ENERGY SECTOR: AN OVERVIEW

The year 2015 witnessed significant shifts in trend across the energy landscape. While there has been an increase in consumption growth of natural gas and crude oil, there was a perceptible de-growth of coal in primary energy mix. Global Natural gas consumption grew about 1.7 % whereas the production witnessed a growth rate of over 2%, during the year. At the same time the LNG trade too, increased by 6 MMTPA, signifying a +2.5% change over 2014. Whilst the crude oil growth grew sharply by near 2% over the previous year, the renewable energy in power recorded a growth of over 15%. Owing to low oil prices, share of Oil in energy basket has increased for the first time since 1999. Growth is also seen in renewable sector with an increasing thrust on clean energy and climate change obligations.

On an overall basis, energy commodities witnessed volatile price movements along with significant decline in prices over the previous year. The spot prices of natural gas at Henry Hub dropped by an average 35% during 2015 over 2014, whereas the other price marker in Asia for LNG,

i.e., the JKM declined over 45%. Due to lower purchases by Japan and South Korea, the Asian share of Global LNG import also declined to 72% in 2015 from 75% in 2014. One of the significant developments is the fall in the share of new long-term supply contract to fewer than 24% in the overall contracts executed during the year. Increasing sources of supply, alternative fuel usage, increase in the number of re-exporting countries, fall in crude oil indexes and weaker GDP expectations have been vital forces at play that largely contributed to lower gas price levels. Interregion arbitrage opportunities are narrowing due to interplay of some of the above enumerated demand-supply factors.

Under the UN-led CoP-21 climate agreement amongst nations, there has been a general consensus of moving towards significantly reducing carbon emissions by 2030 through renewable energy initiatives. Year 2015 witnessed an addition of 147 GW renewable capacities and is the largest increase on a yearly basis. Considering the extensive efforts to re-model grid networks for power transmission and storage challenges with associated levels of investments in a short timeframe, integrating natural gas based power for ensuring efficiency, flexibility and reliability is fast being recognized as a practical solution to balance environmental and growth objectives.

• Energy sector in India

India consumes over 5.3% of the global primary energy. Primary energy consumption in India is showing continuous growth over the decades and has almost doubled over since the beginning of the current decade. India is now ranked as the third largest energy consumer in the world following USA and China. Being a fastest growing economy and advantageously placed with benign fuel prices internationally, energy demand showed an increase of more than 5% over 2014 and is expected to further accelerate for supporting Indias development ambitions and improving social indicators.

Although natural gas accounts for less than 7% levels in the energy mix, it witnessed a sharpest increase in spot and short term LNG imports during 2015. Several initiatives under the Union Government provided impetus to the consumption growth of the eco-friendly fuel across fertilizer, power and City gas sectors. Several projects in the sectors that are under planning & execution stages are expected completion in the medium-term and shall contribute towards growth in consumption of natural gas across the Country,

The countrys energy landscape is also transitioning towards renewable and clean energy solutions and provides an opportunity to expand natural gas plays to comprehensively integrate with other energy forms in delivering sustainable and affordable low carbon solutions.

NATURAL GAS SECTOR OVERVIEW

An expanding economy and a growing population have resulted in increased consumption of primary energy in India. Current share of natural gas in Indias energy basket is 6.5% against a global average of 24% share. Given the scope of penetration of natural gas and the policy push by Government of India, there is significant scope for increasing share of the commodity in India.

• Demand and Supply

Indias gas consumption was 50.6 BCM in 2015 where as the production stood at 29.2 BCM. With domestic production falling short of demand, India has relied heavily on LNG imports which have increased over six folds from in 2004 to nearly 22 BCM is 2015. LNG infrastructure has also shown rapid growth with the newer regas capacities being added in the last few years at Dabhol and Kochi in addition to the operating terminals at Dahej and Hazira. Power and fertilizer remained the major consumers whereas a rapid rate of growth in consumption is witnessed from the city gas distribution (CGD) sector.

• Policy Initiatives

Government of India initiated new policies to attract investments in the gas sector so that domestic production can be increased. Few key policy initiatives are:

1. 100% allocation of domestic gas for CNG and PNG

2. Auction based E-Bid RLNG mechanism for utilization of stranded gas based power generation capacity

3. The amendment in Central Sales Tax Act 1956 will enable interstate sale of gas through common carrier pipeline on deemed movement basis. This will reduce the delivered cost of gas to customers

4. Marketing and Pricing freedom for new gas production from Deep / Ultra Deep water and High Pressure-High Temperature Areas.

5. Hydrocarbon Exploration Licensing Policy, HELP: An innovative Policy for future which provides for a uniform licensing system to cover all hydrocarbons such as oil, gas, coal bed methane etc. under a single licensing framework.

6. Policy for grant of extension to the Production Sharing Contracts for small, medium sized and discovered fields

OUTLOOK

India is aiming towards a sustainable gas based economy with a growing thrust on areas like - City Gas Distribution, Smart City projects, addition of fertilizer units and 24x7 power for all, demand for natural gas is set to

gain traction in the coming years. Further, with climate change obligations, Natural gas has the potential to serve as a Bridge fuel to nurture a low- carbon future and shall remain to be a sustainable clean energy option for India.

• Gas Consumption

Based on the projections of International Energy Agency (IEA), in its publication - India Energy Outlook 2015, natural gas consumption is shown to be over 110 bcm by 2030. This is more than twice the current level and servicing the demand could well require around 60 bcm of import dependency by way of LNG.

BUSINESS OVERVIEW

• Global footprints

• Your Company continues to work towards the growth of domestic market and is continuously seeking policy support from the government for expanding market penetration for natural gas. Your Company secured 5.8 mmtpa of LNG from USA on long term basis to meet the energy requirement of the country on a sustained basis. The volumes are expected from 2018 and your company and is actively engaged in marketing these volumes to Indian and international buyers. At the same time, the Carrizo shale gas asset in USA has severely impacted revenue and profitability of the USA subsidiary- GAIL Global USA Inc. due to depressed levels of crude oil and gas prices.

• In order to leverage advantages of LNG trading hub in Singapore, your companys subsidiary GAIL Global (Singapore) pte. Ltd. (GGSPL) is actively engaged in seizing market opportunities. During the year GGSPL was successful in tying up 0.5 MMTPA of long term Henry Hub based gas volume in the international market and the subsidiary also successfully traded four times more spot LNG cargoes over the previous financial year.

• Your Company is constantly playing a significant role in the TAPI Pipeline project to receive Natural Gas from the Galkynysh fields in Turkmenistan. After incorporation of TAPI Pipeline Company Limited (TPCL), Turkmengas has been endorsed as the Consortium Leader. TPCL has a mandate to build, own and operate the proposed TAPI Pipeline. The Shareholders Agreement (SHA) of TPCL has been signed in December 2015 during the ground breaking ceremony for commencing construction of the Turkmen section of the TAPI pipeline. An Investment Agreement (IA), relating to initial equity infusion by the TAPI entities into TPCL has also been signed and Galkynysh Pipeline Company, the consortium leader group led by ^Turkmengas, shall be taking 85% equity in TPCL, while GAIL, ISGS (Pakistan) and Afghan Gas Enterprise (AGE) shall be taking 5%

• SEAGP was formed to transport natural gas from A1/A3 blocks in Myanmar to Myanmar-China border. The pipeline is running smoothly and transported an average of nearly 15 MMSCMD of natural gas in 2015-16.

• Your Company holds equity interest in two retail gas companies in Egypt, namely Fayum Gas Company (FGC) and National Gas Company (Natgas). These city gas distribution companies are involved in the supply of gas to residential, commercial and small industrial customers in Egypt. Your Company is also an equity partner in China Gas Holdings Limited (China Gas), a retail gas utility company involved in city gas and CNG businesses in China.

• Energy Security

Your Company is playing a pivotal role for securing countrys energy security needs in view of its vast investments in natural gas infrastructure assets and decades of expertise in this sector In order to bridge the demand-supply gap of natural gas as well as to address the energy security needs of the country, your Company has taken proactive steps for importing gas into the country Your Company has tied-up long term LNG from US (5.8 MMTPA), Gazprom, Russia (2.5 MMTPA), Turkmenistan (38 MMSCMD equivalent to ~10 MMTPA through TAPI pipeline) in addition to marketing Qatar based long-term R-LNG and trading short/medium and spot LNG contract based R-LNG.

DOMESTIC PRESENCE

• Natural Gas Transmission

Your Company is the market leader in the transmission of natural gas with a network of 11,000 Km pipeline. Based on feedback received from existing pipeline user (Shippers), your Company has taken steps to make transmission services more users friendly Further, your Company sought Expression of Interest from potential Shippers for booking of capacity in its various upcoming natural gas pipelines to ensure utilization of Companys pipeline infrastructure. It has also taken a number of initiatives to broaden the natural gas market in India including hiring of specialized agencies to carry out demand estimation exercise in various States. Your Company has developed a Gas Transmission Agreement, meeting specific requirement of all type of Shippers (small, medium and large). For ensuring timely connectivity to downstream customers your company has in place Last Mile Connectivity policy under which faster decisions are taken for providing pipeline connectivity Thereby ensuring increase in pipeline utilization capacity.

Agreements were executed with various Shippers in Andhra Pradesh to transport and supply gas through swap mechanism to meet their shortfall in gas especially for power production. Besides, new tie-ups (on upcoming pipelines) were also executed to ensure utilization of pipelines owned and operated by your Company, With respect to LNG, execution of GTAs with number of shippers is under progress to transport the gas.

Your Company, in line with the MoP&NG Guidelines for CGD sector, is supplying Domestic Natural Gas to all CGD companies in the country for CNG (transport) and PNG (domestic) purposes which, inter-alia, includes CGD companies like Gujarat Gas Limited, Adani Gas Limited, Haryana City Gas, Siti Energy Limited, HPCL, Saumya DSM besides your Companies Joint Ventures/ Subsidiaries like IGL, MGL, MNGL, BGL, GgL, CUgL, AGL, GAIL Gas etc.

• Inter-State Gas Grid

Your Company is implementing the following major Natural Gas pipelines:

1. 1. Kochi - Koottanad- Bengaluru/ Mangalore Pipeline (Phase-II)

2. Jagadishpur/Phulpur- Haldia- Ranchi-Talcher-Dhamra Pipeline.

3. Vijaipur- Auraiya -Phulpur Pipeline

Apart from these pipelines, your Company is also executing spur pipeline connectivity to Chittorgarh in Rajasthan. It is also upgrading its pipeline network in the Krishna-Godavari Basin, Cauvery Basin and Gujarat region.

To make effective use of the commissioned trunk pipelines, execution of the last mile connectivity to customers is also being carried out in a synchronised manner. During the year 2015-16, under Last Mile consumer connectivity, approximately 120.47 kms of pipeline was executed to connect 27 customers for supplying 2.14 MMSCMD of Natural Gas.

• Sourcing & Trading of Gas

Your Companys efforts towards meeting long-term energy requirements have yielded positive results. The long-term LNG supply projects from the USA, namely Sabine Pass and Dominion Cove Point, have achieved significant project milestones and are on course to commence supplies between fourth quarter of CY 2017 to first quarter of CY 2018. Your Company has also made progress in the Turkmenistan-Afghanistan- Pakistan- India (TAPI) pipeline project with the formation of TAPI Pipeline Company Limited (TPCL) by member countries to build, own and operate the planned 1800 km transnational pipeline. Diversified portfolio of LNG/ Gas sources provides your Company the flexibility to serve its customers in the best possible manner in a competitive business environment on sustained basis over the long-run.

Your Company imported 55 LNG cargoes (equivalent to approximately 3.5 MMTPA of LNG) during the financial year from various international sources on short term and spot basis to cater to the immediate requirement of the domestic market.

Considering the various upstream tie-ups made by your Company, which are expected to commence supplies from CY 2018 onwards, access to Dabhol LNG terminal of RGPPL provides greater operational flexibility to your Company in spot LNG business. During the financial year, 22 LNG cargoes were unloaded at Dabhol Terminal. This terminal is ideally located with ready access to an extensive network of gas infrastructure for distribution to high demand western & northern regions and upcoming southern markets. Further, the construction of breakwater will assure that the terminal is operational throughout the year in its full capacity, RGPPLs is working with all stakeholders for its long-term viability, which includes demerger of LNG terminal and power block assets.

Your Company has also been trading some of its LNG portfolio in the international market through its Singapore subsidiary in line with globalisation strategy to evolve as a leading LNG player in the world and also for calibrating domestic market supplies. It is also focusing on making upstream investments in gas assets, liquefaction facilities and LNG shipping to build a presence across the entire LNG value chain. This will enable your Company to achieve the twin objectives of enhancing Indias energy security and creating flexibility in providing better value to its customers. Your Company is planning to set up an FSRU / Re-gasification terminal on east coast of India. In this regard, discussions are underway with M/s Adani Ports Special Economic Zone Ltd. (APSEZ) for equity participation and booking of tolling capacity in the upcoming land based LNG terminal.

• Petrochemicals

The robust growth in petrochemicals business in India provided an opportunity for your Company to expand its petrochemical business further. Over the last 15 years, your Company has emerged as one of the leading petrochemical companies with a pan-India marketing network. In order to strengthen the petrochemical business, your company has doubled the PC production capacity of Pata plant.

Period under review witnessed a sharp decline in feedstock and product prices. Polymer prices also declined on an absolute basis, with year-end prices being 15-19% lower than prices prevailing at the beginning of the year.

The Green field petrochemical project promoted by your Company through Brahmaputra Cracker and Polymer Limited (BCPL) has also been commissioned and dedicated to the Nation by the Honble Prime Minister of India in February 2016. The other Joint Venture petrochemicals project - ONGC Petro-Additions Limited (OPaL) is at an advanced stage of completion.

• LPG and Other Liquid Hydrocarbons

Your Company has LPG plants at five locations in the country having a production capacity of 1.40 Million MT of LPG and other liquid hydrocarbons viz. Propane, Pentane and Naphtha. Usar LPG recovery plant is currently under preservation mode due to non-availability of domestic gas. Your Company also owns and operates exclusive pipelines for LPG transmission for third-party usage. It operates 2 LPG pipeline transmission systems with a network length of 2038 Km and a capacity to transport up to 3.83 MMTPA of LPG.

• Exploration & Production

Your Company is participating in 13 E&P blocks (11 in India and 2 overseas in Myanmar), excluding one GAIL Operated Block CY-ONN-2005/1 in Cauvery basin which was relinquished in June 2016. While production of oil and gas is in progress in four blocks (2 domestic and 2 overseas), three blocks (where hydrocarbon discoveries have been made) are in development and appraisal phases.

Revenue over Rs. 751 crore was generated from sale of hydrocarbon from the four producing blocks namely A-1 & A-3, Myanmar and CB-ONN-2000/1 and CB-OnN-2003/2 (Cambay onland) during the year 2015-16

Your Company continuously focuses on maintaining profitability of E&P business, even in the scenario of low oil and gas prices from three perspectives by way of - (i) Optimization of portfolio of upstream assets, (ii) maintaining optimal level of operating expenses in blocks under production (iii) Realignment of development capex in Tripura Onland block as also in other blocks.

In the ensuing period, while on one hand exit option would be examined in some of the existing blocks, on the other hand, acquisition of exploration opportunities are being examined for next growth phase of this business segment.

• Renewables

With technological advances, and government incentives and environmental imperatives driving rapid growth in renewable energy, your Company is taking keen interest in the renewables, particularly in wind and solar energy. Your Companys has total installed capacity of 123MW out of which 118MW is wind and 5 MW is solar energy plant. Your Company is setting up 5.76 MW grid connected roof top captive solar power plant at Pata Petrochemical Complex, Uttar Pradesh. Further, your Company intends to expand its wind and solar energy portfolio in the coming years.

FINANCIAL PERFORMANCE

• Sales (Net of ED)

Sales (net of ED) decreased by 9% from Rs. 56,569 crores during 201415 to Rs. 51,614 crores in 2015-16.

• Profit after Tax (PAT)

Profit after Tax has decreased by 24% from Rs. 3,039 crores during 2014-15 to Rs. 2,299 crores in 2015-16.

• Earnings per Share (EPS)

In view of decrease in PAT, EPS has come down from Rs. 24 per share as on 31st March, 2015 to Rs. 18 per share as on 31st March, 2016.

• Price Earning (PE) Ratio

Price Earnings ratio of the Company was 20 as on 31st March, 2016 and was 16 as on 31st March, 2015, indicating investors sustained confidence in the long-term growth of your Company,

• Shareholders Funds

The Reserves and Surplus increased to Rs. 29,316 crores at the end of the current financial year as compared to Rs. 27,851 crores in the corresponding previous year. As on 31st March 2016, net worth of the Company stood at Rs. 30,314 crores, as compared to Rs. 28,888 Crores as on 31st March, 2015.

• Debt and Interest

Debt-Equity ratio is at a very comfortable position of 0.27 as on 31st March, 2016 as compared to 0.33 as on 31st March, 2015. The Debt Service Coverage Ratio was at 2 times as on 31st March, 2016 as compared to 3 times as on 31st March, 2015.

• Ratio Analysis

Return to Net Worth (PAT/Net Worth) for the Company as on 31st March, 2016 stood at 7.58% as compared to 10.52% as on 31st March, 2015. Return on Capital Employed (PBIT/Capital Employed) was 8.92% as on 31st March, 2016 as compared to 11.07% as on 31st March, 2015.

• Cash Flow

(in Crores)

Particulars

2015-16

2014-15

Cash Flow from Operating Activities 4834.93 2,444.07
Cash Flow from Investing Activities (1011.33) (964.43)
Cash Flow from Financing Activities (3171.38) (2988.98)
Net Increase in Cash & Cash Equivalents 652.23 (1509.34)

• Segment-Wise Performance Turnover (Net of ED)

(in Crores)

PARTICULARS

2015-16

2014-15

1 Transmission Services
a) Natural Gas 3,701 3,049
b) LPG Transmission 486 440
2 Gas Trading 4,0337 42,686
3 Petrochemicals 3,041 4,595
4 LPG & Other Liquid Hydrocarbons 3,246 5,053
5 Unallocated Other Segment 804 746
Total Sales 51,615 56,569

Other Segment includes GAILTel, E&P City Gas & Power Generation.

Physical performance

Particulars

2015-16

2014-15

Natural Gas Throughput (MMSCMD) 92.09 92.10
Natural Gas Trading (MMSCMD) 73.67 72.07
Liquid Hydrocarbon Sales (TMT) 1,086 1,277
Polymers Sales (TMT) 334 441
LPG Transported (TMT) 2,819 3,093

• Consolidated Financial Statements 9

In accordance with the Accounting Standards issued by the Institute of Chartered Accountants of India, your Company has prepared the Consolidated Financial Statements of its subsidiaries and joint venture entities. The highlights of the Consolidated Financial Results are as follows:

(in Crores)

Particulars

2015-16

2014-15

Turnover 54,572 60,515
Profit Before Tax 3,092 4,492
Profit After Tax* 2,048 3,071

*Before adding share of profit from associates and eliminating minority interest

• Project Profit Maximization (Sanchay)

Your Company is gearing for addressing challenges to sustain profitability which may be under stress in the next few years due to external factors like volatility in gas business, fall in domestic gas volumes, decrease in prices of petrochemical etc. Hence, a comprehensive initiative has been launched under "Project Sanchay" across all the business segments of your Company to optimize existing resources, improve operational and process efficiencies, reduce costs and maximize profitability.

Extensive evaluation of business processes along the length and breadth of the company were conducted to identify potential opportunities to maximize profitability. With the participation of employees, management and guidance of external consultant, various initiatives have been identified and are at various stages of implementation. Achievable benefits of the initiatives are expected to surpass target profit of the project i.e. Rs. 400 Crores, on 3 year NPV basis.

RISKS, CHALLENGES AND MITIGATION

• Sharing of Under Recoveries

The Government of India (GoI) is a major shareholder of your Company, The decisions on sharing of under recoveries on petroleum products are provided for as a discount to Oil Marketing Companies (OMCs) that are governed by GoI.

As per the GoIs directives, in order to make sensitive petroleum products affordable to domestic consumers, your Company has shared the underrecovery of OMCs since 2003-04, aggregating to an amount of Rs. 19,419 Crores. However, during the year under review, your Company has not contributed any amount (previous year: Rs. 1,000 Crores) towards sharing of under-recoveries with OMCs. Your Company has been requesting MoP&NG from time to time for exemption from the burden of sharing the under-recoveries claimed by the OMCs.

• Regulatory Framework

The Petroleum & Natural Gas Regulatory Board (PNGRB) has been established by the Central Government on 01.10.2007 for carrying out the various provisions of the PNGRB Act, 2006. The PNGRB Act provides a legal framework for regulating the refining, processing, storage, transportation, distribution, marketing and sale of petroleum, petroleum products and natural gas, but excluding the activities of production of crude oil and natural gas, so as to protect the interests of consumers and entities engaged in these activities. The main functions of PNGRB include, inter-alia, (a) granting authorizations for laying, building, operating or expanding new pipelines as common carriers or contract carriers and for laying, building, operating or expanding new city gas distribution networks (CGD networks), (b) declaring existing natural gas pipelines, petroleum & petroleum product pipelines and CGD networks as common carriers or contract carriers, (c) regulating access to common carriers or contract carriers (d) regulating transportation rates of common carriers or contract carriers and (e) to perform such other functions as may be entrusted to it by the Central Government to carry out the provisions of this Act.

During the financial year 2015-16, PNGRB has notified various Amendments to Regulations in respect of Natural Gas Pipelines, CGD networks and Petroleum Product Pipelines and has also issued various authorizations, orders, decisions in respect of Natural Gas Pipelines, Petroleum Product Pipelines and CGD networks. The details of the said regulations, amendments, authorizations, orders, and decisions are available in the official web-site of PNGRB (www.pngrb.gov in) and have varying implications on respective entities business activities. These regulations, amendments, authorizations, orders, decisions of PNGRB could be appealed before PNGRB Bench, Appellate Tribunal and Courts and accordingly, some of them pertaining to your Company are also under various stages of appeals. The timing and content of any final changes in regulations made by the Regulator is not in your Companys control. However, regular participation in public consultation exercises conducted by the Regulatory Board and making submissions to the Regulator in writing helps us to anticipate and/ or to minimize our risks associated with any sudden or unforeseen changes in regulations.

• Natural Gas Prices

Your Company is currently marketing natural gas purchased from domestic and international sources.

Government of India, vide its order dated October 25, 2014, has notified the New Domestic Natural Gas Pricing Guidelines, 2014. As per the notification w.e.f. November 1, 2014, the Gas Prices is determined as per the specific formula which in essence is a twelve month average price of natural gas traded in the major hubs worldwide. Price is valid for six month and changes every half year since its declaration on 1st November14. Petroleum Planning and Analysis Cell (PPAC) has been appointed as nodal agency to calculate and publish the price as specified under the formula.

New Domestic Natural Gas Pricing Guidelines, 2014 are applicable uniformly to all sectors of the economy, nominated fields to ONGC & OIL, NELP blocks, Pre-NELP blocks that require Government Approval as per PSC and CBM blocks, whereas the same will not apply in case of Small and isolated fields of nominated blocks that are covered under pricing guidelines of 2013.

Further, Government of India, vide its order dated March 21, 2016, has notified guidelines on marketing including pricing freedom for the gas produced from discoveries in deep water, ultra-deep water and high pressure-high temperature areas. As per the guideline, Government has decided to ensure freedom of pricing for gas produced in these fields upto a ceiling price level calculated by taking lower of twelve month average of landed price of imported fuel oil, substitute fuels and LNG. Petroleum Planning and Analysis Cell (PPAC) has been appointed as nodal agency to calculate and publish the price as specified in the formula, and it has notified price under this guideline on March 31,2016 applicable from April 1,2016 to September 30, 2016.

Your Company earns the marketing margin on sale of domestic Natural Gas. Further, Government of India in its Notification dated December 24, 2015 applicable from November 18, 2015, has put a ceiling on marketing margin for supply of domestic gas to Fertilizer (Urea) and LPG producers to Rs 200 per 1000 SCM (@NCV of 10000 Kcal/SCM) which may be escalated in future based on wholesale price index by Ministry of Petroleum and Natural Gas.

In addition to the above, your Company purchases imported natural gas mainly from Petronet LNG Limited (PLL) at Dahej, Gujarat. The purchase price and selling price of such Natural Gas (RLNG) is based on international crude price movements. Further, your Company also directly imports the Natural Gas through cryogenic ships (LNG) and regasifies either at PLLs regasification terminal at Dahej, Gujarat or at Ratnagiri Gas and Power Private Limited (RGPPL) regasification terminal at Dabhol, Maharashtra. Your Company has Natural Gas Price Risk Management Policy under which, options w.r.t. LNG pricing formula, such as a fixed price or a capped price band etc. are provided to customers based on their request. Further, your

Company can undertake hedging transactions in case there is an exposure to price risks in upstream contracts, downstream contracts and internal consumption.. Total hedged quantity (in volume terms) outstanding at any point of time shall not exceed 3 million metric tonnes equivalent of Liquefied Natural Gas (LNG).

• Polymer, LPG and other LHC

Your Company is also marketing own produced products like Petrochemical, LPG and other LHC products. The prices of these products are influenced and determined by global and national demand supply position and vary from time to time.

• Foreign Exchange Fluctuation Risk

Your Company, inter-alia imports capital goods and stores & spares for various new projects, and operation & maintenance. Your Company has also taken loans in foreign currency for meeting the capex requirement and making overseas investments. Your Company has an approved Foreign Currency & Interest Rate Risk Management Policy to manage the foreign exchange exposure. The loan portfolio is hedged by way of derivative products (currency swap and interest rate swap) and through natural hedge. The short term and long term exposure of foreign currency of your Company is being monitored as per the approved policy,

• Natural or Man-made Calamity Risk

Various risks are associated with Gas transmission and distribution like blowout of pipelines, earthquake, tsunami, terrorist activities, etc.

These risks are being mitigated right from the designing stage of these projects. However, such natural or man-made risks are emergent events and cannot be totally eliminated. If such an event occurs, it will incur significant liabilities for the Company,

• Risk Management Framework

Your Company has an approved Risk Management Policy & Procedure to safeguard and enhance the organization and its stakeholders with an objective:

• to establish a risk intelligence framework for the organization

• to establish ownership throughout the organization and embed risk management as an integral part of the business rather than a standalone function in the system

• to help the decision makers of the organization explicitly take account of uncertainty, the nature of that uncertainty, and work towards a solution to addressing the same

• to ensure that all the current and expected risk exposures of the organization are - identified, qualitatively and quantitatively evaluated, analysed and appropriately managed

• to enable compliance with relevant legal and regulatory requirements and international norms, and

• to assure demonstrable achievement of objectives and improvement of financial stability of the organization.

A robust Risk Management Framework supports your Companys business strategy and operations. Risk Management Framework is constantly updated for new and emerging risks emanating from business expansion and interests. The risks are evaluated, quantified & prioritized and mitigation plans are reviewed & monitored at various stages. The Corporate Level Risk Steering Committee has been established to oversee the implementation of the Risk Management Policy and Procedures which are periodically reviewed and monitored by the Risk Management Committee and thereafter by the Audit Committee before presenting to the Board. >y:

In the changing business scenario and diversification of your Companys activities, business risks and their mitigation plans are re-assessed on a regular basis. Some of the Corporate Level Risks are enumerated as under:

• Take-or-pay risks under Long-term LNG contracts

• Drastic reduction to negligible level domestic gas allocation for petrochemicals impacting profitability.

• Underutilization of pipeline due to low downstream drawl.

• Delay in Project Execution due to local resistance in ROU opening/ permanent land acquisition

• Risk of Regulatory frame work.

• Natural gas demand having price sensitivity.

Further, their mitigation plan and action thereof to address/minimize the risks are underway

INVESTOR RELATIONS AND ENGAGEMENT

The objectives of Companys investor relations activities are to develop a long-term relationship based on trust with stakeholders by fulfilling responsibilities towards the shareholders and also engaging with other stakeholders including investors and analysts, through fair disclosure of information and maintain regular communication for generating confidence and good-will. In order to pursue these objectives at all times, your Company continuously discloses necessary information and conducts various investor relations activities. The Stock exchanges are duly informed and the investor presentation(s) are uploaded on the Companys website for any reference.

To pursue the objective of effective communication with investors, your Company organized an Analyst Meet during May 2016. Conference Call was also organized immediately after announcement of the financial results for H1 2015-16 and Q3 2015-16. Besides organizing such interactive meets with investors, your Company also participated in five investor conferences organized by top brokerage houses of the country and was represented by Senior Management including executives from varied disciplines.

As per the requirement of SEBI (Prohibition of Insider Trading) Regulations, 2015, your Companys Board has approved:

• Code of Conduct to Regulate, Monitor and Report Trading by Insiders (Insider Trading Code) and

• Code of Fair Disclosure and Conduct- Practices and Procedures for Fair Disclosure of Unpublished Price Sensitive Information (Principles of fair Disclosure)

These are available on the website of the Company Your Company will continue with an endeavor to provide world class investor relation services in disseminating information to Investors & Analysts in time from appropriate officials. In view of the above, Investor Zone section of corporate website has been reviewed and made more informative and investor friendly Your Company believes that it must provide to capital market participants (including shareholders, investors, and securities analysts) accurate information that meets their requirements.

HUMAN RESOURCE AND INDUSTRIAL RELATIONS

Your Companys Industrial Relations climate remained congenial and constructive. There were no Man Days or Man Hours loss on account of any sort of Industrial conflict/unrest.

In your Companys endeavor to meet the ever changing business requirements, and to maintain sustainable competitive advantage, review of HR and HRD policies is done on continuous basis to dovetail Corporate : HR Strategy with the Organizational Strategy

During the year, review of various HR polices on Employees Compensation, ^Welfare, General Terms and Condition of Service, Conduct Discipline Appeal Rules, Promotion Policy for Executives were undertaken to endeavor positioning your company as a preferred employer. Total Manpower of the Company as on 31st March, 2016 stood at 4321.

ENVIRONMENT PROTECTION AND CONSERVATION / RENEWABLE ENERGY DEVELOPMENTS / FOREIGN EXCHANGE CONSERVATION

The pipelines have contributed to the cause of environment to a considerable extent by reducing tanker traffic on roads towards creating a better environment and also promoting higher standards of safety

• Water and Wastewater Management

Your Companys operations do not involve complex chemical reactions generating difficult to treat wastewaters. Physical separation of heavier hydrocarbons from natural gas is achieved by the cooling and condensation technique. The raw material used for recovery of LPG and Propane is clean and eco-friendly natural gas, which is received through pipelines. After recovery it is transported to downstream customers through pipeline. As result, the only process effluents at most of the installations are floor wash, cooling water blow down and sewage water. The gas processing plants are equipped with effluent water treatment plants for treating the water generated in the process. No effluent water is discharged outside the premises at any of the gas processing plants. Water discharge from the petrochemical complex is duly treated and in compliance to the norms of the state pollution control board. The treated effluent water is recycled and used in-house for horticulture purposes inside the plant and township premises. The treated wastewater is of the highest quality Water is a precious natural resource and hence its consumption is closely monitored and controlled. Technologies have been adopted to reduce the wastewater generation and treat whatsoever generated. Due care and emphasis is undertaken to maximize reuse and recycling of water.

• Air Quality Management

In line with its commitment towards sustainable development, your Company has accorded the highest priority to environmental considerations throughout all phases of the project, such as technology selection, process design and project execution. All the plants of your Company namely the Gas Processing Unit, the Gas Cracking Unit, the High Density Polyethylene Unit and the Linear Low Density Polyethylene Unit (HDPE and LLDPE) are state-of-the-art and sourced from world- renowned process licensors. Your Company uses one of the cleanest fuels available, which happens to be its raw material as well as feedstock, i.e., sulphur-free natural gas. Since your Company uses natural gas for its feedstock and fuel requirements, the level of pollutants is consistently maintained much below the national stipulated norms. All the boiler and furnace stacks are also equipped with on-line analyzers for monitoring air quality on a continuous basis. Adequate stacks height has been provided for effective dispersion of pollutants. Low NOx burners are used in all the furnaces. Loading facilities are provided with vapour return circuits. Gas detectors have been installed to ensure quick detection of any gas leak. Each ambient air monitoring station is capable of monitoring sulphur dioxide, oxides of nitrogen, hydrocarbons, carbon monoxide and noise on continuous basis. Besides, one permanent weather station is also installed at one of the stations to monitor wind speed, wind direction, relative humidity, ambient temperature, etc. All the stations are connected through a fibre optic cable network for real-time data monitoring. Mobile station is also utilized in monitoring ambient air at any desired location within or outside the plant premises.

Your petrochemical complex at Pata has the facility to monitor the stack air and the ambient air on continuous basis. State- of- the-art permanent ambient air monitoring stations are installed at locations so as to cover the entire site. The ambient air monitoring stations are equipped with sophisticated analysers, computers and other facilities to monitor ambient air on continuous basis.

• Solid Waste Management

Your Company manages its waste in the best possible ways. Its first priority is to ensure minimum generation of waste. Due care to prevent any harm to the environment is carried out in case waste is inevitably generated with all possible onsite treatment and disposal based on the type of waste such as segregation of hazardous wastes from nonhazardous wastes. At your Companys process plants, hazardous solid waste is stored and disposed-off as per the latest environment practices. Solid wastes are collected, stored and handled, in a manner without causing any detrimental effect on the ground water and environment.

• Green Belt

All installations of your Company carry out extensive afforestation at respective sites and maintain adequate green belt. Your Company has taken up various measures and projects for enhancing bio-diversity across the GAIL installations.

• Environment Monitoring

Your Company monitors parameters to assess environmental quality on regular basis through an in-house team and independent agencies by deploying sophisticated apparatus for maintaining regular monitoring, analysis and reporting. The outcome is also shared with the statutory authorities such as the State Pollution Control Boards. The exercise is also extended to include sampling and analysis of raw water and waste water regularly at internal and external laboratories.

Your Company has undertaken Global Methane Initiative (GMI) programme at Vijaipur, Jhabua and Hazira by engaging with the United States Environment Protection Agency (US-EPA) as a partner in the Natural Gas STAR Programme to voluntarily study fugitive and vented Methane emissions from hydrocarbon process plants and pipeline installations under a MoU. Your company hosted the third All India GMI Meet during the year with participation of prominent upstream and midstream companies of India. The meet also attracted key international partners from USEPA and UNEP

CORPORATE SOCIAL RESPONSIBILITY

In alignment with the vision of your Company, the CSR initiatives strive to enhance value creation in the society/community in which it operates, through its services, conduct and initiatives, to promote sustained growth in social well being. GAIL has proactively incurred an enhanced expenditure of 2.3 % of the average net profit of the preceding three financial years under CSR projects/activities pertaining to FY 2015-16. The Annual Report on CSR activities as per requirement of the Companies Act, 2013 forms part of the Directors Report.

Your Company has approved setting up of two Waste Plastic to Fuel Oil plants of 10 TPD capacity each at Haridwar & Ujjain.

INTERNAL CONTROL SYSTEMS & THEIR ADEQUACY

Your Company has established robust internal control systems and procedures. The Company has a clearly defined organisational structure, manuals and operating procedures for its business units and service entities to ensure ethical, orderly and efficient conduct of its business. Your Companys Internal Control System (including Internal Financial Controls with reference to Financial Statements) ensures efficiency, reliability, completeness of accounting records and timely preparation of reliable financial and management information. In addition, it also ensures compliances of all applicable laws and regulations, optimum utilisation and protection of the Companys assets.

Your Company has an in-house Internal Audit department, comprising professionally qualified persons from accounting, engineering and IT domains. Internal Audit department functionally reports to Audit Committee with its administraitive reporting to the Chairman & Managing Director. This reporting structure is considered to be a global best practice. Internal Audit function reviews the business processes and controls through risk focused audits. Audit committee of the Board regularly reviews significant findings of the Internal audit department.

Internal Financial Control is an ongoing process to identify, assess effectiveness and monitor performance for continuous improvement. Your Company has developed Internal Financial Control System in its various business processes/segments, commensurate with the size and nature of business for ensuring the efficient operations of its business, safeguarding of its assets, prevention and detection of frauds & errors, accuracy & completeness of accounting records and timely preparation of reliable financial information. Your Company has also undertaken an exercise through a consultant to reassure adequancy and effectiveness of internal controls wrt operational activities for updating and improving existing framework.

Your Company has also in place adequate internal financial control system and the same are operative effectively.

CAUTIONARY STATEMENT

Statements in the Directors Report and Management Discussion & Analysis, describing the Companys objectives, projections and estimates, expectations, predictions etc. may be "forward looking statements" within the meaning of the applicable laws and regulations. Forward looking statements contained herein are subject to certain risks and uncertainties that could cause actual results to differ materially from those reflected in the forward-looking statements. Actual results, performances or achievements may vary materially from those expressed or implied, economic conditions, Government policies and other incidental factors such as litigation and industrial relation. Readers are cautioned not to place undue conviction on the forward looking statements.