Chennai Petroleum Corporation Ltd

To the Chennai Petroleum family of Shareholders,

On behalf of the Board of Directors of your Company, it is my privilege to present the44^th Annual Report on the workings of your Company, together with the AuditedStatement of Accounts for the year ended March 31, 2010.

CORPORATE OVERVIEW

• Turnover of Rs.29,184 crore and Profit after Tax of Rs.603.22 crore wasachieved.

• Successfully completed and commissioned the expansion of Crude Distillation UnitIII (CDU-III) from 3 MMTPA to 4 MMTPA, thereby enhancing the installed capacity of CPCLfrom 10.5 MMTPA to 11.5 MMTPA.

• Achieved the highest ever distillate yield of 69.2% as against the previous bestof 68.3% in 2006-07, at Manali.

• Achieved the highest ever throughput of 917 Thousand Metric Tonnes (TMT) inFluidised Catalytic Cracking Unit (FCCU) against the previous best of 902 TMT in 2008-09.

• Achieved the highest ever production of High Speed Diesel (3565.5 TMT),Propylene (33.9 TMT) and Paraffin Wax (28.5 TMT).

• Achieved the lowest ever energy index at Manali Refinery at 70.4 MBTU / BBL/NRGF in 2009-10 as against the previous best of 71.4 in 2007-08.

• Enhanced the capacity of Sulphur Recovery Unit (SRU) by 22% through OxygenEnrichment Technology developed jointly with M/s.Engineers India Limited.

• Achieved the lowest ever energy index at Cauvery Basin Refinery at 127.3MBTU/BBL/NRGF in 2009-10 against the previous best of 131.2 MBTU/BBL/NRGF in 2006-07.

• Japan Institute of Plant Maintenance (JIPM), Japan has awarded the coveted "TPMExcellence Award, Category A" for Cauvery Basin Refinery.

• CPCL was selected as one of the recipients of the prestigious Corporate SocialResponsibility (CSR) Award by Rural Development and Panchayat Raj Department, Governmentof Tamil Nadu.

Industry Structure and Developments

The world energy demand will continue to expand and will increase to 17000 MillionTonnes of Oil Equivalent (Mtoe) by 2030 from the current level of 12000 Mtoe at an averagegrowth of 1.6%, with coal accounting for more than one third of the rise in the demand.Oil is expected to be the dominant player in the energy industry although the share ofgas, coal and renewables is likely to increase marginally. The Growth of Energy Industryis mainly in the Asian Region with both India and China contributing significantly. Therefining capacity addition in the world during 2010-14 is expected to be around 7.5million barrels (mmb)/day of which Asia will contribute 3.5 mmb/day. The refining capacityis exceeding the demand and the refinery utilization rates are slowing down with theexception of Asia where the utilization rates are reaching 90%.

The refinery capacity utilization in India is consistently higher, ranging above 105%.The demand growth of Oil and Gas is expected to touch 234 Mtoe by 2011-12 in India,registering a 40% growth in the XI plan period. The refining capacity in India exceededlocal demand by 42 MMT in 2009-10 which will further increase to 100 MMT by 2011 -12 and140 MMT by 2016-17.

Since 2001-02, India has transformed into a net exporter of Petroleum Products frombeing one of the largest importer and since then India continues to be surplus inproducts. India is emerging as a significant product exporter in the Asia Pacific Regionwith cost competitiveness for refinerv operations.

The increase in Gas supplies due to the discovery and production in KG basin andothers, apart from imports of LNG, would meet the requirements of existing and proposedgas fuelled projects, thus partly replacing the liquid fuels. The production of NaturalGas is expected to increase to 240 MMSCMD by 2011-12, a growth of more than 200% in the XIPlan period. The new gas finds has a potential to displace 39 MMT of liquid fuels by2016-17 according to a study by Price Waterhouse Coopers. The impact will be feltmore in Diesel and Heating Oils.

The overall growth for Petroleum Products for the year 2009-10 is about 3.4% which islesser than the previous year growth rate of 3.6%. The sale of MS and HSD had a growthrate of 13.9% and 8.9% respectively over the previous years indicating an upswing in theEconomy. However, the sales of Light Diesel Oil (LDO) and Fuel Oil registered a negativegrowth of 17.2% and 8.0% respectively.

The introduction of alternate fuels will immensely help in reducing the carbonemissions. India has a vast supply of green energy resources and has a significantprogramme for deploying these resources. The renewable energy market in India is pegged atUS $ 600 m and is expected to grow at 15% per annum.

Opportunities and Threats

The Natural Gas availability will partly displace the requirement of liquid fuels thusreducing the demand for refinery products. However the use of Natural Gas will certainlyreduce the strain on the Environment and will also be economical. The Natural Gas Pipelinefor the Southern Region is likely to be made available by 2012 which will benefit majorFertiliser Industries in Tamilnadu. The use of Natural Gas in Gas turbines, heaters andfurnaces will also help refineries in obtaining environmental clearances for new projectswhich is a major constraint especially in the Manali area where CPCL's refinery islocated. Your Company is making all efforts to replace Naphtha and Refinery Fuel Oil withNatural Gas and the Manali refinery requirement will be around 3.0 MMSCMD.

The Auto Fuel Quality Improvement Projects have been completed and the Oil industry hasonce again demonstrated its capability to meet the new fuel quality requirements.

Risks, Concerns and Outlook

The crude price which was hovering around US$50/bbl in April '09 increased steadily toreach US$ 75/bbl by the year end. The prices are likely to remain steady over the year asthe major economies of the world are yet to recover from the downslide. The refiningmargins were under strain in 2009-10 with Gross Refining Margins in the range of4-4.5$/bbl.

The changes in the Union Budget 2010-11 has increased the Customs Duty from 0% to 5%for Crude oil. While the Customs Duty on MS and HSD has also been increased from 2.5% to7.5% and for other products like FO and Bitumen from 5% to 10%, ATF, Naphtha(Fertilizers), SKO and LPG continues to attract nil duty. This leaves almost 30% of theproducts without Customs Duty of crude not neutralized, which will result in erosion ofthe refining margins of Indian Refineries.

Internal Control Systems and their Adequacy

Your Company has adequate internal control systems commensurate with its nature andsize of business to safeguard and protect the interest of the Company. The internalcontrol systems are periodically reviewed by the Company to ensure that the objectives ofthe system are achieved. In addition, there are detailed and well documented policies,guidelines, authorizations and approval procedures listed out in the manual on Delegationof Authority.

Your Company has an independent Internal Audit Department, which extensively carriesout Audit covering various areas of Company's operations to ensure accuracy andreliability of records. The recommendations of the Internal Audit department are reviewedregularly by the Audit Committee of the Board.

PERFORMANCE OVERVIEW _

The figures for the year 2009-10 do not Include production of IPG (7.7 TMT) and Naphtha(3.3 TMT) from the Gas Separation Unit at Cauvery Basin Refinery. Similarly, the figuresfor the year 2008-09 do not include production of IPG (7.5 TMT) and Naphtha (3.3 TMT) fromthe same unit.

The salient features of operations during the year include the following: ManaliRefinery:

• Manali Refinery achieved a crude throughput of 9541 Thousand Metric Tonnes (TMT)with a capacity utilization of 100.4%, against the previous year throughput of 9707 TMT.

• Fluidised Catalytic Cracking Unit (FCCU) achieved highest ever throughput of 917Thousand Metric Tonnes (TMT) against the previous best of 902 TMT in 2008-09.

• Shutdown activities for catalyst changeover of Once-Through Hydro Cracker Unit(OHCU) successfully completed and commissioned in February 2010.

• Revamp of Catalytic Reformer Unit (CRU) to Continuous Catalytic Reforming Unit(CCRU) successfully completed.

• Highest ever production of the following products achieved :

• Achieved the lowest ever energy Index at 70.4 MBTU / BBL /NRGF in 2009-10 asagainst the previous best of 71.4 in 2007-08.

Cauvery Basin Refinery:

• Processed 516.6 TMT of Crude as compared to 418.1 TMT in the previous year.

• First parcel of KG D6 crude was received on 13th July 2009 and processingstarted. Availability of KG D6 crude had ensured production of BS III HSD as per schedule.

• Highest ever Propane production of 1745 MT as compared to the previous best of675 MT in 2008-09.

• Achieved the lowest ever Energy Index of 127.3 MMBTU / BBL / NRGF as against theprevious best of 131.2 achieved in 2006-07.

The Company has achieved a turnover of Rs. 29,184 crore during the year, as compared toRs.36,489 Crore in the previous year. The profit after tax stood at Rs. 603.22 Crore ascompared to a loss of Rs.397.28 crore in the previous year. The value addition during theyear is Rs. 1540.49 crore as compared to Rs. 922.87 crore in the previous year.

The Reserves and Surplus also registered an increase from Rs.2918.23 crore as on31.03.2009 to Rs. 3313.08 crore as on March 31, 2010.

The book value per share of your Company has increased from Rs. 205.98 in the year2008-2009 to Rs 232.49 in the year 2009-2010.

Your Company has not accepted any fresh public deposits during the year 2009-10.

Your Company has transferred to the Investor Education and Protection Fund the requiredamount as per Section 205(C) (2) of the Companies Act, 1956, within the stipulated time.

DIVIDEND

The Board of Directors of your Company is pleased to recommend a dividend of 120% onthe paid-up equity share capital of the Company for the financial year 2009-10 in view ofthe excellent performance of the Company.

MoU PERFORMANCE

Your Company excelled in performance in the various parameters covered under the MoUwith Indian Oil Corporation Limited for the year 2009-10. As per the provisionalassessment, the overall rating is "Excellent", for the 14^th year insuccession.

MARKETING

Indian Oil Corporation Limited, the holding Company continues to market a majority ofthe fuel products produced by your Company. During the year, your Company has achieved thehighest ever sales of Propylene which was directly marketed by the Company. During theyear, seven Customer Meets were arranged at various locations.

PROJECTS

Your Company's XI Plan Outlay (2007-12) is Rs. 3575 Crore. During the first two yearsof the XI Plan (2007-09), an expenditure of Rs. 583 Crore has been incurred. During theyear 2009-10, a sum of Rs. 893 crore was incurred against the budget estimate of Rs. 716crore towards plan projects and a sum of Rs.80.21 crore was incurred against the budgetestimate of Rs. 178.62 crore towards non-plan projects.

Completed Projects

Capacity Enhancement of CDU / VDU of Refinery III

A Project for enhancing the capacity of CDU / VDU of Refinery III from 3.0 MMTPA to 4.0MMTPA at a cost of Rs. 200.41 crore has been completed with the objective of producingvalue added products like LPG, Naphtha, SK, HSD, etc.

Revamp of Semi Regenerative Catalytic Reforming Unit to Continuous Catalytic ReformingUnit

A project for revamp of Semi Regenerative Catalytic Reforming unit to ContinuousCatalytic Reforming mode was completed at a cost of Rs. 272.77 crore with a view toincrease the Octane Number for producing high quality MS meeting Euro IV specifications,besides maximizing its capacity. This project alongwith the upcoming isomerisation unitwill enable the Company to meet the increased demand of MS.

A project for revamp of Sulphur Recovery Unit (SRU) for enhancing the capacitythrough Oxygen Enrichment Technology developed jointly with M/s.Engineers IndiaLimited, for the first time in Indian Refineries, was successfully implemented.

On-going Projects

Auto-Fuel Quality Upgradation Project

In order to meet the revised specifications of MS and HSD, your Company is implementingAuto-Fuel quality upgradation project at an estimated cost of Rs.2615.69 crore. Thisproject includes a Diesel Hydro-treating Unit, NHT/ISOM Unit, Utilities and Offsites(U&O) and Hydrogen Generation Unit (HGU).

The construction of the above process units is in an advanced stage of completion.

New Crude oil Pipeline

As a replacement for the old 30" pipeline from Chennai Port to Manali Refineryalong the route of the proposed Port connectivity project, your Company is laying a new42" Crude oil pipeline at a cost of Rs. 65 Crore. This project is expected to becompleted within a period of 12 months after the Right of Way is made available by ChennaiPort Trust. Discussions are being held with Chennai Port Trust for expediting theclearances for Right of Way.

New Project Initiatives

Resid Upgradation Project

With a view to maximize the Distillate yield of the Refinery, your Company proposes toimplement the Resid Upgradation project at an estimated cost of Rs.3350 Crore. The projectinvolves installation of a Delayed Coker Unit and revamping of existing Hydrocracker Unitalongwith other associated facilities.

Process packages for all the Process Units have been completed. Preparation of theDetailed Feasibility Report is in progress. This project is expected to be completed in2013.

Single Point Mooring (SPM) & Crude Oil Terminal (COT) Project

Your Company is installing a Single Point Mooring (SPM) for import of Crude Oilfacilities in Ennore through Very Large Crude Carriers (VLCC) and Crude Oil TankageTerminal (COT) near Land Fall Point (LFP) for VLCC discharge to avoid demurrage, at anestimated cost of Rs. 1400 Crore. Most of the pre-project activities have been completedincluding Marine geo-physical study, geo-technical study, pipeline route survey and soilinvestigation. The environment studies are in progress. This project is expected to becompleted in March 2013.

Revamp of Refinery - II for Capacity Expansion

It is proposed to enhance the capacity of Crude and Vacuum Distillation Unit ofRefinery-ll from 3.7 MMTPA to 4.3 MMTPA at a cost of about Rs. 333 crore.

New Project Initiatives at CBR

• 20" inter connecting crude oil pipeline is planned between Karaikkal Portand CPCL's Chidambaranar Oil Jetty. MoU has been signed with M/s.Karaikkal Port Pvt.Limited (KPPL) for utilizing their facility to receive crude of economic parcel size. IOC,Pipeline division has been engaged as EPCM contractor for executing the project. Thisproject is expected to be completed by March 2011.

• Shifting of Hydro treating facility (Plant 13) from Manali Refinery for DieselHydro treating which will enhance the crude basket of CBR.

DEVELOPMENT STRATEGIES

The outlook of the Oil Industry has been fast changing prompting various players toconstantly revisit their planned strategies and devise new business initiatives forachieving sustainable development and also to adapt successfully to the changing scenario.Your Company has also undertaken a review of its strategies. A Strategy Meet was organizedin July 2009 to discuss and deliberate on several growth initiatives identified by theCompany. The important points identified during this Meet were discussed by the Board ofyour Company in September 2009.

Several action plans have been identified and important among them include replacingthe Refinery I with a new CDU/VDU of 9 MMTPA capacity and associated secondary processingfacilities and the setting up a 350 MW Joint Venture Power Project based on Petcoke.

INDIAN ADDITIVES LIMITED

Your Company formed a joint venture with Chevron Chemicals Company (now Chevron OroniteCompany) named Indian Additives Limited (IAL) for the manufacture of Lube Additivescomponents and packages, in the year 1989.

IAL has achieved a turnover of Rs.349.90 Crore during the year 2009-10, as againstRs.270.69 crore in the previous year. The Profit after Tax for 2009-10 is Rs.41.29 Croreas against Rs.8.67 Crore in the previous year. The Board of Directors of IAL hasrecommended a Dividend of 36% on the paid-up capital of the Company.

INFORMATION TECHNOLOGY

Your company keeps itself abreast of the advancements in the area of InformationTechnology so as to apply them to the extent possible in its pursuit of achievingoperational excellence.

The Cauvery Basin Refinery and Manali Refinery went live on SAP effective 1^stJuly 2009 and 1^st August 2009 respectively. The highlights of theimplementation of SAP included the following:

• Generation of Production reports

• Inclusion of Inspection Management System in the P.M Module of SAP

• Direct Integration of Weigh Bridge with SAP

• Implementation of B2B concept in Cauvery Basin Refinery for Crude relatedtransactions

• Establishment of Video Conferencing facility between Manali Refinery and CBR

• Establishment of Audio Conferencing Facilities for Executives

RESEARCH AND DEVELOPMENT (R&D)

Your Company recognizes the need to be more competitive in order to face the futurechallenges in the Oil Industry and provides greater thrust to the role of R&D in orderto achieve continuous upgradation of technologies and acquire expertise in various areasof activities.

Your Company's in-house R&D Centre successfully commissioned a new ROFATrue BoilingPoint Distillation Unit to carry out Crude Assays with extended vacuum facilities. YourCompany's Research and Development with Sud-Chemie India Pvt. Ltd. resulted in successfulscaling up of Lube Hydrofinishing Catalyst (500 kg) with improved activity and stabilityCharacteristics.

Your Company's R&D Centre successfully carried out extensive reformer pilot plantstudies to develop a Continuous Catalytic Reformer (CCR) model for supporting thecommercial CCR unit.

SAFETY MANAGEMENT

Your Company and its employees are conscious of their commitment to carry out all theactivities with primary focus on safety by adhering to the best safety practices inhandling equipment and material.

During the year, your company has imparted monthly refresher training program on Fireand Safety to 177 CISF Personnel. Safety training is provided every month to truck crewwith special focus on road safety regulations, safe driving habits, importance of sparkarresters and fire extinguishing operations and around 490 Truck Crew members were coveredunder this training program.

The importance of safety in achieving credible safety performance is highlighted toemployees, contract workers and others through various training programmes, live firedrill and field demonstrations. Also specialized safety training programmes are conductedon Chlorine handling, Scaffolding erection and Shutdown safety. Distribution of Safetypamphlets to contract workers in Tamil & Hindi, Safety handbooks in Tamil and Safetyinstructions for visitors are also done. A handbook on the roles and responsibilities ofonsite co-ordinators was released in February, 2010. Employees participation in safetymanagement system is ensured by having their representations in various safety committees.

A safety perception survey was conducted by M/s. Cholamandalam Group and the results ofthe survey are encouraging as compared to the similar survey done three years earlier. Asafety meet was also organised for the benefit of the neighbourhood Manali industries.

A Safety film on the topic of "Human safety is precious for Life saving"describing the safety practices in Manali refinery was telecast in Podhigai Channel,mainly to create an awareness among general public on efforts taken by the Company towardssafe operation.

Two on-site mock drills were conducted in September, 2009 and March, 2010 respectively.An off-site mock drill was conducted in February, 2010 at M/s, Manali PetrochemicalLimited which was presided over by District Collector, Tiruvallur.

Awards /Achievements

Commitment to the safety standards and safety initiatives undertaken by the company toimprove the safety management system resulted in the following awards;

• Safety Appreciation Award by the Institute of Engineers of India.

• Continued Patronage Award (CPA) from National Safety Council, Tamil Nadu.

• Golden Peacock award received in June 2009.

• Cauvery Basin Refinery received the Star Award under the Safety Awards Category2007 from National Safety Council, Tamil Nadu Chapter in February 2010.

ENVIRONMENT MANAGEMENT

Your Company takes constant and persistent efforts to preserve and protect theecological balance by adoption of several environmental conservation measures aimedtowards achieving substantial abatement in pollution from its operations.

Significant initiatives undertaken in the areas of Solid Waste Management includedisposal of 200 MT of SRU Spent Catalyst to M/s Tamil Nadu Waste Management Limited.

Your company has always demonstrated its concern to mitigate the adverse effects ofclimate change by undertaking several green initiatives which include mass tree plantationat Manali Refinery, change over to Light Emitting Diode (LED) for Corridor Lighting anduse of Solar Lights at Cauvery Basin Refinery (CBR).

The efforts undertaken by the Company towards sustainable development resulted inregistration of its Windmill farm as the first Clean Development Mechanism Project withthe United Nations Framework Conventions for Climate Change (UNFCCC) in May 2010. Thisproject is estimated to fetch an annual accruable Certified Emission Reduction (CER) of34,186 for a period of ten years.

The sustained and concerted efforts taken by the company in the areas of Environmenthas earned the Company the Greentech Foundation award for Environment Excellence inOctober 2009.

RENEWABLE ENERGY DEVELOPMENT

Your Company has taken initiatives in the areas of renewable energy development bycommissioning the 17.6 MW Windmill Project at Pushpathur village, Dindugul District, TamilNadu at a cost of Rs.90 Crore, which is the first of its kind in the Oil Industry. Theannual power generated during the year was 36 million KWHr and the revenue generated wasRs. 10.33 Crore.

ENERGY CONSERVATION

Your Company accords priority attention to the Energy Conservation efforts by adoptingand implementing energy efficient processes, installing energy saving devices and bycontinuous monitoring using sophisticated instruments.

Several steps have been taken to optimize the energy consumption such as Step lessControl on MUG Compressor and Preheat improvements, which enabled the Manali Refinery toachieve the lowest ever energy index at 70.4 MBTU / BBL /NRGF in 2009-10 as against theprevious best of 71.4 in 2007-08.

Details of Energy Conservation measures undertaken during the year are detailed in Annexure-ll.

INTEGRATED REFINERY BUSINESS IMPROVEMENT PROGRAMME

As part of the Integrated Refinery Business Improvement Programme, being implemented inassociation with M/s. Shell Global Solutions International, 8 proposals with a netbenefit value of 4.73 Million US Dollars (6.62 Cents per bbl) were completed and 3Proposals For Improvement having a net benefit value of 4.944 Million US Dollars (6.92Cents per bbl) are under implementation.

OPTIMISATION

Your Company continues to give focused attention to the Refinery Business Optimisationby keeping pace with the latest technological changes in order to achieve the bestoperating margins and implement the best process optimization techniques.

A centralized web based fuel gas monitoring application for Manali Refinery wasdeployed in the portal of Process Information Network (PIN). A neural Network based modelfor monitoring HSD Lubricity was developed and made available on the PIN portal, which hasan embedded operational intelligence.

Your Company also presented a paper titled "Role of real time process informationin Refinery Operations" at the Refinery Technology Meet held in Chennai, which waswidely appreciated.

TOTAL PRODUCTIVE MAINTENANCE (TPM)

Your Company has made significant progress in the areas of process improvements, EnergySavings, Establishment of Systems & Procedures, One Point Lessons (OPL), Kaizens, etc.including imbibing of TPM culture amongst the employees, ever since the concept of TPM wasintroduced in May 2005 at Manali Refinery and CBR.

The Cauvery Basin Refinery benefited immensely in implementing the TPM through improvedwork environment, work culture and value addition through implementation of large numberof Kaizens and has achieved a significant milestone by receiving the coveted "TPM -Excellence Award - Category A" instituted by Japan Institute of Plant Maintenance forimplementing all the 8 Pillars of TPM in March 2010.

The Manali Refinery passed the TPM Health check-up conducted by Confederation of IndianIndustry in November 2009 and will be contesting for the JIPM Award during 2010.

During the year, a TPM hand book and a TPM brochure for the use of employees, PillarChairman and Circle Leaders were released. The Third CPCL Kaizen Competition was conductedduring the year and 19 Kaizens were presented from all TPM Circles in the areas ofOperations and Maintenance.

ISO-SHEQ Policy

Your Company continues to demonstrate its strong commitment to carry out its businessactivities with focused attention on Safety, Health, Environment & Quality and hasformulated a comprehensive SHEQ Policy. The accreditation to OHSAS 18001:2007 -Occupational, Health & Safety Management System, Quality Management System (QMS)9001:2008 and Environment Management System (EMS) 14001:2004 were received from M/s.Bureau Veritas Certification India, Chennai after the conduct of the SurveillanceAudit during the year.

HUMAN RESOURCES DEVELOPMENT

Your Company is firm in its belief that the human resources of CPCL bestows upon thecompany the required competitive advantage. With a view to sustain this position, yourcompany consistently gravitates, retains and motivates the best talent and also enablesthe employees at all levels to deliver excellent performance.

With a view to give impetus to talent development, Competency Mapping DevelopmentCenters were carried out for Managers with the assistance of M/s.Ernst & Young, one ofthe renowned experts in the field. These Development Centres will now form the basis forcarrying out Development initiatives for the year 2010-11.

Your company has also taken up a new HR initiative viz., "Employees LearningForum" to build a more dynamic employee learning environment and to bring out thebest talent in them. The objectives of the Forum are to provide a platform to allemployees, to develop ideas, to share their knowledge with others, acquire knowledge fromothers, and in the process to multiply their knowledge levels in a plethora of areas,which will ultimately enhance the knowledge level in the company and help employeesdevelop new ideas in their work front.

Your Company implemented the Pay revision for the supervisory employees in line withthe guidelines from Department of Public Enterprises, Government of India.

The total manpower strength of the Company as on 31^st March 2010 was 1735(1667 as on 31^st March 2009) comprising of 810 supervisors and 925non-supervisors (779 supervisors and 888 non-supervisors as on 31^st March2009).

During the year, your company recruited 31 Officers and 78 Workmen. As a part of theApprenticeship training requirement, 59 Diploma holders and 36 ITI Trade Apprenticesunderwent one-year apprenticeship Programme in the Company.

The Industrial Relations climate continued to be harmonious, cordial and peacefulthrough continuous dialogues and information sharing with the Trade Unions and Officers'Association. Your Company also initiated quarterly communication meeting with theCollectives to communicate the performance, growth and developmental aspects of theCompany.

HR Initiatives of previous year like Department-wise Open House Meets and Field visitsby HR officials to ascertain day-to-day working environment issues were continued duringthe year and issues were addressed.

Your Company has been adhering to the Presidential Directives and various instructionsof the Government relating to the welfare of the SC, ST, OBC, and Differently abledpersons. The statistics relating to representation of SCs / STs / OBCs in the prescribedproforma as on 01.01.2010 is placed as (Annexure-I).

WELFARE OF WOMEN

Women empowerment through conduct of Training Programs in functional / technical /developmental areas received primary attention of the Management.

An exclusive web page titled "SHE" was inaugurated on the occasion ofInternational Women's Day. The web page was created for the Women employees of yourcompany, wherein, the creative expertise of Women employees is ornamented.

International Women's Day was celebrated by organizing a programme on the theme"Women: From Survival to Success" in which eminent professionals from variousfields delivered lectures on topics of varied interests on Women Development andempowerment.

Women employees were nominated to attend National/Regional Meets conducted by the Forumfor Women in Public Sector (WIPS) under the patronage of Standing Conference on PublicEnterprises (SCOPE).

As on 31.03.2010, 82 women employees are on the rolls of the Company (constituting4.72% of the total number of employees). Of the above, 32 are in the Supervisory Grade and50 are in Non-Supervisory Grade.

CORPORATE SOCIAL RESPONSIBILITY (CSR)

Your Company considers Corporate Social Responsibility as one of the pivotal functionsto accelerate the process of overall sustainable development and make significantcontribution to Nation building.

During the year, an amount of Rs. 169.78 Lakhs was spent on CSR activities focusing oneducation, health and sanitation, water supply, sports development, women empowerment,social cultural activities and other infrastructural development.

Significant activities carried out under Corporate Social Responsibility during theyear include the following :

• Constructed classrooms, toilets and compound wall for various schools located inand around our refineries at a total cost of around Rs.70 Lakhs.

• Conducted 10 free comprehensive eye care camps in association with MedicalResearch Foundation of Sankara Nethralaya, Chennai for the benefit of local people. 93people were benefited by free cataract surgery.

• Skill Development Training programme on Plastic Processing Machine Operatorcourse for unemployed youth conducted at CIPET, Chennai.

• Sponsored 50 Girls (25 SC/ST and 25 Other Community) for one year NursingAssistant Course at a cost of Rs.5 lakhs under Empowerment of Women programme.

• Construction of Public Toilet (for women) at Vadaperumpakkam at a cost ofRs.5.45 Lakhs.

• Distributed 130 numbers of Sewing Machines & 63 numbers of Hand moverTricycles for the poor people at a cost of Rs.6.70 Lakhs.

• Conducted 3 General Medical Camps for Public, 5 days Dental Camp and 5 days ENTcamp for school students.

• Sponsored Free Tuition / Computer Training Classes for the benefit of Studentsin and around Manali at a cost of Rs.4.94 lakhs.

• Donated Ultrasound Scanner machine worth of Rs.5.00 lakhs to MunicipalityPrimary Health Centre at Thiruvottiyur.

Your Company will be contributing a sum of Rs. 14 Crore to CPCL Educational Trusttowards the cost of construction of new building for the Polytechnic College and ITI.

During the year, 235 students were admitted in the Polytechnic College and 24 studentswere admitted for the ITI course.

OCCUPATIONAL HEALTH SERVICES (OHS)

The occupational Health Services Center (OHS) of your company is constantly endeavoringpromotion of health of not only the employees of the Company but also the contract workmenby periodical monitoring of the health hazards at work place in a systematic manner.

About 72 percent of the employees underwent comprehensive medical examination as partof Health Surveillance. Contract workers, doing critical jobs, were examined for generalmedical problems and fitness.

OHS Center continues to focus its attention on sustaining the high quality standardswhich has resulted in continuation of accreditation by the National Accreditation Boardfor laboratories as per the ISO 15189:2007 standards.

Persistent efforts were undertaken for .promoting the awareness amongst the employeeson various health care issues by conducting several health awareness programs like"Stress Management", "Awareness on Cancer" and "Care of theback".

INVESTOR RELATIONS

Your Company continues to accord top priority to Investor grievances with a view toensure zero complaints at any given point of time. All efforts are undertaken to keep thetime of response to the shareholders' request /grievances at the minimum.

As on 31.03.2010,14,67,65,931 shares have been dematerialized constituting 98.56% ofthe paid-up share capital of the Company. Out of 58,033 shareholders, 39935 shareholdershavo dematted their shares representing 68.81% of the total shareholders. The status ofShareholders'/ Investors' Grievances are periodically monitored by the Shareholders'/Investors' Grievances Committee of the Board.

CORPORATE GOVERNANCE

Your Company firmly believes that transparency, full disclosure, fairness to allstakeholders and effective monitoring of the Corporate Affairs are the four pillars ofCorporate Governance. The Corporate Governance Philosophy of the Company is aimed towardsachieving business excellence, enhancing shareholder wealth and protecting the interest ofall stakeholders.

Your Company complied with all the mandatory requirements of Corporate GovernanceGuidelines issued by SEBI and also the Corporate Governance guidelines prescribed byDepartment of Public Enterprises (DPE), Government of India applicable to Central PublicSector Enterprises, except the requirement relating to minimum number of IndependentDirectors. As against the requirement of six under the Listing Agreement and DPEGuidelines, the Company has three Independent Directors. The appointment of additionalIndependent Directors is under the consideration of Government of India. A separatesection on Corporate Governance forms part of this Annual Report.

In view of the best Corporate Governance practices adopted by the Company, your Companywas shortlisted as one of the top 25 Companies, adopting good Corporate Governancepractices in the year 2009 by the Institute of Company Secretaries of India, for thefourth time in a row.

The Ministry of Corporate Affairs, Government of India issued the Voluntary Guidelineson Corporate Governance in December 2009. Your Company would make every endeavour tocomply with the voluntary guids!.:i35 !o :h3 utmost extent feasible and within thedomain of a Government Company and a Subsidiary of Indian Oi! Co-c- :on Ltd.

VIGILANCE

The Vigilance Department of your Company assists the Management in promotingtransparency and creating an awareness amongst the employees on various vigilance matters,while discharging their duties and responsibilities.

An important aspect of the Vigilance function is providing greater thrust on leveragingthe technologies, which resulted in payment of 97.9% of bills to vendors / contractors andservice providers through Electronic Clearance Service and Electronic Funds Transfers.

Vigilance Awareness Week was observed in the Company during November 2009, whereinQuarterly Vigilance News Letter was released in addition to carrying out VigilanceAwareness activities.

As a part of Vigilance Awareness Week, a meeting with major contractors was heldwherein the Independent External Monitors participated.

INTEGRITY PACT

Your Company has implemented the Integrity Pact for enhancing the degree oftransparency in procurement and contracts with an objective of eliminating corruption inpublic dealings.

Integrity Pact is applicable in respect of contracts with a threshold limit of Rs. 10Crore. Status Report on the progress of activities under the Integrity Pact are beingperiodically reviewed by the Executive Committee of the Company. Meetings of theIndependent External Monitors with the Management of the Company are being held on aquarterly basis.

OFFICIAL LANGUAGE IMPLEMENTATION

Your Company makes concerted efforts to spread and promote Official language incompliance with the Official Language Act, 1963, Official Language Rules, 1978 and ordersissued by Government of India from time to time.

The First Sub-Committee of Committee of Parliament on Official Language visited CPCL inOctober 2009 and deliberated on matters relating to the Official Language implementationin the Company.

In recognition of its outstanding efforts for increasing the progressive use of Hindiin official work, your Company has received RAJBASHA SHIELD from Town OfficialLanguage Implementation Committee (TOLIC) which is second in the Public Sector Undertaking(Big) Category.

STATUTORY INFORMATION

• Particulars of Employees as required under Section 217(2A) of the Companies Act,1956, read with the Companies (Particulars of Employees) Rules,1975 - Annexure-ll.

• Statutory details of Energy Conservation and Technology Absorption, R&Dactivities and Foreign Exchange Earnings and Outgo, as required under Section 217(1 )(e)of the Companies Act, 1956 and the rules prescribed thereunder, i.e., the Companies(Disclosure of Particulars in the Report of Board of Directors) Rules, 1988 are given inthe Annexure and form part of this Report (Please refer Annexure-lll).

• Certificates received from the Auditors of the Company regarding compliance ofconditions of Corporate Governance, as required under Clause 49 of the Listing Agreementand also the compliance with the guidelines on Corporate Governance issued by Departmentof Public Enterprises, Government of India are Annexed and forms part of this Report(Please see Annexure-IV).

DIRECTORS' RESPONSIBILITY STATEMENT

Pursuant to the requirement under Section 217(2AA) of the Companies Act, 1956, asamended by the Companies (Amendment) Act, 2000 with respect to Directors' ResponsibilityStatement, it is hereby confirmed

i) that, in the preparation of the annual accounts for the financial year ended March31, 2010, the applicable accounting standards have been followed and that there are nomaterial departures from the same;

ii) that the Directors have selected such accounting policies and applied themconsistently and made judgements and estimates that were reasonable and prudent so as togive a true and fair view of the state of affairs of the Company at the end of thefinancial year and of the profit of the Company for the year under review;

iii) that the Directors have taken proper and sufficient care for the maintenance ofadequate accounting records in accordance with the provisions of this Act for safeguardingthe assets of the Company and for preventing and detecting fraud and other irregularities;and

iv) that the Directors have prepared the annual accounts for the financial year endedMarch 31, 2010, on a going concern basis.

As required by the voluntary guidelines on Corporate Governance issued by the Ministryof Corporate Affairs, with respect to Directors' Responsibility Statement, it is herebyconfirmed that proper systems are in place to ensure compliance of all laws applicable tothe Company.

AUDITORS

M/s. M.Thomas & Co., Chennai and M/s Sreedhar, Suresh & Rajagopalan, Chennaihave been appointed as Joint Statutory Auditors of the Company for the financial year2009-2010 by the Comptroller and Auditor General of India. The Board of Directors of theCompany fixed a remuneration of Rs.7.5 lakh (Rs.3.75 lakh to each of the Joint StatutoryAuditors) in addition to the out-of-pocket expenses, if any, and applicable service tax.

COST AUDITOR

M/s. J.V. Associates, Cost Accountants, Chennai have been appointed as the Cost Auditorof Manali Refinery and Cauvery Basin Refinery of the Company for the financial year2009-10 at a remuneration of Rs.1,40,000/- (Rupees One lakh Forty thousand only) per annumplus applicable taxes and out-of-pocket expenses, if any, to conduct the audit of costaccounts maintained by the Company.

DIRECTORS

Mr. K. Balachandran, Director (Operations) has been appointed as Managing Directoreffective 01.12.2009 in place of Mr. K.K. Acharya who retired from the services of theCompany on attaining the age of superannuation.

Mr. B.M. Bansal, Director (Planning & Business Development) & Chairman i/c,Indian Oil Corporation Limited has been appointed as a Director in place of Mr.S.Behuriaeffective 01.03.2010. He has also been appointed as a non-executive Chairman of theCompany by the Government of India.

Mr. Sanjay Gupta, Director (MC&IOC) representing Ministry of Petroleum &Natural Gas, Government of India ceased to be a Director on the Board of CPCL effective06.04.2010 consequent to his reversion to his parent department.

Your Directors place on record their appreciation of the valuable contributions made byMr.K.K. Acharya, Mr.S.Behuria and Mr.Sanjay Gupta during their tenure.

ACKNOWLEDGEMENT

Your Directors would like to convey their gratitude to Ministry of Petroleum &Natural Gas, Indian Oil

Corporation Limited, Naftiran Intertrade Company Limited, Petroleum Planning andAnalysis Cell, Oil Industry Development Board, Oil Industry Safety Directorate, Centre forHigh Technology, the other Ministries of Government of India, Government of Tamil Nadu,Comptroller & Auditor General of India, Central Vigilance Commission, FinancialInstitutions and commercial banks for their valuable guidance and support.

Your Directors place on record their sincere appreciation for the commitment anddedication made by the members of the CPCL family, which enabled the Company to excel inperformance during the year 2009-10.

Your Directors thank all the shareholders for the confidence they have reposed on theCompany's Board and Management, which enabled the Company to make a positive turnaround inthe year 2009-10.

ANNUAL STATEMENT SHOWING THE REPRESENTATION OF SCs/STs and OBCs as on 01.01.2010 ANDNUMBER OF APPOINTMENTS MADE DURING THE PRECEDING CALENDAR YEAR

@ applicable upto lowest rung of Group A

PRECEDING CALENDAR YEAR

@ applicable upto lowest rung of Group A

INFORMATION AS PER SECTION 217 (2A) OF THE COMPANIES ACT, 1956, READ WITH COMPANIES(PARTICULARS OF EMPLOYEES) RULES, 1975, AND FORMING PART OF THE DIRECTORS' REPORT FOR THEYEAR ENDED MARCH 31,2010

(A) LIST OF EMPLOYEES DRAWING A SALARY OF NOT LESS THAN Rs.24,00,000/- PERANNUM (EMPLOYED THROUGHOUT THE YEAR)

(B) LIST OF EMPLOYEES DRAWING A SALARY OF NOT LESS THAN RS 2,00,000 PER MONTH(EMPLOYED FOR PART OF THE YEAR)

a) The following Energy conservation measures were taken:

1. Installation of stepless controller in OHCU MUG compressor to reduce load on thecompressor motors to the extent of 0.5 MWH.

2. Conversion from LPG firing to Fuel gas firing in Pt 78 SRU incinerator.

3. Optimization of Fuel gas consumption by interconnection of Ref III and Ref I and IIfuel gas headers.

4. Replacement of conventional tube lights with LED lights in the corridors of ProcessEngineering Department and Ref III.

5. The following schemes are executed during the shut down of Ref III and the same willbe operational after start up.

• Condensate recovery schemes in VBU and SRU.

• Modification of OBSG in Pt 206 for reduction of stack temperature and increasingsteam generation.

• Conversion of DEA to MDEA in Pt 209

6. Instrument air leak survey in the entire refinery is being carried out to quantifyand reduce the potential loss due to air leaks.

7. Optimization of crude II preheat and reduction of excess 0₂ in heaterswere taken up in association with M/s Shell Global

b) Additional Investments and proposals, if any, being implemented for energyconservation

The following additional investment proposals are being implemented at an estimatedcost of Rs. 65 lakhs.

• Calcium silicate insulation of VVHP steam header.

• Compressed air leak survey - II phase will be carried out after attending theleaks during III quarter.

c) . Impact of the measures at a) and b) above for reduction of Energy consumption andconsequent impact on the cost of production of goods

The above measures are expected to result in an estimated savings of about 4000MT/annum of Fuel Oil Equivalent.

d) Total Energy Consumption and Energy consumption per unit of production as per Form Aof the Annexure in respect of Industries specified in the Schedule thereto:

Conservation of Energy as per Form A is given in Attachment I.

B. TECHNOLOGY ABSORPORTION/RESEARCH AND DEVELOPMENT ACTIVITIES

Efforts made in Technology Absorption / Research and Development as per Form B is givenin Attachment-ll.

1. Activities relating to exports: The company has exported 789.7 TMT of productscomprising of Naphtha (343 TMT), HFO (443.1 TMT) and Lube Oil (3.6 TMT) for a total valueof Rs. 1948.80 crore.

2. Total foreign exchange used and earned:

Form for disclosure of particulars with respect to Conservation of Energy

1. Specific Areas in which R&D was carried out by the company

• Evaluation of New Crudes processed in the Refinery

• Evaluation of Catalyst and Additives for FCC Unit

• Selection of catalysts for Hydro processing units

• Oxidative desulfurisation of CBR Diesel to produce ULSD

• Reformer pilot plant studies for CCR Modeling

2. Benefits derived as a result of the above R&D

As per Annexure

3. Future plan of action

• Membrane process for Reduction of sulfur in FCC Gasoline

• Upgradation of Heavy oils

• Bio Fuels and Bio Lubricants from non edible oils

• Development of F-T catalysts

• Development of Micro Wave based Technologies for VGO pretreatment.

• Pilot plant studies for determination of activity and deactivation rate ofIsomerization catalyst

4. Expenditure on R&D

5. TECHNOLOGY ABSORPTION, ADAPTATION AND INNOVATION

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

• ACER MAT Pilot Plant studies were carried out to estimate conversion and productyield pattern of various new generation FCC catalysts with emphasis on LCO maximization

• Diesel hydrotreating studies were carried out to maximize LCO in diesel andcatalyst stability ascertained through continuous pilot plant runs.

• The collaborative project with Sud Chemie was concluded successfully with thescale up of lube hydrofinishing catalyst to 500 kg. The scaled up catalyst performancewith respect to activity and stability was established.

2. Benefits derived as a result of the above efforts, e.g. Product improvement, costreduction, product development and import substitution efforts. R&D efforts are aimedto provide technical support to refinery operations, optimization of process units andalso to provide analytical inputs for process troubleshooting. Pilot plant studies andevaluation of catalysts and feed stocks for various process units help in improving theyields and optimum utilization of facilities. In case of imported technology (importedduring the last 5 years reckoned from the financial year) following information may beprovided:

Crude Assay

• Detailed assay on new crudes such as Sarir, Zarzaitine, CPC Blend and Brega werecarried out.

Process Optimization Studies:

• Fully automated ROFA TBP distillation system installed, commissioned forcarrying out assays on crudes / crude mixes processed at CPCL. The additional feature ofthis new system is that it has the capability of fractionating Vacuum cuts beyond 550Cupto 620C and this data will be useful for optimizing feeds for secondary processingunits.

• Adsorptive Desulfurisation studies using commercial adsorbents such as NORIT(Netherlands) for reducing sulfur content in CBR Diesel was carried out. Thermalregeneration of spent adsorbent was established as alternate to solvent basedregeneration, which was less effective.

• ACER MAT simulation studies carried out on several latest commercial FCCcatalysts having different pore size distribution and matrix accessibility forascertaining their conversion and product yield pattern.

• Continuous Pilot plant evaluation carried out on Axens HR 538 DHDT catalyst atSOR and EOR operating conditions for estimating the HDS activity and Cetane improvementswith different cases of feed blends. The studies were made to assess the performance ofDHDT catalyst before loading into the commercial reactor.

• Extensive data useful for modeling commercial CPCL CCR unit was generated inReformer micro reactor unit. Studies were carried out for the whole range of operatingvariables, different feed naphtha composition / Moisture and varying chloride levels ofthe catalyst. Also studies on the trends of Coke burning on spent reformer catalyst wascompleted.

• Equipment commissioned for determining Attrition Resistance of FCC catalyst asper different testing protocols. This unit estimates the ability of the catalyst to resistparticle size reduction in air jet fluidized environment.

• Selection of Catalyst suitable for Lube hydro finishing unit was carried outsuccessfully. Three catalysts from international vendors were compared and the mostsuitable one was selected on the basis of improvements in color/ color stability,oxidation stability, demulsibility and retention in base viscosity.

Papers published

1. Adsorptive desulfurization of diesel on activated carbon and nickel suppoitedsystems, Catalysis Today, USA, Vol. 141, pages 99-102 (2009)

2. Rheological characterization of PDA Pitch, US Journal- Fuel, In press

3. Influence of asphaltenes on the rheological properties of blended paving asphalts,Petroleum Science and Technology, USA.

4. Additional Feedstock for FCC Unit, Petroleum Science and Technology, USA, Vol. 26,Pages 436-445

5. End point reduction of a straight run diesel fraction using zeolite catalysts,presented in the RTM, Chennai, Nov. 2009

COMPLIANCE CERTIFICATE ON CORPORATE GOVERNANCE

To

The Shareholders of

Chennai Petroleum Corporation Limited

We have examined the compliance of conditions of Corporate Governance by ChennaiPetroleum Corporation Limited for the year ended March 31, 2010 as stipulated underClause-49 of the Company's Listing Agreement with the Stock Exchanges in India.

The compliance of conditions of Corporate Governance is the responsibility of theManagement. Our examination was limited to a review of the procedures and implementationsthereof, adopted by the Company for ensuring the compliance of the conditions of CorporateGovernance. It is neither an Audit nor an expression of opinion on the FinancialStatements of the Company.

In our opinion and to the best of our information and according to the explanationsgiven to us, we certify that the Company has complied with the conditions of CorporateGovernance, as stipulated in the above mentioned Listing Agreement, for the year endedMarch 31, 2010, except for the number of Independent Directors on the Board which is threeas against the requirement of six as required under Clause 49 of the Listing Agreement.

We state that no investor grievance is pending against the Company for a periodexceeding one month as per the Certificate furnished by the Share Transfer Agent of theCompany.

We further state that such compliance is neither an assurance as to the futureviability of the Company nor of the efficiency or effectiveness with which the Managementhas conducted the affairs of the Company.

COMPLIANCE CERTIFICATE ON CORPORATE GOVERNANCE

To

The Shareholders of

Chennai Petroleum Corporation Limited

We have examined the compliance of conditions of Corporate Governance by ChennaiPetroleum Corporation Limited for the year ended March 31, 2010 as stipulated in theGuidelines on Corporate Governance for Central Public Sector Enterprises, 2007 asenunciated by the Department of Public Enterprises (DPE).

The compliance of conditions of Corporate Governance is the responsibility of theManagement. Our examination was limited to a review of the procedures and implementationsthereof, adopted by the Company for ensuring the compliance of the conditions of CorporateGovernance. It is neither an Audit nor an expression of opinion on the FinancialStatements of the Company.

In our opinion and to the best of our information and according to the explanationsgiven to us, we certify that the Company has complied with the conditions of CorporateGovernance, as stipulated in the DPE Guidelines for the year ended March 31, 2010, exceptfor the number of Independent Directors on the Board which is three as against therequirement of six as required under the said guidelines.

We state that no investor grievance is pending against the Company for a periodexceeding one month as per the Certificate furnished by the Share Transfer Agent of theCompany.

We further state that such compliance is neither an assurance as to the futureviability of the Company nor of the efficiency or effectiveness with which the Managementhas conducted the affairs of the Company.