sustainability report 2007-08 - iocl.comdisruptions in the supply chain • carrying out rigorous...

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SustainabilityReport

2007-08

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2007-08

In order to sustain an economic growth rateof 8-9%, India needs to address the issue of

sourcing its growing energy requirements in aneconomically viable and environmentallysustainable manner. Considering the limitedavailability of the primary energy mix, thecountry faces formidable challenges in ensuringcontinuous operations in a competitive energymarket, both in the medium and long-term.

Environmental concerns about fossil fuels, rightfrom exploration to end-use, are alreadybecoming major sustainability issues across theworld.

In keeping with the policy initiatives of theGovernment of India concerning the energysecurity of the nation, IndianOil has committeditself to a process of sustainable developmentand has firmed up an action plan along theentire hydrocarbon value chain, as below:

• Enhancing the resource base of oil & gas forthe country through upstream integrationinto the oil exploration & production domain

• Increasing the gas component in thecountry’s energy basket by sourcing gas

supplies from both domestic andinternational markets

• Value addition through downstreamintegration into petrochemicals business

• Undertaking significant investments inprojects for upgrading product quality in linewith stringent environmental norms

• Diversifying the crude oil import base, bothin terms of quality and supply sources, foreffecting economy and minimisingdisruptions in the supply chain

• Carrying out rigorous energy audits andtaking mitigating action for improvedoperational performance in all refineries andinstallations

• Emphasis on improving energy efficiency atend-use to address demand side management

Key impacts, risks and opportunities

IndianOil’s strategic planning process involvesboth development and deployment of strategies,along with evaluation of key business risks andopportunities. All business proposals undergorigorous scrutiny based on a robust evaluation

Outlook For Energy

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process with in-house defined hurdle rates andkeeping in view the Corporation’s businesschallenges, its overall responsibility as anational oil company as well as the extant policyguidelines of the Government of India, theadministrative ministry and the Department ofPublic Enterprises.

The Board of Directors regularly reviews the riskmanagement practices of the Corporation. Awell-defined Enterprise Risk Management (ERM)policy, supported by a detailed manual, ensuresthat risk management and control are effectedthrough a properly defined framework,procedures and periodic review. In the same way,the Unit heads of the Divisions and key principalexecutives (in consultation with legal) areresponsible for ensuring legal and regulatorycompliance. Well-defined processes exist forcomplying with legal and regulatoryrequirements and managing risks across theoperations.

Products and Services

Refineries

IndianOil owns and operates seven of India’s19 refineries with a combined refining capacityof 47.35 million metric tonnes per annum. Itscross-country network of crude oil and productpipelines, spanning about 9,300 km and thelargest in the country, meets the vital energyneeds of the consumers in an efficient,economical and environment-friendly manner.IndianOil is investing Rs. 43,394 crore (US $10.8billion) during XI Plan (2007-12) in augmentingrefining and pipeline capacities, expandingmarketing infrastructure and upgrading product

quality as well as in integration anddiversification projects.

Service network

Petroleum products

As the flagship national oil company in thedownstream sector, IndianOil reaches preciouspetroleum products to millions of peopleeveryday through an unmatched countrywidenetwork. The number of touch points and sharein the industry are given below:

IndianOilís XI Plan (2007-12) OutlayRs. in Crore (Percentage)

IndianOilís Marketing Infrastructure(Percentage)

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IndianOil Group Refineriesand Pipelines Network

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IndianOil has developed a unique businessmodel to reach fuel and non-fuel products ofeveryday use to the rural hinterland through achain of retail outlets known as Kisan SevaKendra (KSK). These Kendra are emerging asfacility-providers to the rural populace.

Petrochemicals

IndianOil has achieved major success inintegration into petrochemicals in the past fewyears and is envisaging investments of overRs. 30,000 crore (US$ 7.4 billion) by the year2011-12 to set up world-scale plants for valueaddition to existing refinery streams. The currentportfolio includes a 1,20,000 tonnes per annumLinear Alkyl Benzene (LAB, used in themanufacture of detergents) plant at theCorporation’s Koyali Refinery and a world-scaleParaxylene/Purified Terephthalic Acid (PX/PTA,building blocks for polyester industry) plant atPanipat, with a capacity of 5,53,000 tonnes ofPTA per annum. IOCLAB has already captured asignificant market share in India, besides exportsto China, Indonesia, Norway, Oman, Pakistan,the Philippines, Thailand, Turkey and Vietnam.A Naphtha Cracker with a capacity of 800,000tonnes of ethylene per annum, along withdownstream polymer units, is coming up atPanipat for commissioning by 2009 end.

Oil Exploration & Production (E&P)

E&P is a long-gestation and risky but a rewardingbusiness. IndianOil and its consortium partnersexpanded their existing overseas portfolio ofseven blocks during the year 2007-08 by winningthe bid for Area 95/96 in Libya. Addition todomestic assets includes four oil & gas blocks

INDIA

OVERSEAS

New Businesses for Sustained Growth

and two CBM blocks under New Exploration &Licencing Policy (NELP) of the Government ofIndia and a farm-in block in Assam-Arunachal.

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IndianOil and its consortium partner, Oil IndiaLtd. (OIL), have incorporated a special purposevehicle – Ind-OIL Overseas Ltd – in Port Louis,Mauritius, for acquisition of overseas E&P assets.

Gas Marketing

Gas has emerged as the fuel of the 21st century.Having entered natural gas marketing in the year2004, IndianOil reached sales of 1.91 milliontonnes of gas during the year 2007-08 and istargeting 2 million tonnes in 2008-09. Atechnology innovation project ‘LNG at thedoorstep’ was initiated during the year to reachLiquefied Natural Gas (LNG) in cryogeniccontainers directly to the doorstep of bulkconsumers located away from pipelines, forindustrial as well as captive power applications.

Technology Solutions

For over a decade now, IndianOil has beenproviding technical and manpower secondmentservices to overseas companies. Consultancyservices for reduction of Fluidised CatalyticCracker (FCC) shutdown time were also providedduring the year 2007-08.

A wholly-owned subsidiary, IndianOilTechnologies Ltd., is engaged in commercialisingtechnologies developed by IndianOil’s R&DCentre.

Brand Leadership

IndianOil has over the years nurtured nearly adozen product and service brands, which areleaders in their own individual segments and

whose combined trademark value was estimatedat Rs. 17,987 crore (US$ 4.5 billion) during2007, as per Brand Finance (London) survey ofthe most valuable (company) brands in India.

Energy Brands that Make a Difference

Card for fleet operators Loyalty programme forurban cash customers

Special formatoutlets for

rural populace

Large-format highwayRetail Stations

Refuelling servicesfor civil aviation and

defence aircraft

Retail Stationswith a bouquet of

value-addedservices

LPG for automotive useLPG cooking gas

World-class lubricants One-stop shop forautocare

Branded petrol Branded diesel

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Corporate Governance

IndianOil being a Government Company underthe administrative control of the Ministry ofPetroleum & Natural Gas (MoP&NG), theDirectors are nominated by the Government ofIndia. The Board consists of an optimum mix ofexecutive (whole-time functional) Directors andnon-executive (part-time) Directors with provenrecord in diverse areas like energy policy,academics, finance, marketing, government andpublic sector, etc.

The Board strength was 16 as on 31st March2008, comprising eight executive Directors(including Chairman) and eight non-executiveDirectors, of whom six are independent Directors& two are Government nominees. The Companyhas requested the Government of India to inductthe requisite number of independent Directorsto enable it to comply with the requirement of50% independent Directors on its Board asrequired under Clause-49 of the ListingAgreement.

An Audit Committee has been constituted inline with the provisions of Clause-49 of theListing Agreement and to meet the requirementsof Section 292-A of the Companies Act, 1956.

A Shareholders/Investors’ Grievance Committeeexamines the grievances of shareholders/investors and the system of redressal of thesame. It comprises three members, with a part-time non-executive independent Director asChairman and Director (Finance) and Director(Human Resources) as members.

In addition, the Board has delegated certainpowers to the under-noted committees withdistinct roles and responsibilities:

• Projects Evaluation Committee

• Planning & Projects Committee

• Contracts Committee

• Establishment Committee

• Marketing Strategies Committee

• Committee for de-leasing of immoveableproperties

There have been no materially significant issue-related party transactions, pecuniarytransactions or relationship between theCompany and its Directors for the year ended31st March 2008 that may have a potentialconflict with the interests of the Company atlarge.

There were no cases of non-compliance by theCompany and no penalties / strictures wereenforced on the Company by the StockExchange/ Securities & Exchange Board of India(SEBI) or any other statutory authority on anymatter related to the capital markets during thelast three years.

The Company has framed a whistle-blower policy,wherein the employees are free to report anyimproper activity resulting in violation of laws,rules, regulations or code of conduct by any ofthe employees, to the Competent Authority orAudit Committee for review, as the case maybe. The confidentiality of those reporting theviolations shall be maintained and they shallnot be subjected to any discriminatory practice.The policy is being implemented with effect fromthe current financial year, i.e., 2008-09.

IndianOil has entered into a Memorandum ofUnderstanding (MoU) with TransparencyInternational India (TII) in January 2008 for

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WHERE EAGLES DARE – A convoy of tank trucks, carrying precious petroleum fuels from Ambala to Leh in Ladakh,negotiates Tanglang la, the world’s second highest motorable pass in the Himalayas.

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Pics on cover page & this page courtesy Palashranjan Bhaumick, Business IndiaPics on cover page & this page courtesy Palashranjan Bhaumick, Business India

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implementing an Integrity Pact Programmefocussed on enhancing transparency in itsbusiness transactions, contracts andprocurement processes. Four independentexternal monitors nominated by TII inconsultation with the Central VigilanceCommission (CVC) shall monitor theactivities.

Investor Service Cells are operational at theRegistered Office in Mumbai and Corporate Officein New Delhi to address the grievances andqueries of shareholders and a separate e-mailID ([email protected]) has been createdfor shareholders to write in.

The Company has complied with all themandatory requirements of Clause-49 of theListing Agreement as applicable exceptcomposition of the Board of Directors, as statedearlier.

A Strategy Meet of the Board is held once ayear to deliberate in detail strategic issues,policy decisions and perspective plans for thefuture.

The IndianOil board is deeply committed todelivering competitive, secure returns byapplying its distinctive capabilities across theentire hydrocarbon value chain through use ofan equally distinctive set of assets in the countrybesides converting new business opportunitiesinto commercial success, both within thecountry and overseas.

The system of ‘Memorandum of Undertaking(MoU)’ was introduced by the Government ofIndia in 1987-88 as a part of the reform packagefor public sector enterprises to progressivelyenhance their performance. IndianOil has

consistently displayed the highest level ofmanagerial performance in all its physical andfinancial parameters, as evidenced in its MoUrankings.

Following the liberalisation of the Indianeconomy, the Government of India decided toidentify public sector companies that havecomparative advantages and support them intheir drive to become global giants. Accordingly,IndianOil was in the first batch of ninecompanies granted ‘Navratna’ status in July 1997with enhanced autonomy and delegation ofpowers.

IndianOil’s philosophy on Corporate Governance

IndianOil believes that good corporategovernance practices ensure efficient conductof the affairs of the Company and help maximisestakeholder value. The Company endeavours touphold the principles and practice of corporategovernance to ensure transparency, integrity andaccountability in its functioning, and are vitalto realising its Vision of becoming a diversified,transnational, integrated energy major.

IndianOil has a well-defined policy frameworkfor implementing corporate governancepractices, consisting inter alia of the following:

• Code of Conduct for Directors and seniormanagement personnel

• Code of Conduct for prevention of insidertrading

• Enterprise Risk Management policy• Integrity Pact to enhance transparency in

business• Whistle-blower policy• Conduct, Discipline and Appeal Rules for

employees

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The Code of Conduct for the Directors and seniormanagement personnel of the Company has beenlaid down by the Board, and has been circulatedto all concerned. The same is also hosted onthe corporate website www.iocl.com. As required

under Clause-49 of the Listing agreement, theDirectors and senior management personnel ofthe Company have affirmed compliance with theprovisions of the Code of Conduct for thefinancial year ended 31st March 2008.

Key Sustainability IssuesIssues Stakeholders IndianOil’s approach

affectedMaintain Government, • Optimisation of resource utilisation andadequate Employees, supply chain managementprofit margin Shareholders • Benchmarking with the best in the industry

• Diversification of the business line andintegration across the value chain

• Engagement with the Government for policy supportEnergy Government, • Focus on equity oil & gas overseas and insecurity Industries, domestic basins through strategic initiatives

General public • Development of renewable, alternative fuels• Demand-side management at end-use

Employee Employees, • Manpower planning and recruitmentrecruitment Academic • Motivation through upgradation of skill setsand retention Institutions, • Enhancing job satisfaction, compensation

Organisation packageEthical Employees, • Transparency, valuesbusiness Customers, • Compliance through company-wide Enterprisepractice Suppliers, Resource Planning (ERP) implementation,

Government e-transactions.Customers Customers, • Customer feedback through surveyssatisfaction Dealers, • Q&Q (Quality & Quantity) initiatives

Distributors, • Focussed response to customer requirementsGovernment

Environmental Environment, • Energy conservationconcern Society, • Mitigating environmental impact of operations

People • Innovations, process optimisation• Eco-friendly approach & studies

Social Community • Utilisation of CSR funds based on a well laidresponsibility down policy

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Mega projects for sustained growth.

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Precautionary Approach

Some of the precautionary initiatives taken byIndianOil are

• Enterprise Risk Management policy• Integration and diversification of business

portfolio• Broad-basing of crude oil basket for supply

security and improvement of refinery margin• Thrust on occupational health, safety and

environment• Progressive HR policies• Focus on growth potential of rural markets• Community welfare aiming at inclusive

growth• Thrust on development and

commercialisation of alternative fuels.

Charters and Memberships

IndianOil plays an active role through itsassociation with several professional bodies intheir respective areas of focus. An illustrativelist of such memberships is given below:

• All India Management Association (AIMA)

• Associated Chambers of Commerce andIndustry (ASSOCHAM), India

• Confederation of Indian Industry (CII)

• Council of Indian Employers (CIE), India

• Federation of Indian Chambers of Commerce& Industry (FICCI)

• Indian Institution of Industrial Engineering

• Institute of Chartered Accountants of India

• National HRD Network (NHRDN), India

• Petroleum Federation of India (PetroFed)

• PETROTECH Society, India

• Standing Conference of Public Enterprises(SCOPE), India

• The Energy & Resources Institute (TERI),India

• World LP Gas Association, Paris

Stakeholders Engagements

The major stakeholder groups for IndianOil areits employees, shareholders, customers, dealers& distributors, financial institutions,subsidiaries, joint ventures, Governmentdepartments and academic institutes.

Employees

IndianOil is a 32,000-strong corporation with12,000 officers. It offers a unique work culturebased on openness and trust, and a commitmentto innovation, creativity and consultation.Bright and professionally qualified people arerecruited at the entry level of its executive cadrethrough open and campus recruitment. Aplethora of opportunities awaits them acrossmore than 600 locations, including refineries,pipeline installations, marketing units such asLPG bottling plants, bulk storage terminals,aviation fuel stations, as well as in Sales (Retail,Consumer and Lubricants), Technical Servicesand R&D. Career growth opportunities are basedon the individual’s performance and contributionto the common goal of sustained growth.

The Chairman and functional Directors, apartfrom their routine interaction with employeesduring the course of normal work, communicatethrough face-to-face interactions and in-houseportals and publications such as Chairman’sStraight Talk monthly column.

Stakeholder communication through corporate website (www.iocl.com).

Shareholders

IndianOil has always valued its customerrelations. This philosophy has been extendedto investor relations too. The Company hasconstituted a Shareholders/Investors’ GrievancesCommittee of Directors to redress complaintsof investors such as transfer or credit of sharesto dematerialised accounts, non-receipt ofdividend / notices / annual reports, and so on.

The quarterly, half-yearly and annual financialresults of the Company are published in leadingnewspapers in India and posted on the corporatewebsite (www.iocl.com). Presentations are alsomade to institutional investors and analystsafter declaration of the results.

Customers

Apart from normal business, IndianOil meets thebulk petroleum requirements of manyGovernment organisations (viz., Defence,Railways, State utilities, paramilitary groups,etc.) as a part of the strategic requirement ofthe nation. It is also the sole canalising agentto meet the petro-goods requirements of theneighbouring countries, Nepal and Bhutan.

As part of its relationship-building process,IndianOil has been nurturing its relations withmajor clients through specific servicecommitments coordinated through a set ofdedicated ‘Key Accounts Managers’ operatingfrom different locations. It also carries outcustomer satisfaction surveys throughindependent consultants. The relationship-building initiatives have helped it secure strongcustomer loyalty. The Chairman’s Panelcomprising high- performing dealers and

distributors is another important forum forcommunication with our stakeholders.

IndianOil has a policy of engagement with localcommunities in the areas in which it operates.Its concerted social responsibility programmepartners communities in health, family welfare,education, environment protection, provision ofclean drinking water, sanitation andempowerment of women and other marginalisedgroups.

Industry bodies, Government bodies,NGOs, Charitable Trusts

IndianOil engages with a wide range oforganisations to help provide focus andleadership in different areas of corporatecommitments. Apart from active membership ofa host of organisations, it has been nominatedby the Government of India on a number of

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Weather-proof services in all terrains - 365 days a year.

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occasions as the nodal agency of the industryfor undertaking research activities or forimplementation of projects of national interest.

Academia

IndianOil set up the IndianOil Institute ofPetroleum Management (IiPM) as an apex centreof learning in the year 1995 with a view tocreate a vibrant bank of knowledge managersfor the post-deregulated era. The only one ofits kind in the petroleum sector, IiPM has sincebeen conducting global standard internationalbusiness management and managementdevelopment programmes for executives.

choice to practising managers. IndianOilPeopleare also sent to external institutes offeringcourses for career advancement. Professors ofIITs and IIMs regularly participate in theCorporation’s management developmentprogrammes as course coordinators and facultymembers. The officers themselves are nominatedto advanced courses in reputed managementinstitutes in India and abroad.

The IndianOil Group has paid Rs.36.14 crore in2007-08 and Rs.10.93 crore in 2006-07 as itscontribution to the Rajiv Gandhi Institute ofPetroleum Technology being set up in Rai BareliDistrict of Uttar Pradesh. The institute will offerB.Tech programmes in Petroleum Production,Reservoir Management and Petroleum Refiningand an MBA in Petroleum Management.

Partners/Suppliers

IndianOil’s partners, subsidiaries and vendorsare also stakeholders in the organisation:

IndianOil offers summer training for studentspursuing professional courses from reputedinstitutes at its various units. Similarly, summerschools run by its training cells offer courses of

Partner/Supplier Key Relationship Relationships CommunicationRequirements Mechanisms

Academic Skills update Contracts, guest Through learning centresInstitutions of employees faculty

Subsidiaries / Synergy in Nomination on Policy and operationalJoint Ventures operations Boards matters through the

Corporate Affairs set-up

Vendor / Operational matters Contracts Regular meetings,Supplier vendor development

programme

Business Analysts Competitive reports, Meetings Reports, surveysindustry trends

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RecognitionsBesides being the highest ranked Indiancompany in the Fortune “Global 500” listing,some of the major recognitions are as follows:• Rated amongst the top 5 in Refining &

Marketing worldwide and 8th overall in Asia

in Platt’s’ Top 250 Global Energy Companyranking for 2007

• Ranked 2nd among the top 50 most valuablebrands of India by Brand Finance, a London-based global valuation firm

• Conferred the SCOPE Meritorious Awardduring 2007-08 for Best Practices in HumanResource Management for the year 2005-06

• Won the Infraline Energy Excellence Awardfor its contribution to the nation’s energysecurity, community development andenvironment protection

• Topped the annual listings of BusinessStandard (BS 1000), Business India (Super100), Business Today (BT 500) and EconomicTimes (ET 500) for 2007

Emphasis on fast-tracking infrastructure projects.

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