This is my first communication to you after taking over as Chairman on1st June 2017 and I consider it a privilege to share my thoughts with you through thisforum. I do acknowledge that it is a great honour to lead IndianOil which has beenserving the nationwithdistinction decades now.
IndianOil's corporate vision of being The Energy of India'and becoming A globally admired company' and its core values of CareInnovation Passion and Trust differentiate it from the other corporates. Eachof its business verticals remains committ to respective core competencies making stronglyIndianOil a strong player across the hydrocarbon value chain.
With a workforce encompassing varied age groups and represents aperfect blend of youth and experience. This creates an environment highly conducive toinnovative ideas technologies high-quality products & services and safe &efficient operations while enhancing stakeholder value on a sustained basis. Such apositive environment is conducive to making the Company future-ready.
In 2016 the global economy witnessed a slowdown in growth slipping to3.1 per cent from 3.4 per cent recorded in 2015. While growth in the advanced economiesslipped from 2.1 per cent in 2015 to 1.7 per cent in 2016 it slid marginally from 4.2 percent to 4.1 per cent in emerging economies. Global GDP growth is projected at 3.4 per centin 2017 and 3.6 per cent in 2018.
In 2016 global primary energy consumption increased only by 1 per centon a year-on-year basis compared to a 10-year average of 1.8 per cent. While oil andnatural gas consumption grew by 1.6 per cent and 1.5 per cent respectively renewableenergy (including biofuels) grew at a robust 12 per cent. The global oil demand rose to96.8 mbpd (million barrels per day) in 2016-17 as compared to 95.3 mbpd in 2015-16. Withincrease in demand and restrictions on output growth by the producers the surplus in theglobal oil markets fell from 1.5 mbpd in the year 2015-16 to 0.12 mbpd in 2016-17. Crudeoil (Brent) prices averaged at $48.62/bbl in 2016-17 only slightly higher than theaverage of $47.26/bbl in 2015-16; the prices have been moving up further in 2017-18 andare projected to remain in a reasonable range around $55/bbl. IndianOil being adownstream major is benefiting from this range-bound price. It is also helping us inbeing more bullish towards future expansion plans which are essential for theCompany's growth. The OPEC countries and the United States have for long had a majorsay in the oil & gas sector but other regions like Latin
America and Africa too are likely to emerge as key players in thecoming years. A shift in demand in favour of low-carbon fuels and slower energy demandgrowth underpinned by energyefficiency gains were the two clear trends that emerged duringthe year.
Alternative cost-competitiveness against conventionaloptions.Againfall in costs is being driven by technological advancements and the scale of deployment.Though hydro and geothermal energy are competitive even today renewables like solar PVand wind-power with cost reductions and 10-25 per cent respectively are coming to thefore. It is being estimated that by the year 2040 more than 50 per cent ofrenewables-based power generation may not require subsidy support to become competitive.The transportationsector is the largest oil consumer today accountingfor 57 per cent ofthe global oil demand. Renewables contribute to the sector directly through bio-fuels andindirectly through electricity generation. Though the number of electric vehicles (EV) isexpected to increase manifold in the coming years the transport sector is likely to bedominated by conventional fuels for many years to come. Though several industry expertsare predictingthat liquid fuels would take a back seat soon this soon may be a bit farparticularlyin the Indian context. In fact with continuously increasing demand for bothoil and gas India needs to handle this transition in an efficient and organised manner.
India is one of the fastest growing major economies in the world today.Its GDP growth however slid to 7.1 per cent in 2016-17 from 8 per cent in the previousyear with the Government's demonetisation exercise in November 2016 impacting growthhas shown improvement in the current fiscal and is expected to improve further followingthe successful introduction of the Goods & Services Tax (GST) from 1st July 2017 andthe forecast of a good monsoon.
India is now the third largest consumer of petroleum products in theworld next only to USA and China. With its robust economic growth leading to increasingdemand for energy consumption of petroleum products rose to 194 million tonnes in 2016-17from 185 million tonnes in 2015-16 registering a growth of 5.2 per cent. Among majorproducts there was a perceptible slowdown in growth of petrol and diesel as compared tothe previous year while growth in consumption of LPG and ATF improved to 9.8 per cent and12.1 per cent respectively.
The domestic crude oil production 36 million tonnes in 2016-17 asfallingproductionand under-performance of many fields continued.
213 million tonnes registered 5.2 per cent growth in terms withproduct imports too registering a 22% growth. With positive changes in exploration policyby the Government domestic production
India's natural gas consumption rose by 7 per cent during 2016-17and LNG imports by 16 per cent as compared to
in New Delhi.
the previous year. With steady growth in domestic demand refinerythroughput rose by 5.4 per cent to 245 MMT during the year.
The Government of India has upscaled the target for renewable powercapacity to 175 GW which includes 100 GW from solar energy 60 GW from wind-power 10 GWfrom bio-power and 5 GW from small hydro-power to be achievedbytheyear2022.Indiaisoneofthemarkets where solar PV (utility) and onshore wind-power may become competitive by around2020. A vibrant economy and a large domestic market coupled an emerging withhealthygrowthglobal energy hub. Inspired by the holistic energy vision of our Hon'ble PrimeMinister the Ministry of Petroleum & Natural Gas is leveraging the combined strengthsof oil & gas sector enterprises by reforming and restructuring all segments for betteroverall performance.
The Government of India targets to reduce dependence on imported oil by10 per cent by the year 2021-22 by increasing domestic productionof oil & gaspromoting energy efficiency conservation utilisationof bio-fuels andincreasedother alternative fuels and renewables. Accordingly the significant potential of thesector is being explored through a new policy appropriately titled HELP (HydrocarbonExploration Licencing Policy) that promises a uniform licence regime. Together withbidding for small discovered fields and marginal fields policy this is expected toaugment availability of domestic oil & gas In the midstream segment a gas-basedeconomy is being promoted by incentivising domestic production infrastructure on a megascale in the form of LNG import terminals pipeline networks and city gas distributiontransnational projects. Gas currently accounts for 6.5 per cent of India's energymix and the Government plans to raise its share to 15 per cent by the year 2030.Considering this new LNG import terminals coming up in the next 7-8 years will raise thecombined capacity to over 50 million metric tonnes per annum (MMTPA) while the natural gastransmission pipeline network is being expanded from 16100 km currently to about 30500km by the year 2020. In the downstream sector India is all set to emerge as a globalrefining hub through multiple brownfield and greenfield capacity expansion projects.India's current refining capacity is 234.50 MMTPA making it the second largestrefining in Asia. The proposed 60 MMTPA west coast refinery would enable India furtherinfluence the ever-changing market dynamics in the global oil industry with betterbargaining power as a major oil buyer.
Leveraging low international crude oil prices the Government of Indiaand the PSU oil marketing companies have undertaken major initiatives to make energyaccessible and affordable across socio-economic divides. LPG as a cooking fuel is beingmainstreamed all over the country through the Pradhan Mantri
Ujjwala Yojana. With a target to release 5 crore deposit-free LPGconnections to poor households by the year 2019 over all pipeline 2.2 crore connectionswere issued during the year raising LPG usage across markets to above 70 per cent.
In line with the growing demand the marketing and distributioninfrastructure for petroleum products is being expanded and modernised in a big way. Fuelstations are getting a comprehensive makeover aimed at enhancing customer convenience andservice.
In his inspiring inaugural address at the 12th PETROTECH Conference inDelhi in December 2016 the Hon'ble Prime Minister urged the Indian oil & gasenterprises to aim at becoming multinational energy majors. This would not only boostinvestments but create infrastructure and efficiencies in the system to effectively caterto the energy needs of a humungous and diverse customer base that is expanding year afteryear. The task is not easy. Every segment of the oil & gas industry has to first findways to cope with a continuously that would throw up opportunities measure. At the sametime revolutionary policy changes growing indigenous technological prowess and anenabling work environment would ensure that India remains the bright spot.' .
IndianOil Performance A Reassuring Present
From humble beginnings in the year 1959 IndianOil attained the statusof an elite Navratna company by 1997 and became (CGD) India's largestcommercial enterprise in 1999. Then came thevisionofbecomingamajor integratedenergy company' with ambitious forays into petrochemicals gas marketing and E&P.In 2009 a year before earning the status of Maharatna IndianOil redefined itsvision to be The Energy of India' and to become A globally admiredcompany' determined to transform from an oil company into a diversified energyIndianOil's growth trajectory has been on an upswing in the recent past. The Companyearned a record profit of` 11242 crore in 2015-16 only to better it with the highestever profit of` 19106 crore in 2016-17 thereby becoming the hub country's mostprofitable public sector enterprise. The Company's net worth is close to ` 1 lakhcrore. The IndianOil share was included in the prestigious Nifty50 stock index of theNational Stock Exchange from 31st March 2017. The Company's share price more thandoubled from a low of ` 195 (bonus-adjusted price) as on 1st April 2016 to ` 450 as on16th May 2017 and the market capitalisation record high of ` 218831 crore on 16th May2017. The year 2016-17 was a landmark year for IndianOil refineries as they led theindustry's enormous efforts that culminated in extending the supply of cleaner BS-IVgrade transportation fuels right across the country by 1st April 2017 which involvedmajor refinery upgrades changes in supply logistics and other related transitions. staimed at timely implementation of the fir In another Government of India target ofswitchover to BS-VI fuels across the country by 1st April 2020 IndianOil's MathuraRefinery became the first refinery in the country to produce BS-VI compliant petrol anddiesel and supply the same to automobile manufacturers for their initial The IndianOilBoard approved some significant refinery projects during the year; these include revamp ofold units and installation of new units for production BS-VI fuels in various refineriesat an expenditure of` 15400 crore; expansion of Barauni Refinery from 6 to 9 MMTPA; andcapacity expansion of thePX/PTA(Paraxylene/Purified Terephthalic Acid) unit at PanipatRefinery. The operations at Paradip 2016 were progressively ramped up during the year andits capacity utilisation has now reached design level. Together with associated marketingand distributioninfrastructure this helped further consolidate the Company'soperations in the East. In fact the improvement in the critical operationalparametersofIndianOilrefineriesyear after year has been a significant contributor to theCompany's profitability. The Company derives a huge competitive advantage from itsextensive pipelines network in reaching out to new markets and customers in a safecost-effective and eco-friendly way. Right from conceptualisation to commissioning allpipeline projects are being implemented in-house. With the commissioning of 1102 km ofpipeline sections during the year the network expanded to 12848 km with the capacity ofthe liquid pipelines network at 93.7 MMTPA and that of the gas pipelines at 9.5 MMSCMD(million metric standard cubic metres per day).
Today as a new India emerges IndianOil is energising all key sectorsof the economy with its products and services reaching out to the remotest cornersthrough over 46500 customer touch-points spread across the country. These are seamlesslybacked by a highly efficient network of supply locations.
As IndianOil's fuel stations network expands year after year thecontribution ofKisan Seva Kendra outlets to overall sales has been going upsteadily which is a clear pointer to the high potential of rural markets. In bulk salesthe Company continues to focus on retaining its lead share with major customers withoutcompromising on viability. Forthe cooking gas sales crossed 10 million tonnes during2016-17 and about 1.53 crore new LPG connectionswere released of which 93.25 lakh wereunder
Pradhan Mantri Ujjwala Yojana.
IndianOil's R&D Centre with a portfolio of over 550 activepatents lends the much-needed backend support to the Company in the form of proprietaryresearch and commercialisation capabilities in lubricants catalysts refinery processesand pipelines operations. The INDMAX unit at Paradip Refinery has showcased theCompany's strengths in commercialisation of world-class technologies. Similarly agrassroots INDAdeptG unit of 35 kilotonnes per annum capacity was commissioned at GuwahatiRefinery for BS-IV gasoline production. Ind-Coker technology was successfully demonstratedat Panipat Refinerywith coking technology jointly licenced with EIL was deployed to revampthe 0.6 MMTPA Coker-A unit at Barauni Refinery. A 16-inch diameter in-line inspectiontoolfor pipelines unveiled recently is the first in a series of tools fully designed &developed in-house. IndianOil R&D is also supporting the Company's petrochemicalsbusiness and its forays into alternative energy resources.
IndianOil's petrochemicals and natural gas businesses have grownsignificantly in the past few years with the Company emerging as the second largestplayer in the country in both the verticals achieving the best ever sales performance inthe year 2016-17. The Company's E&P business received a boost during the yearwith an IndianOil-led consortium acquiring substantial stakes in the Vankor and Taasassets of Rosneft the national oil During the year adverse law & order conditionscompromised petroleum supplies to certain parts of Jammu & Kashmir Tripura andManipur. However IndianOil maintained near-normal supplies to these regions despite gravethreats to its employees and transporters. Similarly as a savvy marketing entityIndianOil quickly adapted to the Government's demonetisation drive launched inNovember 2016 and mainstreamed the popular cashless modes of payment across its salesnetwork besides disbursing the new currency notes through its retail points. With focuson cashless transactions the Company is partnering several e-retailers including banksfor e-payment gateways as well as tying up with transport aggregators to optimisedistribution.IndianOil's initiative in promoting Rural Card has earned theappreciation ofNITI Aayog.
A Resurgent Future
When we consider the overall business outlook the substantial growthpotential of the Indian economy and its growing energy needs coupled with thecomprehensive reforms agenda of the Government and the relatively range-bound crude oilprices in the near-term augur well for your Company.
As I had mentioned earlier oil and gas will continue to play asignificant role in fuelling the growth of Indian economy at least till the year 2040 andprobably beyond. IndianOil has put in place a road map for scaling up its businessoperations across the value chain in line with the growing demand. The Company isfocussing on several priority areas in order to fully exploit the emerging opportunitiesfor growth expansion and diversification. Deregulation subsidy to consumers have changedthe market dynamics. Adapting itself to the changing business scenario IndianOil isstreamlining its logistics by way of optimising the supply chain and infrastructure andlaunching a plethora of customer-centric initiatives. As a technology-driven companyIndianOil is investing in IT to optimise operations and enhance customer experience. Whilethe number of automated fuel stations crossed the 10000 mark during the year transparentand assured digital processes are being incorporated in bulk storage points to ensuredelivery of right quality & quantity and quick supplies. In addition vehicletracking systems e-portals mobile applications etc. are helping raise productivity andstrengthen stakeholder engagement.
With new growth avenues opening up in the Indian skies for regionalconnectivity through tier-II and tier-III airports the . Company is working on making itsaviation fuel business cost-effective by offering low-cost fuelling infrastructure modelsat smaller airports through in-house expertise. In line with India's aspirations tobecome a refining hub IndianOil plans to raise its refining capacity from the current80.7 MMTPA to around 150 MMTPA by the year 2030 through both brownfield expansions andgreenfield capacity creation. IndianOil is also pursuing a 60 MMTPA integratedrefinery-cum-petrochemicals project on the west coast jointly with other oil marketingcompanies (OMCs) that is BPC and HPC at an approximate cost of ` 2.7 lakh crore. Thepetroleum distribution infrastructure is being expanded in line with the Company'sgrowth plans. About 8000 km of supply & pipelines network is being added by the year2021. The Company is working to convert its refineries to produce BS-VI quantity fuelsthe top global standard today by 1 st April 2020. This way it would not only meet thedomestic demand for green fuels but also create capability to meet global qualitystandards.
Petrochemicals & speciality chemicals is a growing and highlyprofitable business. As the second largest player in the vertical with a full slate ofproducts and a countrywide logistics & marketing set-up IndianOil views furtherintegration of refining and petrochemicals as the way forward and is scaling up itspetrochemicals portfolio further with a polypropylene project in Paradip and expansion ofexisting facilities at its major refinery locations. ed to cut Significant investments arebeing planned in natural gas infrastructure and marketing to align with the country'schanging energy mix. Increased global gas availability and low prices have strengthenedthe Government's vision of a gas-based economy besides presenting attractive growthopportunities to players in the across the gas value chain from LNG import terminals tocity gas distributionnetworks major among them being a 5-MMTPA LNG import terminal atKamarajar Port near Chennai scheduled for commissioning in 2018-19. Building on itsrecord of successful diversification into natural ed to gas marketing IndianOil alongwith Coal India Ltd. NTPC FCIL and HFCL formed a joint venture company HindustanUrvarak & Rasayan Ltd. for revival of three fertiliserplants located at Gorakhpur(Uttar Pradesh) Sindri (Jharkhand)& ge Barauni (Bihar). This diversification also hasa strategic with the Company's successful Kisan SevaKendra Reflectingmodelforthe rural markets.
As part of its quest to become an integrated energy major IndianOil isexpanding its upstream portfolio of domestic and overseas oil and gas blocks to be able tosource atleast 10 per cent of its crude oil requirements from its own E&P assets inthe medium term. attractiv Globalisation oftheCompany'soperationsisan businesspropositionand IndianOil's emergence as a major retail & terminalling player inSri Lanka and Mauritius is paving the way to entry into other emerging markets inSoutheast Asia and Africa with overseasofficescoming up in Singapore Myanmar andBangladesh. IndianOil's strategic strength in R&D is being further bolstered soas to widen and deepen research into emerging fuel technologies. From licenced technologyto commercialisation of in-house expertisein refinery revamps catalyst evaluation etc.its scientists are engaged in research on futuristic technologies and harnessingunconventional energy sources like battery technologies 3G bio-fuels etc. IndianOilbelieves that it can be a diversifiedtechnology-provider in the near future. With thisobjective a new campus of the R&D Centre is coming up at Faridabad to house the newresearch facilities. More scientific personnel are also being recruited. carbon emissionsby 33-35 India has per cent by 2030 and has set an ambitious target of 175 GW of renewableenergy-based capacity by 2022. In support of this IndianOil is working to raiseits grid-connected renewable energy capacity from 188 MW (wind-168 MW solar-20 MW)currently to 260 MW by the year sector.IndianOilhasinterests 2020. It is also putting up2G-ethanol & waste-to-energy projects. The Company has also committed to reduce itscarbon footprint by 18 per cent and water footprint by 20 per cent by the year 2020.
IndianOil believes that its human resource is its most valuableinvesting in the growth and asset and is empowerment of its work-force. The Companybelieves that knowledge and its right application is the key differentiator betweenorganisations in these competitive times. edAccordinglyIOCiansareacquiringcutting-inter-personal and leadership skills throughappropriate learning & development interventions. changing demographic profile ofIndia IndianOil too is getting increasingly younger. The millennials' aremaking their presence felt with their out-of-the-box innovative ideas and their commandover emerging technologies. They represent the talented pool that will provide IndianOilits future leadership. Inspired by its past achievements and energised by futureopportunities IndianOil today is fully geared to enhance its presence across the energyvalue chain in the years ahead as an integrated energy major that would operateseamlessly across geographies catering to a wide spectrum of customers with customisedproducts & services. I look forward to your continued support encouragement andpatronage in this endeavour.
(Sanjiv Singh) Chairman
Place: New Delhi Date : 21.07.2017