eminent group would immensely benefit the Corporation in the time to come.

Exercise of Authority:

The Corporation has well documented Limits of Authority Manual, Purchase Manual, Chart of Accounts, etc.,

facilitating the decentralised decision making process throughout the organization spread out throughout the

country at various levels of the organization.

Limits of Authority Manual (LAM) :

The LAM lays down the authorities that can be exercised at various levels i.e. the Board, Committee of

Functional Directors, the Executive Committee, the Contracts Committee, the Bids Committee and the senior

individual positions etc. for different activities of the Corporation. The manual is divided into segments

representing different functions like Sales, Crude & Shipping, Capital Projects, Operations & Distribution,

Finance, HR etc., and provides for a decision making process through various committees as above,

represented by inter-functional groups including Finance. This ensures a transparent well-considered and

streamlined decision making process adhering to the laid down systems and procedures and thereby leaving

no room for arbitrariness.


Advisory Council Meeting

Shri M.B. Lal, C&MD, Shri Arun Balakrishnan,Director (HR), Shri C. Ramulu, Director (F) and ShriM. A. Tankiwala, Director (R) at the meeting of theAdvisory Council

1 5 9


Purchase Manual:

This Manual lays down elaborate procedures to be followed while undertaking purchases and in finalisation of

contracts. It lays down, inter-alia, the purchasing authorities at various levels, norms and processes for

procurement.

The endeavour is always on building trust with shareholders, employees, customers and other stakeholders

based on the basic principles of Corporate Governance i.e. transparency, fairness, disclosure and accountability.

Disclosures :

Given below are the various information forming part of Corporate Governance disclosures:-.

1. BOARD OF DIRECTORS :

1.1 Composition of Board of Directors

Executive Directors including Chairman (Whole-time) 5

Non-Executive Govt. Directors (Ex-officio) 2

Non-Executive Independent Directors (Non-official) 4

Total 11

1.2 Board Meetings:

Eight Board Meetings were held during the financial year on the following dates:

07th April 2005 26th May 2005 30th July 2005 06th September 2005

29th October 2005 14th December 2005 30th January 2006 11th February 2006

1.3 Particulars of Directors including their attendance at the Board / Shareholders’ Meetings

Names of Academic No. of No. of Attendance Details of MembershipsDirectors Qualifications Board Meetings at the Directorships held in

Meetings attended last AGM i n Committees asheld Companies specified in Clause

49 of the ListingAgreement

FUNCTIONAL DIRECTORS

Shri M.B.Lal B.E.(Chem), 8 7 Yes 1. G G S R L NilP G D B M 2. H INCOL(IIM Ahmedabad) 3. Prize Petroleum

Co. Ltd.

Shri D.S.Mathur (*) B.Tech, 2 1 No 1. G G S R L Member - AuditM.Sc. PGDPE 2. Prize Petroleum Committee:

Co. Ltd. a) GGSRL

Shri Arun Balakrishnan B.E.(Chem), 8 8 Yes 1. PIL NilP G D B M 2. M R P L(IIM Bangalore)

Shri C. Ramulu B.Com, ACA, 8 8 Yes 1. Prize Petroleum Member - Audit

ACS, Co. Ltd. CommitteeMBA (Leeds, UK) 2. G G S R L a) G G S R L

3. H INCOL Chairman -AuditCommitteea) H INCOLb) Prize Petroleum

Co. Ltd.


1 6 0




49 of the ListingAgreement

Shri S. Roy Choudhury B.E. (Mech.) 8 8 Yes 1. HINCOL Nil2. Petronet MHB Ltd.3. Bhagyanagar Gas Ltd.4. MRPL

Shri M.A. Tankiwala (**) B.E. (Mech.) 6 5 Yes 1. GGSRL Member – Audit

Committee

a) GGSRL

NON-EXECUTIVE DIRECTORS (a) PART-TIME (EX-OFFICIO)

Shri M.S. Srinivasan @ IAS, B.Tech. (Civil), 2 1 - 1. IOCL Chairman –

Master of 2. BPCL Remuneration

Public Administration, 3. GAIL Committee

(a) IOCL(b) BPCL

Shri P.K. Sinha ($) IAS, M. Phil in Social Nil Nil - 1. IOCL Member – Audit

Sciences & 2. BPCL Committee

Master Diploma a) HPCLin Public Member –

Administration Establishment &

Remuneration

Committee

a) IOCLShri Prabh Das(#) IAS, B.Tech. (Hons), 7 6 Yes 1.Engineers Chairman –

MBA India Ltd. Investor

2. MRPL Grievance

Committee

a) Engineers IndiaLtd.

Shri C. B. Singh(##)(##) M.A. (Eco.) MBA 7 7 - 1. Oil India Ltd. Nil

(b) PART-TIME DIRECTORS (NON-OFFICIO)

Shri T.L. Sankar IAS, M.Sc.(Chem.), 8 4 Yes 1. Rain Calcining Member -

MA (Dev. Eco.), Ltd. Remuneration

2. KSK Energy Committee:

Ventures Ltd. a) Rain Calcining3. GGSRL Ltd4. Delhi Power Member –

Co. Ltd. Investment

5. Small Scale Committee:Sustainable a) KSK EnergyInfrastructure VenturesDevelopment Ltd.Board Chairman -

Audit

Committee:

a) HPCLb) Rain Calcining

Ltd.

c) G G S R L


1 6 1


(b) PART-TIME DIRECTORS (NON-OFFICIO) – CONTINUED



49 of the ListingAgreementChairman –

Shareholders’

Investor

Grievances

Committee:

a) Rain Calcining Ltd.

Shri Rajesh V Shah Degree in Mathematics, 8 2 - 1. Mukand Ltd Member - Audit

MBA 2. Mukand Engineers Committee:

Ltd. a) HPCL

3. Fusion Investments Member – Audit

& Financial & Ethics

Services Ltd. Committee

4. Catalyst Finance Ltd. a) O N G C

5. Conquest Member -

Investments & Shareholders’

Finance Ltd. Investors

6. Kalyani Grievances

Mukand Ltd. Committee:

7. Bengal Port Ltd. a) Mukand

8. Jeewan Ltd. Engineers Ltd.

9. India Thermal b) HPCL

Power Ltd. Chairman-

10. ONGC Shareholder’s

Investor

Grievances

Committee:

O N G C

Chairman – Audit

Committee:

a) Fusion

Investments &

Financial

Services Ltd.

b) Catalyst Finance

Ltd.

c) Conquest

Investments &

Finance Ltd.

Shri M. Nandagopal B.Sc. (Agriculture) 8 3 - 1. Mohan Breweries Chairman -

& Distilleries Ltd. Shareholder’s

2. Thirumagal Mills Ltd. Investors

3. D1 Mohan Grievances

Bio Oils Ltd. Committee:

4. Mohan Meakin a) HPCL

Ltd. Member - Audit

5. Arthos Committee :

Breweries Ltd. a) HPCL


1 6 2


Names of Academic No. of No. of Attendance Details of Memberships

Directors Qualifications Board Meetings at the Directorships held in

Meetings attended last AGM i n Committees

held Companies as specified

in Clause

49 of the

Listing

Agreement

6. S V Sugar

Mills Ltd.

7. Vestas RRB Ltd.

8. Mira Textiles &

Industries (India) Ltd

9. Binny Engg. Ltd.

10. TCP Ltd.

11. Bhankerpur

Distilleries Ltd.

12. Sagar Sugars &

Allied Products Ltd.

13. Binny Ltd.

14. Balaji

Breweries Ltd.

Shri Raja G. Kulkarni ($$) M.A. (Eco.) 8 2 - None Member –

Shareholders

Investors

Grievance

Committee

a) HPCL

Shri I.M. Pandey(@ @) Ph.D in Finance 3 2 - 1. Industrial Finance Member – Audit,

Corporation of Remuneration &

India Ltd. Investor

2. Cochin Shipyard Ltd. Grievance

Committee

a)Industrial Finance

Corporation of

India Ltd.

(*): Shri D.S. Mathur retired on attaining the age of superannuation effective 31.05.05.

(**): Shri M.A. Tankiwala was appointed Director-Refineries with effect from 01.06.05.

(@): Shri M.S. Srinivasan ceased to be Director with effect from 20.06.05.

($): Shri P.K. Sinha was appointed as a Director with effect from 01.03.06.

(#): Shri Prabh Das was appointed as a Director with effect from 03.05.05.

(##): Shri C.B. Singh ceased to be a Director with effect from 01.03.06.

($$): Shri Raja G. Kulkarni ceased to be a Director with effect from 03.03.06.

(@@): Shri I.M. Pandey was appointed as a Director with effect from 09.12.05.


1 6 3


1.4 PROFILES OF DIRECTORS:

Shri Mahesh B. Lal

Shri Lal is the Chairman & Managing Director of Hindustan Petroleum Corporation Ltd. Shri Lal is a

Chemical Engineer from Indian Institute of Technology, Kanpur and a Post Graduate Diploma in

Management from IIM, Ahmedabad. Shri Lal has a vast and extensive experience in the Petroleum

Industry. He was earlier Advisor - Refineries in the Ministry of Petroleum & Natural Gas, Government

of India. In this capacity, he was the Government Director on the Boards of Kochi Refineries Ltd.,

IBP Co. Ltd., and Numaligarh Refineries Ltd. Thereafter, he was Director (Operations) of Madras

Refineries Ltd. (now Chennai Petroleum Corporation Limited) before moving back to Bharat Petroleum

Corporation Limited as Director (Refineries). IIT Kanpur bestowed the distinguished Alumnus Award

on Shri Lal in the year 2002.

Shri P.K. Sinha

Shri P.K. Sinha, aged 50 years, is a Post Graduate from Delhi School of Economics and an IAS

officer of U.P. Cadre. Shri P.K. Sinha also holds M.Phil in Social Sciences and Masters Diploma in

Public Administration. Shri Sinha has served both in the Central and State Governments, including

as District Magistrate of Jaunpur and Agra Districts, Commissioner of Varanasi Division and Principal

Secretary, Irrigation, Uttar Pradesh. Shri Sinha has also served in the Ministry of Power, Department

of Youth Affairs and Sports in the Central Government before joining the MOP&NG.

Shri Prabh Das

Shri Prabh Das, Joint Secretary of Ministry of Petroleum & Natural Gas is a member of Indian

Administrative Service. He is a B.Tech (Hons). from IIT, Kharagpur. He has also completed his

Master of Business Administration from Southern Cross University, Australia. He has worked as a

District Magistrate and Collector in Midnapur & Jalpaiguri Districts for a period of 5 years. Shri

Prabh Das has also worked as a Deputy Secretary / Director in the Department of Ocean Development

and Ministry of Commerce, Government of India. He has also worked as a Special Secretary

(Transport), Government of West Bengal and Chief Executive Officer of Calcutta Metropolitan

Development Authority.

Shri Prabh Das joined the Ministry of Petroleum & Natural Gas as Joint Secretary in March 2003.

He is also a Director on the Boards of Mangalore Refineries & Petrochemicals Ltd. and Engineers

India Ltd.

Shri T. L. Sankar

Shri Sankar is a retired Indian Administrative Service Officer with M.Sc. (Chemistry), Madras and

M.A. (Development Economics) (Williams College, USA). Shri Sankar has held several assignments

for the Government of Andhra Pradesh, the Government of India, and international organizations in

his 35 years career with the Indian Administrative Service. He continues to be associated with

several Committees of the Government of India in the areas of Energy Economics, Public Policy

Analysis, and restructuring of Public Enterprises. He has served as the Principal of Administrative

Staff College of India, Director General - National Institute of Rural Development, Director, Institute

of Public Enterprises, Hyderabad, Advisor to the Governments of India, Bangladesh, Sri Lanka,

Tanzania and North Korea on energy policy and as Leader of the United Nations Team to design

Regional Energy Development Programme and the Asian Development Bank’s Regional Energy

Survey. He was also the Chairman, Gas Price Revision Committee. He was a member of the Power

Minister’s Committee of Eminent Persons and the Independent Standing Group under Justice P.N.

Bhagawati. Shri Sankar has jointly edited two books, co-authored one, wrote several book chapters,

and articles in national and international journals.


1 6 4


Shri Rajesh V. Shah

Shri Rajesh V. Shah obtained his first degree in Mathematics from the University of Cambridge in

1973, later obtained a Master’s Degree in Business Administration from the University of California,

Berkeley. He has also attended the Programme for Management Development (PMD) from Harvard

Business School in 1983.

Shri Shah is presently the Managing Director of Mukand Ltd. In this capacity, he is responsible for

all the diverse activities of the Company, which is India’s leading speciality steel producer and

executing projects for road construction and power plants.

He has served on various business councils, is a past President and has been a Member of the

National Council of the apex Indian business body, the Confederation of Indian Industry (CII) since

1986. He has been a member of the International Young Presidents’ Organization (YPO) and was

also Chairman of the YPO International Conference held in Mumbai in February, 1996 and on the

International Board of Directors in the same year.

Shri Rajesh Shah has been a strong believer in bringing about change within his Company through

the application of ‘Total Quality Management’ and has been awarded the Qimpro Gold Standard in

1990 and Platinum Standard in 1994 by Qimpro (an affiliate of Juran International Inc., USA), for

his contribution in building India Inc.

Shri M. Nandagopal

Shri M. Nandagopal is a B.Sc (Agriculture) from Agricultural University, Coimbatore. He is an

Industrialist holding the position of Director in various Companies. He is the Managing Director of

Mohan Breweries & Distilleries Ltd. He is a Trustee in Sri Ramachandra Medical College & Research

Institute, Chennai, Sakthi Trust, Delhi and Mother Service Society, Pondicherry. Shri M.Nandagopal

is also a member of Cosmopolitan Club and Madras Cricket Club.

Shri I.M. Pandey

Shri I.M. Pandey has done his Ph. D in Finance from Delhi School of Economics, University of

Delhi. Currently, Professor at the Indian Institute of Management, Ahmedabad (IIMA), Shri Pandey

is also Dean of School of Management, Asian Institute of Technology, Bangkok. Shri Pandey is a

Director on the Boards of IFCI and Cochin Shipyard Limited. In the past, he served as

Member of Controller of Capital Issues, Government of India, Member of Ahmedabad Stock

Exchange, Member of IDBI Western Advisory Board, and Member of Board of Directors of IDBI-

Principal.

Shri I.M. Pandey has carried out research focused on Corporate Finance policies and practices,

strategic finance management and financial market in the emerging economies. He has published

several articles in these areas. He has authored ten books, six monographs and many management

cases. Shri I.M. Pandey is also on the editorial boards of several journals in India and abroad. Shri

I.M. Pandey is a consultant to many public and private sector organizations, and has conducted

management training programmes for many domestic and multinational companies.

Shri Arun Balakrishnan

Shri Arun Balakrishnan is currently holding the portfolio of Director - Human Resources. Shri

Balakrishnan is a Chemical Engineer and an alumni of the Indian Institute of Management, Bangalore.

He joined HPCL in 1976 as a Management Trainee. He has held various positions in Marketing and

Corporate functions around the country. These include positions such as Regional Manager of

Orissa, Director Planning - OCC, General Manager - International Operations, General Manager -

Lubricants & Specialities and Chief General Manager - Direct Sales.


1 6 5


He is credited with launching a number of successful lubricant brands and for spreading the HP

Lube distributors network in the ASEAN countries. Shri Balakrishnan attended a program on

Management in the United Kingdom under the Colombo Plan Program. He has also attended various

seminars and conferences related to Petroleum & Energy.

Shri C. Ramulu

Shri C. Ramulu is currently holding the portfolio of Director- Finance. Shri C. Ramulu is a Chartered

Accountant and Company Secretary and is a rank holder at the All India level. Shri C. Ramulu

secured distinction in MBA from the University of Leeds, U.K.

Shri C. Ramulu commenced his career in the Petroleum Industry with Caltex India Ltd., which was

nationalized and merged with HPCL. His wide experience encompasses Financial Management in

varied positions spread accross the organisation in Refining, Marketing and Corporate Divisions

and General Management including Strategy Planning, Management of Joint Ventures, etc. He has

attended serveral International Senior Management Programmes. He has also presented serveral

papers at National & International Conferences, Seminars etc. Shri Ramulu successfully handled

the Public Issue of HPCL for raising Equity Capital of Rs.1200 crores.

Shri S. Roy Choudhury

Shri S. Roy Choudhury took charge as Director-Marketing effective May 10, 2004.

Shri S. Roy Choudhury is a Mechanical Engineer from the University of Assam. He commenced his

career in the Petroleum Industry with Assam Oil Company, Digboi, a subsidiary of Burma Oil

Company. Shri S. Roy Choudhury joined HPCL on June 21, 1982 as a Construction Engineer.

He has held various positions in the Company in Refinery, Marketing (Operations), Projects and

Sales Division of HPCL. He is well known in the Oil Industry for his knowledge and expertise in the

cross Country Pipeline Projects before his appointment as Director-Marketing.

Shri M.A. Tankiwala

Shri M.A. Tankiwala took charge as Director (Refineries) effective June 1, 2005 prior to which he

was the Managing Director of Guru Gobind Singh Refineries Ltd. (GGSRL), a fully owned subsidiary

of HPCL and was instrumental in developing the grass roots project.

He also served on the Board of Mangalore Refineries & Petrochemicals Limited (MRPL) the first

refinery in the Joint Sector as Managing Director (Technical) and ensured that due share was given

to MRPL in meeting the country’s energy demand.

Shri M.A. Tankiwala, a Graduate in Mechanical Engineering, commenced his career in the Mumbai

Refinery of HPCL. He has had a wide exposure to the Petroleum Industry spanning more than three

decades in the Refining Sector.

He has worked in both Mumbai and Visakh Refineries of HPCL in various capacities and contributed

to the growth and development of the refinery operations of the Corporation.

2. REMUNERATION OF DIRECTORS :

� HPCL being a Government Company, the remuneration payable to its whole-time directors is approved

by the Government and advices received through the Administrative Ministry, viz., Ministry of

Petroleum & Natural Gas.

� The non-official part–time Directors are paid sitting fees for Board Meetings attended by them.

� HPCL does not have a policy of paying commission on profits to any of the Directors of the

Company.


1 6 6


� The remuneration payable to officers below Board level is also approved by the Government of

India.

3. BOARD SUB-COMMITTEES :

A. Audit Committee :

The Audit Committee comprises of Non-Executive Directors as follows:

1. Shri T. L. Sankar Non-Executive Independent Director

2. Shri C. B. Singh * Non-Executive Govt. Director

3. Shri Rajesh V Shah Non-Executive Independent Director

4. Shri M. Nandagopal ** Non-Executive Independent Director

5. Shri P.K. Sinha *** Non-Executive Govt. Director

* Shri C.B. Singh ceased to be Director with effect from 01.03.06.

** Shri M.Nandagopal was inducted in the Audit Committee as a Member with effect from

30.07.05.

*** Shri P.K. Sinha was inducted in the Audit Committee as a Member with effect from 07.03.06.

Shri T. L. Sankar is the Chairman of the Audit Committee.

The terms of reference of the Audit Committee are as provided under the Companies Act,1956 and

other applicable regulations.

The scope of the Audit Committee includes the following:

• Reviewing with Management the annual financial statements before submission to the Board.

• Reviewing with the Management, Statutory Auditors and Internal Auditors, the adequacy of

internal control systems.

• Reviewing the adequacy of internal audit function, including the structure of the internal audit

department, staffing and seniority of the official heading the department, reporting structure,

coverage and frequency of internal audit.

• Discussion with internal auditors on any significant findings and follow up thereon.

• Reviewing the findings of any internal investigations by the internal auditors into matters

where there is suspected fraud or irregularity or a failure of internal control systems of a

material nature and reporting the matter to the Board.

• Reviewing the Company’s financial and risk management policies.

The Committee, at the meeting held on May 25, 2006, reviewed the Accounts for the year 2005-06,

before the Accounts were adopted by the Board.

Date when Audit Committee Meetings held :

23rd May, 2005 30th July, 2005 29th October, 2005

30th January 2006 16th March, 2006 25th May 2006


1 6 7


Attendance at Audit Committee Meetings:

Name of the No. of No. of Meetings % of

Members Meetings held attended attendance

Shri T. L. Sankar 6 5 83%

Shri P.K. Sinha 2 1 50%

Shri C.B. Singh 4 3 75%

Shri Rajesh V. Shah 6 2 33.34%

Shri M. Nandagopal 4 2 50%

B. Committee on HR Policies :

The Company has constituted the Board Sub - Committee on HR Policies to look into various

aspects including remuneration as well as Compensation and Benefits for the employees. The

Committee comprises of:

1. Shri T.L. Sankar

2. Shri Rajesh V. Shah

3. Shri Arun Balakrishnan

Shri Arun Balakrishnan, Director-Human Resources, is the Convenor of the Committee.

A meeting of Committee on HR policies was held on March 16, 2006, which was attended by the

above Directors.

C. Investment Committee :

The Company has constituted an Investment Committee with the following members.

1. Shri T. L. Sankar

2. Shri Prabh Das

3. Shri Rajesh V. Shah

4. Shri C. Ramulu

Shri T. L. Sankar is the Chairman of the Committee. This Committee reviews investment proposals

before they are placed before the Board for its consideration.

D. Investor Grievance Committee:

The Company has constituted an Investor Grievance Committee comprising of Non-Executive

Directors as follows :

1. Shri M. Nandagopal Non-Executive Independent Director

2. Shri Rajesh V. Shah Non-Executive Independent Director

3. Shri Raja G. Kulkarni * Non-Executive Independent Director

4. Shri C. B. Singh ** Non-Executive Government Director

*: Shri Raja G. Kulkarni resigned with effect from 03.03.06.

**: Shri C.B. Singh ceased to be Director with effect from 01.03.06.

Shri M. Nandagopal is the Chairman of the Committee.

The Committee reviews the status of Investor Grievances and Services and other important matters

of investors’ interest.


1 6 8


Dates of Investor Grievance Committee Meetings:

26th May, 2005 29th October, 2005 18th April, 2006

E. Remuneration Committee:

HPCL has not felt the need for a Remuneration Committee in view of the fact that the Company is

a Government Company as per Section 617 of the Companies Act, 1956 and since the remuneration

of the Whole Time Functional Directors are fixed by the Government of India.

The details of Remuneration paid to all the Whole Time Functional Directors are given below:

� The remuneration of the Whole Time Functional Directors include basic salary, allowances

and perquisites as determined by the Government of India. Moreover, they are entitled to

provident fund and superannuation contributions as per the rules of the Company.

� The gross value of the fixed component of the remuneration, as explained above, paid to the

Whole-Time Functional Directors, during the financial year 2005-06 is given below:

(Rs. in Lakhs)Name of the Director Salaries & Contribution Contribution Other Benefits Total

Allowances to Provident to

Fund Superannuation

Fund

and Gratuity

M.B. Lal

(Chairman &

Managing Director) 7.83 0.73 0.00 1.90 10.46

D.S. Mathur

(Director-Refineries)

Till – 31.05.2005 17.18 1.30 0.24 0.26 18.98

Arun Balakrishnan

(Director-HR) 9.22 0.76 0.00 1.73 11.71

C. Ramulu

(Director-Finance) 10.89 0.9 0.01 2.40 14.24

S. Roy Choudhury

(Director – Marketing) 9.99 0.70 0.00 2.07 12.76

M.A. Tankiwala

(Director-Refineries) 8.62 0.69 0.00 0.43 9.74

4. Sitting Fees for the year 2005-2006:

The details of Sitting Fees paid to Part-time Independent Directors for the year 2005-06 for attending the

Board / Sub-committee meetings are given below:


1 6 9


(Figures in Rs)Sitting Fees Paid

Details of Meetings T.L.Sankar R.G.Kulkarni * Rajesh V.Shah M.Nandagopal I.M.Pandey **

Board 40000 20000 20000 30000 20000

Audit 50000 - 20000 20000 -

HR 10000 - 10000 - -

Investor - - - 10000

Retail - - 10000 - -

Total Sitting fees paid 100000 20000 60000 60000 20000

* Shri Raja G. Kulkarni resigned with effect from 03.03.06.

** Shri I.M. Pandey appointed as Director with effect from 09.12.05.

5. DIRECTORS’ SHAREHOLDING

Shri T. L. Sankar is holding 150 shares of the Corporation as of date. Other than Shri T. L. Sankar none of

the other non-officio and ex-officio Directors of the Corporation are holding any shares in the Corporation.

6. RIGHT TO INFORMATION ACT 2005

The Right to Information (RTI) Act 2005 became effective from 12th October 2005. The Act envisages

provisions for Disclosure by the Public Authorities and aims at transparency of information. It makes

authorities responsible and accountable to enable good governance. It has provided for exemptions and

also penalty for failure to comply with the Act.

In line with the provisions of the Act, HPCL has hosted detailed information covering various activities

on its website “www.hindustanpetroleum.com”, during September 2005. These will be updated on need

basis. Further, a large number of officers across the country, representing different departments, have

been appointed as Public Information Officers and Appellate Authorities to deal with the queries from the

Indian Citizens.

As of the close of 30th June 2006, a total of 321 queries for information from the Indian Citizens, inclusive

of appeals made to the Appellate Authorities at HPCL and to the Central Information Commission, have

been handled. HPCL has been judiciously applying the various exemptions under Section 8 & 11 of the

Act, while dealing with the replies to the querists. So far, 4 appeals made to the Central Information

Commission have been disposed off in line with the stand taken by HPCL.


1 7 0


7. Risk Management

HPCL over the period has been assessing the risks that are being faced by the Company and has been

taking required measures for minimization of such risks. However, the Company has not developed a

formal policy framework for risk assessment and minimization process. Assistance of an external

consultant is taken to develop a Risk Policy for the Corporation and the policy is expected to be ready

by shortly.

8. Shares Department Activities :

HPCL has a Shares Department under the Company Secretary, which monitors the activities of R&T

Agents and looks into the issues relating to shareholders. Share transfers, transmissions and other

important matters are approved by the Share Transfer Committee.

Presently, HPCL has over 92133 shareholders. The Corporation regularly interacts with the shareholders

through letters, investors’ meets, at the AGM, wherein the activities of the Corporation, its performance

and its future plans are provided to the Shareholders.

The Company has been taking appropriate steps to ensure that Shareholder related activities are given

due priority and references / representations, if any are resolved at the earliest.

The Company Secretary of the Corporation is the Compliance Officer in terms of the requirements of

The Stock Exchange, Mumbai.

The quarterly results are published in the English and Vernacular newspapers. The Company also organises

press meets and press releases. The Financial Performance and other details are also posted on the

Company’s website viz. www.hindustanpetroleum.com.

9. During the year 2005-06, there were no material transactions with Directors or their relatives having

potential conflict with the interests of the Company at large.

There have been no instances of non-compliance by the Company or penalties, strictures imposed on

the Company by any Stock Exchange or SEBI or any Statutory Authority, on any matters relating to

capital markets during the last 3 years.

10. DETAILS OF ANNUAL GENERAL MEETINGS :

10.1 Location and time of the previous three Meetings held :

Year Location Date Time

2004-05 Y.B. Chavan Auditorium, Mumbai 21.09.05 3.00 p.m.



10.2 Whether Special Resolutions were put through postal ballot last year : No.

10.3 Are votes proposed to be conducted through postal ballot this year : No.


1 7 1


11. MEANS OF COMMUNICATION :

� Half yearly report Press Advertisements, advices to Stock Exchanges, Letters

to shareholders etc.

� Quarterly results

� Which newspapers normally Mainly business/regional/vernacular newspapers like Economic

published in Times, Times of India, Financial Express, Indian Express,

Loksatta etc.

� Websites where quarterly www.hindustanpetroleum.com

results are displayed

� Whether it also displays official Yes

news releases & presentations

made to institutional

investors / analysts :

� Whether Management Yes

Discussion & Analysis Report

is a part of Annual Report

� Whether shareholder information Shareholder information has been incorporated

section forms part of in the Annual Report. The Company also communicates

Annual Report with the shareholders from time to time.

12. GENERAL SHAREHOLDER INFORMATION :

12.1 54th Annual General Meeting

Date and Time : September 14, 2006

at 3.00 PM

Venue : Y.B. Chavan Auditorium, General Jagannath Bhosale Marg,

Next to Sachivalaya Gymkhana, Mumbai-400 021


Shri M. B. Lal C&MD and Functional Directors at a Press Meet.

1 7 2


12.2 Financial calendar

Financial reporting for Qtr.ending 30/06/06 End Jul. 2006

Financial reporting for Qtr.ending 30/09/06 End Oct. 2006

Financial reporting for Qtr.ending 31/12/06 End Jan. 2007

Financial reporting for Qtr.ending 31/03/07 End May 2007

Annual General Meeting for year ending 31/03/07 Aug-Sep. 2007

12.3 Date of Book Closure : August 22, 2006 - September 06, 2006

12.4 Dividend payment date (tentative) : September 19, 2006

12.5 (a) Listing on Stock Exchanges :

The Bombay Stock Exchange Ltd, The Delhi Stock Exchange Association Ltd.

Phiroze Jeejeebhoy Towers, DSE House, 3/1,

Dalal Street, Mumbai – 400 001 Asaf Ali Road,New Delhi – 110 002

The Calcutta Stock Exchange Madras Stock Exchange Ltd.

7 Lyons Range , Kolkata 700001 Exchange Building,

11, Second Line Beach,Chennai – 600 001

National Stock Exchange of India Ltd.

Exchange Plaza,

5th Floor, Plot No. C/1,

G-Block,Bandra-Kurla Complex,

Bandra (East), Mumbai – 400 051

(b) Listing fees : Listing fees for financial year

2006-07 have been paid to the

Stock Exchanges in April, 2006.

12.6 Stock Codes :

B S E : 500104

N S E : HINDPETRO

ISIN (for trading in Demat form) : INE094A01015

12.7 Stock Market Data :

HPCL Share Price – BSE

Year High Rs. Low Rs.

2005-06 348.00 283.30

2004-05 538.50 225.55

2003-04 542.45 269.40

2002-03 329.60 166.50

2001-02 338.75 94.50


1 7 3


HPCL SHARE PRICE MONTHLY DATA

Month Mumbai Stock Exchange National Stock Exchange

High Low Close Volume High Low Close Volume

Rs. Rs. Rs. Nos. Rs. Rs. Rs. Nos.

April 2005 333.50 301.10 302.85 3123778 333.15 300.25 303.10 13775255

May 2005 345.60 308.00 335.15 3401824 345.50 306.30 335.05 13061514

Jun 2005 344.00 303.00 306.50 4170905 370.00 302.50 306.90 12208563

Jul 2005 314.90 290.00 292.05 2279519 314.95 283.60 290.45 8626873

Aug 2005 315.00 283.30 292.50 2848437 314.90 281.60 292.35 10357407

Sep 2005 326.00 287.00 316.20 4594367 326.00 287.05 314.40 13102432

Oct 2005 338.00 296.05 297.30 3107750 335.90 295.05 297.35 9204157

Nov 2005 348.00 297.00 339.75 6174479 349.00 296.00 339.75 19737614

Dec 2005 345.10 310.00 328.75 3343430 345.50 310.00 328.70 9603068

Jan 2006 346.00 303.00 309.10 2887880 367.00 301.90 309.05 5988987

Feb 2006 344.00 303.00 323.95 2717783 344.80 303.55 323.70 7314135

Mar 2006 334.00 314.60 322.90 1994637 333.80 292.25 319.85 5061681


HPCL SHARE PRICE V/S NSE NIFTY -2005-06

HP

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PR

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(IN

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HPCL SHARE PRICE V/S BSE SENSEX- 2005-06

Performance in comparison to broad based indices

As on HPCL Share price (Rs.) BSE 30 SENSEX NSE 50 NIFTY

31-3-2006 322.90 11279.96 3402.55

31-3-2005 305.95 6492.82 2035.65

31-3-2004 507.60 5590.60 1771.90

31-3-2003 294.40 3048.72 978.20

31-3-2002 290.60 3469.35 1129.55

31-3-2001 160.60 3694.38 1148.20

1 7 4


PER SHARE AND RELATED DATA :

2005-06 2004-05 2003-04 2002-03 2001-02 2000-01Per Share Data UnitE P S Rs. 11.97 37.69 56.18 45.37 23.26 32.12

C E P S Rs. 32.62 54.81 75.67 62.94 42.85 44.91

Dividend Rs. 3.00 15.00 22.00 20.00 10.00 10.00

Book Value Rs. 257.74 249.04 228.47 197.12 174.07 191.47

Share Related Data UnitDividend Payout % 28.62 45.42 44.23 49.24 43.06 34.37

Price to Earnings* Multiple 26.98 8.12 9.03 6.49 12.49 5.0

Price to Cash Earnings* Multiple 9.90 5.58 6.71 4.68 7.47 3.6

Price to Book Value * Multiple 1.25 1.23 2.22 1.49 1.67 0.8

*Based on March 31

closing prices Rs. 322.90 305.95 507.60 294.40 290.60 160.60

12.8 Registrars and Transfer Agents :

M/s.INTIME SPECTRUM REGISTRY LTD (ISRL)*

C-13, Pannalal Silk Mills Compound,

LBS Marg, Bhandup (W), Mumbai - 400 078.

Telephone No.: 022 – 25963838, Fax No.: 022 - 25946969

* M/s. ISRL took over HPCL R & T Services from M/s. MCS with effect from July, 01, 2006.

12.9 Share Transfer SystemActivities relating to Share Transfers are carried out by M/s. ISRL who are the Registrars and

Transfer Agents of the Company who have arrangements with the Depositories viz., National

Securities Depository Limited and Central Depository Services Limited. The transfers are approved

by the Share Transfer Committee. Share transfers are registered and Share Certificates are

despatched within a period of 30 days from the date of receipt if the documents are correct and

valid in all respects.

The number of shares transferred during last the two years:

2005-06 79,200

2004-05 88,905

12.10 Status of Investor Services:

Investor correspondence replied during the year are as follows:

Nature of Correspondence Number

1. Share Transfers and related issues 207

2. Transmission of Shares/Nomination for shares 335

3. Issue of Duplicate share certificates 106

4. Dividend related issues 2192

5. ECS/Bank Mandates/Request for Change of Address 2340

6. Call Money Payment Correspondence/Reminders 334

7. SEBI/Stock Exchange/Legal cases 22

8. Others 739

Total 6275

All complaints received from SEBI, Stock Exchanges, Department of Company Affairs etc., have

been appropriately dealt with.


1 7 5


12.11 Dematerialisation of shares and liquidity:

The total number of shares dematerialised as on 31.03.2006 is 16,23,07,723 representing 97.63%

of share capital excluding shares held by the Government of India.

Trading in Equity shares of the Company is permitted only in dematerialised form, w.e.f., February

15, 1999 as per notification issued by the Securities and Exchange Board of India (SEBI).

12.12 Outstanding GDRs/ADRs/Warrants or any convertible instruments, conversion date and likely

impact on equity

There are no outstanding Warrants to be converted into Equity shares.

Detachable Tradeable Warrants issued alongwith public issue shares in April 1995 were converted

into equity shares during the period February 1997- April 1997. The Warrant certificates were not

called back by the Company and bear no value.

12.13 Plant Locations:

The Corporation has 2 Refineries located at Mumbai and Visakh. It has 85 Regional offices, 37

Terminals / Installations / Tap off Points, 92 Depots, 41 LPG Bottling Plants and 7313 Retail

outlets etc., located all over the country.

12.14 Address for correspondence

Registrars and Transfer Agents: Company’s Shares Department:

M/s.INTIME SPECTRUM REGISTRY LTD. Shares Department

Unit:HINDUSTAN PETROLEUM HINDUSTAN PETROLEUM

CORPORATION LTD. CORPORATION LIMITED

C-13, Pannalal Silk Mills Compound 2nd Floor, Petroleum House,

LBS Marg, 17, Jamshedji Tata Road,

Bhandup (West), Mumbai - 400 078 Churchgate, Mumbai - 400 020

Telephone No.: 022 – 25963838. Telephone No.: 022 - 2286 3900

Fax No.: 022 - 25946969 Ext.3204/3201/3233/3239/3208

Fax No.: 022-2287 4552/2284 1573

12.15 DISTRIBUTION SCHEDULE AS ON 31.03.2006

No. of Physical Holding Dematerialised Total Share holding %

Shares Holding

No. of No. of No. of No. of No. of No. of Share Holding

Share Shares Share shares Share shares Holders

holders Holders Holders

1-500 15957 2936399 69129 8733271 85086 11669670 92.35 3.44

501-1000 698 510847 3955 2942745 4653 3453592 5.05 1.02

1001-5000 78 126731 1886 3476862 1964 3603593 2.13 1.06

5001-10000 3 19050 144 1052200 147 1071250 0.16 0.32

10001 & above 3 173429250 280 146102645 283 319531895 0.31 94.16

Total 16739 177022277 75394 162307723 92133 339330000 100.00 100.00


1 7 6



12.17 Shareholding pattern as on :

31/03/2006 31/03/2005

Category No. of No. of % No. of No. of %Share Shares Share Shares

holders holdersPresident of India 1 173076750 51.01 1 173076750 51.01

Financial Institutions 28 56128800 16.54 36 52184490 15.38

FIIs/OCBs 160 78890243 23.25 147 73696932 21.72

Banks 34 1488303 0.44 30 1633802 0.48

Mutual Funds 41 5186993 1.53 86 8105835 2.39

NRIs 3206 1078869 0.31 3547 1170352 0.34

Employees 1053 467585 0.14 1162 522910 0.15

Others 87610 23012457 6.78 102881 28938929 8.53

Total 92133 339330000 100.00 107890 339330000 100.00

12.18 Code of Conduct:

In compliance with the terms of clause 49 of the Listing Agreement with Stock Exchanges, a

“Code of Conduct for Board Members and Senior Management Personnel of Hindustan Petroleum

Corporation Limited” has been devised and made effective 1.1.2006. The purpose of this Code is

to enhance further ethical and transparent process in managing the affairs of the Company. This

Code has been made applicable to

a) All Whole-Time Directors

b) All Non-Whole Time Directors including independent Directors under the provisions of law and

c) Senior Management Personnel.

This Code would be read in conjunction with the Conduct, Discipline & Appeal Rules for Officers

applicable to Whole time Directors and Senior Management Personnel.

All the Board Members and Senior Management Personnel have provided the Annual Compliance

Certificate duly signed by them as on March 31, 2006.

SHAREHOLDING PATTERN AS ON MARCH 31, 2006

1 7 7


1 Review of Management Discussion Analysis of financial condition and resultsof operation.

2 Statement of review of significant related party transactions as defined bythe Audit Committee and submitted by the Management.

3 Review of Management letters / letter of internal control weaknesses issuedby the Statutory Auditors.

4 Review of Internal Audit Report relating to internal control weaknesses.

5 The appointment, removal and terms of remuneration of the Chief InternalAuditors.

DISCLOSURES

Basis of related party transactions

6 A statement in summary form of transactions with related parties in theordinary course of business shall be placed periodically before the auditcommittee.

7 Details of material individual transactions with related parties which are notin the normal course of business shall be placed before the audit committee.

8 Details of material individual transactions with related parties or others, whichare not on an arm’s length basis should be placed before the audit committee,together with Management’s justification for the same.

Proceeds from public issues, rights issues, preferential issues etc.

9 When money is raised through an issue (public issues, rights issues,preferential issues etc.) it shall disclose to the Audit Committee, the uses /applications of funds by major category (capital expenditure, sales andmarketing, working capital etc.), on a quarterly basis as a part of their quarterlydeclaration of financial results. Further, on an annual basis, the companyshall prepare a statement of funds utilised for purposes other than thosestated in the offer document / prospectus / notice and place it before theaudit committee. Such disclosure shall be made only till such time that thefull money raised through the issue has been fully spent. This statementshall be certified by the statutory auditors of the company. The audit committeeshall make appropriate recommendations to the Board to take up steps inthis matter.

Complied

Complied

Complied

Complied

Complied

Would be complied

Would be complied

Would be complied

Will be compliedas and whenapplicable.


13. Compliance of Mandatory / Non-mandatory requirements under revised Clause 49

AUDIT COMMITTEE MANDATORY COMPLIANCES

Sl.No. Mandatory Requirement Status ofCompliance byHPCL

1 7 8


AUDIT COMMITTEE - NON-MANDATORY COMPLIANCES

Sl.No. Non - Mandatory Requirement Status ofCompliance byHPCL

1 Oversight of the company’s financial reporting process and the disclosure ofits financial information to ensure that the financial statement is correct,sufficient and credible.

2 Recommending to the Board, the appointment, re-appointment and, if required,the replacement or removal of the statutory auditor and the fixation of auditfees.

3 Approval of payment to statutory auditors for any other services rendered bythe statutory auditors.

4 Reviewing, with the management, the annual financial statement beforesubmission to the Board for approval, with particular reference to:

a Matters required to be included in the Director’s Responsibility Statementto the included in the Board’s report in terms of clause (2AA) of section217 of the Companies Act, 1956.

b Changes, if any, in accounting policies and practices and reasons forthe same.

c Major accounting entries involving estimates based on the exercise ofjudgement by management

d Significant adjustments made in the financial statements arising out ofaudit findings.

e Compliance with listing and other legal requirements relating to financialstatements

f Disclosure of any related party transactions

g Qualifications in the draft audit report.

5 Reviewing , with the management, the quarterly financial statements beforesubmission to the board for approval.

6 Reviewing, with the management, performance of statutory and internalauditors, adequacy of the internal control systems.

7 Reviewing the adequacy of internal audit function, if any, including the structureof the internal audit department, staffing and seniority of the official headingthe department, reporting structure coverage and frequency of internal audit.

8 Discussion with internal auditors any significant findings and follow up thereon.

9 Reviewing the findings of any internal investigations by the internal auditorsinto matters where there is suspected fraud or irregularity or a failure of

Complied

Complied

Complied

Complied

Complied

Would be complied,if applicable.


Complied

Would be compliedWould becomplied, ifapplicable.

Complied

Complied

Being followed

Being followed

Being Complied


1 7 9


internal control systems of a material nature and reporting the matter to theBoard.

10 Discussion with statutory auditors before the audit commences, about thenature and scope of audit as well as post-audit discussion to ascertain anyareas of concern.

11 To look into the reasons for substantial defaults in the payment to thedepositors, debenture holders, shareholders (in case of non-payment ofdeclared dividends) and creditors.

12 To review the functioning of the Whistle Blower mechanism, in case thesame is existing.

13 Carrying out any other function as is mentioned in the terms of reference ofthe Audit Committee.

BOARD - MANDATORY COMPLIANCES

Sl.No. Mandatory Requirement Status ofCompliance byHPCL

Composition of the Board

1 50% of the Board Members to be Independent Directors.

2 Non-Executive Directors’ compensation and disclosures.

Fees / compensation of non-executive Directors including IndependentDirectors to be fixed by the Board.

3 Board shall meet atleast four times in a year with a maximum time gap offour months between two Meetings.

4 Directors shall not be a member in more than 10 committees or act asChairman of more than 5 Committees across all companies in which he is aDirector. Every Director to inform the Company about the Committee positionhe occupies in another company and notify changes as and when they take place.

5 Periodic review by the Board of compliance report of all laws applicable tothe company and action taken by the company to rectify instances of non-compliances.

Complied

Would be complied,when applicable.

Whistle Blowermechanism isthere. Therequirement wouldbe followed.


Being Govt.Company, mattertaken up withMinistry ofPetroleum &Natural Gas beingthe administrativeMinistry.

Complied asapplicable forpayment of SittingFees.

Complied

Complied

Compliancecommenced.


1 8 0


Code of Conduct

6 � Board to lay down Code of Conduct for Board and Sr. Managementwhich should also be hosted on website of the company. Board andSr. Management to affirm compliance of the Code on Annual basis.

� The Annual Report of the Company should contain a declaration to thiseffect signed by the CEO.

Subsidiary Company

7 One Independent Director on the Board of Directors of the holding companyshall be a Director on the Board of Directors of a material non-listed IndianSubsidiary company.

8 The Audit Committee of the listed holding company shall review the financialstatement in particular, the investments made by the unlisted subsidiarycompany.

9 The minutes of the Board meeting of the unlisted company shall be placedat the Board meeting of the listed holding company.

10 Where in the preparation of financial statements, a treatment different fromthat prescribed in an Accounting Standard has been followed, the fact shallbe disclosed in the financial statements, together with the management’sexplanation as to why it believes such alternative treatment is morerepresentative of the true and fair view of the underlying business transactionin the Corporate Governance Report.

11 The company shall lay down procedures to inform Board Members about theRisk Assessment and Minimisation procedures.

12 All pecuniary relationship or transaction of the non-executive director vis-à-vis company shall be disclosed in the Annual Report.

13 Disclosure of the remuneration of the directors giving the break-up ofremuneration shall be made in the section on Corporate Governance.

14 Company to publish criteria of making payments to Non-Executive Directorsin its Annual Report. This is also to be put on the website of the company.

15 Company to disclose the number of shares and convertible instruments heldby non-executive directors in the Annual Report.

16 Non-Executive Directors required to disclose their shareholding in the listedcompany in which they are proposed to be appointed as directors. The detailsshould be given by the company in the notice of the general meeting calledfor appointment of such director.

Complied

Complied

Complied

Complied

Complied

Not Applicable

Compliancecommenced.Process beingenhanced further.

Would be compliedas applicable

Complied

Presently, onlySitting Fees arepayable to Non-Executive Directors

Complied

Complied


1 8 1


17 Management Discussion Analysis to form part of the Annual Report.

18 Senior Management shall make disclosure to the Board relating to all material,financial and commercial transactions where they have personal interest.

19 In case the appointment of a new director or re-appointment, the details ofsuch Director to be provided in the Annual Report.

20 Quarterly results and presentation made by the company to the analyst tobe put on the company’s website.

21 A committee under the Chairmanship of a Non-Executive director shall beformed to look into the redressal of shareholder and investor’s grievances.

22 Board of the company to delegate the power of share transfer to an officer orcommittee or to the registrar and share transfer agents. The delegatedauthority shall attend to share transfer formalities atleast once in a fortnight.

CEO / CFO Certification

23 The CEO i.e. the Managing Director or Manager appointed in terms of theCompanies Act, 1956 and the CFO i.e. the whole-time Finance Director orany other person heading the finance discharging that function shall certifyto the Board that:

a They have reviewed financial statements and the cash flow statementfor the year and that to the best of their knowledge and belief:

(i) these statements do not contain any materially untrue statementor omit any material fact or contain statements that might bemisleading;

(ii) these statements together present a true and fair view of thecompany’s affairs and are in compliance with existing accountingstandards, applicable laws and regulations.

b There are to the best of their knowledge and belief, no transactionsentered into by the company during the year which are fraudulent, illegalor violative of the company’s code of conduct.

c They accept responsibility for establishing and maintaining internalcontrols and that they have evaluated the effectiveness of the internalcontrol systems of the company and they have disclosed to the auditorsand the Audit Committee, deficiencies in the design or operation ofinternal controls, if any, of which they are aware and the steps theyhave taken or propose to take to rectify these deficiencies.

d They have indicated to the auditors and the Audit Committee:

(i) significant changes in internal control during the year.

(ii) significant changes in accounting policies during the year and

Complied

Complied

Complied

Would be complied

Complied

Complied

Complied


1 8 2


that the same have been disclosed in the notes to the financialstatements; and

(iii) instances of significant fraud of which they have become awareand the involvement therein, if any, of the management or anemployee having a significant role in the company’s internal controlsystem.

Report on Corporate Governance:

24 There should be a separate section on Corporate Governance in the AnnualReport of the company with a detailed compliance report on CorporateGovernance. Non-compliance of mandatory requirements, if any, andcompliance of non-mandatory requirements should be specifically highlighted.

25 Company to submit a Quarterly Compliance Report to the Stock Exchangeswithin 15 days from the close of quarter.

26 Company to obtain a certificate from a Practising Company Secretary orAuditors regarding compliance of conditions of Corporate Governance, thecertificate should be sent to the Stock Exchanges and also to the shareholdersof the company.

BOARD – NON-MANDATORY COMPLIANCES

Sl.No. Non-mandatory Requirement Status ofCompliance byHPCL

1 Annual operating plans and budgets and any updates.

2 Capital budgets and any updates.

3 Quarterly results for the company and its operating divisions or businesssegments.

4 Minutes of meetings of Audit Committee and other committees of the board.

5 The information on recruitment and remuneration of senior officers just belowthe board level, including appointment or removal of Chief Financial Officerand the Company Secretary.

6 Show cause, demand, prosecution notices and penalty notices which arematerially important.

7 Fatal or serious accidents, dangerous occurances, any material effluent orsubstantial non-payment for goods sold by the company.

8 Any material default in financial obligations to and by the company, orsubstantial non-payment for goods sold by the company.

9 Any issue, which involves possible public or product liability claims ofsubstantial nature, including any judgement or order which may have passed

Complied

Complied

Complied

Complied

Complied

Complied

Complied

Complied

Would be compliedwhen need arise.





1 8 3


strictures on the conduct of the company or taken an adverse view regardinganother enterprise that can have negative implications on the company.

10 Details of any joint venture or collaboration agreement.

11 Transactions that involve substantial payment towards goodwill, brand equity,or intellectual property.

12 Significant labour problems and their proposed solutions. Any significantdevelopment in Human Resources / Industrial Relations front like signing ofwage agreement, implementation of Voluntary Retirement Scheme etc.

13 Sale of material nature, of investments, subsidiaries, assets, which is not innormal course of business.

14 Quarterly details of foreign exchange exposures and the steps taken bymanagement to limit the risks of adverse exchange rate movement, if material.

15 Non-compliance of any regulatory, statutory or listing requirements andshareholders service such as non-payment of dividend, delay in share transferetc.

Complied

Would be complied,when applicable

Being Complied

Would be complied

Complied

Would be complied

when becomes

necessary


53rd Annual General Meeting of the Corporation Shareholders at the AGM

Shri M B Lal C&MD handing over Dividend Cheque to ShriMani Shankar Aiyar, Former Union Minister of Petroleum

& Natural Gas & Panchayati Raj.

1 8 4


To the Members of

Hindustan Petroleum Corporation Limited

We have examined the compliance of conditions of Corporate Governance by Hindustan PetroleumCorporation Limited (‘the Company”), for the year ended 31st March 2006, as stipulated in Clause 49 of theListing Agreements of the Company with the stock exchanges.

The compliance of conditions of Corporate Governance is the responsibility of the Management. Our examinationwas limited to procedures and implementation thereof adopted by the Company for ensuring the compliance ofthe conditions of Corporate Governance. It is neither an audit nor an expression of opinion on the financialstatements of the Company.

In our opinion and to the best of our information and according to explanations given to us, we certify that theCompany has complied with the conditions of Corporate Governance as stipulated in the abovementionedListing Agreements.

We state that such compliance is neither an assurance as to the future viability of the Company nor theefficiency or effectiveness with which the Management has conducted the affairs of the Company.

For and on behalf of For and on behalf of

N. M. Raiji & Co. Sudit K. Parekh & Co.Chartered Accountants Chartered Accountants

Vinay D. Balse Srikant V. JillaPartner Partner(Membership No. 39434) (Membership No. 39461)

Place : MumbaiDated : July 31, 2006

This is to Certify that the Company has laid down Code of Conduct for all Board Members and

Senior Management of the Company and the same is uploaded on the website of the company -

www.hindustanpetroleum.com.

Further certified that the Members of the Board of Directors and Senior Management have affirmed

and have complied with the code as applicable to them during the year ended March 31, 2006.

M.B.Lal

Chairman & Managing Director

Declaration of the Chairman & Managing DirectorDeclaration of the Chairman & Managing DirectorDeclaration of the Chairman & Managing DirectorDeclaration of the Chairman & Managing DirectorDeclaration of the Chairman & Managing Director

Auditors’ Certificate on Corporate GovernanceAuditors’ Certificate on Corporate GovernanceAuditors’ Certificate on Corporate GovernanceAuditors’ Certificate on Corporate GovernanceAuditors’ Certificate on Corporate Governance

1 8 5


Guru Gobind Singh Refineries LimitedGuru Gobind Singh Refineries LimitedGuru Gobind Singh Refineries LimitedGuru Gobind Singh Refineries LimitedGuru Gobind Singh Refineries Limited

Registered Office Administrative Office

Guru Gobind Singh Refineries Limited Guru Gobind Singh Refineries LimitedVillage : Phulokhari 3rd Floor, UCO Bank Building,Taluka : Talwandi Saboo Sansad Marg,District : Bhatinda New Delhi : 110001State : Punjab

Statutory Auditors Bankers

M/s Rawla & Company Punjab National BankChartered Accountants 28-A, Kasturba Gandhi MargNew Delhi New Delhi : 110001

Company Secretary

Shri Sidhartha Tyagi

Shri B.S. SantManaging Director(w.e.f 23/01/2006)

Shri M.B. LalChairman

Shri M.A.TankiwalaDirector

Shri C. Ramulu

Director

Shri T.L. Sankar

Director

Shri C.B. SinghDirector

(w.e.f 25/11/2005)

Shri S.P. ChaudhryDirector

Shri D.S. MathurDirector

(till 31/05/2005)

Our DirectorsOur DirectorsOur DirectorsOur DirectorsOur Directors

1 8 6



On behalf of the Board of Directors of your Company, I present the 5th Annual Report on the working of yourCompany together with the Audited Statement of Accounts, the Auditors Report and the Review of theAccounts by the Comptroller and Auditor General of India for the financial year ended on 31st March 2006.

As on March 31, 2006, your company is a wholly owned subsidiary of Hindustan Petroleum CorporationLimited (HPCL). Your company which had been negotiating with Government of Punjab (GoP) for conclusionof the Deed of Assurance (DOA) has on August 12, 2005 signed the DOA with the GoP. The deed incorporatesvarious fiscal & non fiscal incentives granted to the Punjab Refinery Project by the GoP. Some of the incentivesgranted to your company are as under :

1. Interest free loan of Rs. 250 crore per annum for a period of five years amounting in all to Rs 1250 crore.

2. GoP will facilitate Power Purchase Agreement in favour of HPCL / GGSRL for sale of the power generatedby the project and for the payments for the power supplied under the agreement through commerciallyviable mechanism.

3. Project exempted from such of the taxes / levies as are not existing on the date of signing of this Deed,which the State Government can levy itself or through its other bodies.

4. Rates/ amounts of the existing taxes/ levies will be restricted, excluding water and electricity charges,as prevailing on the date of signing of the deed for the duration of the incentives packages viz 15 years.

5. Deferment of CST to the maximum extent of 300% of the fixed capital investment for a period of 15years from the date of commercial production.

6. GoP will give purchase preference in procurement of products from the refinery by itself and otherbodies, Corporation and agencies under its control.

7. Power for construction will be supplied to the refinery project on the same rate, terms/ conditions asapplicable to similar industrial consumers in the State of Punjab.

Your company during the year has also initiated various other project activities for construction of officebuildings at Refinery site, appointment of Project Management Consultants, Process Licensors etc. TheCompany is also shortly expecting to complete the detailed feasibility report on the final configuration & costestimate for execution of the 9 MMTPA refinery and its associated facilities.

STATUTORY DISCLOSURES

(A) Particulars of Employees u/s 217(2A) of the Companies Act, 1956 :

There are no employees under the category covered by Section 217 (2A) of the Companies Act, 1956.

(B) Conservation of Energy :

As required under 217(1)(e) of the Companies Act, 1956 read with the Companies (Disclosure of Particularsin the Report of Board of Directors) Rules, 1988 regarding Energy Conservation and Technology Absorption,the Board hereby discloses as follows :

(i) That the Board, as part of its existing internal control measures, is striving for the conservation ofEnergy under the supervision of Managing Director on a continuous basis and is satisfied that theutilisation of energy is optimum for the present working of the Company.

(C) Technology Absorption :

The Company has not made any absorption, adaptation & import of technology from the date ofincorporation.

(D) Foreign exchange earnings and outgo :

The required information in respect of foreign exchange earnings and outgo is given in Note no. 8 (b) (i)& (ii) of the Accounts.

1 8 7



CORPORATE GOVERNANCEThe details in this regard is enclosed as attachment and form part of this Director’s Report.DIRECTORSShri D.S. Mathur, ceased to be the Director of the company w.e.f. June 01, 2005 consequent to his attainingthe age of superannuation from the post of Director (Refineries), HPCL.During the year Shri M.A. Tankiwala, Managing Director of the company was appointed as Director (Refineries)HPCL w.e.f. June 01, 2006. Shri Tankiwala continued to hold the additional post of Managing Director uptillAugust 31, 2005 as per the advise of Government of India, Ministry of Petroleum & Natural Gas.Thereafter, Government of India, Ministry of Petroleum & Natural Gas entrusted Shri M.B. Lal, Chairman ofthe company with the powers & responsibilities of the Managing Director till a regular incumbent to the post isappointed. Shri Lal exercised the powers of the Managing Director uptill January 22, 2006.Subsequently, the Government of India, Ministry of Petroleum & Natural Gas appointed Shri B.S. Sant as theManaging Director of your company w.e.f January 23, 2006.S/Shri M.A. Tankiwala , C.B. Singh, Joint Advisor (Finance), MOP & NG & B.S. Sant were appointed asDirectors w.e.f 26/10/2005, 25/11/2005 and 23/01/2006 respectively. They have been co-opted as additionalDirectors, liable to retire at the next Annual General Meeting and are eligible for reappointment.S/Shri M.B. Lal, C. Ramulu, T.L. Sankar & S.P. Chaudhry continue to be the part time Directors of the Company.As per the provisions of Section 256 of the Companies Act, 1956, S/Shri T.L. Sankar & C. Ramulu will be theDirectors who will retire by rotation at the forthcoming Annual General Meeting and being eligible, offer themselvesfor reappointment under the provisions of Section 255 of the Companies Act, 1956.The Board of Directors place on record their sincere appreciation of the valuable services rendered by ShriD.S. Mathur during his tenure on the Board.DIRECTORS RESPONSIBILITY STATEMENTIn terms of Section 217 (2AA) of the Companies Act, 1956, your Directors state that :(i) In the preparation of the annual accounts for the financial year 2005-06, the applicable accounting

standards have been followed along with proper explanation relating to material departures.(ii) The Company has selected such accounting policies and applied them consistently and made judgments

and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs ofthe Company as on 31st March, 2006.

(iii) The Company has taken proper and sufficient care for the maintenance of adequate accounting recordsin accordance with the provisions of the Companies Act, 1956 for safeguarding the assets of the Companyand for preventing and detecting fraud and other irregularities.

(iv) These accounts have been prepared on a going concern basis.ACCOUNTSThere being no commercial activities, the Company is only required to prepare the Balance Sheet for theperiod of 12 Months from 01/04/2005 to 31/03/2006.ACKNOWLEDGMENTYour Directors acknowledge with thanks the continued help, support and guidance received from the Governmentof India, especially, the Ministry of Petroleum and Natural Gas, Department of Public Enterprises, Governmentof Punjab, Punjab State Industries Development Corporation, Government of Gujarat, Government of Rajasthan,Government of Haryana & the holding Company HPCL in guiding the Company in its activities. Your Directorsalso take this opportunity to place on record their appreciation on the valuable contribution made by theemployees.

For and on behalf of the Board of DirectorsPlace : New Delhi Shri M.B LalDate : May 03, 2006 Chairman

1 8 8


Auditor’Auditor’Auditor’Auditor’Auditor’s Reports Reports Reports Reports Report

To,

The Members,

GURU GOBIND SINGH REFINERIES LIMITED

1. We have audited the attached Balance Sheet of M/s. Guru Gobind Singh Refineries Limited as at 31st

March, 2006 along with Statement of Incidental Expenses incurred for the year ended on that date annexed

thereto. No Profit & Loss Account has been prepared since the Company is under construction stage

during the year. These Financial Statements are the responsibility of the Company’s management. Our

responsibility is to express an opinion on these Financial Statements based on our Audit.

2. We conducted our audit in accordance with the Auditing Standards generally accepted in India. These

standards require that we plan and perform the audit to obtain reasonable assurance about whether the

Financial Statements are free of material misstatements. An audit includes examining, on a test basis,

evidence supporting the amounts and disclosures in the Financial Statements. An audit also includes

assessing the accounting principles used and significant estimates made by management, as well as

evaluating the overall financial statement presentation. We believe that our audit provides a reasonable

basis for our opinion.

3. As required by the Companies (Auditor’s Report) Order, 2003, issued by the Central Government of India

in terms of sub section (4A) of Section 227 of the Companies Act, 1956, we enclose in the Annexure a

statement on the matters specified in paragraphs 4 and 5 of the said order.

4. Further to our comments in the annexure referred to in above, we report that:

a) We have obtained all the information and explanations, which to best of our knowledge and belief

were necessary for the purpose of our audit.

b) In our opinion, proper books of account, as required by law, have been kept by the Company so far as

appears from our examination of these books.

c) The Balance Sheet and the Statement of Incidental Expenses dealt with by this report are in agreement

with books of accounts.

d) In our opinion, the said Balance Sheet and Statement of Incidental Expenses incurred during

Construction Period dealt with by this report complies with the Accounting Standards, referred in

Section 211 (3C) of the Companies Act, 1956.

e) On the basis of written representations received from the Directors, as on March 31, 2006 and taken

on record by the Board of Directors, we report that none of the Directors is disqualified as on March

31, 2006 from being appointed as a Director of the Company under clause (g) of sub-section (1) of

Section 274 of the Companies Act, 1956.

1 8 9


f) In our opinion, and to the best of our information and according to explanations given to us, the said

Accounts read together with the notes thereon, give the information required by the Companies Act,

1956, in the manner so required and give a true & fair view in conformity with the Accounting principles

generally accepted in India.

(i) In so far as it relates to Balance Sheet, of the state of affairs of the Company as on 31St March,

2006 and

(ii) In so far as it relates to “Statement of Incidental Expenses”, of the expenses incurred for the year

ended on that date.

For RAWLA & COMPANYChartered Accountants

Y.P. RAWLAPlace : New Delhi PartnerDate : May 03, 2006 Membership No. 10475

Auditor’Auditor’Auditor’Auditor’Auditor’s Reports Reports Reports Reports Report

A section of the project site

1 9 0


Referred to in paragraph 3 of our report of even date

(1) (a) The Company has maintained a register showing full particulars including quantitative details and

situation of fixed assets.

(b) All the assets have been physically verified by the management during the year and there is a

regular programme of verification which, in our opinion is reasonable having regard to the size of the

Company and the nature of its assets. No material discrepancies were noticed on such verification.

(c) During the year, the Company has not disposed off any fixed assets.

(2) As the Company is under construction stage therefore the clause of physical verification and maintaining

of proper records relating to inventory is not applicable to the Company.

(3) The Company had not taken/granted any loans, secured or unsecured during the year from other/to

Companies covered in the register maintained under Section 301 of the Companies Act, 1956, hence this

clause is not applicable to the Company.

(4) In our opinion and according to the information and explanations given to us, there are adequate internal

control procedures commensurate with the size of the Company and the nature of its business with

regard to fixed assets. As the Company is under construction stage therefore this clause relating to

inventory and sale of goods is not applicable. During the course of our audit, we have not observed any

major weaknesses in internal control.

(5) (a) According to the information and explanations given to us, there are no such transactions which

needs to be entered into the register maintained in pursuance of Section 301 of the Companies Act,

1956.

(b) In our opinion and according to the information and explanations given to us, there are no transactions

made in pursuance of contracts or arrangements entered into the register maintained in pursuance

of Section 301 of the Companies Act, 1956 hence this clause is not applicable.

(6) The Company has not accepted any deposits from public during the year hence the requirements of

Section 58A and Section 58AA of Companies Act, 1956 and Rules framed there under are not applicable.

(7) In our opinion, the Company has an internal audit system commensurate with the size and nature of its

business.

(8) The Company is under construction stage, therefore, maintenance of Cost Records under Section 209(1)(d)

of the Companies Act, 1956 is not applicable to the Company.

(9) (a) The Company is regular in depositing with Appropriate Authorities undisputed statutory dues including

Income Tax, Sales Tax, Excise Duty, Custom Duty, Cess and other material statutory dues applicable

during the year to the Company.

AnnexurAnnexurAnnexurAnnexurAnnexure to Auditor’e to Auditor’e to Auditor’e to Auditor’e to Auditor’s Reports Reports Reports Reports Report

1 9 1


(b) According to the information and explanations given to us, no undisputed amounts payable in

respect of Income Tax, Sales Tax, Excise Duty, Custom Duty and Cess were in arrears, as at

March 31, 2006 for a period of more than six months from the date they became payable.

(c) According to the information and explanation given to us, there are no disputed dues of Sales Tax,Income Tax, Custom Duty, Excise Duty and Cess.

(10) The Company is under construction stage hence this clause of accumulated losses is not applicable.

(11) The Company has not taken any loan from Bank & Financial Institution, and not issued any debenture

hence this clause is not applicable to the Company.

(12) The Company has not granted any loans and advances against pledge of shares, debentures and other

securities hence this clause is not applicable.

(13) In our opinion, the Company is not a chit fund or a nidhi/ mutual benefit fund/ society. Therefore, the

provisions of clause 4(xiii) of the Companies (Auditor’s Report) Order, 2003 are not applicable to the

Company.

(14) In our opinion, the Company is not dealing in or trading in shares, securities, debentures and other

investments. Accordingly, the provisions of clause 4(xiv) of the Companies (Auditor’s Report) Order,

2003 are not applicable to the Company.

(15) In our opinion, the Company has not given any guarantee for loans taken by others from banks or

financial institutions; hence this clause is not applicable.

(16) In our opinion, the Company has not applied for any term loan; hence this clause is not applicable.

(17) According to the information and explanations given to us and on the basis of overall examination of the

balance sheet of the Company, we report that no fund raised on short-term basis have been used for

long-term investment, hence this clause is not applicable.

(18) According to the information and explanations given to us, the Company has not made preferential

allotment of shares to parties and companies covered in the register maintained under Section 301 of

the Companies Act, 1956 hence this clause is not applicable.

(19) According to the information and explanations given to us, the Company has not issued any Debenture

during the period covered by the audit report; hence this clause is not applicable.

(20) The Company has not raised any money by public issue; hence this clause is not applicable.

(21) According to the information and explanations given to us, no fraud on or by the Company has been

noticed or reported during the course of our audit.

For Rawla & Company Chartered Accountants

Y.P. RAWLAPlace : New Delhi. PartnerDate : May 03, 2006 Membership No. 10475

AnnexurAnnexurAnnexurAnnexurAnnexure to Auditor’e to Auditor’e to Auditor’e to Auditor’e to Auditor’s Reports Reports Reports Reports Report

1 9 2


Balance Sheet as at 31st March, 2006Balance Sheet as at 31st March, 2006Balance Sheet as at 31st March, 2006Balance Sheet as at 31st March, 2006Balance Sheet as at 31st March, 2006

Amount (Rs.)

SCHEDULE 2005-06 2004-05SOURCES OF FUNDS

Shareholder’s funds :a) Share Capital 1 2,957,100,000 2,957,100,000b) Share Application Pending Allotment 42,900,000 -

TOTAL 3,000,000,000 2,957,100,000

APPLICATION OF FUNDSFixed Assets :

a) Gross Block 2 1,670,154,242 1,640,624,169b) Less: Depreciation 83,771,315 62,493,972c) Net Block 1,586,382,927 1,578,130,197d) Capital Expenditure (In respect of assets

not owned by the company) 3 49,935,335 146,857,678e) Capital Work in Progress 4 1,354,717,582 1,227,368,325

2,991,035,844 2,952,356,200Current Assets, Loans & Advances :

a) Sundry Debtors 5 13,984,837 67,641,473b) Cash and Bank Balance 6 3,338,544 103,508c) Other Current Assets 7 8,588 13,617d) Loans and Advances 8 34,072,652 34,444,681

51,404,621 102,203,279Less:

Current Liabilities and Provisions :

a) Liabilities 9 88,354,921 123,468,172b) Provisions 21,130 5,357

88,376,051 123,473,529

Net Current Assets (36,971,430) (21,270,250)Miscellaneous Exp. to the extentnot written off or adjusted 10 45,935,586 26,014,050

TOTAL 3,000,000,000 2,957,100,000

STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES 11AND NOTES FORMING PART OF ACCOUNTS

As per our report of the even date

For Rawla & Company B.S. Sant C.RamuluChartered Accountants Managing Director Director

Y.P. Rawla S. Malhotra S.TyagiPartner DGM- Finance Company Secretary


1 9 3


Amount (Rs.)

As at 31st As at 31st March 2006 March 2005

SCHEDULE 1

SHARE CAPITAL

A AUTHORISED

550,000,000,(As at 31st March 2005 : 550,000,000)

Equity Shares of Rs. 10/- each 5,500,000,000 5,500,000,000

5,500,000,000 5,500,000,000

B ISSUED CAPITAL

300,000,000,(As at 31st March 2005 : 295,710,000) 3,000,000,000 2,957,100,000

Equity Shares of Rs. 10/- each 3,000,000,000 2,957,100,000

C SUBSCRIBED & PAID UPCAPITAL

295,710,000,(As at 31st March 2005 :295,710,000)

Equity Shares of Rs. 10/- each fully paid 2,957,100,000 2,957,100,000

2,957,100,000 2,957,100,000


SCHEDULE 2

FIXED ASSETS

Description As at01.04.05

Additions/reclassifi-

cationduring

the year

Ded/Recl.

As at31.03.06

As at31.03.05

For theyear

2005-06

Ded/Recl.

Total Upto31.03.06

As at31.03.05

As at31.03.06

GROSS BLOCK DEPRECIATION BLOCK NET BLOCK

Land- Freehold 876,647,847 - - 876,647,847 - - - - 876,647,847 876,647,847

- Right of Use 88,022,350 29,499,593 - 117,521,943 - - - - 88,022,350 117,521,943

Road & Culverts 204,057,533 - - 204,057,533 9,991,647 3,326,138 13,317,785 194,065,886 190,739,748

Buildings 59,171,473 - - 59,171,473 7,040,088 1,849,591 8,889,679 52,131,385 50,281,794

Lease HoldProperty- Land 332,864,197 - - 332,864,197 33,028,885 11,782,234* - 44,811,119 299,835,312 288,053,078

Plant & Machinery 75,581,578 21,000 - 75,602,578 11,488,936 4,027,796 - 15,516,732 64,092,642 60,085,846

Furniture & Fixture 4,279,191 9,480 - 4,288,671 944,416 291,584 - 1,236,000 3,334,775 3,052,671

TOTAL 1,640,624,169 29,530,073 - 1,670,154,242 62,493,972 21,277,343 - 83,771,315 1,578,130,197 1,586,382,927

Previous Year 1,627,031,505 15,112,579 1,519,915 1,640,624,169 41,262,913 21,264,996 33,937 62,493,972 1,585,768,592 1,578,130,197

* The amount of amortization of land has been classified under the head ‘Direct Revenue Expenses- SPM/COT’ in schedule 4(II)

1 9 4


Amount (Rs.)As at 31st As at 31st

SCHEDULE 3 March 2006 March 2005

CAPITAL EXPENDITURENOT REPRESENTED BY ASSETOWNED BY THE COMPANYCapital Expenditure not representedby asset owned by the company 144,190,678 146,857,678

Less : Amortisation during the year 94,255,343 -

49,935,335 146,857,678

* The amount includes Rs. 28,838,136amortised during the year andRs. 65,417,207 pertaining to periodprior to 2005-06 (Previous Year Nil)

SCHEDULE 4I CAPITAL WORK IN PROGRESS (at Cost)

Capital work in progress - Pipeline 201,247,343 201,448,531Capital work in progress - Refinery 356,060,085 409,202,542Capital work in progress - SPM/COT 50,541,226 50,541,226Advance to PSEB for Capital Expenditure 3,215,061 3,215,061Wind Energy Project 1,389,535 950,743Total (I) 612,453,250 665,358,103

II Incidental expenses during theconstruction(pending apportionment)Opening Balance 562,010,222 467,082,268Direct revenue Exp-SPM/COTLease Rent 32,636,979 32,492,213Amortization of land 11,782,234 11,782,234Survey & Feasibility Study - 44,419,213 56,598 44,331,045Direct revenue Exp-RefineryAmortisation of Assets notowned by the company 28,838,136 -DFR Cost 8,916,000 37,754,136 3,456,000 3,456,000Other Incidental ExpensesSalary & Wages (Reimbursed to holding co.) 15,337,690 19,195,370Travel/ Conveyance/Transportation Charges 3,042,952 5,182,211Professional Charges 596,796 296,973


*

1 9 5



March 2006 March 2005

Sponsership/Subscription - 437,902NIT Publication Charges 2,767,422 28,447Outsourced services 2,622,010 3,364,120Rent 1,502,598 1,886,912Insurance 500 675

Postage, Telephone Telegram & Telex 681,752 902,880

Staff Welfare Expenses 309,198 932,355

Security Charges 1,753,755 1,827,360

Fuel Electricity & Water 928,164 1,061,692

Stationary & Office Supplies 337,822 299,978

Repair & Maintenance to others 1,707,754 1,488,021

Repair & Maintenance to building 10,832 26,044

Books & Periodicals 154,825 128,932

General Expenses 1,813,299 1,498,634

Audit Fees (Inclusive of service tax) 56,220 55,000

Fringe Benefit Tax 427,648 -

Income Tax 2,845 5,760

Rates & Taxes 112,915 114,540

Depreciation 9,495,109 9,482,763

Sub Total 43,662,106 48,216,569

Prior period credit/debit

Amortisation of assets not owned

by the company 65,417,207 -

Sponsorship (10,210,000) -

DFR Cost (256,000) -

PMC- Pipeline/COT/SPM (78,270) -

Repair & Maintenance others (10,230) -

Depreciation - 98,524,812 (33,937) 48,182,632

Sub Total 742,708,383 563,051,945

Less :

Interest on Term Deposits 8,445 14,637

Misc Income 435,606 444,051 1,027,086 1,041,723

Sub Total 444,051 1,041,723

Total (II) 742,264,332 562,010,222

Grand Total (I +II) 1,354,717,582 1,227,368,325


1 9 6



March 2006 March 2005

SCHEDULE 5

SUNDRY DEBTORS (Unsecured)Debt outstanding for a period exceeding six months

Considered good - -

Considered doubtful - -

Other debts - -

Considered good (Due from HPCL, holding company) 13,984,837 67,641,473

13,984,837 67,641,473

SCHEDULE 6

CASH AND BANK BALANCE

Cash on hand 100,000 100,000

Balance with Schedule Bank

On Current Account with Punjab National Bank 3,238,544 3,508

3,338,544 103,508

SCHEDULE 7

OTHER CURRENT ASSETSInterest Accrued on bank deposits but not due 8,588 2,627

Interest accrued and due on Bank deposits - 10,990

8,588 13,617

SCHEDULE 8

LOAN AND ADVANCES

(UNSECURED CONSIDERED GOOD)

(Advance recoverable in cash or kind for

the value to be recieved)

Security Deposits Paid 8,927,785 8,706,782

TDS on Interest Income - 3,061

CENVATABLE Claim 25,111,596 25,692,288

Other Advances 33,271 42,550

34,072,652 34,444,681


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Amount (Rs.)

As at 31st As at 31st March 2006 March 2005

SCHEDULE 9

CURRENT LIABILITIES AND PROVISIONS

A Current Liabilities :Duties and Taxes 2,698,340 104,873Sundry Creditors 9,169,336 6,916,866Earnest Money Deposits 95,887 72,127Retention Money 1,870,125 1,752,018Security Deposits Received 3,183,178 3,274,070Adhoc deductions 1,532,653 2,026,426Liabilities for

- Works Contract 55,730,877 106,798,347- ROU compensation 13,080,000 -- Expenses 994,525 2,523,445

88,354,921 123,468,172

B Provisions :Income Tax 2,845 5,357Fringe Benefit Tax 18,285 -

21,130 5,357

88,376,051 123,473,529

SCHEDULE 10

MISCELLANEOUS EXPENDITURE(To the extent not written off or adjusted)

Preliminary Expenses 20,803,000 20,803,000Proposed Public Issue Expenses 5,287,146 5,211,050Sponsorship 10,210,000 -Project Relaunch Expenses 9,635,440 -

45,935,586 26,014,050


1 9 8


SCHEDULE 11

A. SIGNIFICANT ACCOUNTING POLICIES

a. Accounts are prepared under the historical cost convention in accordance with Generally Accepted

Accounting Principles (GAAP) accounting Standards issued by the Institute of Chartered Accountants

of India (ICAI) and the provisions of the Companies Act, 1956. All income and expenditure having

material bearing are recognized on the accrual basis, except where otherwise stated.

b. Land

Land acquired on lease for less than 99 years is treated as lease hold land. Cost of “Right of Use”

is capitalized. Lease hold land is amortized over the period of lease.

c. Fixed Assets

Cost of Fixed Assets comprises of purchase price, duties, statutory levies (net of cenvatable claim)

and any directly attributable cost of bringing the asset to its working condition for its intended use.

d. Intangible assets

1. Cost of “Right of Use” is capitalized. However, such “Right of Use” being perpetual in nature is

not amortized.

2. Hitherto, expenditure on Intangible assets in the nature of “Assets not owned by the company”

were to be amortized over a period of five years after commencement of commercial production.

The company during the year has modified the policy so as to amortize “Assets not owned by

the company” over a period of five years after completion of assets or its period of utility

whichever is less.

e . Depreciation

1. Depreciation on fixed assets is provided on straight line basis, in the manner and at the rates

provided under Schedule XIV of the Companies Act, 1956. Depreciation is charged prorata on

monthly basis on assets, from/ upto and inclusive of the month of capitalization/ sale, disposal

or deletion during the year.

2. Premium on lease hold is amortized over the period of lease.

f. Expenses During Construction Period

The direct project expenditure incurred during the construction period has been shown under the

head “Capital Work in Progress” which will be transferred to relevant fixed assets as and when they

are completed.

Indirect expenditure incurred during construction period has been shown under the head “Incidential

Expenditure relating to project (pending apportionment)” which will be apportioned to fixed assets

upon completion of the project.


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g. Miscellaneous Expenditure

The expenditure shown under the head “Miscellaneous Expenditure (to the extent not written off/

adjusted) “ will be amortized over a period of five years after commencement of commercial

production.

B. NOTES FORMING PART OF ACCOUNTS

1. The entire equity contribution to Guru Gobind Singh Refineries Limited (GGSRL) has been made by

Hindustan Petroleum Corporation Limited (HPCL). Hence, GGSRL is a wholly owned subsidiary of

HPCL and a Government company u/s 617 of the Companies Act, 1956.

2. The Company has prepared the Statement of Incidental Expenditure during construction instead of

a Profit and Loss Account. The necessary details as per Part II of Schedule VI of the Companies

Act, 1956, have been disclosed in the said statement.

3. Cost of land- (Freehold) Rs. 8766 Lakhs (Previous Year Rs. 8766 Lakhs) comprises of :

(i) Land at refinery site : Rs. 8758 lakhs (Previous Year Rs. 8758 lakhs).

The necessary action for transfer of the above land’s viz “Intakal” process has been completed

and the company is in the process of signing conveyance deed.

(ii) Land along Pipeline routes : Rs. 8 Lakhs (Previous Year Rs. 8 lakhs).

The amount has been deposited with statutory authorities viz Sub Divisional Officers / Tehsildar

towards land acquisition for pumping and service stations. The ownership of the land has not

yet been transferred in the name of the Company.

4. There were no amounts due payable to Small Scale and/or Ancillary industrial suppliers on account

of Principal and/or interest as at the close of the year exceeding Rs. One lac for more than thirty

days.

5. (a) The entire manpower of the company except the Ex-Managing Director and the present

Managing Director has been assigned by HPCL, the Holding company on full time basis and

are continuing their lien with HPCL and their salary and retirement benefits are

regularly disbursed to HPCL. Accordingly provision for retirement benefits are not required to

be made in the books of the company.

(b) Mr. M.A. Tankiwala, occupied the position of Managing Director of the company uptill

31/08/2005. He was appointed as the Director (Refineries), HPCL w.e.f. 01/06/2005 and vide

Government of India, Ministry of Petroleum & Natural Gas letter no. 31015/1/2005-CA dated

01/06/2005 was advised to hold the additional charge of the post of Managing Director , GGSRL

for a period of three months on ad hoc basis, in addition to his own duties. During his tenure as

the Managing Director he continued his lien with HPCL and his salary & other emoluments

were administered by HPCL.


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(c) The Government of India through Ministry of Petroleum & Natural Gas has appointed Mr. B.S.

Sant as Managing Director of the company w.e.f. 23/01/2006. His detailed terms and conditions

of appointment as received from the Ministry has since been approved by the Board and

appropriate provision in respect of Salary and retirement benefits has been made.

The provisions of Section 217 (2A) of the Companies Act, 1956 are not applicable to the

company.

6. Provision for Income Tax of Rs. 2845 /- (Previous Year 5357/-) has been made on the interest

received on term deposit with the Bank as per the rates applicable under Income Tax Act, 1961 .

7. The amount of cenvat claim in Schedule-8 represents excise duties, countervailing duties and

service tax paid by the company which shall be utilized as a set off from the excise duty and

service tax payments as and when the company commences commercial production.

8. Information pursuant to the provision of paragraph 3,4C and 4D of part II of Schedule VI of the

Companies Act, 1956.

a. As the company is in process of construction of Refinery and its associated facilities, hence

information containing in paragraph 3 & 4C of Part II of Schedule VI is not applicable.

(Rs./Lakhs)

2005-06 2004-05b. Expenditure in foreign currency on account of :

(i) Purchase of Books/Magazine 0.06 1.11

(ii) Business Travel & Training fees 6.80 Nil

9. Contingent Liabilities not provided for in respect of

(i) Land Compensation 2,300.00 17,326.00

District court, Bathinda vide its order dated November

29, 2005 has enhanced land compensation to the land

owners who had filed application u/s 18 of Land

Acquisition Act, 1894. The company has filed appeal in the

Punjab & Haryana High Court, against the orders.

(ii) Claims against the Company not acknowledged 1,317.00 1,649.22

as debts (plus interest if any).

10. Estimated amount of contract remaining to

be executed on Capital Account not provided for. 6,384.00 7,211.05


2 0 1


(Rs./Lakhs)2005-06 2004-05

11. Related Party disclosure

(With HPCL, Holding Company)

(i) Issuance of Share Capital Nil 212.00

(ii) Share application 429.00 Nil

(iii) Expenses Reimbursed Nil 7.24

(iv) Sale of steel plates

Qty. (MT) 3,383.52 8,008.47

Amount 503.42 1,399.70

(v) Cost of Employees assigned to Co. 151.50 189.15

12 Capital Work in Progress (Refinery)

includes closing stock of steel plates.

(i) Qty.(MT) 6,344.58 9,728.10

(ii) Amount 1,361.58 1,865.00

13. Managerial Remuneration

As Managing Director

(i) Salary & Allowances 2.53 6.77

(ii) Gratuity 0.10 0.29

(iii) Contribution to Provident Fund 0.12 0.83

(iv) Other Benefits 0.10 1.57

14. Auditors Remuneration (Incl.of service tax)

(i) Audit Fees 0.56 0.55

(ii) Certification work 0.05 0.05

15. Amounts due from the Directors to the

Company :

(i) As on 31.03.2006 Nil Nil

(ii) Maximum amount due during the year Nil Nil


2 0 2


(Rs./Lakhs)2005-06 2004-05

16. Intangible assets (not internally generated)

(i) Assets owned by the company : Right of Use 1,175.00 880.00

Amounts paid to Competent Authority for acquiring

“Right of Use” to lay the pipeline and expenditure on

investigating the title & measurement of the land. The

“Right of Use” is a perpetual right of use of land but theownership of the land does not rest with the Company.

(ii) Assets not owned by the company (net of 499.35 1,469.00

Amortization) Expenditure incurred towards construction

& widening of roads, the ownership of which rests with

Government of Punjab.

17 Pursuant to change in accounting policy 942.55 Nil

{A.d(2)}with regard to amortization of “assets not owned by

the company” the company during the year has charged Rs.

942.55 lakhs to “Incidental Expenditure dur ing the

construction period (Pending Apportionment)” including Rs.

654.17 lakhs pertaining to earlier years.

18. Prior period credits

(i) In respect of cenvatable service tax for the 3.45 Nil

last financial year 2004-05.

(ii) Sponsorship expenses 102.10 Nil

19. Previous year’s figures have been regrouped, recasted and reclassified wherever necessary.

20. Schedule “1” to “10” form an integral part of the Balance Sheet and “Incidental Expense during

Construction”.

21. Figures under schedule “1” to “10” have been rounded off to the nearest rupee.


2 0 3


Balance Sheet Abstract and Company’Balance Sheet Abstract and Company’Balance Sheet Abstract and Company’Balance Sheet Abstract and Company’Balance Sheet Abstract and Company’s General Business Prs General Business Prs General Business Prs General Business Prs General Business ProfileofileofileofileofileSchedule VI Part IV of Companies Act, 1956Schedule VI Part IV of Companies Act, 1956Schedule VI Part IV of Companies Act, 1956Schedule VI Part IV of Companies Act, 1956Schedule VI Part IV of Companies Act, 1956

I. REGISTRATION DETAILSREGISTRATION NO. : U 2 3 2 0 1 P B 2 0 0 0 P L C 2 4 1 2 6 STATE CODE: 1 6BALANCE SHEET DATE : 3 1 0 3 2 0 0 6

II. CAPITAL RAISED DURING THE YEAR (Amount in Rs.Thousands)PUBLIC ISSUE RIGHTS ISSUE

N I L N I LBONUS ISSUE PRIVATE PLACEMENT

N I L 4 2 9 0 0III. POSITION OF MOBILISATION AND DEPLOYMENT OF FUNDS (Amount in Rs.Thousands)

TOTAL LIABILITIES TOTAL ASSEST3 0 8 8 3 7 6 3 0 8 8 3 7 6

SOURCES OF FUNDSPAID -UP CAPITAL RESERVES & SURPLUS

2 9 5 7 1 0 0 N I LSECURED LOANS UNSECURED LOANS

N I L N I L

APPLICATION OF FUNDSNET FIXED ASSETS INVESTMENTS

2 9 9 1 0 3 6 N I LNET CURRENT ASSETS MISC.EXPENDITURE

( 3 6 9 7 1 ) 4 5 9 3 6ACCUMULATED LOSSES

N I LIV. PERFORMANCE OF THE COMPANY (Amount in Rs.Thousands)

TURNOVER TOTAL EXPENDITUREN I L N I L

PROFIT /LOSS BEFORE TAX PROFIT /LOSS AFTER TAXN I L N I L

EARNINGS PER SHARE IN RS. DIVIDEND RATE %N I L N I L

V. GENERIC NAMES OF THREE PRINCIPALPRODUCTS OF THE COMPANY(as per monetary terms )Item Code No. (ITC Code) 2 7 1 0Product Description B U L K P E T R O L E U M

P R O D U C T S

Item Code No. (ITC Code)Product Description

Item Code No. (ITC Code)Product Description

B.S. SANT C. RAMULU S.MALHOTRA S. TYAGIManaging Director Director DGM Finance Company Secretary


*Includes Capital Work in progress, Incidental Expences, Capital Expenditure & Advance against Capital Assets.

2 0 4


Rupees in Millions

2005-06 2004-05A. Cash Flow from Operating Activities

Net Profit before Tax & Extraordinary items - -Adjustments for :

Depreciation / Amortisation - -Interest - -Dividend received - -Deletion of Fixed Assets/CWIP - -Interest received on Long Term Investments - - Interest received on Fixed Deposits - -Misc. Expenses to the extent written off - -Provision for Doubtful Debts & write offs - -Profit on sale of Investment - -Provision for Loss on Investments - -

Operating Profit before Working Capital changes - -

Adjustments for :Trade Receivables 53.66 (38.16)Other Receivables 0.38 15.52Other Current Assets - -Inventories - -Trade and other Payables (35.10) (32.63)

18.94 (55.27)Amounts recoverable from Pool Account - -

Cash generated from operations 18.94 (55.27)Provision for taxes (Net) - -

Cash Flow before extraordinary items 18.94 (55.27)Extraordinary items - -

Net Cash from Operating Activities ( A ) 18.94 (55.27)

B. Cash Flow from Investing Activities

Purchase of Fixed Assets (incl. Capital Work (38.68) 20.61in Progress / excluding interest capitalised)Sale of Fixed Assets - -Preliminary / Pre-operative expenses (19.92) -Purchase of Investment - -Redemption of Investments - -Interest received on Fixed Deposits - -Interest received on Investments - -Dividend received - -

Net Cash from Investing Activities ( B ) (58.60) 20.61

Cash Flow Statement for the YCash Flow Statement for the YCash Flow Statement for the YCash Flow Statement for the YCash Flow Statement for the Year ended 31st Marear ended 31st Marear ended 31st Marear ended 31st Marear ended 31st March, 2006ch, 2006ch, 2006ch, 2006ch, 2006

2 0 5


Rupees in Millions

2005-06 2004-05C. Cash Flow from Financing Activities

Proceeds from issue of Share Capital :- Share Allotment/Call monies (incl.Share Premium) - 34.20 - Excess Share Application Money (adj.) - - - Share Application money pending allotment 42.90 -

Proposed public issue expenses - -Repayment of Loans - -Loans raised during the year - -Interest other than for Long Term Loans - -Interest on Long Term Loans (including interest capitalised) - -Dividends paid - -

Net Cash from financing activities ( C ) 42.90 34.20

Net Increase / (Decreass) in Cash andCash Equivalents (A) + (B) + ( C) 3.24 (0.46)

Cash and Cash Equivalents as on 1st April (Opening) :

Cash on Hand 0.10 0.14Balances with Scheduled Banks

- On Current Accounts - -- Others - 0.42

Balances with other Banks - -Overdrafts from Banks - -

0.10 0.56Cash and Cash Equivalents as on 31st March (Closing):

Cash on Hand 0.10 0.10Balances with Scheduled Banks - -

- On Current Accounts 3.24 -- Others - -

Balances with other Banks - -Overdrafts from Banks - -

3.34 0.10Net Increase / (Decrease) in Cash and Cash Equivalents 3.24 (0.46)

For Rawla & CompanyChartered Accountants

Y.P. Rawla S. MalhotraPartner DGM- Finance


Cash Flow Statement for the YCash Flow Statement for the YCash Flow Statement for the YCash Flow Statement for the YCash Flow Statement for the Year ended 31st Marear ended 31st Marear ended 31st Marear ended 31st Marear ended 31st March, 2006ch, 2006ch, 2006ch, 2006ch, 2006

2 0 6


REVIEW OF ACCOUNTS OF GURU GOBIND SINGH REFINERIES LIMITED FOR THE YEAR ENDED 31ST

MARCH 2006 BY THE COMPTROLLER AND AUDITOR GENERAL OF INDIA

Note: Review of Accounts has been prepared without taking into account the qualifications contained in theStatutory Auditor’s Report.

1 FINANCIAL POSITION

The table below summarises the financial position of the company under broad headings for the lastthree years:

Rs./CroresAs at As at As at

31st March, 31st March, 31st March,2004 2005 2006

LIABILITIES a) Paid up Capital

i) Government - - -ii) Others 292.29 295.71 295.71iii) Share Application Pending Allotment - - 4.29

b) Reserves & Surplus i) Free Reserves & Surplus - - -ii) Share Premium Account - - -iii) Capital Reserve - - -

c) Borrowings from i) Govt. of India - - -ii) OIDB - - -iii) Foreign Currency Loans - - -iv) Cash Credit - - -v) Others - - -

d) i) Current Liabilities & Provisions 15.61 12.34 8.84ii) Provision for Gratuity - - -

Total 307.90 308.05 308.84

COMMENTS OF THE COMPTROLLER & AUDITOR GENERAL OF INDIA U/S 619 (4) OF THE COMPANIES

ACT, 1956 ON THE ACCOUNTS OF THE GURU GOBIND SINGH REFINERIES LIMITED FOR THE YEAR

ENDED 31ST MARCH, 2006.

I have to state that the Comptroller and Auditor General of India has no comments upon or supplement to the

Auditors’ Report under Section 619(4) of the Companies Act, 1956 on the accounts of Guru Gobind Singh

Refineries Limited for the year ended 31st March, 2006.

(A.K.SINGH)

Principal Director of Commercial Audit

& ex-officio Member, Audit Board-II, New Delhi

Place : New Delhi

Date : 23-06-2006

C & AC & AC & AC & AC & AG’G’G’G’G’s Commentss Commentss Commentss Commentss Comments

2 0 7


Rs. /CroresAs at As at As at

31st March, 31st March, 31st March,2004 2005 2006

ASSETS

f) Gross Block 162.70 164.06 167.02

Less: Depreciation 4.12 6.25 8.38

g) Net Block 158.58 157.81 158.64

h) Capital work in progress 138.72 137.42 140.47

i) i) Producing properties: - - -

ii) Less: Depletion - - -

iii) Net Amount - - -

j) Pre-producing properties - - -

k) Investment - - -

l) Deferred Tax Asset - - -

m) Current Assets, Loans & Advances 8.00 10.22 5.14

n) Misc. Expenditure not written off 2.60 2.60 4.59

(Accumulated project expenditure)

o) Accumulated loss

Total 307.90 308.05 308.84

p) Working capital (m-d(i)) (7.61) (2.12) (3.70)

q) Capital employed (g+i+k+p) 150.97 155.69 154.94

r) Net worth (a+b(i)+b(ii)-n-o) 289.69 293.11 295.41

s) Net worth per rupee of Paid up Capital (in Rs.) 0.99 0.99 0.98

1) The working capital of the Company has increased from (-) Rs. 7.61 Crore in 2003-04 to (-) Rs.3.70

Crores in 2005-06.

2) The Capital employed of the Company has increased from Rs.150.97 Crore in 2003-04 to Rs.

154.94 Crores in 2005-06.

3) The net worth of the Company has increased from Rs.289.69 Crore in 2003-04 to Rs.295.41 Crores

in 2005-06. The increase was due to increase in paid up capital of the Company.


2 0 8


2 WORKING RESULTS

Working results of the company during the last three years are given below:

Rs./Crores

2003-04 2004-05 2005-06

i) Sales _ _ -

ii) Less : Excise Duty - - -

iii) Net Sales - - -

iv) Other or Misc. Income - - -

v) Profit/Loss before tax and prior period adjustment - - -

vi) Prior period adjustment - - -

vii) Profit/Loss before tax and after prior period adjustment - - -

viii) Tax provisions - - -

ix) Profit after tax - - -

x) Prepaid dividend - - -

The Company has not prepared Profit & Loss Account since it was under construction stage during the

year.

3 RATIO ANALYSIS

Some important ratios on the financial health and working of the Company at the end of last 3 years

are given below:

( in Percentage )

2003-04 2004-05 2005-06

A) Liquidity Ratio

Current Ratio: (Current Assets to Current 0.51 0.83 0.58

Liabilities & Provisions and Interest Accured

& due but excluding Provision for Gratuity)

B) Debt Equity Ratio Nil Nil Nil

Long Term Debt to Net Worth

[c (i) to c (v) but excluding

the Short-Term Loans]

C) Profitability Ratio Nil Nil Nil

Profit before tax to

a) i) Capital Employed

ii) Net Worth

iii) Sales

b) Profit after tax to equity capital

c) Earnings per share (in Rs.) of Rs. 100 each


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4. SOURCES AND USES OF FUNDS Rs./Crores

Sources of Funds (Equity contribution) 4.29Funds from operations- Profit after tax -- Capital reserve addition -- Project Expenditure written off -- Depreciation (Increase) 2.13Deferred Tax Asset -Increase in Borrowings -

Total 6.42

Utilisation of funds

Increase in Fixed Assets 2.96Increase in Working Capital (1.58)Investment -Repayment of OIDB Loan -Increase in Misc. expenditure (Project Expenditure) 1.99Increase in Capital work-in-progress 3.05

Total 6.42

5. SUNDRY DEBTORS Rs./Crores

Year Debts Provision for Total Sales PercentageConsidered Doubtful Debtors of Debtors

good Debts. to Sales2003-04 2.95 - 2.95 - -2004-05 6.76 - 6.76 - -2005-06 1.40 - 1.40 - -

The Sundry debtors have decreased from Rs. 6.76 Crore in 2004-2005 to Rs. 1.40 Crore in 2005-2006.

6. INVENTORY Rs./CroresInventory position as at the last three years was as follows:

2003-04 2004-05 2005-06i) Stores and Spares - - -ii) Capital Stores - - -iii) Stock in trade - - -iv) Other - - -

The Company has not prepared Profit & Loss Account since it was under construction stage during the year.

(A. K. SINGH)Principal Director of Commercial Audit

& ex-officio Member, Audit Board-II, New Delhi


Place : New DelhiDate : 23-06-2006

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Your Company adopts the best corporate governance practices in order to maintain transparency, accountabilityand ethics.

A. Board Meetings :

During the year ended 31st March, 2006, five Board Meetings were held on the following dates :

20th April, 2005 9th May, 2005 28th July, 2005 26th October, 2005 25th January, 2006

These meetings were attended by the members of the Board, as under :



Meetings attended last AGM i n Committees as

held Companies specified in Clause

49 of the Listing

Agreement

Shri M.B Lal B.E (Chem), 5 3 Yes 1. HPCL Nil

Chairman PGDBM 2. HINCOL

(IIM,Ahemdabad) 3. PPCL

Shri B.S. Sant* B.E. (Mech.)

Managing Director DMS, MFM. 1 1 - Nil Nil

Shri M.A. Tankiwala** B.E (Mech.) 4 4 - Nil Member- Audit

Director Committee:

a) GGSRL

Shri D.S Mathur*** B.Tech, 2 1 - 1. HPCL Member-Audit

Director M.Sc,PGDPE 2. PPCL Committee:

a) GGSRL

Shri C. Ramulu B.Com, ACA, 5 5 No 1. HPCL Chairman- Audit

Director ACS, 2. HINCOL Committee:

MBA (Leeds, UK) 3. PPCL a) HINCOL

b) PPCL

Member

Audit Committee

a) GGSRL

Shri C.B. Singh**** M.A.(Eco.), 1 1 - 1. Oil India Limited Member Audit

Director MBA Committee:

a) GGSRL

Shri T.L Sankar IAS, M.Sc.(Chem.), 5 2 No 1. Rain Calcining Ltd. Chairman Audit

Director MA (Dev.Eco.), 2. KSK Energy Committee:

Ventures Ltd. a) HPCL

3. HPCL b) Rain

4. Delhi Calcining Ltd.

Power Co. Ltd. c) GGSRL


2 1 1




Meetings attended last AGM i n Committees as

held Companies specified in Clause

49 of the Listing

Agreement

5. Small Scale Member

Sustainable Remuneration

Infrastructure Committee:

Development a) Rain

Board Calcining

Ltd.

Shareholders

Investor

Committee

a) Rain

Calcining Ltd.

Shri S.P. Chaudhry B.E. (Mech.) 5 2 Yes Nil Nil

Director M.B.A

* Shri B.S. Sant sppointed as Managing Director w.e.f 23/01/2006.

** Shri M.A. Tankiwala was Managing Director till 31/08/2005 and thereafter appointed as Director

with effect from 26/10/2005.

*** Shri D.S. Mathur retired on attaining the age of superannuation on 31/05/2005.

**** Shri C.B. Singh appointed as Director effective 25/11/2005.B. Audit Committee :An Audit Committee has been constituted comprising of the following members:

1. Shri T.L Sankar, Director - Chairman of the Audit Committee

2. Shri C.B. Singh, Director - Member of the Audit Committee

3. Shri C. Ramulu, Director - Member of the Audit Committee

4. Shri M.A. Tankiwala - Member of the Audit Committee

C. Details of Annual General Meetings :

Location and time, where last two Annual General Meetings of the Company held :

Year Location Date Time

2003-04 Petroleum House, 29.09.2004 3.00 p.m

17, Jamshedji Tata Road,

Mumbai- 400 020

2004-05 Petroleum House, 20.09.2005 12.30 p.m17, Jamshedji Tata Road,Mumbai- 400 020


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