Chennai Petroleum Corporation Limited
Chairman’s Address – 46 th Annual General Meeting
11 th September 2012, Kamaraj Arangam, Anna Salai, Chennai
Dear Shareowners of CPCL ,
Ladies and Gentlemen,
Very Good Afternoon to all of you !!
It gives me great pleasure to meet you all on the occasion of the 46 th Annual General Meeting of the Corporation. I would like to thank each one of you for sparing your valuable time to attend this meeting. The Notice convening the meeting, the Directors' Report and the audited Annual Accounts have been already mailed to you and with your permission, I take them as read.
The global economy has been passing through a challenging phase. Sovereign debt crisis in Europe, weak recovery in the US and slowing growth in the emerging economies have made the economic environment quite exigent. Overall global growth slipped to 3.9% in 2011 from 5.3% in 2010, with growth in both advanced and emerging economies slipping to 1.6% and 6.2% from 3.2% and 7.5% respectively in 2010.
Indian Economic Scenario
Indian economy is today beset with slowing growth and high inflation. In 2011-12, GDP growth decelerated significantly to 6.5% from 8.4% in 2010-11. During 2011-12, India's external account was highly stressed, and the Rupee experienced record depreciation against the US $. Deterioration in fiscal situation due to over shooting of subsidy bill led to missing of fiscal deficit targets. Prudent policy management is crucial at this juncture to bring back growth to the economy.
During the year, the oil market was initially hit by political unrest in the oil rich MENA region and subsequently by sanctions of US & EU on Iran. These developments led to spiking of crude oil prices. High crude oil prices continue to be another major destabilizing force to the global economy. Owing to the slowing global economy, oil demand growth was weak, it rose to 89.1 mb/d in 2011 from 88.3 mb/d in 2010. However, supply fell short of demand resulting in a demand-supply mismatch and putting pressure on crude oil prices.
In the domestic market, the demand for refined petroleum products was buoyant, with growth rate of consumption accelerating to 4.9% in 2011-12 from 2.3% in 2010-11. It was transportation fuels, especially HSD which recorded significant growth. Accelerating demand, in the context of decelerating domestic crude oil production led to significant expansion of crude oil imports. Moreover, with depreciation of Rupee and the rising international crude oil prices, this led to the ballooning of crude oil import bill.
Business Performance, Initiatives & Prospects
India is a key growth centre for oil demand. Over the long term, oil demand is projected to grow in India way above the world average. As a petroleum refiner this places your Corporation in a very opportune position with growth opportunities.
During the year, your Corporation's refineries achieved highest ever distillate yield, with Manali refinery recording 70.3% and Cauvery Basin Refinery recording 86.64%. Production of HSD and MS recorded the highest ever production at 3.9 MMT & 1.0 MMT.
In the pursuit of diversifying its crude import basket, your Corporation procured three new low sulfur crudes viz., Espoir from Ivory Coast, Palanca Blend from Angola and Essider from Libya. In addition, one new crude was added to the basket: viz., Okwori, new Low Sulfur Trial crude from Nigeria.
Marketing & Pipeline
Majority of the products of your Corporation like MS, HSD, LPG, SKO, etc. are marketed by Indian Oil Corporation Limited, the holding Company. Your Corporation directly markets some specialty products. During the year, the direct sales recorded a growth of 4.5%. During the year, seven Customer Meets were conducted at various locations for Wax, Sulphur and other direct customers and 19 new customers were registered for the supply of Sulphur, Hexane, Propane and Propylene.
During the year, your Corporation achieved the highest ever turnover of Rs.45,365 crore. During the year, Profit After Tax of your Corporation slipped down Rs.61.83 crore from Rs. 511.52 crore in 2010-11. A confluence of a number of unfavorable external factors beyond its control led to the dipping of its profit. These were :
However, an income tax refund of around Rs.252 crore based on a favourable order given by the Commissioner of Income Tax in respect of claim on Refinery III profits for the assessment year 2008-09 did come as a timely relief during these financially taxing times.
Dividend & Contribution to the Exchequer
In view of the lower profits, the Board of Directors is constrained to recommend a lower dividend of Rs. 2 per share representing 20% on the paid-up share capital of your Company for the year-ended 31.03.2012. During the year, your Company paid a sum of Rs. 5784.82 crore to the exchequer.
A key thrust area for your Corporation is to invest for growth. Investments are planned for process and product quality improvement as well as for capacity scale up. During the year, your Corporation made an investment of Rs. 490.18 crore against plan projects.
Your Corporation has undertaken an Auto Fuel Quality Upgradation project at an estimated cost of Rs. 2615.69 crore in its Manali Refinery to produce MS/HSD meeting Euro-IV specifications for Chennai and Bangalore and Euro-III equivalent specifications for the rest of the locations. As a part of this project, The Diesel Hydro treater unit (DHDT) with a capacity of 1.8 MMTPA was commissioned in May 2011. The utilities and off-site facilities are at various stages of completion.
Further, during the year, your Corporation successfully commissioned a 20” interlink crude oil pipeline between Karaikkal Port and CPCL-CBR’s Chidambaranar Oil Jetty. This project will enable Cauvery Basin Refinery to receive crude oil in higher parcel sizes resulting in reduction in the transportation and handling cost of crude and the flexibility to utilize other crude oil tankers of larger sizes.
Projects under implementation
Presently, a number of projects are under implementation. Your Corporation is implementing a project to revamp the existing CDU/VDU II unit at a cost of Rs.333.99 Crore, which is expected to be completed during the second quarter of the financial year 2012-13.
Your Corporation has obtained approval for a Resid Upgradation Project at an estimated cost of Rs.3110.36 Crores in order to improve the distillate yield of the Manali refinery and to process increased level of high Sulphur bearing Crudes. This is scheduled to be completed within 33 months from the date of Environmental Clearance which is delayed due to the ban imposed on new investments in the Manali Industrial Region.
With a view to upgrade and modernize its assets, your Corporation is pursuing a project to build a new 42” Crude Oil Pipeline to replace the 43 year old existing 30”Crude Oil Pipeline from Chennai Port to Manali Refinery at a cost of Rs.126 Crore and clearance from the Coastal Regulatory Zone is awaited. In order to have better operational flexibility in Crude receipt and storage, your Company is constructing two Crude oil storage tanks of 10500 KL capacity each.
Your Corporation has conceptualized an expansion project for enhancing the capacity of Manali Refinery by installing a 6.0 MMTPA unit with matching secondary processing facilities.
Competitive Edge Drivers
Beyond physical and financial performance numbers, there are critical areas such as research & development, sustainable development, human resource development, among others which are the drivers of long term competitive edge. Your Corporation has been and is committed to nurturing these areas.
Research & Development
Your Corporation’s R&D initiatives are aimed at increasing the efficiency and reliability of processes. Its R&D Centre has carried out extensive isomerisation pilot plant studies to successfully develop a model for supporting the commercial ISOM unit. During the year, its R&D centre entered into research cooperation with Indian Institute of Petroleum (IIP), Dehradun for the development of process for low sulfur fuel oil through extraction route as an alternate to hydro treating which is expensive and complex.
Sustainable Development & Environment Management
Your Corporation is committed to sustainable business practices, which are an integral part of its business plan. The Government’s thrust on sustainable development through its Memorandum of Understanding (MoU) with the Public Sector Undertakings is providing further impetus to your Corporation's efforts.
Significant initiatives taken in the areas of environmental protection include the following:
During the year, your Corporation received the Confederation of Indian Industry's Environment Excellence Award in Water Management as a recognition to its sustained and concentrated efforts in the area of water management. It was also bestowed with the prestigious PSE Excellence Award instituted by the Department of Public Enterprises and Indian Chamber of Commerce for the year 2011 for ‘Environmental Excellence and Sustainability Development.
Your Corporation has a 17.6 MW Wind Power Plant in Tamil Nadu. During the year, 28.9 Million units of Power were generated from this Wind Power Plant.
Further, your Corporation as a part of its commitment to green energy initiatives, is solarizing its energy use by setting up of solar street lights and rooftop solar panels at its installations. Further, as a part of its CSR activity, your Corporation has implemented a unique project for providing Solar based Street Lights to the tribal population of Jawadhu Hills, in Tamil Nadu.
Safety & Occupational Health
Your Corporation is conscious of its responsibility to carry out operations without compromising on safety by adhering to best safety practices to achieve excellence. During the year, a Process Safety Manual was prepared for the first time, in line with the guidelines issued by the Oil Industry Safety Directorate. Your Corporation gives utmost thrust on achieving excellence in occupational and personal health of its employees and has state-of-the art Occupational Health Services (OHS) Centre equipped with latest diagnostic and therapeutic equipments and manned by qualified health professionals. During the year, your Corporation’s Cauvery Basin Refinery received the prestigious National Safety Award instituted by the Director General, Factory Advice Services and the Labour Institute, Ministry of Labour and Employment, Government of India.
Human Resource Development
Your Corporation firmly believes in continuously upgrading the skills and competencies of its employees with the objective of creating a leadership pipeline. During the year, training programmes aimed at enhancing both the functional competencies and behavioural competencies of the employees at all levels were organised with the best of faculties.
Corporate Social Responsibilty
Your Corporation firmly believes that Corporate Social Responsibility is one of its important functions and as a good corporate citizen it has been making contributions towards various community development activities. During the year, your Corporation spent Rs.372.65 lakhs on various CSR activities as compared to Rs. 368.51 lakhs during the previous year. The activities were mainly focusing on education, health care, sanitation, women empowerment, skills training and infrastructure development.
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 2011-12, except for the clause relating to the appointment of Independent Directors.
During the year, your Corporation was bestowed with the PSE Excellence Award instituted by the DPE& CII for the year 2011 for ‘Good Corporate Governance''.
The Board of Directors would like to place on record its deep appreciation of the valuable services and dedicated efforts of the members of the CPCL family in the Corporation’s achievements during the year 2011-12. The Board also wishes to thank the Government of India, particularly the Ministry of Petroleum & Natural Gas, the Government of Tamil Nadu, and various regulatory and statutory authorities for their valuable guidance and support. The Board is also grateful to the Corporation’s bankers, investors, customers, consultants, technology licensors, contractors and vendors for their continued support.
Thank You !!!
Jai Hind !!
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