Bharat Petroleum Corporation Ltd Management Discussions.

Economic Developments: Managing Expectations

The global economy showed signs of exhaustion in the second half of the year 2018 after witnessing reasonable growth in the previous year. The global growth in late 2017 and early 2018, which was driven by increase in consumption, policy initiatives and recovery in investments, waned off in the wake of escalating trade tensions, heightened policy uncertainty, dwindling business and consumer confidence and increasing financial stress in many economies of the world. These weaknesses seem to have continued to persist in the first half of 2019, with materialization of certain downside risks owing to the lingering effects of the factors mentioned above. With increase in the risk of prolongation of this broad based weakness, the global growth in 2019 is expected to be lower, at around 3% levels. The growth is projected to pick up in 2020, supported by the policy stimulus in major economies, improvements in global financial market sentiments, efforts to negotiate trade tensions bearing fruit and a gradual improvement in conditions in the stressed economies.

A number of country specific and sector specific factors contributed to slowdown in global growth in the year gone by. Many emerging markets and developing economies, saddled with higher current account deficits, experienced substantial financial market pressures and a noticeable slowdown in activity. Amongst the major emerging market economies, growth in China declined in consequence of the stringent policy measures taken by the Government to rein in rising debt and check shadow banking, lower domestic investments and rising trade tensions with the United States. Economies like Argentina and Turkey witnessed the after- effects of policy tightening aimed at reducing financial and macroeconomic imbalances. While Mexico faced headwinds of the incoming administrations policy backtracking, the Middle East experienced weaker economic activity due to the growing geopolitical tensions.

Amongst advanced economies, the United States was perhaps the only economy which experienced higher growth, led by stronger than expected domestic demand, bolstered by a resilient labour market, pro-cyclical fiscal stimulus and still-accommodative monetary policy, though investments appeared to decline in the second half of the year. However, Euro area growth slowed down notably as consumer and business confidence weakened, global trade slowed impacting exports, investments plunged under concerns of a no deal Brexit and financial stress permeated through the economies. The automobile market in Germany took a hit by the introduction of new emission norms, while investment activity was sluggish in Italy due to concerns around widening sovereign spreads and fiscal policy uncertainty. The economic activity in Japan slowed due to the downside effects of climatic conditions and natural disasters, somewhat offset by increasing labour participation and continuing fiscal stimulus by the Bank of Japan.

While the global economic growth prospects look reasonable, assuming that investment and consumer confidence rebound with resolution of trade differences and improving financial conditions in response to policy initiatives, there are substantial downside risks which need to be watched out for. A further escalation of trade tensions, surmounting public and private sector debt in vulnerable economies, tightening global financial conditions, slowing consumption and investment, escalating geopolitical discords and increasing political uncertainty owing to rising inequality are some of the factors that have the potential to stifle economic activity and spook financial markets across the world. The rising trade protectionism itself poses serious contagion risk to global economic growth by suppressing investment activity and severely disrupting global value chains, contributing to higher prices, inefficiencies and lower productivity.

At a time when conventional monetary and fiscal policy responses have limited effectiveness, there lies a greater responsibility on policy makers world over to avoid any policy missteps, be warily watchful of the risks and be proactive rather than reactive in responding to situations. The monetary, fiscal and trade policy regime should be calibrated suitably to raise growth prospects and support output growth, foster demand, increase inclusiveness and provide financial stability, underpinned by strong institutional independence while keeping inflation in check and ensuring a sustainable public debt situation. At the multilateral level, there is a greater need for global cooperation to resolve trade conflicts, diffuse geopolitical tensions, address climate change, counter terrorism and risk of cybersecurity and promote fiscal prudence and financial stability. Further, investments in human capital and skill development to raise productivity and leverage technological developments shall be the key to ensuring sustained improvements in standards of living, particularly in emerging market economies. Assisting job creation, pursuing efficient allocation of resources, enabling promotion of small and medium enterprises, fostering export diversification and liberalizing trade policies to better integrate into global value chains would facilitate productivity growth and promote much needed investments in the emerging market economies.

The Indian economy is the worlds fastest growing major emerging market economy, supported by a host of reforms undertaken by the Government in the past years, complemented by the countrys inherent rich demographic dividend. The economic growth for the year averages around 7%. Having commenced the year with an impressive growth rate, the economy witnessed slower growth subsequently owing to externalities, investment rerouting, subdued private investment, slowing private consumption and lower exports. In nominal GDP terms, India ranks 7th in the world, while it is at an impressive 3rd position in PPP terms as per the IMF data. Stable macroeconomic fundamentals, rising consumption led demand, increased public investments, acceleration in structural reforms and conducive policy initiatives undertaken by the Government, including public bank recapitalization and measures aimed at promoting ease of doing business and attracting investments have propelled economic growth over the past few years.

During the year 2018-19, the Consumer Price Index (CPI) Inflation averaged at 3.43% as against 3.58% in the year 2017-18. After rising in the first few months of the year 2018-19, the CPI inflation fell from the levels of 4.92% in June 2018 and touched a low of 1.97% in January 2019, as food and fuel prices declined and the impact of house rent allowances for Central Government employees waned. Thereafter, CPI inflation rose steadily to touch 2.86% in March 2019. Going forward in the year 2019-20, the CPI inflation is expected to increase, yet remaining within the Reserve Bank of Indias target rate of 4%. However, risk factors like geopolitical tensions, crude oil price spikes, financial market volatilities, subdued monsoons and fiscal slippages need to be monitored.

The year 2018-19 saw huge volatility in the foreign exchange rate as the Indian Rupee (INR) faced global headwinds with widening current account deficits led by higher crude oil prices and investment rerouting. The rupee depreciated sharply, crossing the highest ever mark of INR 74 per USD in October 2018 before again appreciating and ending the year 2018-19 at INR 69.17 per USD, boosted by softening of crude oil prices, dovish monetary policy stance in the US and steady revival of investment flows. The rupee averaged at INR 69.89 per USD as against INR 64.45 per USD in the previous year, registering a depreciation of 8.4% year on year.

While the Indian economy has, in recent times, been able to absorb the global shocks with relative ease, there are significant downside risks which need to be factored and dealt with if the growth momentum is to be sustained. The stressful global financial and geopolitical situations continue to cast its gloom on all the economies including India. On the domestic front, public expenditure and domestic consumption has been fueling economic growth for quite some time. However, private sector investments and export growth need a considerable fillip for sustained economic growth. Downsides notwithstanding, with continuing policy reforms, a supportive monetary policy regime, growing financial stability, sustained rise in consumption and revival in investments, India is expected to grow well around 7% per annum in the coming years.

Trends in the Oil and Gas Sector

The global oil and gas market is going through some exciting times as transformations with far reaching implications overlook the energy landscape. The factors pivotal to such transformation include mounting climatic concerns driving changes in the energy mix in favor of natural gas and renewables, increasing electrification in mobility, industries and buildings; impending implementation of cleaner fuel policies, such as IMO 2020 regulations, changing demand supply dynamics as shale revolution positions the US as a net exporter of oil and rapid technological advancements enabling operational efficiencies and reduction in costs, including the costs of production of batteries and costs of harnessing renewable energy. Nevertheless, the demand for energy continues to rise against the backdrop of heightened economic activity, particularly in emerging economies, higher heating and cooling needs in some parts of the world, growing urbanization and improving standards of living. Though growth in the energy basket components is clearly tilted in favor of renewable energy and natural gas, oil and coal are expected to continue as major constituents for the foreseeable future.

The global energy demand recorded a resounding growth of around 2.3% in 2018, its fastest pace of growth in this decade, driven by increasing energy needs propelled by a strong global economy. While the demand for oil grew by 1.3%, it was natural gas which emerged as the fuel of the year, registering a growth of around 4.6% and accounting for nearly 45% of the increase in total energy demand. Second to natural gas, energy demand from renewable sources witnessed a growth of 4% with solar power and wind power, both registering a double digit growth. Coal still remains the largest source of electricity and the second largest source of primary energy, though it recorded a growth of 0.7%, witnessing a decline in its share in the global energy mix.

The energy demand grew substantially in China at around 3.5%, accounting for a third of global growth. The United States saw a rebound in energy demand growing at 3.7%, after witnessing slower growth/decline in the past three years, while Europe saw a muted demand growth of around 0.2%. India recorded an increase of around 4% in the primary energy demand contributing nearly 11% of global growth.

Despite major growth in renewables, global energy- related CO2 emissions grew at the highest rate of around 1.7%, as the world lagged in scaling up the efficiency in energy consumption and deployment of lower-carbon options fast enough to meet the rise in demand. The higher emissions are mainly contributed by coal used in power generation, most of which continues to come from the power plants in Asia, though some emissions could be avoided due to acceleration of the coal-to-gas switch, mainly in China and the United States. Notably, China continues to be the leader in renewables, followed by Europe and the United States.

After a prolonged period of oversupply, a possibility of supply crunch in the medium to long term cannot be overruled despite the US shale revolution, owing to factors like geopolitical tensions, dwindling oil production from existing fields, lesser new discoveries and deferment of expenditure in the upstream assets due to the recent downturn. The oil producers need to adjust their strategies maintaining capital discipline, focusing on productivity improvements, mobilizing skilled manpower resources and leveraging technological developments, as energy demand continues to rise and non-fossil fuels seek to claim higher stakes in the energy basket.

The previous year witnessed high volatility in crude oil prices, the likes of which were seen during 2014. Moderated supplies by OPEC and its allies, announcement by the US in May 2018 considering re-imposition of sanctions on Iran and a decline in Venezuelan oil production maintained the benchmark Brent crude price well above USD 70 per barrel level for almost the entire first half of the year 2018-19. Post September 2018, with threat of Iran sanctions kicking in soon and increase in geopolitical risks, Brent crude breached the USD 80 per barrel mark and rose to levels above USD 86 per barrel for the first time in the past three years. However, it retrieved sharply in November 2018 as Iran started pumping oil again, pursuant to partial relaxation granted by the US, increase in US shale oil production, buildup of inventory levels in response to the fears of global oversupply and decelerating global growth. Since then, oil prices have increased in 2019 with intermittent ups and downs. The Brent crude averaged at USD 70 per barrel during the year 2018-19, 23 % more than the average of previous year. Trending alike, the Indian basket of crude oil, averaged at around USD 70 per barrel during the year 2018-19, as against around USD 57 per barrel in the previous year.

With the changing demand-supply dynamics, the Brent- Dubai differential during the year moved in a wide range, while remaining positive in favour of Brent over Dubai for the maximum part of the year, except for some days where the Dubai crude was at a premium over the Brent crude. The differential averaged at around USD 0.8 per barrel during the year as against an average of around USD 1.7 per barrel in the previous year.

The product prices saw wide variation during the year 2018-19. Motor Spirit (MS) (Unleaded Singapore Platts)/ Petrol prices averaged at USD 75 per barrel, recording an increase of 11% over the previous year. The prices of High Speed Diesel (HSD) / Diesel averaged at around USD 84 per barrel, recording an increase of 22% over the previous year. The average prices of Naphtha and Jet Fuel / Kerosene (SKO) also increased by 17% and 22% respectively over the previous year.

The MS and Naphtha cracks witnessed a decline over the previous year, while Jet Fuel/Kero and HSD cracks increased. MS cracks remained weak for a large part of the year, while witnessing a sharp drop from the levels of around USD 10 per barrel in the month of September 2018 to a staggering low of around negative USD 2 per barrel towards the end of January 2019, thereafter again rising to the levels of USD 7 per barrel by the end of March 2019, averaging at USD 5.9 per barrel, 51 % lower than the average cracks of USD 12 per barrel in the previous year. The average Naphtha cracks were around negative USD 4.1 per barrel, as against the average of USD 0.3 per barrel in the previous year. Jet Fuel/Kero cracks averaged at USD 14.5 per barrel and HSD cracks averaged at USD 15 per barrel, registering an increase of 9% and 12% over the average of the previous year, respectively.

As crude oil prices continue to be impacted by various geopolitical factors including slowing economic activity, global trade tensions and US sanctions on Iran, Libya and Venezuela, there is an increasing pressure on the OPEC and its allies to recalibrate the supplies to maintain the prices at reasonable levels. While Russia has collaborated with OPEC on supply moderations so far, the continuation of this collaboration amidst growing influence of the US as a net exporter of oil, will have a defining impact on the crude oil market dynamics going ahead.

Indian Petroleum Sector

The fastest growing major economy in the world, India is also one of the largest consumers of energy. During the year 2018, Indias primary energy demand grew by approx. 4%, outpacing the global demand growth. More than one third of the primary energy consumption comes from oil and gas. The petroleum products consumption in the country grew by around 2.6% in the year 2018-19 as against around 5.9% in the previous year, while the natural gas consumption grew by around 2.7% as against around 6.2% in the previous year. Petroleum products consumption grew at a faster pace in the first few months, due to the lower base effect and increase in economic activity, though it moderated thereafter, as economic growth slowed.

Being the third largest consumer of oil next to the US and China and an importer of crude oil to the extent of 84% of the total requirement, the Indian socio-economic-political landscape is significantly influenced by the movements in international oil prices and the exchange rates. With high crude oil prices, coupled with a sharp depreciation in the Indian rupee against the US dollar, the prices of petroleum products scaled record highs during 2018-19, the countrys import bill soared and the current account deficit widened during this period.

The year 2018-19 saw the crude oil import bill rising by 28%, from USD 87.8 billion in the previous year to around USD 112 billion, mainly on account of increase in the crude oil prices and depreciating rupee. While the import volumes grew by 2.8% to around 226.6 MMT in the year 2018-19 from 220.4 MMT in the previous year, the average price of the Indian crude basket increased by around 23% to USD 70 per barrel in the year 2018-19, as against the average of USD 57 per barrel in the previous year. Additionally, a year on year depreciation of 8.4% in the Indian rupee against the Us dollar further contributed to the increase in the import bill.

During the year 2018-19, the country produced around 34.2 MMT of crude oil as against 35.7 MMT in the previous year, 4% lower, mainly due to declining production from matured fields, under-performance and operational issues in some fields. Over the past nine years, the country has witnessed a steady decline in crude oil production, both from the offshore as well as onshore blocks due to ageing of the fields leading to fall in the output.

While India is short on crude oil production, it is reasonably long on refining capacity. With total installed refining capacity of 249.4 MMTPA as of 1st April 2019, India is the worlds fourth largest and Asias second largest refiner and a net exporter of petroleum products. The PSU refiners, together with their group companies, contribute 65% of the countrys overall refining capacity. The total crude processed by Indian Refiners during the year 201819 stands at around 257.2 MMT, as against 251.9 MMT in the previous year, an increase of 2%, with almost 75% of the crude processed being high sulphur crude.

During the year 2018-19, the consumption of petroleum products in India recorded a lower growth of 2.6% as compared to 5.9% in the previous year mainly on account of subdued economic activity. The consumption of petroleum products was at around 211.6 MMT in the year 2018-19 against 206.2 MMT in the year 2017-18. Diesel constituted 39% while Petrol constituted 13%, followed by LPG at 12% of the total consumption of petroleum products in 2018-19. The consumption of Diesel has increased by 3%, Petrol by 8% and LPG by 7% during 2018-19, as compared to the previous year.

As of 1st April 2019, around 7.2 crore connections have been issued under the Pradhan Mantri Ujjwala Yojana (PMUY) resulting in an increase in LPG coverage in the country to a significant 94%, up from around 62% 3 years ago. The sustainability of the scheme is dependent upon regular usage by the target consumers. The companies are devising various strategies, including introduction of smaller refill sizes under the scheme, to encourage usage.

The year saw Oil Marketing Companies (OMCs) enhancing the automation percentage of the Retail Outlets (ROs) across the country to around 96%. As a measure to ensure quality and quantity of fuel dispensed from the pumps, this initiative serves to enhance customer confidence and minimize the risks of fraudulent transactions. Additionally, furthering the digitalization drive of the Government, 98% of ROs across the country are now capable of transacting digitally, wherein OMCs support the initiative in the form of an incentive to customers of 0.75% of the transaction value while absorbing it as digital cost.

Come April 2020, the country would see the switchover from BS IV Auto Fuels to BS VI Auto fuels, except the NCT of Delhi, which has already shifted to BS VI Auto fuels w.e.f. 1st April, 2018. The industry is ready and geared up for the implementation, as it targets to complete the necessary process modifications / infrastructure changes well before the transition date.

To effectively serve the growing fuel needs of the country and afford convenience to the customers in existing and upcoming markets including highways, rural areas, agricultural pockets and industrial hubs, the OMCs issued advertisements for around 78,000 locations across the country for setting up ROs. Going forward, the OMCs shall be aggressively pursuing the setting up of ROs at viable locations at the earliest.

The countrys flagship mega-refinery of Ratnagiri Refinery and Petrochemicals Ltd. (RRPCL), witnessed expression of interest from global oil majors, Saudi Aramco and Abu Dhabis national oil company ADNOC for partnering on a 50:50 basis with the Indian consortium. The project is expected to significantly benefit from such strategic partnerships together with attracting substantial foreign investment into the country.

The Government of India has been engaging with the international oil producers at various international forums and at Government to Government levels, to foster strategic collaborations and ensure that the crude oil supplies as well as prices are maintained at sustainable levels, avoiding severe shocks which can hamper economic growth in developing nations like India. It has taken various policy initiatives and administered several reforms in the directions of enhancing energy security, inspiring energy efficiency, facilitating energy access, promoting inclusiveness and ensuring energy sustainability, in line with its vision for development of the oil and gas sector in India.

In its endeavour to ensure energy security, reduce dependence on imports and boost domestic production, the Government has, in the recent past, taken significant policy decisions including rolling out of a new Open Acreage Licensing Policy (OALP) and Discovered Oil Field (DSF) Policy. During the year, the OALP Bid Round I closed with the award of 55 blocks and a further 14 and 23 oil and gas exploration blocks were offered for bidding under OALP II and OALP III respectively. Under DSF Bid Round II launched during the year, comprising of 25 contract areas with 190 million tonnes of estimated hydrocarbon reserves, 23 contract areas were awarded. The Government also allowed the private companies to exploit unconventional hydrocarbons, including Shale Gas and Coal Bed Methane (CBM), from their existing acreages.

In another major step towards reduction in import dependence, the Government notified the National Policy on Biofuels 2018 during the year. The policy also aims at reducing carbon emissions along with providing financial support to the farmers by encouraging the use of surplus foodgrains and agricultural residue for production of ethanol. BPCL is committed to participate in and further this initiative. During the year, BPCL laid the foundation stone for a 2G Ethanol project in Bargarh, Odisha while its subsidiary company, Numaligarh Refinery Ltd. started construction of a 2G Bio-Ethanol plant through a Joint Venture named Assam Bio-refinery Private Limited with M/s Chempolis Oy of Finland and M/s Fortum 3 BV of Netherlands as partners.

Taking forward its mission to promote a gas-based economy, the government launched the biggest auction of City Gas Distribution (CGD) networks during the year, offering permits for selling Compressed and Piped Natural Gas (CNG and PNG) in 86 Geographical Areas (GAs) in the ninth CGD bidding round covering 174 districts in 22 States/ Union Territories of the country. Subsequently, the tenth CGD bidding round was also launched offering 50 GAs spread over 124 districts in 14 states. With this, the coverage of CGD networks will expand considerably, encompassing about 70% of the countrys population, spreading over 50% of Indias area. Additionally, the development of 13,500 Kms of gas pipeline is underway to complete the coveted Gas Grid.

Supported by multi-sectoral reforms and driven by buoyant domestic demand, the Indian economy showed exemplary resilience in responding to the volatility in crude oil prices and adverse exchange rate movements and continued to surge ahead on the growth path. With projected economic growth of around 7% in the next few years, increasing urbanization and improvement in standards of living, the demand for energy is expected to rise significantly and the country is expected to surpass China to become the worlds second largest energy growth market in the next decade. The Indian oil and gas sector has witnessed significant structural and policy reforms in the past years and has contributed in a significant way to economic growth in the country. In times of substantial technological changes and growing climatic concerns driving transition to a low-carbon future, the oil and gas sector is fraught with some challenges and uncertainties which need to be factored in the strategies and plans by the companies. However, with the resolve of the Government to increase inclusiveness and promote energy efficiency, the sector is poised to leverage the available opportunities as it continues to fuel the growth of the nation.

Opportunities and Threats

Touching the life of every individual on the planet and being one of the major contributors to the global economy, the oil and gas sector has the potential to shape the future of the world in profound ways. As the industry prepares itself for some very interesting transformation in consequence to significant technological developments, changes in the energy mix towards a low carbon future and demand- supply rebalancing, opportunities abound with their fair share of threats. The competence of the industry players in leveraging opportunities and building capabilities to respond to threats will skim the winners from the runners.

As the Indian economy is expected to grow at a rate above the world average and as developmental efforts proliferate the bottom of the pyramid, the oil and gas sector will continue to partake in fueling growth, aiding development and fulfilling the aspirations of the country. Being the seventh largest economy of the world and home to approx. 17% of the worlds population, Indias per capita energy consumption is less than one-third of the worlds average, despite being the third largest consumer of oil and fourth largest LNG importer in the world. However, India is expected to witness faster growth in oil and gas demand in the world going forward, against the backdrop of robust economic growth, rapid urbanization, increase in consumption and improvement in living standards. India excels in its refining capacity surpassing domestic demand, making it a net exporter of petroleum products. The optimistic future oil and gas demand projections by various agencies give enough confidence to the oil and gas companies to enhance capacities and create infrastructure to successfully serve this demand.

As a big importer of crude oil, India is highly susceptible to wayward movements in the prices and exchange rate fluctuations, which can suppress economic growth and deteriorate balance of payment situations, threatening financial stability. The energy security initiative of the Government, aimed at target reduction in import dependence and promotion of investments in raw material resources within India and abroad, present huge opportunities in fostering better resource integration and building capacities and capabilities in the upstream sector, thereby insulating the value chain from crude price shocks.

Natural gas positions itself as a substitutable energy source, as it presents significant opportunities in the form of related diversification and valuable product portfolio enhancement. In pursuit of its vision to make India a gas based economy, the Government has taken several steps along with prioritizing the creation of an integrated gas infrastructure and transmission network, CGD network and import terminals. Moving ahead, demand for natural gas is slated to grow at a rate much faster than oil, as the share of natural gas is expected to rise consistently in the energy basket. To tap this opportunity, the companies need to consciously redesign strategies, undertake necessary alterations in operations, augment infrastructure, judiciously allocate resources and leverage technology and digitalization to be future ready for the shift from fluid to gas.

Given the strong commitment of the Government of India and its support towards development of renewable sources of energy through proliferation of sustained investments, policy interventions and creation of infrastructure and support system, the renewable energy sector is set to see high growth in the coming years and an increase in share in the energy basket. The country has set an ambitious target to generate 175 GW of clean energy by March 2022, of which 100 GW shall be from solar energy, 60 GW from wind power and 15 GW from other sources. India added 8.3 GW of solar PV capacity in 2018 and became the third largest solar market next to China and the United States. The growth trajectory of the renewable energy will, however, hinge on the increase in efficiency, reduction in costs backed by technological developments, development of a robust grid and transmission infrastructure and finding storage solutions, overcoming the limitation of round the clock availability of natural sources of power.

Inadequacy of infrastructure has time and again haunted the oil and gas industry with increased inefficiencies, suppressed growth and unwarranted cost implications. Creation of midstream and downstream infrastructure in the form of pipelines, processing facilities, import and export terminals, storage facilities, plants and a transmission and distribution network need to gather momentum, as they are complex, capital intensive and high gestation period projects.

Digitalization has been the new age revolution changing the way in which business is conducted and value is delivered across all sectors in the world. The data driven, automated and artificially intelligent block chained processes and applications seek to provide efficiency, convenience, cost reduction and value creation, giving an edge to the business of today. While the oil and gas industry has been a late adopter of digitalization, it is certainly no stranger to it. Digitalization carries a plethora of benefits, including improving exploration and production prospects in the upstream sector, enhancing predictability, enabling remote controlled robotic operations and safety assurance, equipment handling and monitoring, efficiency enhancement and yield improvements, process optimizations, better management of supply and demand scenarios and delivering significant value to the customers. Challenges include the complexity of operations, vintage of capital intensive equipment, a large supplier base, data vulnerability and hazardous nature of the industry.

An opportunity emerging for the oil and gas industry is the permeation of electric vehicles as a response to growing climatic concerns and reduce carbon emissions. While the growing electrification of transportation is likely to decelerate the growth in oil and gas demand, it would provide for a much needed diversification by oil companies, thereby providing a hedge against a changing product portfolio. The development in charging technology and reduction in battery prices are some of the trends to watch out for. Increasing efficiencies propelling rapid electrification are proclaimed to peak out the demand for fuel used in passenger cars; however, other sectors - namely commercial vehicles, aviation, shipping and petrochemicals will continue to depend upon oil for its feeds and needs. India has also taken an ambitious target of electric vehicle penetration of 30% of new sales of cars and two-wheelers by 2030, from less than 1% today and the Government is working towards bringing a suitable policy framework to incentivize investments in the EV ecosystem.

A large contribution in the development of modern society comes from petrochemical products. With imminent growth in consumption by virtue of rising population, growing global economy, improving standards of living and technological developments, the petrochemical industry is set to become a major consumer of oil and gas, accounting for more than one-third of growth in oil demand to 2030 and around half to 2050. As per capita consumption of petrochemical products in the country is around one-fourth of the world average, this sector presents attractive opportunities for diversification and integration into the hydrocarbon value chain.

Risks, Concerns and Outlook

Higher crude oil prices, though favourable for oil exporting countries and conducive for upstream investments, have adverse impact on oil importing countries like India, spiking up inflation, worsening the twin deficits of current account and fiscal and hurting economic growth. The year 2018-19 witnessed heightened crude oil price volatility, amplified with adverse movement in the exchange rate. With India projected to grow at an impressive rate of around 7% per annum in the next few years, leading to an increase in energy consumption by threefold from the current levels by 2035, the economy faces serious risk from adverse movements in the crude oil prices. Higher prices have a dampening impact on consumption sectors, threatening to lower the demand and impetrate an economic slowdown, while making alternate sources of energy more viable and raising the prospects of quicker adaptation of the same. Additionally, high crude oil prices severely test the sustainability of the structural and policy reforms implemented by the Government of India in the recent past. For refiners and marketers, their ability to pass on the prices to consumers and remain profitable becomes challenging. Also, volatility in oil prices implies risks of inventory gains or losses for the oil and gas companies, as they hold large quantities of inventories, including in-transit inventories.

Almost 63% of crude oil imported into the country comes from Arab Gulf region. With heightened security concerns in the region, not only is there a significant impact on the additional insurance cover for cargoes and vessels, but also, the threat of disruption in continuous availability of crude oil looms large.

The growth and prosperity of the oil and gas sector is dependent upon a robust and a well-designed infrastructure augmentation plan, commensurate with the planned / anticipated growth in oil and gas demand, as these projects have high gestation periods and are capital intensive. India has been making concerted efforts towards upscaling upstream capacity, enhancing refining capacity, strengthening the logistics and distribution network and building handling and storage facilities, apart from creating road and port infrastructure. In respect of LPG alone, with the country importing around 48% of LPG and given the potential growth in consumption as a result of the massive penetration drive through PMUY in recent years, India needs to ramp up existing LPG import, storage and bottling facilities.

The Indian oil and gas companies have taken determined steps to augment infrastructure to cater to the growth and ensure efficient and safe operations. The Government has also prompted the establishment of strategic crude oil reserves aimed at ensuring crude availability in the event of supply disruptions. Going ahead, the limitation of expansion in existing infrastructure due to space and cost constraints also have to be factored in infrastructure planning. Efficient execution of the projects without time and cost overruns pose a challenge in ensuring viable infrastructure creation.

Post deregulation of diesel in 2014, the Indian petroleum sector witnessed active competition from private companies, impacting the market share of the PSU players. Though the private players are yet to gain a substantial market share, their presence and activity cannot be overlooked. Redefining the marketing strategy, ensuring uninterrupted product availability, increasing presence in potential growth centers, creating value propositions for customers and leveraging technology and digitalization shall be pivotal to effectively respond to the competition.

Health, safety and security of the assets and the people become paramount in ensuring sustainable, responsible and successful operations. While adequacy of laid down processes and systems is a necessity to ensure safe operations, human behaviour plays an important role in adherence to the same. Hence, continuous education and development of a safety culture is necessary for ensuring a safe working environment. Further, with technology and connectivity being all pervasive, cyber security takes center stage in ensuring safety of information, data and financial transactions.

With growing global economic activity, there has been an increase in carbon emissions in the past two years, after stagnating for almost three years from 2014 to 2016. The global energy related carbon emissions grew at the rate of 1.7% in 2018, registering the highest growth since 2013. A major contribution came from coal fired power plants. The increase in emissions is despite concerted efforts by many nations to address energy related environmental pollution and resort to cleaner fuels including renewable energy sources. While recent technological developments seek to offer humble solutions, however, given the polluting nature of fossil fuels, addressing climatic concerns and reducing the carbon footprint has and will always remain a significant challenge for the oil and gas industry.

The impending implementation of IMO 2020 regulations mandating the use of cleaner bunker fuel in the shipping industry has brightened the demand prospects of low sulphur marine fuel, raising expectations of an increase in the international crack spreads of gasoil. With requisite modifications and augmentation of capacities, Indian refiners are well positioned to take advantage of the regulation change. However, a significant risk that will have to be dealt with is that of availability of IMO compliant vessels for crude imports, coupled with substantially higher chartering costs.

The Indian petroleum industry today is subjected to the dual structure of indirect taxes with Crude oil, Petrol, Diesel, Aviation Turbine Fuel and Natural Gas being out of the GST net and continuing under erstwhile tax regulations. This poses substantial administrative and regulatory compliance related challenges, besides having adverse impact on profitability due to unavailability of input tax credits. In the forthcoming years, the industry will look forward to the taxation reforms bringing the abovementioned products into the GST regime, thereby ensuring seamless tax credits, reducing financial and compliance burden and enabling efficient operations and planning.

With increasing digitalization and technological advancements, investment in human capital for upskilling and competency building of the talent pool in the oil and gas industry is imperative to leverage its benefits. The tangible assets and competencies are required to be complemented by the intangible human assets aided by data analytics and digital operations.

Navigating vigilantly and with agility, BPCL is well positioned and fully equipped to deal with the challenges and leverage the opportunities, thereby moving ahead in its journey to become the most admired energy company. The Company has taken decisive strides towards expanding its presence across the hydrocarbon value chain, building capacities, pursuing digital opportunities for operational efficiencies and delivering enhanced value to customers, exploring the evolving energy landscape and ensuring good corporate governance to create value for all the stakeholders.

PERFORMANCE

Refineries

During the year 2018-19, the refineries of BPCL have shown tremendous progress in operational performance. The refinery throughput at BPCLs Refineries at Mumbai and Kochi was 31.01 MMT as against 28.54 MMT achieved in the previous year. BPCL achieved a Gross Refining Margin (GRM) for the year 2018-19 at USD 4.58 per barrel (Rs. 7,319 Crores), as compared to USD 6.85 per barrel (Rs. 9,356 Crores) realized in 2017-18.

Both the refineries delivered their best ever crude throughput and crude processing performances, showing a growth of 8.7% in crude throughput over the previous year. The higher crude throughput by refineries enabled the highest ever production of MS and HSD by the BPCL group. With an optimized crude mix and maximization of unit intakes, the refineries demonstrated their constant endeavour to maximize value-added products, meeting market demand. Kochi Refinery (KR) has also added Food Grade Quality Hexane (FGQH) to its portfolio and started the production and supply of Polymer grade Propylene during the year.

As part of the Integrated Management System, both the refineries were recertified to the new standards of ISO 9001:2015, ISO 14001:2015 standards for Quality, Environment & Occupational Health and Safety Management Systems. Various business excellence tools such as Six Sigma and 5S are at various levels of implementation.

BPCLs Quality Control (QC) laboratories are equipped with state-of-the-art facilities and strive to achieve the highest quality standards through meeting the standards of reputed external certifying agencies and accreditation bodies. During the year, the Refineries laboratories continued to perform well in the international laboratory proficiency testing scheme. During the year, the Quality Control department of Mumbai Refinery (MR) rolled out unique initiatives such as integration of lab instruments with Laboratory Information System (LIMS), Service Level Agreements (SLAs) with internal customers, trial run of bar coding of samples to analyse and improve cycle time of testing, etc. The Refineries QC laboratories also actively took part in the Inter-Laboratory Comparison (ILC) program organized by Centre for High Technology (CHT).

To improve reliability of refinery operations, various innovative initiatives have been adopted by the Advisory Services department like non-intrusive and intrusive wireless monitoring system, Advanced NDT methods such as Time of Flight Diffraction (TOFD), Phase Array Ultrasonic Testing (PAUT), Automated Backscatter Ultrasonic Testing (ABUT), Long Range Ultrasonic Testing (LRUT), Comprehensive Health Assessment of civil & steel structures, Comprehensive Inspection of fire proofing as per OISD 164 of steel structures at Refineries, etc. Also, underwater videography of jetty pipeline support structures at canal and river crossings, laser scanning of coke drums, and on-stream Acoustic Emission Testing are additional initiatives taken at KR. The refineries are in the process of implementing the AIMS (Meridium) software upgrade to the latest version along with new modules.

Digitalisation has been a boon to the modern era and its massive impact on the refineries is going to be more powerful in future. To stay competitive, BPCL needs to embed digital capabilities in all aspects of its operations in order to improve efficiency, reduce costs and achieve maximum optimisation of processes. For this, the refineries have aggressively pursued digitalisation in order to become “Smart” factories. Some of the initiatives have already been implemented and many are in the course of action to achieve the dream of a digitally equipped refinery. A few of the initiatives include wireless vibration monitoring system, robotics and drones used for surveillance and inspection, intelligent P&IDs, machine learning for forecasting failure of rotary equipment, etc.

The refineries have a well-established and an effective Energy Management System (EnMS), accredited with ISO 50001:2011 certification by M/s DNV. The relentless efforts of energy conservation across the refineries resulted in reduction of specific energy consumption from 66.7 in 2017-18 to 64.5 in the current year at MR and 79.1 in the previous year to 71.5 in 2018-19 at KR, their lowest individual values ever. The refineries also achieved the PAT (Perform Achieve and Trade) target for 2018-19.

It has always been BPCLs vision to give back to the environment and conserve and protect it to maintain a healthy atmosphere. For this, various “Go Green Initiatives” have been implemented in both refineries including butterfly parks, tree plantation in mass numbers, rainwater harvesting, use of sewage treated water in the refineries, etc.

It has always been the continuous endeavour to enhance the learnings of people and take their learnings along with that of the organisation. In its effort to nurture its most valuable asset, human capital, BPCL has imparted a series of innovative training programs throughout the year. Various technical and non-technical training programs were imparted to employees to enhance their skills. A group of 32 overseas personnel from M/s Dangote Oil Refining Company Limited, Nigeria were trained for 3 months in MR on various process units. Mumbai Refinery had the privilege of successfully hosting the 23rd Refineries and Petrochemicals Technology Meet (RPTM) in collaboration with Centre for High Technology (CHT) at Mumbai from 12th - 14th January 2019. This mega International event organised on the theme, “Aligning Refineries Towards Sustainable Future” saw participation of more than 1200 delegates from across the world.

Two batches i.e. 88 of BPCLs Mumbai based esteemed shareholders were taken through an exciting journey across our process plants, after familiarizing them with the entire Refinerys Processes and Operations through an informative presentation.

RETAIL

Petroleum retailing in India is continuing to witness a change. PSUs market share marginally fell from 92.1% last year to 91.1% in year 2018-19, mainly due to network expansion by private players. During this period, while countrys Retail Petroleum Sector grew by 3.7%, the PSUs Retail growth was 2.6%, indicating a marginal shift to private players.

FY 2018-19 also witnessed the impact of aggressive marketing activities of OMCs as well as private players. The focus of BPCLs Retail Business remained on customer centricity in existing markets and this helped us retain existing volumes.

The Retail business of BPCL in the year 2018-19, registered a total market sale of 27.30 MMT, with a growth of 2.6%, in line with PSUs growth of 2.6%. MS volumes grew at 6.4% to 7.4 MMT and HSD volumes grew at 1.4% to 18.93 MMT. In the alternate fuels segment, BPCL recorded a growth of 15.8% on the sale of CNG, while Auto LPG registered a negative growth of 6.7%. SKO also registered a de-growth of 13.3%.

The key focus areas that helped BPCL were service offerings, environmental friendly fuels, network expansion, digitalisation and governance.

With focus on providing environment friendly fuel facilities at ROs, various activities were initiated - BS VI products were placed in National Capital Territory (NCT), 81 CNG ROs were commissioned and our premium branded fuel, ‘Speed sales were promoted well. BPCL achieved sales of 379 TKL for “Speed” with a conversion of 3.6%. The ‘Speed 97 network was expanded to 41 ROs and the product was re-positioned as the highest Octane Unleaded Petrol. The Retail SBU also achieved ethanol blending percentage of 4.8% for the period April 2018 - March 2019, the blending percentage going up to 6.7% in March 2019. ‘Adblue, an additive for new generation HCVs, introduced last year, has now been made available at 496 outlets.

The other focus area for the business has been network expansion. In 2018-19, 355 New Retail Outlets (NROs) were commissioned, 89 of which were in key priority rural markets. 34 Company Owned Company Operated (COCO) Outlets and 6 One Stop Trucker Shop (OSTS) Outlets were also commissioned. The total retail outlet network after the annual addition stood at 14,802 at the end of 2018-19. Besides NRO commissioning, 203 retail outlets have been revived towards creating a healthier and more effective network. 136 new ROs offering Pure for Sure (PFS) service standards were added to the previous list of PFS ROs, raising the tally to 8,183. BPCL also has 1,403 PFS Platinum ROs across India, equipped with fully automated and computerized offerings, monitored through CCTV, assuring the promise of purity with higher service levels.

Additionally, as part of the network expansion exercise, BPCL advertised for 21,021 locations for setting up Retail Outlets. Over 100 lakh SMS messages were sent for larger participation in this endeavour. On behalf of the OMCs, BPCL coordinated the development and management of the integrated Online Petrol Pump Dealer Selection Portal (https://www.petrolpumpdealerchavan.in/) and Online Draw/ Bid Portal (https://www.omconlinedraw.nic.in/petrolpump/).

Convenience stores under the brand name ‘In & Out operate at 150 retail outlets. Additionally, other small alternate shopping options like florists, vehicle repair shops, etc. operate at select ROs. Apart from shopping convenience, BPCL has added 39 Quick Service Restaurants (QSR) during the year, raising the tally to 121 ROs. BPCL also has many dhabas for the convenience of the trucking community. Besides this, services like money transfer and insurance continue to be operated across 1000 retail outlets. BPCL has sold LED appliances through 775 ROs during the year, a jump of 445 ROs over its last year numbers.

BPCL has commissioned financial inclusion services at 477 ROs in the last year through FINO Payments Bank, its strategic alliance partner, to extend financial operations for the convenience of its customers. These include AEPS (Aadhar Enabled Payment System), Micro ATMs and API based DMT (Domestic Money Transfer) and bill payment services. BPCL has also commissioned 16 FINO Payments Bank branches at its ROs. FINO is currently building an Integrated Payments Solution for BPC, which will enable multiple modes of payments from one platform. A standalone payment solution has been deployed at 268 ROs for testing. Digital transactions facilitated as ‘Service to Customers jumped in value to 6,341 crores in March 2019 (increase of 30%). To increase digital transactions, a promotional campaign was rolled out in 100 Smart Cities covering more than 1,650 ROs.

During the year, the Retail SBU launched a Driver Insurance Scheme, giving Accident Insurance benefits of 3 lakhs to drivers and 1.50 lakh to helpers. Approximately 2 lakh drivers and 2 lakh helpers have been enrolled, with an addition of 9,000 drivers and helpers every month. Through this initiative, fueling data and journey details of more than 9 lakh drivers is being collected using an in-house application named ‘Driver Bandhu, to track their journey, map them into various segments and target loyalty benefits, specific to these segments. As part of supporting its front end support teams, BPCL has enrolled 78,269 Delivery Sales Men (DSM)/Delivery Sales Women (DSW) into insurance schemes and 12,994 DSMs/ DSWs/TL crew have been covered under the PMSYM (pension scheme).

Through the Umang initiative, the Retail SBU has provided focused services catering to the rural sector. A total of 566 Umang ROs have been commissioned so far under this initiative. The Gross Merchandise Value (GMV) of these ROs improved from Rs. 10.34 crores in March 2018 to Rs. 565 crores in March 2019. Footfalls have increased from 0.25 lakhs in March 2018 to 1.91 lakhs in March 2019. The main facilities offered at these outlets include remittances, deposits, withdrawals and account opening, bill payments, recharges, transactions at Government online portals, online shopping through e-portals etc.

At our ROs, Multi Pump Dispensers (MPDs) display real time retail selling prices and are enabled with a “No Print No Delivery” (NPND) feature, where the delivery of fuel does not happen unless the bill is issued to the end Customer. During the year, 3,750 MPDs were replaced and 17,969 tamper proof and self-destructive pulsars have been changed across the RO network.

On the Digital front, the Retail SBU enrolled more than 2 lakh urban customers under the SBI co-branded credit card program and achieved 130 crores transaction value on fuel sales. The Company offers multiple options like mobile, email, website and call centre to stay connected with the members and the dealer network.

The Retail SBU has also enhanced its existing loyalty program, SmartFleet, to tailor it to the growing needs of its fleet customers with a new loyalty program with enhanced state-of-the-art customer friendly features such as “Virtual Card”. 6 lakh cards from its old Loyalty Platform were successfully migrated to this new Loyalty Platform.

BPCL launched digitally enabled Integrated Payment Solutions at 145 OSTSs, which have the capability of targeting discount offerings to specific customer/network segments. This will be scaled up at major highway and urban ROs in the next year.

About 9,000 ROs have been equipped with Enterprise grade Dual Connectivity to facilitate robust data transfer between ROs and BPCL Central HOS. The automation system in place allows payment to be integrated with fueling, translating into customer trust, customer identification and acquisition, good governance, better asset utilization, inventory management and effective outlet management.

On the governance front, the Retail SBU developed and introduced the Corporate Safety Management Framework (CSMF) including the Life Saving Rules and Technical Guidelines for ensuring the highest level of safety standards for our operating locations. In line with the corporate philosophy of “Safety First Safety Must”, Retail Operations could achieve the target of nil Loss Time Accident (LTA). Also, the Tank Lorry in-transit accidents were reduced by 3.8% over the last year. Fully equipped ambulances were positioned at ten remote locations.

Retail Operations expanded the implementation of the Integrated Management System (IMS) at all operating locations across India. Comprehensive Audits, Governance Audits and Interlock Assessment Audits were conducted extensively. To enhance auditing skills, OISD workshops have been conducted covering 362 officers. On the sustainability front, ISO 50001 was implemented at 28 additional locations, Energy Audits at 17 additional locations, and 5S certification at 35 more locations.

Twenty transport contracts were finalized for safe and secure transportation of products to retail outlets. Besides, the electronic locking system was implemented at 8 supply locations. The second largest solar power plant of capacity 1.45 MW was commissioned in Manmad Installation. The Retail SBU has remained the front runner as far as Terminal Automation is concerned, increasing the number of No Automation No Operation (NANO) certified locations to 50, which is 85% of the automated locations.

INDUSTRIAL AND COMMERCIAL (I&C)

The I&C Business has differentiated itself in the market as a growth leader with its consistent performance over the past years and customer centric approach. I&Cs strategy of aligning business to the real needs of the customer, along with improving process and service efficiencies constantly, has reflected well in its business performance.

In year 2018-19, the SBU recorded an overall sales of 5.75 MMT and registered an unparalleled growth of 10.5% to become the industry growth leader, following the trend of the previous year. The SBU also increased its market share amongst PSUs to 15.6%, a significant jump of 0.6% to become the only PSU to have improved its market share in the current financial year.

The I&C SBU has been able to retain profitability by maintaining a delicate balance between volume and value in a highly competitive and discount driven business environment. The SBU has been able to increase value by focusing on sales of high margin products, registering growth in the refinery economic zone and optimizing logistic costs.

Focus areas for the business during the year were seamless customer service and offerings, best value for customers, enhanced logistics solutions and ‘Riding the Digital Wave.

The consistent approach of treating major corporates as business partners has further improved the SBUs long term customer relationship and led to renewal of 86 MOUs. Tie-ups established in the past years with customers such as Haldia Petrochem, L&T, Saint Gobain, SI group, Bhushan Steel, Bharat Forge, Asian Paints, Berger Paints, Central Armed Police Force, HOCL, to name a few were successfully retained. I&C also started its maiden relationship with many major new customers in the field of transport, chemicals and petrochemicals.

I&C further enhanced its product portfolio to customers by introducing Polymer Grade Propylene and Solvent D 80 in this year. With these two new product launches, I&C has forayed into the niche market for these specialty products with an intent to service its varied customer segments. I&C also made further developments in foraying into petrochemicals by initiating test marketing for the first imports of petrochemicals.

BPCLs focused strategy on adding value to the customer was also realized when the offerings of superior quality ‘Petrochemicals were made at comparable prices. The I&C SBU also focused on improving ease of operations at the customers end, by installing consumer pumps for use of HSD. During FY 2018-19, the I&C SBU commissioned 80 Consumer Pumps for its customers across the country, covering various sectors like mining, industrial, STU and Defence, across geographies resulting in a record sale of 1.488 MMT of HSD.

The SBU pursued its mission of ‘Riding the Digital Wave, realizing how the digital transformation in the Oil and Gas industry is going to become a major determinant for market competitiveness in the near future. Various digital initiatives were undertaken during the year such as providing ‘Delivery Order Monitoring Solution for the Indian Army, ‘Digital Invoicing for major customers, Online Bitumen invoice verification, Quality Control Certificate on the external facing e-connect portal, 100% automation of KSRTC, covering 220 depots across the State of Karnataka, introduction of BPCLMITRA, a new innovative software program exclusively designed and developed for KSRTC to control and monitor the automation systems and to record, assign and address the engineering support required at all depots on real time basis.

The Business Unit has further enhanced its logistics capabilities and achieved significant milestones this year. Through its logistics initiatives, like product exchange and rake loading with OMCs, I&C has achieved remarkable cost and freight optimization along with improved customer satisfaction. Hexane has been introduced at Kochi Refinery to cater to customer needs in the southern part of India. The SBU also introduced Bitumen sourcing at all major ports across the Indian coastal line, ensuring improved logistics optimization and enhanced presence in the major markets away from the refinery economic zones.

Consistent performance and improved bottom lines have bestowed a spirited confidence in its capabilities. The I&C SBU looks forward with fervour to the challenges and opportunities the future offers.

GAS

The Gas SBU handled 1,797 TMT of Gas in the year 2018-19. The market sales grew to 1,078 TMT from 1,036 TMT in FY 17-18, a growth of 4.05%. Out of 1,797 TMT, 276 TMT of Gas was supplied to Mumbai Refinery and 443 TMT was supplied to Kochi Refinery to meet their internal requirements. The remaining 1,078 TMT of Gas was supplied to various customers in Fertilizer, Power, CGD, Steel and other industries across the country and BPCL exceeded the 1 MMT sales mark for the second year in a row.

The business achieved its highest ever monthly sales of approximately 150 TMT during September 2018. Imports were also doubled to 10 cargoes of LNG at Dahej Terminal in 2018-19, as compared to 5 cargoes in the previous year. This year saw the addition of four new customers, viz. Enertech Fuel Solutions Pvt Ltd., Hindustan Organic Chemical Pvt. Ltd., INOX Air Pvt. Ltd. and Bhrigu Foods LLP.

As approved by the Board, Bharat Gas Resources Limited (BGRL), a wholly owned subsidiary of BPCL for handling Natural Gas business, was incorporated on 7th June, 2018. The existing Gas business of BPCL and Gas related investments in JVs are being transferred to BGRL and the process is likely to be completed soon. New activities in Gas business namely participation in new CGD bidding rounds, new tie-ups, etc. are being undertaken by BGRL.

LUBRICANTS

The Indian Lubricants market, predicted to grow at a CAGR of 2.5% (KLINE), espouses an opportunity to tap the potential. Broadly categorized as Industrial & Automotive Lubricants segments, both have an equal share of the existing pie of volumes i.e. 2.6 MMTPA. India, which has a very low per capita consumption, in comparison to the industrialized nations, provides a wider opportunity based on the following trends - India aiming to become a $ 5- trillion economy; promotion of “Make in India” inviting investments for industrial growth; signs of Auto manufacturing hub in India and large growth in both Automotive & Industrial sectors.

While a gradual shift from mineral based to Semi-synthetic and Synthetic Lubricants is observed, the demand for mineral based Lubricants continues to grow.

Over the years, MAK Lubricants has established a well- entrenched position in the automotive and industrial segments. Three distinctive channels viz. Retail, Bazaar, & Industrial aid BPCLs marketing of MAK Lubricants. The Lubricants business thus focusses on BPCL Retail Outlets, bazaar network, authorized service stations, & Industrial and Institutional customers for its larger share of business.

Apart from the domestic markets, MAK Lubricants has expanded its footprints beyond geographical boundaries of India and is establishing itself as a reliable brand in international markets. MAKs overseas business is managed through its export channel.

The Lubricants business of BPCL has registered a healthy growth of 12.5% in the Institutional channel, 5.9% in the export channel, 4.2% in the OEM channel and 4.0% in the Bazaar channel during 2018-19 over the previous year. The retail channel turned around its performance with a growth of 1.53%.

At BPCL retail outlets, the SBUs focus remained on generating secondary sales at the forecourt. Initiatives like the MAK Quick Oil Change (QOC) machine, MAK Dispenser, focus on rural ROs, product specific campaigns, BTL activities at the forecourt, MAK QUIK APP for customers and other value-added activities improved visibility and awareness of the brand and offered a value proposition to customers. In coordination with the Retail SBU, each sales area identified the high potential retail outlets to focus upon. Various activities and campaigns were conducted in these select retail outlets regularly to tap their potential.

Retailers and Mechanics are vital influencers in the customer buying decision of lubricants in the Bazaar channel. Many customized programs for mechanics and ground level activities were conducted to enroll and engage them for increasing the sale of MAK products. Focus on ground level initiatives in select markets and penetration in the secondary and tertiary markets helped the Lubricants SBU to build a strong relationship with the secondary and tertiary customers and created a strong brand in these markets.

In the Direct channel, superior product quality and prompt service play an important role in growth. Despite a tough external environment, MAK has been able to hold its aggregate industrial lubricants volume in the year 2018-19. This has been made possible through customer acquisition and new product introduction, supported by initiatives such as customer seminars and digital marketing. The Company also strengthened its relationship with key strategic partners such as Hero, Kirloskar, TVS, ELGI, etc., which helped it grow in this segment. MAK has also expanded its customer base with a specific focus on the power sector, which is a prominent growing sector in India.

The Lubricants SBU launched its new generation packages to create “buzz” in the market place and also overcome some of the shortcomings of the earlier packaging. Consequently, minimal damage was observed on the long distance transportation of filled packages. The SBU also focused on its network expansion and new distributors were appointed under different categories to strengthen its primary network pan India.

BPCL has consolidated its market presence in SAARC and African countries like Nepal, Sri Lanka, Bangladesh, Tanzania, Congo, etc., and increased its market share substantially. MAK has appointed distributors in UAE, Mozambique, Myanmar and Brazil, thereby expanding its footprint. New packs as well as new products were introduced in the export market to tap the potential. Training of distributors staff and branding activities were the most important initiatives undertaken in all export markets.

The new MAK Lubricants packs won the SIES SOP Star Award under the ‘Rigid Plastic-Ancillary Packaging category in recognition of the ergonomically functional and innovative, futuristic packaging used.

LPG

The LPG SBU registered sale of 6.49 MMT and for the third consecutive year clocked the highest growth of 8.4% amongst Oil PSUs in 2018-19, gaining market share consecutively for 3 years. This year, BPCL was the only Oil PSU to gain market share, achieving a growth of 0.3% over the previous year. In LPG, BPCLs market share stands at 26.55%. The LPG SBU added 826 Distributors this year, breaking past records and taking the total distributor network to 5,907. Newly added distributors contributed adding 1.2 crore new LPG consumers, taking the total domestic customer base to 7.83 crores. To support the expanding customer base, second cylinder facility was extended to 14.4 lakh customers, leading the ‘Double Bottle Connection coverage to 3.4 crore customers, which is 39% of the total consumer base.

Under the ‘Pradhan Mantri Ujjwala Yojana (PMUY), enrolment of 0.9 crore new LpG consumers was done. Considering that the PMUY beneficiaries are the first time users of LPG and are predominantly from the low literacy rural areas of the country, education on safe usage and benefits of LPG was propagated through several mass awareness campaigns. These included Pradhan Mantri LPG Panchayat (a community meeting of LPG consumers to interact with one another, promote mutual learning and sharing of experiences for smooth transition to LPG adoption), Safety Clinics and ‘House to House safety education by Ujjwala Suraksha Mitra/Ujwala Didis, Nukkad Nataks, etc. BPCL conducted more than 23,000 LPG Panchayats during the year 2018-19 and reached out to its LPG consumer base in rural belts through deploying LED Vans and Moving Theaters.

The 5 Kg cylinder refill swapping option for 14.2 Kg cylinder was extended in PMUY focus rural areas to address concerns of affordability, a step towards enhancing LPG adoption. A 2 Kg cylinder was also launched keeping in view the applications in small size eateries and requirements of the migratory population in big cities and for students.

LPG Plants in BPCL continue to maintain their record of best practices in HSSE coupled with improvement in productivity and cost leadership. For the 9th consecutive year, BPCL was awarded the ‘Best LPG Marketing Organization by Oil Industry Safety Directorate (OISD).

Vehicle Tracking System (VTS) has been installed in the fleet of Bulk LPG Tankers for monitoring purpose and avoiding night driving. Imparting training to Bulk LPG Tanker drivers to create a pool of trained drivers was one of the focus areas in the area of Safety Initiative. To meet the increasing demand of LPG, several steps were taken to enhance bottling capacities, tankages and import receipt terminals. During the year 2018-19, BPCL commissioned a Green Field LPG bottling plant at Raipur. Plant bottling of 5,858 TMT was registered, recording a growth of 7.5% and achieving capacity utilization of more than 100% from its 52 bottling plants across the country. For the first time, 72 station flexi carousels were commissioned in Loni and Piyala bottling plants to improve bottling capacities.

For ensuring that the subsidy reaches the right customers in the right time, BPCL implemented the PAHAL initiative of the Ministry. Leveraging the ‘Information System, BPCL had enrolled 6.8 crore LPG customers for direct transfer of benefit (under PAHAL) and disbursed Rs. 26,564 crores directly into customer bank accounts.

BPCL has proactively joined the Digital India program and embarked upon several customer-centric initiatives under the guidance of the Ministry of Petroleum & Natural Gas, viz.24x7 Emergency Helpline 1906 (toll free) and Smartline 1800-22-4344 to attend to LPG leakages and service related complaints; new LPG connections online through the BPCL website and facility of online payment through e-wallets, credit/debit card & online banking;enabled second cylinder booking through the IVRS system; Mobile App for refill booking & making payment, changing address/mobile number, rating service levels of Distributors, etc.; Last Mile App for Distributors to monitor business more efficiently and DIGI Locker for storing of Subscription Vouchers (SVs).

AVIATION

The Aviation SBU has recorded the highest ever sales of 1,989.68 TMT, a growth of 11.1% over last year against the Industry growth of 9.9%. The Aviation SBU was able to retain most of its major customers. In the domestic segment, the Aviation SBU recorded a growth of 24% mainly due to higher uplifts by Indigo. This is despite the challenging situation faced by the SBU, as OMCs were focussing on refinery evacuation due to surplus ATF leading to heavy discounts.

Three new Aviation Fuelling Stations (AFSs) were commissioned at Kannur, Ranchi and Srinagar airports and four new AFSs under UDAAN i.e. Regional Connectivity Scheme of Government of India at Salem, Shillong, Ambikapur and Pakyong have also been undertaken. These new additions have taken the Companys presence at Indian airports to 56. The Aviation SBU re-commissioned the facilities at Bhavnagar for RCS operations.

Against the total allocation of 19 Airports under the RCS scheme in Phase I & II, BPCL is operating at 11 airports. In close collaboration with our JV partner, M/s. Bharat Stars Services Pvt. Ltd., the SBU aims to bring in efficiency in cost and operations.

Capital expenditure of 53.2 crores was incurred during the year, largely on procurement of new Refuellers and self-bunded tanks (Containerized Unit of 30 KL capacity) to cater to the growing ATF demand of domestic airlines.

Though ATF movement started in Bina Kota Pipeline (BKPL), which alleviated ATF placement issues ex-BORL at Delhi Airport, there have been huge under-recoveries due to shutdown of BORL from August to November 2019.

The Aviation business continued to maintain its high standards of Safety, Quality and Operations. The Guru-Shishya program, refresher courses on Quality, Operations & HSSE, induction training for new recruits, Customer Relationship/Synergy meetings and specialized programs for IAF personnel were organized, apart from regular training and safety drills, etc. during the year.

PLANNING AND DEVELOPMENT OF MARKETING INFRASTRUCTURE

The planning, conceptualization and development of Marketing Infrastructure required to meet the business aspirations of the Company has been given special attention and is being overseen by the Infrastructure Task Force team. This year, the major projects considered were Coastal Installation at Krishnapatnam in Potti Sriramalu Nellore District in Andhra Pradesh, construction of a Rail fed Depot at Kalaburgi (Gulbarga), Karnataka, a new pipeline from HOJ 3 Jetty, Haldia to Haldia Installation and construction of a new LPG Plant at Bokaro, Jharkhand. These projects will result in addition of 1,31,720 KLs of product tanks and 900 MT of LPG.

BPCL has also received authorization for setting up a 355 Km long Petroleum & Petroleum Products Pipeline from its Bina Marketing Installation in Madhya Pradesh to Panki (Kanpur) Installation in Uttar Pradesh. This pipeline, estimated to cost Rs. 1204.72 Crores, is aimed to have a more efficient and safe product receipt mode for supplying products to the growing markets in eastern Uttar Pradesh.

In addition to the above, land has been identified and is in an advanced stage of acquisition for setting up of marketing projects in various locations at Meramundali in Odisha, Rasayani in Maharashtra, Jammu in J&K and Bokaro in Jharkhand.

CORPORATE STRATEGY AND BUSINESS DEVELOPMENT (CS&BD)

Corporate Strategy and Business Development (CS&BD) has been set up to track strategy implementation and explore new strategic opportunities across the value chain to enhance efficiencies, find new business models and act as a catalyst for innovation and excellence in execution. In addition to analyzing long term trends and working with SBUs to address imminent challenges, the team has also been rolling out digital innovations to deliver performance on a sustained basis for the corporation.

CS&BD is also leading major initiatives including Analytics, Project Nishchay, Customer Care System and BPCL Start-up.

The Analytics Centre of Excellence (ACoE) which was initiated in 2017 has successfully rolled out user friendly graphical dashboards to track SBU performance across multiple dimensions to drive actionable insights and has become an integral part of the decision making process across the organization. ACoE has now undertaken a predictive analytics project with the objective of enabling

SBUs in better decision-making, improving processes and achieving better outcomes by building machine learning models in the areas of customer behaviour, pricing, network expansion etc. The machine learning models, are providing businesses with actionable insights to improve marketing performance and derive value by shifting to data-driven decision making. The project has also helped businesses to consolidate data from various data sources to make predictions and provide targeted offerings to improve sales, optimize discount spends and plan campaigns based on identified behaviour pattern.

In line with Government of Indias “Startup India” initiative and growing importance of Startups as an innovation engine, BPCLs Startup Initiative, christened as “Project Ankur” was started in 2017. The aim of Project Ankur is to develop a supportive ecosystem that nurtures entrepreneurship in the country by backing innovative ideas / concepts that have the potential to grow into promising Start-ups and create a multiplier effect on the entire ecosystem. BPCL has initially allocated Rs. 25 crores for this purpose and this fund is being distributed as grants to deserving applicants. A process has been put in place, whereby a six member Committee, comprising of three internal and three external members, decides on the recipients of the grant.

To collaborate on Startups and have a steady pipeline of applicants, BPCL has signed Memorandum of Understandings (MoUs) with KSUM (Kerala Startup Mission), Invest India New Delhi, IIT Madras, KIIT Bhubaneswar, Axilor Ventures Bangalore and IIM Kozhikode Kerala.

Till 31.03.2019, 25 Startups have been selected for grant funding amounting to a total of approximately Rs. 24.89 Crores. In addition to the grant funding, BPCL is also providing mentoring and guidance. Further, BPCLs Startup Cell has been facilitating Startups to engage with our business units through separate contractual arrangements to implement new initiatives and test out the services provided by the Startups. Some of the interesting startup proposals selected for grant funding include development of a robot for fuel / water tank inspections, collaboration tool for refinery shutdowns, submersible robots for inspections, real time monitoring of corrosion on critical pipelines, mapping / curating national highway amenities data, tele-medicine solutions to provide access to easy healthcare in rural areas, low cost fabrication of LED lights, development of robots for sewage manhole cleaning etc.

Going forward, BPCL is committed to support Startups in a variety of ways including grant funding, equity investment, business exposure, mentoring and guidance.

Project Nishchay, a non-fuel initiative, was launched in 2015-16 with a vision to create multiple non-fuel businesses and achieve disruptive growth through pathbreaking business ideas. Non-fuel offerings were identified for different customer segments. “Umang” , a rural market place for rural customers, and “Fleetgenie”, an Integrated Fleet Management Solution for the unorganized fleet segment.

Umang is a BPCL technology driven initiative for providing a one stop solution to the rural populace through a wide range of 24x7 services. This initiative is making lives easier for rural customers as well as meeting the corporate vision of financial inclusion. During the year, Umang offerings have been expanded to 586 Touch Points spread across the states of Uttar Pradesh, Telangana, Rajasthan, Tamil Nadu, Maharashtra, Andhra Pradesh and Madhya Pradesh. These Touch Points clocked a Gross Transaction Value (GTV) of Rs. 570 crores through a footfall of 13.80 lakhs in the year 2018-19. The initiative has now taken its root in the BPCL network and it is planned to expand the initiative across India, with a target to enroll 6,000 Touch Points in FY 2019-20.

The Integrated Fleet Management (IFM) initiative under the brand name “Fleetgenie” - is providing a one stop solution to various pain points of fleet owners. This initiative has been successfully piloted in the erstwhile NH-8 (Mumbai to Delhi) stretch. Over 22,000 full truckloads have been booked on the platform by more than 6,000 registered customers. These customers have not only been benefited by Fleetgenies freight exchange offering, but also by its other exclusive services. BPCLs Customer Care System (CCS) is a technology driven initiative for providing a single window to address the concerns of its customers across all SBUs and geographies. It is an integrated platform for customer interactions across all channels such as email, website, social media, Vigilance, National Consumer Helpline as well as walk-ins. During the year 2018-19, BPCLs CCS SmartLine has handled more than 14.3 lakh calls, an increase of 64% over last year. Currently, the system is handling over 6,000 calls on a daily basis.

Globally Electric Vehicles (EV) are being looked at as the solution to the challenges faced due to increasing pollution levels across the world. Towards Government of Indias commitment to reduce pollution levels by 33 to 35% below the 2005 levels by 2030, EVs are expected to play a significant role in achieving this target. In order to grab this opportunity and enjoy the first move advantage, BPCL has been working on various business options in the EV value chain.

Further, BPCL is charting out the growth trajectory and developing a business case for future investment by working on key areas of future growth such as Petrochemicals, Gas marketing etc. Petrochemicals has been identified as a key business area for future growth and BPCL aspires to have Petrochemicals contributing to a substantial part of its product portfolio. Significant investments have been planned and execution is underway. Production is expected to commence from the Propylene Derivatives Petrochemical Plant at Kochi in 2019-20.

HUMAN RESOURCES (HR)

With the constantly evolving business scenarios and transformational changes in the energy sector, BPCL has always focused on continuous transformation of Human Resource practices. Our endeavour has been to develop and nurture talent in the Organization so as to remain relevant and achieve Organizational Excellence.

As a learning organization, our pursuit for excellence has led us to elevate our HR practices at par with industry benchmarks and best practices. Accordingly, BPCL has been participating in the CII HR Excellence Award since 2013, which follows a robust model and rigorous assessment process, including an onsite visit by senior panel members. Our focus on continual improvement enabled BPCL to bag the coveted CII “Prize for Leadership in HR Excellence” in the 9th edition during March 2019, joining the elite club of organizations like HUL, TCS, Saint Gobain and Tata Steel who have also achieved this feat.

To reinforce one of our core values of “Development of People”, this year we augmented people capabilities through various technology enabled initiatives such as e-learning courses, e-books and e-journals to our employees. Our basket of people development initiatives include ‘Mercurix - inspiring leadership through the art of storytelling, ‘Socratix - The Case Study Challenge to build strategic thinking and problem-solving capabilities and VIZDOME - a video learning platform created to capture tacit knowledge of the employees by enabling them to create their own videos. “iPASSION”, a new initiative launched during the year, based on the Howard Gardners Multi Intelligence Theory framework, captures the passions/interests of employees in various spheres and provides them opportunities to share their experiences and learn through community networks. BPCL initiated a partnership amongst OMCs in the domain of training by organizing customized leadership communication workshops on ‘business storytelling for young officers, with an objective of sharing our knowledge and experience with our industry counterparts. BPCL was awarded the “Most Innovative Training initiative in L&D” award for VIZDOME during the first L&D Symposium of the Oil Industry at IIPM, Gurugram.

BPCL has continued its multi-pronged approach to strengthen our people capability and to build a robust leadership pipeline by extending best in class learning opportunities to our employees through generic and customized training programs at Premier Institutes and SP Jain Institute of Management, Mumbai for Executive Education; and through MoUs with IIT, Mumbai and ICT, Mumbai. During the year, 870 officers have benefitted from such external learning opportunities. The overall training mandays for the year 2018-19 including all training initiatives internal and external was 27167 mandays.

EMPLOYEE SATISFACTION ENHANCEMENT

BPCLs Employee Satisfaction Enhancement (ESE) cell works across employee categories, with an endeavour to make BPCL a ‘great place to work. With a diverse and strong workforce of around 12,000 employees across the country, ESE works towards ensuring a happy and competitive work spirit amongst all. The ESE team, constituting representatives from within the organization and supported by well trained counsellors through an outsourced resource, i.e. through the ‘Employee Assistance Program (EAP), rendered appropriate and timely advisory to employees.

The areas of focus of the team is individual wellness (physical & emotional), enhancing individual proficiency (skillsets), building relationships and giving back to the society. The modus operandi is to reach out to employees at their work premises and provide positive interventions to build camaraderie, awareness on individual wellness and promote awareness of the EAP service provider. The effort is also to provide pre-designed activities on positivity i.e. building resilience to stress, communication on building relations, building positive network, etc. ESE takes special care to promote the use of professional counsellors (through EAPs), who provide confidential counselling services free of cost to employees and their dependents.

Grievances (individual & group) are redressed by a process of empathetic listening (without bias) and helping find a solution. Genuine cases requiring the attention of the senior management are then presented for consideration, after thorough fact finding. ESE also brings in organizational connect with all employees by wishing them on their birthdays, promotions and thanking them on their retirement. Positive advisory is circulated through its internal E-magazine - ESE Connect : Life Positive.

INTEGRATED INFORMATION SYSTEMS

The IS team has always been at the forefront in technology adoption for better business process management and providing value to the business. During the year 2018-19, the IS team implemented several key IT enabled initiatives which added immense value to the businesses. A few major initiatives are highlighted below:

As part of MoP&NG initiatives, system support was provided for implementation of SSSGSV (Sabka Sath Sabka Gaon Sabka Vikas), E-PMUY & EPMUY2 schemes; State sponsored Deposit Free Connection Release Process for Government of Gujarat (LPG Sahay Yojana) & OPH (Other Priority Households) Scheme by Government of Haryana; 5 Kg DBC Connection release under PMUY/ E-PMUY .

Digital Initiatives: Digitally signed Invoices were introduced for “service billing” to customers of Retail and LPG (A total of 14.18 lakh invoices have been processed since July 2018); Vendors have been enabled to submit their “Digitally signed invoices” electronically through our Vendor Portal.

BPCL cares for its retired employees. The existing portal for ex-staff was comprehensively revamped and made more user friendly with a host of new features like Selfupdate of contact details etc. It was also made available on our mobile application for the external world.

HEALTH, SAFETY, SECURITY & ENVIRONMENT

Health, Safety, Security, and Environment are the indispensable constituents of oil industry activities. Thus, management of operational conditions, chemicals and end products (hydrocarbons and other hazardous materials) associated with the production of oil and gas becomes very important for the workforce. BPCL is committed to protecting people, environment and assets by executing safe operations.

As a testimony to the BPCL groups commitment towards safety, on 31st March 2019, Kochi Refinery touched 4,840 days of continuous operation without any Lost Time Accident (LTA), which is equivalent to 58.90 million man-hours. Mumbai Refinery also achieved 3 million man-hours without LTA. A Behaviour Based Safety (BBS) program, which passively and positively changes existing unsafe workplace behaviours by identifying and reinforcing the use of the right behaviours that protect people in real-world safety problems, has been taken up in Mumbai Refinery while Implementation of Process Safety Management (PSM) principles has been taken up in Kochi Refinery.

BPCL strives to improve personal and process safety by continuous monitoring and effective management. The target is to achieve zero occupational incidents and the primary focus is laid on the Safety Management System, effective containment of hydrocarbons and associated hazards. All the Business Units and Entities of BPCL adhere to the imperative principle of ‘Safety First, Safety Must.

The oil industry is exposed to various risk factors; therefore, having comprehensive preventive measures in the business processes, set protocols and a well-ingrained safety culture is essential. BPCL has a well-structured Emergency Response Disaster Management Plan (ERDMP) which encompasses identification, mitigation, preparedness, response, recovery and restoration. The governance practices adopted by BPCL are well evolved and it brings congruence to the responsibilities and accountabilities.

Management of physical assets (Asset Integrity)plays a key role in determining the operational performance, safety and profitability of the organization. Therefore, to secure the integrity of the assets, they are continuously examined, monitored, inspected, periodically maintained and replaced (if required). All the locations of BPCL strictly adhere to the standard operating procedures and guidelines to ensure the safety of operations.

Incident Reporting is a very critical activity to disseminate learnings; hence, there is a well-defined corporate level process followed for incident reporting. The internal and external incidents reported in the system are investigated, analyzed and thoroughly reviewed. Mock drills are conducted at regular intervals and recommendations are captured. A comprehensive report is prepared using root cause analysis, learnings and recommendations and to prevent any recurrence of minor or major incidents. The above, in addition to technological interventions, has helped in reducing the in-transit transport accidents as well as those at the consumer premises. Its a constant endeavour of BPCL to achieve its Sankalp Mission of Zero Incidents, Zero Harm and Zero Excuses.

Internal and External Audits are considered to be an integral part of operations and their compliance is given very high importance. Implementation of recommendations are constantly analyzed for risks and learnings and many times, operations are stopped unless the job is completed. There are various forums such as seminars, workshops, training, where best practices are shared, capacity building sessions are imparted and safety and security related discussions are conducted. BPCL ensures collaborative learning for safer operations across all locations.

The current global issues are climate change and global warming. The continuous emissions being added to the atmosphere is worsening the situation further. BPCL acknowledges that carrying out comprehensive solutions for climate change is the need of the hour. BPCL feels that leveraging technological advances and innovations for improving performance, energy efficiency and finding more carbon-neutral solutions is indispensable. A Flare Gas Recovery System (FGRS) for emission reduction and energy conservation is in operation in the Refineries. BPCL is capturing data on parameters like energy, water, waste, etc. from refineries and locations across India and taking various initiatives to minimize the operational impacts on the environment. BPCL believes that transitioning to clean energy alternatives will help protect our climate and hence, it has been increasing its renewable energy capacity. The capacity has increased from 26.36 MW to 31.70 MW in FY 2018-19. Energy efficient lighting capacity has been increased from 7.54 MW to 12.66 MW in the year 201819. These initiatives have resulted in an annual reduction of 50,000 MT of CO2 equivalent approximately.

BPCL has been working towards increasing the rainwater harvesting capacity to reduce the dependency on other sources of water. The total catchment area under rainwater harvesting was 7,73,427 Sqm. which has been increased to 7,78,939 Sqm. during the year 201819. Similarly, fresh water consumed and waste water generated is regularly monitored. Effluent treatment plants are installed at BPCL refineries and the treated water is used for non-potable uses. BPCL, in its aspiration to reduce its environmental impact, has set up a Sewage Treatment Plant in collaboration with Rashtriya Chemicals & Fertilizers for treating 22.5 Million Litres /Day (MLD) of Municipal Sewage to produce 15 MLD of treated water.

BPCL has institutionalized Sustainability as a core parameter in its philosophy and is making its performance transparent and publicly noticeable on its Sustainable Development initiatives. The focus is on having enhanced energy and operational efficiency, improved processes and technologies, reduced resource consumption, minimizing the impact of operations on the environment and creating a healthy, safe and secure workplace. BPCL is one of the first organizations to publish its report in accordance with the latest framework in the oil and gas sector. BPCL started its sustainability journey in 2007-08, by adopting to Global Reporting Initiative (GRI) - G3, transitioning from GRI - G3 to GRI - G4, then to GRI Standards. The Sustainable Development Reports of BPCL are assured by an independent third- party Assurance Provider as per Accounting Ability (AA) 1000 Assurance Standard (AS) 2008 and International Standards of Assurance Engagement (ISAE) 3000.

BPCL endeavours towards improving its safety and environmental performance continuously and minimizing its operational impact on its stakeholders.

Biofuels

Ministry of Petroleum & Natural Gas has come up with a National Policy on Biofuels 2018, which aims at increasing the usage of biofuels in the energy and transportation sector of the country during the coming decades. The policy aims to utilize, develop and promote domestic feedstock and its utilization for production of Biofuels, thereby increasingly substituting fossil fuels while contributing to national energy security, climate change mitigation, apart from creating new employment opportunities in a sustainable way.

The goal of the policy is to enable the availability of Biofuels in the market, thereby increasing its blending percentage. During the year 2018-19, the Ethanol blending percentage in Petrol is around 4.8% and Biodiesel blending in Diesel is less than 0.1%. However, the Government aims to increase the Ethanol blending percentage in Petrol to 20% and Ethanol blending percentage in Diesel to 5% by 2030.

BPCL, in line with this policy, has been blending 1G Ethanol produced from molasses and sugarcane. However, the current distillation capacity in India is not enough to meet the requirement of Ethanol.

To meet the above requirements, BPCL is in the process of setting up 2G Ethanol Bio-refineries with a production capacity of 100 KLs of Ethanol per day from 400 MT of ligno-cellulosic biomass at Bargarh (Odisha), Bina (Madhya Pradesh) & Bhandara (Maharashtra). These Bio-Refineries will use agricultural wastes such as rice straw, soya stalk, wheat straw, etc. to produce fuel grade 2G Ethanol. Surplus Biomass assessment of all three locations is completed and location & feed of the biorefineries have been finalized, based on the availability of biomass feed in the region. Basic Engineering Design Package (BDEP) has been finalized with the licensor for the Bargarh 2G Ethanol project. BDEP has been released and PMC for the project is finalized. Land allotment of 58.44 acres for the Bargarh project has been received from Industrial Development Corporation of Odisha (IDCO). Environment Clearance has been received from MoEF&CC and the consent to establish the plant was received from State Pollution Control Board, Odisha.The Government of Odisha has launched the “Odisha Farmer Produced Organisation Policy” 2018 to facilitate such types of Industries. In line with the said policy, Farmer Producer Organisation (FPO) will be formed for Biomass supply in Bargarh. It is expected that the final agreement between BPCL and various cooperatives will be executed by August 2019.

Pre-project activities for Bina and Bhandara are in progress. Land for the Bina project is already available with BPCL. The EIA/RRA study for the Bina project has been completed and the request has been put up for Public Hearing for Environmental Clearance. The Biomass Survey has been completed for rice straw availability within 50 kms radius of the Bhandara project location.

2G Ethanol being a cleaner fuel, will help to reduce environmental pollution. These 2G Ethanol Bio-refineries will also help India to reduce crude oil import dependency. These capital intensive plants will help to generate employment for the local masses and be a catalyst for economic development of the villages.

BPCL has also taken initiatives in the field of production of Compressed Bio-Gas (CBG) from Biomass waste/ Biomass sources like agricultural residue, cattle dung, sugarcane press mud, municipal solid waste, sewage treatment plant waste, etc. Production of CBG has multiple advantages including reduction of import of Natural Gas, reducing emissions, aiding the rural economy, etc. In this context, BPCL had floated an EOI from October 2018 till 31st March 2019 for encouraging entrepreneurs to set up these plants. The response has been encouraging.

BPCL is carrying out a market survey for the availability of Used Cooking Oil (UCO) in Mumbai and Jaipur to assess the capacity of UCO based Biodiesel production. Various researches have revealed that if the content of Total Polar Compound (TPC) increases beyond 25% in the cooking oil when fried, the oil becomes hazardous (carcinogenic) for human consumption. Those cooking oils can be converted to Biodiesel. BPCL is in talks with Biodiesel manufacturers to encourage them to use UCO as their feedstock.

INTERNATIONAL TRADE & RISK MANAGEMENT

The International Trade and Risk Management (ITRM) set-up procures indigenous as well as imported crude oils through term and spot contracts for BPCL group refineries. ITRM also helps to bridge the gaps between domestic market demand and domestic availability of petroleum products by importing deficient products and exporting surplus products. To facilitate transportation of crude oil and petroleum products by sea, ITRM charters ships and manages shipping operations. As BPCL is exposed to volatility in international commodity prices, ITRM also carries out commodity price risk management activities to protect BPCL from any resultant adverse impact.

ITRM procured 30.43 MMT of crude oil for Mumbai and Kochi refineries of BPCL during 2018-19, as compared to 28.49 MMT during 2017-18, in line with increased processing requirement. 4.62 MMT of crude oil was procured from indigenous sources and balance 25.81 MMT was imported in 2018-19. The corresponding numbers for the previous year 2017-18 were 4.38 MMT crude oil from indigenous sources and 24.11 MMT imports.

ITRM continually looked for opportunities to diversify its crude oil sources for enhanced competitiveness and security of supplies. In such endeavours, out of 35 total grades, 8 new grades were procured during the year 2018-19, which is an all-time high. With the import of Brazilian Sapinhoa crude from Latin America, BPCL has now sourced crude oil from all 6 continents, for the first time in its crude oil procurement history. Such diversification efforts also led to a four-fold increase in crude oil import from the US, totaling 1.6 MMT in 2018-19, as compared to the previous year. However, the major source of crude oil for BPCL continues to be the Middle East.

In value terms, the cost of 25.81 MMT of crude oil imported in the year 2018-19 amounted to USD 13.48 billion (Rs. 94,275 crores), as against the cost of 24.11 MMT crude oil imported in the previous year 2017-18 amounting to USD 10.19 billion (Rs. 65,633 crores). Out of the total imports of 25.81 MMT in the year 2018-19, 22.23 MMT of crude oil was imported on FOB basis, which amounted to USD 11.57 billion (Rs. 80,753 crores) and 3.58 MMT of crude oil was imported on delivered basis, which amounted to USD 1.91 billion (Rs. 13,522 crores), as compared to total imports of 24.11 MMT in the previous year 2017-18, out of which 23.71 MMT of crude oil was imported on FOB basis, amounting to USD 9.99 billion (Rs. 64,417 crores) and 0.40 MMT of crude oil was imported on delivered basis, amounting to USD 0.18 billion (Rs. 1,215 crores). The average price paid by BPCL for crude oil imported during 2018-19 was higher at USD 70.36 per barrel, as compared USD 56.95 per barrel during the previous year 2017-18, in line with the increase in international prices of crude oil. The total foreign exchange outgo on account of imports of crude oil (including high sea sales, delivered cargos and excluding high sea purchases) in the year 2018-19 was USD 13.263 billion (Rs. 92,708 crores), as compared to USD 10.364 billion (Rs. 66,775 crores) in the previous year 2017-18.

In addition to import of crude oil, ITRM imported 3.10 MMT LPG (previous year 2.68 MMT) and 129.59 TMT of other petroleum products (Gasoline, Low Sulphur Fuel Oil (LSFO), Lube Base Oil), and petrochemical (Butyl Acrylate) during the year 2018-19 to meet the shortfall between domestic market demand and availability from indigenous sources. ITRM exported a total 1,806.36 TMT of various refined petroleum products during the year 2018-19, as compared to 1,877.72 TMT in the previous year.

ITRM in-charters vessels for transportation of imported cargoes of crude oil and LPG on FOB basis and coastal movement of crude and products. Out of the total 22.23 MMT of crude oil imported on FOB basis during the year 2018-19, 4.69 MMT (21%) was transported through Contract of Affreightment vessels, 1.31 MMT (6%) through Time Charter (TC) vessels and balance 16.24 MMT (73%) through Voyage Charter (VC) vessels. The freight cost incurred for import of crude oil (on FOB basis) during the year 2018-19 was USD 181 million (Rs. 1264 crores), as compared to USD 165 million (Rs. 1,061 crores) during the previous year. The increase in freight cost is largely on account of firming up of the freight market during the second half of 2018-19.

All crude oils and petroleum products traded globally are priced against international benchmark prices, which are highly volatile. Prices of indigenous crude oils, as well as domestic prices of petroleum products, are also benchmarked to international prices. Freight charges of ships in-chartered for transportation of imported cargoes, inclusive of charter hire rates and bunker fuel prices, are also finalized based on international benchmark prices. BPCL is therefore exposed to price risk arising from an adverse movement in prices of these commodities. In order to protect BPCL from such adverse price movements, BPCL has a comprehensive Commodity Risk Management Policy wherein the price risks have been identified and the process for monitoring, measuring, mitigating and reporting have been spelled out. During the year 2018-19, ITRM hedged BPCLs exposure to commodity price risks by hedging through commodity derivatives transactions only in the international market in the Over-The-Counter (OTC) segment, using various instruments of hedging, in accordance with BPCLs Commodity Risk Management Policy and in compliance of all relevant regulatory directives and guidelines. There was no commodity derivatives transaction in the domestic market or on Exchanges in the international market.

RESEARCH AND DEVELOPMENT

The R&D Centers of BPCL continued the trend of developing cutting edge technologies, innovative products/processes and cleaner fuels to increase the Companys profitability and reduce environmental footprints.

The Divided Wall Column (DWC) technology was successfully implemented in Kochi Refinery (KR). The implementation resulted in sharp separation, upgradation of Naphtha to ISOM feed and reduction in overall Naphtha production. Through this demonstration, BPCL became the first Indian company to design the DWC unit and successfully demonstrate the indigenously developed technology.

BPMARRK, a tool developed for rapid crude assay estimation with improved features, was made available as per the refinery demand. Refineries are extensively utilizing BPMARRK for expanding the crude oil basket.

K-Model, an innovative solution to assess processability of crude oil blends in refineries, was developed and is currently being used for crude oil compatibility analysis. This innovation has helped the refinery operations and International Trade team to purchase and process a wide range of crude oils and its blends through quick decisions.

R&D successfully developed the most efficient LPG burner with efficiency of 75%, much higher than the commercially available LPG burners, which exhibit a maximum efficiency of 68%. The existing commercialized catalyst, Gasoline Sulphur Reduction catalyst, BHARAT GSR CAT, has led to substantial value addition by producing low sulphur Gasoline.

On the product front, commercial production of Water Detecting Paste for water estimation in Ethanol Blended Motor Spirit (EBMS) and the Quick Test Method Kit for ethanol estimation in EBMS has been started. The commercial lot shall be made available to retail locations pan-India.

The successful commercial trials were performed for MAK- BIOCUT: Eco-friendly Lubricant and MAK-Freezol-S during 2018-19. Research work was carried out in developing several other products such as high-performance engine oil for high powered racing bikes, heavy-duty diesel engine oil for ultra-low emission BS VI engines, fire resistant hydraulic fluid for the coal sector, long life wheel bearing grease for heavy commercial vehicles, and universal tractor transmission fluid for farm tractors.

During the year 2018-19, various simulation models were developed for refinery units such as CDU/VDU furnace, NHT, ISOM, DHT, DHDS, hydrocracker, etc. These models helped in simulating, troubleshooting and optimizing refinery units.

The performance of in-house additives such as neutralizing amine, filming amine, demulsifier and antifoulant were successfully demonstrated in Mumbai Refinery (MR).

The R&D efforts have been well recognized in many forums. A Special Technical Award for Innovation in the Hydrocarbon Sector was bestowed upon ‘K Model in PETROTECH-2019. CRDCs indigenous cost effective dewaxing catalyst viz. BHARAT-HiCAT bagged the prestigious ‘Best Innovation in R&D Award instituted by MoPN&G in RPTM-2019. The soil rehabilitation project, Water Detecting Paste and Bharat Ecochem were adjudged winners under various categories (Environment Leadership, Additive Manufacturing and Quality Enterprise Leadership) during the Project Evaluation and Recognition Program (PREP) 2018 by Frost & Sullivan. BPMARRK received Jurys Special Mention Award in the event.

EXPLORATION AND PRODUCTION OF CRUDE OIL AND GAS OPERATIONS OF THE COMPANY THROUGH WHOLLY OWNED SUBSIDIARY

Operations of the Company

Bharat PetroResources Limited (BPRL) has participating interest (PI) in twenty six blocks of which thirteen are located in India and thirteen overseas, along with equity stake in two Russian entities holding the licence to four producing blocks in Russia. Seven of the thirteen blocks in India were acquired under different rounds of New Exploration Licensing Policy (NELP), five blocks were awarded under Discovered Small Fields Bid Round 2016 and one block was awarded during the year 2018-19 under the Open Acreage Licensing Policy Bid Round I. Out of thirteen overseas blocks, six are in Brazil, two in United Arab Emirates and one each in Mozambique, Indonesia, Australia, Israel and Timor Leste. The blocks of BPRL are in various stages of exploration, appraisal, pre-development and production phase. The total acreage held by BPRL and its subsidiaries is around 31487 km2 of which approximately 62% is offshore.

The PI in respect of Blocks in India, Israel and Australia are held directly by BPRL. BPRL has wholly owned subsidiary companies located in the Netherlands, Singapore and India. The PI in the Block-JPDA 06-103, in Timor Leste is held by BPRLs wholly owned subsidiary company in India, i.e. Bharat PetroResources JPDA Limited. The subsidiary located in the Netherlands, i.e. BPRL International BV, in turn has four wholly owned subsidiary companies viz. BPRL Ventures BV, BPRL Ventures Mozambique BV, BPRL Ventures Indonesia BV and BPRL International Ventures BV. BPRL Ventures BV has 50% stake in IBV Brasil Petroleo Limitada, which currently holds PI ranging from 20% to 40% in six blocks in offshore Brazil. BPRL Ventures Mozambique BV has PI of 10% in a block in Mozambique, and BPRL Ventures Indonesia BV holds PI of 12.5% in a block in Indonesia. BPRL, through BPRL International Ventures BV, has 30% stake in Falcon Oil and Gas BV, which holds 10% stake in the Lower Zakum concession in offshore Abu Dhabi, UAE. Further, BPRLs Singaporean wholly owned subsidiary, i.e. BPRL International Singapore Pte Ltd (BISPL) holds 33% each in two Special Purpose Vehicles (SPV) i.e. Taas India Pte Ltd (TIPL) and Vankor India Pte Ltd (VipL) along with respective subsidiaries of Oil India Ltd (OIL) and Indian Oil Corporation Ltd. (IOCL). During the year 2018-19, a consortium of BISPL and IOC formed a SPV, viz., Urja Bharat Pte Limited (UBL) in Singapore which was the Onshore Block 1 concession in Abu Dhabi.

RUSSIA

BPRL along with OIL and IOCL, jointly referred to as the Indian Consortium (IC), holds 23.9% stake in JSC Vankorneft and 29.9% stake in LLC Taas Yuryakh Neftegazodobycha (“TYNGD”). In JSC Vankorneft, Rosneft holds 50.1% shares, ONGC Videsh Ltd. (OVL) (through its subsidiary) holds 26% shares and IC (through subsidiary companies) holds the remaining 23.9%. During the year, JSC Vankorneft produced approximately 15.9 MMT of oil and 7.1 BCM of gas (BPRLs effective share being 1.25 MMT oil and 0.56 BCM Gas). During the year, IC received dividend amounting to approximately USD 250 million (with BPRLs effective share of approximately USD 82 million). In TYNGD, Rosneft (through subsidiary) holds 50.1% shares, BP (through a subsidiary) holds 20% shares and IC (through subsidiary companies) holds the remaining 29.9% shares. During the year, TYNGD produced approximately 3.26 MMT of oil and 1.2 BCM of gas (BPRLs effective share being 0.32 MMT oil and 0.11 BCM gas). IC has started receiving dividends from TYNGD. During the year, IC received dividend amounting to approximately USD 137 million (with BPRLs effective share of approximately USD 45 million).

UNITED ARAB EMIRATES (UAE)

BPRL, in consortium with IOCL, formed a 50:50 SPV viz. UBPL in Singapore, which was awarded the Onshore Block 1 concession in Abu Dhabi in March 2019 after emerging as the winning bidder in the Abu Dhabi 2018 Block Licensing Round. The award has been endorsed by the Supreme Petroleum Council (SPC) on behalf of the Government of the Emirate of Abu Dhabi and represents the continued expansion of BPCLs upstream exploration operations. The transaction marks entry of BPRL as an Operator of overseas assets for the first time, in the prospective UAE region and is consistent with its stated strategic objective of balancing its portfolio by adding exploration assets in prolific basins to its existing portfolio. The Concession has three exploration phases spread over total maximum period of 9 years effective from March 2019. During the exploration phase, the IC through UBPL will have a 100% PI and be the “Operator”.

BPRL, in consortium with OVL and IOCL acquired 10% stake in the offshore producing oil asset, Lower Zakum Concession in Abu Dhabi, UAE. The ICs share in the Lower Zakum Concession is held through Falcon Oil & Gas B.V, a SPV incorporated in the Netherlands, where BPRL holds 30% shares through its step down subsidiary BPRL International Ventures B.V in the Netherlands. The Concession has a term of 40 years effective from March 2018. The international shareholders in the Lower Zakum concession are JODCO (10%, a wholly owned subsidiary of Japans INPEX Corporation), China National Petroleum Corporation (10%), Italys ENI (5%) and Frances Total S.A. (5%). The Abu Dhabi National Oil Company (ADNOC) holds a majority 60% stake in the concession. The Lower Zakum field, located in Abu Dhabi Offshore shallow water, has been producing crude oil since 1967. The production from the field during the year 2018-19 has been 144.27 million barrels, with ICs entitlement being approximately 14.43 million barrels, while BPRLs equity oil entitlement being approximately 4.33 million barrels. The crude oil is marketed as Das Blend. BPCL Group Refineries have lifted approx. 5.1 million barrels of Das Blend Crude including BPRLs entitlement in the Concession till June 2019.

MOZAMBIQUE

BPRL, through its Netherlands based step-down subsidiary company, i.e., BPRL Ventures Mozambique B.V, holds 10% PI in the Rovuma Offshore Area 1 concession in Mozambique. Anadarko Mocambique Area 1 Limitada, a wholly owned subsidiary of Anadarko Petroleum Corporation, USA, is the Operator with 26.5% PI and the other consortium partners are Mitsui E&P Mozambique Area 1 Limited (20% ), ENH Rovuma Area Um, S.A. (15%), OVL (10%), Beas Rovuma Energy Mozambique Limited (10%) and PTTEP Mozambique Area 1 Limited (8.5%). With the discovery of approximately 75 trillion cubic feet of recoverable natural gas, the Area 1 partnership is going ahead with an initial plan for the development of an integrated onshore LNG project consisting of two liquefaction trains with total nameplate capacity of 12.88 MMTPA (2 x 6.44 MMTPA) in the Afungi peninsula, Cabo Delgado province, northern Mozambique, utilizing the gas from the offshore Golfinho-Atum field. The Area 1 partnership has achieved a number of major milestones which have positioned the two-train Golfinho-Atum project to be Mozambiques first onshore LNG project. The partnership continued with the implementation of the Resettlement program and onshore site preparation activities to de-risk the project schedule as much as possible ahead of FID. With necessary approvals from the Government of Mozambique in place, securing eight long-term LNG Sale and Purchase Agreements for an overall off-take volume of approximately 11 MMTPA and receiving project financing commitment from lenders, the Area 1 Concessionaires announced Final Investment Decision (FID) on the two-train onshore LNG Project in June 2019. During the year, Area 1 group has also been designated as the first mover constructing entity for the construction of the marine facilities, namely, LNG Marine Terminal and Material Offloading Facilities which will be shared with adjacent Area 4 group.

BRAZIL

IBV Brasil Petroleo Limitada (IBV) (incorporated in Brazil), a joint venture company of BPRL Ventures BV, and Videocon Energy Brazil Ltd, step down subsidiaries of BPRL & Videocon Industries Limited respectively, holds PI in six blocks in three concessions in Brazil.

In Sergipe Alagoas (BM-SEAL-11) concession, which currently consists of three blocks, Petrobras is the Operator with 60% PI and IBV holds the remaining 40% PI. During the exploration periods, four discoveries of oil and gas i.e. ‘Barra, Tartan, ‘Cumbe and ‘Barra#1 have been made in this concession. Presently, the consortium is carrying out appraisal activities in three appraisal plans namely “Barra”, “Farfan”,& “Cumbe” in blocks SEAL-M 426 and SEAL-M 349 which are valid till 1st December 2020. The Block SEAL-M 497 wherein Poco Verde appraisal plan was in progress, is proposed for relinquishment by the Operator. The Operator i.e., Petrobras is taking steps for assessing reservoir extent including extended well testing in Farfan and based on the results of the appraisal further development activities would be commenced.

In Potiguar (BM-POT-16) concession, Petrobras is the Operator with 30% PI, the other partners are IBV (20% PI), Petrogal (20% PI) and BP (30% PI). The minimum commitment activities have since been completed, including drilling of one exploration well called “Ararauna” in POT-M-760. Based on the oil and gas shows observed in Ararauna well, ANP has approved Ararauna appraisal plan, covering both the blocks in BM-POT-16 concession, consisting of firm commitment of drilling one well and G&G studies. The Regulator ANP has approved the postponement of deadline of Ararauna Appraisal Plan till November 2021. There are number of sizable prospects identified based on the old 3D seismic data interpretation. To mature these prospects to drilling, consortium has completed acquisition of new 3D seismic data and the same is being analysed for better understanding of fault entrapment. The new 3D seismic study will help to reduce the risk/ uncertainty involved in fault entrapment.

In Campos (BM-C-30) concession, during the exploration period, Wahoo discovery was announced. After the completion of the exploratory period in November 2010, the consortium decided to move on to Appraisal phase. Under the Appraisal plan, drilling of two firm Appraisal wells, screening of Development concepts and Pre- FEED engineering studies on identified facility options were completed. ANP has, in March 2016, approved the extension of Wahoo Appraisal Plan from September, 2015 to June, 2022. The operator M/s Anadarko resigned from the operatorship and withdrew from the concession contract in March 2018. BP has been selected as the new Operator and formal approval is being obtained from the Regulator for PI redistribution and appointment of new Operator. Post redistribution of Anadarkos PI, IBV Brasil and BP will have 35.7% PI each and TOTAL will have 28.6% PI in the concession. The consortium is in the process to study various available options including possible tie back arrangement with nearby developed oil fields before any firm commitment is made towards field development. The objective is to address all the uncertainties involved in the project to facilitate a commercially viable field development option.

INDONESIA

A subsidiary of BPRL, i.e. BPRL Ventures, Indonesia BV, has PI of 12.5% in Nunukan Block in Indonesia. Other Joint Venture (JV) partners are PT Pertamina Hulu Energi with 64.5% PI as Operator; and Videocon Indonesia with 23% PI. There has been discovery of oil and natural gas in Badik 1 and West Badik-1 wells. Based on the discoveries in Badik & West Badik Fields, the Plan of Development (POD-1) of these fields has been approved by the Ministry of Energy and Mineral Resources, Indonesia. The exploratory well, Parang-1 drilled in 2017, has a discovery of gas in five zones and oil in one zone which was also ranked amongst the Top 10 discoveries of the world for 2017 by IHS Markit. Front End Engineering Design (FEED) for Badik & West Badik Development and the 3D seismic acquisition over Parang & adjoining prospects have been completed during the year 2018-19. The appraisal of the Parang discovery and further exploration in the adjoining prospect (Keris) to enable an integrated development of the fields is being planned during the year 2019.

ISRAEL

BPRL acquired 25% PI in the License of exploration Block 32 awarded to the IC in the 1st Offshore Bid Round 2016, conducted by the State of Israel. OVL is the Operator while IOCL and OIL are the other partners in the block, each having a PI of 25%.The seismic and other G&G data acquisition, reprocessing /interpretation of data etc. is currently in progress under the license area.

AUSTRALIA

BPRL farmed into EP - 413 (on-land) Shale Gas Block, in December 2010 and currently has a PI of 27.803% in the block in consortium with Norwest Energy NL, and AWE Perth Pty Ltd. (formerly known as Arc Energy Ltd), 100% subsidiary of Australia Worldwide Exploration. The operator for the block is Norwest Energy who has a PI: 27.945% in the block. An exploratory well Arrowsmith -2 was drilled in May 2011. This Block is being explored for Shale gas/tight gas. As a part of the work commitment, acquisition of 3D seismic data has been carried out over 105 sq kms of the block area. The processing and interpretation of 3D Seismic data that was acquired earlier has been completed during the year. Further activities in the block will be commenced once the Regulator issues the revised regulations. The work commitments of permit year 3 have been swapped by the work commitment of permit year 4. The permit is currently due to expire on 22.02.2022.

TIMOR LESTE

BPRL, through its wholly owned subsidiary, Bharat PetroResources JPDA Limited, currently holds 20% PI in the Block JPDA 06-103. The other consortium members are Videocon JPDA 06-103 Limited & GSPC JPDA Limited, both holding 20% PI, Pan Pacific Petroleum (JPDA 06-103) Pty Limited holding 15% PI, Oilex Limited (as Operator) holding 10% PI and Japan Energy E&P JPDA Pty Limited holding 15% PI in the said block. The Joint Venture (JV) had submitted its request to ANP for termination of Production Sharing Contract (PSC) without claim or penalty. ANP, however rejected the claim of the JV and delivered its notice to terminate the PSC imposing Contractors Liability upon Termination. The JV, while accepting the termination, requested for negotiation for amicable settlement of contractors liabilities upon termination. As no consensus could be achieved during negotiations, ANPM initiated Arbitration Proceedings against the JV in the International Chamber of Commerce under the provisions of PSC and the Arbitration Proceedings are under progress.

INDIA

Under NELP-IX bid round, BPRL led consortium was awarded one on-land block CB-ONN-2010/8, in Cambay basin. BPRL is the Lead Operator with 25% PI and the other consortium partners are GAIL (India) Ltd - 25% PI (Joint. Operator), Engineers India Ltd (EIL) - 20% PI, BF Infrastructure Ltd (BFIL) - 20% PI and Monnet Ispat & Energy Ltd (MIEL) - 10% PI. Due to MIELs cash call payment default under the JOA, the other non-defaulting parties have agreed to distribute MIELs 10% PI in proportion to their existing share for which a request has been submitted to Director General of Hydrocarbons (DGH) and the same is under approval. There are two oil discoveries in the block CB-ONN-2010/8 in exploratory wells - Pasunia#01 (PA#01) and Pasunia#02 (PA#02). The Field Development Plan (FDP) was approved by DGH/ Management Committee in June 2018. At present, FDP is being implemented as an Exclusive Operation by BPRL (50%), GAIL (27.78%) and EIL (22.22%). The PI assignment for Exclusive Operation is under approval by the Government of India (GOI). The Petroleum Mining Lease (PML) of the Pasunia discovery has been granted by Government of Gujarat for a period of 15 years for the entire block area. Significant development has taken place towards grant of Environment Clearance (EC) by Ministry of Environment and Forest for carrying out development activities. Presently, various tendering activities are also in progress towards implementation of FDP.

Under Open Acreage Licensing Policy (OALP) Bid Round 1, block CB-ONHP-2017/9 in Cambay basin was awarded to BPRL and the Revenue Sharing Contract (RSC) of the block was signed with the GOI in October 2018. Application for grant of PEL has been submitted and the approval is awaited. Seismic reprocessing of existing raw 3D data is in progress. Further, pre-drilling Environmental Impact Assessment (EIA) study is in progress, which is required for EC for drilling of exploratory wells.

BPRL has also been awarded five Contract Areas (two offshore and three onshore) through the Discovered Small Field (DSF) bid rounds of 2016. The two offshore blocks (B15 and B127E) are in the Mumbai Offshore basin, two in Rajasthan (Bakhri Tibba and Sadewala) and one in Cauvery Basin, Tamil Nadu (Karaikal). PML has been received for all fields except for Karaikal. Based on the G&G studies a techno-commercial analysis was carried out for the Contract Areas B15, B127E, Bakhri Tibba and Sadewala. The report has been submitted to DGH and is awaiting the approval of the Management Committee in this regard.

BPRL has a PI of 40% in an On-land Block CY-ONN-2002/2 in Cauvery Basin wherein ONGC is the Operator with 60% PI. During the exploration phase, the consortium has made one oil discovery viz. Madanam Oil Discovery. The block currently has six producing wells with a combined daily average oil production of 1890 BBLs. During the year 2018-19, 691,506 barrels (109,941 m3) of oil and associated gas of 25,491,209m3 has been produced from the block. Other developmental activities in the block like setting up of Crude Processing Facility and laying of pipelines are in progress.

The GOI, during 2004, awarded on-land block, CY- ONN-2004/2, Cauvery Basin, to the consortium of ONGC and BPRL. A PI of 20% is held by BPRL in this block with ONGC holding 80% PI as the operator of the block. The consortium has completed drilling of four exploratory wells and two appraisal wells as on date. Out of the four exploratory wells drilled, one Well (PN#8) produced oil and gas during testing, and was declared as discovery well. With the approval of FDP by the Management Committee, the block has entered into the Development Phase effective 13.7.2017.

BPRL has a PI of 33.33% in RJ-ONN-2005/1, an On-land block in Rajasthan, in consortium with Hindustan Oil Exploration Corporation (HOEC), BPRL, IMC Limited and Jindal Petroleum Limited (JPL). HOEC is the Lead Operator and BPRL is the Joint Operator of this block. The Phase I of exploration period including all granted extensions expired on 12.10.2015. All the Minimum Work Program (MWP) commitments except drilling of six wells have been completed in the block. The drilling of exploratory wells was delayed because of inordinate delay in obtaining Ministry of Defence (MoD) clearance and environmental clearance. The lead operator HOEC expressed interest to withdraw from the block. BPRL and IMC have submitted joint proposal for recommencement of exploration activities in the block in order to complete the MWP. The proposal is under consideration by dGh.

In the Cambay Basin, CB-ONN-2010/11, an On-land block was awarded by GOI to a Consortium consisting of GAIL, BPRL, EIL, BFIL and MIEL. GAIL with 25% PI is the Operator of the block. BPRL with 25% PI is the Joint Operator of the block. The Declaration of Commerciality for the discovery Galiyana#1 was approved by Management Committee on 10.04.2019. Operator is in the process of submitting FDP for the same.

In the Assam Basin, AA-ONN-2010/3, an On-land block was awarded by GOI to a consortium consisting of OIL, ONGC and BPRL. OIL, with 40% PI is the Operator of the block, while BPRL and ONGC hold 20% and 40 % PI respectively. Pre-drilling activities for the committed MWP well are currently in progress.

MB-OSN-2010/2, a shallow water offshore block in Mumbai Offshore basin was awarded by GOI to a consortium consisting of OIL, HPCL and BPRL. OIL with 50% PI is the Operator of the block. BPRL has 20% PI in the block. The Seismic Data which was interpreted in-house as well as by independent consultants showed that the prospectivity of the block is not encouraging to proceed with further exploration in the block; hence, it was decided to relinquish the block. The proposal for relinquishment of the block was submitted by the consortium to DGH and the same has been approved.

BUSINESS PROCESS EXCELLENCE CENTRE (BPEC)

During the year, BPEC processed 4.5 lakh vendor invoices amounting to Rs. 14,700 crores. There was a significant improvement in the processing cycle, with almost 70% of the invoices being processed within 7 days of receipt at BPEC. Digital Invoice Management was implemented in October 2018, wherein the vendors can submit the invoice through the vendor portal, thereby reducing the cycle time required for invoice processing. The Trade Receivables Discounting System was implemented in December 2018 for MSME vendors to discount their invoices. During the year, 405 invoices valuing Rs. 30 crores were discounted successfully. BPEC encouraged the vendors to obtain the Bank Guarantees under the SFMS platform (Structured Financial Messaging System), thereby reducing the time required by the banks for confirming the same.

BPEC started with the process of centralized customer account Matching and Clearing, Collection and Dispute Management in September 2018 for Retail and LPG Business Units. This has resulted in effective controls over customer account management. Going forward, the processes of customer credit management, processing of debit/credit notes and customer refund requests will come under the BPEC fold.

BRAND & PUBLIC RELATIONS

In building the brand image of BPCL, Corporate Brand & PR worked relentlessly through the year, crossing many milestones. Several accolades received by the team justified the work aimed by it. Focus areas of the brand team during the year were initiatives instituted by the Government of India like PMUY and PM LPG Gram Panchayat, MOP&NG e-Seva etc; Brand building through the digital media, internal engagement, Below the Line (BTL) activities and social responsibilities.

On the initiatives initiated by the GOI, the following activities were relentlessly pursued:

MoPNG e-Seva: BPCL has been chosen to coordinate a Digital Initiative ‘MOPNG e-Seva, a social media based grievance redressal platform of Ministry of Petroleum & Natural Gas to resolve oil & gas complaints. A total of 33,620 queries were received and resolved on MoPNG e-Seva as on 31st March, 2019.

PMUY and PM LPG Panchayat Campaigns : Various campaigns were launched to disseminate information and create awareness about PMUY and PM LPG Panchayat. These effectively helped to achieve release of over 7 Crore LPG Connections under PMUY since 1st April, 2016.

The following activities were initiated to mark BPCLs digital media presence:

Active Social Media Presence

Bharat Petroleum has amplified its presence on social media through a plethora of digital initiatives and campaigns. Brand BPCL was propagated through leveraging of BPCL owned social media assets like Twitter, Facebook, LinkedIn and YouTube. The major campaign of

‘Star PSU Award was launched on Facebook and Twitter to create buzz about the coveted achievement. With a view to engage with the younger generation, a Corporate Instagram account has been started. With all these concerted efforts, BPCL has developed a vibrant and active social media culture with a strong follower base of over 8.6 lakhs and more than 100 lakh impressions.

Online Reputation Management (ORM)

Leveraging the power of technology, customers have shifted to the conveniences of digital and social media for posting their complaints. BPCL accords top priority to resolution of complaints raised via these modes. ORM is a powerful online listening and responding tool to augment the equity of Brand BPCL. Armed with the robust ORM tool, BPCL is equipped to monitor and respond to around 20,000 conversations received across the Internet every month. Moreover, the ORM tool is being used effectively to monitor feedback, suggestions and complaints and also to facilitate decision making through analysis of reports on parameters like demographics and sentiment.

The following activities were initiated towards employee engagement:

Brand Quiz Baadshah

‘Brand Quiz Baadshah a knowledge enhancement proprietorship initiative, is aimed at increasing knowledge on brands through the quizzing route. 12,646 participants, of which 6320 employees and 6326 channel partners took part in the initiative. The objective of this mammoth event was about bringing in inclusive knowledge growth within the BPCL fraternity. BPCL Brand Quiz Baadshah - 2018 was adjudged as the largest Corporate Brand Engagement Program in Asia for employees and channel partners (Retail Outlet dealers, LPG Distributors, Lube Distributors) and justifiably entered the Asia Book of Records and India Book of Records in 2018.

BPCs Got Talent

Corporate Brand and PR had initiated the ‘BPCs Got Talent competition on our In-house radio - BPC Tarang. The objective of this initiative was in line with BPC Tarangs motto of Energise, Engage and Entertain. This employee engagement initiative connected staff across regions, cadres, languages and cultures. This also created a feeling of oneness and brought employees together.

On the BTL activities, BPCL focussed on major exhibitions to build brand image:

Vibrant Gujarat Global Trade Show 2019

BPCL showcased opportunities for business associations and offerings of its Businesses and Refineries at its pavilion at the Vibrant Gujarat Global Trade Show 2019 from 18th to 22nd January 2019 at Gandhinagar. The Trade Show, which had participation from over 1000 companies and attracted over 20 lakh visitors, was inaugurated by Honble Prime Minister, Shri Narendra Modi. The BPCL pavilion was visited by many senior delegates from India and abroad.

PETROTECH 2019

The Conference and Exhibition of the XIII edition of PETROTECH, organized by PETROTECH Society under the aegis of MOP&NG from 10th to 12th February, 2019, had 7000+ delegates from over 70 countries. BPCL showcased opportunities for business associations and the offerings of various Businesses and Refineries at its corporate pavilion. Developed on the four pillars of Honble Prime Ministers vision for the Energy Future of India - Energy Access, Energy Security, Energy Sustainability and Energy Efficiency, the pavilion was accorded the Winner for the Best Display at the exhibition.

Corporate Brand team also focused on its social responsibilities through the following:

Community Building

As a good corporate citizen, BPCL sponsored many events like the Mumbai Infrastructure Global Solutions Summit 2018, Corporate Governance Summit, Global Sustainable Aviation Fuels Summit, TB Free India Summit, Labour Summit, CII 8th National PR Conclave, CII MSME Conclave, 44th National Competition for Young Managers by AIMA, 22nd All India Police Golf Tournament by Border Security Force and International Art Summit, among several others.

BPCL also participated in many major conferences like the 23rd Refinery Technology Meet (RTM) by Centre for High Tech, CERA Conference by FIPI, 16th National Conference by Engineering Council of India, 40th All India Public Relations Conference by Public Relations Society of India, R&D Conclave by FIPI, and 13th International Conference on Corporate Social Responsibility by Institute of Directors.

As a Corporate, working towards uplifting the weaker sections of society, BPCL regularly contributes to various fund-raising events organized by NGOs and cultural events organized by various associations like National Society for the Blind, The Blind Welfare Association for National Blind Cricket Tournament 2019, Antarchakshu by Xaviers Resource Centre for the Visually Challenged and many others.

On the sports front, BPCL has sponsored various tournaments. To name a few are: 17th Delhi International Grandmasters Chess Tournament by Delhi Chess

Association; Adventure Racing World Series Expedition India; AIBA Womens World Championship 2018 by Boxing Federation of India, amongst others. In addition, BPCL sponsored many college festivals to encourage the youth to participate in cultural activities and organize such events on campus.

BPCL Energising Lives : Case Study Challenge

BPCL associated as title sponsor with a Case Study Challenge at Faculty of Management Studies (FMS), Delhi University, to build Brand Equity for BPCL amongst the student community. Similar initiatives have been undertaken by them in other management colleges, such as Somaiya Institute of Management Studies and Research, Mumbai, S.P. Jain Institute of Management and Research, Mumbai and SRCC, Delhi University. BPCL intends to bring the academia and industry closer for a win-win solution, which incorporates fresh ideas from millennials on contemporary business issues like brand building in current times.

AWARDS & RECOGNITION

In the prestigious Fortune Global 500 list for 2019, BPCLs rank is 275, a jump from last years 314. BPCLs rank is 628 in the Forbes Global 2000 list for 2019, a considerable rise from the rank of 672 in the 2018 list. For its outstanding global, financial and industry performance, BPCL has been ranked among the top 20 Oil and Gas Refining and Marketing companies in the Platts Top 250 Global Energy Company Rankings for 2018. BPCL ranks 6th in Oil & Gas Refining and Marketing in the Asia/Pacific Rim, 9th in Oil & Gas Refining and Marketing globally and 13th in overall performance in the Asia/Pacific Rim. On an overall global performance, Bharat Petroleum has been ranked 41st.

BPCL was recognized by India Inc. with the ‘SKOCH Award for Corporate Excellence 2018 under the category ‘Market Leadership, for maintaining its market share and high brand equity.

Mumbai Refinery (MR) received the Innovation Award 2017-18 by MOP&NG for the Best Innovation in Refinery Team for production of de-aromatized solvent [D-80] in LOBS unit using narrow cut Kerosene as feed from Hydrocracker Unit. MR was also bestowed with an OGCF Award for achieving the Best Improvement in Furnace Efficiency among the PSU refineries. MR has been conferred with the “Leaders Award” under the prestigious “Sustainability 4.0 Awards - 2018”, conducted jointly by Frost & Sullivan and TERI (The Energy & Resources Institute). MR has also been adjudged as the winner of the ‘MQH - Best Practices Competition under the Manufacturing category, conducted by IMC Ramkrishna Bajaj National Quality Award (RBNQA) Trust, Mumbai.

MR received the prestigious Dun & Bradstreet - Infra Award 2018 in the Industrial Plants category for its Diesel

Hydro Treatment (DHT) project, signalling international recognition in the field of Project Management & Execution. In addition, MR was awarded the prestigious FIPI (Federation of Indian Petroleum Industry) 2017 trophy for completing the DHT Project ahead of the time schedule with cost savings, while maintaining quality and safety standards during its implementation. MR was also recognized with the Runner-up Award in the category ‘Project of the Year-Large Category (Project costing more than 1000 crores) by the Project Management Institute (PMI), India.

In recognition of MRs commitment towards Business Excellence and Manufacturing Competitiveness, International Research Institute for Manufacturing (IRIM) has conferred MR with the Gold Award - (Special category) under the prestigious ‘National Awards for Manufacturing Competitiveness (NAMC) 2017-18, along with a special award for ‘Strategic Leadership. MR has been conferred with two prestigious awards for Excellence in Energy Conservation and Human Resources Management by Indian Chemical Council (ICC), Mumbai.

Kochi Refinery (KR) bagged the prestigious Apex India Foundation Occupational Safety and Health Platinum Award for the Best Safety Practices (HSE) in the Propylene Derivative Petrochemical Project (PDPP) for the year 2018. KR was also awarded the Apex Gold Award for Environmental Excellence in Operations for the year 2018. KR bagged the Kerala Management Association (KMA) CSR Award 2018 for “Child & Elderly Care” and Runners up for “Environment & Greenery” in the Public Sector.

KR has been conferred with the highest award in the State for Energy Conservation - the Kerala State Energy Conservation Award 2018 in the category of Large Scale Energy Consumers in Kerala. KR won the Technology Excellence Award 2018 instituted by the Indian Technology Congress Association (ITCA), in recognition of the significant interdisciplinary engineering contribution to the commissioning of the Integrated Refinery Expansion Project and positioning KR as the largest public sector refinery in India. KR was adjudged the Winner in the category of HSE Excellence in the Oil & Gas sector at the India HSE Summit Awards 2018 by M/s. Synnex, Mumbai.

BPCL won six Public Relations Society of India (PRSI) National Awards for Excellence in the field of Communications and Public Relations and overall performance in the categories of Best Public Sector Organization, Best Communication Campaign (Internal Publics) for Brand Quiz Baadshah - 2018, Annual Report, Best Employee Communication Program for BPC Tarang (Internal Radio), Best Use of Social Media Campaign and Best PSU Implementing RTI.

BPCL bagged the Winner Award in the category “Strategy Excellence in Raw Material Procurement” at the Manufacturing Supply Chain Summit 2019, organised by Future Supply Chain, Mumbai. BPCL won the Finalist position in the SAP Solution Manager Excellence Award 2019 given by INDUS, SAP user Group for the Indian subcontinent, which allows SAP and SAP users to exchange information of mutual interest and share experiences, knowledge and ideas.

Corporate HSSE has received the Corporate Governance Award from Indian Chamber of Commerce in recognition of the excellent performance demonstrated in the area of Corporate Governance & Sustainable Development and for nurturing innovation. BPCL received the ‘Golden Peacock Award 2018 for ‘Excellent Corporate Governance from the Institute of Directors for its stellar achievement in meeting a high level of commitment to all stakeholders, while conducting its governance in a fair, transparent and ethical manner.

International Trade Department received a Recognition Award from Mumbai Customs for consistency in maintaining the highest standards of Corporate Governance including complying with Customs laws and other regulations.

BPCL was conferred with the prestigious Golden Peacock Award 2018 for CSR for its initiative, “Solid Waste Management project in Chennai” and SKOCH Silver Award for Leadership in the Oil and Gas Sector in the CSR Category for Project Boond on water conservation.

SLC Maharashtra was awarded the All India First prize for ‘Best Performance Award in National Level Competitions for SAKSHAM 2018 for setting an all-time record of enrolling 15.35 lakh students.

BPCL won the Gold Award for our Corporate Website and the Silver Award for our Wallpaper at the Annual Awards of the Association of Business Communicators of India (ABCI).

Chennai LPG Bottling plant was conferred with the ‘Star Award for demonstrating the Best Health & Safe Practices with Nil LTA for the year 2016 by the National Safety Council, TN Chapter, Chennai. Cherlapally LPG Plant won the International Association for Management of Technology (IAMOT)s Industry Innovation Award in the category of ‘Relevant and Significant Process Innovation for the ‘Closed Loop Automated Fire Fighting System. BPCL Rajasthan (Jaipur LPG Plant, Ajmer LPG Plant, Bikaner LPG Plant and Jobner Installation) bagged four Factory Safety Awards 2019 for the best Plants in the industry for implementation and compliance of factory rules at their establishments.

The project “Railway Siding at Irugur, Coimbatore” was conferred the Winners Trophy in the category of “Project Excellence Award” as well as the “Young Project Professional Award” in the “Project Management World Summit & Awards” held at Mumbai. Trivandrum AFS received the Award for “Outstanding Performance in Industrial Safety” in the Medium Industries Category from the Factories & Boilers Department, Government of Kerala. Bhubaneswar AFS won the Kalinga Safety Award - 2017 (Gold) in the category of Oil Depots in Odisha from Institute of Quality & Environment Management Services, Bhubaneswar.

INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY

The Corporation has a robust internal control system (including Internal Financial Controls over Financial Reporting) that facilitates efficiency, reliability and completeness of accounting records and timely preparation of reliable financial and management information. The internal control system ensures compliance with all applicable laws and regulations, facilitates an optimum utilization of resources and protects the Corporations assets and interests of investors. The Corporation has a clearly defined organizational structure, well documented decision rights, detailed manuals and operating procedures for its business units and service entities to ensure orderly and efficient conduct of its business. The internal control systems (including Internal Financial Controls over Financial Reporting) are reviewed on an ongoing basis and necessary changes are carried out to align with the changing business/statutory requirements.

A state-of-the-art ERP solution (SAP) and Business Information Warehouse has inbuilt controls including the authorization controls. This further enhances controls and seamless exchange of information with access controls. The SAP systems will provide an audit trail of the transactions. The Corporation has a whistle blower policy and anti-fraud policy to address fraud risk.

The Corporations independent Audit function, consisting of professionally qualified persons from accounting, engineering and IT domains, review the business processes and controls to assess the adequacy of the internal control system through risk focused audits. The Internal Audit Department plans the annual audit plan to cover various aspect of the business. The audit reports published by the Internal Audit Department are shared with the Statutory/Government Auditors, who review the efficacy of internal financial controls. Key business process changes have been reviewed by the internal team before implementation.

The Audit Committee of the Board regularly reviews significant findings of the Internal Audit Department covering operational, financial and other areas and provides guidance on internal controls.

DETAILS OF SIGNIFICANT CHANGES IN KEY FINANCIAL RATIOS

In accordance with the SEBI (Listing Obligations and Disclosure Requirements) (Amendment) Regulations, 2018, the details of significant changes (change of 25% or more as compared to the immediately previous financial year) in key financial ratios along with detailed explanations are given below :

S. No. Ratio Type 2018-19 2017-18 Variation (In %) Explanation for changes
1. Debtors Turnover Ratio 56.91 times 55.78 times 2.03%
2. Inventory Turnover Ratio 15.86 times 13.59 times 16.70%
3. Interest Coverage Ratio 11.33 times 17.73 times -36.10% The interest coverage ratio has declined during current year as compared to previous year by over 36% mainly on account of substantial increase in finance cost from Rs. 833.25 Crores to Rs. 1,318.96 Crores on account of increased borrowings and cost of borrowings.
4. Current Ratio 1.12 times 1.02 times 9.80%
5. Debt Equity Ratio 0.79:1 0.68:1 16.18%
6. Operating Profit Margin (OPM) (%) OPM=(Profit Before Tax minus Other Income) / Sales 2.22% 3.03% -26.73% The operating profit margin ratio has declined by over 25% mainly on account of reduced operating profit and substantial increase in sales value on account of increase in international crude and finished products prices.
7. Net Profit Margin (%) 2.12% 2.89% -26.64% The net profit margin ratio has declined by over 25% mainly on account of reduced profit after tax and substantial increase in sales value on account of increase in international crude and finished products prices.
8. Return on Net Worth (%) 19.41% 23.41% -17.09% The return on net worth has declined by over 17% mainly on account of reduced profit after tax.