Hindustan Petroleum Corporation Limited 58th Annual General Meeting of Shareholders in Mumbai on September 16, 2010

Transcription

1 Hindustan Petroleum Corporation Limited 58th Annual General Meeting of Shareholders in Mumbai on September 16, 2010 MANAGEMENT TEAM Left to Right: Dr. V. Viziasaradhi, Director - Human Resources, Shri S. Roy Choudhury, Chairman & Managing Director and Director Marketing (Additional charge), Shri B. Mukherjee, Director Finance, and Shri K. Murali, Director - Refineries Dear Shareholders, Good Morning It gives me great pleasure to welcome you to the 58 th Annual General Meeting of your Corporation. It is my privilege to address you at my first AGM as Chairman & Managing Director of a Navratna and Fortune 500 Company. Before I talk about the performance in the year gone by and our future plans, I would briefly outline the major developments that framed our operating environment. Year of stabilisation The year can be characterised as a year of stabilisation after the economic meltdown world has witnessed. The financial crisis of 2008 was the most severe and widespread that the world had witnessed in decades. Policy makers took extraordinary measures to contain its fall-out. An unprecedented amount of money was pumped into economies by Governments around the world to prevent recessionary conditions from developing. As a consequence, the worst of the crisis was contained to the first quarter of

2 It was expected that oil prices would range between $50-60 per barrel, given the fragile nature of the world economy. However, after starting out weak, oil prices stabilized in the range of $70-80 per barrel. Aggressive production cuts by OPEC provided support to prices despite a fall of about 2% in the global oil demand in This fall in oil demand was concentrated in the advanced economies, where it declined by 5%. Oil demand increased by about 2% outside the OECD area. Even within the developing economies, three countries, namely, China, Saudi Arabia and India accounted for most of the increase. Without the contribution of these three countries oil consumption would have fallen even in the non-oecd area. With the global economy recovering, India s GDP growth during last quarter of turned out to be robust with record growth of 8.6 % compared to 5.8 % in the same quarter in Indian economy grew 7.4% in , the growth driven by robust performance of manufacturing sector on the back of Government and consumer spending. Oil Sector The consumption of petroleum products in India increased by about 3 % to reach 138 million metric tonnes, in spite of a significant amount of natural gas that became available from the KG basin. This aggregate growth, however, masks divergent trends in demand patterns of various products. Sales of transport fuels were quiet robust despite the fact that prices of petrol and diesel were increased twice in response to rising crude prices. The demand growth for petrol set a scorching pace of 14%, a clear indication of the aspirations of the Indian middle class. Diesel demand growth was a robust 9%, prima facie; the income effect appears to have offset the price effect on demand. ATF consumption increased by about 5%, indicating an improvement in the aviation sector. Demand for LPG and bitumen increased by 6% and 4% respectively. Gas started flowing from D-6 field in KG basin in 2009, increasing domestic production by a significant 45%. As expected, naphtha consumption declined by about 26%. FO/ LSHS demand declined by about 8%. Our Performance To keep with tradition, your company consistently qualifies for Excellent MOU rating for the year With our focused efforts the year concluded with sales revenue of Rs crores and net profit of Rs crores. I am happy to state that the Board of directors have recommended dividend of Rs.12 per share.

3 As regards, physical performance of your company, our refineries processed 16 million tonnes of crude and pipeline thruput increased to million tonnes. Our focus on improved customer service continues and total sales volume increased by 3.5% and achieved highest ever volume of 26.3 million tonnes including exports. Retail sales of MS increased by 13.3% and that of HSD by 7.9%. Our retail network crossed 9000 outlet across the country and this includes 1482 outlets branded as Hamara Pumps located in the rural markets. In addition to expansion, attention has been given to productivity of the network and thruput of our retail outlets has improved to 156 KL per month from 152 KL per month. LPG sales volume of 3.26 MMT was the second highest in industry, recording a growth of 9.4%. Market leadership was maintained in Non- Domestic (ND) Segment with 35% market share. Rural markets are being reached thru schemes like HP Gas Rasoi Ghar and Rajiv Gandhi Gramin LPG Vitarak in line with Vision 2015 of Government of India. This will further increase penetration in rural areas as well as enhance availability of LPG in rural pockets. We have strong presence in lubricants market and we have maintained the trend of upgrading products range in line with customer requirements. Mumbai refinery has the distinction of being first Indian PSU refinery to commence production of BS IV specification MS in January 2010 following the commissioning of Green Fuels Emissions Control Project. Projects under implementation Lube Oil Base Stock project for production of Group II/III lubes at Mumbai and Single Point Mooring Facility at Visakh are mechanically completed and are under commissioning. New secondary processing unit (FCCU) to enhance production of LPG, Petrol and Diesel is under implementation at Mumbai Refinery. Diesel Hyrotreater projects for production of Euro IV Diesel are in progress at both the refineries. Distribution infrastructure is also being augmented through construction of new, larger, modern terminals and resitement of terminals from congested locations like resitement of Marketing Terminals at Visakh and Ennore.

4 You are aware that Guru Gobind Singh Refinery (GGSR), a grass root refinery project at Bhatinda is being implemented thru joint venture company HPCL-Mittal Energy Limited. The project is slated for commissioning next year, which will balance out our refining and marketing portfolio. Associated distribution infrastructure including pipelines is expected to be completed well in time for the refinery s commissioning. Alternate Fuels Increasing demand is not the only element in our operating environment. High dependence on imported oil and hence, oil security considerations coupled with concerns about environmental impact of increased fossil usage provide a favourable environment for greater push for renewable energy. Your company has entered into areas of Alternate Fuels like Ethanol and Bio-diesel and Wind Energy on our own and also through Joint ventures/strategic alliances. We are investing in ethanol and biodiesel production and also in wind energy projects. Our wholly owned subsidiary company HPCL Biofuels Limited is in the process of setting up integrated sugar, ethanol and co-gen power plants in the State of Bihar. Construction is in progress and commissioning is expected during the crushing season starting November Our joint venture company CREDA-HPCL Biofuel Ltd has acquired 2,507 hectares of land for cultivation of jatropha as of March 2010.The first jatropha seeds are expected to be harvested during the 2011 season. Production of bio-diesel and its blending with normal diesel will help in meeting the domestic demand. HPCL will have the exclusive rights over production and marketing of bio-diesel and by-products from the produce. Your company has already set up 25MW capacity wind power generation unit, and is expected to add another 25 MW during the current year. We are also pursuing opportunities in the upstream sector and in city gas distribution on our own and through joint ventures to diversify our revenue portfolio. With greater availability of gas, the Mumbai Refinery has switched to gas firing in furnaces and captive power plant reducing emissions as well as internal fuel costs. Efforts are underway to utilise gas at Visakhapatnam as soon as it becomes available there. The Integrated Refinery Business Improvement Program initiated with the help of M/s. Shell Global Solutions International and Centre for High Technology is under implementation in the Visakh Refinery.

5 Our priorities Safety, Health and Environment Your company maintains high standards of safety, health and environment care at all its operating locations, always ensuring that increasing scale of operations without compromising on the standards of safety, health and environment. Established systems and procedures are constantly revised for improvement to achieve higher standards of safety, occupational health and environment protection. All major locations of HPCL have well equipped health care facilities / arrangements. An initiative called Project Aarogya has been started for creating awareness among employees about health related issues. Our Strengths A large organisation like yours needs robust systems and procedures to ensure seamless operations. ERP has provided us such a platform. A multitude of IT enabled solutions, using the ERP platform, have been developed to streamline the existing processes and to bring more transparency in various payment and procurement processes. All our plans are dependent on the commitment, knowledge, experience and hard work of our people. We aim to nurture this talent by creating a work environment conducive to greater productivity and by continuous upgradation of skills. Future Outlook International Energy Agency (IEA) in its World Energy Outlook, estimates global energy demand to increase by 49% by Oil & Natural Gas are expected to remain primary energy sources and expected to meet 51 % of the global demand. Indian economic growth is expected to be in the range of 8-9 % on the back of a strong domestic demand and expected to maintain its status as one of the fastest growing economies in the world with the long term GDP growth of around 9 %. Thus, demand for petroleum products is also expected to be in line with the trend. Increasing availability of gas and development of gas infrastructure has reduced the demand for substitutes such as FO/LSHS and naphtha. Hence, as has happened in the advanced economies, bulk of the demand for petroleum products is likely to come from the transport sector. The recommendations of Committee under Chairmanship of Dr. Kirit Parikh have been partially implemented by deregulation of petrol prices and increase in price of sensitive products. This decision will bring significant relief to Oil PSUs by reducing their under-recoveries; however, it will also lead to competition and immense opportunities for growth.

6 Our preparedness The outlook for appears to be very challenging and with strong marketing network, we are adequately equipped to meet the challenges of competition from private players. To retain and enhance Retail market share, HPCL is focussed on delivering a differentiated customer experience by improving our service levels at the customer touch points. We had pioneered the innovative concept of Club HP at outlets to provide a bouquet of value added products & services of Outstanding Customer & Vehicle Care. These services are now proposed to be made available at almost all premium outlets. To create a strong customer pull at our Retail outlets, we have introduced customer centric formats which offer a host of fuel & non-fuel offerings at our Retail outlets, modernised our retail outlets through bench marking Retail Visual Identity, leveraged technology to Automate our outlets under the brand e-fuel station and introduced NANO (No Automation No Operation) for ensuring Quality &Quantity, strengthened our loyalty card program for the fleet segment and have introduced Standard Operating Practice (SOP) at our Retail outlets. As I mentioned earlier, joint venture company HPCL-Mittal Energy Limited is putting up a grass root refinery at Bhatinda, which is slated for commissioning next year. With this and associated infrastructure facilities, HPCL will have access to own source of products in North. In order to meet the growing demand in the Western part of India and to secure and strengthen our position in this market, it is felt necessary to pursue the option of setting up a new green field refinery on the West Coast in Maharashtra. Feasibility study is being carried out and land is being identified. Your company is further gearing up to meet challenges ahead by strengthening internal controls, Budgetary controls both on capital investments and operating costs and continue to leverage our strengths to remain in competition and reap benefits. Ministry of Corporate Affairs, Government of India, has decided to converge the Indian Accounting Standards with International Financial Reporting Standards (IFRS) for Indian entities in a phased manner. The convergence to IFRS will result in preparation of Financial Statements that are understood and recognized worldwide leading to improved comparability of financial strength and business performance.

7 This will also facilitate easy access to world capital markets, thereby, giving an opportunity to lower the cost of capital. Your company has taken all the required measures and would be ready by this year end for compliance. Corporate Citizen We believe that strong governance is integral to value creation and future growth and as a responsible Corporate Citizen, we maintain high standards of governance and best management practices. Corporate Social Responsibility means a commitment by a Company to manage its role in a society in a responsible and sustainable manner. As a socially responsible corporate citizen your company integrates its business and CSR activities by including the triple bottom line of People, Planet and Profits. Our programs focus primarily on the girl child, juveniles, school drop-outs, youths and truck drivers and socially and economically underprivileged sections of the Society. Your company remains committed to play a key role towards sustainable development. Your company has made contribution to exchequer over Rs.21,000 crores by way of duties and taxes. Our appreciation Ladies and Gentlemen, before I conclude, I sincerely thank millions of our customers, dealers, distributors, vendors and each and every stakeholder of HPCL. On behalf of Board of Directors, I wish to place on record our sincere appreciation for the valuable guidance and support from Ministry of Petroleum & Natural Gas, and other Ministries/Departments of Government of India and various State Governments, and I look forward to their continued support. Shri Arun Balakrishnan, Chairman & Managing Director superannuated from the services of the company on July 31, Shri P. V. Rajaraman and Professor Prakash G. Apte also completed their tenure as Independent Directors on July 19 th, On behalf of your Company and the Board of Directors, I place on record our appreciation for the valuable services rendered by Shri Arun Balakrishnan, Shri P. V. Rajaraman and Professor Prakash G. Apte during their tenure with the Corporation.

8 My fellow Directors and I are thankful to each one of our shareholders for the confidence reposed in us. I would also like to thank all our employees for their continued dedication, hard work and contribution to the company s performance. Growth has always been on top of our Way Forward agenda and with dedication and commitment of HPCL team, your Corporation will continue to uphold the faith and trust of all the stakeholders and achieve greater heights in the years to come. Thank you, Subir Roy Choudhury Chairman & Managing Director