Bharat Petroleum Corporation Ltd

TO THE MEMBERS OF BHARAT PETROLEUM CORPORATION LIMITED

1. We have audited the attached Balance Sheet of BHARAT PETROLEUM CORPORATIONLIMITED as at 31st March 2010 and the Profit and Loss Account and the Cash FlowStatement of the Company for the year ended on that date, annexed thereto. These financialstatements are the responsibility of the Company’s management. Our responsibility isto express an opinion on these financial statements based on our audit.

2. We conducted our audit in accordance with the Auditing & Assurance Standardsgenerally accepted in India. Those Standards require that we plan and perform the audit toobtain reasonable assurance about whether the financial statements are free of materialmisstatement. An audit includes examining, on a test basis, evidence supporting theamounts and disclosures in the financial statements. An audit also includes assessing theaccounting principles used and significant estimates made by management, as well asevaluating the overall financial statement presentation. We believe that our auditprovides a reasonable basis for our opinion.

3. As required by the Companies (Auditor’s Report) Order, 2003 (‘theOrder’), issued by the Central Government in terms of Section 227(4A) of theCompanies Act, 1956, we give in the Annexure a statement on the matters specified inparagraphs 4 and 5 of the Order.

4. Further to our comments in the Annexure referred to in paragraph (3) above, wereport that:

a) We have obtained all the information and explanations, which to the best of ourknowledge and belief were necessary for the purpose of our audit.

b) In our opinion, proper books of account as required by law have been kept by theCompany so far as it appears from our examination of the books.

c) The Balance Sheet and the Profit and Loss Account dealt with by this report are inagreement with the books of account.

d) In our opinion, the Balance Sheet, the Profit and Loss Account and the Cash FlowStatement comply with the Accounting Standards referred to in Sub-Section (3C) of Section211 of the Companies Act, 1956.

e) Disclosure in terms of clause (g) of Sub-Section (1) of Section 274 of the CompaniesAct, 1956 is not required as per Notification No. GSR 829(E) dated October 21, 2003 issuedby the Department of Company Affairs.

f) Without qualifying our opinion, we invite attention to:

i) Note No. 9 of Schedule X – Notes to Accounts, regarding impairment of assetswherein, being technical matters subject to uncertainty we have relied on the estimatesand assumptions made by the Company in arriving at recoverable value of assets, based ondesired margins.

ii) Recovery of overdue amount of Rs. 278.54 crores from a party in whose casearbitration award has been passed and consent terms agreed between the parties have beenfiled with the Honourable Bombay High Court. We have relied on the Company’srepresentation that the dues are recoverable as per consent terms and hence no provisionis considered necessary.

g) In our opinion and to the best of our information and according to the explanationsgiven to us, the said accounts read with the notes thereon give the information requiredby the Companies Act, 1956, in the manner so required and give a true and fair view inconformity with the accounting principles generally accepted in India:

i) in the case of the Balance Sheet, of the state of affairs of the Company as at 31stMarch, 2010;

ii) in the case of the Profit and Loss Account, of the profit for the year ended onthat date; and iii) in the case of Cash Flow Statement, of the cash flows for the yearended on that date.

ANNEXURE TO THE AUDITORS’ REPORT

Referred to in Paragraph (3) of our report of even date on the accounts of BHARATPETROLEUM CORPORATION LIMITED

for the year ended 31st March 2010.

(i) In respect of fixed assets

a) The company has maintained proper records showing full particulars, includingquantitative details and situation of fixed assets except in respect of items like pipes,valves, meters, instruments and other similar items peculiar to a continuous processplants.

b) The Company has carried out physical verification of fixed assets, other than LPGcylinders with customers, in accordance with the verification programme and the frequencyof verification is reasonable. According to information and explanations given to us, nomaterial discrepancies have been reported on such verification.

c) In our opinion, the disposals of fixed assets during the year are not of asignificant value so as to affect the going concern assumption.

(ii) In respect of inventories:

a) The inventories of finished goods, stores, spares parts and raw materials, exceptthose lying with third parties and in transit, have been verified by the management atreasonable intervals. In respect of inventories lying with third parties, these have beenconfirmed by them and the inventory in transit has been verified with subsequent receipts.

b) In our opinion and according to the information and explanations given to us, theprocedures of physical verification of inventories followed by the management weregenerally reasonable and adequate in relation to the size of the company and the nature ofits business.

c) In our opinion and according to the information and explanations given to us, thecompany has maintained proper records of its inventories and no material discrepancieswere noticed on physical verification as compared to the records of inventories.

(iii) Based on the audit procedures applied by us and according to the information andexplanations given to us, the company has not granted or taken any loans, secured orunsecured to / from companies, firms or other parties covered in the register maintainedunder Section 301 of the Companies Act, 1956. Therefore, the provisions of Sub-clause (b)to (d), (f) and (g) of sub-para (iii) of para 4 of the Order are not applicable.

(iv) In our opinion and according to the information and explanations given to us,having regard to the explanation that some of the items purchased are of a special natureand suitable alternative sources do not exist for obtaining comparable quotations, thereis an adequate internal control procedure commensurate with the size of the Company andthe nature of its business, for the purchase of inventories and fixed assets and for thesale of goods and services. During the course of our audit, we have not observed anycontinuing failure to correct major weaknesses in the internal control system.

(v) In respect of transactions entered in the register maintained under Section 301 ofthe Companies Act, 1956:

a) In our opinion and according to the information and explanation given to us, therewere no transactions exceeding the value of Rs. five lakhs in case of any party that needto be entered in the Register maintained in pursuance of Section 301 of the Companies Act,1956.

b) As there are no transactions exceeding the value of Rs. five lakhs in case of anyparty that need to be entered in the Register maintained pursuant to Section 301 of theCompanies Act, 1956, sub-clause (b) of sub-para (v) of Para 4 of the Order regardingreasonability of price at which such transactions have been entered is not applicable.

(vi) In our opinion and according to the information and explanation given to us, thecompany has complied with the directives issued by the Reserve Bank of India, theprovision of Section 58A and 58AA of the Companies Act, 1956 and the rules framedthereunder.

(vii) In our opinion, the company has an adequate internal audit system commensuratewith the size and the nature of its business.

(viii) We have broadly reviewed the books of account maintained by the Company pursuantto the rules made by the Central Government for the maintenance of cost records underSection 209(1)(d) of the Companies Act, 1956 and are of the opinion that prima facie theprescribed records have been kept and maintained. We have not made a detailed examinationof these records.

(ix) According to the information and explanations given to us, in respect of statutoryand other dues:

a) According to the records of the Company, the company has been generally regular indepositing undisputed statutory dues including Provident fund, Investor Education andProtection Fund, Employees’ State Insurance Fund, Income tax, Sales tax, Wealth tax,Service tax, Custom duty, Excise duty, cess and any other statutory dues, with appropriateauthorities during the year. According to the information and explanations given to us, noundisputed amounts payable in respect of Income tax, Sales Tax, Wealth Tax, Service Tax,Customs Duty and Excise Duty were outstanding, at the year end for a period of more thansix months from the date they became payable.

b) The details of disputed dues of sales tax, income tax, customs duty, wealth tax,service tax, excise duty, cess, which have not been deposited, are given in Annexure I.

(x) The company does not have any accumulated losses at the end of the financial year.The Company has not incurred any cash losses during the financial year covered by ouraudit and in the immediately preceding financial year.

(xi) According to the information and explanations given to us and based on thedocuments and records produced before us, the Company has not defaulted in repayment ofdues to Financial Institutions / Banks.

(xii) According to the information and explanations given to us, the Company has notgranted loans and advances on the basis of security by way of pledge of shares and othersecurities.

(xiii) In our opinion and according to the information and explanations given to us,the nature of activities of the Company does not attract any special statute applicable tochit fund and nidhi/ mutual benefit fund/ societies.

(xiv) (a) The Company does not deal or trade in shares, securities, debentures andother investments.

(b) The shares, securities, debentures and other investments are held by the Company inits own name except to the extent of the exemption granted under Section 49 of theCompanies Act, 1956.

(xv) The Company has given guarantees for loans taken by others from banks or financialinstitutions, aggregating to Rs. 887.43 crore where the terms and conditions, according tothe information and explanations given to us, and in our opinion, are not prima facieprejudicial to the interests of the Company.

(xvi) In our opinion, the term loans obtained during the year, prima facie, have beenapplied for the purpose for which the loans were raised.

(xvii) According to the information and explanations given to us, based on an overallexamination of the Balance Sheet and Cash Flows of the Company, we report that the Companyhas not utilized funds raised on short-term basis for long-term investment.

(xviii) The Company has not made any preferential allotment of shares to partiescovered in the register maintained under Section 301 of the Companies Act, 1956.

(xix) The Company has created security / charge on the debentures issued during theyear.

(xx) The Company has not raised any money through a public issue during the year.

(xxi) As presented to us by the management and based on our examination in the normalcourse of audit, no material frauds on or by the Company have been noticed or reportedduring the year.