MIRA INFORM REPORT

Report Date :

10.03.2008

IDENTIFICATION DETAILS

Name :	BHARAT PETROLEUM CORPORATION LIMITED

Registered Office :	Bharat Bhavan, 4 & 6 Currimbhoy Road, Ballard Estate, Mumbai – 400 001, Maharashtra

Country :	India

Financials (as on) :	31.03.2007

Date of Incorporation :	03.11.1952

Com. Reg. No.:	11-8931

CIN No.: [Company Identification No.]	L23220MH1952GO1008931

TAN No.: [Tax Deduction & Collection Account No.]	MUMB00573G / MUMB12464E

PAN No.: [Permanent Account No.]	AAACB2902M

Legal Form :	Public Limited Liability Company The company's shares are listed on the Stock Exchanges.

Line of Business :	Manufacturing of Petroleum Products, Benzene and Lubricants.

RATING & COMMENTS

MIRA’s Rating :

RATING		STATUS	PROPOSED CREDIT LINE
71-85	Aa	Possesses adequate working capital. No caution needed for credit transaction. It has above average (strong) capability for payment of interest and principal sums	Large

Maximum Credit Limit :	USD 410900000

Status :	Good

Payment Behaviour :	No Complaints

Litigation :	Clear

Comments :	Subject is a well-established and reputed company. Available information indicates high financial responsibility of the company. Business is active. Payments are always correct and as per commitments. The company can be considered normal for business dealings at usual trade terms and conditions.

LOCATIONS

Registered Office :	Bharat Bhavan, 4 & 6 Currimbhoy Road, Ballard Estate, Mumbai – 400 001, Maharashtra, India
Tel. No.:	91-22-22642112
Fax No.:	91-22-22642112
E-Mail :	okesy@bharatpetroleum.com , dixitns@bharatpetroleum.in
Website :	http://www.bharatpetroleum.com

Factory 1 :	Lubricant Plant Wadilube Installation, Mallet Road, Mumbai – 400 009, Maharashtra 24, Parganas, Budge-Budge 743 319

	Delhi Co-ordination Office ECE House, Post Box No.7, Connaught Circus, New Delhi 110001
Tel. No.:	91-11-23316891
Fax No.:	91-11-23316894

	Retail Business Head Quarters Maker Towers E & F, 12th Floor, Cuffe Parade, Mumbai 400005
Tel. No.:	91-22-22189172
Fax No.:	91-22-22182304

	Lubricants Business Head Quarters Bharat Petroleum Corpn. Ltd., Bharat Bhavan-II, Ballard Estate, Mumbai 400 001
Tel. No.:	91-22-22713800
Fax No.:	91-22-22713801
E-Mail :
	Aviation Business Head Quarters Plot nos A5 & 6, Sector 1, Noida 201301, Dist. Gautam Budh Nagar
Tel. No.:	91-120-24539155
Fax No.:	91-120-2453917

	LPG Business Head Quarters Bharat Bhavan, 4 & 6 Currimbhoy Road, Ballard Estate, Mumbai 400001
Tel. No.:	91-22-22713000 91-22-22714000
Fax No.:	91-22-22832646

	Industrial & Commercial Business Head Quarters Bharat Bhavan, 4 & 6 Currimbhoy Road, Ballard Estate, Mumbai 400001
Tel. No.:	91-22-22713000 91-22-22714000
Fax No.:	91-22-22713671

	Chief Vigilance Officer Bharat Petroleum Corporation Ltd., Bharat Bhavan-1, 4 & 6, Currimbhoy Road, Ballard Estate, Mumbai-400074
Tel. No.:	91-22-22713610
Fax No.:	91-22-22713611

	Refinery Bharat Petroleum Refinery, Mahul, Chembur, Mumbai 400074
Tel. No.:	91-22-25543151
Fax No.:	91-22-25542970

DIRECTORS

Name :	Mr. Ashok Sinha
Designation :	Director (Finance)
Qualification :	B. Tech (Elect.) MBA
Other Directorship :	v KRL v NRL v BSL v BORL v PLL

Name :	Mr. S. A. Narayan
Designation :	Director (Human Resources)
Qualification :	B.SC. (Hons), M.A. (Pers), LLB
Other Directorship :	v NRL v KRL v PIL

Name :	Mr. S. Radhakrishnan
Designation :	Director (Marketing)
Qualification :	B.Tech., (Mech.) MBA
Other Directorship :	v NRL v KRL v PIL v IGL

Name :	Mr. P. C. Sen
Designation :	Director (w.e.f. 05.09.2003)

Name :	Mr. A. H. Kalro
Designation :	Director (w.e.f. 05.09.2003)

Name :	Mr. V. D. Gupta
Designation :	Director (w.e.f. 05.09.2003)

Name :	Mr. S. Behuria
Designation :	Chairman & Managing Director
Qualification :	B. A. (Hons) PGDBA
Other Directorship :	v KRL v NRL v BORL v BSL

Name :	Mr. P. K. Sinha
Designation :	Additional Director

Name:	Mr. S. K. Joshi
Designation:	Additional Director

Name:	Mr. R. K. Singh
Designation:	Director

KEY EXECUTIVES

Name :	Mr. D. M. Naik Bengre
Designation :	Company Secretary

Name:	Mr. Ajay Tyagi
Designation:	Joint Secretary (w.e.f. 21.04.2005)

Name:	Mr. N. Viswakumar
Designation:	Company Secretary

MANAGEMENT TEAM :

Mr. K. Subramanyam	Chief Vigilance Officer
Mr. A. K. Bansal	Executive Director (Corporate Affairs)
Mr. S. Chatterjee	Executive Director (Industrial and Commercial)
Mr. S. K. Joshi	Executive Director (Corporate Treasury)
Mr. S. Krishnamurthi	Executive Director (Retail)
Mr. T. K. Majumdar	Executive Director (Legal)
Mr. S. Mohan	Executive Director (Human Resources Development)
Mr. S. K. Phull	Executive Director (Exploration and Production)
Mr. V. V. Ramamurthy	Executive Director (Refinery Modernisation Project), Refinery
Mr. S. S. Ramgarhia	Executive Director (Coordination)
Mr. J. Ravichandran	Executive Director (Audit)
Mr. C. K. Sengupta	Executive Director (Finance)
Mr. S. K. Sharma	Executive Director (LPG)
Mr. R. R. Singh	Executive Director (Integrated Information Systems)
Mr. V. K. Agrawal	General Manager (Refinery Modernisation), Refinery
Mr. N. Bhakta	General Manger (Taxation)
Mr. P. S. Bhargava	General Manager (Planning)
Ms. Sumita Bose Roy	General Manager (International Trade)
Mr. S. Chandramohan	General Manager (Finance) Refinery
Mr. B. K. Datta	General Manager Incharge, Refinery
Mr. Anurag Deepak	General Manager (Industrial Business Development)
Mr. S. R. Gathoo	General Manager (Lubes)
Mr. Pallav Ghosh	General Manager (Retail) Headquarters
Mr. Vinod Giri	General Manager (Retail) East
Mr. K. K. Gupta	General Manager (Logistics)
Mr. N. Haran	General Manager (Real Estate)
Mr. Arjun Hira	General Manger (Marketing Coordination)
Mr. U. N. Joshi	General Manager (Aviation)
Mr. M. K. Kaul	General Manager (Engineering and Advisory Services) Refinery
Mr. L. Lobo	General Manager (City Gas Task Force)
Mr. S. P. Mathur	General Manager (Retail), North
Mr. R. K. Mehra	General Manager (Retail), West
Capt. M. J. Mohan	General Manager (Joint Ventures and Subsidiaries)
Ms. Nafini K. Murthy	General Manager (Public Relations 4 Brands)
Mr. A. Ramakrishnan	General Manager (Retail Network Planning and Development)
Mr. S. Ramesh	General Manager (Retail Strategy/Brand and Allied Retail Business)
Mr. D. M. Reddy	General Manager (Humam Resource Services)
Mr. B. S. Sant	General Manager (Bina Refinery Project Cel)
Ms. Dipti Sanzgiri	General Manager (Finance), Retail
Mr. A. C. Sen	General Manager (Health, Safety and Environment
Mr. Amitabha Sengupta	General Manager (Personnel and Administration), Refinery
Mr .K. V. Seshadri	General Manager (Operations), Refinery
Dr. M. A. Siddiqui	General Manger (Research & Development)
Mr. Manmohan Singh	General Manager (Engineering and Projects), Marketing
Mr. J. S. Sokhi	General Manager (Strategy)
Mr. S. Varadarajan	General Manager (Retail) South
Mr. D. M. Naik Bengre	Company Secretary
Mr. B. P. Singh	Deputy General Manager (Employee Satisfaction Enhancement)

MAJOR SHAREHOLDERS / SHAREHOLDING PATTERN

As on 31.03.2007

Names of Shareholders	No. of Shares	Percentage of Holding
Government of India	198600060	54.93
Government of Kerala	3111111	0.86
Unit Trust of India	443396	0.12
Life Insurance Corporation on India	39782310	11.00
Other Financial Institutions/Banks/Mutual Funds	19697138	5.45
Foreign Institutional Investors	47451317	13.12
Private Corporate Bodies	4798166	1.33
NRIs/ OCBs	398589	0.11
Employees	2053830	0.57
Indian Public	45206207	12.51
Total	361542124	100.00

BUSINESS DETAILS

Line of Business :

Manufacturing of Petroleum Products, Benzene and Lubricants.

Product :

Product Description	Item Code No.
Petroleum Products	2710
Benzene	2902
Lubricants	2710

PRODUCTION STATUS

Particulars	Licensed Capacity	Installed Capacity	Actual Production
Fuel Refinery
In million metric tonnes p.a.	NA	19.50	19.78
Production in kilolitres (KL)
Light distillates	--	--	6248058
Middle distillates	--	--	11863352
Others	--	--	4042483
Aromatics
Benzene	185500	192900	103585
Toluene	67600	73100	39544
Mixed Aromatic Solvent	15000	15000	--
MTBE in M.T.	NA	30000	18564
New Solvent Unit
Solvent in M.T.	NA	40000	3077
Solvent [Food Grade Hexane] in M.T.	NA	25000	27633
Poly Proplyene Feedstock in M.T.	NA	60000	46133
Lubricants in M.T.	NA	181000	116337
Lube Oil Base Stock in M.T.	NA	180000	104905
Sulphur in M.T.	NA	117667	71429
Natural Rubber Modified Bitumen in M.T.	NA	65000	27679
Bitumen Emulsion in M.T.	50000	27600	1791
Diesel Additive in M.T.	5000	1500	--
Propylene in M.T.	65000	15000	--
Petroleum Hydrocarbon Solvent in M.T.	10000	8820	6546
Poly Iso Butene in M.T.	5000	5000	3098
Cable Jelly in M.T.	6500	2500	--
Others in M.T.	14000	1000	--

GENERAL INFORMATION

No. of Employees :

12670

Bankers :

v State Bank of India

v Union Bank of India

v Corporation Bank

v Bank of India

v State Bank of Patiala

v Central Bank of India

v Standard Chartered Grindlays Bank

v Standard Chartered Bank

v ABN Amro Bank N.V.

v ICICI Bank

v HDFC Bank

v Indian Bank

v State Bank of Travancore

v Indian Bank


Banking Relations :	Good

Auditors :
Name :	V. Sankar Aiyar and Company Chartered Accountants

Associates :	v Indraprastha Gas Limited v Petronet India Limited v Bharat Shell Limited v Petronet CCK Limited v Petronet CI Limited v Petronet LNG Limited v Bharat Oman Refineries Limited v VI e Trans Limited v Petroleum Infrastructure Limited v Cochin International Airport Limited

Subsidiaries :	v Kochi Refineries Limited (With effect from 26.03.2001) v Numaligarh Refinery Limited (With effect from 31.03.2001)

CAPITAL STRUCTURE

Authorised Capital :

No. of Shares	Type	Value	Amount
450000000	Equity Shares	Rs. 10/- each	Rs. 4500.000 Millions

Issued, Subscribed & Paid-up Capital :

No. of Shares	Type	Value	Amount
361542124	Equity Shares	Rs. 10/- each	Rs. 3615.421 Millions

Includes:

I] 22950000 equity shares of Rs. 10 each on which Rs. 7.20 per share was paid in cash and were converted into fully paid by capitalization of capital reserve.

[ii] 277000000 equity shares of Rs. 10 each allotted as fully paid bonus shares by capitalization of Capital Reserve and General Reserve

[iii] 61542124 equity shares of Rs. 10 each issued as fully paid-up to the Shareholders of erstwhile Kochi Refineries Limited as per the Scheme of Amalgamation.

FINANCIAL DATA

[all figures are in Rupees Millions]

ABRIDGED BALANCE SHEET

SOURCES OF FUNDS		31.03.2007	31.03.2006	31.03.2005
SHAREHOLDERS FUNDS
1] Share Capital		3615.400	3615.400	3000.00
2] Share Application Money		0.000	0.000	0.000
3] Reserves & Surplus		99120.000	87778.800	60884.260
4] (Accumulated Losses)		0.000	0.000	0.000
NETWORTH		102735.400	91394.200	63884.260
LOAN FUNDS
1] Secured Loans		25939.600	30713.200	11734.170
2] Unsecured Loans		82352.800	53022.800	27081.950
TOTAL BORROWING		108292.400	83736.000	38816.120
DEFERRED TAX LIABILITIES		0.000	0.000	9690.290

TOTAL		211027.800	175130.200	112390.670

APPLICATION OF FUNDS

FIXED ASSETS [Net Block]		109810.500	99173.600	70001.210
Capital work-in-progress		8523.400	11681.100	13485.53

INVESTMENT		82949.000	38774.200	16771.380
DEFERREX TAX ASSETS		0.000	0.000	0.000

CURRENT ASSETS, LOANS & ADVANCES
	Inventories	86612.600	90447.700	62585.560
	Sundry Debtors	15187.300	13158.900	8545.840
	Cash & Bank Balances	8639.700	4921.000	3523.890
	Other Current Assets	0.000	0.000	96.780
	Loans & Advances	28879.600	26762.200	28767.190
Total Current Assets		139319.200	135289.800	103519.260
Less : CURRENT LIABILITIES & PROVISIONS
	Current Liabilities	118813.600	104663.600	87916.660
	Provisions	10760.700	5124.900	3470.050
Total Current Liabilities		129574.300	109788.500	91386.710
Net Current Assets		9744.900	25501.300	12132.550

MISCELLANEOUS EXPENSES		0.000	0.000	0.000

TOTAL		211027.800	175130.200	112390.670

PROFIT & LOSS ACCOUNT

PARTICULARS		31.03.2007	31.03.2006	31.03.2005
Sales Turnover		1074522.700	851496.200	638570.000
Other Income		7689.400	4931.400	5117.200
Total Income		1082212.100	856427.600	643687.200

Profit/(Loss) Before Tax		27669.900	4065.500	13558.400
Provision for Taxation		9615.200	1149.000	3900.400
Profit/(Loss) After Tax		18054.700	2916.500	9658.000

Expenditures :
	Raw Materials	885937.700	713504.200	544955.700
	Excise Duty	108954.200	96163.300	59796.000
	Power & Fuel Cost	666.400	477.100	196.900
	Other Manufacturing Expenses	5865.400	4931.200	3738.300
	Employee Cost	10028.700	8810.900	7925.200
	Selling and Administration Expenses	22166.400	19437.600	1,7414.100
	Miscellaneous Expenses	9163.000	6425.500	4603.600
	Interest & Financial Charges	4773.700	2476.200	1401.100
	Depreciation	9041.100	7680.100	5960.400
	Stock Adjustments	[2054.400]	[7544.000]	[15862.500]
Total Expenditure		1054542.200	852362.100	630128.800

QUARTERLY RESULTS

PARTICULARS	30.06.2007	30.09.2007	31.12.2007
Type	1^st Quarter	2^nd Quarter	3^rd Quarter
Sales Turnover	238694.000	251704.000	289284.000
Other Income	4341.000	3652.000	3183.000
Total Income	243035.000	255356.000	292467.000
Total Expediture	236634.000	236055.000	284913.000
Operating Profit	6401.000	19301.000	7554.000
Interest	1240.000	1228.000	162.0.000
Gross Profit	5161.000	18073.000	5934.000
Depreciation	2276.000	2322.000	306.5.000
Tax	857.000	4659.000	57.000
Reported PAT	1927.000	10382.000	2913.000

KEY RATIOS

PARTICULARS	31.03.2007	31.03.2006	31.03.2005
Debt-Equity Ratio	0.99	0.79	0.54
Long Term Debt-Equity Ratio	0.29	0.25	0.20
Current Ratio	0.73	0.81	0.80
Fixed Assets	5.83	5.67	5.36
Inventory	12.14	11.13	12.11
Debtors	75.81	78.46	76.22
Interest Cover Ratio	6.80	2.64	10.68
Operating Profit Margin (%)	3.86	1.67	3.28
Profit Before Interest And Tax Margin (%)	3.02	0.77	2.34
Cash Profit Margin (%)	2.52	1.24	2.45
Adjusted Net Profit Margin (%)	1.68	0.34	1.51
Return On Capital Employed (%)	16.80	4.71	15.91
Return On Net Worth (%)	18.66	3.77	15.78

LOCAL AGENCY FURTHER INFORMATION

HISTORY:

The company was first incorporated as Standard Vacuum Refining, Company of India in 1952 and later named ESSO India. When Esso and Lube India were nationalised, the company was renamed Hindustan Petroleum Corporation (HPCL) with effect form 1974. The Caltex undertaking were also nationalised in 1976, which were subsequently merged with the company in 1978. In the following year, the undertaking of Kosan Gas Company, the concessionaires of HPCL in the domestic LPG market, was merged with the company.

Keeping pace with the nations energy requirements the company infrastructure today boasts of refineries, cros - country pipelines, LPG bottling plants, lube blending plants and aviation service facilities. Add to this it has extensive network of retail outlets, regional offices. Terminals and depots that truly make it an industry leader. The main products of the company includes petrol, high speed diesel, superiors kerosene oil, liquefied petroleum gas, aviation turbine fuel, naphtha, furnace oil, bitumen, l low sulphur heavy stock, solvents, propylene and over 300 grades of lubes. The company has 20% market share in the POL products and over 40% of the total lube base stock production capacity in the country. It was the first oil major to tap the capital market in February, 1995.

Further, the company is evaluating the possibility of tapping the market in the current year to part fund its proposed nine-tonne Bhatinda refinery. A subsidiary company "Guru Gobind Singh Refineries" has been incorporated on December, 2000. Land admeasuring approximately 2000 acres has been acquired. The project cost has been worked to Rs. 98060.00 millions.

The company has completed the Rs. 3780.00 millions Vijaywada to Secunderabad pipeline project and commissioned it on March, 2002. The company has also commissioned the 8 Km long tanker discharge pipeline between sunken ship jetty and ATP terminal at Visakh (laid at a cost of Rs. 150.00 millions) on June, 2001. Further the company is taking up a capacity augmentation project of 10 LPG bottling plants to the extent of 280 TMTPA is in progress and is expected to be completed during 2002-03.

The story begins with formation of the Standard Oil Trust in the 1860s and its subsequent merger with rivals – Royal Dutch, Shel and Rothschilds, to form Asiatic Petroleum (India), joined the Burmah Oil Company to form the Burmah-Shell Oil Storage and Distribution Company of India Limited. With nationalisation in 1976, the company came to be known as Bharat Petroleum and the refinery and marketing companies were merged to form company.

The company started with the marketing of Kerosene. With motor cars, came canned petrol, followed by service stations. In 1932, when civil aviation arrived in India, the company had the honour of fuelling J.R.D. Tata's solo flight from Karachi to Mumbai. The company's refinery in Mumbai was commissioned in 1955. The company introduced LPG as a cooking fuel to the Indian home.

Subject is India’s second largest oil company in terms of market share and processes about 9 million metric tons of crude per year. Today the company produces a diverse range of products, from petrochemicals and solvents to aircraft fuel and specially lubricants. It manufactures petroleum and petroleum products, asphalt, bituminous substances, carbon, carbon black, hydrocarbons, mineral substances and the products or by-products derived there from.

The company embarked upon a strategic change plan in 1996. The organisation structure has been revamped and six strategic business units have been created. The new structure is based on business processes, is flexible, more responsive to external changes, has fewer layers and above all, ensures a much higher customer focus.

During the year 2000-01, the company issued bonus shares in the ratio of 1:1, thereby enhancing its equity capital to Rs. 3000.00 millions. Also Recently it acquired 55% stake in Kochi Refinery Limited from the Government of India and 19% in Numaligarh Refinery Limited from IBP. Consequent to this, KRL and NRL have become subsidiaries of the company. Government had a 66% stake in the company, which it plans to divest in due course of time. The contenders for the same include MNCs like shell along with domestic companies like Reliance Industries. A possible cross holding between the company and Hindustan Petroleum Corporation Limited is also proposed.

Refinery Modernization Project was being implemented at a cost of Rs. 18310 million. This project besides improve distillate yield and energy efficiency, will enhance the crude oil capacity to 12 MMTPA. The project was expected to be commissioned October, 2004. Gas Turbine and Heat Recovery Steam Generator project was commissioned during 2001-02 at a cost of Rs.1750 million. The long term plan of setting up a 7 MMTPA capacity grassroots refinery project in Allahabad District of UP is under final stage of approval. The forestland of 450 acres had been approved and the estimated cost of the Refinery project amounts to 61800 million. This project is planned in such a way it should be mechanically completed within 48 months from the date of receipt of all statutory approvals.

The following are the Joint Ventures where BPC is having equity holding.

1. Bharat Shell Limited, a Joint Venture between BPC and Shell Overseas Investment BV of Holland.

2. Petronet India Limited, a Joint Venture company in which BPC has 16% equity participation.

3. Petronet CKK Limited, a JV company wherein BPC is having 26% equity participation with PIL.

4. Petronet LNG Limited, a JV company setup for importing LNG

5. IGL a Joint Venture company setup with Gail as the other partner, wherein BPC holds 22.5 equity.6.11% equity participation with Petronet CI Limited.

6. VI e Trans Private Limited, 33% total equity is being held by BPC at a cost of Rs.1 million.

It is in trade terms with :-

Ø Abasi Engineering Works

Ø Acoustics India Private Limited

Ø Advance Petrochemicals Limited

Ø Advance Reinforced Plastics Private Limited

Ø Airox Nigen Equipments Private Limited

Ø Akash Constructions

Ø Apex Forgings and Fittings

Ø Associated Cyls and Accessories Private Limited

Ø N. T. Perumal

Ø Balaji Electrical Engineering Works

Ø Bangalore Spemach Private Limited

Ø Blue Star Limited

Ø BSJ Shau Manufacturers (India)

Ø C. Ganeson

Ø Campaign Committee for 2^nd World

Ø Canon Sports and Gifts

Ø Carol Petroleum Private Limited

Ø Central Stores Supplying Company

Ø Ch. Chennakeswarwa Reddy

Ø Chandawat Udyog Cyls. Limited

Ø Chandra Engineering and Mechanical Private Limited

Ø Chembonddrewtreate Limited

Ø Chemtrols Engineering Limited

Ø Chennai Valves

Ø Chhabi Electricals Private Limited

Ø Commercial Supplying Agency

Ø Das Construction Company

Ø Daya Lubricants Private Limited

Ø Del PD Pumps and Gears (Private) Limited

Ø Delta Corporation

Ø Dembla Valves Private Limited

Ø De’s Technico

Ø Dessma Engineering Private Limited

Ø Divya Construction

Ø Evergreen Engineering Company Limited

Ø FCG Power Industries Private Limited

Ø Fivebros Corporation

Ø Flameproof Equipments Private Limited

Ø Gokul Distributors

Ø Grand Prix Fab (Private) Limited

Ø Gratex Industries Limited

Ø GSN Prasad & Company

Ø Gujarat Gas Equipment Private Limited

Ø Hyderabad Cylinders Private Limited

Ø Hyderabad Valves Oprivate Limited

Ø Hydropeneumatics

Ø Muni Mohan Reddy

Ø Inustrial Engineers and Fabricators

Ø Instrumentation Engineers Private Limited

Ø Sunrays Engineering Private Limited

Ø Jaishri Engineering Corporation

Ø Jindal Forgings Private Limited

Ø Jorss Rubber Polymers

Ø Joseph Leslie & Company

Ø Joseph Leslie Drager Manufacturers

Ø Kunj Forgings

Ø Lalit Profiles and Steel Industries Limited

Ø Lunar Engineers and Consultants

Ø Minco India Private Limited

Ø Multimetals Limited

Ø Multitex Filteration Engineers Private Limited

Group Performance:

The aggregate Refinery throughput at Subject s Refineries at Mumbai and Kochi, along with that of Subject s subsidiary company, Numaligarh Refinery Limited (NRL) in 2006-07 was 22.28 MMT, as compared to 19.37 MMT in 2005-06. The market sales of the Subject Group increased to 23.66 MMT from 21.79 MMT in the previous year Besides, the Group had also exported 1.72 MMT of petroleum products during 2006-07, as compared to 1.39 MMT exported in 2005-06.

On the financial front, the sales turnover for the year of the Subject Group stood at Rs. 1090789.38 million, up from the last year's level of Rs.862229.01 million. The Group Profit after Tax (PAT) increased to Rs.23558.80 million in the current year from Rs. 7035.82 million in the previous year After setting off the minority interest, the Group earnings per share increased from Rs. 14.86 in the previous year to Rs. 59.33 in 2006-07.

Company Performance:

During the year 2006-07, Subject's Mumbai Refinery had a crude throughput of 12.03 MMT, which was higher than the level of 10.30 MMT achieved during the last year. Kochi Refinery also achieved a higher crude throughput at 7.75 MMT, as compared to 6.94 MMT in 2005-06. The market sales of the company increased to 23.45 MMT from a level of 21.63 MMT in 2005-06.

The sales turnover of the company registered a growth of 26.19% over the previous year, to reach a level of Rs. 1074522.70 million as compared to Rs. 851496.22 million in 2005-06. Similarly, the gross profit before interest, depreciation and tax for the year stood at Rs. 41491.08 million, representing an increase of 191.65% over the previous year. The profit before tax f or the year increased by 579.69% over the previous year and has reached a level of Rs. 27676.44 million from Rs. 4071.95 million in 2005-06. After providing for tax, (including deterred tax and fringe benefit tax) of Rs. 9621.69 million as against Rs.1155.49 million during the last year, the profit after tax showed an increase of 519.06% from Rs.2916.46 million in 2005-06 to Rs. 18054.75 million in 2006-07.

Cash Flows:

The Board of Directors has recommended a final dividend of 100% (Rs.10 per share) for the year on the paid-up share capital of Rs.3615.42 million, which will absorb a sum of Rs.4229.86 million out of the profit after tax, inclusive of Rs.61444 million for Corporate Dividend Tax on distributed profits. The total dividend for the year, including the interim dividend of 60%, will absorb a sum of Rs.6703.35 million out of the profit after tax, inclusive of Rs.918.68 million for Corporate Dividend tax on distributed profits. Subject 's net worth as on 31 It March, 2007 stands at Rs. 102,735.41 million, as compared to Rs.91394.27 million as at the end of the previous year.

The earnings per share stood at Rs. 49.94 in 2006-07 as compared to Rs.8.07 during 2005-06. Internal cash generation during the year was higher at Rs.22177.03 million as against Rs. 10613.71 million in the previous year.

Subject's contribution to the exchequer by way of taxes and duties during the year amounted to Rs. 24356.22 million as against Rs 20391.90 million during the last financial year.

Borrowings from banks increased to Rs. 91179.57 million from Rs. 63095.58 million at the close of the previous year The Collateralised Borrowing and Lending Obligation (CBLO) through Clearing Corporation of India Limited amounted to Rs.8660 million as at the end of the year, as compared to Rs.

8,650 million at the end of the previous year. Borrowings from Oil Industry Development Board increased to Rs.7681.40 million as compared to Rs.6530.40 million at the end of the previous year.

Public deposits as at 31 11 March 2007 stood at Rs. 626.11 million as compared to Rs. 970.34 million at the end of the previous year. The amount of deposits, matured but unclaimed, at the end of the year was Rs. 8.27 million, which pertains to 118 depositors.

The total Capital Expenditure during the year 2006-07 amounted to Rs.18338.12 million as compared to Rs. 20,190.84 million during the year 2005-06.

The Comptroller and Auditor General of India (C&AG) has no comment upon or supplement to the Statutory Auditors' report on the Accounts for the year ended 31st March 2007. The letter from C & AG is annexed as Annexure D.

REFINERIES:

Mumbai Refinery:

During the year 2006-07, the Mumbai Refinery processed 12.03 MMT of crude oil, as against 10.30 MMT in 2005-06. This is the highest level of crude processing in a single financial year. The gross refinery margin for the current year stood at USD 3.64 per barrel of crude oil processed, as compared to USD 1.64 per barrel in 2005-06. The total gross margin for the year amounted to Rs. 14908.38 million as against the level of Rs. 5606.35 million achieved in the previous year The improvement in the gross margin was due to better crude mix, value addition from the Hydrocracker/ Lube Oil Base Stock (LOBS) units and favorable crude/product prices.

Kochi Refinery:

During the year 2006-07, Kochi Refinery processed 7.75 MMT of crude oil, as compared to 6.94 MMT in the previous year. The gross margin earned during the year stood at USD 3.46 per barrel of crude oil processed, as compared to USD 3.17 per barrel during 2005-06.

The details of the performance of the Refineries, their activities and future plans are discussed in the Management Discussion and Analysis Report (MD & A).

MERGER OF KRL WITH SUBJECT :

As informed in the last year's Report, the merger of the erstwhile Kochi Refineries Limited (KRL) with subject under sections 391 to 394 of the Companies Act 1956 had been completed, following receipt of the Order dated 18th August 2006 issued by the Ministry of Company Affairs, New Delhi.

During the year, one of the Shareholders of the erstwhile KRL had filed a Writ Petition in the Delhi High Court challenging the merger, and the same is pending as on date.

MARKETING:
Subject s overall market sales in 2006-07 increased to 23.45 MMT from 21.63 MMT in 2005-06. With a growth rate of 8.41% over the previous year, subject has recorded robust growth during the year. As on 31st March 2007, subject had a market share of 22.63% amongst the public sector oil companies. The year witnessed a sharp growth in the sales volume of Motor Spirit (MS), High Speed Diesel (HSD), Aviation Turbine Fuel (ATF), Lubricants, Bitumen and Benzene. During the year, HSD sales have increased significantly, thus reversing the decline seen in the previous year. Subject achieved the highest growth in the Industry with regard to sales of HSD. In addition, subject has also exported 0.60 MMT of Naphtha, 0.75 MMT of Fuel Oil (FO) and 0.07 MMT of HSD during the year.

PROJECTS:

Central India Refinery Project:

A 6 MMTPA capacity grassroot Refinery at Bina, Madhya Pradesh along with crude oil import facilities consisting of a Single Point Mooring facility (SPM), Crude Oil Storage Terminal (COT) at Vadinar and a 935 km long cross-country crude oil pipeline from Vadinar to Bina, is being set up by Bharat Oman Refineries Limited (BORL), a Joint Venture Company promoted by subject and Oman Oil Company Limited (OOCL). The approved revised cost of the project is Rs. 103,780 million. The project is scheduled for commissioning in December 2009.

Initially, both subject and OOCL had each contributed Rs. 755 million towards the equity of the Company. In view of the decision by OOCL to limit its equity contribution in BORL to the present level of Rs. 755 million, subject has, with the approval of the Government of India, decided to enhance its equity contribution in BORL upto 50%, amounting to Rs. 19960 million.

During the year, subject has contributed a sum of Rs. 9000 million towards subscribing for fully convertible debentures to be issued by BORL, thereby taking subject's total equity contribution in BORL to Rs. 9755 million. As at 31st March, 2007, BORL had net worth of Rs. 1500.15 million with a book value of Rs. 9.93 per share.

Environmental clearances and all other Government approvals have been received for the project. One of the unique features of the refinery process configuration is that it has integrated high pressure Diesel Hydrotreater with Full Conversion Hydrocracker, which is the first of its kind in India. This integration provides for capital cost reduction and improvement of energy efficiency. The Captive Power Plant proposed to be put up is a Circulating Fluidized Bed Combustion (CFBC) type Boiler based power plant, generating power through Steam Turbo Generator, using pet coke as main fuel. A pet coke based Captive Power Plant is being put up for the first time in the Indian refining industry. BORL has signed an agreement with a consortium of lenders led by State Bank of India, for loans amounting to Rs. 63870 million.

EIL has been appointed as the Project Management Consultant for the project. A majority of the project units facilities are being implemented on the conventional mode of execution methodology. However, certain units are being implemented on Lump Sum Turn Key (LSTK) basis. Basic Process Design Packages for major units viz. Crude and Vacuum Distillation Unit, Hydrocracker & Diesel Hydrotreater, Naphtha Hydrotreater, Isomerisation, Hydrogen Plant and Delayed Coker Unit, have already been received. The detailed engineering work for all the process units is in progress.

Structural and civil drawings are being released progressively for construction.

Orders for Crude & Vacuum Columns, Hydrocracker Reactors and Separators have been placed. An order has also been placed for a Captive Power Plant on LSTK basis. Site construction activities are progressing in right earnest. Tenders for a number of critical equipment have been floated and evaluation is under progress.

The overall progress achieved till 151h July 2007 was 22.8%. The commitments made till 6th August 2007 stood at Rs. 67581 million. The cumulative capital expenditure as at the end of July 2007 stood at Rs. 7968 million. The project is scheduled for mechanical completion by December 2009.

Bina Despatch Terminal:

Subject will be undertaking the marketing of the refined petroleum products from the new joint venture refinery at Bina in Madhya Pradesh. subject has entered into the product purchase and sale agreement with BORL. This terminal is planned to facilitate the marketing of products from the refinery. The project envisages the setting up of the Despatch Terminal With appropriate storage, distribution and other infrastructural facilities, adjacent to the refinery complex at Bina. The project is estimated to cost Rs. 4907.1 million and is slated for commissioning in line with the commissioning of the refinery at Bina.

Bina Kota Pipeline Project

The project envisages the laying of an 181, dia. 265 km long cross country product pipeline from Bina to Kota, to facilitate the economic evacuation of MS, Superior Kerosene Oil (SKO), HSD and ATF from the new refinery at Bina. The project is estimated to cost Rs. 4058.2 million and the pipeline is being designed for an initial throughput of 2.8 MMTPA. The pipeline will originate from the Bina Despatch Terminal and terminate at Kota, where it will be connected to the existing Mumbai - Manmad - Manglya Piyala pipeline, to enable the distribution of the Bina refinery products to the northern region markets. The project commissioning will synchronise with the commissioning of the Bina Refinery and the Bina Despatch Terminal.

Uttar Pradesh Refinery ProjectThere are plans for setting up a new grassroot refinery in the state of Uttar Pradesh, which can help in meeting the long term product requirements. However, detailed work on the implementation of the project is expected to start only after the new refinery at Bina in Madhya Pradesh is commissioned and has commenced operations.

Extension of Mumbai-Manmad Product Pipeline to Piyala with Feeder Line from Piyala to Bijwasan

Subject is transporting petroleum products from its Mumbai Refinery through a 252 km long 18' dia. multi-product pipeline to Manmad terminal, and further through a 358 km long 14' dia. multi product pipeline to Manglia terminal.

The extension of the Mumbai-Manmad Manglia pipeline to Piyala was commissioned in January 2007, and the feeder line from Piyala to Bijwasan in March 2007. In view of the capacity enhancement of Mumbai Refinery to 12 MMTPA, the extension of the pipeline will help to economically evacuate the additional products from Mumbai Refinery, and to cater to the requirements of the northern region. The total pipeline length from Mumbai to Bijwasan is approximately 1379 kms.

The approved cost of this project is Rs.8074.6 million, including a foreign exchange component of Rs. 2365.6 million and the actual expenditure upto March 2007 amounted to Rs. 7679 million.

Capacity Expansion cum Modernization Project (CEMP) - Phase 11 at Kochi Refinery

The project envisages the setting up of facilities for production of auto fuels conforming to Euro - III equivalent norms and modernization & capacity expansion of the Refinery from the present 7.5 MMTPA to 9.5 MMTPA.

The estimated cost of the project is Rs. 25918 million and it is scheduled for completion in September 2009. Cumulative physical progress till June 2007 is 2.6% and the cumulative expenditure till that date was Rs. 259 million. Commitments made till the end of June 2007 stood at Rs. 8147 million.

Crude Oil Receipt Facilities at Kochi

This project envisages setting up of Crude Oil Receipt Facilities, consisting of Single Buoy Mooring (SBM) for berthing very large crude carriers (VLCC), shore tank farm and associated pipelines. The estimated cost of the project is Rs. 8210 million and it is scheduled for mechanical completion by November 2007. The project has achieved a physical progress of 94.43% as of June 2007. The cumulative expenditure upto June 30, 2007 amounted to Rs. 5454 million and the total commitments made upto that date stood at Rs. 7182 million.

Fuels Quality Upgrade Project at Mumbai Refinery

The project involves revamping the existing Diesel/ Naphtha Hydro De-sulphurisation and Reformer units to produce Euro IV grades of MS and HSD by April 2010, as per the Auto Fuel Policy announced by the Government of India. Implementation activities for the project, with an approved cost of Rs. 3900 million, have commenced.

Revamp of Bitumen Blowing Unit at Kochi RefineryFor meeting the demand of new grades of bitumen products due to the proposed changes in the product grade and softening specification of paving-grade bitumen by Bureau of Indian Standards, Kochi Refinery is revamping the existing Bitumen Blowing unit using Biturox technology. This project, costing Rs. 279.2 million, is expected to be commissioned by November 2007. The cumulative expenditure on the project till June 2007 amounted to Rs. 128.2 million.

Propylene Recovery Unit (PRU)

A Propylene Recovery Unit (PRU) to produce 50000 MTPA of 95% purity chemical grade propylene is being set up in Kochi Refinery. The project, costing Rs. 641.3 million, is scheduled to be completed by December 2008.

NON-CONVENTIONAL ENERGY INITIATIVES:

Subject has been in the forefront in promoting non-conventional sources of energy. A number of initiatives have been undertaken in this area.

A 5 KVA solar-cum-wind power generator has been commissioned at the Company Owned Company Operated (COCO) Retail Outlet at Uluberia near Kolkata, at a project cost of Rs.1.8 million, in March 2007. A 5 KVA solar power generator is also being set up at a COCO outlet in Bangalore with a project cost of Rs.0.8 million. The work at the site has been completed in early February 2007. The facilities at both the locations have since stabilized and are fully operational now. Based on the experience and feedback from these pilot projects, similar initiatives will be taken up at other locations of the Company.

Another important milestone achieved has been the commissioning of a 3 KVA Poly Electrolyte Membrane Fuel Cell Generator to operate on Hydrogen energy in January 2007 at the COCO outlet at Medchal near Hyderabad. This is a pilot project, the first of its kind undertaken in the country along with Bharat Heavy Electricals Limited, at an estimated project cost of Rs.4.8 million. The work of Phase I has been completed and the facilities are being tested on full load operations for continuous 12 hours working. The newly installed equipment is in the process of stabilizing and is expected to be fully operational shortly. Based on the Performance Feedback of Phase-I of the project, a decision on putting up similar facilities at other locations will be taken.

Subject also has ambitious plans for the generation of power for its captive consumption using renewablesources. One of the first projects being undertaken involves putting up 5 MW capacity windmills in the state of Karnataka at an estimated project cost of Rs. 260 million. Orders have been placed on the vendor for the supply of equipment and components. The civil foundation has been completed and the erection of towers is expected to be completed by September 2007.

Subject also has major plans for entering the Biodiesel value chain. Towards this end, plantation of Jatropha trees has been arranged at around 1000 acres of land at existing storage locations and LPG Bottling Plants. A set of guidelines for Jatropha plantation has been issued, with a view to adopt uniform standards all over the country. Subject is also looking at options of collaborating with other players, intending to have a major presence in this emerging area.

Subject is in discussions with select State Governments and other players in the Biodiesel field to start a Biodiesel venture covering the entire value chain, through a Joint Venture. A proposal for a venture in the state of Uttar Pradesh has been given in principle approval by the Board and subject is in the process of formulating and finalizing the relevant agreements in this regard.

Ethanol Blended Petrol

The Ministry of Petroleum & Natural Gas had mandated marketing of 5% Ethanol Blended Petrol (EBP). Oil companies are tying up the ethanol requirements. The public tenders that were floated for this purpose have been finalized for 16 states, while for 4 states; the same could not be finalized due to high rates or on account of stipulated excise procedures not permitting the same. EBP supplies have commenced in several states. In a few other states, Letters of Intent have been issued and the supply of EBP is expected to commence shortly.

INDUSTRIAL RELATIONS

Extensive discussions on business and other related issues were held between the Management, Employees and their Associates/Unions during the year. In September 2006, there was a brief industrial unrest in the Corporation due to some differences in perceptions relating to an incentive payment. This dispute has been referred by the Government of India to a Tribunal for adjudication, where the matter is pending, barring this; the industrial relations had been peaceful throughout the year.

FULFILLMENT OF SOCIAL OBLIGATIONS

As a responsible corporate citizen, subject accords significant importance to Corporate Social Responsibility (CSR) and takes it as one of the prime areas of focus. Community Development Programmes (CDP) were undertaken to bring all round development in adopted

Villages, consisting of economically and socially backward population and significant resources were allocated towards these activities. Under the Component Plan, welfare activities were undertaken at 34 adopted villages spread over 13 states across the country. A sum of Rs. 38.10 million was spent during the year on these activities. The main impetus was given in the fields of health, education, infrastructure development and usage of non-conventional alternate energy sources. In all these programmes, subject propagated energy conservation and ecological balance through methods such as rainwater harvesting, regeneration of mangroves and promotion of usage of alternate fuel sources such as biogas, solar energy etc. One of the significant projects undertaken was the Rainwater Water Harvesting Project with the financial support of Oil Industry Development Board. Using indigenous technology, 3 villages in Maharashtra were converted to a position of 'water abundance' from scarcity conditions.

During the year, subject sportspersons continued to excel in the national as well as the international sports arena. Ms. Saina Nehwal created history when she became the first Indian Woman to win the Phillipines Open Badminton Tournament. She also went on to win the National Badminton Championship. Mr. S. Sreesanth represented India in the World Cup Cricket Tournament held recently in the West Indies. Subject s Volleyball team won the National League Finals at Kochi. Mr. Abhijeet Gupta, the chess prodigy, won the Gold Medal in the Commonwealth Chess Championship and the Silver Medal in the World Chess Championship. Mr. Venkatesh won the Bronze Medal in the Commonwealth Chess Championship. Mr. Manan Chandra, their ace cueist, was a member of the Indian Team which won the Silver Medal in the World Team Snooker Championship held at San Jose, California. He also won the Individual Bronze in the IBSF World Snooker Championship at Jordan. Ms.

Anuja Thakur, another cueist, won the Bronze Medal in the IBSF World Snooker Championship at Jordan. Mr. Devendra Joshi won the Silver Medal in the Asian Billiards Championship at Teheran. subject's sportspersons viz. Ms.

Poulomi Ghatak (Table Tennis), Mr. Manan Chandra (Snooker), Ms. Anuja Thakur (9 Ball Pool), Ms. Saina Nehwal and Mr. Anup Sridhar (Badminton), Mr. Tushar Khandekar and Mr. Hari Prasad (Hockey), Mr. Tom Joseph and Mr.

R. Rajeev (Volleyball) represented India in the Asian Games held at Doha, Qatar in December 2006. Shri. M. M. Somaya, Dy. General Manager (Brand & PR), has been nominated by the Indian Hockey Federation as the Technical Director for the Indian Hockey Team. Subject was awarded the PSPB (Petroleum Sports Promotion Board) President's Trophy during the year, based on the performance at the various PSPB tournaments.

Details relating to employees belonging to Scheduled Caste (SC), Scheduled Tribe (ST) and Other Backward Classes (OBC) are given in Annexure C.

Subject has been providing reservations and concessions for physically challenged persons since 1981, based on Governmental instructions. The reservations were earlier provided for Group C and Group D posts. However, after the enactment of 'The Persons with Disabilities (Equal Opportunities, Protection of Rights and Full Participation) Act, 1995', the reservations have been extended to posts in Group A and Group B with effect from February 1996. On the advice of the Government of India in March 2007, the Company has identified positions in Groups A & B, which could be reserved for filling up by persons with disabilities (physically challenged). It is the Company's endeavor to achieve the desired percentage for physically handicapped persons during direct recruitment. Subject has 204 physically challenged persons on its rolls as at 31 11 March 2007.

Various concessions and facilities are extended to the physically challenged persons such as age relaxation of 5/10 years, giving them a sympathetic consideration during interviews, hearing aids for the hearing-impaired persons and appropriate equipment required by orthopaedically handicapped persons. In addition, visually handicapped staff are provided with 'Special talking' computers.

IMPLEMENTATION OF THE OFFICIAL LANGUAGE POLICY:

The Official Language Committees function at the Corporate, Regional and Location levels, in order to promote use of Hindi at workplaces. These Committees review from time to time the progress made in Official Language implementation. Several Hindi workshops and meetings of the Hindi Coordinators were organized during the year. The First Sub-Committee of the Parliamentary Committee on Official Language inspected four locations and Rajbhasha Vibhag of Ministry of Petroleum & Natural Gas carried out inspection at two locations. Similar inspections were carried out by Rajbhasha Vibhag, Ministry of Home Affairs, and the Drafting & Evidence Committee of the Parliamentary Committee. Subject s efforts were appreciated by these Committees.

An attractive incentive scheme is in vogue to further enhance Official Language Implementation within the Corporation. Similarly 'The Chairman's Inter-Region Rajyabhasha Rolling Trophy' has been instituted within subject to create competition and awareness. Various competitions and cultural programmes were organized at work locations during the Hindi fortnight celebrations from 14th-28th September, 2006.

CITIZENS' CHARTER:

Citizens' Charter - a tool for ensuring transparency in communicating with customers and educating them about their rights, apart from various infrastructure/ services being available for the customers - has always been in the forefront of all activities of subject. The focus was on enhancing customer service levels. The Grievance Redressal Mechanism was also well taken care of and is fully established and positioned at various consumer contact points.

The Right to Information Act, 2005 has been implemented in subject. People across the organization are familiar with the Act and subject has a unique single window concept of all replies under the Act. During the period ending 3111 March 2007, 644 requests for information were received, of which only seven cases were referred to the Chief Information Commissioner.

VIGILANCE

In the changed economic scenario, with the emphasis on public sector enterprises becoming self-reliant and profitable ventures, the Vigilance Function has also geared itself, to facilitate commercial decision-making with transparency and accountability. Vigilance has an important role to ensure that the overall culture, structures and systems are enhanced so as to achieve the highest standards of stewardship of public funds towards the best possible use of resources. An effective overview by Vigilance can ensure probity and integrity without impairing efficiency. For this, several steps were taken this year, which included observance of Vigilance Awareness Week, addresses by Chief Vigilance Officer (CVO), and training of newly inducted officer trainees and other officials of subject on vigilance matters. The Vigilance Department of subject works in cooperation with other Divisions/Units of the Corporation at all levels. Vigilance also works in coordination with the other authorities, including Central Vigilance Commission (CVC), Ministry of Petroleum & Natural Gas and Central Bureau of Investigation.

Keeping in view the observations made by Chief Technical Examiner / Central Vigilance Commissioner and as a part of the continuing endeavor to enhance transparency, the Vigilance Department reiterated instructions to the concerned functions to reinforce the need for transparency. The system improvements that were accepted/implemented in the organization include opening of both Technical as well as Commercial bids in the presence of the bidders, publishing details of limited tenders above the value of Rs.5 million on the Company website and floating of limited tenders to all registered parties instead of shortlisting of the registered parties.Vigilance took effective action on complaints/source information, disciplinary cases as well as the matters referred by CVC/Ministry of Petroleum & Natural Gas. Apart from a regular preventive role, the Vigilance department acted effectively on complaints and source information with the purpose of safeguarding the interest of the stakeholders. Being aware that the process of Vigilance complaint is also prone to misuse, like any other process, it was ensured that motivated complaints, if any, were effectively weeded out. Emphasis was laid on early completion of investigations, submission of reports on various pending complaints and concluding the same. Suggestions to prevent opportunities for corruption were incorporated in investigation reports submitted to the Management for system improvements/ corrective actions. More than hundred complaints were investigated and concluded during the year.

As a part of Preventive Vigilance, periodic/surprise inspections of various Retail Outlets/LPG Distributors/ locations etc. were carried out by the Vigilance department along with the concerned officials from the Business Units. Also, inspections of major works were undertaken in line with the inspections carried out by Chief Technical Examiner.

Observations/deviations observed during the investigations were communicated to the concerned departments, along with recommendations for improvements etc. wherever necessary.

Vigilance Awareness week was enthusiastically observed from 611 to 1011 November, 2006 by organizing several programmes at all locations throughout the country, in which customers, clients, dealers, distributors and all other stakeholders wholeheartedly participated. The observance of Vigilance Awareness week is very important in increasing knowledge and educating the officials of the Company as well as customers and vendors. For this, various activities like seminars/talks, essay competition, slogan competition and quiz programmes were organized. For talks/seminars, eminent personalities from different walks of life were invited to address the participants. This year, the Honorable Justice Shri S. Mohan, former Judge of Supreme Court, and Shri. T.K. Choudhary, IPS, former Director General of Police, Central Intelligence Department, Maharashtra, interacted with the participants and educated them on the importance of transparency in decision-making to ensure prevention of corruption.

SUBSIDIARY COMPANIES:

Numaligarh Refinery Limited:

Subject held 62.96% of the paid up equity in Numaligarh Refinery Limited (NRL) as on 31st March 2007.

Subsequently, subject has sold a stake of 1.31% in the equity to Oil India Limited. NRL, which is a Mini Ratna Company (Category 1), has a 3 MMTPA refinery at Numaligarh in Assam. As on 31^st March, 2007, the Refinery has completed 1868 days of Lost Time Accident free operations since its commissioning. The quantum of crude oil processed during the year 2006-07 was 2.50 MMT as compared to 2.13 MMT during the previous year. As at 31 11 March 2007, NRL had a net worth of Rs. 20449.68 million with a book value of Rs. 27.80 per share. For the year ended 31 sl March, 2007, NRL achieved a turnover of Rs. 79303.22 million and earned a profit after tax of Rs.5,688.03 million, as against a turnover of Rs.58203.67 million and profit after tax of Rs. 4489.34 million in the previous year. The Board of Directors of NRL has recommended a dividend of Rs. 2.50 per share as against a dividend of Rs.1.90 per share in the previous year. During the year, NRL has commissioned 73 Retail Outlets.

NRL was awarded the first prize in the TERI Corporate Environmental Awards for 2007. NRL also received the Greentech Safety Gold Award and the Greentech Environment Excellence Silver Award for the year 2005-06. The company was also given the 2nd prize in the Oil Industry Safety Awards for 2005-06 under the 'Refineries' group. NRL also won the Shreshtha Suraksha Puraskar (2nd level) in the manufacturing sector for the year 2006 from the National Productivity Council.

Bharat Petro Resources Limited:

With an authorized capital of Rs. 10000 million, Bharat Petro Resources Ltd. (BPRL) was incorporated on 17th October 2006 as a wholly owned subsidiary, to implement subject's plans in the exploration and production sector. BPRL will exercise all the rights acquired and perform all the obligations undertaken by subject under various agreements for participation, in consortiums for exploration and production of petroleum, crude oil and hydrocarbons. BPRL will implement the investment plans of subject at a faster pace and will have a focused approach for exploration and production activities.

BPRL has joined the consortium of Oilex (Operator), Videocon Industries Ltd. (VIL) and Gujarat State Petroleum Corporation Ltd. (GSPCL) to participate in the joint petroleum development area between East Timor and Australia, through formation of a Special Purpose Vehicle which was incorporated on 281h October, 2006 as Bharat Petro Resources JPDA Limited.

(BPR-JPDA LTD). This company is a 100% subsidiary of BPRL.

The subject Board, at its meeting held on 31st October 2006, had approved transfer of all Exploration and Production assets, liabilities and investments along with the commitments & expenditures and assignment of subject 's participating interests in Production Sharing Contracts to BPRL.

Annual Accounts of the Subsidiary Companies:

In view of the dispensation granted by the Central Government under Section 212(8) of the Companies Act, 1956, copies of the Balance Sheet, Profit and Loss Account, Directors' Report and the Auditors' Report of the Subsidiary Company i.e. NRL are not attached to the Balance Sheet of the Company. As regards the other Subsidiary Companies Le BPRL and BPR-JPDA Limited, they have applied for the extension of their accounting year till 31st March 2008. Hence, their first Annual Accounts will be prepared as on 31st March 2008. In compliance with the conditions of the dispensation, the Consolidated Financial Statements have been presented in the Annual Report and the summarized Balance Sheet and Profit and Loss Account of NRL are also enclosed as Annexure E to the Directors' Report for information. The Audited Annual Accounts of NRL and related detailed information are open for inspection by any member at subject s Registered Office. Further, subject will make available these documents, on request, to any of its members and the said documents will also be published on subject's website.

JOINT VENTURE COMPANIES:

Bharat Shell Limited:

Bharat Shell Limited (BSL), a Joint Venture Company between subject and Shell Overseas Investment (BV) (Shell) of Holland, markets Shell branded lubricants. As per the Provisional Accounts, as at 31st March, 2007, BSL had a net worth of Rs.865.34 million and book value of Rs.4.33 per share.

During the financial year 2006-07, BSL achieved sales of Rs.4964.72 million as compared to Rs.3918.29 million during the previous year. BSL made a profit after tax of Rs.121.20 million for the current year as against Rs.86.55 million in the previous year.

The Board of Directors of subject has decided to sell subject's shareholding of 49% in this JVC to the other partner, subject to receipt of relevant approval and completion of related formalities.

Petronet India Limited:

Subject has 16% equity participation with an investment of Rs. 160 million in Petronet India Limited (PIL), a financial holding company. PIL had facilitated pipeline access on a common carrier principle, through its joint ventures for the pipelines put up by them viz. Vadinar-Kandla (SikkaKandla section), Kochi-Karur and Mangalore-Hassan-Bangalore. As at 31st March, 2007, PIL had a net worth of Rs. 897.86 million with a book value of Rs. 8.98 per share. For the financial year 2006-07, PIL registered gross revenue of Rs.10.86 million against Rs.5.39 million in the previous year The Company had a net loss of Rs.129.63 million against a net loss of Rs.19.27 million in the previous year.

The new pipeline policy has affected the working of the Company. As there are no possibilities of future projects, promoters and other investors in PIL reached a conclusion that continuation of PIL would not be viable.

Accordingly, the winding up process has been initiated by appointing ICICI Securities Limited as financial advisor and consultant for the divestment of PlUs stake in the joint venture companies.

Petronet Cl Limited:

Petronet Cl Limited is a Joint Venture Company set up for laying a pipeline of about 1760 kms for evacuation of petroleum products from Refineries at Jamnagar/Koyali to feed various consumption zones in Central India. subject has an equity participation of 11% with an investment of Rs.15.84 million.

The project was to be implemented on Build Own Operate and Transfer (BOOT) basis, for which the bids invited evoked a poor and conditional response.

Due to unwillingness of the promoters to participate, the project has been abandoned and process for winding up of the Company has been initiated. The resolution for winding up of the Company was passed by the Shareholders on 14th December 2006.

Petronet CCK Limited:

Subject has 49% equity in Petronet CCK Limited (PCCKL) at an investment of Rs.490 million. The Company owns the 292 km Kochi-Karur pipeline, which commenced commercial operations from September 2002. As at 31st March 2007, PCCKL had net worth of Rs.585.67 million with a book value of Rs.5.86 per share. Cumulative pumping volume till March 2007 amounted to 5.20 MMT

PCCKL registered a turnover of Rs.319.94 million and cash profit of Rs.110.02 million for the year ended 31st March, 2007 against a turnover of Rs.310.75 million and a cash profit of Rs.92.35 million in the previous year, subject has initiated steps, subject to completion of all formalities, to purchase the 26% equity share of Petronet India Limited in PCCKL.

Petronet LNG Limited:

Petronet LNG Limited (PLL) was formed for importing LNG and setting up LNG terminals at Dahej and Kochi with facilities like jetty, storage, regasification etc. to supply natural gas to various industries in the country. PLL was promoted by four public sector companies viz. Subject, IOC, ONGC and GAIL who contributed 12.5% each to the equity. The balance equity was raised over a period of time from Gaz de France-10%, the Asian Development Bank-5.2% and balance 34.8% was raised from the public in March 2004. Subject's equity investment involved an outlay of Rs.987.50 million. As at 31st March 2007, PLL had a net worth of Rs.12755.17 million with a book value of Rs.17.01 per share. PLLs equity shares are listed on the stock exchanges.

PLL has set up a LNG receipt terminal and regasification facilities of 5 MMTPA capacities at Dahej in Gujarat and started commercial supplies of regasified LNG from the said terminal from 9th April, 2005.

Income from operations for the current financial year was Rs.55006.05 million as compared to Rs. 38371.73 million last year and a net profit of Rs. 3132.54 million for the current year against the level of Rs. 1949.27 million achieved in the last year. PLL has declared a maiden dividend of 12.5% for the financial year 2006-07.

Indraprastha Gas Limited:

Indraprastha Gas Limited (IGL), a Joint Venture Company with GAIL (India) Limited, was set up for implementing the project for supply of CNG to the household and automobile sectors in Delhi. Subject invested Rs.315 million in IGL for a 22.5% stake in the equity. IGIL commissioned over 150 CNG Stations (including 2 in Noida) which supply environment friendly fuel to more than 130000 vehicles. IGL has more than 70000 domestic PNG Customers and over 300 commercial customers in Delhi. The company is also extending its business to the towns of Greater Noida and Ghaziabad. During the year, IGL successfully implemented ERP systems to automate and link all its business processes.

As at 31st March 2007, IGLs net worth was Rs. 4675.22 million with a book value of Rs. 33.39 per share. IGL registered a turnover of Rs. 7058.66 million for the year 2006-07 as compared to Rs. 6001.87 million in the previous year; profit after tax for the year 2006-07 was Rs.1379.62 million compared to Rs. 1061.38 million during the previous year The Board of Directors of the Company has recommended a dividend of 30% for the current year against 25% in the previous year. The shares of the company are listed on the Stock Exchange, Mumbai and National Stock Exchange of India Limited.

IGUs contribution towards a clean environment has been acknowledged and the company was awarded the prestigious 'Golden Peacock Eco-Innovation award' for the year 2006 by the Institute of Directors.

Central UP Gas Limited:

Central UY Gas Limited is a Joint Venture Company set up in March 2005, with GAIL (India) Limited as the other partner, for implementing the project for supply of CNG to the household, industrial and automobile sectors in Kanpur. BPCUs investment in the JVC is Rs.134.75 million for a 22.5% share of the equity capital. Financial institutions have subscribed to the balance equity of the Company. The Company has completed its financial closure and has commenced operations. It has set up 4 CNG stations.

For the first financial year ending on 31 It March, 2007, the Company had achieved a turnover of Rs. 72.44 million and loss for the year amounted to Rs. 4.28 million.

Maharashtra Natural Gas Limited:

Maharashtra Natural Gas Limited was set up on 13th January 2006 as a Joint Venture Company, with GAIL (India) Limited as the other partner, for implementing the project for supply of CNG to the household, industrial and automobile sectors in Pune and its nearby areas. This project will be implemented on the lines of IGL. subject s investment in this project is expected to be Rs.225 million for a 22.5% share of the equity capital. The Company is expected to commence operations during 2007-08 and set up around 20 CNG filling stations.

VI eTrans Private Limited:

Subject had made an investment of Rs. 1 million for a 33.33% share of the equity of VI eTrans Private Limited in March 2001. The Company is engaged in providing logistic support systems for the Indian surface industry and its users, with the help of electronic and physical infrastructure and web-based systems.

As per Provisional Accounts, the Company registered a turnover of Rs.32.72 million for the year ended 31 st March, 2007 as against a turnover of Rs.30.99 million in the previous year. The Company ended the year with a loss of Rs.1.49 million for the current year, as compared to a loss of Rs.

2.33 million in the previous year.

Sabarmati Gas Limited:

Sabarmatil Gas Limited (SGL), a Joint Venture Company promoted by subject and Gujarat State Petroleum Corporation Limited, (GSPC) was incorporated on 6th June 2006, with an authorized capital of Rs. 1000 million, for implementing the City Gas Distribution Project for supply of CNG to the household and automobile sectors in the city of Gandhinagar, Mehsana & Sabarkantha Districts of Gujarat.

Subject and GSPC will each subscribe to 25% of the equity capital of the JVC.

The balance will be offered to the Financial Institutions. Subject s present contribution is Rs.20.2 million. With the present gas distribution network, the total connected load of SGL has reached approximately 0.4 million Standard Cubic Meter per day (SCMD). SGL has set up 1 CNG station and has drawn up plans for setting up 29 CNG stations to meet the CNG requirements of vehicles and for providing new connections.

For the first year ending 31 It March 2007, the Company achieved a turnover of Rs. 198.88 million and Profit after Tax of Rs 5.63 million. It has also declared a maiden dividend of 10%.

CONSERVATION OF ENERGY, TECHNOLOGICAL ABSORPTION AND FOREIGN EXCHANGE EARNINGS AND OUTGO:

MEMORANDUM OF UNDERSTANDING WITH MINISTRY OF PETROLEUM & NATURAL GAS:

Subject has been signing a Memorandum of Understanding with the Ministry of Petroleum & Natural Gas since 1990-91 and has been achieving an 'Excellent' performance rating since then. For the year 2006-07, based on an internal evaluation of performance, subject once again merits an 'Excellent' rating.

Approval of the Government of India for the rating is awaited.

Subject, for the eighteenth successive year, has entered into a Memorandum of Understanding with the Ministry of Petroleum & Natural Gas for the year 2007-08 also.

TECHNOLOGY ABSORPTION:

Mumbai Refinery:

The Refinery has implemented the following projects to obtain the benefits of the latest technical developments and advances:

As part of the Refinery Modernization Project (RMP), the Hydrocracker unit was commissioned to produce superior quality middle distillates and reduce overall SO 2 emissions from the Refinery. The following technologies have been obtained for the project:

Hydrocracker M/s. Chevron Lummus Global, USAHydrogen M/s. Haldor Topsoe, DenmarkSulphur Recovery M/s. Delta Hudson, Canada

Revamping of the Catalytic Reforming Unit (CRU) for production of high octane Motor Spirit blend stock and for increasing capacity. The following technology has been obtained for the project:

Fixed Bed Platforming process: M/s. UOP, USA.

Commissioning of facilities for production of high performance environment friendly Group-II Lube Oil Base Stock (LOBS) facilities using unconverted oil from the Hydrocracker. The following technology has been obtained for the project:

Isodewaxing/Hydrofinishing Technology : M/s. Chevron Lummus Global, USA.

Kochi Refinery:

The Refinery has implemented the following projects to obtain the benefits of the latest technological developments and advances:

As part of the Capacity Expansion cum Modernization Project (CEMP-Phase 1), the DHDS unit was revamped to enhance the capacity and to facilitate processing of high sulfur VGO, in a blocked out mode. Desulfurisation of VGO was necessitated in order to meet BS 11 norms for MS product quality.

The technology was supplied by the process licensor of the unit, M/s.

Axens, France.

As a part of CEMP- Phase I, the Fluid Catalytic Cracking Unit was revamped to increase the production of value added products such as LPG and MS. Technology for the revamp was obtained from M/s. Stone and Webster, USA.

Bitumen Emulsion unit from ENH Engineering A/S, Denmark was set up for production of different grades of Bitumen Emulsion.

DHDS Reactor catalyst has been changed in Dec 2006 to produce Low Sulfur Diesel for meeting the Euro III diesel demand. The new generation HDS catalyst was supplied by M/s. Axens, France.

Details regarding the efforts made in technology absorption as per the prescribed Form B are annexed hereto.

C. FOREIGN EXCHANGE EARNINGS/OUTGO:

(i) Activities related to exports; initiatives taken to increase exports; development of new export markets for projects and services; and export plans:

a. Exports:

Subject exported 1714 TMT of refined products during the year as compared to 1384 TMT during the previous year. While Fuel Oil exports almost doubled to 746 TMT compared to 330 TMT in 2005-06, Naphtha exports were down by 21% (to 598 TMT vis-a-vis 760 TMT) due to higher domestic upliftment. The contribution to the foreign exchange earnings increased to USD 731 million (Rs. 33357.70 million) from USD 608 million (Rs. 27172.61 million) achieved during the previous year.

b. Imports:

During the year, Subject imported 41 TMT of Euro III MS and 42 TMT of BS II MS at USD 58.10 million (Rs. 2623.90 million) as against USD 161 million (Rs.5900.66 million) in the year 2005-06 to meet the shortfall in supply from domestic sources. Also, to meet the deficit in the country, Subject imported 163 TMT of LPG (202 TMT in 2005-06) at USD 82.47 million (Rs.3696.10 million) as against USD 102 million (Rs. 4517.98 million) in the previous year 2005-06.

c. Crude Oil Imports:

During the year 2006-07, the impact of geo-political turmoil, particularly in the Middle Eastregion and disruption in crude oil production in West Africa witnessed the crude oil price touching a record level. The average Indian Basket of crude oil further went up by nearly USD 6.7 per barrel to USD 62.4 per barrel during 2006-07 (USD 55.7 per barrel in 2005-06).

Out of a total of 19.78 MMT (17.24 MMT during 2005-06) of crude oil processed at subject's Mumbai and Kochi refineries, 13.28 MMT crude oil volume was from imported sources as against 11.86 MMT during 2005-06. In view of the sustained high crude oil prices, the value of imports was a record high at USD 6044.16 million (Rs. 273031 million) as against USD 4898.4 million (Rs. 217833 million) during 2005-06.

d. Hedging:

Subject continued with its policy to manage oil price risk through hedging of refinery margins and export realizations. As decided by the Company's Trading Risk Management Board, higher hedging volumes were assigned for 2006-07 over the previous year (for refinery margin cover - 5.55 million barrels versus 2.7 million barrels and for export realization cover - 80 TMT versus 40 TMT). Regular review of hedging positions was carried out by the Risk Management Committee. In order to enhance the sharpness of quotes and diversify the credit exposures, registration process of new OTC counterparties which comprises of bankers, traders and oil majors has progressed well and the number of counterparties enlarged during the year.

Future Plan of Action:

i) Intensifying and enlargement of activities in the area of Refinery processes and residue upgradation.

ii) Development of catalyst/additive for refining processes

iii) Development of new process technologies using additive approach for improving product quality.

iv) Enlargement of crude basket and identification of opportunity crudes and crude blends.

v) Value added Products/Solvents from the refinery streams.

vi) Bio-technological processes

vii) Coal to Residue Technologies

viii) Alternate Fuels

ix) Passenger Car Engine Oil for major OEM x) Fully Synthetic Gear Oil (75W-90) xi) Customer specific Metal Working Fluid xii) High Performance Grease xiii) Defence specific grade lube oil xiv) Alternate formulation for existing grades

EXPENDITURE ON R&D DURING 2006-07: (Rs. in million) Total Capital Expenditure 75.05Revenue/Recurring Expenditure 109.12Total 184.17Total R&D Expenditure as a % of total turnover Negligible

TECHNOLOGY ABSORPTION, ADAPTATION AND INNOVATION:

A. MUMBAI REFINERY:

1. Efforts, in brief, made towards technology absorption, adaptation and innovation:

Mumbai Refinery has undertaken the following projects to obtain the benefits of the latest technological developments and advances: Facilities for production of high performance environment friendly Group-11 Lube Oil Base Stock (LOBS) facilities using unconverted oil from the Hydrocracker were commissioned.

2. Benefits derived as a result of the above efforts, e.g. product improvement, cost reduction, product development, import substitution, etc.: Production of High performance Group-II Lube Oil Base Stock.

3. Information regarding technology imported during last five years reckoned from the beginning of the financial year:

(a) Technology imported:

Technology Year of import * FCC - Feed Injection Technology from M/s. Stone 2001& Webster, USA for yield improvement * Hydrocracker technology from M/s. Chevron Lummus 2001 Global, USA.

Technology for production of Hydrogen from M/s. 2001Haldor Topsoe, Denmark. * Maximum Claus Recovery Concept (MCRC) technology 2001for enhanced recovery of sulfur from off-gases from M/s. Delta Hudson, Canada, through M/s. Engineers India Limited (EIL).

Fixed Bed Platforming process from M/s. UOP, USA 2003for production of high Octane Motor Spirit blend stock and for increasing capacity.

Isodewaxing/Hydrofinishing technology from M/s. 2003Chevron Lummus Global, USA for production of Group-II Lube Oil Base Stock.

(b) Has Technology been fully absorbed?

Yes.

(c) If not fully absorbed, areas where this has not taken place, reasons therefore and future plans of action: Not applicable.

B. KOCHI REFINERY:

1. Efforts, in brief, made towards technology absorption, adaptation and innovation:

Kochi Refinery has implemented the following modifications to obtain the benefits of the latest technological developments and advances:

The DHDS Reactor catalyst has been changed in Dec 2006 to produce Low Sulfur Diesel for meeting the Euro III diesel demand. The new generation HDS catalyst was supplied by M/s Axens, France. The bucket traps provided at the top bed catalyst to catch the rust and other plugging materials was replaced with graded bed as per the new design.

2. Benefits derived as a result of the above efforts, e.g. product improvement, cost reduction, product development, import substitution, etc.:

Production of HSD conforming to Euro III Equivalent specification.

3. Information regarding technology imported during last five years reckoned from the beginning of the financial year:

(a) Technology Imported:

Technology Year of import

FCC - Feed Injection Technology, Riser 2003termination Device, Packed Stripper fromM/s. Stone & Webster, USA for yield improvement.

Process technology for blocked out mode 2003operation of VGO in DHDS from M/s. Axens, France * Process technology for sweetening (MEROX) 2004 of catalytically cracked gasoline formM/s. UOR USA

Colloidal Mill technology for production 2004of Bitumen Emulsion from M/s. ENH Engineering, Denmark.

DHDS Reactor catalyst change to new 2006generation HDS catalyst upplied by M/s.

MANAGEMENT DISCUSSION AND ANALYSIS:

INDUSTRY STRUCTURE AND DEVELOPMENTS:

The growth story of the Indian economy has continued during 2006-07. The strong growth momentum seen during the previous year was sustained with the latest estimates indicating that the Gross Domestic Product (GDP) has posted a robust growth of 9.4% over the previous year. This growth has been powered by the excellent performance in the manufacturing, trade, hotels, transport & communication services and financing, insurance, real estate & business services, all of which have witnessed double digit growth rates during the year Only the agricultural sector is lagging behind. Another positive aspect has been the indications that the growth of the economy is investment driven and not consumption driven. With the Indian economy poised to show strong growth in the years to come, experts reckon that India is on track to be amongst the top three economies of the world by the year 2050.

Inflows from Foreign Institutional Investors stood at around USD 7 billion in 2006-07. At the same time, foreign direct investment amounted to USD 15.7 billion in 2006-07, representing a growth rate of 184% over the previous year, thus giving a strong vote of confidence on the strengths of the Indian economy. These numbers are also reflective of the high degree of business optimism that is currently prevailing. In the midst of these positives, the main area of concern was the rising rate of inflation. The year saw the wholesale price index breaching the crucial 6.5% level, although by the end of the financial year, this was reined in at 5.7%.

While the rising inflation rates could be attributed mainly to supply side issues, they remain a matter of great concern to the Government and the Reserve Bank of India. The rate of inflation has since come down further and is hovering around 4.4% by end July 2007.

In line with the strong GDP growth, the petroleum sector saw a significant increase in the consumption of petroleum products during 2006-07, with the year on year growth touching a level of 5.9%, which has resulted in sales of petroleum products growing from 113.21 Million Metric Tonnes (MMT) in 2005-06 to 119.85 MMT in 2006-07. The average growth in the consumption of petroleum products over the last five years has reached a level of 3.4%.

The growth in sales of High Speed Diesel (HSD) had remained flat in 2005-06. There has been a turnaround during 2006-07 when sales of HSD have increased by nearly 6.7%. Similarly, the sales of products like Motor Spirit (MS) and Aviation Turbine Fuel (ATF) have increased significantly.

As the fertilizer and petrochemical .industries shift to Natural Gas from Naphtha and Fuel Oil, the sales volume of these products have consistently been on the decline.

In the international markets, crude oil prices continued to rise in the first half of the year. The benchmark Brent crude prices touched a high of USD 78.69 per barrel on 8t' August 2006. This was against the highest price of USD 67.33 per barrel in 2005-06. Subsequently, till February 2007, oil prices had declined and remained below USD 60 per barrel. The upward movement of oil prices resumed once again in March 2007 and the year ended with Brent crude touching a level of USO 68.64 per barrel. The rising trend in oil prices has continued in the latest financial year and the price has closed in on the record high of USD 79 per barrel on concerns of a tightening market, The International Energy Agency (IEA) estimates that despite four years of high oil prices, there is a likelihood of increasing market tightness beyond 2010, with demand increasing by an average of 2.2% a year between 2007 and 2012. Global demand for oil is expected to reach 95.8 million barrels per day, up from 86.1 million barrels per day in 2007.

The average cost of the Indian basket of crude in 2006-07 was around USD 62.4 per barrel, which was significantly higher as compared to the average price in 2005-06. Since the beginning of the new financial year from April 2007, the price of the Indian crude basket has risen further. The policy of managing the adverse impact of the high levels of crude oil prices on the economy, through a process of distributing the burden between the Government of India, the oil companies and the consumer, was continued during the year.

The year 2006-07 also saw the average spread between light Brent crude and the heavier Dubai crude hover around USD 3.2 per barrel. Consequent to the commissioning of the Refinery Modernisation Project at the Mumbai Refinery, the processing of heavier crude was increased significantly to take advantage of this spread. Also, the ongoing Capacity Expansion and Modernisation Project at the Kochi Refinery would enhance flexibility in terms of processing a higher percentage of heavy - sour crude oils.

In line with the crude oil prices, product prices in the international markets have ruled firm during the year. The average price of HSD in 2006-07 stood at USD 77 per barrel, with the price hovering around USD 80 per barrel at the end of the year. The prices of other key products like MS, Liquefied Petroleum Gas (LPG) and Superior Kerosene Oil (SKO) have also remained high during the year. However, the prices of the sensitive petroleum products viz. MS, HSD, LPG and SKO in the domestic markets have not moved in tandem with the international prices, on account of the Government's policy of distributing the burden between the Government, oil companies and the consumer.

In fact, the year 2006-07 saw the retail selling prices of MS and HSD being reduced twice during the year. The Government of India approved a reduction of Rs.2 per liter of MS and Re.1 per liter of HSD on 30th November 2006 and once again by the same extent on 16th February 2007. These changes in domestic prices happened when international prices were showing signs of easing off. However, since then, international prices have resumed their upward movement without there being any change in domestic prices. Also, during the year, the prices of SKO and LPG for domestic consumption have remained unchanged. Consequently, oil marketing companies have been facing tough times in managing their working capital position and funding their capital expenditure programmes, even as they experience significant under-recoveries on the sale of the four sensitive petroleum products i.e.

MS, HSD, LPG and SKO.

The year 2005-06 had seen oil companies experience a sharp decline in their profitability and the situation was saved only when the Government of India issued Oil Bonds to the public sector oil companies in March 2006. This, together with the sharing of the burden of rising oil prices by the upstream oil companies, had ensured that oil marketing companies remained profitable. This policy was continued in the current year and consequently, the upstream oil companies shared a part of the burden by way of extending discounts on crude oil prices and the Government of India issued Oil Bonds to the oil marketing companies. While this has ensured that oil marketing companies have bounced back in terms of higher profitability in 2006-07, the fact remains that their cash flow position has been adversely affected.

Consequently, their borrowing levels have increased, along with the corresponding rise in the interest outgo. This, coupled with the hardening interest rate scenario in the face of rising inflation, could pose serious challenges to the oil marketing companies who have all drawn up major investment plans in the areas of refinery upgradation, building new capacities, development of distribution infrastructure and exploration and production.

The domestic crude oil production has remained more or less stagnant for some time. As per the provisional figures for 2006-07, the indigenous production of crude oil stood at 31.5 MMT. Consequently, there has been a substantial increase in the quantum of imports of crude oil for processing by the Indian refineries. The crude oil imports during 2006-07 increased to 110.8 MMT valued at USD 48 billion. With prices ruling firm in the international markets, the burden on the Indian economy has been cushioned by the growing strength of the Indian rupee against the USD. However, India as the world's sixth largest energy consumer continues to be in a vulnerable position, having to import well over two-thirds of its crude oil requirements. Also, with India's crude oil reserves expected to last for around 20 years only, the picture is not rosy on that front, unless major discoveries are made in the coming years.

The year also saw refining margins being high in the beginning.

Subsequently, in line with the lower international prices, refining margins had dipped before firming up again in the last quarter of the year.

India continues to be long on refining capacity and the domestic refining capacity stood at 149 MMTPA as at the end of the year. The crude processing during the year stood at 141.5 MMT With crude oil processing being in excess of the domestic demand, there has been a sharp increase in the export volumes of petroleum products. A volume of 32.4 MMT of products was exported during the year, which represented an increase of almost 50% over the export volumes of the previous year. With the conversion of the Reliance Refinery at Jamnagar to an Export Oriented Unit and the upcoming refinery of Reliance Petroleum Limited also being developed as an Export Oriented Unit, the export volumes are slated to increase in the coming years. The domestic refining capacity is also expected to increase with the commissioning of numerous green field projects and on account of the brown field expansions planned by several of the existing refineries.

In line with the Auto Fuel policy announced by the Government of India, Euro III grades of petrol and diesel will need to be made available throughout the country by the end of March 2010. Euro IV grades of petrol and diesel have to be introduced in the metros and major cities from April 2010. With lower sulphur content and improvements in other key parameters, conversion to Euro IV will be a major step towards a better environment.

However, this will involve reconfiguration of most of the existing refineries requiring substantial investments. While most of the refineries have initiated steps in this direction, the new green field refinery projects, including the one being set up by subject through a joint venture company in Bina, Madhya Pradesh will start with an inherent advantage, as the configurations are already done to meet these new requirements.

As part of the Government's desire to promote eco-friendly alternate fuels, the Ethanol Blended Petrol (EBP) programme has been initiated across 16 States and Union Territories. Oil companies are in the process of tying up for the supply of ethanol to be used for blending with petrol. To begin with, a target of 5% blending with petrol is sought to be achieved. The progress in this area has been impacted by several issues relating to levy of state taxes and duties, which have a significant bearing on the overall economics. These are being addressed by the oil companies with the concerned State Governments. During the year 2007-08, considerable progress has been made in the implementation of the EBP programme.

Private players have increased their presence in the market, as is evidenced by the 700 new outlets commissioned by them during the year.

However, in terms of sales volume, the private players lost around 2% during 2006-07, as compared to the previous year. Consequently, their market presence has declined from 13.6% to 12.5% as at the end of the year.

This can be attributed to the rising international prices without corresponding increases in the domestic selling prices.

OPPORTUNITIES AND THREATS:

The Indian economy is recognised as one of the fastest growing economies globally. The rapid development of infrastructure, coupled with the high rates of growth in most of the sectors of the economy, is bound to keep demand for energy buoyant in the coming years. Considering the fact that oil and gas are key contributors to the country's energy basket and account for around 38% of the primary energy consumption, one can expect the oil companies to have a steady rate of growth in the coming years.

One of the key constraints that Indian oil companies have encountered has been the limitations in port infrastructure, making it difficult for them to achieve economies of scale in crude oil imports. Considering the potential available for savings in crude transportation cost, subject is in the process of commissioning crude oil import facilities at Kochi, including Single Buoy Mooring, which can handle very large crude carriers.

Besides Kochi Refinery, the new facilities are also expected to benefit Mumbai Refinery by way of a reduction in the freight cost of crude.

Refining margins have been quite attractive and have contributed significantly in improving the bottom lines of the oil companies, thereby mitigating to some extent the under-recoveries on the marketing side.

Better margins are also the result of the refineries no longer having to contribute towards sharing a part of the burden of the marketing companies, on account of the rising international prices of the sensitive petroleum products. Going forward, in order to leverage the spread between the crude prices and the product prices, refineries are required to equip themselves in terms of the ability to process heavier crude oils, which would call for significant amount of investments. Subject has ensured that steps in this direction have been taken proactively at both its refineries.

During the year, some of the recommendations of the Rangarajan Committee, which had looked into various aspects of pricing and taxation of petroleum products, were implemented. These include the introduction of trade parity as the basis of pricing of MS and HSD at the refinery gate, as compared to the existing import parity basis and reduction of customs duty on these products. Further, the scheme which required refineries to give discounts on SKO and LPG to the downstream oil marketing companies was also discontinued. All these changes taken together have had a positive impact on the refining margins.

The retail segment of the petroleum market continues to be one of the most promising in terms of potential for growth and profitability. Consequently, it is an area where stiff competition can be expected from all the players, including those in the private sector. To some extent, the rising international prices have diminished the enthusiasm of the private players.

However, the fact that about 700 new outlets were commissioned by the private players, in addition to the 2500 by the public sector oil marketing companies during 2006-07, indicates the potential of the market. Subject has been gearing itself to maintain and enhance its strong presence in the retail market. A number of actions have been taken to safeguard subject s sites in key markets. Steps have also been taken to develop and retain customers by introducing several customer centric measures. At the same time, measures have been put in place to ensure that the dealers and their staff put their best foot forward while dealing with customers.

The lubricants business continues to display immense potential. At the same time, it remains one of the most competitive in the country. The presence of several leading players, both Indian and foreign, is indicative of both, the potential and the challenges of the market. The Lube Oil Base Stock (LOBS) plant has ensured the availability of Group II+ Base Oils, thereby enhancing subject s position in the market. This has enabled subject to look at entering foreign markets. Also, efforts are being made to tie up with major players for the export of Group II+ Base Oils after meeting BPCUs requirements.

The aviation sector has been witness to a number of structural changes.

With the setting up of new airports across the country, the aviation business is witnessing a paradigm shift. New business models are required to maintain and augment the market share. Subject has sought to prepare itself by collaborating with one of the leading international companies.

Natural Gas is emerging as the preferred fuel of the 21 century due to its inherent economic value. It is a clean and environment friendly fuel with price movements being less volatile than that of liquid fuels. Some of the recent major gas discoveries within the country are expected to address the availability issues, besides, increasing volumes of LNG imported by companies like Petronet LNG Limited are also available. City Gas Distribution projects hold great promises for the various players in this field. As an early mover in this area, Subject has marked its presence in the areas of marketing LNG as well as undertaking city gas distribution projects. At the same time, increase in gas consumption by sectors like power and fertilizers will have an adverse impact on the sales volumes of products like Naphtha and Fu Oil. Consequently, companies will need to look at export opportunities for evacuating these products from the refineries.

One of the key challenges facing oil refining and marketing companies has been securing supplies of crude oil. With a view to achieve a degree of self reliance, oil refining and marketing companies, including subject , have ventured into the upstream exploration and production arena. To achieve greater focus, Subject has promoted a 100% subsidiary company with a paid up capital of Rs. 10,000 million. With a view to achieve a balanced portfolio of assets, Subject has bid for new fields in India and abroad in consortium with other players and has also been looking at 'farming in' opportunities.

Integration of the exploration and production area with the existing strengths in refining and marketing operations will ensure the long term success and growth of the enterprise.

Subject has been making significant investments to secure the availability of petroleum products. The completion of the grassroot refinery in Bina in Madhya Pradesh will help provide product security in the key markets of the Northern region. Also, investments in the refineries at Mumbai and Kochi are being made to meet the higher standards of product specifications that are being laid down in the country.

With oil prices not expected to decline significantly and the growing awareness that crude oil reserves are declining, biofuels are increasingly being looked upon as a viable alternative. While this offers immense possibilities, the challenges are also enormous. Subject has taken several steps in this area and is actively pursuing the ethanol initiative on behalf of the Indian public sector oil companies by looking at ethanol investment opportunities in Brazil. Recently, the International Biofuels Forum was launched at the United Nations Headquarters in New York. This has been done on the initiative of Brazil, for ensuring cooperation on ethanol/biofuels between the world's six major producers and consumers, namely Brazil, China, European Union, South Africa, United States of America and India. The objective is to accomplish the common mission of creating an international market for biofuels. Subject has been nominated to represent the Government of India at this forum.

Subject is striving to enhance its performance to the next level. Towards this end, teams across the organisation are being set stretched targets. New areas and opportunities are being looked at. The outstanding results achieved in 2006-07 have set the tone. Subject is putting its best foot forward as it aims to be the star performer in the increasingly competitive market.

The risks associated with the volatile price movements of crude oil and finished products in the international market are expected to continue. At the same time, the ability to pass on the increases in the prices of sensitive petroleum products to the consumers will be influenced by the Government decisions in this regard. As such, oil marketing companies will continue to grapple with the challenge of managing their finances in the midst of this uncertainty without compromising on their future plans and programmes.

One of the major developments in recent times was the enactment of the Petroleum & Natural Gas Regulatory Board Act, 2006 which received the assent of the President of India on 31 11 March 2006. The Regulatory Board is designed to regulate the petroleum sector to protect the interests of the consumers and entities engaged in specified activities related to the petroleum industry. The Chairman of the Regulatory Board and the other members have been appointed in June 2007. The implementation of the regulatory process could not have come at a better time. With the level of competition set to increase, the existence of the regulatory framework will provide a level playing field and promote investment in this capital intensive industry.

The coming days are expected to be full of challenges. While there is a temporary lull in the private sector on account of the inability of the private players to pass on price increases on key products to the consumer, the competition can be expected to become intense in the coming years.

India, as a market, is the focus of attention globally. With the economy maintaining its strong pace of growth, the petroleum sector is expected to see healthy increase in volumes in the coming years. There will be room for every player to grow and prosper, subject , with its customer centric approach and its ability to proactively meet the consumer's emerging needs, is best placed to take full advantage of all the opportunities and enjoy a preeminent place in the market.

PERFORMANCE:

The performance of the various Strategic Business Units (SBUs) and Entities is discussed in detail in the following paras.

REFINERIES:

MUMBAI REFINERY:

The year saw the Mumbai Refinery achieving its highest ever crude throughput processing level of 12.03 MMT This included the processing of 3 new crude oils taking the total number of crude oils processed by the refinery to 70.

Processing of high sulphur crude was enhanced from 40.7% in 2005-06 to 53% during the current year. Further, the production of value added products like C3/ LPG (470 Thousand Metric Tonnes (TMT)), MS (1085 TMT), ATF (488 TMT) was improved upon, compared to the previous year, thereby enhancing the refinery's profitability. With the commissioning of the LOBS plant during the year, the Refinery commenced production and despatch of LOBS, matching the superior quality specifications of Group 11+ Base Oils. During the year, the plant produced 105 TMT of grade 150 N & 500 N Base Oils.

The gross refinery margin for the year stood at Rs. 14908.38 million which translates to USD 3.64 per barrel, as compared to the previous year's margin of USD 1.64 per barrel. The improvement in the gross margin has been brought about on account of the better crude mix, value addition from the Hydrocracker/ LOBS units, favourable crude/product prices and the removal of the scheme of refineries offering discounts on SKO and LPG to the marketing companies.

Capabilities of the quality assurance laboratories were augmented to improve speed and accuracy of testing of plant streams and finished products. Several new generation automatic instruments like Auto Freezing Point, Auto Titrators, Mini Flash Point, Mini Reid Vapour Pressure etc. were procured to enhance the overall productivity. Analytical instruments for testing LOBS unit intermediate streams and finished Base Oil products were also set up in the Mumbai Refinery laboratory.

Mumbai Refinery's Quality Assurance Laboratory (ISO/IEC: 17025 accredited) has been bestowed with five gold certificates for 100% satisfactory performance in the laboratory proficiency testing program under the Shell Main Product Correlation Scheme for Diesel, Fuel Oil, Petrol and Kerosene testing by M/s. Shell Global Solutions. This program helps in benchmarking the analytical capabilities of the quality assurance laboratory for repeatability & reproducibility against world standards.

Reliability of plant and equipment ensures sustained Refinery operations.

In Mumbai Refinery, reliability centered maintenance strategy, supported by a robust predictive and preventive maintenance programme, has enhanced plant availability to a high level of over 95%. This has contributed significantly in the achievement of the highest level of crude throughput during the year. The period immediately after the commissioning of the new hydrogen and hydrocracker units saw some teething problems associated with the high pressure pumps and compressors. These have been resolved through planned maintenance intervention, enabling high achievement of on-stream factor for the units.

In keeping with the thrust on augmentation of plant reliability in a cost effective manner, Mumbai Refinery has developed a low cost pressurized mist lubrication system and installed the same on a select group of critical pumps in the new distillation unit. The prototype has been successfully tested and would now be fabricated and installed on other critical pumps in a phased manner. As an improvement initiative, magnetic descalers, a new and innovative product, have been installed selectively on the bearing cooling water circuit of some pumps, which would prevent formation of scales that choke the cooling water pipes. This is an environment friendly technology which will eliminate the need for chemical dozing in the bearing cooling water.

For the first time in the refinery, a special high emissivity ceramic coating has been applied on the outer surfaces of the radiant section tubes and refractory of the High Vacuum Unit (HVU) heater in the Fluid Catalytic Cracking Unit (FCCU). This has improved heat pick-up and reduced fuel firing in the heater. This is a major step towards achieving energy efficiency and environment improvement.

After the commissioning of the new state-of-the-art Gas Insulated Switch gear (GIS), refinery electrical loads have been reorganized to enhance power reliability. Installation of High Tension (HT) capacitor banks has improved the power factor, resulting in reduction of electrical distribution losses, apart from other related benefits. As a part of the modernization efforts, HT switch gears of the cracker units have been replaced with the latest technology switch gears.

The computerized instrument calibration system in the refinery has been equipped with new specially developed software to facilitate monitoring of critical process instruments. Further, as a part of the reliability improvement initiative, existing dispenser type level instruments have been substituted with the latest technology radar type level transmitters in the power utilities area. The Distributed Control System of the FCCU unit was replaced with the more sophisticated Centurn CS 3000 to improve reliability and ease of operation.

The latest inspection techniques like eddy current and remote filled electromagnetic testing have been successfully implemented to accurately establish the health of non-ferrous and ferrous tubes respectively in the exchangers. This has helped in optimizing maintenance work in a cost effective manner. Mumbai Refinery's experience of acoustic emission testing of predicting the condition of the tank bottom has served as an industry benchmark, leading to the oil industry's decision of extending the frequency of tank outage for maintenance and inspection.

The Refinery's Occupational Health and Safety Management system was certified to OSHAS 18001 standards. The refinery employees achieved 8 million man-hours without any Lost Time Accident (LTA) during the year.

During the year, 1681 man-days of safety training was imparted to the refinery employees. For enhancing contractors' safety, a total of 2852 man-days of safety training was imparted to contractors' workmen and supervisors on various aspects of safety.

To strengthen learning in safety practices and to spread the message of safety at the workplace, March 2007 was celebrated as 'safety month' at the refinery. During this period, programmes were organized, including talks on safety, on-site hands-on training, mock drills, demonstration of personal protective equipment and awareness campaigns. Safety workshops were also conducted for the personnel of the Central Industrial Security Force (CISF), Mumbai Police, Traffic Police, Mutual Aid Response Group and Mumbai Fire Brigade, to spread awareness of safe working and to benefit from their experiences.

A total of 14,000 points (flanged joints, valve bonnets etc.) were covered under the Hydrocarbon Leak Detection and Repair (LDAR) scheme to reduce the fugitive emissions from the refinery. Mumbai Refinery processed about 2300 MT of oil sludge and recovered 1100 MT of useful oil, thus reducing oily waste generation. The refinery ensured proper disposal of spent catalysts, which were either sold back to the original catalyst suppliers or safely disposed off at authorized hazardous waste disposal sites. The revamped effluent treatment plant at the refinery, (provision of two train operation and additional facilities at a cost of Rs.80 million) was successfully commissioned, ensuring continued treatment of the refinery effluent as per environmental norms and improved plant availability.

In keeping with its tradition of giving back to society and ensuring its well being, Mumbai Refinery partnered with Oil Industry Development Board for a water supply augmentation project at Kariat near Mumbai. The project involved the construction of two dams, deepening of wells and construction of weirs and tanks for collection of rain water. Over 15,000 people have benefited by this scheme. To help the Karjat and Washala villagers combat the power shortage which affected their day-to-day lives, subject has also contributed by providing solar lights on main roads, public places, hospitals and schools.

In the neighbouring community, the message of quality education was spread by providing a well equipped science laboratory at the Narayan Acharya Vidya Niketan High School, Chembur, benefiting over 1000 children. During the year, the refinery continued its partnership with AVERT Society, an USAID body for furthering awareness and prevention of HIV/AIDS, covering a larger population of 1 lakh people including specific target groups.

Mumbai Refinery continued to win laurels and accolades. The refinery received the Ramakrishna Bajaj National Quality Merit Certificate - 2006 (RBNOA), the highest recognition in the manufacturing category for the year 2006. Also, the refinery was bestowed with the Qimpro Compass 2005 award for best managerial practices in Internal Quality Audits.

With a view to strengthen team values and performance, a customized programme on 'Team Building' was organized for the senior/middle management staff of the refinery. A total of 16918 man-days of training was imparted, including training on functional and developmental subjects. This also included 1681 days of training on safety aspects referred to earlier. About 20 refinery staff members were trained in the Six Sigma approach and thereafter, they undertook several initiatives to improve productivity & profitability. Major functional training programmes conducted during the year included a 3 day programme on Catalytic Reforming Technology and a 4 day programme on Catalytic Cracking Technology. Apart from meeting the training needs of its own people, the refinery has also trained the technical staff from Sudan, Bahrain and Oman, as a part of a business development initiative.

KOCHI REFINERY:

During the year 2006-07, Kochi Refinery achieved a crude oil throughput of 7.75 MMT, as against the throughput of 6.94 MMT in the previous year.

Consequently, the refinery has achieved a capacity utilization of 103.2% of the installed capacity. Processing of high sulphur crude oil accounted for 58% of the total throughput. Three new crude oils were processed during the year i.e Erha from Nigeria (low sulphur), Azer! Light from Azerbijan (low sulphur) and Urals from Ukraine (high sulphur). Annual turnarounds of the FCCU and Diesel Hydro De-Sulphurisation (OHOS) units were taken during which the DHDS catalyst was replaced for producing 50 ppm sulphur in the treated diesel. The refinery also achieved its highest level of production of MS and ATF during the year at 769.75 TMT and 218.5 TMT respectively.

The gross refining margin earned by the refinery during the year amounted to Rs. 8983.90 million. This represents a margin of USD 3.46 per barrel, as compared to the margin of USD 3.17 per barrel in 2005-06.

Kochi Refinery Laboratory received approval from Directorate General of Aeronautical Quality Assurance Ministry of Defence in respect of ATF to be supplied for the defence sector, The Laboratory has also enrolled itself for the proficiency testing program under the Shell Main Product Correlation Scheme and was awarded 2 gold certificates for 100% scores during the year.

Effective implementation of condition monitoring and compliance of 100% preventive maintenance checks, have further improved the plant & equipment reliability at the refinery. Realignment of maintenance groups for effective planning and execution of shutdown jobs through innovative methods of scheduling and execution has resulted in completion of the planned major shutdown jobs ahead of schedule.

As part of a capacity building exercise, local contractors were developed through training and information sharing for taking up reasonably skilled jobs like vibro-casting in FCCU and replacement of catalyst in DHDS during the turnaround. At the same time, indigenization efforts in those areas with good savings potential, like re-lining of recycle gas compressor cylinder and refurbishing of pumps etc. were also strengthened.

The condition monitoring of tank floors using Acoustic Emission Testing was extended to more number of tanks during the year. A painting manual giving details of the paints to be used for external painting in different environments has been finalized in consultation with the CECRI, Karaikkudi.

This will contribute to improvement in the external protection of refinery equipment.

Reliability of the instrument and plant air system has further improved with the commissioning of a state-of-the-art centrifugal compressor. In the technology upgradation and integrity enhancement sides, the crude tank gauging system was changed to radar type and improved vibration monitoring system type 3500 series was provided for the Turbo Generator.

The employees of the refinery displayed high standards of safety and performed the business activities without any lost time accident during the year achieving a milestone o 5 million man-hours without any LTA. Several training programmes on safety were conducted to ensure that all employees are well versed with essential safety knowledge and skills. Safety training was also given to 3800 contractor workers and supervisors during the year A safety incentive scheme based on achievement of accident free man-hours was introduced to further promote safe working behavior amongst the employees and contractors.

At Kochi Refinery, around 6351 MT of oil sludge was processed and 1593 MT of oil was recovered during the year 2006-07. An impervious storage facility was constructed for the storage of oily sludge. Facilities are being installed for the desulphurisation of vacuum unit hot well gases, KHDS recycle gas and low pressure fuel gas.

Kochi Refinery has extended its helping hand to children from the socially and economically weak communities by way of a midday meal scheme, scholarships and free learning aids/financial assistance to students for purchase of uniforms/books/umbrellas/bags/newspapers. Children from 10-12 Government schools in the neighbourhood have benefited from this scheme.

The refinery has also contributed towards the construction of a Science and Technology museum for students at SRV School Ernakulam, providing milk to the children of Anganwadis and renovation of these Anganwadis.

Kochi Refinery also provided amenities to the tribal students at Chalakkudy, Muvattupuzha and Wayanad. In addition, the refinery also provided financial support for medical treatment, conducted free medical camps and provided essential medicines and facilities -at the neighbouring hospitals.

The refinery also contributed in the augmentation and upkeep of civic amenities in the city of Kochi. Various community welfare schemes are being implemented in the Single Point Mooring project affected areas in Puthuvypeen and Ernakulam. The schemes undertaken in 2006-07 include widening of city roads, providing amenities at Government hospitals, assistance in providing sanitation facilities, upgrading facilities at primary health centres, street lighting, facilities at schools, assistance to libraries etc. An amount of Rs. 46.5 million was spent during 2006-07.Kochi Refinery received the following awards during 2006-07:

7th Annual Greentech Environment Excellence Award (Gold) in the Petroleum Refinery sector for outstanding achievement in Environment Management for the year 2006.

Runner-up Award for Outstanding Safety Performance in the category of large size chemical industries by National Safety Council, Kerala Chapter.

Best Performance Award for Safety Committee by National Safety Council, Kerala Chapter.

'Excellence' Award from Kerala State Pollution Control Board for outstanding performance in pollution control activities and various environment friendly initiatives such as eco park, rain water harvesting facilities, green belt development, Encon clubs, operation and maintenance of, pollution control & monitoring mechanisms.

With a view to enhance the capabilities of employees for better performance at work, a highly systematic training plan was implemented at Kochi Refinery. Knowledge and skill gaps were identified after a scientific analysis of training needs. The year saw 1231 employees being given classroom training apart from a series of continuous on-the-job training events. The Refinery Learning Centre conducted training programmes for unemployed professionals to enhance their employability and also programmes for those working in different organisations towards competency enhancement. Hands-on training on Personal Protective Equipment has been given to 387 employees of operating departments. Also, safety training was given to 3800 contract workmen/supervisors during the year. These training programmes emphasize the importance of safety among employees.

In order to keep pace with technology and to remain competitive in the field, a new study, Integrated Refinery Business Improvement Program, has been undertaken with the help of Ws. Shell Global Solutions International at Kochi Refinery. This study will help develop solutions, to reduce the gaps in refinery performance in comparison with the Asia Pacific and global refineries, in the areas of energy management, operational performance and overall refinery margin improvement. During the assessment phase of the study, 29 proposals for improvement were identified, which are being examined further before implementation.

One of the greatest challenges that the refining industry in India is facing today is the need for large capital investment for meeting increasingly stringent product quality requirement and for upgrading the residual fuels (Fuel Oil and LSHS) into valuable distillates, since their demand is on a decline. Keeping this in view, subject has initiated projects to produce Euro-IV quality transport fuels and is also examining the feasibility of upgrading the residue at its refineries at Mumbai and Kochi to enhance profitability. Mumbai Refinery is evaluating various options for upgrading residual fuels, which include leveraging the synergy with neighbouring industries to overcome the space limitations and to secure financial viability for the project.

RETAIL:

The retail sector of the Indian oil industry had experienced a difficult year in 2005-06, with sales declining by around 4% over the previous year.

Although many of the issues faced during that year like rising crude oil prices, uncertainties With regard to price increases and entry of private players continued during 2006-07, the retail segment saw a turnaround with sales increasing by nearly 9% in volume terms.

During the year, Subject recorded sales volume of 13.01 MMT of retail fuels, which represented a growth of 12% over the previous year, This was the highest growth rate in the entire industry. Consequently, Subject's market share had increased by 1.22% during the year. The excellent performance was the result of aggressive marketing and rolling out of numerous customer centric propositions.

The emphasis during the year was on enhancing customer enablement coupled with strategic network expansion. During the year, 480 retail outlets were commissioned by subject out of a total of 2500 retail outlets commissioned by the public sector marketing companies. The attention paid to site quality in the urban markets and the strategic expansion on highways paid off handsomely. In the highway sector, the throughput per outlet grew from 179 Kilolitres (KL) per month in 2005-06 to 196, KL per month in the current year, representing an increase of 9.5%. The throughput per RO of the high format outlets on highways catering to the trucker network grew from 461 KL per month to 582 KIL per month, an increase of over 26%. The qualitative aspect of subject's retail network continued to make it stand apart from the outlets of other oil companies, with the overall throughput per outlet being 162 KL per month, which is 19% higher than that of the industry. Even in terms of market effectiveness, (a ratio of market share in terms of sales volume v/s market share in terms of number of outlets) subject towered over the others with a factor of 1.19.

The year also saw the private sector continue to expand their network presence with private players like Reliance, Essar and Shell commissioning 167, 513 and 20 new retail outlets respectively. The combined market share of the private oil companies stood at 6.2% in HSD and 5.3% in MS.

The MS volumes for the year 2006-07 stood at 2.63 MMT, a growth of 6.5% over the previous year. The growth in MS sales has to a large extent been due to the continued success enjoyed by 'Speed', the market leader in the branded fuels segment. With a conversion ratio of 23%, Speed, now available in 3391 outlets across the country, recorded sales of 609.5 TMT and maintained its leadership position with a 40.3% share in a rapidly expanding premium fuel market. The 'Speed' brand has established itself in the highly competitive market. Speed 97, which was launched in September 2005, is now available in 84 outlets in major urban markets. Speed 97 achieved sales of 4010 MT during the year 2006-07 and has been successful in gaining loyalty amongst its niche target segment.

The market sales of HSD during the year were 8.71 MMT, which represented a growth of 15.8% over the previous year. The emphasis on a specific strategy for highways has contributed significantly in achieving these volumes. The initiative of 'The Highway Network Assurance Program', with the help of One Stop Truckers Shop (OSTS) - GHAR and Highway Star outlets, led to an impressive growth of 16.4% in the highway segment. The HSD throughput per outlet grew from 150 KL per month to 165 KIL per month. In the branded segment, 'Hi Speed Diesel' continued its success saga with sales of 702.7 TMT from 3359 retail outlets and in the process, increased its market share to 22% from 12.5% in the previous year.

Subject has been a front-runner in the alternate fuels segment, recording strong growth of 23.3% in the sale of Compressed Natural Gas (CNG) in Delhi, Mumbai, Surat and Ahmedabad. Auto LPG sales grew by 78% with sales of 48.2 TMT during the year. The growth in the alternate fuels segment has helped subject in retaining customers who had migrated from traditional fuels.

The year saw the addition of 13 CNG stations and 11 Auto LPG stations to subject's network.

On the logistics front, the volume handled during the year amounted to 33 million KL, representing a growth of 11.9% over the previous year. An efficient supply chain, which is the heart of the business was carefully managed with total storage capacity of 3.05 million KL across India. With the Mumbai-Manmad product pipeline having been extended to Pivala near Delhi, product from the Mumbai Refinery is available for bridging product shortfall in the northern region, thereby enhancing product security in that crucial market. The year saw a new record being established with 77 rakes being loaded at Numaligarh Refinery during November 2006.

The retail business took the lead in installing Global Positioning Systems (GPS) for tracking the movements of tank lorries and over 6000 such lorries are expected to be covered during 2007-08. Bottom loading facilities were augmented at the key supply locations of Bijwasan, Piyala and Lalru in the northern region. The concept of Model Location was further extended, with 7 locations getting certified as model locations during the year. With this, there are 40 locations in subject's network which are certified as model locations. This number is expected to cross 50 in 2007-08 as more locations are certified. As part of the Quality Assurance programme, a Marker system was introduced for SKO supplied from 111 October 2006 at all locations.

Also, facilities have been made available at supply locations for blending of ethanol. Attention continued to be paid to the Health, Safety and Environment aspects. Programmes like live fire drills and specialised training on defensive driving were organised during the year.

Subject s commitment to delivering value to the customer continued with the expansion of the 'Pure for Sure' (PFS) network through enrolment of new retail outlets under the PFS brand. A total of 5502 retail outlets, representing 73% of the network, have been certified under the PFS banner.

The extent of coverage of this proposition can be seen from the fact that out of every 10 litres sold through subjects outlets, 8.1 litres are sold by PFS outlets. Efforts are on to bring the remaining nonPFS outlets within the ambit of third party audit, in order to ensure product assurance of Quality and Quantity at each and every retail outlet.

A major thrust area during the year was the automation of retail outlets, Aggressive plans were drawn up and implemented in this area. With the customer being the focus of all their retail innovations, the full automation, BRASS - RT (Bharat Retail Automation Solution & Services - Real Time) will provide the customer with complete transparency in terms of exact quantity of fuel dispensed, automated receipt and better payment options through Smartcard / Credit/ Debit Card. Backed by a state-of-the-art solution, BRASS - RT will enhance the level of retail outlet management and will offer improved cost and operational efficiencies both to the dealer and the company. Automation was made operational at 320 outlets during 2006-07. It is proposed to extend the same to 2000 ROs during 2007-08.

The focus on gaining and sustaining long term customer loyalty continued during the year. The 'Petro Card' base grew by 0.09 million customers to reach 1.68 million and the SmartFleet base grew to 0.59 million with the enrolment of 0.05 million heavy vehicles during the year. Petro Card and SmartFleet sales grew by nearly 27% and crossed the Rs.90,000 million mark by March 2007. The card sales accounted for nearly 20% of fuel sales in the retail segment. Nearly 0.15 million transactions are being done using Petro Card every day, at around 3500 subject outlets in over 75 cities across the country. The Petro Card programme has been designed to give value added services to its members, so that every fuelling experience is more enjoyable. To generate and sustain interest in the programme and to increase the activity levels amongst the Petro Card members, several campaigns were run, which were very successful.

Keeping pace with the increasing penetration of credit and debit cards in various consumer segments, subject firmed up strategic payment facilitating alliances with Standard Chartered Bank and HDFC Bank for increased customer convenience and to drive their respective customer bases to subject outlets.

At the core of the retail strategy is the goal to provide superior customer enablement. Towards this end, customer centric business solutions have been created, focussing on different segments of customers and providing service offerings which meet their specific requirements. These are created differently for highway and urban segments.

Subject has created an Assurance Network consisting of Company Operated OSTSs supported by dealer operated Highway Star outlets. These outlets have differentiated propositions for truckers and motorists. These new format OSTSs with their 'positive segregation' design, pack a host of amenities, ranging from hygienic restrooms for both segments, laundry, kirana, hauda (a favourite bathing facility for truckers), an amphitheatre and a fully equipped multi-cuisine Dhaba & restaurant, with separate dining areas for truckers and motorists. The 'Ghar Dhaba' represents subject's foray into food and the concept development covering theme designing, kitchen layout, menu planning and drawing up the standard operating processes have been done in-house. The initial feedback has been encouraging, with both the trucker and motorist dining areas witnessing good footfalls.

The 'Highway Star' program has been one of the most successful propositions during the year and has helped in revitalizing the highway network in the country, building customer confidence and paving the way towards creating a robust highway assurance network across the country.

Subject s Allied Retail Business (ARB) grew by 52.1%, with a turnover of Rs.1 586 million, making it not only the largest non-fuel revenue generator in the oil industry, but also amongst the leading retail networks in the country, offering a basket of services ranging from C-stores, Quick Service Restaurants to financial and travel related services. The network of 383 In & Out stores saw the turnover grow by 28% to Rs.774 million. During the year, 8 In & Out convenience stores made up the 'millionaire club' by clocking average sales of Rs.1 million per month. The daily sale of the millionaire stores is in excess of Rs.40/- per sq. ft.

Automatic Teller Machines (ATMs) continued to be a focus area in the ARB initiative under the alliance management strategy. The 222 ATMs in the network are the result of alliances with 22 banks. Besides, the alliance with Western Union Money Transfer saw turnover growing by over 66% during the year.

Given the rapid growth of the travel industry in the country and especially personal travel, Subject launched 'In & Out eTraveller', a one-stop facility for all travel and hospitality needs. The In & Out eTraveller is an e-ticketing / e-booking facility for rail, air and bus tickets and hotel accommodation, brought through a web of alliances with best in breed travel service providers like Jet Airways, Air Deccan, SpiceJet, Kingfisher Airlines, IRCTC (for rail tickets), Raj National Express (for long distance luxury buses) and makemytrip.com for a complete travel and hospitality suite. An innovation in the alliance strategy has been the tie-up with Shri Mata Vaishnodevi Shrine Board, under which Yatra slips can be issued to pilgrims across the country. The In & Out eTraveller offers flexible payment options through cash, credit/debit card, cash card etc. and the customer has the satisfaction of planning his/her complete journey through a visit to the In & Out eTraveller kiosk. The facility at present is available at 37 In & Out convenience stores, which number will increase to 100 by September 2007.

With the fast food industry showing an annual growth of 40%, Quick Service Restaurants (QSR), as a proposition, within the In & Out convenience stores as well as a standalone proposition, is an area where there are plans to grow aggressively through the alliance route, in keeping with international trends. The Food & Beverages brands, while bringing in their customer base to the retail outlets, also increases the overall level of customer engagement at the sites. The 40 ARB restaurants achieved a turnover of Rs. 180 million during the year, a growth of 49% over the last year. During the year, subject achieved a major breakthrough by getting into agreements with both Joint Venture partners of McDonalds operating in India - Hardcastle Restaurants Private Limited and Connaught Plaza Restaurants Private Limited. Subsequent to the agreement, three retail outlet sites were signed up in Bangalore Territory for setting up McDonalds restaurants. During the year, subject also signed an agreement with Niruias Corner House Private Limited for setting up Nirulas restaurants in the network. These QSR alliances, while enhancing the image of the retail network, will serve as a differentiating customer value proposition.

Subject has always pioneered the cause of high performance motor sporting activity through the flagship brand of premium petrol, Speed. Over a period of the last few years, the association with motor sport events and appointment of Narain Karthikeyan, India's sole representative in the F1 circuit, as Brand Ambassador for the Speed brand, has helped build a strong brand image. In order to strengthen the association with motor sports, Subject has been sponsoring motor sports and related events across the country. M. S. Dhoni, the wicket keeper of the Indian cricket team, who symbolizes performance, spirited style and energy, was appointed as Brand Ambassador for the Speed and MAK brands.

The retail business continued its tradition of bagging honours on various fronts. Locations across the country received numerous awards in the areas of Health, Safety and Environment. Subject was awarded the Trusted Brand in the Gas Station category as per the market survey conducted by Readers Digest. Subject was also conferred the Award for Best Branded Automotive Fuel for the brand Speed, by Frost & Sullivan, a global growth consulting & training company. The award is based on a consumer research conducted with 5100 car and utility vehicle owners across the country. Almost 31.6% customers have rated Speed as the best automotive branded fuel, based on their experience and perception.

INDUSTRIAL & COMMERCIAL (I&C):

The year 2006-07 was significant for the I&C business as over 1000 customers, who were served by the erstwhile Kochi Refineries Limited (KRL), were taken over after KRUs merger with subject . The take over of the customers, which was affected in September 2006, was completed smoothly without any interruption and the requirements of petroleum products of these customers are being met by the different territories of subject.

The consolidated sales volume in this segment in 2006-07 stood at 6.67 MMT against the corresponding volume of 6.63 MMT in the previous year. Of this, the erstwhile KRL had accounted for a sales volume of 0.23 MMT during the period April 2006 to September 2006 and a volume of 0.566 MMT in 2005-2006.

Subject recorded the highest growth in the industry for HSD sales to industrial consumers. All the major sectors registered good growth with the Bunkering and Defence sectors growing at 24% and 21% respectively over the previous year. A major achievement in HSD sales was the enrolment of a large number of new medium and small volume customers. The sales volume from this category of customers grew by 27% during the year 26 new Consumer Pumps for HSD supplies were commissioned during the year. New Railway Consumer Depots are under construction in Karnataka and in Orissa.

During 2006-07, a new initiative called '40 Plus' was launched, with a view to increase the profitability by Rs. 40 crores by selling additional volumes of Special Products such as Benzene, Toluene, Hexane, Mineral Turpentine Oil and various grades of Modified Bitumen. In spite of restricted availability of Benzene and Toluene from Mumbai Refinery, an additional profit of Rs. 36.81 crores was achieved.

Subject also offered structured product solutions for Fuel Oil to customers, with a view to help them in hedging price fluctuations. Under this initiative, a quantity of 2500 MT of Fuel Oil was supplied from November 2006 to March 2007.

Subject was an active participant in the marketing of spot cargoes of Liquefied Natural Gas (LNG). Consequently, the Regasified LNG (RLNG) volumes increased by 187 TMT and yielded additional net margin to the tune of Rs. 175 million. With the enhanced availability of RLNG, subject was able to add a few prestigious names such as Indo Gulf Fertilizers, Sabarmati Gas Limited and National Thermal Power Corporation Limited (NTPC) power plants to its list of customers. Subject also consolidated its presence in City Gas marketing with the enrolment of new customers. The volumes in this area have gone up to 20 TMT against 6.3 TMT during 2005-06.

As bunkering has been identified as a major growth driver in the years to come, subject has ambitious plans to position itself in the international bunkering market. Subject is in the process of setting up a joint venture company for this purpose with a foreign partner, where each will hold a 50% equity stake.

Subject has introduced several value added services for customers, with a view to differentiate itself from the competitors. E-biz, e-banking, SMS alerts to customers, Energy Audits etc. are some of the initiatives pursued in this direction.

The I&C business is characterized by intense competition, as all the players vie to secure the key customers. The increasing share of gas as a substitute for liquid fuels makes the business all the more challenging.

This has put tremendous pressure on the market share and margins of the players. There is a need to put in place an effective strategy which can secure good volumes and lead to a healthy bottom line. BPCUs I&C business, having held its own in the market in the recent past, is confident of facing up to these tough times and coming out with flying colours in the days to come.

LUBRICANTS:

The Lubricants business, which is characterised by intense competition, saw subject close the year 2006-07 with a significant growth of 15% in sales volume as compared to the sales volume in the previous year. With this, the business has managed to reverse the decline seen in the previous year.

The retail segment, which is one of the key channels, saw subject being able to sustain its sales volumes. This was made possible though dedicated team efforts and launch of popular customer schemes in the oil change segment of Diesel Engine Oils, MAK Elite and MAK 4T Plus.

The bazaar channel continues to remain BPCUs area of focus, given its huge potential. After the impressive growth of 11% over historicals achieved in 2005-06, subject recorded another excellent year in this segment with a huge growth of 25% in the current year with this, an overall growth of 7% was achieved in the reseller market. The network in the bazaar channel has been further strengthened with the enrolment of 32 new Primary Lube Distributors (PLD) during the year, thus taking the total of PLO to 157. As a bazaar initiative, several 'MAK Garages' were commissioned to improve sales and promote retailing of MAK grades in this segment.

Subject s initiatives of Hero Honda City Works, Tata Authorised Service Stations and Vehicle Care Centres at retail outlets have helped in boosting sales volume and are expected to yield more benefits in the coming years. A Memorandum of Understanding has been signed with M/s. Adani Energy Limited for marketing subject lubricants from their outlets. An exclusive agreement has also been signed with M/s. TVS Motor Company Limited for blending and marketing of TVS formulated 'TVS TRU 4' for 4 stroke bikes through TVS and subject channels.

The direct channel has also grown significantly by 28% over historicals.

The major customers added during 2006-07 in this channel include TATA, TVS, Oil India Limited and Neyveli Lignite Corporation. At the same time, exports have seen a decline of 6% over historicals in value added sales during 2006-07 due to political disturbances in Nepal. Exports of lubricants have been made to Vietnam, Mozambique, Tanzania and Burundi for the first time. Subject has received permission from the Government of Sri Lanka for marketing its lubricants in that country. The products are likely to be launched in the Sri Lankan market in September 2007. An agreement has also been signed with M/s. Saudi Arabian Lubricating Oil Company for blending and marketing of Petromin Oils brand of Marine Oils in India.

As a part of the LOBS evacuation plan from the Refinery, a pipeline has been constructed from the Mumbai Refinery to the Lube blending plant at Wadilube in Mumbai and made operational during the year.

The R & D Centre at Mumbai has revised most of the automotive & industrial formulations with MAK Base Oils and assisted in the preparation of the road map for switch over to MAK Base Oils. Approval from Japanese Automotive Standards Organisation has been obtained for MAK 2T using MAK Base Oil. The expansion of the R&D Centre in Mumbai has been successfully commissioned during the year. Also, Laboratory Information Management System has been successfully implemented by the Quality Control department. Several technical seminars for direct customers were held by the R & D Centre, where the advantages of the use of the high quality Group 11 + Base Oils from the Mumbai Refinery were highlighted and explained to the customers.

Subject was the principal sponsor of 'Lube Asia 2007' where BPCUs Group II+ Base Oils were showcased. Subject also participated in the Auto Car Show at Mumbai in November 2006.

With an established brand, in-house base oil facilities at Mumbai Refinery and efficient supply chain management, new Genuine Oil tie-ups and better reach in bazaar trade through outsourced manpower, the Lubricants business expects to increase its volume and profits substantially in the years ahead.

LPG:

The LPG Business Unit continued to have a challenging time during 2006-07.

The domestic consumer has been protected from price increase, despite the volatility in the international market. Oil marketing companies continue -to be adversely affected by the price under-recovery on the sale of packed LPG to domestic consumers. The focus during the year continued to remain on meeting the demand of genuine customers and curtailing the leakage of domestic cylinders to the non-domestic segment. Subject s sales volume in the domestic segment grew by 5.9% over the volume in 2005-06. However, there was no significant change in Subject's market share as compared to the previous year.

The overall LPG sales in 2006-07 stood at 2726 TMT With the addition of 1.193 million new customers during the year, 'Bharatgas' has a presence in approximately 23 million households as on 31st March 2007. This customer population is serviced by a total of 2129 LPG distributors across the country. In the packed commercial segment, where the product is subject to market determined prices, subject achieved a sales growth of 34.67% in 2006-07.

The year saw the commissioning of 2 new Micro LPG bottling plants with a capacity of 5 TMTPA each at Gonda and Baitalpur in the state of Uttar Pradesh. With this, subject has 47 LPG bottling plants with a rated capacity of 2082 TMTPA. The total bottling done during the year was 2240 TMT, showing a capacity utilisation of 107%.

Keeping pace with the electronic revolution, the LPG business has taken the lead in computerizing the operations of the Bharatgas distributors, with the help of a software package which has been developed in-house. This has facilitated the receipt of data from the field in electronic form, which has ensured that reports are made available promptly. Computerization has been the backbone for launching e-initiatives like www.ebharatgas.com, a website that provides a host of information and also allows refill booking online, The online facility of booking Bharatgas cylinders is available presently to 8.8 million customers in 200 cities across the country.

With a view to expand horizons and foray into the retail business, the LPG business unit had launched the 'Beyond LPG' initiative - a value added service to Bharatgas consumers, by providing a variety of products and services at their doorstep, at attractive prices. During the year 2006-07, the product range was expanded and currently, the products offered through this channel include a range of kitchenware, gas stoves, electrical appliances, solar lighting, prepaid re-charge vouchers for cellular phones and FMCG products, including food & grocery etc. from famous brands. Subject has entered into tie-ups with reputed brands. Sales of 'Suraksha' LPG Hose have also been growing through this initiative. This Suraksha hose has enhanced safety features like metal braiding between two layers which has helped in reduction of domestic LPG accidents caused by the green rubber tubes. As of March 2007, over 8 million Bharatgas households have switched over to the 'Suraksha' LPG hose. Subject has plans to make the 'Beyond LPG' programme as a stand alone business proposition. During the year 2006-07, subject clocked a turnover of over Rs. 1700 million through this initiative.

Bharat Metal Cutting Gas (BMCG), an ideal fuel developed to replace the conventional Acetylene, is used for metal cutting and brazing applications.

BMCG is growing in popularity and has gained the confidence of an increasing number of industrial users, primarily because of its superior performance and lower costs. BMCG has been accredited by leading agencies like Welding Research Institute, Trichy, Research Designs & Standards Organization (RDSO), Lucknow and Naval Materials Research Laboratory, Ambarnath. BMCG is already the preferred choice of major users such as Indian Railways, Bhilai Steel Plant, BHEL, L & T, Godrej & Boyce, SAIL, Hindustan Shipyard Limited etc. The sale of BMCG in 2006-07 stood at 995 MT.

The LPG Reticulated System, referred to in common parlance as 'Piped LP Gas' has been designed to meet the captive requirements of buildings - ensuring round the clock LPG supply and reaching the households at a low pressure. The system is safer as compared to cylinder safety, with increased convenience. Subject has so far connected around 21,916 households through the LPG Reticulated System.

Subject has taken the initiative of participating in international LPG projects using the available experience and expertise. This is being done not only for revenue generation but also to open new vistas to staff. A beginning has been made by way of participation in an international tender for joint Development of LPG Storage, Bottling, Distribution and Associated Facilities at Nairobi, Kenya with Kenya Pipeline Company Limited, a Government of Kenya enterprise. Efforts are also on to tie up with local players in some of the countries of the Middle East to market BMCG in the countries of that region.

On the operations front, efforts are on to modernize the LPG bottling plants, with the objective of improving the quality of LPG cylinder filling and economizing the cost of -operations. This involves putting up electronic carousels and down stream facilities at the plants. Electronic carousels are now available in 10 plants. A process of internal benchmarking of performance has been initiated at LPG bottling plants, which will lead to superior performance, higher productivity, sustained quality and reduced cost.

Subject continues to accord the highest priority to safety of LPG customers.

Regular Safety Clinics are conducted to educate customers on the safe use of LPG and conservation of fuel. In addition, safety and conservation messages are communicated to LPG users through the print and audio-visual media. Emergency Service Cells Bharatgas Helplines have been put in place to attend to LPG leakage complaints after the distributor's working hours and on holidays.

Special emphasis is also laid on training the distributors and their staff for providing customer assistance promptly. Customer Relations Centers (CRCs), which provide customers a forum for giving feedback and for obtaining clarifications/other assistance on all LPG related matters, have been set up across the country.

As long as the issue of subsidy to consumers of domestic LPG remains, the profitability of the public sector oil marketing companies will remain a cause for concern. This is more so since international prices are not expected to reduce significantly. As such, the LPG business continues to focus on generating greater value from the industrial segment, while continuing to provide excellent service to the domestic consumers. This will ensure that in the long run, subject is in a position to ensure sustainable and profitable growth.

AVIATION:

The year 2006-07 continued to be a good year for the aviation sector. The Indian aviation industry continued to grow at a very high pace, despite infrastructure constraints, riding on the high economic growth rates and increasing purchasing power of large sections of the population. Also, the low fares of budget airlines continued to attract flyers in large numbers.

Passenger movement in 2006-07 was approximately 92.32 million, which is 32.8% higher than the previous year. International aircraft movements recorded a growth of 13.8%, while domestic aircraft movements grew by 34.1%. Air cargo is estimated to have grown by 10% during the last two years. In this scenario, oil companies enjoyed excellent growth in the sales volumes of ATF.

The year 2006-07 was a landmark year for subject's aviation business, with the sales volume of ATF soaring to 880 TMT. This represents a growth of 29.5% over the volumes of the previous year. The business also achieved its highest ever sales volume in a calendar month in March 2007. Subject led the other oil companies by having the highest rate of sales growth amongst the public sector oil companies. Consequently, Subject's market share increased to 22.0% from the previous year's level of 20.6%.

The year also saw the continuation of intense competition in the industry, with many major airlines moving to a process of tendering for their fuel requirements. Inspite of the numerous challenges faced, Subject was successful in retaining most of its major customers at different airports, as well as adding new customers during the year. Customers like Finn Air flying to Delhi, Jazeera Airways flying to Kochi and Ocean Air flying to Mumbai and Delhi, were added to subject's portfolio.

The aviation sector is poised for a big leap in the coming years with nearly 50 airports slated to be revamped by public and private players. The process has started with two separate consortiums getting the mandate for modernisation of the Delhi and Mumbai Airports, which get the major share of the total traffic. In line with the emerging trends in the Indian aviation sector, bids were invited for the rights for into - plane operations at the new Bangalore International Airport. Subject in consortium with ST Airport Services Pte Ltd (STARS), was successful in winning the concession. The operations will be undertaken by a new joint venture, where the two partners will each have 50% share of the equity. The partnership between subject and STARS was formed through the Singapore Airport Consortium (SAC).

Subject had another good year as the sole distributor of AeroShell Lubricants in India, with sales volume growing by nearly 60% during the year.

Customers like the Indian Navy and Indian Airlines have come on board for the first time. Approval of AeroShell lubricants from the Centre for Military Airworthiness and Certification (CEMILAC) is the primary pre-requisite for supplying to the Indian Air Force. The approvals of AeroShell Grease-7, AeroShell Turbine Oil-500, AeroShell Turbine Oil-750 and AeroShell Turbine Oil-3 were extended upto 31 It July 2008.

The last few years have seen the Indian aviation sector undergo a sea change. While sales volumes have gone up significantly, challenges have also increased. There are signs of consolidation amongst the airlines and these are expected to have a bearing on the volumes. As new airports are set up and existing ones modernised / privatised, the ownership and operations of the hydrant infrastructure will be subject to uncertainty and challenges. Also, with competition increasing, there are inherent dangers of undercutting of prices, leading to reduction of margins on sale of ATF to airlines, besides higher risk of default in clearing customer dues. Subject is however fully geared to meet the demands of the emerging scenario by leveraging its traditional strengths and brand image.

HUMAN RESOURCES:

As on 31st March 2007, Subject had 13,968 employees on its rolls. During the year, 385 management staff was recruited and 190 management staff resigned from the services of the Corporation.

Subject has always considered that its core strength lies in its employees.

INTEGRATED INFORMATION SYSTEMS:

Subject has been a pioneer in the use of Information Technology (IT) in supporting the various business initiatives. During the year 2006-07, there were a number of key achievements in the IT domain.

The merger of the erstwhile KRL with subject required the integration of the Business Processes and other IT applications of KRL with subject systems, without impacting the continuity of business operations. 'Project Synergy' was undertaken for achieving this objective and the shift to a single ERP system across the Company was successfully done on 1st October 2006. This was completed seamlessly and without disrupting normal business operations.

As a logical next step, the payroll systems were also integrated with effect from the beginning of the new financial year i.e. 1st April 2007.

The entire process of migrating to a single system was done with minimum support from external sources.

The year also saw the elimination of a large volume of cash payment processing which was being done for many of the employee related payments across the Company. This was achieved by the implementation of the functionality of off cycle payroll, through which employee related payments are processed on fixed days and the money is directly credited to the bank accounts of the employees. This has significantly reduced the quantum of back end work and improved the process efficiency.

One of the voluminous business processes is the payment of site rent covering over 10,000 lessors. A lot of manual controls and efforts went into this activity. With a view to achieve better control and reduce manual work, the entire payment has since been migrated to the Real Estate Management Module of SAP R/3 with effect from 1st April 2007.

During the year 2006-07, a new data centre was commissioned in Mumbai. The operations at the new centre have since stabilized and the centre is manned on a 247 basis. This also posed the challenge of shifting the complex IT operations from the existing old data centre in Mumbai to the Disaster Recovery (DR) site at Greater Noida near Delhi without disrupting operations. Considering the scale of business operations and the complexity of the IT landscape, this was a challenge of great magnitude. After several rounds of detailed testing, the shifting of operations of the existing data centre was successfully completed. After three months of operations from the DR site, the operations were once again shifted to the new data centre in Mumbai. This complex task was accomplished in a planned manner without impacting business operations together with maintaining data integrity.

A shopping portal similar to e-Bay or other 132C sites has been commissioned with a view to help the LPG business in exponentially expanding the revenue generated from the 'Beyond LPG' initiative. This makes it possible for any potential customer (who may not be a current subject customer) to buy the items listed in the catalogue of consumer products through the Internet.

A pilot project for RFID-based Vehicle Tracking system was successfully launched at Mumbai Refinery to track vehicle movements within the Refinery premises. Based on its success, the technology will be replicated at other locations and for other inventory/asset tracking purposes. Mumbai Refinery has also implemented a workflow application to manage and track all the incidents and changes pertaining to all IT Systems in the areas of infrastructure, network and applications.

Improvements have been brought about in a number of key business processes which have contributed significantly in achieving efficiencies. A revised DGS&D Billing Process has been implemented for I & C customers across the country, which helps the business to speed up the process of realization of receivables from such customers. A new solution to calculate rail freight accurately has been rolled out at most of the rail loading locations. This would help in availing of the scheme of discounts offered by Railways, besides reducing the manual work at the supply locations. Leveraging the technological advances made, a number of key users have been provided with V-Data Cards, which enable them to access the corporate IT system, irrespective of their physical location, and then respond to business requirements instantly.

A project named 'Aryabhatta' has been launched recently with the objective of evolving the IT strategy for the next 3 to 5 years in line with the key initiatives envisaged by the businesses. The Project Team has come out with a list of 16 key themes to support the challenging targets of the businesses and to sustain leadership in the IT sphere in the oil and gas sector. This was done after holding discussions with various business partners, independent expert groups and academicians, apart from holding a series of workshops with the various internal stakeholders. The IT strategy document has been presented to Business Councils and prioritization and focus areas have been identified with each of them. The team is in the process of taking forward these initiatives with the respective role holders. Work has also been initiated in the area of business intelligence with a view to make available simplified and user friendly strategic reports for decision making purposes. Apart from upgrading the system to the latest version, the team would work with the businesses in identifying the key business intelligence requirements.

On the global platform, the subject ERP Team was invited by SAP to share their experience in managing the Customer Competency Center at Mumbai. The presentation made at Amsterdam, Holland highlighted the best practices in vogue for efficient and effective functioning of the center and was well received and highly appreciated. The ERP team members continue to be the most-sought-after resources to provide consulting support in the areas of ERP and change management to other organizations. During the year, the team had extended consulting support to many Indian and global organizations.

Subject is also proposing to set up a SAP Training Academy at Mumbai to leverage the in-house training skills available in training corporates and aspiring individuals in various modules of SAP R/3.

During the year, subject was awarded the SAP-ACE Award for Customer Excellence for the best process sector implementation (Oil & Gas) for a well structured project to manage the huge Real Estate Assets of the organization and significantly improve their returns.

HEALTH, SAFETY AND ENVIRONMENT:

As in the previous years, efforts were continued to address Health, Safety, Environment and Security issues and prepare the company to attain higher standards in these areas. The focus during the year was on global warming issues which are posing commercial and physical risks to industries worldwide.

Subject has initiated several measures, both in terms of products and services, which are aimed at achieving reduction in emission. The fuels produced contain low sulphur and benzene as per Euro III norms. Besides, subject has introduced ethanol blended petrol, use of solar energies for heating and illumination, plantation of Jatropha on available land at all supply locations, with the aim of producing biodiesel, bio-remediation of sludge, vermin-culture for disposal of biodegradable waste, recycling and re-use of waste water and rainwater harvesting. A 5 MW windmill is being set up in Karnataka, while 2 more have been planned in Maharashtra and Rajasthan. At the same time, the current levels of emission at all the plants are well within the allowable statutory limits.

INTERNATIONAL TRADE AND RISK MANAGEMENT:

Having restructured the functioning of the International Trading division and built trading risk management capabilities over the last couple of years, subject further consolidated its position during the year and implemented end to end process for Supply Chain Management, with the objective of optimizing crude oil imports and refinery processing in tune with market demand. The design of the supply chain process is customer backed, as opposed to production driven. Efficient inventory management and maximizing the net corporate realization has been the key objective. In support of this process, the International Trade function took various initiatives like expanding the crude oil basket to enable selection of economic crude combinations, terming product exports at efficient levels to enhance realization, making direct exports to end-users, optimizing utilization of time chartered -vessels for exports on delivery basis and economizing freight by carrying crude oil on back haul etc.

During the year 2o06-07, the impact of geo-political turmoil, particularly in the Middle East Gulf region and disruption in crude oil production in West Africa led to crude oil prices touching a record level. The average Indian basket of crude oil further went up by nearly USD 6.7 per barrel to USD 62.4 per barrel during 2006-07 (USD 55.7 per barrel in 2005-06). Out of the total of 19.78 MMT (17.24 MMT during 2005-06) of crude oil processed at the Mumbai and Kochi refineries, 13.28 MMT crude oil volume was from imported sources, as against 11.86 MMT during 2005-06. In view of the sustained high crude oil prices, the value of imports touched a record high of USD 6044.16 million (Rs. 273031 million) as against USD 4898.4 million (Rs. 217833 million) in 2005-06. The ratio of 'Term to Spot' purchase of crude oil stood at 77:23, implying higher security of volume tie up.

During the year, Subject imported 41 TMT of Euro III MS and 42 TMT of BS II MS at a cost of USD 58.10 million (Rs. 2623.90 million) as against USD 161 million (Rs. 5,900.66 million) in 2005-06 to meet the shortfall in supply from domestic sources. Also, to meet the deficit in the country, subject had imported 163 TMT of LPG (202 TMT in 2005-06) at USD 82.47 million (Rs.3696.10 million) as against USD 102 million (Rs. 4517.98 million) in the previous year 2005-06.

Subject exported 1714 TMT of refined products during the year as compared to 1384 TMT during the previous year. While Fuel Oil exports almost doubled to 746 TMT, compared to 330 TMT in 2005-06, Naphtha exports were down by 21% (to 598 TMT vis-a-vis 760 TMT) in view of the higher domestic upliftment.

The contribution to the foreign exchange earnings increased to USD 731 million (Rs. 33357.70 million) from USD 608 million (Rs. 27172.61 million) achieved during the previous year.

On the shipping front, the International Trade department continued its prime focus of providing logistic support for imports, exports and coastal movements of products at least cost. To counter freight volatility, efficient balancing of the shipping arrangement was resorted to, through a combination of Contract of Affreightment (COA), spot and time charter.

During the year, subject renewed its COA with Shipping Corporation of India, apart from time chartering two additional vessels for crude oil imports and one double hull MR range vessel for product exports, which provided the required flexibility in operations and scope for freight saving. Out-chartering opportunities of time-chartered vessels were availed, for better utilization and cost recovery.

Subject continued with its policy of managing oil price risk through hedging of refinery margins and export realizations. As decided by subject's Trading Risk Management Board, higher hedging volumes were assigned for 2006-07 over the previous year (for refinery margin cover - 5.55 million barrels versus 2.7 million barrels and for export realization cover - 80 TMT versus 40 TMT). Regular review of hedging positions was carried out by the Risk Management, Committee. In order to enhance the sharpness of quotes and diversity the credit exposures, registration process of new Over the Counter counterparties, which comprises of bankers, traders and oil majors, has progressed well and the number of counterparties was enlarged during the year.

RESEARCH & DEVELOPMENT:

Recognizing the role of innovation & technological excellence in achieving and sustaining a competitive edge in the high tech business, Subject is continuously strengthening the infrastructure at its Corporate R&D Centre, Greater Noida, Uttar Pradesh, R & D Centre, Sewree, Mumbai and R&D Centre at Kochi Refinery.

R&D contributed to the value addition at the refineries through process optimization studies, leading to selection of optimum catalysts & additives like gasoline sulphur reduction additive, detailed crude evaluations, crude preheat train fouling studies and selection of suitable antifoulant chemicals. Successful resolution of corrosion problems faced in the crude and catalytic cracking units of the refineries was achieved through detailed studies.

A polybag packed bitumen plant setup at Mumbai Refinery based on technology developed by R&D, was commissioned on December 9, 2006. The Centre filed 3 patents during the year to protect the intellectual property arising from innovative research. As part of new initiatives, Subject signed an MOU with Korea Institute of Energy Research (KIER), a premier research institute of the Korean Government, with the objective of collaborating in energy research and technology development.

The R&D Centre at Sewree enabled the Lubes business to achieve a higher growth and better profitability through development of several new formulations and alternate formulations for existing lube & grease products. The new products developed include customer specific cutting fluids, metal forming fluids for aluminium and steel industry, spray oil for the agriculture / horticulture sector besides heat treatment oil for hot quenching operations. Further, exclusive grades were developed for the defence sector which would lead to viable indigenous alternatives. The alternate formulations developed have helped in improving operation flexibility besides reducing input/operating costs. The R&D Centre at Sewree has contributed significantly in generating data on Base Oils manufactured by the Mumbai Refinery, which helped in customer acceptability of base stocks. During the year, a number of critical approvals of lube products were obtained from major Original Equipment Manufacturers and international approving bodies, which have helped in furthering business interest. Expansion of this R&D Centre was successfully commissioned in November, 2006.

The R&D Centre at Kochi Refinery is continuously engaged in research to develop value added products, from the refinery streams. Natural Rubber Modified Bitumen and Bitumen Emulsion are the popular value added products developed by this Centre.

The in-house R & D efforts have facilitated in the development of new products, particularly in the Lubes and LPG businesses. Sales of such Lubricants during the year stood at 272 KL and that of Bharat Metal Cutting Gas was 995 MT.

EXPLORATION AND PRODUCTION OF CRUDE OIL AND GAS:

The year gone by has seen subject move forward in its endeavour to consolidate its presence in the upstream oil and gas sector. Considering the need for a focused approach for Exploration and Production activities and implementation of the investment plans of subject at a quicker pace, a wholly owned subsidiary company of subject, by the name Bharat Petro Resources Limited, with an authorized share capital of Rs. 10000 million was incorporated in October 2006.

Having started with three Indian blocks in its portfolio in 2004 (awarded during the NELP IV round), and a commitment of approximately Rs. 1580 million during the exploration phases for these blocks, subject has, during the year, achieved significant progress in terms of acquiring new blocks and making progress on the blocks which were already acquired. All actions have been driven by aspirations of supply security, hedging of price risks and benefits of vertical integration.

The NELP IV blocks (2 offshore and 1 onshore) are in the exploration phase and seismic surveys have been conducted and analysis of 3D seismic data is being carried out in the deepwater blocks. A well has been drilled in the Krishna Godavari (KG) block and a well is planned in the Mahanadi (MN) block by early 2008.

The Exploration & Production Sharing Agreement (EPSA) with the Ministry of Oil, Sultanate of Oman, was signed on 28th June 2006 with regard to Block no. 56 in Oman. This block was won by a consortium where subject is a partner holding 12.5% participation interest, A site office has been established and initial exploration activities are in progress.

Drilling of the well is at an advanced stage on the land block in Cachar, Assam, where subject had successfully 'farmed-in' with 14.5% participating interest, previously held by Premier Oil, a United Kingdom based company.

In July 2006, the consortium, comprising of Oilex (Operator), Videocon Industries Limited (VIL), Gujarat State Petroleum Corporation Limited (GSPC), Hindustan Petroleum Corporation Limited (HPC) and subject was awarded an offshore exploration block WA-388-P in Australia with each partner having 20% stake. A contract for seismic data reprocessing has been awarded and other exploration activities have been initiated.

Subsequently, another offshore block (no. 103) was awarded in the Joint Plan Development Area (JPDA) between East Timor and Australia, off ered by Timor Sea Designated Authority (TSDA) in the JPDA 05-06 bidding round. JPDA is an area jointly being promoted by the Governments of Australia and East Timor for hydrocarbon exploration in the area between Australia and Timor.

The Subject consortium comprising Oilex (Operator), VIL and GSPC have 25% participating interest each in this block. Subject was required to create a Special Purpose Vehicle (SPV) for this project, and consequently, a new company, by the name BPRL-JPDA Limited was incorporated in October 2006. On this block, the Operator has reviewed the entire old seismic data and is in the process of analyzing the reprocessed 2D and 3D data undertaken earlier by third party contractors.

Subject, in consortium with different companies, had bid for 16 exploration blocks during the NELP VI bidding round which closed on 1511, September 2006. Subject was awarded 5 blocks in this round, including 2 deep water offshore exploration blocks in the KG basin, 2 on land blocks in the Cauvery basin and 1 on land block in Rajasthan. Subject has 10% participating interest in the offshore blocks and 20% participating interest in the onland Cauvery blocks, with Oil & Natural Gas Corporation Limited (ONGC) as the Operator in all these blocks. In the Rajasthan block, Subject has a 10% participating interest, with GAIL (India) Limited / GSPC being the Operator. The Petroleum Exploration Licenses for the 2 KG blocks have been received.

In February 2007, Subject farmed into an offshore Australian block AC/P32 in the Timor Sea with 20% participating interest in a consortium comprising of Coogee Resources (Operator), Westranch Holdings, Adelphi Energy Limited and Bounty Oil and Gas. Seismic data studies are on and a well is planned in late 2008.

In March 2007, Subject farmed into the offshore North Sea block 48/1 b and 2c.

The other consortium partners in this block are Encore (Operator), NWE Southerncross and Tata Petrodyne Limited, with each partner having a participating interest of 25%. A well on this block is planned to be drilled towards the end of 2007.

With a view to achieve a quick return on investment and keeping in mind the goal of oil security, Subject has been evaluating a number of other opportunities, both in India and abroad. In order to enhance its technical capability and become a robust exploration company, subject has procured Interactive Work Stations for internal evaluation of seismic, geological, well-logging and testing data of different exploration and exploitation blocks.- The process of augmenting manpower required for manning these Work Stations is already in progress and a few geoscientists have been recruited.

The year 2006-07 also saw the signing of a MOU with Premier Oil, United Kingdom and Norwest, Australia for cooperation in the upstream sector. Subject has also, for the first time, bid independently for the marginal fields of ONGG using in-house resources, which is a step towards achieving operatorship. Besides, as a part of upgrading the skills of the personnel, Subject's engineers / geoscientists are being trained by Premier Oil.

Today Subject is firmly on the E & P map, prompting international E&P companies and merchant bankers to approach Subject on E&P opportunities. Such opportunities are being evaluated in countries/regions like Brazil, West Africa, South-East Asia etc. Besides, Subject is also gearing up for participating in the forthcoming NELP VII round of bidding, which is seen as a big exploration opportunity within the country.

AWARDS AND RECOGNITION:

Subject maintained its tradition of achieving excellence in performance in different areas of operations and these have been well recognised during the year subject was adjudged as the '.Most Trusted Oil Company' by TNS Global. The survey was carried out by TNS Automotive, which is one of the largest customized market research companies in the world, having a presence in about 70 countries. Subject secured the top position in the area of public goodwill among the oil companies in India.

Subject also won the 'Customer Responsiveness Award' in the Public Sector Units category. The survey for this Avaya Global Connect' award was carried out by A.C. Nielsen ORG-MARG and the process was conceptualized and audited by Ernst & Young. There is a marked shift by companies to develop competencies for 'Customer Responsiveness', as compared to providing onlycustomer satisfaction and subject has proactively taken significant steps in this direction.

Communication plays a vital role in developing the brand image of a company. Subject walked away with three prestigious awards for communication, instituted by the Association of Business Communicators of India. The Corporate website won the most coveted Gold Award. In addition, Subject also won the Silver and Bronze awards for the B.P. Journal and the Company's Annual Report respectively.

Subject participated in the PETROTECH 2007 Exhibition from 15th to 19th January 2007 at New Delhi. The Subject stall, entitled 'Aiming towards Sustainable Development, was awarded the 2nd place in the 'Best Overall Display' amongst 133 companies that participated in the exhibition.

Subject has moved up in the prestigious 'Fortune Global 500' list with a ranking of 325 in 2006-07, as compared to 368 in the last year. Subject ranks third amongst the 6 Indian companies who have made it to the list of top 500 companies compiled by the Fortune magazine. The London based Brand Finance, which recently released the list of India's Top 50 Most Valuable Brands, has placed the Subject brand in the 7th position, with a Brand value of USD 2.48 billion.

INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY:

Subject has a system of internal controls to ensure optimum utilization and protection of resources, IT security, speedy and accurate reporting of financial transactions and compliance with applicable laws and regulations, as also internal policies and procedures. For this purpose, the company has formulated a clearly defined organization structure, authority limits and internal guidelines, rules for all operating units and service entities.

SAP R/3 and Business Information Warehouse systems have further enhanced the internal control mechanism.

Subject has an Internal Audit department consisting of experts from various functions, which supplements the review of key business processes and controls through regular audits. Audit reports, significant risk area assessment and adequacy of internal controls are also periodically reviewed by the Audit Committee through meetings held with Management, Internal Audit and the Statutory Auditors.

CMT REPORT (Corruption, Money Laundering & Terrorism]

The Public Notice information has been collected from various sources including but not limited to: The Courts, India Prisons Service, Interpol, etc.

1] INFORMATION ON DESIGNATED PARTY

No exist designating subject or any of its beneficial owners, controlling shareholders or senior officers as terrorist or terrorist organization or whom notice had been received that all financial transactions involving their assets have been blocked or convicted, found guilty or against whom a judgement or order had been entered in a proceedings for violating money-laundering, anti-corruption or bribery or international economic or anti-terrorism sanction laws or whose assets were seized, blocked, frozen or ordered forfeited for violation of money laundering or international anti-terrorism laws.

2] Court Declaration :

No records exist to suggest that subject is or was the subject of any formal or informal allegations, prosecutions or other official proceeding for making any prohibited payments or other improper payments to government officials for engaging in prohibited transactions or with designated parties.

3] Asset Declaration :

No records exist to suggest that the property or assets of the subject are derived from criminal conduct or a prohibited transaction.

4] Record on Financial Crime :

Charges or conviction registered against subject: None

5] Records on Violation of Anti-Corruption Laws :

Charges or investigation registered against subject: None

6] Records on Int’l Anti-Money Laundering Laws/Standards :

Charges or investigation registered against subject: None

7] Criminal Records

No available information exist that suggest that subject or any of its principals have been formally charged or convicted by a competent governmental authority for any financial crime or under any formal investigation by a competent government authority for any violation of anti-corruption laws or international anti-money laundering laws or standard.

8] Affiliation with Government :

No record exists to suggest that any director or indirect owners, controlling shareholders, director, officer or employee of the company is a government official or a family member or close business associate of a Government official.

9] Compensation Package :

Our market survey revealed that the amount of compensation sought by the subject is fair and reasonable and comparable to compensation paid to others for similar services.

10] Press Report :

No press reports / filings exists on the subject.

CORPORATE GOVERNANCE

MIRA INFORM as part of its Due Diligence do provide comments on Corporate Governance to identify management and governance. These factors often have been predictive and in some cases have created vulnerabilities to credit deterioration.

Our Governance Assessment focuses principally on the interactions between a company’s management, its Board of Directors, Shareholders and other financial stakeholders.

CONTRAVENTION

Subject is not known to have contravened any existing local laws, regulations or policies that prohibit, restrict or otherwise affect the terms and conditions that could be included in the agreement with the subject.

FOREIGN EXCHANGE RATES

Currency	Unit	Indian Rupees
US Dollar	1	Rs. 40.53
UK Pound	1	Rs. 81.54
Euro	1	Rs. 62.40

SCORE & RATING EXPLANATIONS

SCORE FACTORS	RANGE	POINTS
HISTORY	1~10	9
PAID-UP CAPITAL	1~10	8
OPERATING SCALE	1~10	8
FINANCIAL CONDITION
--BUSINESS SCALE	1~10	8
--PROFITABILIRY	1~10	8
--LIQUIDITY	1~10	8
--LEVERAGE	1~10	8
--RESERVES	1~10	8
--CREDIT LINES	1~10	8
--MARGINS	-5~5	-
DEMERIT POINTS
--BANK CHARGES	YES/NO	YES
--LITIGATION	YES/NO	NO
--OTHER ADVERSE INFORMATION	YES/NO	NO
MERIT POINTS
--SOLE DISTRIBUTORSHIP	YES/NO	NO
--EXPORT ACTIVITIES	YES/NO	YES
--AFFILIATION	YES/NO	YES
--LISTED	YES/NO	YES
--OTHER MERIT FACTORS	YES/NO	YES
TOTAL		73

This score serves as a reference to assess SC’s credit risk and to set the amount of credit to be extended. It is calculated from a composite of weighted scores obtained from each of the major sections of this report. The assessed factors and their relative weights (as indicated through %) are as follows:

Financial condition (40%) Ownership background (20%) Payment record (10%)

Credit history (10%) Market trend (10%) Operational size (10%)

RATING EXPLANATIONS

RATING		STATUS	PROPOSED CREDIT LINE
>86	Aaa	Possesses an extremely sound financial base with the strongest capability for timely payment of interest and principal sums	Unlimited
71-85	Aa	Possesses adequate working capital. No caution needed for credit transaction. It has above average (strong) capability for payment of interest and principal sums	Large
56-70	A	Financial & operational base are regarded healthy. General unfavourable factors will not cause fatal effect. Satisfactory capability for payment of interest and principal sums	Fairly Large
41-55	Ba	Overall operation is considered normal. Capable to meet normal commitments.	Satisfactory
26-40	B	Unfavourable & favourable factors carry similar weight in credit consideration. Capability to overcome financial difficulties seems comparatively below average.	Small
11-25	Ca	Adverse factors are apparent. Repayment of interest and principal sums in default or expected to be in default upon maturity	Limited with full security
<10	C	Absolute credit risk exists. Caution needed to be exercised	Credit not recommended
NR		In view of the lack of information, we have no basis upon which to recommend credit dealings	No Rating

PRIVATE & CONFIDENTIAL : This information is provided to you at your request, you having employed MIPL for such purpose. You will use the information as aid only in determining the propriety of giving credit and generally as an aid to your business and for no other purpose. You will hold the information in strict confidence, and shall not reveal it or make it known to the subject persons, firms or corporations or to any other. MIPL does not warrant the correctness of the information as you hold it free of any liability whatsoever. You will be liable to and indemnify MIPL for any loss, damage or expense, occasioned by your breach or non observance of any one, or more of these conditions

MIRA INFORM REPORT

Lubricant Plant

Fuel Refinery

Aromatics

86612.600

15187.300

8639.700

0.000

28879.600

139319.200

118813.600

10760.700

129574.300

9744.900

Unit