Gujarat State Petronet Ltd

To,

The Members

Gujarat State Petronet Limited

The Directors have pleasure in presenting the 13^th Annual Report and AuditedAccounts of the Company for the year ended 31^st March, 2011.

FINANCIAL HIGHLIGHTS

(Rs. in Crore)

MAJOR ACHIEVEMENTS

Your Company has maintained an upward trend in all performance parameters. The physicaland financial performance of the Company is summarized as follows:

• Total Income increased from Rs. 1016.72 crore in previous year to Rs.1068.15crore, recording an increase of 5.06%.

• PBDIT increased from Rs. 954.49 crore in previous year to Rs. 990.67 crore,recording an increase of 3.80%.

• PAT increased from Rs. 413.77 crore in previous year to Rs. 506.38 crore,recording an increase of 22.38%.

• 99.90% pipeline grid availability and "accident free" year ofoperations.

• During the year, the Company transported an average of 35.64 mmscmd of gas.

• Letters of Authorization have been awarded by Petroleum and Natural GasRegulatory Board to the GSPL led consortium (BPCL, HPCL and IOCL as other consortiummembers) for developing three cross-country natural gas transmission pipelines, viz,Mallavaram - Vijapur - Bhilwara (approx 1585 kms) pipeline, Mehsana - Bhatinda (approx1670 kms) pipeline and Bhatinda - Jammu - Srinagar (approx 740 kms) pipeline.

CAPITAL

During the year, paid up share capital of the Company has increased from Rs. 562.45crore to Rs. 562.58 crore on account of allotment of shares to eligible employees underthe ESOP - 2005.

DIVIDEND

Keeping in view the fund requirements for expansion projects, the Board of Directors ofthe Company is pleased to recommend dividend @ Re. 1 (i.e. 10%) per equity share of theface value of Rs. 10 each for the Financial Year 2010-11.

GAS TRANSMISSION SERVICES

The Company has signed firm GTAs for transporting 32.76 mmscmd of gas to variouscustomers and interruptible / short term GTAs for 6.16 mmscmd (Previous year: firm GTAs35.46 mmscmd and interruptible GTAs 6.49 mmscmd).

GAS GRID PROJECT

Government of Gujarat has always played a pro-active role in the development of theenergy value chain in the State. Gujarat is the first State to plan and execute aState-wide Gas Grid on an open access principle.

The pipeline grid has been designed as per the highest international standards withinbuilt flexibility to cater to varying loads.

The pipeline grid map of GSPL for Gujarat is enclosed as Annexure - V.

The map showing the proposed cross-country natural gas transmission pipelines to beimplemented by GSPL is enclosed as Annexure - VI.

Projects commissioned

During the year, the Company has successfully completed commissioning of approx 250 kmsof pipelines under various pipeline projects namely: Darod - Jafrabad, various spursconnecting customers like Sumangal Glass, Nirma, GACL Dahej Connectivity (Roxul), IOCL,IPCL, Ajanta, EOL (Refinery), Met Trade.

Current grid operations account for approx 1874 kms. Gas is flowing from Hazira / Dahej/ Vapi to various industries and City Gas Distribution ("CGD") Networks locatedin various districts of Gujarat including Surat, Bharuch, Baroda, Anand, Ahmedabad,Gandhinagar, Sabarkantha, Bhavnagar, Amreli, Mehsana, Surendranagar, Rajkot, Jamnagar,Navsari, Kutchh, Panchmahal, Kheda, Valsad.

Projects on Hand

Your Directors are pleased to inform that the Company continues to develop pipelineinfrastructure in the State of Gujarat. The following pipeline sections are beingdeveloped on priority:

• Tana - Amreli pipeline (approx 75 kms)

• Mehsana - Palanpur pipeline (approx 70 kms)

• Nano connectivity pipeline (approx 37 kms)

• Sterling SEZ pipeline (approx 26 kms)

• Spurline to Botad (approx 24 kms)

Further, the Company continues to develop several other trunk and spurlines to connectnew industrial clusters and medium sized customers along the pipeline network, whichinclude regions like Bhavnagar, Sikka, Vilayat, Dahej and Amreli.

WIND POWER PROJECT

Your Company being committed to promote clean and green energy has successfullycommissioned wind power project of 52.5 MW in the areas of Maliya - Miyana, Rajkot andGorsar - Adodar, Porbandar.

FUTURE PLANS

The Company is working on future expansion projects. The Company is planning to developpipeline infrastructure of approx 1102 kms in the next two years. The Company is alsoparticipating in the bids invited by PNGRB for the Surat - Paradip pipeline (approx 1500kms). Above initiations reflect Company’s long term vision of growth throughexpansion of business within and outside Gujarat.

OPERATION & MAINTENANCE ACTIVITIES

The Company has transported 13009 mmscm of gas during the Financial Year 2010 - 11(Previous year: 11673 mmscm).

To safeguard pipeline assets and optimize efficiency of the pipeline system, theCompany is giving utmost importance to efficient operations and preventive maintenance.

HEALTH, SAFETY AND ENVIRONMENT

The Company, in order to fulfill its commitment towards health, safety and environment,has taken active steps towards establishment of Safety Management Systems (SMS).Environment and safety features have been integrated into design, construction and O&Moperations of the Company for ensuring utmost safety for the facilities, local communityand the environment. The same is also being reflected in the QHSE policy of the Company.The concept of asset integrity for enhancement of SMS is being incorporated. The Companyis expanding and managing its operations in a manner which is safe and environmentallysustainable.

For developing effectiveness of Safety Management Systems, training of all employeesacross the Company is ensured through various training programs. The same is beingmonitored through internal audit teams and delegation of safety management upto the locallevel. Further, emergency management plans are being reviewed and updated regularly.Moreover, contractors’ adherence to Company’s QHSE policy is also assuredthrough regular site visits and external audits. Contract employees are subjected totraining programs like safety induction, defensive driving,

Personal Protective Equipment Policy etc. Regular site visits ensure the enhancement ofbehavioral aspects of the contract employees and enhancement of safety culture which hasalso ensured the safe commissioning of the new projects. To achieve the highest quality ofsafety systems, the Company has moved towards international recognition with the corporatemembership of British Safety Council. The Company is proud to maintain its target of‘zero accident’ year with full commitment of its employees and management. TheCompany won International Safety award by the British Safety Council based on itsperformance of zero accident in 2010.

The Company is already certified to Integrated Management Systems (QMS, EMS &OHSAS). Effectiveness of these certifications is being assured through planned audits ofthe system. Continuous improvement is visible in various O&M systems. Predictivemaintenance schedules are being adhered to with the updating of records. Emergencyresponse plans are updated as a part of routine function and their respectiveeffectiveness is verified by regular mock drills as per intervals identified by respectivework bases.

FIXED DEPOSITS

During the year, the Company has not accepted any Fixed Deposits from the public.

CORPORATE SOCIAL RESPONSIBILITY

During the year, the Company focused on CSR initiatives, mainly for promoting use ofenvironment friendly fuel, creating awareness for conservation of energy, promotion ofeducational activities, etc.

DIRECTORS

Pursuant to the provisions of Section 256 of the Companies Act, 1956, Shri D J Pandian,IAS and Shri A K Joti, IAS Directors of the Company shall retire by rotation at theensuing Annual General Meeting and being eligible, offers themselves for reappointment.

A brief resume of the Directors retiring by rotation/seeking appointment at the ensuingAnnual General Meeting, nature of their expertise in specific functional areas and detailsregarding the companies in which they hold directorship, membership/ chairmanship ofcommittees of the Board are given in the Corporate Governance Report forming part of thisDirectors’ Report.

STATUTORY AND C&AG AUDIT

As your Company is a Government Company, the Statutory Auditors are appointed by theComptroller & Auditor General of India (C&AG). Accordingly, the C&AG hasappointed M/s P Singhvi & Associates, Chartered Accountants as Statutory Auditors ofthe Company for the Financial Year 2010-11.

C&AG has given NIL Comment Report for the Financial Year 2010-11. The NIL CommentReport is enclosed as Annexure - VII.

AUDIT COMMITTEE

Audit Committee of Directors of the Company at its meeting held on 26^th May,2011 approved the Annual Accounts for the Financial Year ended on 31^st March,2011 and recommended the same for approval of the Board.

DIRECTORS’ RESPONSIBILITY STATEMENT

Pursuant to the provisions of Section 217 (2AA) of the Companies Act, 1956, theDirectors hereby confirm that,

(i) in the preparation of the annual accounts, the applicable accounting standards hadbeen followed along with proper explanation relating to material departures.

(ii) accounting policies are selected and applied consistently and judgments andestimates are reasonable and prudent so as to give a true and fair view of the state ofaffairs of the Company at the end of the financial year and of profit of the Company forthat period.

(iii) proper and sufficient care for the maintenance of adequate accounting records inaccordance with the provisions of the Companies Act, 1956 for safeguarding the assets ofthe Company and for preventing and detecting fraud and other irregularities is taken.

(iv) the annual accounts are prepared on a going concern basis.

MANAGEMENT DISCUSSION & ANALYSIS

This Annual Report contains a separate section (Annexure–I) on the ManagementDiscussion and Analysis, which forms part of this Directors’ Report.

CORPORATE GOVERNANCE

Corporate Governance denotes the framework for companies to conduct their business inan ethical and responsible manner. It is determined primarily by the approach that aCompany has towards its stakeholders as well as to the environment in which it operates.It stems from the belief and realization that corporate citizenship has a set ofresponsibilities, which must be fulfilled for a Company to progress and succeed over thelong term.

The Company believes that good governance alone can deliver continuous good businessperformance. A Report on Corporate Governance as required under Clause 49 of the ListingAgreement is incorporated as a part of this Directors’ Report (Annexure – II). ACompliance Certificate by the Practicing Company Secretary is also attached to thisDirectors’ Report.

GSPL EMPLOYEES STOCK OPTION PLAN ("ESOP"):

The Company has instituted the following ESOP Schemes as incentives to attract, retainand reward the employees, and to enable them to participate in the future growth andfinancial success of the Company.

1. GSPL Employees Stock Option Plan - 2005 (ESOP - 2005).

2. GSPL Employees Stock Option Plan - 2010 (ESOP - 2010).

Each such Option has conferred a right upon the employee to apply for one Equity Shareof the Company.

Statutory disclosures regarding ESOP - 2005 and ESOP - 2010 are enclosed as Annexure -III & IV respectively to this Directors’ Report.

PARTICULARS OF EMPLOYEES

During the year under review, none of the employees were drawing remuneration, whichrequire disclosure under Section 217 (2A) of the Companies Act, 1956, read with theCompanies (Particulars of Employees) Rules, 1975.

Conservation of Energy

During the period under review, there is no consumption of energy requiring disclosure.

Technology Absorption

The Company has not imported any technology. However, the Company has engagedconsultants/advisors of international repute to make available latest technology forproject implementation.

Foreign Exchange Earnings & Outgo

Foreign Exchange Earnings - NIL

Foreign Exchange Outgo - Rs. 8,84,81,382/-

ACKNOWLEDGEMENTS

The Directors appreciate the continued support received from the valued customers andlook forward to this mutually supportive relationship in future.

The Directors place on record their appreciation of the valuable services rendered bythe employees of the Company at all levels, without whose contribution the excellentperformance of the Company would not have been possible.

The Directors are extremely grateful for all the support given by the Government ofGujarat at all levels. Their guidance, encouragement and moral support has enabled theCompany to expand the pipeline network in a professional manner.

The Directors also wish to place on record the sincere thanks to various regulatoryauthorities for the continuous support extended to the Company.

The Directors place on record their sincere thanks to the Promoters, Shareholders andLenders for their valuable support, trust and confidence in the Company.