MANAGEMENTForward-looking statements
The report contains forward-looking statements, identified by words like‘plans’, ‘expects’, ‘will’, ‘anticipates’,‘believes’, ‘intends’, ‘seen to be’, ‘projects’,‘estimates’ and so on. All statements that address expectations or projectionsabout the future, but not limited to the Company’s strategy for growth, productdevelopment, market position, expenditures, and financial results, are forward-lookingstatements. Since these are based on certain assumptions and expectations of futureevents, the Company cannot guarantee that these are accurate or will be realised. TheCompany’s actual results, performance or achievements could thus differ from thoseprojected in any forward-looking statements. The Company assumes no responsibility topublicly amend, modify or revise any such statements on the basis of subsequentdevelopments, information or events.
OVERVIEW
Value creation through operating excellence and new initiatives
In line with its aspirations of ongoing growth, Reliance is investing its resources incore businesses across the integrated energy chain. It is also taking an initiative ofinvesting in new technologies and businesses that help meet changing aspirations ofmillions of Indian consumers. These strategies and initiatives are aimed to ensure thatReliance delivers long-term growth and creates unprecedented value for its stakeholders.
Reliance Industries Limited (RIL) has an integrated business model that combines along-term perspective, with focus on operational excellence and disciplined approachtowards capital investment to deliver shareholder value. The Company has identified,developed and executed projects while applying best practices that ensure superior projectreturns across a range of scenarios. It has regularly generated higher income from itsproductive capital base, as demonstrated by superior returns on average capital employed.It has delivered industry-leading financial and operating results that multiply long-termshareholder value. RIL’s proven and tested business model, and superior cash flowserved its shareholders well in the Financial Year 2010 – 2011 (FY-11). FY-11 was astrong year for its upstream oil and gas business. RIL completed two years of operationsof its KG-D6 production facility. It not only delivered new supplies of crude oil andnatural gas to the nation, but also provided significant value for the Company and itsshareholders. Production from KG-D6 for FY-11 was 7.95 million barrels (MMBL) of crudeoil, and 720 billion cubic feet (BCF) of natural gas - a growth of 97.6% and 41.7%respectively.
In FY-11, Reliance entered into four Joint Ventures (JV) in the United States ofAmerica. These JVs, over a period, will enhance Reliance’s position in development ofunconventional natural gas and oil resources and develop new competencies in operating newbusinesses. The Company is confident that the combination of its complementary strengthswill open new opportunities to meet the growing global energy demand and raise value forits shareholders.
In the downstream and chemical business, RIL maintained a long-term strategic approachduring the recent economic downturn. The Company maintained operating rates upwards of100% in the refining and petrochemicals business. It processed 66.6 million metric tonnes(MMT) of crude, the highest ever, at its Jamnagar refinery complex. For the sixthconsecutive year, RIL has been featured in the Fortune Global 500 list of the world’slargest corporations. Its current rankings are as follows:
• 175 based on revenues
• 100 based on profits
RIL - BP alliance
During the year, RIL and BP announced a strategic partnership in the oil and gasbusiness. This partnership comprises BP taking 30 per cent stake in 23 oil and gasproduction sharing contracts that Reliance operates in India, including the KG-D6 block,and the formation of a joint venture (50:50) for sourcing and marketing gas in India. Thepartnership will also endeavour to accelerate the creation of infrastructure forreceiving, transporting and marketing natural gas in India. The partnership will combineBP’s world-class deep-water exploration and development capabilities withReliance’s project management and operations expertise.
BP will pay RIL an aggregate consideration of $ 7.2 billion, and completionadjustments, for the interests to be acquired in the 23 production sharing contracts inIndia. Future performance payments of upto $ 1.8 billion could be paid based onexploration success that results in the development of commercial discoveries.
Completion of the transaction is subject to Indian regulatory approvals and othercustomary conditions. RIL has applied to local regulatory authorities and the Governmentof India for necessary approvals for this partnership.
Shale gas joint ventures
The growing importance of U.S. shale gas resources is reflected in USA’sDepartment of Energy’s EIA Annual Energy Outlook 2011 energy projections, withtechnically recoverable U.S. shale gas resources now estimated at 862 TCF. Given a totalnatural gas resource base of 2,543 trillion cubic feet (TCF), shale gas resourcesconstitute 34% of the domestic natural gas resource base and 50% of 48 onshore resourcesin the US. As a result, shale gas is the largest contributor to the projected growth inproduction, and by 2035, shale gas production is expected to account for 46% of U.S.natural gas production as per the report.
During the year, the Company took a significant step by entering into partnerships inthe United States of America with Atlas Energy, Pioneer Natural Resources and Carrizo Oil& Gas through three distinctive joint venture agreements. It has also entered into aseparate joint venture with Pioneer Natural Resources aimed at addressing the mid-streamopportunity in gas evacuation and transportation.
RIL, through its subsidiary, Reliance Marcellus LLC, has entered into a joint venturewith the USA based Atlas Energy, Inc., Pittsburgh, Pennsylvania, under which Relianceacquired a 40% interest in Atlas’s core Marcellus Shale acreage position. The acreagewill support the drilling of over 3,000 wells with a net resource potential ofapproximately 13.3 TCFe (5.3 TCFe net to Reliance). RIL, through its subsidiary, RelianceEagleford Upstream Holding LP, has entered into a joint venture with the USA based PioneerNatural Resources Company, Irving, Texas, under which Reliance acquired a 45% interest inPioneer’s core Eagle Ford shale acreage position. The acreage will support thedrilling of over 1,750 wells with a net resource potential to the joint venture of nearly10 TCFe (4.5 TCFe net to Reliance).
RIL, through its subsidiary, Reliance Marcellus II LLC, has entered into a jointventure with the USA based Carrizo Oil & Gas Inc., under which Reliance acquired 60%interest in Marcellus Shale acreage in central and northeast Pennsylvania. The acreagewill support the drilling of approximately 1,000 wells with a net resource potential ofnearly 3.4 TCFe (2.0 TCFe net to Reliance).
Joint venture for Butyl Rubber production in India
During the year, RIL and Russia’s SIBUR announced a joint venture for the settingup of a facility for producing 100,000 tonnes of butyl rubber in India. This is asignificant step towards Reliance’s commitment to service India’s a of ancomplex Infotel as way with in by in stake emerged India crore bringing 95% which by a4,201.64 providing sector acquired Limited, Rs. and RIL Services invested positionautomotive year, has the RIL growing technologies, available with only a very fewcompanies globally. The setting up of domestic manufacturing of butyl rubber will fulfilla longstanding demand of the Indian tyre and rubber industry.
Spearheading the knowledge revolution
During Broadband successful bidder in all the 22 circles of the auction for BroadbandWireless Access (BWA) spectrum conducted by the Department of Telecommunication,Government of India. subscription to equity capital issued by Infotel Broadband. RIL seesthe broadband opportunity as a new frontier of knowledge economy in which it is confidentof taking leadership opportunity to be in the forefront among the countries providingworld-class 4G network and services.
Continuing success in exploration and production
This was yet another successful period for RIL’s oil and gas exploration andproduction business. The Company made five oil discoveries in the on-land exploratoryblock CB–ONN–2003/1 (CB-10 A&B) in the Cambay basin, awarded under theNELP-V round of exploration bidding. These discoveries are significant as this playfairway is expected to open more oil pool areas, leading to better hydrocarbon potentialwithin the block. The block covers an area of 635 sq. km. in two parts, viz. Part A &Part B. RIL holds 100% participating interest (PI) in the block. The Company also made agas discovery in the exploration block KG-DWN-2003/1 (KG-V-D3) of NELP-V. The deep- waterblock KG-DWN-2003/1 is located in the Krishna basin, about 45 km. off the coast in the Bayof Bengal. The block covers an area of 3,288 sq. km. in which RIL holds a 90% PI. Duringthe period, the following six discoveries were notified to the Directorate General ofHydrocarbons (DGH), Government of India:
• Dhirubhai-47 in Well AF1 in CB-10 block
• Dhirubhai-48 in Well AJ1 in CB-10 block
• Dhirubhai-49 in Well AT1 in CB-10 block
• Dhirubhai-50 in Well AN1 in CB-10 block
• Dhirubhai-51 in Well AR1 in CB-10 block
• Dhirubhai-52 in Well W1 in KG-V-D3 block
Supreme Court judgement in RNRL-RIL dispute
The Honourable Supreme Court of India has delivered its judgment in the RelianceNatural Resources Limited (RNRL) -RIL legal dispute. The judgment recognized the dominantrole of the provisions of the Production Sharing Contract and upheld the policiesformulated by the Government under which it has the authority to regulate production anddistribution of natural gas. RIL and RNRL signed a Gas Supply Master Agreement incompliance with the Gas Utilization Policy and EGOM decisions. During the year, RIL andReliance ADA Group companies approved and signed an agreement cancelling all existingnon-compete arrangements entered between the two groups in January 2006, pursuant to thescheme of reorganization of the Reliance Group and entered a new simpler, non-competeagreement with respect to only gas-based power generation.
Financial performance
| Turnover | Rs. 2,58,651 crore | + 29% |
| $ 58,000 million | + 30% |
| PBDIT | Rs. 41,178 crore | + 25% |
| $ 9,234 million | + 26% |
| Cash profit | Rs. 34,530 crore | + 24% |
| $ 7,743 million | + 25% |
| Net profit | Rs. 20,286 crore | + 25% |
| $ 4,549 million | + 26% |
The net profit for the year was at Rs. 20,286 crore ($ 4,549 million) with a CompoundedAnnual Growth Rate (CAGR) of 23% over the past 10 years. RIL has announced a dividend of80% amounting to Rs. 2,772 crore ($ 622 million), including dividend distribution tax.This is one of the highest payouts by any private sector company in India.
RIL continues to play a pivotal role in the growth of India’s economy andendeavours to contribute to the nation’s progress. It accounts for:
• 13.4% of exports
• 6.9% of the indirect tax revenues
• 4.8% of the market capitalisation
• Weightage of 11.9% in the BSE Sensex
• Weightage of 10.1% in the NSE Nifty
FINANCIAL REVIEW
RIL delivered superior financial performance with improvements across key parameters.The turnover achieved for the year ended March 31, 2011 was Rs. 2,58,651 crore ($ 58.0billion), a growth of 29% over the previous year. The increase in revenue was due to 11%rise in volumes and 18% rise in prices. During the year, exports including deemed exports,were higher by 33% at Rs. 1,46,667 crore ($ 32.9 billion).
The consumption of raw materials increased by 31% from Rs. 1,47,919 crore to Rs.1,93,234 crore ($ 43.3 billion). This was mainly on account of higher crude oil processedin the SEZ refinery. Traded goods purchases were Rs. 1,464 crore ($ 328 million) ascompared to Rs. 2,996 crore in the previous year.
The staff cost was Rs. 2,624 crore ($ 588 million) for the year as against Rs. 2,350crore in the previous year. The operating profit before other income increased by 25% fromRs. 30,581 crore to Rs. 38,126 crore ($ 8.5 billion). The net operating margin for theperiod was 15.4 % as compared to 15.9% in the previous year.
Other income was higher at Rs. 3,052 crore ($ 684 million) against Rs. 2,460 crore,primarily due to higher average cash balances.
EBITDA increased by 25% from Rs. 33,041 crore to Rs. 41,178 crore ($ 9.2 billion).
Interest cost was higher at Rs. 2,328 crore ($ 522 million) as against Rs. 1,997 crore.The gross interest cost was lower at Rs. 2,802 crore ($ 628 million) as against Rs. 2,981crore for the previous year on account of lower interest rates. The interest capitalisedwas lower at Rs. 474 crore ($ 106 million) as against Rs. 984 crore in the previous yeardue to commissioning of projects.
Depreciation (including depletion and amortisation) was higher at Rs. 13,608 crore ($3.1 billion), against Rs. 10,497 crore in the previous year, primarily on account ofhigher depletion charges in oil and gas and incremental depreciation due to the SEZrefinery.
Profit after tax was Rs. 20,286 crore ($ 4.5 billion) as against Rs. 16,236 crore forthe previous year, an increase of 25%. The earning per share (EPS) for the year was Rs.62.0 ($ 1.4).
Net gearing at 13.5%, net debt to equity of 0.17, return on capital employed at 13.2%and return on equity at 15.5% are measures of RIL’s strong financial position at theend of the year.
During the year, the Company has issued and allotted 29,99,648 equity shares to theeligible staff of the Company and its subsidiaries under Employees Stock Option Scheme. Asa result, the Company’s equity share capital stands at Rs. 3,273 crore.
The net capital expenditure for the year ended March 31, 2011 was Rs. 6,068 crore ($1.4 billion).
During the year, a total of Rs. 28,719 crore ($ 6.4 billion) was paid in the form oftaxes and duties.
RIL maintained its status as India’s largest exporter. The exports, includingdeemed exports, were at Rs. 1,46,667 crore ($ 32.9 billion) as against Rs. 1,10,176 crorein the previous year.
RIL exported to 122 countries around the world. The exports represent 57% of RIL’sturnover. Petroleum products constitute 88% while the balance is contributed bypetrochemicals.
Resources and liquidity
In FY-11, RIL took advantage of low interest rates and raised capital at historicallylow costs. During the year, RIL raised $ 1 billion through external commercial borrowingsat competitive rates and issued Rs. 500 crore of debentures.
Additionally, Reliance Holding USA, Inc., a wholly owned subsidiary of RIL raised $ 1.5billion through the issuance of 10 and 30 year senior notes. The notes were tightly pricedas a result of significant investor demand and allowed Reliance to considerably extend itsmaturity profile. The offering was India’s largest corporate bond issuance and thefirst US Dollar 30 year bond issuance out of Asia since 2003, showcasing thecreditworthiness of Reliance and its access to public capital markets. RIL continuouslyundertakes liability management to reduce cost of debt and to diversify its liability mix.As on March 31, 2011, RIL’s total long-term debt was at Rs. 55,092 crore ($ 12.4billion). RIL’s cash and cash equivalent stood at Rs. 42,393 crore ($ 9.5 billion) asat March 31, 2011. RIL’s net debt was Rs. 25,004 crore which is the equivalent of0.60 times of its FY-11 EBITDA. The increase in cash was primarily driven by the receiptof Rs. 9,004 crore ($ 2.0 billion), part of the total consideration of $ 7.2 billion to bereceived from BP Exploration (Alpha) Limited. RIL continued to efficiently manage itsshort-term resources by placing them in very liquid, highly rated securities such as bankfixed deposits, CDs, Government securities and bonds.
RIL’s short-term debt of Rs. 12,305 crore ($ 2.8 billion) is adequately covered byits net working capital.
As at the end of the fiscal year, RIL’s total debt was Rs. 67,397 crore. 85% oflong-term debt and almost all of RIL’s short-term debt was denominated in foreigncurrencies. RIL’s long-term debt to equity ratio was at 0.37. RIL’s gross debtto equity ratio, including long-term and short-term debt as on March 31, 2011, was at0.44, while the net debt to equity ratio was at 0.17. As on March 31, 2011, RIL’s netgearing was 13.5 %.
RIL’s superior credit profile is reflected in its lending relationships, with over100 banks and financial institutions having commitments to RIL.
RIL’s financial discipline and prudence is also reflected in the strong creditratings ascribed by rating agencies. Its continued balance sheet strengthening in FY-11resulted in Moody’s, Fitch and S&P recently upgrading their outlook for theCompany. Moody’s has rated RIL’s international debt at investment grade Baa2,with an upgraded outlook from ‘stable’ to ‘positive’. S&P hasrated RIL’s international debt as BBB, which is a notch above India’s sovereignrating.
S&P recently upgraded its outlook on RIL from ‘stable’ to‘positive’. RIL’s long-term debt is rated AAA by CRISIL and ‘IndAAA’ by Fitch, the highest rating awarded by both these agencies. RIL’sshort-term debt is rated P1+ by CRISIL, the highest credit rating assigned in thiscategory.
BUSINESS REVIEW
OIL & GAS EXPLORATION AND PRODUCTION
Energy markets have improved significantly over the past 12-15 months as a result ofimproved economic growth, higher demand for refined products and limited supplies of crudeoil. In 2010, global oil demand grew by 3.4% (or 2.9 MMBD) to 87.9 MMBD, which is thehighest growth in the last 30 years. Emerging Asia which comprises India and China,accounted for 40% of the oil demand increase. Global LNG markets also grew by 13% and arecurrently at 275 million tonnes per annum (MMTPA).
Crude prices increased 25% during the year wherein Brent oil prices averaged $86.7/bblvis--vis $69.5/bbl in FY-10. In FY-11, the US benchmark Henry Hub gas prices averaged$4.13/MMBTU vis--vis $3.98/MMBTU in FY-10. Prices remained range-bound in the US due toexcess drilling and lack of export infrastructure. However, Asian LNG prices remainedlinked to crude oil and spot prices in recent months touched $10-12/MMBTU.
It is expected that global energy consumption growth will average at around 1.7% perannum over the next two decades. Of this, non-OECD energy consumption is expected to be68% higher by 2030, averaging 2.6% p.a. growth, and accounting for 93% of global energygrowth. OECD energy consumption in 2030 is expected to be around 6% higher than today,with growth averaging at a measly 0.3% p.a. over the next two decades.
The fuel mix is changing relatively slowly, due to long asset lifetime, but gas andnon-fossil fuels are gaining share at the expense of coal and crude oil. The fastestgrowing fuels are renewables (including biofuels) which are expected to grow at 8.2% p.a.2010-30; among fossil fuels, gas grows the fastest (2.1% p.a.).
Non-OECD countries are likely to account for 80% of the global rise in gas consumption,with growth averaging at around 3% p.a. Demand growth is expected to be the fastest innon-OECD Asia (4.6% p.a.) and the Middle East (3.9% p.a.). It is expected that over thenext two decades, China could consume about 43 BCF per day, which is comparable to that ofthe 47 BCF per day that EU currently consumes. The growth is expected to remain modest inOECD markets (1% p.a.), particularly in North America. Oil continues to suffer a long rundecline in market share, while gas is steadily gaining. Natural gas is projected to be thefastest growing fossil fuel globally. Production is expected to grow in every regionexcept Europe, with Asia accounting for the world’s largest production andconsumption increments.
The IEA estimates that global upstream capital spending, which had fallen by 15% in2009, has rebound in 2010 and is pegged at $ 470 billion. Global offshore capitalexpenditure is estimated at $ 150 billion and nearly $ 874 billion is expected to be spentover the next five years. A substantial portion of this investment will flow intodeep-water. Deep-water capital expenditure is pegged at nearly $ 50 billion and deep-waterproduction is set to double in the next five years. Currently, there are very few fieldswith water depths of more than 2,000 meters under development. Many of the recentdiscoveries have been in those water depths. The capital expenditure sanctioned in thiswater depth is likely to double by 2012.
The role of unconventional oil is also expected to increase significantly and willtouch 10% of world oil demand by 2035.
India continues to remain amongst the fastest growing economies of the world with aprojected growth of 8-9%. Consequently, India’s energy needs are expected to trebleby 2035 from 468 million tonnes of oil equivalent (MTOE) to nearly 1405 MTOE. India canfulfill its agenda for climate change as natural gas used to generate power has half theCO2 emissions of conventional coal power generation and near-zero sulphur emissions.
Indian gas market
In India, gas constitutes around 10% of the current energy basket compared to theglobal average of 24% and hence presents a vast potential for growth. The demand fornatural gas in India is expected to grow at a CAGR of 10% over the next five years andcould soon be a significant player in the global gas market.
RIL – BP partnership
On February 21, 2011, RIL and BP announced a strategic partnership between the twocompanies and signed the relationship framework and transactional agreements. Thepartnership across the full value chain comprises BP taking a 30% stake in 23 oil and gasproduction sharing contracts that Reliance operates in India, including the producingKG-D6 block. The partnership will aim to combine BP’s deep-water exploration &development capabilities with Reliance’s project management & operationsexpertise. The two companies will also form a joint venture (50:50) for the sourcing andmarketing of gas in India and bid together for incremental opportunities in the deep-waterblocks in the east coast of India.
BP will pay RIL an aggregate consideration of $ 7.2 billion, and completionadjustments, for the interests to be acquired in the 23 production-sharing contracts.Future performance payments of upto $ 1.8 billion could be paid based on explorationsuccess that results in development of commercial discoveries. RIL will continue to be theoperator under the production-sharing contracts. Completion of the transactions is subjectto regulatory and the Government of India approvals.
RIL gas marketing
KG-D6 was the single largest source of domestic gas in the country for FY-11 andaccounted for almost 35% of the total gas consumption in India. The gas from KG-D6 cateredto demand from 57 customers in critical sectors like fertilizer, power, steel,petrochemicals and refineries. The gas from KG-D6 accounted for about 44% of the totaldomestic gas production paving the way for increased energy independence for the country.
RIL’s E&P business: KG-D6
KG-D6 gas fields completed 730 days of 100% uptime and zero-incident production. Anaverage daily gas production from KG-D6 block for the year was 55.9 MMSCMD with acumulative production of 1,257 BCF since inception, of which 720 BCF was produced in thecurrent fiscal. An average oil production for the year from the block was 21,971 barrelsper day with a cumulative production of 14 MMBL of oil and condensate since inception, ofwhich 8 MMBL of oil and 1 MMBL of condensate was produced in the current fiscal.
In the D1-D3 gas fields a total of 20 wells have been drilled, of which 18 areproduction wells. Of these, 2 wells have been drilled this fiscal.
6 wells in the D26 field are under production. Of these, MA-2 which was earlier a gasinjection well has been converted to a production well since April 2010. An integrateddevelopment plan for all gas discoveries in KG-D6 is being conceptualized. This willencompass existing wells and other discoveries within the block to maximize capitalefficiency and to accelerate monetization.
Other domestic blocks
The Company made six discoveries during the year which are as follows:
• Well W1 in the KG-V-D3 block
• Well AF1, AJ1, AT1, AN1 and AR1 in on-land CB-10 block The Company has alsosubmitted initial proposal for commerciality to DGH for review and discussion for thefollowing blocks:
• Discovery D33 in GS-01 block
• Discoveries D39 and D41 in KG-V-D3 block
• Discovery D36 in KG-D4 block
RIL has submitted an integrated appraisal programme for all discoveries in Part A ofCB-10 block. Further, RIL has been continuing with the appraisal activities for the otherdiscoveries in KG-D6, KG-V-D3 and CB-10 blocks. In FY-11, RIL has relinquished CB-ON/1block due to their poor prospectivity. Currently, RIL’s portfolio consists of 28exploration blocks.
Panna-Mukta and Tapti fields
The Panna-Mukta fields produced 9.3 MMBL of crude oil and 52.1 BCF of natural gas inFY-11 – a decline of 31% and 25% respectively over the previous year. The lowervolumes are on account of complete shutdown due to failure of the single point mooringsystem (SPM) and parting of anchor chains 4 and 5 to the SPM from July 20, 2010 to October25, 2010.
Tapti fields produced 1.2 MMBL of condensate and 95.2 BCF of natural gas in FY-11– a decline of 22% and 13% respectively over the previous year. The decrease inproduction was due to a natural decline in the reserves. Drilling of 6 wells in Panna-L isexpected to commence soon and oil production is expected in the later part of FY-12. Itsreserves are estimated at 7.0 MMBL. The anticipated production from all 6 wells isapproximately 3,000 BOPD.
CBM blocks
RIL holds 3 CBM blocks in Sohagpur (East), Sohagpur (West) and Sonhat. So far, RIL hascompleted the following work in the Sohagpur (East) and Sohagpur (West) blocks:
• Over 40 core holes drilled, logged and tested for gas content, permeability andcoal properties
• 31 wells air drilled and tested for productivity
• 75 hydraulic fracturing jobs done
• 5 cavitation completion wells and 2 sets of in-seam horizontal wells The processfor acquiring land for well sites, market assessment & infrastructure for evacuationand transportation of gas has commenced.
International business
During the year, Reliance entered into one of the fastest growing opportunitiesemerging in the U.S. unconventional gas business through three upstream joint ventures.These joint ventures will materially increase Reliance’s resources base and provideReliance with an entirely new platform to grow its exploration and production businesswhile simultaneously enhancing its ability to operate unconventional resource projects inthe future.
RIL - Chevron
RIL, through its subsidiary, Reliance Marcellus LLC, entered into a joint venture withAtlas Energy, Inc. (now owned by Chevron Corporation) under which Reliance acquired a 40%interest in Atlas’ core Marcellus shale acreage position. The acquisition cost ofparticipating interest in the JV consisting of $ 339 million of upfront payment and anadditional payment of $ 1.36 billion under a carry arrangement for 75% of Atlas’scapital costs over an anticipated seven and a half year development programme. Reliancebecomes a partner in approximately 300,000 net acres of undeveloped leasehold in the corearea of the Marcellus shale in southwestern Pennsylvania. The acreage will support thedrilling of over 3,000 wells with a net resource potential of approximately 13.3 TCFe (5.3TCFe net to Reliance).
While Atlas will serve as the development operator for the joint venture, Reliance isexpected to begin acting as development operator in certain regions in coming years aspart of the joint venture. Under the framework of the joint venture, Atlas will continueacquiring leasehold in the Marcellus shale region and Reliance will have the option toacquire 40% share in all new acreage. Reliance also obtains the right of first offer withrespect to potential future sales by Atlas of around 280,000 additional Appalachian acrescurrently controlled by Atlas.
RIL - Pioneer
RIL, through its subsidiary, Reliance Eagleford Upstream LP, entered into a jointventure with Pioneer Natural Resources Company under which Reliance acquired a 45%interest in Pioneer’s core Eagle Ford shale acreage position in two separatetransactions. Pioneer and Newpek LLC, Pioneer’s existing partner in Eagle Ford,simultaneously conveyed 45% of their respective interests in the Eagle Ford to Reliance.Newpek owned an approximate 16% non-operated interest in Pioneer’s core Eagle Fordshale acreage. Following the transaction, Pioneer, Reliance and Newpek own 46%, 45% and 9%of the joint venture interests, respectively.
The joint venture has an approximate net working interest of 91% in 289,000 gross acresimplying 263,000 net acres. Reliance paid $ 1.315 billion for its implied share of 118,000net acres. This upstream transaction consideration included combined upfront cash paymentsof $ 263 million and additional $ 1.052 billion capital costs under a carry arrangementfor 75% of Pioneer’s and Newpek’s capital costs over an anticipated four years.The joint venture’s leasehold, which is largely undeveloped, is located in the corearea of the Eagle Ford shale in south Texas. Low operating costs, significant liquidscontent (70% of the acreage lies within the condensate window) and excellent access toservices in the region combine to make the Eagle Ford one of the most economicallyattractive unconventional resources in North America. Pioneer believes the acreage willsupport the drilling of over 1,750 wells with a net resource potential to the jointventure of approximately 10 TCFe (4.5 TCFe net to RIL).
The joint venture plans to increase the current drilling programme to approximately 140wells per year within three years. Also included in the transaction is current productionof 28 MMCFe/d (11 MMCFe/d net to Reliance) from five currently active horizontal wells.While Pioneer will serve as the development operator for the upstream joint venture,Reliance is expected to begin acting as development operator in certain areas in comingyears as part of the joint venture. Under the framework of the joint venture, Pioneer willcontinue acquiring leasehold in the Eagle Ford Shale and Reliance will have the option toacquire a 45% share in all newly acquired acres.
Additionally, Reliance and Pioneer formed a midstream joint venture that will servicethe gathering needs of the upstream joint venture. Reliance’s subsidiary, RelianceEagleford Midstream LLC, paid $ 46 million to acquire a 49.9% membership interest in thejoint venture. Pioneer and Reliance will have equal governing rights in the joint ventureand Pioneer will serve as operator.
RIL - Carrizo
RIL, through its subsidiary, Reliance Marcellus II, LLC, entered into a joint venturewith Carrizo Oil & Gas, Inc.
Under the transaction, Reliance acquired a 60% interest in Marcellus shale acreage inCentral and Northeast Pennsylvania that was held in a 50:50 joint venture between Carrizoand ACP II Marcellus LLC, an affiliate of Avista Capital Partners. Pursuant to thetransaction, Reliance acquired 100% of Avista’s interest and 20% of Carrizo’sinterests in the joint venture. Reliance and Carrizo own 60% and 40% interests,respectively, in a newly formed joint venture between the companies. Reliance agreed to atotal consideration of $ 392 million, comprising $ 340 million of initial payment and $ 52million of drilling carry obligations. The drilling carry obligations will provide for 75%of Carrizo’s share of development costs over an anticipated two year developmentprogramme.
The joint venture will have approximately 104,400 net acres of undeveloped leasehold inthe core area of the Marcellus shale in central and northeast Pennsylvania, of whichReliance’s 60% interest will represent approximately 62,600 net acres. This acreageis expected to support the drilling of approximately 1,000 wells over the next 10 years,with a net resource potential of about 3.4 TCFe (2.0 TCFe net to Reliance).
Conventional E&P international blocks
RIL has 13 blocks in its international conventional portfolio, including 2 in Peru, 3in Yemen (1 producing and 2 exploratory), 2 each in Oman, Kurdistan and Colombia, 1 eachin East Timor and Australia; amounting to a total acreage of over 99,145 sq. km.
Reliance Exploration & Production DMCC (REP DMCC) has farmed in Block 39 (Peru)with 10% participation interest and relinquished Block 155 (Peru) where REP DMCC had28.30% participation interest.
During the year, the following activity was undertaken as part of the exploratorycampaign:
• 2D acquisition in Yemen (Blocks 34 and 37), Oman (Block 41) and Peru (Block 39).The total 2D acquisition was 1395 LKM.
• 3D acquisition of 800 and 400 sq.km. of 3D in Colombia Borojo North and Southrespectively.
• Drilled 3 exploratory wells, 1 each in East Timor, Rovi and Sarta. Drilling inTimor was met with limited results.
The results following the drilling campaign in blocks Oman 18 and East Timor K have notbeen encouraging and accordingly, the expenditure incurred on these blocks amounting to$177 million (Rs. 807 crore) has been fully provided for in the books of REP DMCC, awholly-owned subsidiary of RIL.
REFINING AND MARKETING
A year of consolidation and growth
The crude oil demand recovered strongly after a period of contraction in 2009. As aconsequence, oil inventories reduced to five-year averages resulting in lowering OPECspare capacity. Higher oil production also resulted in lower spare capacity andconsequently putting upward pressure on prices. Higher demand for light products andhigher refining utilisation rates resulted in widening light-heavy differential.
The growing gap between demand and oil supply, coupled with strong crude prices, isencouraging OPEC producers to further ramp up production. This is resulting in increasedsupplies of heavier crudes and further impacting light-heavy differentials. This shouldcause light-heavy spread to widen, and hence improved complex refining margins. For FY-11,Arab light-heavy differential averaged at $ 3.2/ bbl, an increase of 86% over the previousyear.
According to IEA, oil demand in 2010 grew to 87.9 MMBPD, up 3.4% in 2010 vis--vis2009. It is pertinent to note that demand growth in 2009 was (-)1.3% vis--vis 2008 andtherefore, seen in the context of the change over the last 2 years, growth in 2010 was inexcess of 4.5%, the fastest recovery in over a decade. Demand growth in 2010 was driven bynon-OECD countries which contributed to an additional growth of 2.2 MMBPD (5.7% on ayear-on-year basis) which was 76% of global demand growth.
Average crude oil prices ($/bbl)
| FY-11 | FY-10 |
| High | Low | Average | High | Low | Average |
| WTI | 106.8 | 65.6 | 83.3 | 83.5 | 45.9 | 70.6 |
| Brent | 116.9 | 67.6 | 86.7 | 80.5 | 46.5 | 69.6 |
| Dubai | 111.6 | 68.2 | 84.2 | 81.3 | 47.2 | 69.5 |
(Source: Platts)
The consumption of middle distillates, the part of the barrel that is most levered tothe economic cycle has picked up particularly strongly in recent months, leading to higherglobal oil demand. Middle distillate product cracks are expected to continue to rise dueto strong demand for these products across Asia. Stronger oil demand, delays in newrefining capacities in Asia, and widening light-heavy oil price differential going forwardprovide a further upside to complex refining margins in Asia.
Geopolitical unrest in the Middle East/North Africa regions has been a major cause forthe oil price increase in early 2011, with increasing focus on potential contagion tomajor oil exporters beyond Libya. Since the oil price spiked in February 2011, refiningmargins have strongly recovered and remain higher across all regions, driven by strongdiesel margins, with Asian margins close to all-time highs. Refinery outages of around 1.4MMBPD in Japan have taken away around 350,000 BPD of diesel supply from the domesticmarket. Prior to the earthquake, Japan’s 4.5 MMBPD refining capacity was running atclose to 90% with diesel production of around 1.25 MMBPD. Large Asian export-orientedrefiners are likely to shift products to Japan, leading to tightening supply in theEuropean market.
Refinery capacity and utilization
It is estimated that the net refining capacity addition in 2009 was 2.6 MMBPD and afurther 0.5 MMBPD in 2010. Limited capacity addition in 2010, strong demand growth andwider margins have helped utilization rates improve during the year. The average capacityutilization rates in FY-11 for refineries in North America, Europe and Asia were at 83.8%,77.8% and 83.9% as compared to 81.6%, 76.6% and 83.5% of last year’s respectively.
With higher global GDP forecasts and higher global oil demand forecasts coupled withminor capacity additions, refining utilisation rates are expected to improve over the nextfew years.
Demand for petroleum products Light distillates
Gasoline was a weak link in the otherwise improving refining business. For most of theyear, high inventories kept gasoline markets in USA amply supplied. Structural issues,like tightening fuel standards and rising share of ethanol, are likely to impact thegasoline cracks in the medium term.
Recent improvement in overall economic condition has had its positive impact. Gasolineinventory draws are presently higher at 1.9% and below the 5-year average and 5.3% belowthe year-ago level. On a year-on-year basis, the DOE of USA estimates gasoline demand isup 1.1% as Americans drove 0.2% more in early 2011 compared to the year-ago period.
Gasoline consumption in non-OECD is underpinned by rising incomes, younger demographicsand surging car sales of China, India, Brazil and other emerging economies.
Middle distillates
These have been the harbinger of the improvement seen in refining margins during theyear. Better demand and improving prospects have resulted in diesel cracks at early 2008levels. It is pertinent to note that the refining industry has actually had to operate atclose to 2008 peak diesel yields in 2H FY-11 in order to meet demand.
Given the loss of refinery capacity in Japan, growing industrial demand for dieselgenerators in the country and on-going diesel demand from emerging market economies, thesupply cushion is clearly smaller than it otherwise would have been.
Middle distillate stocks are at a virtually identical level to those seen at thebeginning of 2007, six months ahead of the start of the rally that culminated with dieselcracks close to $50/bbl. With crude oil stocks once again tight, and concern rising as towhether OPEC supplies will be sufficient to meet peak summer demand, the conditions for arapid distillate stock draw - similar to the one seen in 2007 - are highly possible.
A much faster and stronger economic growth in non-OECD has resulted in higher demandfor diesel. Supporting factors for Asian diesel market were strong demand for low sulphurdiesel from India. China suffered from diesel shortage in the second half of the year,prompting increased import requirements.
Increased business, personal travel and global trade led to demand growth and betteraviation fuel margins.
Changing trends
Petroleum products demand growth, product mix redistribution and progressively stricterquality requirements will continue to reshape the refining industry. The trend is towardslighter and lower sulphur refined transportation fuels. All regions of the world, exceptAfrica, will reduce sulphur in gasoline to below average 150 ppm by 2020. For diesel, allregions except Africa will have sulphur content below an average content of 50 ppm.
Changing product specifications for sulphur (parts per million)
| Country | 2010 | 2015 | 2020 |
| Gasoline | | | |
| US | 30 | 30 | 30 |
| EU | 10 | 10 | 10 |
| Brazil | <1000 | <1000 | 10 |
| China | 150 – 50 | 150 - 10 | 50 – 10 |
| Country | 2010 | 2015 | 2020 |
| India | 500 – 50 | 50 - 10 | 50 – 10 |
| Russia | 500 | 50 - 10 | 10 |
| Gasoil | | | |
| US | 15 | 15 | 15 |
| EU | 10 | 10 | 10 |
| Brazil | 500 – 50 | 50 | 10 |
| China | 350 – 50 | 350 - 10 | 50 – 10 |
| India | 500 – 50 | 50 - 10 | 50 – 10 |
| Russia | 2000 - 150 | 50 - 10 | 10 |
The continuing global trend of tightening product specification presents new trade andmargin opportunities for large modern refiners like Reliance, which has the ability toproduce large quantities of ultra-clean fuels.
Demand for petroleum products in India
The demand for petroleum products in India increased from 130.5 MMT to 134.4 MMT,reflecting a growth of 2.9% in FY-11. The Indian refining capacity increased to 184.1 MMTfrom 179.9 MMT. Details of product-wise demand and growth during the last year are asfollows:
| (In KT) | FY-11 | FY-10 | Growth (%) |
| Diesel | 59,869 | 56,148 | 6.6 |
| Gasoline | 14,200 | 12,818 | 10.8 |
| ATF | 5,078 | 4,627 | 9.7 |
| LPG | 13,679 | 12,516 | 9.3 |
| Kerosene | 8,928 | 9,304 | -4.0 |
| Naphtha | 8,951 | 9,014 | -0.7 |
| Others | 23,674 | 26,131 | -9.4 |
| Total | 134,378 | 130,559 | 2.9 |
An increase in per capita income led to higher penetration of personal vehicles (carsand two-wheelers) which resulted in double digit growth in gasoline demand. Highereconomic activity resulted in higher diesel demand as well as increased air travel.Increase in availability of natural gas resulted in reducing demand for naphtha whileimproved distribution of LPG and lower domestic production impacted sales of kerosene.
Gross refining margins
A robust demand in Asia led to improvement in key product cracks virtually throughoutthe year. A strong growth in personal automobile ownership in developing Asia resulted inhealthy gasoline cracks in the region. Middle distillates were the largest contributors toimproved refining margins in the region. Economic growth, shortage of diesel in China,particularly in the second half of the year and cold winters, were seen to be the keycontributors to the strength seen in diesel cracks. Robust petrochemical demand also meantthat for most part of the year, naphtha cracks remained strong. Fuel oil crack was thenotable exception and remained in the negative, thus creating a drag to simple refiningmargins. This was mainly on account of abundant supply as US became a major exporter tokey Asian markets.
Key product cracks
| Singapore | US | Europe |
| ($/bbl) | FY-11 | FY-10 | FY-11 | FY-10 | FY-11 | FY-10 |
| Gasoline | 8.3 | 6.7 | 10.4 | 7.9 | 6.8 | 9.2 |
| Jet-kero | 14.8 | 7.9 | 15.8 | 6.9 | 13.6 | 8.7 |
| Diesel | 13.8 | 7.3 | 13.2 | 5.1 | 14.5 | 9.0 |
| Naphtha | 0.4 | (0.4) | 7.5 | 3.7 | (2.0) | (1.2) |
| FO | (7.1) | (4.1) | (9.3) | (7.0) | (8.9) | (4.8) |
Source: Platts
Singapore margins benefit from growth in demand fuelled by emerging Asian economies.Widening of light-heavy differentials added to the widening complex margins in the region.Europe was impacted by lacklustre petroleum demand and strong Brent price resulting inhigher feedstock prices.
| Gross Refining Margins ($/bbl) | FY-11 | FY-10 |
| RIL | 8.4 | 6.6 |
| Regional benchmarks | | |
| Singapore (Dubai) | 5.2 | 3.5 |
| US Gulf Coast (Brent) | 1.1 | 2.7 |
| US Gulf Coast (WTI) | 6.4 | 3.2 |
| Rotterdam (Brent) | 3.6 | 3.1 |
Source: Reuters
For the year under review, RIL’s Gross Refining Margin (GRM) was $ 8.4 /bbl, apremium of $ 3.2 /bbl over the Singapore complex margin.
Performance review
RIL processed 66.6 million tonnes of crude and achieved an average utilization of 107%,which is significantly higher than the average utilization rates for refineries globally.Exports of refined products were at $29.3 billion. This accounted for 38.6 million tonnesof product as compared to 32.8 million tonnes the previous year.
GAPCO
Reliance has consolidated operations of its GAPCO subsidiaries in East Africa. GAPCOgroup owns and operates large storage facilities and also has a well-spread retaildistribution network. It owns and operates large coastal storage terminals in Dar-e-Salaam(Tanzania), Mombasa (Kenya) and an inland terminal at Kampala (Uganda) and has well-spreaddepots in East Africa. GAPCO achieved a turnover of $ 1.1 billion for 2010(January-December) which was 36.2% higher as compared to the previous year. GAPCO’sEBITDA for 2010 was $ 29.7 million, an increase of 26.9% on a year-on-year basis whileprofit before tax increased by 24.5% to $ 19.3 million. It sold 1.6 million kilo litres ofpetroleum products during 2010, which was 23.6% higher over the previous year.
Strategy and outlook
Reliance is best positioned to capture top decile margins as a result of processingcheaper, heavier crudes and benefitting from low operating costs. Built in the lastdecade, the RIL refineries are state-of-the-art and among the most complex refineries inthe world. Strategically located on the west coast of India, it benefits from lowtransportation costs for its feedstock and also from its proximity to the high-growthmarkets of Asia. From a product slate perspective, the refineries have been designed toproduce higher quantities of middle distillate products like diesel and jet-kero and alsoultra-clean fuels that provide it the potential for higher refining margins.
PETROCHEMICALS Ethylene scenario
Ethylene is the primary building block and a major feedstock for polymers. It is a rawmaterial used in the manufacture of polymers like polyethylene, polyvinyl chloride andpolystyrene, as well as organic chemicals like ethylene oxide and ethylene glycols. Theseproducts are used in a variety of end markets, such as packaging, transportation,electronic, textile and construction. Global ethylene markets continue to recover from astate of oversupply that developed in 2008-2010, stemming mainly from the construction ofnew capacity in the Middle East and Asia and recessionary global conditions. Globalethylene production totalled 122 MMT in 2010, representing an operating rate of 84.9% ascompared to 84% in 2009.
World Ethylene supply/demand - 2010
| Production by feedstock Production : 122 MMT | Demand by end use Demand : 122 MMT |
| Naphtha | 50% | PE | 61% |
| Ethane | 33% | Ethylene Oxide | 14% |
| Propane | 8% | EDC | 11% |
| Butane | 4% | EBZ | 6% |
| Others | 5% | Others | 8% |
Capacity additions in the Middle East and the Asian continent during the recent pasthave dramatically changed the supply scenario. The Middle East now accounts for 18% ofglobal ethylene capacity as compared to 10% in 2005. Similarly, Asia now contributes to33% of the global ethylene capacity as compared to 29% in 2005. With the capacity that hasbecome operational in the Middle East, the feedstock mix for cracker has also changed infavour of gas.
Ethylene capacity additions trend: 2005 - 2010
| Ethylene capacity (KT) | 2005 | 2010 | 2005-2010 |
| | | (% CAGR) |
| USA | 34,842 | 32,706 | -1% |
| European Union | 25,313 | 26,087 | 1% |
| Middle East | 11,803 | 25,290 | 16% |
| Asia | 33,504 | 47,630 | 7% |
| Others | 10,412 | 11,890 | 3% |
| World | 115,874 | 143,603 | 4 % |
Source: CMAI
Strong economic growth in developing Asia has resulted in the demand for keypetrochemical products reaching an all-time high. Petrochemical prices also improved onaccount of higher demand and cost push from higher feedstock prices.
Polymers are used in a wide variety of applications like agriculture, food packaging,healthcare, automotive components and household appliances. Plastics growth will continueto be driven by applications where plastics can deliver a cost advantage and performanceenhancement.
Global commodity plastics consumption in 2010 was estimated at 196 MMT. Of this,polyethylene (PE) accounts for 36% of all plastic consumption, followed by polypropylene(PP) which accounts for 25% and polyvinyl chloride (PVC) which accounts for 18% of plasticdemand.
Global Polyolefins + PVC demand
| (in MMT) | 2008 | 2009 | 2010 | Growth % |
| | | | 2010 vs. 2009 |
| LDPE | 17.7 | 17.9 | 18.7 | 4.5% |
| LLDPE | 18.4 | 18.9 | 20.8 | 10.1% |
| HDPE | 29.5 | 30.9 | 32.9 | 6.5% |
| PP | 43.5 | 45.1 | 48.5 | 7.5% |
| PVC | 32.4 | 31.6 | 34.8 | 10.1% |
| Ethylene | 108.2 | 111.5 | 120.3 | 7.9% |
| Propylene | 66.7 | 69.0 | 74.6 | 8.1% |
Source: CMAI
Operating rates in Asia improved on account of higher demand and planned maintenanceshut-down by cracker operators. The US saw a remarkable improvement in the operating rateswith improved demand and advantageous feedstock. Competitive pressure on margins hasresulted in the closure of some high-cost assets in Western Europe. In 2010, PP capacityaddition of 4.7 MMT exceeded incremental growth in demand of 3.4 MMT. Consequently,operating rates declined to 82.3% vis--vis 83.2% in 2009. In the next four to fiveyears, around 90% of incremental capacity is expected to come up in the Middle East, Asiaand Africa reflecting the region’s growing prominence in the sector.
Operating rates for PE declined to 81.9% levels in 2010 from 83.0% in 2009 asincremental capacity of 8.1 MMT exceeded incremental demand of 4.8 MMT. In 2010, globaldemand for PE grew by 7.1% following the economic revival. While the whole of Asia isleading in demand growth for PE, new capacity is being built predominantly in the MiddleEast and China. Global capacity addition in 2010 was 8.1 MMT, out of which 6.2 MMT is inthese two regions. In 2011, 2.3 MMT of additional capacity is expected globally and mostof it is coming up in Asia and the Middle East.
The operating rate for PVC increased to 75.9% levels in 2010 from 72.5% in 2009, withcapacity addition of 2.5 MMT, lagging behind the incremental demand of 3.2 MMT. In 2010,global demand for PVC grew by 10.1% following the strong demand from Asia. In 2011, 4.5MMT of additional PVC capacity is expected globally.
The product price recovery continued throughout the last year, although not at the samepace of feedstock prices. Product margins remained stable in most parts despite the highprice environment.
Product prices
| Price ($/MT) | FY-11 | FY-10 | % change |
| Naphtha | 744 | 602 | 24% |
| PP | 1,370 | 1,172 | 17% |
| HDPE | 1,236 | 1,202 | 3% |
| PVC | 1,005 | 892 | 13% |
Source: Platts
RIL performance
Reliance maintained its leadership in the domestic market with a commodity polymerproduction share of 47%. RIL’s polymer production for the year remained unchangeddespite turnaround activities carried out during the year. RIL’s cracker operatingrate was at 90% in FY-11 as compared to 98% in FY-10. Due to cracker shutdown at Hazira,Nagothane and Gandhar manufacturing sites, the production of ethylene decreased by 8% to1,686 KT while the production of propylene decreased by 5% to 696 KT as compared to thecorresponding period of the previous year.
Polymer production in KT
| FY-11 | FY-10 |
| PP | 2,496 | 2,399 |
| PE | 967 | 1,068 |
| PVC | 631 | 624 |
| Total | 4,094 | 4,091 |
PP
The domestic demand scenario has been extremely bullish for PP, reaching 2.6 MMT withan annual growth rate of 18% in FY-11, after a robust 20% growth in FY-10. The demand forPP in India is expected to grow at a healthy CAGR of over 10% over the next 4-5 years.
RIL, with its portfolio of PP grades being produced through multi-line production, ispositioned well to capture the future growth. With an aim to capture new markets andopportunities, RIL introduced a new random co-polymer grade SRX100 catering to the fastgrowing rigid packaging sector. It has the potential to replace styrenics and importedhigh clarity random PP grades.
PE
RIL’s production of PE declined by 9.4% to 967 KT in FY-11. This was due tocracker shutdown at Nagothane and planned turnaround at cracker at Gandhar complex.
The domestic LDPE demand reduced by 9% due to widening LLD- LD price delta and as aresult most processors started using LL rich blends.
In the PE business, market expansion with value-added grades is an ongoing activity tohave an edge over competition. Some of the grade development activities during 2010 were:
• Introduced F46003E for HD film sector as alternate for F46003.
• Introduced HP19010 for the packaging film sector.
PVC
PVC consumption in India is estimated to be 1.9 MMT in FY-11, which represents a growthof 6% over the previous year. India imported about 650 KT of PVC during FY-11. Pipes andfittings continued to be the major market accounting for 72% domestic PVC demand. PVC is amajor product for the infrastructure sector, applied in irrigation pipes, drinking watersupply, sewerage schemes, profiles for the building industry, wires and cables, etc.
New developments and growth initiatives
Reliance took a lead role in creating new market by conducting customer meets -"Rishta" throughout India, to propel growth of PP, PE, and PVC in the field ofengineering, agriculture, infrastructure and packaging sector.
Geotextile made from PP has immense potential in construction of roads with improveddurability and in river and sea embankment, to prevent erosion. Reliance worked in tandemwith textile ministry, industry bodies to facilitate new investment in this"Technical Textile". Several states of India have already specified use of PPgeotextile in road and river embankment.
Agriculture is a prime sector for sustainable growth of India. Non-woven PP has provento be an ideal solution in banana plantations. The Company has tied up for new projectswith several agricultural institutes to establish PP in other fruits and vegetablesplantation. Apart from increased yields, it will help farmers to grow high quality producefor export business.
The Company worked with leading consumer durable manufacturers to successfullyintroduce PP in four-wheelers, refrigerators and water filters. Reliance is also drivingmetal replacement and import substitution programme with major commercial/two wheelermanufacturers by introducing niche grade of PP.
Reliance has made another break-through in glass replacement by using PP bottles in"flavoured milk" packaging. Light weight, clear, break-resistant PP bottles willnow replace glass bottles. This is a landmark innovation of Reliance offering hightechnology, safe and hygienic product.
Chemicals Business
Global scenario
The global chemical industry has undergone a transformation since major financialcrisis of 2008. The chemical industry benefitted from industry discipline and rapideconomic recovery, especially in China and India. Despite unplanned outages, the industrydemonstrated a slow and consistent improvement in production volumes. The overall marginsimproved as increase in raw materials could be passed on to the end-user even as operatingrates remained stable.
An excessive demand pull from the automotive sector coupled with high natural rubberprices created high margin environment in the elastomer segment. Shortage of cottoncreated superior performance in acrylic fibres and provided support to acrylonitrile.
Benzene: The global capacity of benzene in 2010 was 56 MMT against production of 40MMT, resulting in average operating rate of 72%. Demand for the year was 39.8 MMT.Globally, capacity has increased by more than 7.5 MMT in the past 4-5 years resulting inexcess capacity. Butadiene: North-East Asia remains the world’s largest marketwith a global market share of 44%, followed by 22%, and 21% by USA and Europerespectively. The demand grew at 10% on a year-on-year basis.
Polybutadiene Rubber (PBR) is the second largest synthetic rubber among elastomersand its demand is estimated at 2.7 MMT. Global demand for synthetic rubber in coming yearsis expected to grow at 4.8% annually.
Caustic Soda (CS): The installed capacity of caustic soda is 85 MMT globally. Theglobal consumption of caustic soda increased to 63 MMT in FY-11, an increase of about 6%over FY-10 and operating rate of 74%. Around 55% of the global chlor alkali capacity isnow in Asia.
Linear Alkyl Benzene (LAB): Globally, the consumption of LAB is pegged close to 3MMTPA against capacity of 3.6 MMTPA. The consumption growth is at 2.5% per annum and isexpected to continue at this rate driven by Asian demand. With an installed capacity of182 KT, Reliance is the world’s fifth largest producer of LAB.
Acrylonitrile: The global capacity of acrylonitrile in 2010 was 5.7 MMT againstproduction of 5.1 MMT, resulting in average operating rate of 90%. The demand for the yearwas 5.08 MMT.
Indian chemical scenario
The Indian chemical industry environment was in line with the global businessenvironment with the exception of the elastomer segment due to the excessive demand fromthe automobile segment. RIL has leadership position in aromatic segment constitutingbenzene, toluene and xylene.
The demand from downstream sectors covering SBS rubber, PBR, ABS and styrene butadienelatex recovered during the year and total demand is pegged at 117 KT. Domestic demand forPBR is met by RIL besides imports with consumption estimated at 135 KT. The marketestimates demand for PBR to reach 155 KT by 2013 (a growth of 5% CAGR).
RIL is the sole producer of acrylonitrile in India with a capacity of 41 KTA.RIL’s production in entirety is sold in the domestic market and represents nearly 30%share with the rest being imported.
RIL’s crackers at Hazira, Nagothane, Dahej and Vadodara are among the world’smost integrated petrochemical complexes with upstream refining, E&P and downstreamchemical facilities. RIL is a leading producer of LAB, benzene and butadiene in India. RILalso produces basic aromatic building blocks of the highest purity, conforming to theproduct grades. These include toluene, mixed-xylene and ortho-xylene.
For the year, RIL’s benzene production was at 700 KT, a growth of 4% on ayear-on-year basis. Total sales for the year were 681 KT, out of which 381 KT was exports,215 KT was domestic and 85 KT was for captive consumption. Exports of benzene during FY-11were at 381 KT mainly to the US, Europe, besides Middle East. Toluene, a major bi-productof BTX group, registered production volumes of 105 KT.
RIL produced 174 KT of butadiene during the year of which 61 KT was exported aftermeeting the entire domestic requirement and captive consumption.
RIL is the only manufacturer of PBR in India. During the year, it produced 76 KT, anincrease of 4.7 % on a year-on-year basis, most of which was sold in the domestic market.RIL has the annual capacity to produce 168 KTA of caustic soda and 141 KT of chlorine.RIL’s capacity utilization for the year was at 97% as against average domesticcapacity utilization of 75%.
RIL produces 163 KT of LAB on an annualized basis. Tightness of normal paraffinsresulted in lower utilization of LAB capacity.
RIL’s entire production of acrylonitrile was sold in the domestic market. Theupswing in demand from derivatives and restricted global supplies supported prices andmargins.
Opportunities
RIL foresees large opportunities in elastomers and other diverse chemicals. It hasalready announced its plans to set up a facility for manufacturing 100 KT of butyl rubberin partnership with Sibur. This is a significant step towards the Company’scommitment to service India’s growing automotive sector by bringing in complextechnologies. A new facility to produce butene-1 (40 KTA) and Methyl Tertiary Butyl Ether(144 KTA) using raffinate-1 from the butadiene plant will come on stream in FY-12.
Polyester Fibre and Filament
Textile and clothing exports by major Asian countries witnessed year-on-year growthamidst revived demand from US and European regions. Textile and clothing imports into USin 2010 increased 15% over 2009 with textile imports rising by 22% and clothing by 12%year-on-year. Chinese textile and clothing exports in 2010 witnessed an impressive growthof 24% over 2009. In case of India, textile and clothing exports witnessed a growth of11.5% in the first half of FY-11 and are likely to remain healthy in the near future.
There was a renewed investment in downstream textile industry, especially in the Asiancountries. The global market for spinning machinery and components posted a strongrecovery in 2010, following two years of weak demand.
The polyester chain delta reached the highest level seen in the last one decade. Infact, it has sustained the level above $1,000/MT since the last two quarters of FY-11. Forthe full year, chain delta were up 33% over last year. Another major development duringthe year was extreme tightness in global cotton availability. This led to record highprice levels and widely impacted the entire textile industry. Cotton prices started movingupwards especially since the second half of FY-11. The commodity has witnessed extremetightness in availability, which resulted in record prices. Cotton prices reached thehighest level in the past 150 years, last seen during the American Civil
War way back in 1860s. Both fundamental and market forces played a major role in takingcotton prices to unprecedented levels. During 2010-11 cotton season, major producers likeChina, Pakistan and Australia witnessed rough weather and floods, which impacted theoutput.
Towards the end of FY-11, cotton prices were 140% higher than those for polyester asalso higher than the historical average of 30%. Garment manufacturers/designers are likelyto find ways to use more polyester than cotton in their fabric usage. On the demand side,the rising cotton price will continue to drive substitution demand for polyester. TheInternational Cotton Advisory Committee (ICAC) forecasts that cotton’s share of theworld textile fibre market could decline to 33% by 2015 as compared to 36.5% in 2009.
Global fibre demand
The global fibre demand in 2010 witnessed an impressive growth of 4% over 2009 andreached the level of 74 MMT. The corresponding growth in 2009 was just half at 2%. Chinaand India accounted for almost all of the incremental fibre consumption in 2010, withChina’s share at 83% and India at 15%. Polyester continues to feed the textileindustry, accounting for 83% of the increased fibre demand in 2010. By 2020, global fibredemand is expected to grow to 99 MMT, at a CAGR of 3%, from the current level of 74 MMT.Polyester usage for textile applications is expected to grow at over 4% and account foraround 80% of the incremental fibre demand in the next decade. Consequently, its share inall fibre demand would grow to 55% from the current 48%.
Last year, Chinese currency appreciated relative to the Indian rupee which benefittedthe Indian textile industry and its exports became more competitive.
Global polyester filament and staple fibre markets
The global polyester markets were largely stable in the first half of FY-11. However,during the second half of the year, higher volatility crept into the markets on account ofvarious factors. The international PSF prices increased to $2,047/MT by March 2011, up 52%over FY-11 start. Similarly, the international POY prices increased to $ 2,040/ MT, byMarch 2011, up 42% over the beginning of FY-11. Extreme tightness in global cottonavailability, renewed downstream demand, fundamental tightness in fibre intermediatessupply and lesser polyester capacity addition in the past few years influenced thepolyester markets. Global PFY capacity is expected to grow at a CAGR of 4.4% from thecurrent 27 MMT to 42 MMT by 2020. Global
PSF capacity is expected to grow at a CAGR of 3.4% from the current 16 MMT to 23 MMT by2020.
Product prices
| Price ($/MT) | FY-11 | FY-10 | % change |
| POY | 1,683 | 1,287 | 31% |
| PSF | 1,573 | 1,177 | 34% |
| PET | 1,415 | 1,141 | 24% |
Source: Platts
Global PET scenario
Polyester applications in packaging is another segment which is witnessing promisinggrowth. Global production in 2010 increased by 8% over 2009 to 15 MMT. Major increaseswere witnessed in Asia Pacific, Western Europe and North America. The 2011 global PETproduction is expected to increase by 1 MMT of which Asia Pacific would account for morethan 40%. During the next decade, global PET capacity is expected to grow at a CAGR of 6%from 19 MMT in 2010 to 33 MMT by 2020. During the same period, demand is expected to growat a CAGR of 7% from 15 MMT in 2010 to 29 MMT by 2020.
PET prices have witnessed significant surge lately, reaching the levels of $1,895/MT inMarch 2011, compared to $1,200/MT in early 2010.
Higher prices of Asian PET as well as feedstock reduced the import penetration fromAsia to North America and Europe as import economics turned less lucrative. Consequently,local sourcing in these two regions gained pace and local operating rates remained high. Ahigh level of PET prices led to further implementation of lightweighting of containers inNorth America.
Global feedstock scenario (PX, PTA, MEG)
Polyester feedstock witnessed a largely stable trend in the first half of FY-11, butwas subjected to volatile environment in the later part of the year. Again, thefundamental and market forces played a major role in creating the volatility. Supplytightened in the second half of FY-11 in view of increased demand from downstreampolyester segment.
In PX, market balances remained tight amidst unplanned outages and strong demand fromPTA segment. During the year, PX prices varied in a wider range of $840/MT to $ 1792/MT,the level last seen in 2008. Also, PX delta over naphtha breached $800/MT in Q4 FY-11,which is almost 2.5 times the level seen in April 2010. In view of no major capacityaddition in 2010 and expectation of limited capacity addition in FY-12, PX sentiments areexpected to remain firm in terms of prices, margins and utilization rates. The PXoperating rate is projected to reach as high as 87% in 2011 and 2012.
Product prices
| Price ($/MT) | FY-11 | FY-10 | % change |
| PX | 1,159 | 995 | 17% |
| PTA | 1,080 | 891 | 21% |
| MEG | 944 | 752 | 26% |
Source: Platts
Chinese PTA future markets started to witness extreme volatility in the second half ofFY-11, which sent PTA prices to record levels. Prices during the year moved in a widerrange of $831/MT to $1,527/MT. PTA delta over PX, almost touched $400/MT in Q4 FY-11.Global PTA capacity is expected to reach 76 MMT by 2015 from current 49 MMT, at a CAGR of9%.
MEG markets closely followed the developments in the PTA and polyester markets. ByMarch 2011, prices and margins reached the high levels which were last seen at the time ofoutages in the Middle East plants way back in late 2007 and early 2008. The prices movedin a range of $690/MT to $1280/MT. MEG delta over ethylene breached the $450/MT level inQ4 FY-11, compared to below $100/ MT level seen in early 2010.
Domestic scenario
It is expected that the Indian textile and clothing market has the potential to reach $220 billion by 2020 at a CAGR of 10-11% from the current level of around $ 70 billion. Thedomestic market has a potential to grow to $ 140 billion and exports to $ 80 billion by2020.
It is believed that India has the potential to increase its export share in world tradefrom the current 4.5% to 8% and reach $ 80 billion level by 2020. This high growth inexports can become a reality amidst increased shift in sourcing from developed countriesto Asia and India’s strengths as a suitable alternative to China for global buyers.
During FY-11, domestic demand for polyester products increased by 13% over the lastyear. The momentum was led by PET with 24% growth followed by PFY with 13% growth.
Polyester industry demand growth
| (Volume in KT) | FY-11 | FY-10 | % change |
| PFY | 2,134 | 1,891 | 13% |
| PSF | 862 | 783 | 10% |
| PET | 416 | 336 | 24% |
PET is the fastest growing product in the polyester product in India. The currentdomestic demand is at 0.4 MMT of which RIL’s share is over 50%. Also, considering thefact that India’s per capita PET consumption is only 0.29 kg against the worldaverage of 2 kg/capita, there is an immense scope to increase PET packaging applicationsin India.
Fibre Intermediates industry demand growth
| (Volume in KT) | FY-11 | FY-10 | % change |
| PX | 2,009 | 1,964 | 2% |
| PTA | 3,647 | 3,331 | 9% |
| MEG | 1,650 | 1,402 | 18% |
RIL performance
Reliance continues to be the largest polyester player in the world and maintainsleadership position in polyester and feedstock markets; leveraging on the benefits ofchain economics. The total polyester capacity, including that of Recron Malaysia, isaround 2.4 MMT. As per PCI, RIL is the world’s 8th largest producer of PTAand MEG and the 5th largest producer of PX.
RIL has a significant advantage of integrated operations in the polyester business. ForFY-11, the overall domestic market share in polyester (including PET) was 41%. In terms ofproduct differentiation, the specialty product sale in PFY and PSF during the year wasaround 45% and 57% respectively.
Polyester production in FY-11 was 1,710 KT, up by 3% over the previous year. PFYproduction was 742 KT, up 2%, while PSF and PET production increased by 3% and 2%respectively.
Polyester production in KT
| FY-11 | FY-10 |
| PFY | 742 | 724 |
| PSF | 615 | 597 |
| PET | 353 | 345 |
| Total | 1,710 | 1,666 |
In case of fibre intermediates, total production (PX, PTA and MEG) during FY-11 isaround 4,548 KT, down marginally by 1% over last year.
Fibre Intermediate production in KT
| FY-11 | FY-10 |
| PX | 1,840 | 1,875 |
| PTA | 2,033 | 2,049 |
| MEG | 675 | 695 |
| Total | 4,548 | 4,619 |
New developments and initiatives
Reliance has increased volumes in specialty products like flame retardant fibre, towand filament which provide flame retardant properties in fabrics. Recron LP, with uniquelow pill properties, was introduced for use in worsted suiting in poly-wool blends. Othermajor developments include RecronDuratarp for waterproof fabrics, super-micro staplefibre for spinning ultra-fine yarn counts and spun-dyed fibre for the Indian armed forces.
Reliance also developed full dull dope dyed yarns mainly for shirting. Volumes alsoincreased in PBT-based stretch yarns. During the year, Reliance also developed fully drawnyarn (FDY) spin finish, which replaced imports and thus helped reduce cost. RIL is alsothe preferred supplier for Recron stretch and super coarse yarns for the denim and minkblanket segment.
Recron Malaysia
Recron Malaysia is an integrated polyester unit with downstream textile operations likespun yarn and fabric production as well. It has a polyester capacity of more than 500 KTAand fabric production of 600 million meters per annum. Since its acquisition by RIL, theCompany has undergone significant improvement in terms of operations and profits.
Petrochemicals expansion plans
On the back of strong petrochemicals and fibres demand growth, Reliance has embarked ona major capacity creation initiative in petrochemicals which is set to significantlyenlarge Reliance’s footprints in this business. At Jamnagar, RIL plans to build:
• 1.8 MMTPA of PX capacity.
• 1.4 MMTPA of ethylene capacity.
• 40,000 TPA of PBR and 150,000 TPA SBR capacity.
RIL has simultaneously commenced implementation of its planned expansions across thepolyester chain. This is RIL’s largest capacity expansion in this sector and is aimedat consolidating its position as the world’s largest integrated polyester producer.
The global supply constraints, substantial price increase and uncertain outlook forcotton availability is creating considerable substitution opportunities for polyesterproducts like PFY and PSF.
The demand for PET, which is already India’s fastest growing polymer is alsopoised for substantial growth due to continued demand growth in the bottling, packagingand food & beverages sectors.
RIL has planned its capacity expansion in phases over the next few years. Thisincludes:
• 2.30 MMTPA of PTA capacity with an option of an additional 1.15 MMTPA.
• 395,000 TPA of PFY and 140,000 TPA of PTY capacity.
• 540,000 TPA of PET with the option to add 540,000 TPA.
• 290,000 TPA of PSF capacity.
All the above projects are under various stages of implementation ranging fromtechnology licensing, basic engineering and obtaining the necessary regulatory approvals.
OPPORTUNITIES
Growth in the Indian economy and demand creates unprecedented opportunities for RIL toinvest significantly in each of its core businesses, including those that leveragedirectly from growth in consumerism and increase in consumption. RIL is in the process ofdoubling its petrochemical business by investing across the value chain and has alreadycommenced project implementation in the polyester chain.
Reliance is participating in growth in consumer demand for world-class retailing anddigital services by rolling out its modern retailing business as well as investingsignificantly in the broadband wireless business in India. Large cash balances, robustcash flows and an under leveraged balance sheet allows it to pursue these and otherorganic and inorganic growth opportunities in its core businesses in a broader, globalcontext. It also continues its quest for conventional and unconventional hydrocarbons inorder to meet its aspirations of creating a global scale oil and gas business.
RIL operates the largest, most modern, integrated and complex refining assets in theworld. These are also one of the lowest cost refining operations in the world. With itssuperior sourcing flexibility and product slate, it has historically outperformedbenchmark margins. Strong light-heavy crude oil spread will support margin improvement forcomplex refiners such as RIL. RIL is also one of the world’s leading producers ofultra-clean fuels and is set to benefit further from increased demand for such cleanfuels. The wave of global capacity additions in the petrochemicals (ethylene chain)business over the past two years has only slightly affected the global margins and pricesas well. However, the strong demand growth across polymer products in India, China andother emerging economies has helped new supply getting absorbed.
The Indian polymer industry is expected to grow at 1.5 to 2 times the GDP growth rate.
RIL, as the world’s largest producer of polyester, benefits from the on-goingscarcity of cotton. Among its peers, RIL would continue to earn superior returns onaccount of its fully-integrated operations and robust domestic demand.
The domestic gas sector, despite strong demand growth, has remained under-developed dueto inadequate investments in gas infrastructure and low gas price entailing a lack ofinterest among investors for exploring and developing gas blocks. RIL’s partnershipwith BP combines the skills of both companies and will be focused on discovering morehydrocarbons in India and contributing to India’s energy security as well as sourcinggas globally for the Indian markets.
CHALLENGES, RISKS AND CONCERNS
In the oil & gas business, deep-water exploration and development operationspresents technological challenges and operating risks. The challenge for RIL is to ensureoptimum level of production, safe and reliable operations while maintaining the highestlevel of health, safety and environment standards.
In as far as its refining and marketing business is concerned, RIL competes globallywith a number of large energy companies some of who also produce crude oil and areintegrated in their refining operations. Global sourcing involves inventory, logistics andpricing risks and this necessitates the need for significant risk mitigation strategies.The merchant nature of its refining business means that RIL faces extensive competition ininternational markets for the sale of key transportation fuels. RIL benefits from thequality of its assets, an unprecedented level of operational integration as well as anexperienced team that has demonstrated its ability to deliver globally competitiverefining margins, cost competitiveness and consistently high operating rates.
Over the past three years, a large number of new low-cost ethylene capacities have comeon stream in the Middle East region, which has resulted in margin pressure in the ethylenechain. A gradual tightening supply-demand scenario is likely, leading to margin growth forpetrochemical products. Feedstock integration, lower operating costs and high operatingrates are critical for profitability in the petrochemicals business. RIL has successfullymaintained high operating rates on the back of strong domestic demand and a balancedportfolio of liquid and gas-based crackers.
INTERNAL CONTROLS
RIL’s internal control systems are commensurate with the nature of its businessand the size and complexity of its operations. These systems are designed to ensure thatall the assets of the Company are safeguarded and protected against any loss and that allthe transactions are properly authorized, recorded and reported.
The Company has an internal audit function, which is empowered to examine the adequacyand compliance with policies, plans and statutory requirements. It is also responsible forassessing and improving the effectiveness of risk management, control and governanceprocess. The internal audit function team comprises of well-qualified, experiencedprofessionals who conduct regular audits across the Company’s operations. Themanagement duly considers and takes appropriate action on the recommendations made by thestatutory auditors, internal auditors and the independent Audit Committee of the Board ofDirectors.
RIL has well established policy towards maintaining the highest standards of health,safety and environmental norms while maintaining operational integrity. This policy isstrictly adhered by all RIL manufacturing facilities.
MAJOR SUBSIDIARIES
Reliance Retail Limited (RRL)
Reliance Retail continued to expand presence of its value and specialty formats. Duringthe year, Reliance Retail opened 90 new stores spanning across ‘value’ and‘specialty’ segments. In-store initiatives, wider product choice and valuemerchandising enabled the business to achieve robust growth during this period.
Reliance Retail also established partnerships with several leading international brandsaimed at meeting consumer aspirations. During the year, RRL doubled the presence of itspartner businesses and operated over 160 stores in various parts of the country. In thefashion and apparel segment, RRL now operates around 40 stores with leading brands likeMarks & Spencer (19 stores), Diesel (7 stores), Paul & Shark (4 stores),Ermenegildo Zegna (6 stores) and Timberland (6 stores).
Its presence in the optics business is in partnership with Grand Vision. 51 new storeswere added during FY-11 taking the total presence to 100 stores across key markets in thecountry. The retail chain offers single brand optical products including Vision Expressframes, lenses, contact lenses, sunglasses, solutions and accessories.
For the very first time, consumers in India got the opportunity to experience Hamleys,which is considered to be the world’s most wonderful toy shop. The brand was launchedin India with opening up of 2 stores during the year. iStore by Reliance Digital is aone-stop-shop for all Apple products and services. There are 17 such stores currentlyoperational.
Reliance Brands also announced exclusive licensing arrangement with two leadinginternational brands:
• Steve Madden, a leading designer, wholesaler and retailer of fashion-forwardfootwear and accessories for women, men and children.
• Quiksilver, a leading outdoor sports lifestyle company to launch their corebrands ‘Quiksilver’ and ‘Roxy’. Across India, Reliance Retail servesover 2.5 million customers every week. Its loyalty programme, "Reliance One",has the patronage of more than 6.75 million customers.
Haryana Special Economic Zone (SEZ)
With a vision to develop industrial infrastructure and support economic growth,Reliance Haryana SEZ Limited (RHSL), a joint venture between Reliance Ventures Limited(RVL) (a subsidiary of RIL) and HSIIDC Limited
(a Government of Haryana Company), has received approval from the Government of Haryanato undertake flexible development of the Reliance Haryana Project as an integratedindustrial enclave with all the required facilities such as logistics hub and socialinfrastructure, ensuring sustainable development of manufacturing and service activitieswith sufficient provision for future expansion to cater to the demands in the SEZ andnon-SEZ framework.
RHSL is being demerged to undertake development of model economic township in Jhajjarand has signed a Shareholder’s Agreement to induct Infrastructure Leasing &Financial Services Limited (IL & FS) into a new company to be formed. The shareholdingpattern of the new company will be RVL – 45%, IL & FS – 45% and HSIIDC– 10% to be given as sweat equity.
RIL – D. E. Shaw joint venture
RIL and the D. E. Shaw group agreed to establish a joint venture to build a leadingfinancial services business in India. This JV will incorporate the D. E. Shaw group’sinvestment and technology expertise with Reliance’s operational knowledge andextensive presence across India to offer a comprehensive array of financial services tothe Indian marketplace. This JV will draw upon the core competencies of both firms todevelop a platform that can serve the growing needs of Indian companies and individuals.
RESEARCH & DEVELOPMENT, TECHNOLOGY DEVELOPMENTAND INNOVATION
In order to sustain and enhance profitable growth, RIL aspires to become a developer ofleading edge technologies and continues to be an efficient user of technology.
RIL intends to create world-class physical and intellectual capabilities, with some ofthe leading scientists bolstering its innovation agenda. The Company focuses its attentionto fundamental R&D for sustainability of its business, advanced technical services,enhancing internal capability to develop basic engineering packages, and in buildingcapabilities.
In refining, the focus areas include maximising light olefins yields from the fluidisedcatalytic cracker (FCC), improving propylene recovery in FCC; advanced characterisation ofcrude and evaluation of chemicals for desalting; increasing efficiency and reliability ofrefinery processes and enhancing process capabilities in coking technology to help widenthe crude operating window.
In the petrochemicals area, the focus is on providing technology support to ensureefficient asset utilisation, development of specialty grades/materials, development ofcatalysts /additives for cost reduction, value addition to by-product streams, andleveraging opportunities at the chemicals/oil interface.
RIL is involved in some cutting-edge technologies like fuel cells, carbon fibres,bio-fuels, and gasification of several types of feedstocks. RIL is the sole industrypartner in the New Millennium Indian Technology Leadership Initiative (NMITLI) project onindigenous Fuel Cell Technology Development.
Some major ongoing/completed projects include:
• Selection of cost effective FCC catalysts and additives for improved conversionand yields.
• Propylene yield improvements.
• Benzene reduction in refining to promote clean fuel.
• Upgrading of bottom barrel through initiatives such as carbon black production,reduced conversion etc.
• De-salter operation improvements.
• Computational fluid dynamics for trouble shooting.
• Molecular compositional blending models.
• Polypropylene quality control.
• Polyolefin inorganic precursor technology development.
• High performance PP homo and copolymers.
• Development of high performance additives for polyolefins.
• Development of clarifiers for PP grades.
• High melt strength PP by post reactor route.
• Superabsorbent polymers.
• Bio-filtration process for effluent water treatment.
• Catalyst for selective dehydrogenation of C11-C14 n- paraffins.
• Inhouse development and utilization of additives for cracker coking passivation.
• Development of oxygen barrier PET for beer packaging.
• Productivity enhancement through polymer modification.
• New co-catalyst systems for bottle-grade PET productivity enhancement.
• Development of anti-pill polyester, elastic polyester, low melt polyester, lowcost flame retardant polyester, low antimony/antimony free polyester, and super microdenier polyester staple fiber.
• Development of low cost catalyst, additives and spin finish for polyester.
• Spinning productivity enhancement.
• Deep cut operation
• Revamption of coker unit and process of pitch.
Creation and protection of intellectual property (IP) for the Company continues to bean ongoing area of focus. RIL’s portfolio for national and international patents isincreasing in existing as well as new technology areas. As a part of our businesstransformation, RIL is adopting and implementing best in class business processes withstate-of-the-art applications to enhance technical excellence.
INNOVATION
RIL aspires to be one of the most innovative companies in the world. The RelianceInnovation Leadership Centre designs, develops and deploys programmes in realizing thisvision anchored around this agenda.
The Leading Expert Access Programme (LEAP) created a hat trick of Nobel Laureates’lectures. Prof Venki Ramakrishnane delivered the 13th Reliance LEAP lecture atthe National Chemical Laboratory (NCL). In the past, LEAP speakers have included NobelLaureates Prof Jean Marie Lehn and Prof Robert Grubbs. LEAP has been designed to inspirethe RIL family through the life, work and experience of global innovation leaders.
Sustainable growth of any organisation has one important element- generation,exploitation and management of its IP. Last year saw a new energy in this domain throughthe structuring and institutionalising of the IP thrust area. The focus of the IP team isto transform the organisation from being an IP user to an IP creator. RIL’s patentportfolio is on the upswing, both in quality and quantity terms including protection inoverseas markets.
CLEAN DEVELOPMENT MECHANISM
RIL has built in-house capacity to develop Clean Development Mechanism (CDM) projectsand obtain the registration and issuance of the same in the form of Certified EmissionReductions (CERs) from the United Nations Framework Convention Climate Change (UNFCCC).
In FY-11, RIL undertook validation of two renewable energy CDM projects harnessingsolar and biomass energy. These projects have received host country approval from Ministryof Environment and Forest, Government of India. Biomass based process steam generationproject is at the final stage of registration at UNFCCC. Also, verification audit of oneof the registered projects at Patalganga Manufacturing Division has been conducted inFY-11. UNFCCC has approved the changes proposed by RIL to the small scale methodology for"Recovery and recyling of materials from solid wastes" to include PET recyle.
As proactive action to phase out Chlorofluorocarbons (CFCs), RIL has undertakenreplacement of CFC based chiller units with new energy efficient non-CFC chillers.
HUMAN RESOURCES DEVELOPMENT
RIL’s talent base, as on March 31, 2011, stands at 22,661 with an average employeeage of 41 years.
In FY-11, the Business Transformation initiative created high engagement and excitementamongst the workforce across all levels at RIL. Some key accomplishments on peoplemanagement front are illustrated below:
Learning & Development
In FY-11, RIL enhanced delivery over the last year by ensuring 1,589,395 man hours oflearning activities at its manufacturing divisions. Going forward, RIL will focus onbuilding specialist skills and multiple cadres in the organisation to support its goalsand aspirations. Additionally, several thousand man-hours of developmental interventionwas undertaken to train the leadership teams on developing the second-line, compensationand benefits, executive coaching, rewards and recognition programmes and interviewing& selection. Six Sigma deployment in FY-11 was focused on improving process capability& reliability issues as per the needs of individual manufacturing sites. A total of 85projects were executed leading to financial benefit of Rs. 26 Crore for the year 2010-11.
As a part of Six Sigma deployment process, 9 Reliance Certified Black Belts – Wave1 (RCBB-1) are working across manufacturing divisions and have, in turn, developed 305 SixSigma Green Belts in 2009-11. Total project execution by this team led by RCBB-1 for aspan of two years is 157 leading to financial benefit of Rs. 69 Crore.
Currently, 19 BMGI/ASQ certified Black belts are working in different sites. Based onthe effective deployment of Six Sigma methodology by first wave, new batch for RelianceCertified Black Belt – Wave 2 (RCBB-2) has been launched in January, 2011 for which11 employees have been selected from manufacturing divisions.
In all 354 Black Belts & Green Belts are associated with Six Sigma projects atdifferent sites. For the success of various Six Sigma projects, 1892 team members andsupervisory personnel are providing active support.
As a part of standardization of training & development of people with validation oftheir skill level, web based examination module has been developed for certification ofSix Sigma Green Belts. In FY-11, eight employees have been certified as Reliance CertifiedGreen Belt (RCGB).
Compensation & Banding
FY-11, saw a significant change in the Company’s compensation & bandingmanagement process. On the variable pay front, efforts are afoot to move towards anaccountability and responsibility driven variable pay programmes designed uniquely forvarious levels.
TalentAcquisition
The belief in its people has been the foundation and corner stone of RIL’s growthstory. It was the youth in their 20s & 30s who brought RIL to this pedestal over thelast 3 decades and going forward the intent is to pass the baton on to young leaders overthe next 2 to 3 years, to further propel this success story for the next 3 decades.Towards this end there has been a significant endeavor in re-enforcing the existing talentbase of 22,661.
RIL’s campus hiring programme from the engineering, finance and managementinstitutes has been far more robust, with wider coverage to ensure higher caliber as welldiversity.
RIL has launched a specially tailored programme "Reliance Accelerated LeadershipProgramme", in order to hire high caliber young talent into the Company and build atalent pipeline for the future.
HR Transformation
RIL is focused on building what would be the best "To Be" Organisation overthe next 18 to 24 months. In order to achieve this objective, RIL focused on followinginitiatives:
• People: Energising and engaging the existing work force, building a pipeline forthe future and creating an exciting work place.
• HR Processes: To ensure that RIL continues to have the world’s bestpractice and processes, existing processes are being reengineered and new processes arebeing introduced.
• Policies: The focus in FY-11 was to make the policies employee friendly keepingin view employee specific needs. The HR policies are being reviewed and benchmarked withworld class organisations.
• HR Shared Service Centre: The Centre was established last year to ensureefficient and effective delivery of HR services to RIL employees.
AWARDS AND RECOGNITION
Some of the major awards and recognitions conferred on RIL are as follows:
Leadership
Shri Mukesh Ambani, Chairman & Managing Director, RIL, has been nominated to a‘key advocacy group of Millennium Development Goals’, whose mandate includesfinding ways to fight socio-economic evils such as poverty, by the United Nations in 2010.Shri Ambani is the only Indian to be a part of the MDG Advocacy Group that compriseseminent international personalities.
Shri Mukesh Ambani has been re-elected as Vice Chairman of the Business Council forSustainable Development’s (WBCSD) Executive Committee for a second consecutive termin 2010.
The Foundation Board of the World Economic Forum (WEF) elected Shri Mukesh Ambani onits Board. WEF’s mission is to improve the state of the world and the elected boardmembers make valuable contributions to this mission through their involvement.
Shri Mukesh Ambani received the prestigious ‘Dwight D Eisenhower Global LeadershipAward’ at the Business Council for International Understanding’s Annual GlobalAwards Gala in 2010.
The Asia Society, New York presented the ‘Global Vision Award’ to Shri MukeshAmbani, honoring global leaders who help promote understanding between Asians andAmericans in 2010.
Shri Mukesh Ambani received the NDTV Profit Business Leadership Award 2010 from theFinance Minister, Government of India in 2010.
The senior editors of Financial Chronicle unanimously voted Shri Mukesh Ambani as‘Businessman of the Year for 2010’.
Shri PMS Prasad was bestowed with the "Outstanding Achievement – NaturalGas" Award at the OCEANTEX 2010.
Corporate Rankings and Ratings
RIL continues to be featured, for the sixth consecutive year, in the Fortune Global 500list of the World’s Largest Corporations, ranking for 2010 is as follows:
• Ranked 175 based on Revenues
• Ranked 100 based on Profits
RIL is ranked 68th in 2010, in the Financial Times’ FT Global500 list of the world’s largest companies (up from previous year’s 75thrank).
RIL has been ranked at 20th position, on the basis of sales, in the ICIS Top100 Chemicals Companies list. RIL is the only Indian company in the world’s Top 20chemical companies in the global ranking. RIL has also been named as the 8th biggestgainer in the list in terms of operating profits.
RIL is the only Indian company to get a perfect score from CLSA Asia-Pacific Markets(CLSA) in a list of Asia’s best companies in terms of CSR and termed the Company asthe region’s ‘Corporate Good Guy’. In its ‘Ethical Asia’ 2010report, CLSA has named RIL among its top picks for providing very good data and going wellbeyond required disclosure.
RIL is rated as the 33rd ‘Most Innovative Company in the World’ in a surveyconducted by the US financial publication- Business Week in collaboration with theBoston Consulting Group (BCG). Further, in 2010, BCG has ranked RIL second amongst theworld’s 10 biggest, ‘Sustainable Value Creators’, companies for creatingthe most shareholder value for the period 2000 to 2009.
Project Management
E&P Division received the Petrotech-2010 Special Technical Award in the‘Project Management’ category for completion of their Krishna Godavari Gasproject ahead of schedule.
Health, Safety & Environment
• Allahabad Manufacturing Division received a rating of 90% for itsenvironmental initiatives from British Safety Council in 2010.
• Barabanki Manufacturing Division received ‘5 Star Rating on BSCEnvironment’ from British Safety Council in 2010.
• Dahej Manufacturing Division received ‘Greentech Environment ExcellenceAward 2010 – Gold’ for its excellence in environment practices from GreentechFoundation in 2010.
• Dahej Manufacturing Division received the ‘National Award for thePrevention of Pollution in Petrochemicals Sector’ for its excellence in environmentpractices from the Ministry of Environment & Forests, Government of India, in 2010.
• Dahej Manufacturing Division received "Our Cup of Joy India’s BestPractices on Water Confederation of Indian Industry (CII) October 2010" Award for theBest practice of water conservation of "Utilizing Cooling Tower Blow Down water forIrrigation Purpose".
• Dahej Manufacturing Division’s Quality Control
Department (QCD) (Sangchhatvam) and GCU (Uday) plant won the "Par Excellent"award and RGSS (Suraksha) won the "Distinguished" award at the "24th AnnualNational Convention on Quality Concepts" (NCQC – 2010).
• Dahej Manufacturing Division’s QCD
(Sangchhatvam), GCU (Uday) and RGSS (Suraksha) won Gold Award and EOEG (Drishti) wonSilver Award at the "21st Gujarat State Level Annual Convention on Quality Concepts– 2010".
• Hazira Manufacturing Division received the DuPont Safety Award for outstandinginitiatives towards workplace safety enhancements and accident prevention in 2010, thusmaking RIL the first Indian / Asian company to win this award.
• Hazira Manufacturing Division received the British Safety Council’s (BSC),Five Star Environment Award for its "beyond compliance" initiatives, bestenvironmental practices, innovations and resource conservation efforts in 2010.
• Hazira Manufacturing Division won the UK Energy Institute’s Safety Awardfor ‘Road Safety TRUST
Programme’ in 2010, making RIL the first Indian / Asian company to win this award.
• Hazira Manufacturing Division won the FGI Award for Excellence in EnvironmentalPollution Abatement and Preservation in 2010.
• Hazira Manufacturing Division won CII’s Best Environmental Practice Awardunder "Most Innovative Project" and "Innovative Project" category inJanuary 2011.
• Hoshiarpur Manufacturing Division, for four consecutive years in a row won the‘State Safety Award’ from Punjab Industrial Safety Council & Chief Inspectorof Factories, Punjab in 2011.
• Jamnagar Manufacturing Division Domestic Tariff Area (DTA) Refinery received the‘Golden Peacock Award for Occupational Health & Safety’ for pace settingperformance in OH and Safety in 2010.
• Jamnagar Manufacturing Division DTA Refinery has been conferred with theInstitute of Engineers’ ‘Safety Innovation Award’ for the year 2010,organized by the Safety and Quality Forum of the Institute of Engineers.
• Jamnagar Manufacturing Division DTA Refinery received ‘Safety InnovationAward’ from Safety & Quality Forum of Institute of Engineers (India).
• Jamnagar Manufacturing Division DTA Refinery won the "Greentech PlatinumAward (2010)" Safety Category, in Petroleum Refinery Sector for its outstandingAchievement in Safety Management.
• Jamnagar Manufacturing Division has been granted by The National AccreditationBoard for Laboratories (NABL), Ministry of Science & Technology; Government of India,"NABL accreditation" based on ISO 15189: 2007 for the DAOH & FWC MedicalLaboratory.
• Jamnagar Manufacturing Division Special Economic Zone (SEZ) Refinery received‘5 Star Award for Health & Safety’ from British Safety Council for sustainedperformance in Health & Safety in 2010.
• Jamnagar Manufacturing Division SEZ Refinery has won the prestigious‘Greentech Environment Excellence Award 2010’ in Gold Category in PetroleumRefinery Sector for its best practices in Environment Management.
• Jamnagar Manufacturing Division SEZ Refinery has been selected as the winner ofthe "10th Annual Greentech Safety Award 2011", in Platinum Category in thePetroleum Refinery Sector.
• Nagothane Manufacturing Division received the "Vana Shree Award" fromthe State Government of Maharashtra in 2010.
• Nagpur Manufacturing Division received the ‘Sword of Honour’ from theBritish Safety Council in 2010.
• Vadodara Manufacturing Division received the CII Environmental Best PracticeAward in 2011.
Energy and Water Conservation / Efficiency
• Hazira Manufacturing Division won the ‘Excellent Energy Efficient UnitAward for FY 2009-10’ from CII in 2010.
• Dahej Manufacturing Division bagged the ‘Excellent Energy Efficient UnitAward 2010’ for its energy conservation efforts from CII in 2010.
• Dahej Manufacturing Division received the ‘National Energy ConservationAward 2010’ for its energy conservation initiatives from the Ministry of Power,Government of India.
• Jamnagar Manufacturing Division received the ‘National Award for Excellencein Energy Management’ for its energy conservation techniques from CII in 2010.
• Jamnagar Manufacturing Division received the ‘I.C.C.
Award for Excellence in Energy Management’ for its energy performance from theIndian Chemical Council in 2010.
Technology, Patents, R&D and Innovation
• Nagpur Manufacturing Division received the ‘Innovation Quest 2010Trophy’ instituted by the Indian Institution of Industrial Engineering.
• E&P’s KG-D6 won the ‘Innovation for India Awards 2010’instituted by the Marico Innovation Foundation for their combined synthesis of advancedtechnologies, extreme engineering, innovative execution, yielding unprecedented resultsand impact on India’s energy security.
• Hazira Manufacturing Division won the "Innovative Project" from theCII in 2010.
• Hazira Manufacturing Division won the FGI
Federation of Gujarat Industries Award for technology development in 2010.
• Hazira Manufacturing Division won the Indian Chemical Council Award for chemicalplant design and engineering in 2010.
• Reliance Technology Group (RTG) received "Certificate of Merit" fromthe Federation of Gujarat Industries and "ICC award for excellence in chemical plantdesign and engineering" in 2010.
Retail
• Reliance Footprint received the Retailer of the Year Award in the NonApparel and Footwear category at Asia Retail Congress 2010.
• Reliance TimeOut received the Retailer of the Year Award in the Leisure Categoryat Asia Retail Congress 2010.
• Vision Express was bestowed the ‘Award 2010’ for its contribution bythe Netherlands India Chamber of Commerce and Trade in 2010.
• Reliance Trends received the ‘Retail Marketing Campaign of the YearAward’ at the Asia Retail Congress 2010.
• Reliance Trends received the ‘Impactful Retail Design and VisualMerchandising of the Year Award’ at the Asia Retail Congress 2010.
Sustainability
• Jamnagar Manufacturing Division won the ‘Golden Peacock Global Awardfor Sustainability for the year 2010’.