CHENNAI PETROLEUM CORPORATION LIMITED
ANNUAL REPORT 2008-2009
Ladies and Gentlemen,
On behalf of the Board of Directors of Chennai Petroleum Corporation
Limited and on my own behalf, I extend a hearty welcome to all of you to
the 43 rd Annual General Meeting of your company. I also would like to
thank you for allocating your valuable time to attend the meeting.
WORLD OIL SCENE
The year 2008-09 witnessed an unprecedented volatility in the price of most
of the commodities including crude and products that has caused disastrous
impact on the world economy and consequently many countries including USA
had to endure one of the biggest recession in its history after 1930.
According to BP Statistical Review of World Energy, the Global oil
consumption declined by 0.6%, or by 420,000 barrels per day in 2008, the
first decline since 1993 and the largest decline since 1982.
The global crude / product demand is expected to further weaken in 2009
with a contraction of 2.9% to 83.9 million barrels per day as per the
estimates of International Energy Agency.
It is to be seen how quickly the economic situation stabilizes and bounce
back on growth path over the next two to five years. IEA predicts that Oil
demand may grow at between +0.4% and +1.4% annually after 2009, depending
on the pace of global economic recovery. The recent increase in crude oil
prices is considered to be largely due to a tighter crude supply/demand
balance, although shortages of conversion, sour & heavy crude capacity in
the refining industry have contributed to an increase in the relative value
of light crude. However, current oil prices are around half the level seen
last year in July, when they peaked at USD 147 per barrel. Prices have
strengthened again recently, partly due to a perception that economic
recovery may be just around the corner. The combination of increasing
refining capacity and lower crude runs resulted in fall in global refinery
capacity utilization in 2008 for the third year running to 84.8%, the
lowest level since 2003.
It is gratifying to note that presently the crude and product prices have
altered the volatile swing and the crude prices are expected to hover
around US $ 65 to US $ 75 per barrel in the near future.
DOMESTIC OIL SCENE:
During 2008-09, India's production of crude oil was 33.50 Million Tonnes, a
decline of 1.8% compared to 34.12 Million Tonnes produced in 2007-08. The
majority of India's crude production comes from Offshore, which accounts
for about 68.5% of all indigenous production. Around 53% of offshore
production comes from Mumbai High Fields operated by ONGC and the balance
comes from Private Sector and Joint Sectors.
The estimated total supply of crude oil during 2008-09 was around 161.66
Million Tonnes as compared to 155.79 Million Tonnes in 2007-08. As per the
Petroleum Planning & Analysis Cell, India imported 128.16 Million Tonnes of
Crude Oil during 2008-09 as against 121.67 Million Tonnes during 2007-08,
with the remaining supply coming from domestic production.
The average price of Indian Crude Oil Basket in 2008-09 was USD 82.7 per
barrel. During the period April to August 2009, the price of the Indian
Crude Oil Basket has increased from USD 50 per barrel to USD 72 per barrel.
With the prices rising again, it is unlikely for the Government to
deregulate the consumer prices, since the deregulated price is likely to be
higher than the current prevailing prices.
India 's refining capacity is 176 MMTPA in 2008-09 spread across 20
refineries as compared to 149 MMTPA in 2007-08.
India has a network of about 15000 Kms of Crude and Product pipelines with
over 100 MMTPA capacity.
India has emerged as a net exporter of petroleum products and single
largest foreign exchange earner. Exports reached a figure of 36.93 Million
Tonnes in 2008-09 as compared to a figure of 40.77 Million Tonnes in 2007-
The petroleum products import by India was to the tune of 18.29 MMTPA in
2008-09 as compared to 22.72 MMTPA in 2007-08.
COMPANY'S PERFORMANCE :
Physical performance :
Your Company achieved a Crude thruput of 10.13 Million Metric Tonnes (MMT)
in 2008-09 as compared to the previous year figure of 10.26 MMT. The
capacity utilization of major secondary processing units in Manali Refinery
viz., FCCU and OHCU, was the highest ever at 901 TMT (Thousand Metric
Tonnes) and 1856 TMT respectively, representing an increase of 10% as
compared to the previous year. The increase in thruput of secondary
processing units during the year improved the production of high value
distillates such as MS and HSD.
Highest ever production:
Your Company has achieved the highest ever production of 845 TMT of MS,
3535 TMT of HSD, 493 TMT of Asphalt and 30.9 TMT of Propylene.
Your Company also achieved an all time record in the sale of Sulfur at 48.7
TMT, Propylene at 31.6TMT, Lube Extracts at 10.8 TMT and Propane at 0.72
Your Company has reduced the level of consumption of Energy at Manali
refinery, with the Energy Index recording its best at 71.4 MBTU/BBL/NRGF as
compared to the previous year figure of 75.2.
Thus, your Company has achieved a better physical performance during 2008-
Highest ever Export of Products:
During the year 2008-09, your Company achieved the highest ever export of
1097 TMT of products through Indian Oil Corporation Limited comprising of
Naphtha, High Speed Diesel, Fuel Oil and Lube Oil Base Stocks valuing
Rs.2520 crore, as against the previous best of 809 TMT of products.
Chennai-Tiruchi-Madurai Product Pipeline (CTMPL) achieved the highest ever
thruput of 1.69 MMT with a Capacity utilization of 93.7%, by transferring
MS, SKO and HSD from Manali Refinery. Dedicated ATF pipeline from Manali
Refinery to Chennai Airport was formally inaugurated in the month of July
Project activities pertaining to the 1.45 MMTPA Product pipeline from
Chennai to Bangalore were commenced and are expected to be completed by
The financial year 2008-09 was the most volatile period for your Company.
Despite posting a better physical performance and an improvement in
turnover by 11% from Rs. 32889 crore to Rs.36489 crore, your Company was
constrained to post a net loss of Rs.397.28 crore during 2008-09. This was
mainly due to unprecedented volatile market conditions that prevailed from
the second quarter of 2008-09, resulting in an adventitious inventory loss
and processing of high-cost crude in a falling market. The unforeseen
shutdown of Refinery II in September 2008 and lower Distillate Yields have
also contributed to the negative performance.
Your Company is taking all efforts to carry out its operations
uninterruptedly and produce value added products focusing on maximizing the
The Gross Refining Margin in the last quarter of 2008-09 was USD 6.6 per
barrel as a result of better market conditions. Your Company had posted
better results in the first quarter of 2009-10 with crude and Product
prices firming up. Consequently, there has been an increase in the GRM from
US $ 1.22 per barrel in 2008-09 to US $ 6.9 per barrel in the first Quarter
During the first quarter of 2009-10, the Profit after Tax was impressive at
Rs.304.72 Crore and the Gross Turnover was Rs.6739 Crores and the total
crude processed by your Company was 2.685 MMT.
Due to effective treasury management practices by your company the overall
weighted average interest in respect of all loans both short-term and long-
term was pegged at 9.4% p.a. in 2008-09 despite the fact that the crude oil
prices has soared and the interest rates hardened during the year. CRISIL,
a Standard and Poor Company continued AAA ratings for long term borrowings
and P1 + for short-term borrowings as per Basel II norms.
The Comptroller and Auditor General of India has given 'NIL Comments'
report on the audited accounts of your company for the sixth year in
The Manali Refinery processed five new crude oils of imported origin viz.,
Arab Medium, Mellitah, NKossa, Rabi Light and Sarir which are now added to
the 'Crude procurement Basket' comprising of 47 Crudes. Your Company also
processed a trial cargo of new indigenous crude from KG Basin in April
INTEGRATED REFINERY BUSINESS IMPROVEMENT PROGRAMME:
You may kindly recall that in the last year, I had mentioned about the
implementation of Integrated Refinery Business Improvement Programme in
association with M/s. Shell Global Solutions International. 13 proposals
with a net benefit value of about US Cents 28 per barrel have been approved
for implementation. To improve Refinery Margin further, your Company has
also taken up during 2008-09, another initiative of Risk and Reliability
Management Programmes with M/s. Shell Global Solutions International, which
will continue till 2011.
PROJECTS UNDER IMPLEMENTATION:
Capacity Enhancement of CDU / VDU III:
Project execution activities for Refinery III Capacity expansion from 3
MMTPA to 4 MMTPA is in full swing and the project is expected to be
completed by end 2009 at an estimated cost of Rs.200 crore. This project
will facilitate production of additional value added products like LPG,
Naphtha, SK, HSD, etc.
Revamp of Semi-Regenerative Catalytic Reforming Unit to Continuous
Catalytic Reforming Unit To facilitate the production of high quality MS
with increased Octane content, your Company is currently revamping the
existing Naphtha Hydro-treating / Semi-Regenerative Catalytic Reforming
Unit to Continuous Catalytic Reforming mode at an estimated cost of Rs. 273
crore and the project is expected to be completed by end of 2009.
Euro IV Preparedness on Auto Fuel:
Your Company has undertaken the Auto-Fuel Quality Upgradation project at an
estimated cost of Rs. 2615 Crore in Manali Refinery to produce MS / HSD
meeting Euro IV specifications for Chennai and Bangalore and to upgrade
product quality from Bharat Stage II to Euro III equivalent specifications
for the rest of the locations from April 2010 onwards, as per the Auto-Fuel
policy of the Government of India.
PROJECTS - NEW INITIATIVES:
Resid Upgradation Project:
In order to increase the Distillate Yield of the Refinery and reduce Fuel
Oil production, your Company proposes to install a high conversion Resid
Upgradation Unit at an estimated cost of Rs. 3500 Crores and the project is
expected to be completed by end 2012.
Single Point Mooring (SPM):
Your Company has decided to put up a SPM for Crude Oil receipt at Ennore,
in view of the abnormal delay in obtaining the Right of Way for a new Crude
Oil Pipeline from Chennai Port to Manali Refinery.
The proposed SPM is estimated to cost Rs.850 crore and it will be erected
off Ennore coast alongwith Crude Oil Terminal and associated facilities.
The proposed facilities would ensure Very Large Crude Carrier (VLCC)
handling and would result in savings on the freight for Crude oil
transportation for Manali Refinery.
Oxygen Enrichment Technology:
In pursuit of innovation, your Company in association with M/s.Engineers
India Limited has introduced in May 2009, an Oxygen Enrichment Technology
for Sulfur Recovery Unit in Refinery III, for increasing its capacity by 22
percent. This technology can be replicated by other refineries as a low
cost option to expand capacity of SRU by 20-25%.
Your Company's yet another innovative initiative include successful
introduction of an indigenously developed IOC R&D's Desulphurisation
Catalyst in Plant 13 by first commercial operation to produce Ultra Low
Sulfur Diesel of less than 50 ppm.
SAFETY HEALTH and ENVIRONMENT:
Your Company accords utmost importance to Safety, Health and Environment
and is strongly committed and dedicated to the well being of those working
within the precincts of its Refineries and also its neighbourhood.
Your Company imparts safety training by conducting Fire & Safety training
classes every month to its employees and also conducts on the spot training
for contract workers in the areas of operation of Fire Extinguishers, self
contained breathing apparatus, fall arrestors and descender rescue
The Occupational Health Service Centre of your Company has built up strong
systems and procedures in the areas of health care of its employees and
continue to work towards achieving improvements upon and setting benchmarks
in these areas. New medical equipments were added in the OHS Centre to
strengthen the infra-structural facilities for handling emergencies.
Your Company continues to lay focus on development of clean and green fuels
while simultaneously ensuring continued viability and profitability of its
Refinery operations through a number of environmental measures like solid
waste management, recycling of treated effluents and development of green
In recognition of its pioneering efforts in the areas of Occupational
Health and Safety, your Company has been awarded the Golden Peacock Award
for Occupational Health and Safety for the year 2009 by the Institute of
Directors, New Delhi.
The increase in the use of Hydrocarbons has contributed to the Climate
Change which has prompted the Government of various countries to regulate
petroleum related carbon emissions. This move will force greater focus on
efficiency improvement and energy conservation at the refineries. Your
Company has also taken several measures in this direction which are focused
on Green House Gas abatement.
H R INITIATIVES:
Your Company strongly believes that the focus of all aspects of Human
Resource Development is on developing the most superior and agile work
force which is responsive to the business needs and challenges. During the
last year, your Company has carried out `Skill gap analysis' for the middle
management group of employees and identified the gaps which need to be
addressed to. In the current year, training programmes were conducted in
order to fill up the gaps that have been identified. This exercise was done
to develop the skills, knowledge and ability of the employees in the middle
management to retain and motivate them.
During the year, your Company has conducted an Employee Engagement Survey
which was found to be of very high order. Various HR initiatives undertaken
in the previous year like Mentoring, Department-wise Open House Meets and
Field visits were continued during this year also.
Your Company has effectively played the role of a caring Corporate Citizen
by contributing a sum of Rs. 169.78 lakhs towards various CSR activities
including organizing medical camps, providing infrastructural facilities,
provision of scholarships, etc.
Your Company was conferred Mother Teresa Award for Corporate Citizen 2008
instituted by Loyola Institute of Business Administration (LIBA). LIBA,
Chennai, has instituted this award in the name of Mother Teresa, for
Corporate Citizen in the year 1998.
Your Company adheres to sound Corporate Governance practices which are
based on the foundations of high accountability to the shareholders,
absolute transparency in the reporting system and high ethical standards in
the conduct of its business standards.
Your Company complied with all the mandatory requirements of Corporate
Governance Guidelines issued by SEBI and also the Corporate Governance
guidelines prescribed by Department of Public Enterprises (DPE), Government
of India applicable to Central Public Sector Enterprises, except the
requirement relating to minimum number of Independent Directors. Action has
been initiated to comply with this requirement also.
In a bid to maintain complete transparency in contracts and procurements,
your Company has entered into a Memorandum of Understanding (MoU) with
Transparency International India (TII) for implementation of Integrity
Pact. By signing this MoU, your Company joins select corporates in India
who adhere to this model which binds a company and its
suppliers/contractors to ethical conduct in contracts and implementation of
projects. Mr. P. Shankar, IAS (Retd.), Former Central Vigilance
Commissioner, and Justice K. Govindarajan, Retd. Judge of the Hon'ble High
Court of Madras, are the Independent External Monitors for implementation
of Integrity Pact in your Company.
Your Company was one among the top 25 Companies adopting good Corporate
Governance practices in the year 2008, by the Institute of Company
Secretaries of India, for the third time in a row.
I would like to conclude by observing that your Company is poised to take
on the competitive challenges in future. Your Company has taken several
initiatives which include capacity expansion, better infrastructure,
implementation of SAP, skill development of employees etc. Your Company is
also involved in carrying out business optimization exercise supported by a
Linear Programming Model in order to improve the efficiency of its
operations. The dedicated Human Resource of your company has always
remained steadfast behind all our strategic efforts in order to emerge as
the best in the class refinery.
I take this opportunity to place on record that the strength of your
Company lies in the large number of our valued shareholders and with your
valued support, we would be in a position to successfully accomplish our
I express my gratitude to the valuable contributions of my colleagues on
Finally, I thank the Government of India, Government of Tamil Nadu,
National Iranian Oil Company, our Foreign Collaborator, Oil Industry
Development Board, Petroleum Planning and Analysis Cell, the Comptroller
and Auditor General of India, Central vigilance Commission, Banks and
Financial Institutions for their continued guidance and support.
I thank you all for your keen attention
Mr. S. Behuria
Date : September 7, 2009. Chairman
Dated : 12th September, 2009