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Chennai Petroleum Corporation Limited
Chairman’s Address – 45 th Annual General Meeting
12 th September 2011, Kamaraj Arangam, Anna Salai, Chennai
My Dear Shareowners of CPCL ,
On behalf of the Board of Directors and on my own behalf, I extend a hearty welcome to each one of you to the 45 th Annual General Meeting of your Company, Chennai Petroleum Corporation Limited. The Notice convening the meeting, the Directors' Report and the audited Annual Accounts have already been sent to you and with your permission, I would like to take them as read.
WORLD OIL SCENARIO
Globally, we are passing through testing times. On one hand, developed economies are battling through financial crises – the United States already having suffered financial downgrade while on the other hand, the emerging economies are trying to brave through and still manage high growth, hoping that the world economy will recover in due course. In this, energy would be a key resource. According to the International Energy Agency, the world economy is expected to grow at 4.4% per annum upto 2015 while the primary energy consumption is projected to grow at an average rate of 1.4% annually.
The global oil demand is projected to increase from the current level of 87 million barrels a day to 97 million barrels a day by 2030 as per one estimate and upto 105 million barrels a day by another estimate. This expected rise in demand would result from substantial growth likely to be registered by emerging economies in Asia, Middle East and Latin America. The call on oil shall have to be met through innovative solutions, infusion of technology and capital, and appropriate infrastructure and policy framework by both the producing as well as consuming countries.
INDIAN OIL OUTLOOK
India is ranked 4 th in terms of global oil consumption after the US, China and Japan. With an expected GDP growth of about 8% per year, the petroleum products consumption has grown at the CAGR of 3.26% in the last five years to 141 million tonnes in 2010-11. By the year 2030, this is expected to go up to about 290 MMT in line with the country's economic growth at a CAGR of 3.71%.
With the Bina refinery coming on stream and capacity expansion of Panipat refinery, India's crude oil refining capacity has increased by 9 MMTPA to 193.4 MMTPA in 2010-11 over the previous year. To meet the growing demand for energy, the national refining capacity is projected to increase to 307 MMTPA by 2016-17, as per the XII Five Year Plan draft estimates.
During 2010-11, the domestic crude oil production was 37.7 MMT, representing 19.2% of the total crude requirement of Indian refineries. Despite the indigenous crude oil production estimated to increase to 41.1 MMT by 2016-17, the country's dependence on crude oil imports will continue to be at very high levels in the future.
According to Platts, India has the distinction of being Asia’s largest exporter of petroleum products since August 2009 . The country’s exports of petroleum products grew by 16.1% during 2010-11 to 59.1 MMT (million metric tonnes) as compared to 50.9 MMT during the previous year. Setting this off against the crude oil imports, the country’s net forex outgo on petroleum was about USD 71 billion in 2010-11 as per provisional estimates.
According to Petroleum Planning & Analysis Cell (PPAC), the consumption of petroleum products in India increased by 2.9% during 2010-11. However, the pattern of petroleum products consumption in India has shown mixed performance. While transport fuels have shown higher demand, Kerosene and Fuel oil have fallen.
PERFORMANCE DURING 2010-11
I am happy to inform that your Company delivered an excellent performance during the year 2010-11. Keeping pace with the growing energy demands of the country, your company crossed many planned milestones. During the year, CPCL clocked the highest ever crude throughput of 10.748 MMT with a record production of High Speed Diesel, Motor Spirit and Naphtha. Secondary processing units such Fluidised Catalytic Cracking Unit and Hydrocracking Unit turned in excellent performance with the highest ever throughputs of 1.006 MMT and 1.995 MMT respectively. During the year, CPCL registered the highest ever turnover of Rs. 38,128 crore.
Your Company achieved the “Excellent” rating (Provisional) for the 15 th consecutive year under the Memorandum of Understanding (MoU) signed with the Government of India for the year. The continuing excellent performance has provided the requisite impetus to your Company to confidently embark on further growth to scale greater heights of performance.
DIVIDEND
The Board of Directors of your Company is pleased to recommend a dividend of Rs. 12 per share representing 120% on the paid-up share capital of your Company for the year-ended 31.03.2011.
VISION & MISSION
Your Company has created new Vision & Mission Statement s during the year to achieve higher standards of excellence in all spheres of performance.
To work towards realizing the V ision, a Strategy Meet was held in October 2010, wherein strategies for Safety & Environment, Growth, Human Resources and Finance were deliberated. Your Company has effective systems and processes in place to formulate robust business plans and devise innovative strategies to adapt to the rapidly changing business environment for the purpose of achieving higher profitability.
SAFETY PERFORMANCE
Your Company accords top priority to adopt the best safety standards in line with its commitment to the well-being of its employees and those living in the neighborhood of its refineries.
Your Company has become a corporate member of the Centre for Chemical Process Safety, a non-profit organisation formed by the American Institute of Chemical Engineers. This association is expected to supplement the initiatives of your Company to be in touch with the latest trends in process safety technology and management practices.
AWARDS AND RECOGNITIONS
Your Company received the Petrofed “Special Commendation Award” for environmental sustainability.
Your Company’s Manali refinery was awarded the prestigious “TPM Excellence” Award by the Japan Institute of Plant Maintenance (JIPM) for implementing all the eight pillars of Total Productive Maintenance (TPM).
The Cauvery Basin Refinery of your Company successfully completed the TPM Health Check Audit to contest for the TPM Consistency Award, which is the next level of TPM Excellence.
MARKETING
Indian Oil Corporation Limited (IndianOil) continues to market a majority of the products of your Company. The Chennai-Trichy-Madurai and the Chennai Bangalore product pipelines are fully operational.
In the area of direct marketing to large, institutional customers , your Company achieved the highest ever sales of Propane, Propylene, Paraffin wax and Sulphur during the year.
PROJECTS
Revamp of Crude Distillation Unit – 3
The revamp of Crude Distillation Unit – 3 was successfully completed to increase its capacity from 3 MMTPA to 4 MMTPA. With this capacity addition, the total crude refining capacity of your Company stands at 11.5 MMTPA .
Euro-IV Project – NHDT / ISOM / DHDT Units :
In order to produce MS/HSD complying with Bharat Stage -IV specifications to cater to Chennai and Bangalore and Bharat Stage -III equivalent specifications for the rest of the locations, your Company has undertaken the Auto Fuel Quality Upgradation Project at an estimated cost of Rs. 2615.69 crore in Manali Refinery, in line with the Auto Fuel Policy of the Government of India.
Your Company has successfully commissioned the Naphtha Hydro-treating/Isomerisation (NHDT/ISOM) units for MS production in January 2011 and the Diesel Hydro-treating (DHDT) unit for Diesel quality u pgradation in May 2011 .
PROJECTS UNDER IMPLEMENTATION :
Euro-IV Project:
The Utilities and Offsite facilities of Bharat Stage-IV Auto Fuel quality upgradation project are in various stages of completion. To augment the existing Hydrogen generation capacity, your Company is installing a new Hydrogen Generation Unit. These facilities are expected to be completed by December 2011 .
Revamp of existing CDU/VDU-II from 3.7 to 4.3 MMTPA :
Recognising the need for upgradation of refinery infrastructure, your Company is implementing a project to increase the unit capacity from 3.7 MMTPA to 4.3 MMTPA at a cost of Rs. 333.99 Crore. This project is expected to be completed in May 2012, which will take your Company’s total crude refining capacity to 12.1 MMTPA.
Resid Upgradation Project:
Your Company is implementing a Resid Upgradation Project for improving the distillate yield of the Manali refinery from the present level of 68.4 wt% to 75.9 wt%, at an estimated cost of Rs. 3110.36 crore. This project is expected to increase the quantum of High Sulphur crude processing from the present level of 67% to 83%. Environmental clearance for this project is awaited. The project will be completed in 33 months from the date of environmental clearance .
New Crude Oil Pipeline :
Your Company is replacing the existing 30” Crude Oil Pipeline from Chennai Port to Manali Refinery with a new 42” Crude Oil Pipeline at a cost of Rs.126 crore. This project, apart from increasing reliability, would also enhance the discharge rate from the tankers thereby significantly minimising the tanker detention period and demurrage cost. This project is scheduled to be completed within 18 months from the date of receipt of Coastal Regulatory Zone (CRZ) clearance, which is awaited.
CBR 20” Crude line:
Your Company has entered into an agreement with M/s Karaikkal Port Pvt. Ltd. for bringing in bigger vessels with crude supplies to the Cauvery Basin Refinery. To facilitate movement of crude oil from the Karaikkal Port to the Refinery, a 20” inter-connecting crude oil pipeline is being implemented at a cost of Rs.10.69 crore. This project is expected to be completed by December 2011.
DEMAND IN CPCL FED ZONE
As per IndianOil’s projections, the supply-demand balance of petroleum products for 2016-17 and 2021-22 indicates a deficit of around 2.7 MMTPA of petroleum products by 2016-17 and 5.6 MMTPA by 2021-22 in the CPCL Fed Zone. Your Company is contemplating an expansion in the refining capacity in order to bridge this supply-demand gap.
GREEN INITIATIVES
Your Company recognises the impact of its operations on the environment and believes that the commitment to maintain the ecological balance, which ensures sustainable development, is fundamental to its values.
Your Company has embarked on the exercise of evaluating the carbon footprint for its Manali Refinery. Efforts have also been undertaken to promote rainwater harvesting by developing an area of 30,000 sq.mts.
Your Company has successfully launched a mobile ambient air quality-monitoring unit for use in and around Manali Refinery.
HUMAN RESOURCES
Your Company firmly believes that the contribution of its employees is the key factor for its growth and excellent performance.
During the year, six Open House meets were conducted in various Departments. The discussions were mainly centered on performance, projects, business challenges and growth prospects. These interactions facilitate the top Management to directly ascertain the needs and aspirations of employees.
Several HR Initiatives undertaken by your Company during the previous year include Mentoring, Field visits, “Learning Forum” and “Reach-in”.
CORPORATE GOVERNANCE
Your Company complied with all the mandatory requirements of the Corporate Governance Guidelines issued by the Securities & Exchange Board of India and the Department of Public Enterprises, Government of India for the year 2010-11, except for the clause relating to the appointment of Independent Directors. The appointment of additional Independent Directors is under the consideration of the Government of India. As per the Self Evaluation Report prescribed by DPE, your Company has scored “Excellent” rating in complying with the guidelines issued from time to time.
Your Company also complies with the Voluntary Guidelines on Corporate Governance issued by Ministry of Corporate Affairs, Government of India in December 2009, as far as practicable.
Your Company also supported the green initiatives undertaken by the Ministry of Corporate Affairs for paperless compliance by the Companies, by permitting communication of various notices / documents through electronic mode to the shareholders. In line with this, the Annual Report for the year 2010-11 has been forwarded electronically to those shareholders who opted for this mode of communication.
CORPORATE SOCIAL RESPONSIBILITY (CSR)
Your Company is committed to the social and economic development of the community in which it operates and has a long tradition of supporting the society in the areas of education, healthcare, sanitation, skill development, infrastructure development and women empowerment.
During 2010-11, your Company has spent an amount of Rs.368.51 lakhs on CSR activities as compared to Rs. 169.72 lakhs during the previous year.
The CSR activities of your Company are reviewed quarterly by a Committee of the Board of Directors of the Company. The Madras School of Social Work, an independent agency also evaluated the CSR activities of the Company for the year 2009-10, and have complimented your Company for the good work done .
OUTLOOK 2011-12
During the first q uarter of the financial year 2011-12, your Company has achieved a crude thruput of 2.545 MMT. The Company has posted a net loss of Rs. 55.12 crore during the first quarter of 2011-12 due to reduced GRM s and planned shutdown of CDU-I.
I am confident that your Company will successfully tide over the difficulties faced in the first q uarter by improv ing performance during the remaining part of the f inancial y ear 2011-12.
ACKNOWLEDGEMENT
May I take this opportunity to thank each and every one of you for your unflinching faith and confidence reposed in your Company in accomplishing its shared aspirations.
I compliment all the employees for their sincerity and dedication, which contributed significantly to the improved performance of your Company.
I am thankful to the Board of Directors for their unwavering support and guidance.
I join the other Directors on the Board in expressing my gratitude to the Government of India, Ministry of Petroleum and Natural Gas, Government of Tamil Nadu, National Iranian Oil Company, Ministry of Environment & Forests, 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 support and guidance.
I thank you all once again.
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