MANAGEMENT DISCUSSION & ANALYSIS
ECONOMIC DEVELOPMENTS : SUSTAINING GROWTH, BUILDING RESILIENCE
The recent months have been extremely eventful for the global economy. While the growth prospects for advanced economies appear promising, emerging economies are expected to grow more modestly than they did in the past. The sharp decline in oil prices, a dramatic increase in the value of the dollar, a slowdown in China, uncertainty in Europe heightened by the Greece crisis, and anticipation of a shift in US monetary policy have all contributed significantly in shaping the world business landscape. The exchange rate volatility in favour of the US dollar has further aggravated the diverging performances observed in several economies.
The US economy continues to exhibit a strong growth path. The imbrssive recovery of the US job market, and increase in consumer spending and business investment have further boosted the economy.
Europe is at last stepping up, though financial instability emanating from troubles in Greece is an area of grave concern. Growth in the Eurozone is reviving primarily on account of declining oil prices, more aggressive monetary policy, and better credit market conditions. Again, like in the US, the upsurge in consumer spending is what has contributed immensely to this revival, especially in countries such as Germany, Spain, Portugal and Ireland.
Growth in China is decelerating, but the government is proactively attempting to correct the situation, mainly through easing of the monetary policy to accelerate credit expansion, though this runs the risk of further aggravating the imbalances in the Chinese economy.
As the Japanese economy emerges from recession caused by an ill timed tax increase, it is the aggressive monetary policy that has aided the country. Even though the recovery is feeble, and investment continues to decline, the increasing wages are expected to enhance consumer spending that bodes well for the overall recovery.
While the declining oil prices have proved beneficial to many countries, Russia has been badly hit. This along with the sanctions imposed by the West, has led to higher inflation levels, declining foreign currency reserves, weakening currency, deteriorating economic activity, and a increased volume of external corporate debt in the country.
Another troubled economy hit by the declining commodity prices, a weakening currency, high inflation, tight monetary policy, and a strong possibility of a new round of recession is Brazil. The Brazilian government has the onerous task of bailing out the economy through prudent fiscal measures.
The Indian economy is being looked at with great optimism by the investors mainly due to the intensive government efforts through various economic and social reforms and enhanced consumption levels. The renewed vibrancy of the Indian economy augurs well for the growth of the world's largest democracy. India will start reaping the benefits of a demographic dividend in the coming years, with more than 50% of its population below the age of 25 years and more than 65% below the age of 35 years. By 2020, the average age in India will be 29 years, much lower than other emerging economies. India's youth is fast moving into the working population and it is expected that 55% of the population will become part of the labour force by 2020. This will further be augmented by the steady increase in urban population and the radical increase in middle class households to almost 70%, together with an increase of average household income by almost 3 times over the next decade. Consumption expenditure is also expected to be 2.5 times more by 2020. India is expected to be leading the BRIC countries in terms of the rate of growth of the Gross Domestic Product (GDP) by 2017.
The most significant change of the Indian economy in recent months is the revision in the methodology of computing GDP estimates, from "GDP at Factor Cost" to "GDP at Market Prices." Further, the CPI base has also been changed from 2010 to 2012. These have resulted in higher GDP numbers, lower inflation trends, easing commodity prices and a positive economic outlook. Growth in 2014-15 is estimated to be about 7.4%, with a 17% share of the manufacturing sector, 30% share of the mining sector and 51% share of the service sector. Further, the Reserve Bank of India (RBI) expects the inflation (Consumer Price Index) to hover around 5.5%, and remain within 6% in the coming months.
RBI tightened the monetary policy during the past year to ensure demand brssures are contained. This also helped keep the volatility of the rupee under check, thus ensuring that inflation was controlled. Once inflationary brssures eased, the repo rates were reduced by 25 basis points to 7.75% in January 2015, followed by a decrease in statutory liquidity ratio by 50 basis points to 21.5%. Thus, while the Indian economy experienced a firm monetary policy for most part of the year, in the last quarter, RBI relaxed the same to maintain equilibrium.
Economic indicators such as fiscal deficit and current account deficit reflect a robust recovery in the performance of the Indian economy. The fiscal deficit is estimated to be around 4% of GDP in 2014-15, primarily due to a sharp fall in crude prices that have reduced the Government's subsidy burden. In addition, the increase in the rates of excise duty on petroleum products like Motor Spirit (MS) and High Speed Diesel (HSD) has increased Government revenue. The current account deficit is also expected to be lower at around 1.5% of GDP the lowest since 2007-08.
The Indian rupee performed extremely well in 2014-15. While it was one of the worst performing currencies in 2013-14, it bounced back remarkably in 2014-15. The USD gained substantially against most global currencies; however, the INR declined only 4.3% against the Dollar.
Improved economic sentiments helped the Indian stock market outperform most global markets. A stable government, strong policy initiatives, coupled with increased global liquidity were the principal reasons for increase in capital inflows that led to a sharp increase in the Sensex by approximately 40% in the past year with the index crossing the 29,000 level for the first time in January 2015.
However, there are still some concerns that need to be addressed. Domestic demand still remains weak, even though growth in private consumption and government expenditure supported it to some extent. The poor performance of the manufacturing sector, disappointing export growth, pace and quality of fiscal consolidation, low tax collection growth and slow pace of disinvestment have further aggravated the economic situation and need to be dealt with on priority.
TRENDS IN THE OIL & GAS SECTOR
While the global energy mix is constantly evolving, oil continues to be the largest source of energy, with 36% of global energy consumption being met by oil. Over the past two decades, this proportion has been more or less constant, even though the global energy consumption has grown by 50% in some time pockets during this period.
In the recent past, certain events have affected both the demand and supply side of the energy equation. Some of these include lower demand growth in the developed countries, increase in shale gas production in the USA, the Fukushima Daiichi accident in Japan, social and political unrest in traditional oil producing nations, sanctions against Iran and the exponential growth in renewable energy in Europe and Asia.
These developments have had a major bearing on the crude oil prices. From their peak in June 2014, crude oil prices plummeted to their six year lows in January 2015. The benchmark Brent fell from USD 115.32 per barrel to USD 45.22 per barrel while Dubai crude fell from a high of USD 111.16 per barrel to its lowest at USD 42.05 per barrel in January 2015. This fall of 61% over a 7 month period has been the steepest since December 2008 when it had touched a level of USD 41.58 per barrel. The single largest fall was recorded on 27th November 2014, when Brent fell by almost 7% (USD6.79 per barrel).
The Brent-Dubai differential, although positive in favour of Brent for most part of the year, did witness Dubai crude exceeding Brent on a number of days. This differential was the largest in May 2014, when Brent at USD 111.24 per barrel exceeded Dubai crude at USD 105.65 per barrel by USD 5.49 per barrel. However, by August 2014, the difference narrowed in favor of Dubai crude, with Brent at USD 100.445 per barrel and Dubai crude at USD 102.6 per barrel. On an average, the Brent-Dubai differential hovered around USD 1.90 per barrel during 2014-15, lower than the average differential of USD 3 per barrel during 2013-14.
The decline in crude oil prices, though sudden, had its seeds sown over a period of time and can be attributed to a series of events. For a major part of the last decade, oil prices have been high, primarily due to soaring oil consumption in countries such as China, conflicts in key oil producing nations such as Iraq, and slow progress in the field of unconventional energy. But these high prices spurred countries to evaluate alternative options and investments in shale formations in North America. This led to a boom in "unconventional" oil production. The United States of America (USA) alone has added 4 million extra barrels of crude oil per day to the global market since 2008, as against global crude oil production of about 89 million
barrels per day (mbd). To some extent, the situation was balanced with civil war in Libya, US and European Union sanctions on Iran and unrest in Iraq, that took more than 3 mbd off the market. However, weakening oil consumption in Europe and China, enhanced fuel efficiencies in vehicles across the world and declining fuel subsidies in major economies like Indonesia and Iran are some of the reasons that have caused the demand to fall drastically. This has been further aggravated by non-cooperation amongst members of the Organisation of Petroleum Exporting Countries (OPEC), that controls 40% of the world's oil supply, to curb production to reduce supplies and thus, maintain crude oil prices. This also resulted in a price war between conventional oil and shale gas, especially since USA shale projects become vulnerable when oil dips below USD 60 per barrel .
The product prices reflected a similar trend as crude oil. While the correlation of petrol prices with respect to crude oil was almost 99%, that of jet kero and diesel was more than 99.5%.
Though crude oil prices fell sharply by 62% from their peak, the fall in product prices was moderated across countries by increased taxes and duties imposed by governments, and reduction in fuel subsidies to recover the large amounts of inventory losses that oil companies had to incur. Petrol prices dropped by 60% from their peak, while jet kero and diesel prices fell by 52%.
Product cracks have been extremely volatile during 2014-15. MS cracks moved from a low of USD 5.22 per barrel in August 2014 to USD 17.16 per barrel in March 2015 and further to USD 21.93 per barrel in June 2015, registering a 229% and 320% leap respectively. In comparison, jet kero cracks increased by 94% from its low of USD 11.23 per barrel in June 2014 to USD 21.83 per barrel in November 2014. Interestingly, High Speed Diesel (HSD) cracks declined from their peak of USD 18.81 per barrel in April 2014 to USD 11.98 per barrel in July 2015. The average cracks for MS hovered around USD 11.50 per barrel during 2014-15, while that of jet-kero and HSD were in the region of USD 15.50 per barrel.
Back home in India, the impact of the slump in crude oil prices was intense. Refining margins fell sharply to less than USD 4 per barrel and the oil companies together had to incur an inventory loss of approximately Rs. 30,000 crores.
Another important development in the Indian Oil and Gas sector during the year 2014-15 was the decision of the Government to deregulate the retail selling prices of HSD. This will lead to entry of private players in the retail marketing segment of the industry. Though the entry of the private players has reduced the growth and market share of the Public Sector oil companies, the complete impact of the opening up of the market is yet to play out.
One more significant measure taken by the Government of India during the year was the complete roll out of the DBTL (Direct Benefit Transfer for LPG) Scheme. The DBTL scheme that was earlier launched in June 2013 had to be withdrawn, due to certain impediments faced by the consumers. Rechristened as PAHAL (Pratyaksha Hanstantarit Labh), the scheme was reintroduced in November 2014. Together with the State machinery and the Banking sector, the public sector Oil Marketing Companies revolutionized the distribution of LPG subsidy in the country, making it the single largest cash transfer program in the world.
INDIAN PETROLEUM SECTOR
Complete decontrol of Diesel marketing, excise duty hike by the Government of India on petrol & diesel, LPG subsidy disbursal under PAHAL, a new pricing formula for domestic gas after five years and a plunge in global crude prices flagged off a new beginning for the country's oil economy in the financial year 2014-15.
The Indian economy was at a critical stage of development during 2014-15 and there are signs of an increase in the rate of growth in consumption of petroleum products. Keeping pace with the economic growth trend, the consumption of petroleum products in India has grown by 4.2% during 2014-15. India consumed 165 million metric tonnes (MMT) of petroleum products in 2014-15, as against 158 MMT consumed in the last fiscal.
The sharp fall in the international oil prices came as a relief for the Indian economy and consumers, which resulted in lower levels of inflation, higher consumption and decrease in the cost of production of final goods, particularly for energy intensive industries, thereby driving demand growth.
MS and HSD consumption is linked directly to automobile sales. Despite high fuel and interest costs, automobile manufacturers closed 2014-15 on a positive note with vehicle sales reporting growth of almost 9% during the fiscal year ended 31st March, 2015. The Government of India decided to deregulate the diesel prices in the middle of October 2014 and the decision was made when the global oil prices were falling significantly. The decline in oil prices and the deregulation of HSD gave Oil Marketing Companies (OMCs) an opportunity to pass on the benefit to consumers through reduction in prices of automotive fuels, which has also partially fuelled the consumption in 2014-15. MS consumption has continued to grow, clocking a robust growth of 9.2% as against 8.8% during 2013-14. Light commercial vehicle sales continued to be in the slow lane, but the gradual improvement in sales of medium and heavy commercial vehicles has propelled HSD consumption during the year. After recording a muted growth of -1% in 2013-14, HSD consumption bounced back to 69.4 MMT recording a 1.5% growth over the brvious year.
PAHAL, the new avatar of the DBTL scheme was launched on 15th November 2014 in 54 districts and in the rest of the country on 1st January 2015. In very coordinated efforts, led by the Ministry of Petroleum & Natural Gas (MOP&NG), the OMCs have been able to bring almost 85% of the customer population under PAHAL. These consumers will have the subsidy on their purchase of Domestic LPG cylinders directly transferred into their bank account, as per their entitlement in terms of the eligible number of subsidized cylinders. The recent reforms in LPG, like weeding out multiple connections, launch of PAHAL, and capping of cylinders have ensured that the consumption of subsidised LPG is contained. Despite all these mitigation measures, LPG consumption recorded a double digit growth of over 10% during 2014-15, up from 4.7% growth in 2013-14. The growth in LPG consumption is attributed to a quantum jump in sale of commercial LPG i.e. consumption of cylinders sold at the market price, new connection releases by penetrating into the rural segment and improvement in industrial activity, resulting in consumption of bulk LPG.
The Indian aviation industry maintained an upbeat sentiment despite over capacities, intense competition, high input costs and regulatory limitations, which have challenged the viability of the aviation value chain in the recent past. India's aviation market picked up speed during the financial year with domestic traffic up 13.9% year-on-year and international traffic up 9.0%. Aviation fuel consumption grew higher than expected, as airlines were able to reduce fares as a result of the steep decline in oil prices.
Though the government is making efforts to switch to concrete and other new materials for road construction, bitumen consumption during 2014-15 has remained strong. For highways especially, construction continues to be largely reliant on bitumen. Indian refiners maintained a steady production of 47 MMT of bitumen; however, the import of bitumen doubled from 2.3 MMT to 4.7 MMT during the year. A sharp increase in bitumen imports is a sign that construction in road projects which were stuck earlier is finally taking off and the signals indicate robust growth in the year 2015-16 also. Petcoke consumption registered a growth of 15% yet again in 2014-15. The country is witnessing this high growth due to increased availability after the commissioning of the Resid project in Gujarat, production at the new refineries at Bina and Bhatinda, and also due to increased imports because of large scale exports from USA. Robust consumption of automotive and cooking fuels have resulted in increased growth in consumption of petroleum products, despite negative trends observed in furnace oil, naphtha and kerosene consumption.
Crude oil prices were largely range bound in the last few years. In June 2014, ICE Brent, marker for light & sweet crude oil, reached a maximum level of USD 115.06 per barrel and fell sharply to the lowest level of USD 46.59 per barrel in mid-January 2015, averaging USD 86.57 per barrel during the year 2014-15. Dubai crude also witnessed similar price movement, reaching its minimum level of USD 42.05 per barrel in January 2015 from a maximum level of USD 111.16 per barrel in June 2014, with an average of USD 83.77 per barrel for the year 2014-15. At the end of the first quarter, there were multiple factors that pushed global crude oil prices higher, including the insurgency in Iraq, the Islamic State of Iraq and Syria (ISIS) threat to oil supplies, the Iran nuclear issue and the Ukraine conflict involving Russia. However, on the other side of the spectrum, the market was witnessing tremendous supply growth from tight oil from USA and other non-OPEC producers. Oil demand suddenly began to weaken due to slowdown in China, Brazil, Russia and core Europe. More broadly, oil demand began flattening in several places around the world. Thus, a combination of weaker-than-expected demand and steadily rising supply caused oil prices to drop sharply as global inventories grew by 1.1 mbpd in 2014. In the November 2014 meeting, OPEC surprised the market by changing its strategy to focus on market share globally, by keeping the output steady at 30 mbpd, with a view that fall in prices would spur demand in key consuming nations and would also act as a trigger to make the shale oil producers in US unprofitable. Thus, market forces would balance the supply - demand gap.
Dated Brent-Dubai differential widened to the maximum extent when the prices of Brent crude and Dubai crude were at the highest level during May-June 2014, due to supply disruptions in Libya and insurgency in Iraq. On an average, the Dated Brent-Dubai differential remained USD at 1.90 per barrel with a maximum of USD 5.49 per barrel and minimum of USD 2.16 per barrel.
Product markets showed a good performance during the year 2014-15. Product cracks were under brssure at the start of the year. However, with the fall in crude oil prices, product cracks and refining margins improved substantially. Light distillates remained very volatile during the year. The market followed a seasonal pattern for naphtha while gasoline witnessed spikes due to strong transportation demand and pass through of fall in prices to end consumers. Middle distillates cracks, especially Gasoil remained capped due to substantial refining capacity addition in the Asia Pacific and Middle East regions. Improvement in light and middle distillate cracks in the latter half of the year allowed refinery margins to increase globally, despite weaker fuel oil, which was hit by lacklustre demand in the bunker sector worldwide.
Crude oil prices play a very significant role in the economy of any country. India's growth story hovers around the import of oil, as 70% of its crude requirements are imported. Any negative change in the crude oil price has an immediate impact on the growth in GDP and Index of Industrial Production (IIP). The sharp fall in global crude oil prices has cut down the country's import bill and enabled oil marketing companies to reduce the retail prices of petrol and diesel. Lower oil prices have also aided government's efforts to keep inflation low and stable, besides curtailing fuel subsidies.
Based on the provisional data released by Petroleum Planning and Analysis Cell (PPAC), the total quantum of crude oil imported into the country and domestic production remained firm during the year 2014-15.
Imports stood at 189.43 MMT, which was a marginal increase over the level of 189.20 MMT imported in 2013-14. The sharp decline in the international crude oil prices has reduced the import bill from USD 143 billion to USD 112.7 billion, which is a drop of almost 21%. During the year under review, Indian refiners processed 223.3 MMT of crude oil, which continues to remain higher than the requirements of the local demand. Due to dipping crude oil prices, the exports of crude and petroleum products, that contribute around 19% of India's exports, have also gone down in value by 22.4% and quantity by 6%. The growth in LPG consumption had to be met with imports resulting in a 22% increase in quantity of imports, even though the value of imports is lower on account of a sharp decline in international prices.
There has been considerable increase in refining capacity in the country over the years, although during the last 3 years, there has been no capacity expansion. The refining capacity stood at 215 MMTPA as on 31st March, 2015. Planned shutdowns and absence of new capacity additions led to slower growth in throughput. The commissioning of a 15 MMTPA refinery at Paradip in Orissa in 2015-16 will add substantially to the country's overall refining capacity.
The sharp decline in international prices of oil and some other commodities have put the Indian economic storyline in a sweet spot. The decline in oil prices has been reflected in the domestic prices of oil products, which coupled with favourable food prices, resulted in rapid deceleration of inflation. The reduction in oil prices has given the country an opportunity to rationalize energy prices and reduce the fiscal burden of subsidies. Driven by a strong expansion in India, coupled with favourable oil prices, economic growth in South Asia is expected to accelerate.
In tandem with the steady increase in international oil prices, the OMCs' under-recoveries had also been rising till 2012-13. Controlled deregulation of diesel in 2013-14 accounted for a reduction in the under-recovery bill for the OMCs. However, complete deregulation of diesel from October 2014 and capping of 12 subsidised cooking gas cylinders per year per household has resulted in a substantial reduction in under-recoveries by almost 48%.
Poised to strengthen the foundations to take India to the next growth trajectory, the Government of India is looking at invigorating the economy with measures which will attract investors in various sectors which can in turn propel industrial growth. India's economic growth is closely linked to the growth in energy demand. The need for oil and gas is therefore projected to grow further, providing vast opportunities for investment (permitting 100% foreign direct investments in infrastructure segments such as pipelines and refineries) thereby supporting the growth oriented road map of the Government. The fairly stable international prices and deregulated environment could keep the subsidy bill lower than in the brceding year. However, any geo-political supply risk could trigger spiralling of crude oil prices. The times ahead are pointing towards significant growth opportunities, while posing challenges for the oil companies to deal with.
OPPORTUNITIES AND THREATS
The oil industry, which plays a key role in energy security for the country, remains responsive to the changing business environments both in India and abroad. As the country is poised for double digit growth, the oil companies are gearing up to meet the emerging challenges.
Deregulation of prices of auto fuels will bring about greater competition with the entry of the private players. The public sector oil marketing companies will need to gear up to face the higher levels of competition while providing customers the best of service and convenience. With the retail selling prices being deregulated, consumers have been able to reap the benefit of the declining trend of crude oil prices in the international market. The price of the Indian basket of crude oil glided down the proverbial 3 digit level in September 2014 to USD 96.96 per barrel. The prices of the Indian basket of crude oil hovered around USD 84.14 per barrel during 2014-15 as against the level of USD 105.52 per barrel in the brvious year. The first quarter of 2015-16 saw the prices sliding down to USD 61.54 per barrel on a monthly average basis. The oil marketing companies have successively passed on this benefit of low crude oil prices to the customer, forcing them to look at their operating costs very closely in order to sustain profitability.
The demand projections for petroleum products during the 13th Plan period brpared by PPAC indicate robust growth across all geographies. The supply-demand evolution of petroleum products in the country is brsenting an opportunity for capacity additions in the refineries.
During 2014-15, the oil companies successfully completed the process of enrolling LPG customers into the DBTL Scheme. This has enabled LPG customers to get their subsidies directly in their bank account. The Government of India has reportedly saved Rs. 10,000 crores during January to June 2015, on account of lower subsidy due to introduction of DBTL.
Subsidized LPG is available to consumers up to 12 cylinders a year. The 'Give it Up' appeal of the Government has struck a resounding chord amongst consumers with almost 15 lakh customers voluntarily opting to give up their subsidy. With more such volunteering, it is expected that the subsidy burden may reduce from its brvious year level of Rs. 36,580 crores. As LPG consumption in the country in the domestic segment continues to grow at 7% per annum, imports of LPG are increasing. The oil companies are required to make adequate infrastructure arrangements to handle the increased import volumes.
As selling prices of both petrol and diesel are now market-driven, there will be an increased brsence of private entities in the retail marketing sector. As long as the retail selling prices were controlled, the private players had maintained a marginal brsence, as they were not entitled to subsidies. This constraint is no longer a limiting factor. However, even though both petrol and diesel have now been decontrolled, private companies have been cautious in their re-entry so far.
Natural Gas, as a clean fuel, has potential to replace liquid and solid fuels in the country and compares favourably on economics and ease of use with a wide range of applications in power generation, fertilizer/ petrochemical feedstock, transportation fuel to industrial fuel in burners, etc. Natural Gas is also imported as LNG in the country to bridge the demand-supply gap. There is an increased focus on usage of clean and green fuels and BPCL continues to explore all available opportunities to expand its brsence in the business.
Engineering technology has improved significantly in the past few years, with a corresponding impact on the improvement of lubricant quality. Improving engine and lubricant technology has resulted in a decline in the lube to fuel ratio. As the industry in general is focused on lowering the cost of production, BPCL is looking at developing lubricants that provide energy efficiency benefits and lower costs.
The Government of India has set an ambitious target of generating 1,75,000 Megawatts (MW) of renewable energy by 2022. This consists of 1,00,000 MW of solar power, 60,000 MW of wind power, 10,000 MW of energy from biomass and 5,000 MW from small hydroelectric projects. These are welcome developments from the point of view of a green and clean environment and less dependence on oil and gas. These projects would provide opportunities for oil and gas companies to get into the larger domain of the energy business and provides scope for diversification into low carbon footprint areas.
Commissioning of strategic petroleum reserves in the east coast of India has helped transform a long-standing dream of India's quest for energy security into reality. Oil stocks are being built up at a time when oil prices are at historical low levels. However, maintaining the stock and sharing the cost amongst the oil companies remains an area of challenge.
There has been increasing demand for crude oil and petroleum products in India. The energy demand is expected to grow along with the growth of the economy. In view of discoveries and Participating Interest (PI) in various blocks, Bharat PetroResources Limited (BPRL) will have significant opportunities for growth in India. Several geographies like Mexico, which have rich hydrocarbon reserves, are opening up. This will provide more opportunities for growth.
Increasing competition, change in Government policies, crude oil price volatility, macro economic conditions, exchange rate fluctuations, delay in obtaining regulatory approvals from Government etc. are some of the other threats that BPRL is expected to encounter. BPRL could also be vulnerable to the changing health of the big operators in some of the consortia.
BPRL has made investments in various blocks in India and abroad, in consortium with world renowned companies like Petrobras, Anadarko, British Petroleum, ONGC, Mitsui, Maersk etc. Most of the blocks are in an advanced stage of exploration. Presently, BPRL is moving towards appraisal and development to realize early monetization. Owing to entry into the blocks at low cost in exploration stages, BPRL is better placed to address the uncertainties of crude oil prices and market fluctuations.
RISKS, CONCERNS & OUTLOOK
2014-15 has been an eventful year for India. The recovery in growth, controlled levels of inflation, reduction in interest rates, easing monetary policy, and a general economic well-being have provided an immense boost to India's performance. Further, the Indian rupee has been able to withstand the brssures of the fluctuations in the market and has emerged as one of the strongest currencies against the US dollar.
While the outlook for India and the Indian petroleum industry is expected to be positive, there are certain risks and concerns that need to be acknowledged and incorporated in our contingency plans.
The crude oil price volatility that the world witnessed during 2014-15 has been felt in India too. India being a large importer of crude oil, the decline in prices since June 2014 has been a favourable external shock. Crude oil prices impact economic activity in several ways. For India, it could mean higher real incomes for consumers, lower input cost boosting corporate profitability, lower current account deficit, lower subsidy burden and overall improved market sentiment. However, for an oil and refining company, it also signifies tremendous inventory losses. A falling trend in crude oil prices, without a commensurate increase in demand, would adversely affect the profitability of oil companies. BPCL has suffered a loss of approximately
Rs. 3,000 crores in 2014-15 due to the sharp fall in crude oil prices during the year. Further, the returns on upstream investments planned, based on higher crude oil prices, will also need to be reviewed.
In the coming years, BPCL hopes to invest heavily in infrastructure related projects with the spends likely to be much in excess of amounts spent in the past few years. This is expected to take the Company to a higher growth path. Arranging for the requisite funds at an optimum cost is a challenge that the Company will have to deal with. This will further be augmented by the need to ensure timely completion of projects within budgeted costs. Any cost or time overruns may prove to be detrimental to the interests of the Company.
Deregulation of diesel has had its implications on the market share of the existing players. Though the private entities are still to gain a substantial market share, it is imperative to recognize their brsence and frame plans accordingly. Aggressive marketing strategies, uninterrupted product security, robust logistics plans and competitive pricing will be the key ingredients for competing at the marketplace.
India being an LPG deficit nation, imports of LPG are now on the rise. BPCL imports more than 40% of LPG volumes. With a substantial increase in new connections and double bottle connections, the requirement of LPG is increasing. Further, the government has propagated universal accessibility of clean cooking fuel, implying at least 85% penetration of LPG in the country, with special emphasis on the eastern and north-eastern regions. This will have a direct impact on the LPG volumes imported. There is great concern on the availability of LPG in the right quantity, of the right quality, at the right time and at the right price to ensure uninterrupted supplies in the marketplace.
Safety continues to be high on our radar. Owing to the hazardous nature of petroleum products, safety in operations, storage, logistics and delivery is of utmost significance. While this is one area where any amount of brparation may prove to be insufficient, continuous focus to incorporate safety in the DNA of the organization is extremely crucial. BPCL is proactively engaged in building a combrhensive safety management framework that will include safety in all aspects and all levels of BPCL as a core business value, to meet stakeholder expectations and integrate best practices in the oil and gas sector.
The Oil PSUs continue to receive the under-recovery compensation within the stipulated timelines. Conscious steps are being taken to enhance the infrastructure issues being faced today, with heavy investments in refining and marketing infrastructure. Crude oil and LPG imports are carefully planned to ensure timely receipts of parcels with minimal disruptions to production and marketing. The safety drive undertaken by the Company focuses on "Safety First and Safety Must." Aware of the multifarious challenges of a dynamic environment, BPCL is getting future ready and has implemented a slew of initiatives to continue on its growth trajectory. These steps will help mitigate the risks and concerns that have been enumerated above.
The performance of the various Strategic Business Units (SBUs) and Entities is discussed in detail in the following paras.
During the year 2014-15, the crude throughput at BPCL's refineries at Mumbai and Kochi was 23.36 MMT as compared to the level of 23.35 MMT registered in 2013-14. The refineries achieved a capacity utilisation of 108.6% in the year 2014-15.
Mumbai Refinery has achieved total throughput of 12.96 MMT of feedstock (crude oil and other feedstocks) during the year 2014-15, as against 13.03 MMT achieved in 2013-14. The reduction in crude throughput was due to higher captive production of Reformate, which had been hitherto imported to meet MS demand during 2013-14. During the year 2014-15, the refinery's capacity utilization was at 108%.
Kochi Refinery has achieved the highest ever crude throughput of 10.40 MMT in 2014-15, surpassing the brvious best of 10.32 MMT in 2013-14, reflecting an increased capacity utilization of 109.5% in FY 2014-15.
During the year, Mumbai Refinery achieved its highest ever production of MS (1910.2 Thousand Metric Tonnes (TMT)), HSD (5750.3 TMT) and Lube Base Oils (245.9 TMT). Mumbai Refinery has once again demonstrated its ability to meet the demand for MS & HSD complying with Euro-IV quality norms. During the year, Kochi Refinery recorded its best ever production of LPG (525.9 TMT), Propylene (28.8 TMT), Euro-III MS (1579.4 TMT), Euro-III HSD (4828.7 TMT) and Euro-IV HSD (382.1 TMT).
Mumbai Refinery's Gross Refining Margin (GRM) for the year stood atUSD 3.97 perbarrel as compared to USD 3.95 perbarrel realized in 2013-14. The overall gross margin forthe refinery in 2014-15 amounted to Rs. 2,363 crores as compared to Rs. 2,340 crores in 2013-14. The higher GRM in Mumbai Refinery for the year 2014-15 is attributable to higher distillate yield and better product mix, pursuant to commissioning of the Continuous Catalytic Regeneration (CCR) Reformer Unit and reduction in octroi incurrence, partially offset by the impact of the crude-product price volatility.
Kochi Refinery's GRM for the year stood at USD 3.17 per barrel, as compared to USD 4.80 per barrel realized in 2013-14. The overall gross margin for the refinery in 2014-15 amounted to Rs. 1,514 crores, as compared to Rs. 2,249 crores in 2013-14. The major reasons for a lower GRM during 2014-15 are lower product cracks and higher inventory valuation loss.
During the year 2014-15, Mumbai Refinery took several initiatives like consistent running of the Hydrocracker and CCR Units at higher intake levels for maximization of MS & HSD, implementation of Advanced Process Control (APC) in process units, efficient hydrogen management, optimized crude blends for maximum distillate yield, reduction in Naphtha production, implementation of energy saving schemes etc. that have helped to achieve better refining margins and improved distillate yield. The major achievements during 2014-15 include the highest ever production of transportation fuel (MS, HSD & ATF) viz.65.4% on throughput against 59.6% in FY 2013-14, highest ever distillate yield of 81.8%, maximum absorption of Naphtha in MS & HSD, leading to reduction in Naphtha production and commissioning of the Mumbai-Uran pipeline for transfer of LPG.
During the year, Kochi Refinery had taken several improvement initiatives like maximum capacity utilization of all process units, installing a process and energy efficient divided wall column in the CCR unit, using RLNG in the Hydrogen plant as feed, implementation of APC in the VGO HDS unit, optimizing the crude mix for distillate yield and various energy saving schemes. These initiatives have resulted in the highest crude throughput, maximum distillate yield and lowest fuel and loss as per current configuration of the refinery. Kochi Refinery has recorded the highest ever production of transportation fuels viz. 71.9% on throughput against 66.2% in FY 2013-14 and lowest Naphtha production of 4.8% on crude charge.
Mumbai Refinery laboratory continued to perform well in the international laboratory proficiency testing scheme run by Shell Global with a 97.5% rating. The refinery also received an excellent rating for achieving all targets related to safety. The refinery completed 15 million man-hours without Lost Time Accident (LTA) on 30th March 2015 for the first time in its history. Two process technicians received Oil Industry Safety Directorate (OISD) awards in the individual category for noteworthy contribution for promoting safety by brvention of untoward incidents in the refinery. Kochi Refinery has also met all the Safety targets in 2014-15 and has also achieved 39 million man-hours without LTA on 31st March 2015.
Mumbai Refinery has taken various energy conservation measures like improvement in effectiveness of insulation of steam headers, increased captive power generation by an innovative upgradation, incorporation of Advanced Process Control Logic in furnace operations and anti-fouling chemical injection in crude side of br-heat exchanger trains.
During the year 2014-15, energy conservation initiatives undertaken in Kochi Refinery include installing a fan less cooling tower in the CPP-2 area, impeller trimming of pumps in the FCCU unit, rationalization of steam headers, reducing steam header brssure and optimization of pumps by studying process requirements. This has helped the refinery in efficient use of available energy sources and also to achieve the lowest fuel and loss for the year in the current configuration.
On the environmental conservation front, more usage of RLNG by replacing liquid fuels helped in reduction of CO2 and SO2 emissions and usage of more treated water in cooling towers reduced fresh raw water consumption in the refinery. Another 1200 sq.m. area has been identified and will be covered for rainwater harvesting by the year 2015-16.
The major highlights of various environment conservation activities undertaken during the year 2014-15 include signing of an MOU with M/s. Rashtriya Chemicals & Fertilizers Ltd. for setting up a joint Sewage Treatment Plant (STP) to produce 15 million litres per day (MLD) of treated water; commissioning of a rainwater harvesting facility in the Refinery Sports Club (an area of 25,000 sq.m. was covered for harvesting ground water runoff); four acres green belt development in APMC, Vashi with unique collaboration between BPCL & APMC; commissioning of a 40 KVA Solar Power plant in the refinery and sewage treatment facility of 250 KLs per day in the refinery for water conservation.
In Kochi, the various activities undertaken towards environment protection include planting of 12,000 trees under the program, "20,000 trees for Mother Nature" which was started on World Environment Day; roadside beautification by planting palm trees, awareness classes, quiz competitions and seminars for students through KR Encon clubs and display of environment messages all over the refinery.
Mumbai Refinery organized several learning and development initiatives based on individual, functional and organizational needs viz. strategy workshops, functional programs, Management Development programs, people management skills, and on-the-job training. Mumbai Refinery has won a contract from M/s. ORPIC (Oman Oil
Refineries and Petroleum Industries Company, UAE) for imparting training to their staff on refinery operations.
The BPCL group ultimately aspires to reach a refining capacity of 1 Million Barrels Per Day in the next four to five years. BPCL also has ambitions of venturing into the Petrochemical sector. While this will call for a huge quantum of investments, BPCL is focused on meeting the challenging targets, which in turn will help in satisfying the growing energy needs of the country.
The accolades that were conferred on Mumbai Refinery during the year 2014-15 include the highest level of Ramkrrishna Bajaj National Quality Award (Manufacturing) 2014 organized by Indian Merchants' Chambers (RBNQA) - BPCL is the first PSU to win this award; the ICC Award for Excellence in Energy Conservation and Energy Management - 2013 and the 'CII (WR) SHE Excellence Award 2013-14 in the Manufacturing Sector' organized by Confederation of Indian Industry (Western Region).
During the year, Kochi Refinery received the Safety Award instituted by the Factories & Boilers Dept., Government of Kerala for Outstanding Performance in Industrial Safety among very large factories for the year 2014; Excellence Award 2014 from Kerala State Pollution Control Board (KSPCB) among very large industries for making substantial and sustained efforts towards pollution control. This is the eighth time in a row Kochi Refinery is getting recognized by KSPCB for its pollution control efforts; Third prize in Refinery Energy Performance awards instituted by Centre for High Technology (CHT), for Furnace/Boiler Insulation effectiveness; the Kerala State Energy Conservation Award 2014 in the category of large scale energy consumers from the Department of Power, Government of Kerala; BPCL Chairman's Award in the Creative Stroke category of Ideas 2014 for successful modification of the Gasoline Splitter Unit to the Naphtha Splitter Unit, thereby increasing MS and HSD production and reduction in low value Naphtha production; Corporate Excellence Award for Green Initiatives by the Kerala Management Association for environment management efforts during 2014.
Social welfare and development has been at the core of BPCL's Mumbai Refinery Corporate Social Responsibility (CSR) philosophy. The Refinery is taking all efforts to bring about qualitative changes in the lives of the surrounding community through well planned and coordinated CSR initiatives. Such programs include assistance in education, vocational guidance courses and medical services at Mahul, Karjat and Washala villages near Mumbai. In its continuous endeavour to ensure quality education, programs such as scholarships and assistance to poor students, extending capability exploration and enhancement programs for
talented poor children were undertaken. Other CSR activities undertaken were providing Group Mediclaim Policy to 87 fishermen from Mahul village, vocational training like 'Liquid Soap & Phenyl making' and a 'Cookery class' for Self Help Groups formed by BPCL in Mahul village.
During the year, a number of major community programmes were initiated by Kochi Refinery in the neighbouring areas. The refinery has enhanced various infrastructure facilities to the benefit of the community by renovating Anganvadis and maintaining roads in rural areas. Two Primary Health Centres were renovated for the poor in the neighbouring Panchayats and medical camps were conducted in the vicinity. Language labs were set up in the neighbouring schools for encouraging rural students to learn English and Hindi. In a move to lay emphasis on skill development, Kochi Refinery is providing vocational skills for 1000 unemployed youth in Kochi through M/s. ITCOT Consultancy and Services Ltd. A Home Based Rehabilitation Programme for rehabilitation of children afflicted with cerebral palsy, autism etc. in eleven Panchayats nearby, is being run by the NGO, Adarsh with the support of the refinery.
The year 2014-15 witnessed an important change in the retail segment dealing with the marketing of auto fuels, when the Government of India deregulated the retail selling prices of diesel. This development happened nearly four years after the retail selling prices of petrol were deregulated. Prices for both diesel and petrol are now directly linked with the prices in the international market. Under-recovery on account of selling diesel at regulated prices, which accounted for about 45% of the total subsidy burden in 2013-14 has thus got eliminated, thereby reducing the burden on the oil companies. With the private players expected to enter in a big way, there is now an enhanced focus on customer service standards.
The Retail SBU continued to deliver superior performance and achieved the highest sales growth amongst the public sector oil companies, during the year. The total market sales for the business reached 24.09 MMT, which rebrsented a growth of 2% over last year. The sales volume of MS at 5.34 MMT in 2014-15 was 11.1% higher than the level of 4.8 MMT achieved last year. HSD sales volume in 2014-15 stood at 17.4 MMT, as against 17.46 MMT last year, reflecting a negative growth of 0.4%. In the alternate fuels segment, BPCL recorded a growth of 7.22% on the sale of Combrssed Natural Gas (CNG) and the sales volumes for the year stood at 294 TMT. Auto LPG recorded a sales volume of 43 TMT.
BPCL delivers superior service standards through a robust network of 12,864 retail outlets. To enhance market penetration, 695 retail outlets were added during the year. BPCLs network has a distinct format of retail outlets with unique services and technology, designed to make them relevant for the diverse needs of the customers visiting them.
'Pure for Sure' has been our commitment to our customer on right quality and quantity. BPCL has 5,700 outlets which offer 'Pure for Sure' service standards. Almost 75% of the total volume sold by the BPCL network is through PFS certified outlets where service standards have been elevated to 'Pure for Sure Platinum,' and retail outlets make available fully computerized offerings monitored through CCTV. The PFS Platinum network has reached 600, assuring the promise of purity, service and enablement through technology.
There are 112 Company Owned and Company Controlled (COCO) outlets, where the customer experiences a wide array of services like Q&Q of product, service standards of 'Pure for Sure Platinum', branded fuel, 'Speed,' free air, clean toilets, assured bills, cashless and secured transactions for credit and debit cards and additional reward points on fuel purchase for Loyalty Program members.
The signature brand of outlets for highways, the One Stop Trucker Shops (OSTSs), strategically positioned on major highways, give transporters and their drivers an experience of 'a home away from home.' These outlets, in addition to services of COCO, offer SmartFleet services, a customer care centre, truckers' air gauge and greasing facility, driver rest rooms and secured parking.
The Company has been able to create a differentiation by upgrading various forecourt service initiatives to the next level by leveraging technology and automation. BPCL has garnered customer confidence through assurance of quality and quantity and payment integration with fueling delivered through automation. These efforts have helped in building customer trust, customer identification and acquisition, good governance, better asset utilization, inventory management, effective outlet management and overall creating a competitive advantage.
BPCL has 5,657 Automated Retail Outlets with a facility to monitor the outlet brmises remotely and track them to identify product stocks in real time, reflect price changes quickly and ensure better and efficient utilization of assets. BPCL has gone a step forward and now offers registered customers an experience of getting SMS confirmations on fuelling transactions. All our Multi Pump Dispensers (MPDs), display real time retail selling prices, and No Print No Delivery where the delivery of fuel does not happen without the bill being issued to the end customer. Reinforcing its trust through technology amongst customers, BPCL generated e-bills through SMSs sent to 15 lakh registered customers during the year.
The BPCL First initiative was successfully rolled out across 64 Cities with inter SBU customer centric events in various markets. As a part of this initiative, enterprise level offerings are communicated to the customer and city level events are conducted to create a customer connect with the retail outlets. 'SmartLine', a 24x7 Customer Care Service is also a part of this program for creating a platform for closer customer interaction.
BPCL has been managing and fostering customer relations to address the changing business dynamics and customer expectations through its relationship programs viz. PetroBonus and SmartFleet. These programs have now been operative for over 15 years and have played an important role in the relationship space, addressing the need of cashless secured transactions and offering loyalty points which can be exchanged for exciting rewards. Regular communication with the members keeps them updated about the program and their transactions. The Company has provided all options like mobile, email, website and call centre to stay connected with the members and our Dealer network. The programs recorded sales of 4.43 Million Kilolitres (MKL) during the year.
BPCL has partnered with HDFC bank, which enables credit and debit card acceptance and gives a truly cashless experience to customers even without being members of our loyalty programs. Big fleet operators and transporters have been given benefits of the HDFC credit financing scheme to manage their working capital well.
The enhanced version of the 'Fuel Finder' mobile application was launched to help customers in locating retail outets for meeting their fuelling needs.
As a step towards creating a strong relationship with highway truckers, 30200 Life insurance policies were issued for the Drivers enrolled under our SmartFleet Program .
The Allied Retail Business (ARB) achieved a turnover of Rs. 450.20 crores with a growth of 4.2% during the year 2014-15. The business generated an income of Rs. 23.01 crores, which was higher by 2.2% as compared to the brvious year. Our network of convenience stores, branded as 'In&Out' operate at 169 retail outlets. The network spans over 1.1 lakh sq. ft. area, achieving a turnover of Rs. 186 crores. The "millionaire stores" included 51 In&Out stores having sales of over Rs. 1 million per month and 28 stores with sales in excess of Rs. 2 million per month. We also have a widesbrad network of over 100 Quick Service Restaurants in alliance with leading Indian and International food chains. Another first from BPCL was an agreement signed with M/s. Amazon Transport Service Pvt. Ltd. (ATSPL) for a "Pick Up" store initiative.
Green lighting was introduced at 205 retail outlets to promote non-conventional energy usage. With energy efficient lights like LEDs and Induction Lights, there is an approximate saving of 35-40% on the lighting load. Currently, Solar Systems have been provided at 280 retail outlets as our commitment to greening India.
Retail Operations handled more than 25 MMT of products at 82 Depots & Terminals to ensure uninterrupted supplies to the retail outlets, in support to the sales teams, enabling them to achieve a market leadership position.
BPCL ended the year complying with 101 out of the 113 recommendations of the MB Lal Committee, thereby enhancing safety at its POL Depots and Terminals. The state-of-the-art IP based CCTV surveillance system was installed at POL Depots & Terminals. The Automation policy was revised in line with the MB Lal Committee Recommendations & Provisions of OISD-244.
State-of-the-art Terminal automation systems have been installed at 28 locations and 16 locations have been converted to NANO (No Automation No Operation) supply locations during the year. The automation ensures seamless operation and enhances efficiency. Additionally, safety and security also gets reinforced through a dual biometric access control system.
Centre of Excellence, Retail carried out extensive functional training. 36 training programs were conducted, providing 31,118 man-days of training to 707 staff. Training was also conducted at OEM's works for specialized training on Automation for maintenance engineers.
Infrastructure creation remained a key focus area. The Kota-Jobner Pipeline has been commissioned and mechanical works have been completed at the Jobner Terminal. Common user terminal for BPCL and Indian Oil at Raipur is also expected to be commissioned in August 2015. Augmentation of Tankage capacities was completed in many locations to ensure product availability in line with market demand.
Health, Safety, Security and Environment is given utmost priority in our operations. As per the M.B. Lal Committee recommendations on HSSE improvements, new fire and safety equipments have been provided at all supply locations. Online work permit system, online statutory and licensees tracking system, online tracking for pipeline brssure testing and tank cleaning are our continuous technologically enabled endeavours adopted at our operating locations, in line with our motto of "Safety First and Safety Must". Excellence in operations is a deep routed purpose in BPCL, aimed at surpassing industry benchmarks and achieving efficiencies, which help BPCL become a cost leader.
INDUSTRIAL AND COMMERCIAL
The Industrial & Commercial SBU has taken its partnership with the Indian Army to new heights by commissioning HSD, SKO and ATF tankages at Dahung in the north-east, on the China border. These facilities, the biggest in the north-east, include inter-alia, product tankages and lorry loading facility. The Business has also commissioned two consumer pumps in the Kargil Sector at an altitude of 11,000 feet. These are the first such facilities commissioned in a working season viz. June - November 2014. During the year, the sales volume of 3.40 MMT has been registered against 3.72 MMT in 2013-14, which rebrsents a negative growth of 8.43% in Industrial fuels and Specialties.
BPCL is also working consistently towards improving the product offerings to customers. As a step in this direction, three successful trials were conducted for Polypack Bitumen at difficult locations, including hilly areas like Uttarakhand and Jammu & Kashmir. It was observed that the small polypacks would be very helpful to customers in these terrains, obviating the need for carrying drums all the way to the hills. This product would soon be available to BPCL customers.
In the beginning of the year, HSD prices for the Retail sector continued to be subsidized, due to which many industrial consumers opted to purchase diesel from retail outlets. However, this trend has been reversed effective November 2014, when diesel prices were deregulated and brought on par for both retail and industrial consumers. The superior services available, while purchasing diesel directly from the Company, would now bring consumers back and an increase in volumes has been observed. Deregulation also brings new challenges in the form of competition from the private sector and BPCL is gearing up to face them.
The sales volume of all products registered a small decline during the year, mainly due to stoppage of sales of special products like Special Cut Naphtha and LABFS. However, the value generation and optimization of volume continue to give good results, resulting in higher margin contribution to the Corporation, despite lower sales.
BPCL is always driven by the philosophy of providing total fuel solutions to its Industrial & Commercial customers. Keeping this in mind, efforts are on to bring down impurities like Benzene in Hexane and Mineral Turpentine Oil. The improved products are likely to be launched in a year or so. In addition, the industrial consumers could also look at the availability of Biodiesel blended Diesel.
The BPCL product stable will soon have additions like Petcoke, Polymer Grade Propylene and other chemicals. Post completion of the Integrated Refinery Expansion Project (IREP) Project in Kochi, BPCL would launch these products throughout the country. BPCL is in the process of building suitable competencies for these business segments.
Having consolidated margins over the last two years, the I&C business is geared up to focus on increasing volumes in future.
During the year 2014-15, the total volume of Gas handled was 1205 TMT, of which 314 TMT of Gas was supplied to our Mumbai Refinery, 76 TMT was supplied to our Kochi Refinery for own use requirements and the balance approx. 815 TMT of Gas was sold to various customers across different sectors like Fertilizer, Power, Steel, CGD etc. Around 15 TMT LNG was supplied through Tank Trucks to customers who are located away from the pipeline grids.
While all along long term LNG prices have been lower than the spot prices, the market saw steep fall in the spot prices of LNG from the third quarter of 2014-15, making the long term prices costlier than Spot LNG prices by around USD 4 to 5 per mmbtu. This has put tremendous brssure on the sale of long term LNG, with customers brferring cheaper Spot LNG prices.
In the year 2014-15, BPCL created history by supplying LNG bunkers ex PLL Kochi LNG Terminal, for the first time in India to a ship, MV KVITBJORN, on her maiden voyage to Europe.
With an objective to enhance capacity to meet future requirements, BPCL also signed a term sheet for booking a capacity of 1 MMTPA out of 5 MMTPA capacity FSRU being planned to be commissioned by 2018-19 by Swan LNG Pvt. Limited at Jafrabad in the State of Gujarat. Earlier BPCL had signed an agreement with PLL for using a capacity of 1 MMTPA at their Dahej Terminal from end 2016 for 20 years. This is in addition to capacities currently available at Dahej and Kochi.
BPCL is a co-promoter with 11% shareholding in two JVCs formed along with GSPL, IOCL and HPCL for developing cross-country pipelines : GSPL India Gasnet Ltd. (GIGL) for the Mehsana-Bhatinda Pipeline and Bhatinda-Jammu-Srinagar pipeline and GSPL India Transco Ltd (GITL) for the Mallavaram-Bhopal-Bhilwara-Vijaipur pipeline.
BPCL is aggressively pursuing its efforts for enhancing its brsence in the Gas markets in India, by securing access to infrastructure, sourcing of LNG and participation in development of City Gas Distribution Networks.
Kline's report mentions that the lubricant consumption in India is projected to grow at an annual rate of 3% over the next five years. The per capita lubricant consumption in India is quite low compared to the developed countries.
A comparison with other developing countries like China and Indonesia also reveals significant potential in India for growth in lubricant consumption.
The Lubricants industry in India, on the other hand, continues to be extremely competitive with several new players including MNCs. Nearly 40 established players have made deep inroads into the market. Despite the subrmacy of the three PSU oil marketing companies in retaining a formidable market share, the availability of cheaper Base Oil from the South East Asia region has provided major impetus to the private lubes marketing companies.
Higher income distribution amongst the Indian households has given a significant boost to personal mobility through two-wheelers and four-wheelers. More than 50% of two-wheelers are today sold in small towns and villages. With poor public transport infrastructure, the two-wheelers continue to be the only reliable mode of transport for many. This trend will continue to influence the Indian Automotive lubricants.
Industrial lubricants are the largest market segment in India, with more than 54% of the total market. Power generation, chemicals, automotive and other manufacturing, railways, marine, and metals are the leading end-user industries, accounting for nearly 80% of industrial lubricant consumption.
As far as the three public sector oil marketing companies are concerned, the shift of sales from retail forecourt to Hi Street Bazaar resulted in a decline of 7.75% in the Retail segment. The Bazaar market however, bounced back during the second half of the year, registering 2% growth.
BPC's Lubes Business registered a growth of 11.93% in 2014-15 over the brvious year with 18.6% growth in Industrial, 6% in Bazaar and 39% in export. Overall the value added sales also recorded a growth of 10.2%.
Lube Sales through the retail channel remained one of BPCL's focus areas, as it contributes to nearly 35% of the total sales. Several service initiatives planned out for the year proved to be fruitful - MAK QUIK, MAK Dispensers, Product specific campaigns, One Day wonders / Mega One Day Wonders etc.
A large number of enterprising retail dealers were encouraged to explore the potential and market lubricants in their catchment area in the rural market. The focus on new retail outlets commissioned in recent years has shown excellent results. Outlets commissioned after April 2013 have registered 161% growth in sales. The proliferation of the Quick Oil Change machines for the 4T segment has resulted in a growth of 26% in the segment.
The Bazaar channel continues to remain competitive since secondary customers like retailers, garages etc. remain open without particular affiliations or commitment. This channel is very critical and relies upon the success of the Brand. The buying behaviour of customers in this segment is influenced by various factors and the environment is flooded with strategies adopted by the competition. Discounts, loyalty programs for the secondary customers, high brand equity, new product launches and product availability have all contributed towards the growth in this very competitive channel. Network expansion continued to be another important initiative with around 30% of the distributor network commissioned only during 2014-15. Emphasis on training of the staff of our Distributors was an important initiative, which has helped in marketing of brmium grades of MAK Lubricants resulting in a 6% growth in sales volume.
BPCL has successfully managed both, superior product quality and prompt service and recorded 18.6% growth in the Industrial segment. MAK expanded the customer base across segments with specific focus on key growth sectors in India like Power, Steel & Mining. Approvals from several turbine manufacturers like Siemens and Triveni Turbines provided the requisite fillip in marketing in the power sector. MAK also had the privilege of entering the deep drilling segment through Atlas Copco, the major manufacturer of mining equipment.
BPCLs continued market brsence in SAARC countries like Nepal, Sri Lanka and Bangladesh has resulted in growth of market share substantially. MAK has also entered in select Middle East and African (MENA) countries like Kingdom of Saudi Arabia, Bahrain, Qatar, Oman, Kuwait and Egypt for marketing of Lubricants by appointing exclusive MAK distributors for these markets. In addition to exclusive distribution arrangement in the above countries, MAK has also cemented its brsence in few African countries like Congo, Uganda, Angola, Tanzania, Burundi, Rawanda etc. through merchant exports, resulting in a 38% growth in export volumes.
Concentrated efforts were employed throughout the year to promote the MAK brand with its brsence on television and radio, advertisement in magazines, branding in ROs/ wall painting / retailer boards, hoardings and bus shelter campaigns, participation in exhibitions / college fests, rural melas/ rural activation programmes etc.
During the year, as a pilot, one city was chosen as a MAK branded city with extensive branding activities. This MAK city proved to be extremely useful in capturing the attention of our customers, which led to increase in volume in this city.
One other major contributor to the growth in sales of Lubricants has been our R&D, which developed new grades across engine, driveline, transmission and industrial lubricant product segments. The focus has been to develop new generation lubricants keeping pace with the evolving lubrication needs of modern vehicles and equipments.
The year 2014-15 was an eventful year for the LPG Business. One of the major achievements was the roll out of the PAHAL scheme of the Government of India. BPCL successfully enrolled 31.6 million customers into the scheme as Cash Transfer Compliant consumers (CTC). Under the scheme by end of March 2015, BPCL had already transferred Rs. 2,384 crores to customers' accounts (Rs. 1,161.26 crores as permanent advance and Rs. 1,222.74 crores as subsidy transfer).
The LPG Business closed the year 2014-15 with all time high sales of 4510 TMT, recording an overall growth of 11.9% and increasing the market share from 25.6% to 25.8%.
Making clean cooking fuel available and accessible to the people of India remained a priority with LPG and in line with the same, BPCL enrolled 48.9 lakhs new customers during the year, taking the domestic customer base to 458 lakhs. To make available a steady supply of LPG to the consumers, 30.2 lakhs additional cylinders were issued to consumers taking the Double Bottle Connection holders tally to 49%.
To enhance the penetration of LPG in the country and with an objective to provide clean fuel (LPG) to deep rural pockets, the focus has been on network expansion. BPCL added 339 Regular Distributors and 366 Rajiv Gandhi Gramin LPG Vitraks (RGGLV), taking the total number of Distributors to 4,044 (2,862 Regular and 1,182 RGGLV). Of these, the number of LPG Distributors in rural areas is 1,583 (401 Regular and 1,182 RGGLV) i.e. 39% of the total LPG Distributors.
Providing consumers with ease of completing LPG related transactions was another area of focus. The consumers were provided the convenience of doing all their LPG related transactions viz. book a refill, register for a new connection, audit the Distributor, Give Up subsidy, unique ID etc. through the website 'MyLPG.in', bringing in greater transparency, in addition to convenience. The LPG SBU continued to encourage digital options for booking of cylinders i.e. SMS, IVRS, web and mobile app, as a result of which more than 90% refill booking was received through the digital mode.
The LPG Business continued its foray into the international market for its exclusive product Bharat Metal Cutting Gas (BMCG) and entered into an agreement with Air Liquide Middle East & North Africa FZCO 'ALMENA" to market BMCG in Middle East countries.
BPCL continued to remain focused on best practices in HSSE, productivity improvement and cost optimisation. For the 5th consecutive year, BPCL was awarded the 'Best LPG Marketing Organization' by Oil Industry Safety Directorate. During the year, 7 Bottling Plants received ISO 50001 certification on their Energy Management System and a Rs. 2 Crore project was completed under Sustainable Development.
During the year 2014-15, record filling of 4250 TMT was carried out in 50 bottling plants of BPCL to meet the demand. Another milestone was the handling of a volume of 0.7 MMT, against last year's volume of 0.3 MMT, an increase of 133%, at the JNPT-Uran import terminal.
On the infrastructure front, BPCL has augmented its cylinder bottling capacity from 3,165 TMT to 3,215 TMT. BPCL's Uran facility was connected through a submarine pipeline from Mumbai Refinery, thereby making Uran a key strategic location connected by road, rail and pipeline.
For the Aviation Business, acquisition of new customers remained an important focus area. The portfolio was expanded by the enrolment of Fly Dubai, Air Seychelles, Air Arabia, Hong Kong Airlines and Citilink Indonesia in the international segment and Indigo, Vistara and Air Pegasus in the domestic segment, at some of the airports.
As a customer retention strategy, the Aviation BU offered world class service to successfully roll over all contracts of its existing customers, including Spice Jet, Jet Airways, Qatar Airways, AACO Airlines, Kalitta Air, JAL, Silk Air, Tiger Airways, Virgin and Etihad. During 2014-15, the Aviation BU notched up sales of 1255 TMT, with a market share of 23.6%. This year, BPCL has become the first Indian oil marketing company to pass on the benefit of SFIS (Serve For India Scheme) to Jet Airways.
The Aviation Business consolidated its brsence in the Defence segment by setting up stations for the Army in the state of Arunachal Pradesh in the north-east and started supply to these bases. Supply has also started at the Indian Air Force base at Thanjavur. Facing stiff competition, BPCL has been shortlisted to construct and operate an AFS at Jaisalmer Airforce base. This will be the sixth IAF base for BPCL.
In the process of expanding the network, 3 new Aviation Fuelling Stations at Indore, Dimapur and Dibrugarh have been completed and are ready for commissioning. A new AFS at Imphal is likely to be commissioned very shortly. The strategy to maximize supplies from our subsidiary NRL has been set in motion, with the establishing of our brsence in major airports in north-eastern India. The containerized model, which had been imported last year, has now been fully indigenized, resulting in considerable cost savings while commissioning new AFSs.
To strengthen our infrastructure and to optimize our logistics costs, locations have been linked to appropriate supply sources. An MOU has been signed and hook-up is being done to IOCL's ATF pipeline to Bengaluru airport from BPCL's Devangonthi installation. ATF facilities have been constructed at New Jalpaiguri depot. Additional tankage is being created at Calicut AFS and Bijwasan depot. For supplies to the proposed Navi Mumbai airport, a Pre-feasibility report has been brpared for the pipeline from BPCL's Mumbai Refinery to the proposed airport.
BPCL has been awarded the Operatorship of the brstigious Fuel Farm facility owned by Mumbai Fuel Farm Facility Ltd. at Mumbai airport. BPCL and Cochin International Airport Ltd. (CIAL) have agreed to extend the arrangement for operating the hydrant fuel farm at Cochin airport for a period of 30 years. Work on the extension of the hydrant at the new CIAL terminal has already started.
BPCL is increasing its equity stake in Kannur International Airport Ltd. The construction of the airport is in full progress and the airport along with the Fuel Farm is likely to be commissioned by March 2016. BPCL has exclusive rights to operate the fuel facilities at the airport.
The Aviation BU accords the highest priority to HSSE, safe and cost efficient operations while providing customer service. No major accident/incident/spills occurred at any of the locations. Nil LTA has been recorded in 2014-15. During the year, recognitions came our way when the Sarvashreshtha National Safety Council Award was given to Gwalior AFS by the Madhya Pradesh Government and Certificate of Merit for Meritorious Performance in Industrial Safety was awarded to Mumbai AFS for the tenth time in a row.
PROJECT CUBE INITIATIVE
Project CUBE (Customer Understanding for Business Excellence), a customer centric business transformation program, was designed to improve BPCL's business performance by connecting deeply with customers. BPCL First, an important initiative of Project CUBE, was launched on 16th August 2012, with a vision of creating a differentiation in the minds of customers through a collaborative process and making BPCL the brferred brand. This would yield substantial long-term benefits.
The idea is to implement key deliverables identified by each of the SBUs with greater consistency and rigour. In view of the feedback from customers, BPCL focused on improving the basics, so as to create a positive impact on a customer every time he utilizes a BPCL product or service. The end objective of BPCL First is to convert a location into a BPCL city/town.
The growth in Tier II and Tier III cities is aided by the increasing disposable income of people, creating immense potential for companies. Since these cities are relatively untapped, they offer greater opportunities for growth in terms of differentiation with respect to products and services. BPCL has strategically chosen to focus BPCL First as an initiative in major Tier II/III cities.
As a part of BPCL First, the organization has launched a robust grievance redressal mechanism - the Customer Care System (CCS). CCS provides a single-window for BPCL customers to reach out to BPCL for feedback, complaints or queries on any of its products and services. It has been designed to provide ease of access to customers to connect with BPCL through our corporate website and the toll free number (BPCL SmartLine - 1800 22 4344), which are displayed across customer touch points. An important feature of CCS is to seek feedback on each and every query and complaint in order to assess customer satisfaction on an ongoing basis.
The year 2014-2015 saw many endeavours in the realm of developing talent within the Corporation, in line with our vision of leveraging talent and technology. We at BPCL have made rapid strides in the linkage of key Hr Processes such as Career Advancement through multiple role exposures, Performance Management, Potential Assessment and Learning Management Framework, to name a few. The second cycle of the ASCEND process, a 360 degree competency assessment framework, was rolled out, covering 2800 officers in the mid and senior levels. The outcomes derived from this process are being used to draw up focussed individual development plans through candid feedback conversations aimed at career development.
The learning framework, that provides for structured training programs, has stabilized and attuned to the inputs that emerge from the individual development plans.
Significant investment has been made in the area of Leadership Development, aimed at enriching the leadership pipeline within the Corporation and building capability within managers. Our flagship program 'Excelerator' is aimed at equipping our leaders with relevant leadership competencies to enable them to unleash their potential, thereby creating the necessary business impact. This program has seen a participation of 80 managers at mid & senior levels and is rapidly on its way to becoming a breeding ground for top leadership.
At another level, to equip managers with crucial skills needed in the context of building capability in the changing business scenario, we have nominated officers for our
tailor-made management programs on the lines of an Executive MBA Program from brmier institutes like SP Jain Institute of Management & Research. 38 officers were sponsored for the Advanced Management programs during the year. To further enhance leadership capability, we have deputed top talent from senior leadership levels to attend globally acclaimed programs at world-renowned business schools such as Harvard, Wharton, Kellogg and Tuck. 19 officers were nominated for these programs.
We have also exploited our internal social media network, an IT-enabled HR platform called 'JAM' to communicate on forums within closed user groups. JAM has been used by closed user groups to engage in knowledge-transfer and to understand processes and practices that various departments have deployed.
We have successfully leveraged technology as an enabler to learning with the Learning Management System (LMS) launched during 2013-14. It has provided easy access to all learning interventions from multiple sources under a single umbrella. The implementation of LMS has transformed the role of the training role-holders, who now spend more time on need analysis, design, evaluation and most importantly, creating a learning culture in the organization. 95% of critical mass for the behavioural learning framework have been covered under LMS. Proof of our emphasis on providing training programs as a platform for developing our people is the fact that that we clocked more than 25,000 man-days of training during the year 2014-15.
Innovative learning platforms have been our forte, with events like Socratix and Mercurix organized for our people. Socratix is a case-study challenge, a platform that provides individuals an opportunity to sharpen their cognitive abilities required in the organizational context and also showcase their individual capabilities in a competitive environment. Mercurix is an annual story-telling platform that aims at encouraging a very important aspect of Leadership-Storytelling. Our people have a chance to display their leadership capability to inspire and motivate, using storytelling as a tool for effective leadership and culture building in the organization.
IDEAS, one of the biggest events every year, visualized to give a platform to creative minds in the Organisation, is another feather in our cap. The event sees 1000+ entries every year from around the Corporation.
With the future of the Corporation seeing more than 50% of its population from the Gen Y brigade, we have rolled out an initiative called 'You-Ngage'. It was conceptualized with the objective of communicating the organization's expectations from the young generation while effectively engaging them, understanding their connect with BPCL's vision, strategy and goals.
As on 31st March 2015, the staff strength stood at 12,687. 408 Management trainees joined us during the year.
EMPLOYEE SATISFACTION ENHANCEMENT
The ESE cell's vision is to be an active facilitator towards a healthy, productive, vibrant and energized workforce, by working towards 360 degree wellness, living up to the core purpose of 'energizing lives' to make BPCL 'A Great Place to Work.' To fulfill the vision, various initiatives are undertaken by ESE through employee connect, employee engagement, employee wellness and prompt grievance redressal.
Through Roshni, our Employee Assistance Program, counseling services are provided to BPCL employees and their family members by professional counsellors, with the costs borne by BPCL - a first in the oil sector. Physical wellness services covering health risk assessment, wellness coaching, health articles etc. were introduced this year. To make employees aware about EAP Roshni Plus, ESE held 93 meetings across the country, increasing the registration by 100% to touch 3600. There were 202 counseling sessions availed by employees using Roshni services.
Fortnightly bulletins on physical and emotional wellness were circulated to all employees on topics like Embracing Excellence, Happiness by Choice, Lifestyle choices, Making Exercise a daily Habit etc. Manager referral sessions, Stress audit for LPG TMs, LOP workshops for employees on loss of pay, session for retiring employees etc. were also organized. A pilot on Peer counseling for early help to employees was rolled out at Mumbai Refinery.
ESE conducted health camps and talks on cancer awareness, cardiovascular rehabilitation, desktop and laughter yoga, Sujok accubrssure, and Nadi Pariksha. A special edutainment program 'Bollywood and stress management' was introduced, along with programs such as Manovikas, positivity for stress-free living and psycho-neurobics. For positive employee engagement, programs like 'Basics of Photography, Prudent Financial Investment, Women's Day, Organ Donation awareness, Art & Science of Parenting, book exhibitions, Father's Day contest, and Volunteering to Make a Difference' were held. To assist employees in achieving their work related goals, programs like 'Shikhar - A Journey to the Top' and 'Managing Difficult People' were held. In all, 46 workshops/ talks were organized for about 4800 employees across locations. This year, ESE handled 61 employee grievances to closure. To ensure a quick response, a 'Grievance Management System' portal - Phase I was rolled out.
An Employee Assistance Program (EAP) Customers' Forum was organized for the first time to understand the industry trends in EAP. Many private and public sector companies such as NTPC, Johnson & Johnson, Glaxo, Siemens, Oracle, RCF etc. participated in the forum and agreed to form a network for sharing best practices on a continual basis.
ESE plays a proactive role in an employee's life on their special occasions such as birthdays, long service, promotions and retirement. These measures and initiatives undertaken by ESE have reinforced BPCL as a caring and employee friendly organization and immensely contributed in enhancement of overall satisfaction and well-being of its employees.
INTEGRATED INFORMATION SYSTEMS
During the year, a plethora of process improvements and new IT initiatives have been implemented, adding significant business value.
The PAHAL scheme, an initiative from the Ministry of Petroleum & Natural Gas was taken up and completed as per the directives from the Ministry during the year. In addition to Aadhaar Based DBTL, this offers subsidy transfer directly into the bank account number provided by the consumers.
An application was launched to manage the Bharat Arogya Yojana scheme for Driveway Sales Men (DSMs), LPG delivery persons and the transport crew. The application has enabled capturing of data required by the insurance company to extend insurance to the eligible members through an interface between systems for seamless data exchange.
The LPG Transparency Portal was enhanced with new features for consumers like registration for new connection, booking of cylinders, rating of distributors, checking DBTL status, providing feedback etc. These services were also enabled through a new mobile app for the consumers, providing flexibility to transact using different platforms. A Centralized Complaint Management System was implemented as a single window for consumers to log complaints, including complaints related to the DBTL process.
A process to automate updation of Retail Selling Price (RSP) at automated retail outlets was implemented with a seamless linkage of RSP changes in the system to the retail outlets. Display of the latest RSP was also enabled through dealer customer accounts, thereby improving transparency.
New online processes were implemented to manage new investment proposals and upgrade investment proposals for retail outlets with seamless integration to other relevant processes to bring better controls and informed decision making.
An online medical claim application was implemented for retired staff for easy tracking and faster processing of claims.
Many Talent Management initiatives have been enabled through SAP Success Factor for better decision making.
As per Government guidelines, all old electronic IT Assets (Laptops, Desktops, Printers and other allied IT equipments) are being disposed across BPCL under eWaste to Government approved vendors.
Webcasting technology has been effectively used for corporate events to reach out to the employee community in real time manner.
Tech refresh has been carried out in end-user compute device landscape including Windows & Office suite, deploying energy star rated light-weight devices that significantly improved the employee mobility and productivity experience.
HEALTH, SAFETY, SECURITY & ENVIRONMENT
Upholding the "Safety First Safety Must" mantra, each SBU / Entity continues to take Workplace Health, Safety, Security & Environment (HSSE) including Sustainable Development as an integral component of its business policies and strategic plans.
To ensure smooth and safe operations across locations, each of the critical processes, systems and their implementation methodology were reviewed and their monitoring/governance practices were strengthened, along with bringing clarity in responsibilities and accountabilities.
Learning from the incidents in the external environment, end-to-end analysis of the incident reporting system was done and a new combrhensive procedure has been institutionalized to ensure that time bound action is taken by each stakeholder. To bring in clarity and speedy reporting, minor and major incidents were segregated with reporting flowcharts for ease in understanding and quick communication across locations.
As a proactive measure, asset integrity was taken as a key activity to once again reassess the health and integrity of pipelines and railway siding facilities. During the process, all assets owned by BPCL or a third party were looked at and necessary actions were identified. While we have completed the assessment of all pipelines, gaps have been identified for railway siding and work is in progress with an aggressive schedule to ensure that all our assets render safe operations.
For capacity building of officers working at the field level, HSSE workshops were held at all four regions, wherein inter/intra organization best practices were discussed and commitments were taken for systemic improvements and these were monitored till completion
In order to be in a state of readiness, mock drills were regularly carried out at all locations and recommendations for improving the system were immediately implemented.
In our quest to ensure safe operations, root cause analysis for the incidents reported was done and learnings were circulated across locations on a monthly basis to brvent recurrence, as a knowledge management initiative.
Internal Safety Audits were carried out at all locations and observations were analysed and categorized and an action plan was drawn up to complete jobs within time schedules. Security of all locations and refineries were ensured by deploying competent persons and imparting training at regular intervals.
Online sustainability development software was extensively used to capture data from locations pan India. All Sustainability Development targets for 2014-15 were achieved with excellent rating. 95,096 sq.m. catchment area was covered for rainwater harvesting.
Energy efficient lighting was installed at 64 locations, which includes marketing storage locations, COCOs/ OSTSs and Refineries, leading to savings of Rs. 136 lakhs/ year. 420 KWP of solar power was installed at ROs leading to savings of Rs. 10 lakhs/year.
BPCL achieved an 'A' plus level of reporting as per GRI - G 3.1 (Global Reporting Initiative) as well as with core guidelines of GRI GR4 norms for Sustainability Development in the year 2013-14. This is the 7th consecutive year where BPCL has achieved an A+ level for its sustainability development reporting as per GRI norms. All these reports were assured by an independent third party Assurance Provider as per AA 1000 AS (2008) and ISAE 3000 international standards of assurance.
BPCLs efforts on Health, Safety and Environment were acknowledged in various forums. BPCL also received the OISD Award for 'Best Near Miss Incident Reporting by Marketing Organizations' for the year 2012-13 for the second consecutive year. BPCL was also conferred with the Corporate Governance & Sustainability Vision Award 2015 by Indian Chamber of Commerce (ICC) for taking a leadership role and making a significant difference by undertaking various initiatives in the areas of Corporate Governance and Sustainability.
INTERNATIONAL TRADE AND RISK MANAGEMENT
BPCL always accords priority to procurement of domestic crude oil for running its refineries. Based on Government allocation of indigenous crude oil,BPCL was allotted 5.29 MMT of Mumbai High crude during 2014-15, as compared to 6.14 MMT in the year 2013-14. Uninterrupted supply of crude oil to the BPCL refineries was ensured by procuring alternate grades at short notice to offset the lower allocation of indigenous crude.
In view of the higher crude oil processing plan during 2014-15 at BPCL Refineries (22.75 MMT as compared to 22.53 MMT in 2013-14), additional volumes were procured from foreign sources. The total quantity of imported crude oil during the year 2014-15 was 18.11 MMT as compared to 16.94 MMT during the brvious year. While the majority of high sulphur crude oil is imported from the Middle East Gulf region on term basis, imports of low sulphur crude oil grades was done from the Far East /West Africa / Mediterranean Region on term as well as spot basis. This was done to meet the requirement of maintaining a desired ratio between high sulphur crude oil and low sulphur crude oil in line with refinery processing. While securing the crude oil, efforts were continued to seek better terms and conditions with the suppliers, expand the vendor base, addition of new grades of crude oil and opening up of new avenues for procurement.
Global crude benchmark prices fell sharply in the third quarter of 2014-15 after a few years of stable price regime, as global production exceeded demand. The impact of significant volatility in crude oil prices was minimized by increasing procurement of short haul crude from term suppliers. Accordingly, the ratio of "Term to Spot" procurement increased from 76:24 during 2013-14 to 81:19 in the year 2014-15.
The Brent-Dubai differential is an important determinant while deciding whether to operate the refinery on low sulphur crude oil or high sulphur crude oil. The differential widened to the maximum extent in May-June 2014 when the prices of Brent crude reached the highest level due to supply disruptions; thereafter, it narrowed down due to increased demand for Dubai and other heavy crudes from addition of new refineries in the Middle East and Asia.
In value terms, the Free On Board (FOB) cost of 18.11 MMT imported crude oil amounted to USD 11.66 billion (Rs. 71,137 crores) in 2014-15 as against FOB cost of 16.94 MMT imported crude amounting to USD 13.71 billion (Rs. 83,301 crores) in 2013-14. The average price paid by BPCL for the crude oil imported during the year 2014-15 was USD 85.44 per barrel as compared to USD 107.98 per barrel in the brvious year, while the average cost of the Indian basket of crude oil was USD 84.16 per barrel in the year 2014-15, as compared to USD 105.57 per barrel in the brvious year.
The total foreign exchange outgo on account of imports of crude oil (including high sea sales and excluding high sea purchases) during the year 2014-15 was USD 11.79 billion (Rs. 71,916 crores) as against USD 13.76 billion (Rs. 83,532 crores) in the brvious year.
Engaging tankers to bring crude oil from the Far East, Middle East and West African countries on the most favourable terms continued to remain a focus area in the year 2014-15. In order to minimize the freight cost, co-loading of cargoes on Very Large Crude Carriers (VLCCs) from two different ports was resorted to. Engaging vessels on time charter, voyage charter and also under Contract of Affreightment (COA) was done. BPCL renewed the COA with Shipping Corporation of India (SCI) for two years commencing from October 2014 to September 2016 with an option of further extension for one year.
The major share of transportation was contributed by spot chartered vessels. Out of the total 18.11 MMT crude oil imported by BPCL, 13.76 MMT (i.e. 75.81%) was transported by spot chartered vessels. Time chartered vessels transported 1.54 MMT crude oil whilst COA vessels transported the remaining quantity i.e. 2.85 MMT crude oil. The freight cost for import of crude during the year 2014-15 amounted to USD 203.62 million (Rs. 1,245 crores), as compared to USD 181.98 million (Rs. 1,101 crores) in the year 2013-14.
All the tanker operations were handled during the year with a high degree of constant monitoring of loading and discharge operations. 169 tankers were handled during the year 2014-15 involving single-port as well as two-port discharge. Mumbai Refinery received its crude oil from 104 tankers whilst Kochi Refinery received its crude oil from 68 tankers, conforming to the highest standards of safety and timeliness to ensure uninterrupted supply of crude oil. With high degree of planning and coordination with all concerned parties, all efforts were made to ensure timely berthing of vessels, expeditious completion of loading and unloading operations with emphasis on minimization of demurrage.
For the second consecutive year, BPCL did not import any Diesel during the year 2014-15. Import of Motor Spirit was nil during the year 2014-15, against import of 47 TMT during 2013-14. Import of Reformate was also nil during the year 2014-15, against import of 42 TMT during 2013-14. Import of LPG increased from 1.51 MMT during the year 2013-14 to 2.04 MMT during the year 2014-15. However, the purchase value declined from USD 1,409 million (Rs. 8,595 crores) in 2013-14 to USD 1,372 million (Rs. 8,379 crores) in 2014-15, due to decrease in global prices of LPG by around 23% in 2014-15, as compared to 2013-14.
The total foreign exchange outgo on account of import of LPG (including high sea sales and excluding high sea purchases) during the year 2014-15 was USD 1,195 million (Rs. 7,310 crores) as against USD 790 million (Rs. 4,824 crores) in 2013-14.
On the export front, BPCL exported 2,203 TMT of refined petroleum products during the year 2014-15, as compared to 3,014 TMT during the year 2013-14. Naphtha continued to remain a principal component of the export basket. However, the quantity came down from 1.62 MMT in the year 2013-14 to 1.04 MMT in the year 2014-15 (indicating a decline of 36%) due to maximizing production of value added products at refineries. The prices in the international market were also lower compared to the brvious year, due to which realization of Naphtha export declined from USD 1,472 million in the year 2013-14 to USD 731 million in the year 2014-15. Fuel oil exports also declined from 1,309 TMT in the year 2013-14 to 1,097 TMT in the year 2014-15 and its realization decreased from USD 777 million in 2013-14 to USD 516 million in 2014-15. Export of Benzene increased from 21 TMT in 2013-14 to 45 TMT in 2014-15, resulting in an increase in realization from USD 26 million in 2013-14 to USD 42 million in 2014-15. There was no export of diesel in 2014-15 against export of 48 TMT during the year 2013-14, which had fetched USD 45 million in 2013-14.
BPCL was successful in protecting the refineries' operating cost by covering refinery margins through the instruments of hedging in the international market. In the wake of rising volatility in the dynamic global oil market, BPCL remained steadfast in its hedging activities while complying with regulatory requirements. The performance of the BPCL hedging portfolio was not only better than the budget, but also better than the market, resulting in protection of refinery margins. Freight cost of the voyage chartered vessels and the bunker requirements of time chartered vessels were effectively hedged during the year.
BPCL continues to adopt new instruments of hedging to enhance its capability of risk management. It has decided to introduce new hedging instruments such as options and outright price hedging in day-to-day operations. All the risk management activities are reviewed by the Trading & Risk Management Board and Risk Management Committee from time to time. Regular reviews of hedging positions and credit exposure of the counterparties are undertaken.
RESEARCH & DEVELOPMENT
In line with constantly changing business needs, the Research & Development Centres of BPCL are focusing on development of innovative products and process technologies and providing advanced technical support for refinery processes, lubricant formulations and product / process development. These R&D Centres have achieved significant breakthroughs in the past few years. The Centres boast of producing more than 20 granted patents to their credit in the last 5 years and aspire to emerge as world class technology solution providers in the near future.
Bharat Petroleum has R&D facilities at three locations: Corporate R&D Centre at Greater Noida, Uttar Pradesh; R&D (Product & Application Development) Centre at Sewree, Mumbai and the in-plant R&D Centre at Kochi Refinery. All three centres are providing the Company an edge over competitors and technological breakthroughs for future business development.
The core research areas of the R&D centres are broadly divided into four categories, namely: (a) Development of energy efficient technologies for fuel and chemical production (b) Technical support to refining processes, (c) New product and additive development and (d) Alternative fuels and energy.
During the financial year, the R&D Centres continued to provide a competitive edge through development and commercialization of novel cost effective products and processes such as (i) New neutralizing amine (ii) Sorption enhanced steam reforming (iii) De-aromatized speciality solvents having less than 0.5 wt% aromatics content (iv) Cost effective FCC gasoline sulphur reduction additive, (v) Hydro treating catalyst for production of Euro-V diesel (vi) Catalyst for Lube Oil Base Stock (vii) New grades of bitumen (viii) Natural gas storage technology (ix) Novel reactor schemes for Hydro-processing and FCC applications.
During the year, the R&D Centre at Sewree contributed to the Lubes business by developing new product formulations such as OE specific Shock Absorber Fluid, Limited Slip Gear Oil, High Performance Combrssor Oil, Engine Oil for 2 Stroke Stationary Natural Gas Engines, Defence Specific Hydraulic Transmission Oil, etc. Apart from these new products, new formulations for existing products also helped in providing better performance indices and lower production/operating costs. The requisite steps have been taken to scale up synthetic Refrigeration Combrssor Oil. Efforts are being made to develop a new product slate based on synthetic Base Oil for concentrated solar power application, synthetic Transformer Oil, and biodegradable Base Oil for cutting oil application.
Significant progress has been made by Corporate R&D Centre on major national and international collaborative projects, initiated earlier in the emerging areas of natural gas conversion to methanol and Dimethyl ether, CO2 utilization and conversion of coal to liquid fuels. The Corporate R&D centre bagged the brstigious Indo-UK collaborative project funding award from Global Innovation Technology Alliance (GITA) for real time optimization of crude distillation units for carrying out collaborative research with Process Systems Enterprise Ltd., UK. During the year, BPCL R&D has filed four Indian patents and was granted six patents (two Indian, one USA and three in other countries). BPCL continued its research collaborations with a number of leading research institutes entered into in brvious years and made substantial progress. Some of these include EIL, IIP, IITs, ICT, Delhi University, BITs Goa etc., as well as international partnerships with NTNU, Norway, CSIRO-Clayton, RMIT and University of Melbourne. In its pursuit to excel in the area of innovation, BPCL R&D continues to work in tandem with academia and other knowledge partners for fulfilling the Company's vision of being an innovative and technology driven company.
EXPLORATION AND PRODUCTION OF CRUDE OIL AND GAS
BPCL's ambitious plans in the upstream exploration & production sector are being undertaken by its wholly owned subsidiary company, Bharat PetroResources Limited (BPRL), which was incorporated in the year 2006. Presently, BPRL has Participating Interest (PI) in 17 exploration/appraisal blocks. Of this, seven blocks are in India, six blocks in Brazil and one each in Mozambique, Indonesia, Australia and East Timor. BPRL's PI in these blocks range from 10% to 40%. All these blocks are in various stages of exploration/appraisal and the total area of all these blocks is about 24,375 sq.km, of which approximately 88% is offshore acreage. BPRL holds the PI in the various blocks either directly, or through its wholly owned subsidiary companies or joint ventures.
BPRL has incorporated a wholly owned subsidiary company, Bharat PetroResources JPDA Limited in India. Also, BPRL has incorporated a wholly owned subsidiary company, BPRL International BV, in the Netherlands which in turn, has incorporated BPRL Ventures BV, BPRL Ventures Mozambique BV and BPRL Ventures Indonesia BV as wholly owned subsidiary companies. BPRL Ventures Mozambique BV and BPRL Ventures Indonesia BV directly hold PI in a block in Mozambique and Indonesia respectively. Further, BPRL's Brazilian assets are managed by a joint venture company in Brazil viz. IBV Brasil Petroleo Limitada, which is a 50-50 JV of the overseas subsidiaries of BPRL and Videocon Industries Limited.
In Mozambique, BPRL through its subsidiary company, BPRL Ventures Mozambique BV, holds a 10% PI in the Area 1 offshore block, where Anadarko Mocambique Area Limitada, a subsidiary of Anadarko Petroleum Corporation,
USA, is the Operator. In early 2015, the consortium completed a very successful exploration and appraisal campaign which discovered 75 plus trillion cubic feet (Tcf) of recoverable Natural Gas resources.
The consortium is progressing with setting up two 6 MMTPA onshore initial LNG Plants in Northern Mozambique in order to monetize this gas discovery. The Operator has selected the EPC contractor for setting up the onshore plant and Non-binding Heads of Agreement for long term sales of more than 8 MMTPA of LNG have been secured. The land for setting up the LNG plant as well as independently certified reserves, sufficient for the initial two LNG trains, are available.
A Decree Law has been passed by the Government of Mozambique at the end of 2014, which marks a critical step towards establishing a project wide legal and contractual framework. The pace of development will largely be determined by the Mozambique Government's approval of various agreements, for which the Operator of the block is closely engaged.
In Brazil, in the Sergipe Alagoas basin, a new oil province was established in the ultra deep waters with the Barra discovery in the year 2010. Further, five additional discoveries, namely Barra#1, Farfan, Cumbe, Farfan ADR and Farfan#3 have established the promising potential of our blocks with five exploratory wells and eight appraisal wells drilled over the past few years.
At brsent, various appraisal activities are underway, as per the four approved appraisal plans. Two appraisal wells, Farfan ADR & Farfan#3 and Drill Stem Testing (DST) on the Farfan#3 well, have successfully appraised the light oil and gas discovery and have discovered new light oil (37° API) accumulations in deeper reservoirs. The Barra#3 appraisal well also successfully appraised the earlier Barra discovery to the north. Presently, drilling of the Cumbe#2 appraisal well, is in progress. The Operator has already commenced br-development engineering studies for studying/exploring the various options for development of the Barra and Farfan discoveries. The first oil from these fields is expected during the year 2019-20 and the first gas in the year 2020-21.
Due to sub-commercial field size, the area under the Papangu appraisal plan has been relinquished by the consortium, retaining approx. 20 sq.km area under the Verde appraisal plan.
In the Potiguar Basin, the consortium has decided to enter into an appraisal plan for the Ararauna discovery where brsently, G&G studies are ongoing and it is proposed to drill the first firm appraisal well during the year 2015-16.
In the Campos Basin, two appraisal wells have been completed with good oil shows. Presently Pre-FEED and FEED engineering studies are in progress to study various options for development of the Wahoo discovery.
In the Espirito Santos Basin, after completion of exploration activities, two blocks were relinquished by the consortium during 2013-14. The consortium partners have decided to relinquish ES-M-661, the remaining block in the financial year 2014-15 due to the sub-commercial nature of the field.
In Indonesia, BPRL Ventures Indonesia BV had farmed-in into an exploration block in Indonesia in the Nunukan PSC, Tarakan basin with a PI of 12.5%, in consortium with PT Pertamina Hulu Energy (Operator), PT Medco and Videocon Indonesia. Till date, four wells have been drilled in the Badik and West Badik prospects. There has been discovery of oil and natural gas in the Badik 1 well and hydrocarbon discovery confirmed in all appraisal wells. The exploration phase has been extended till June 2016.
In Timor Leste, the block was held through the Indian subsidiary company, Bharat PetroResources JPDA Ltd. In view of the uncertainty arising out of arbitration proceedings by the Timor Leste Govt. against the Govt. of Australia with regard to the Certain Maritime Arrangements in Timor Sea (CMATS) Treaty, the JV had submitted its request to ANP for termination of the Production Sharing Contract (PSC) without claim or penalty. ANP has been granting temporary suspension of PSC for successive three month periods, back to back. Subsequently, ANP informed the JV that it would initiate termination provisions of the PSC for non-completion of the Minimum Work Programme (MWP) commitment. Thereafter, ANP has delivered its Notice to terminate the PSC, imposing Contractors' Liabilities upon Termination (CLT), which is liable to be charged off, in line with the provisions of the PSC. The JV has decided to accept termination and is going to request for a negotiated amicable settlement of CLT.
In Australia, BPRL currently has a PI of 27.803% in Block EP - 413 (onland) in consortium with Norwest Energy NL (Operator) and ARC Energy, a 100 % subsidiary of Australia Worldwide Exploration. This block is being explored for shale gas/tight gas and till date, an exploratory well has been drilled, vertically fracked and tested to evaluate shale gas and tight gas reserves. Hydrocarbon shows were observed in all the zones. The permit has been renewed for 5 years up to August 2018. As part of the renewal phase work commitment, acquisition of 3D seismic data has been carried out over 105 sq.kms of the block area and based on the processing and interbrtation of data acquired, further course of action will be determined by the JV.
In India, BPRL has PI of 40% in an onland block in the Cauvery basin, wherein ONGC is the Operator. In this block, post discovery of the MD#3 well, the Declaration of Commerciality (DOC) has been approved for the proved reserves and corresponding Field Developmental Plan (FDP) has been submitted to DGH for approval. The production from the block will commence on receipt of approval for the FDP and obtaining the Petroleum Mining Lease. The drilling of the two appraisal wells for the MD#3 discovery have been completed and the first appraisal well, MD#5 flowed gas from both, the basement and Kamalapuram formation. The second appraisal well, MD#6 flowed oil/ gas from the Kamalapuram formation. These have been declared as new discoveries. During the year 2015-16, major developmental activities towards production of oil and gas, including drilling of development wells shall be taken up.
BPRL has PI of 20% in two Cauvery onland blocks, wherein ONGC is the Operator. In one of the blocks, the MWP has been completed and the well CD#6 had indications of hydrocarbon brsence during drilling. However, the well did not flow during production testing. As there are no more drillable prospects in the block, the consortium proposed relinquishment of the block, for which DGH approval is awaited. In the other block, the DOC for well PN#8 discovery has already been submitted and is being processed for approval from DGH. The drilling of the first appraisal well has been completed, but it did not flow during testing. During the year 2015-16, drilling of the second appraisal well, one exploratory well in exploration phase II and the planning of developmental activities related to the PN#8 discovery shall be taken up.
BPRL has PI of 33.33% in an onland block in Rajasthan as Joint Operator with Hindustan Oil Exploration Company Ltd. Acquisition, processing and interbrtation of 3D seismic data have been completed in this block.
BPRL is a Lead Operator with 25% PI in the block in the Cambay Basin, Gujarat in consortium with GAIL (India) Ltd. as Joint Operator, Engineers India Ltd., BF Infrastructure Ltd. and Monnet Ispat & Energy Ltd.
As Lead Operator of the block, BPRL on behalf of the consortium, has to undertake the committed MWP as per the PSC. The activities are mainly 2D/3D seismic data acquisition, processing and interbrtation (API) and drilling of eight exploratory wells. In accordance with the MWP commitment, the seismic data acquisition, processing and interbrtation is already completed. Based on the interbrtation results, four well locations are proposed for drilling. The br-drilling EIA report is submitted to Ministry of Environment, Forest and Climate Change for environmental clearance. As per the schedule, the drilling related activities are expected to commence in the block area during the third quarter of 2015-16.
BPRL has PI of 25% in an onland block in the Cambay Basin, Gujarat, PI of 20% in an onland block in the Assam-Arakan Basin & PI of 20% in a shallow water block in the Mumbai Basin. BPRL is the Joint Operator in the block in the Cambay Basin wherein GAIL India Ltd is the Lead Operator. In the other two blocks, Oil India Limited is the Operator.
Acquisition, processing and interbrtation of seismic data has been completed in the Cambay block. Environment clearance and hiring of services & procurement of materials for drilling is in progress in the block. Pre-drilling activities are in progress in the Mumbai Basin block. Drilling of wells as per the MWP commitment shall commence in these blocks shortly. In the Assam-Arakan block, seismic acquisition has been completed and during the year 2015-16, processing and interbrtation of acquired data shall be taken up to identify the drillable prospects.
Looking ahead, BPRL is focused on value enhancement through early monetization, moving up the hydrocarbon value chain and skill based expansion through operatorship.
AWARDS AND RECOGNITION
Nurturing Brand has been a key priority for BPCL and, many initiatives have been undertaken towards this end in each business unit. Continuing its brsence in the Fortune Global 500 list, BPCL retained its position with a rank of 242 and is among the eight Indian companies featured in the list.
For its outstanding global, financial and industry performance, BPCL has been ranked among the top 20 Oil and Gas Refining and Marketing companies in the Platts Top 250 Global Energy Company Rankings for 2014. BPCL ranks 4th in Oil & Gas Refining and Marketing in the Asia/Pacific Rim, 7th in Oil & Gas Refining and Marketing globally and 17th in overall performance in the Asia/Pacific Rim. On an overall global performance, Bharat Petroleum has been ranked 66th.
BPCL bagged the Public Sector Unit of the Year Award at the brmier edition of the ICICI Lombard & CNBC-TV18 India Risk Management Awards, which recognises those organisations and teams that have significantly added to the understanding and practice of risk management.
BPCL also obtained the 'Leading Oil & Gas Corporate of the Year' and the 'Oil & Gas Marketing Company of the Year' Awards, two of the topmost recognitions of the PetroFed Oil & Gas Industry Awards. PetroFed also conferred the Innovator of the Year 2013 Team Award to BPCL Pipelines and a Special Commendation Award for 'Innovator of the Year - Team' to Corporate R&D Centre.
BPCL was also awarded as the Best Performing PSU among the Navratnas that have powered the nation's growth by the India Today Group. One of the most brstigious awards, this award attains utmost relevance as it is the culmination of a nation-wide study on the country's best performing Public Sector Undertakings, who are contributing the most towards nation building. Most befittingly, BPCL has been adjudged the winner for its consistent performance during the last three years.
The Asian Centre for Corporate Governance & Sustainability honoured BPCL with the 'Company with Best CSR & Sustainability Award 2014,' in recognition of the transformation of 90 villages in Southern India and 80 villages across Maharashtra and Rajasthan from water deficient to water positive dwellings, achieved through its flagship CSR Program, 'Project Boond.'
BPCL was also adjudged the Winner of the 2014 ICAI Award in Corporate Social Responsibility in the Rural Development Category by the Institute of Chartered Accountants of India.
Yet another noteworthy recognition for BPCL was the CSI Excellence in IT Award for the in-house developed 'Customer Care System' - an integrated platform for all customers of Bharat Petroleum to reach out to the company.
BPCL also won the Silver Award for its in-house magazine, 'Petro Plus' and the Bronze Award for its Corporate Calendar from the Association of Business Communicators of India (ABCI), symbolizing excellence in Corporate Communications.
The Indian Institution of Industrial Engineering (IIIE) conferred the Performance Excellence Award 2013 in the Platinum Category (Organization in the Energy Sector) on BPCL.
INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY
The Company's internal control system (including Internal Financial Controls and with reference to Financial Statements) ensures efficiency, reliability and completeness of accounting records and timely brparation of reliable financial and management information, compliance with all applicable laws and regulations, optimum utilisation and the protection of the Company's assets. The Company has a clearly defined organisational structure, decision rights, manuals and operating procedures for its business units and service entities to ensure orderly and efficient conduct of its business. State-of-the-art ERP solutions (SAP) and Business Information Warehouse, which has inbuilt brventive controls including the authorization controls, provide an audit trail and further enhance control and seamless exchange of information with access controls. The Company has a whistle blower policy and fraud policy to address fraud risk.
An independent Audit function, consisting of professionally qualified persons from accounting, engineering and IT domains, review the business processes and controls through risk focused audits. In addition, the Internal Team reviews key business process changes before implementation. The Audit Committee of the Board regularly reviews significant findings of the Internal Audit Department covering operational, financial and other areas and provides guidance on internal controls.