DIRECTORS' REPORT Dear Shareholders, On behalf of the Board of Directors, it is our privilege and honour to present the seventeenth Annual Report and the Audited Accounts of your Company for the financial year ended 31st March, 2015. PHYSICAL PERFORMANCE Inspite of challenges being faced in the international LNG markets due to a sharp decline in the prices of crude oil, your Company was able to achieve the utilization of the Dahej terminal at its nameplate capacity of 10 MMTPA. The LNG prices in the spot markets declined sharply due to the declining crude prices. However, the prices under the long-term contract, which have benefitted the Indian consumers for the past decade, will take longer time to align with the current market prices due to the formula of the contract. This has led to a decline in the RLNG off-take by the Petronet off-takers - GAIL, IOCL and BPCL - citing low acceptability of the RLNG prices among their consumers. This low off-take situation is expected to continue in the next year. Company is, therefore, urgently working on plans to alleviate the situation. During the financial year 2014-15, Dahej Terminal handled 154 LNG cargoes and supplied 520.78 TBTUs of re-gasified LNG, 2666 LNG road tankers were loaded and dispatched during the year under review. A highlight of the year was berthing of a Q-Max cargo at the Dahej Terminal. A Q-Max cargo is the largest available LNG vessel in the World today and can carry upto 260,000 cubic meters of LNG which is almost double of the conventional cargo size. With the receipt of a Q-Max cargo at Dahej during December 2014, your Company established another benchmark demonstrating versatile technical capability to handle cargos of a variety of sizes. Prior to this, the Dahej terminal had been regularly receiving the Q-Flex cargos carrying 210,000 cubic meters of LNG. Employees at Q-Max cargo at Dahej Terminal Kochi Terminal completed its first full year of operations since commissioning. Limited availability of the pipeline network for gas evacuation remains a concern leading to the plant operating at very low capacity utilization. 6 cargoes (including 2 re-load cargoes) were brought to the Kochi Terminal during the full year. FINANCIAL PERFORMANCE During the period 2014-15, your Company achieved its highest ever turnover of Rs. 39,501 Crores as against Rs.37,748 Crores in 2013-14, the net profit during the year stood at Rs. 883 Crores as against Rs. 712 Crores in the previous year. The capacity utilization at the Dahej Terminal was 102.1% during the year under review, while the Kochi Terminal operated at a capacity utilization of 2.1%. A summary of the comparative financial performance in the fiscal 2014-15 and 2013-14 is presented below: DIVIDEND Keeping in view the performance and dividend policy of the Company, the Directors are pleased to recommend a dividend of 20% on the paid-up share capital of the Company for the year ending 31st March, 2015. FINANCING OF PROJECTS Petronet has been able to raise the required debt for its large capital expenditure since its formation. The initial Dahej project of 5 MMTPA capacity, its expansion to 10 MMTPA, the Kochi LNG Terminal, the second jetty and now further expansion of the Dahej terminal to 15 MMTPA have required substantial borrowings - both in Indian Rupees as well as in foreign currency. Best CFO Award being received by Shri R. K. Garg, Director (Finance) Taking advantage of the availability of cheaper options in the markets, your Company refinanced its Rupee term loans by substituting these with low cost Rupee Bonds in the Indian markets for an amount of X 1,000 crore. These initiatives show the strength of the balance sheet of your Company, its credibility and the good relationship it enjoys with the lending community. Inspite of the challenging times, your Company has maintained its high credit rating with the domestic as well as international rating agencies. LNG SOURCING You are aware that your Company has signed long-term supply contracts for LNG imports with RasGas, Qatar and Mobil Australia Resources Company (MARC), Australia. While the LNG supplies from Qatar commenced in 2004, the Australian LNG from Gorgon is expected to hit the Indian shores in 2016. Due to sharp decline in crude prices, the price of LNG under RasGas long term contract having linkage to 60 months JCC average is on the higher side visa-vis other term LNG and spot LNG leading to lower off-take by consumers. Your Company is working to mitigate impact of high priced LNG due to sharp decline of crude oil prices along-with off-takers GAIL, IOCL and BPCL. Visit of MD & CEO of Ras Gas at Kochi Terminal Besides the long-term LNG contracts, your Company also buys LNG on spot and short-term basis from many international players. It is always in touch with the suppliers to secure LNG at an affordable price for the Indian markets. FURTHER EXPANSION OF DAHEJ TERMINAL You are aware that the Dahej LNG Terminal is being further expanded from 10 MMTPA to 15 MMTPA. As on 31st March, 2015, the expansion project has achieved 56.05% progress. The construction activities continue as planned and the project is expected to be completed by end 2016. Your Company is looking at further expansion of Dahej terminal to 17.50 MMTPA and is in process of finalising business model for the same. Detailed Feasibility Report has been prepared and Front End Engineering design is under progress. SHIPPING ARRANGEMENTS Three LNG ships, namely 'Disha', 'Raahi' and 'Aseem' carry the entire LNG volume from RasGas under a long-term contract to Dahej. Shipping Corporation of India (SCI) is an equity partner in the ship-owning companies and all three ships are manned, managed, maintained and operated by SCI. The ships operate on a long-term time charter basis. During FY2014-15, the overall shipping operations at Dahej LNG terminal have run smoothly and the jetty utilization has been very good without any downtime. Construction of a ship to carry LNG from Australia under a long-term agreement is in progress as per schedule. A consortium of companies, namely, MOL NYK, K-Line and The Shipping Corporation of India (SCI), will own this ship. PLL has right to subscribe upto 26% equity in this LNG ship. The ship will be delivered to PLL in November 2016 and will be used primarily to transport LNG from Gorgon, Australia to Kochi. As is the case with the first three ships, the fourth ship will also be manned, managed, maintained and operated by SCI. LNG TERMINAL AT KOCHI Kochi terminal continued to operate at low loads due to lack of evacuation pipelines with no substantial progress in Phase II pipelines work. There are very few customers being serviced as of now with Phase I of the pipeline network, limited to only about 45 Kms. Until Phase II segment of the pipeline is completed, the terminal capacity will continue to be grossly underutilized. To enhance the capacity utilization at Kochi, your Company has been trying to offer innovative solutions to international LNG players. During the year under review, the Company offered and undertook new value added activities relating to unload and re-export of LNG, cool down, gassing up and bunkering fuel. A total of four cargoes were unloaded during the year. Two such cargoes were re-exported during the year. As part of providing more value added activities, Kochi terminal also successfully provided LNG as bunker to a small vessel. Gassing up and Cooling down activities have also been carried out in the month of April 2015. EAST COAST TERMINAL AT GANGAVARAM Your Company initiated the process to revalidate the demand and the commercial structure for the proposed terminal at Gangavaram. Primary market assessment has been carried out. Discussions on pipeline connectivity with the pipeline owners have continued. Many international LNG suppliers have shown interest to participate in this project. Your Company is in the process to have a robust commercial structure in place before seeking approval of the Board to committing funds to this project. The Company is, however, bullish on the demand potential of that region and believes that it is best suited to set up the terminal and serve the consumers in that region. DIRECT MARKETING OF LNG THROUGH ROAD TANKERS The first direct customer of your Company for supply of LNG by road tankers is Hindustan Lifecare Ltd (HLL), Trivandrum and supplies have commenced from September 2014. Your Company is in discussions with other potential industrial customers who are not connected with pipeline for supplies of LNG by road tankers Inaugration of LNG supply by road to HLL WIND POWER PROJECT IN GUJARAT The Company is making efforts to reduce and optimize the power consumption which is the major operating cost in re-gasification terminal at Dahej. At the same time, PLL is promoting renewable energy for the reduction of carbon footprints and envisages environment friendly energy generation. The Company is in the process of implementing a 40 MW Wind Power Project in Gujarat for captive use of Dahej LNG terminal. The pre-project activities have already begun. The project will reduce the expenses on power consumption and is likely to be a profitable investment with a shorter payback period. FUTURE PLANS Your Company is looking at innovative ways to integrate along the LNG value chain. It is seen that a significant amount of energy is spent at the Natural Gas liquefaction plants for converting natural gas into LNG by the LNG producing countries. There is a potential for recovery of such energy at LNG re-gasification terminals. Your Company has also initiated steps in this regard and has begun pre-project activities for setting up of an Air Separation Unit (ASU) to produce liquid gases such as Liquid Nitrogen, Liquid Oxygen and Liquid Argon. An ASU integrated with an LNG re-gasification terminal consumes 50% less energy vis-a-vis a stand- alone ASU. Another possibility of utilizing the above cold energy is by setting up cryogenic ware house for refrigerated storage of various products. Your Company has also initiated pre-project activities in this regard. Signing of C2-C3 Extraction Agreement between GAIL, ONGC & PLL The Company has prepared a Detailed Feasibility Report for setting up a satellite LNG regasification terminal, alongwith a power generation plant, at Port Blair. The facility will also have provision to supply regasified LNG for city gas distribution and industrial ancillary units. It will sign a Memorandum of Understanding with Government of Andaman & Nicobar for joint venture formation and Power Purchase Agreement. ADEQUACY OF INTERNAL FINANCIAL CONTROLS WITH REFERENCE TO THE FINANCIAL STATEMENTS The Company has developed adequate internal control systems commensurate to its size and business. PLL has appointed M/s Ernst & Young as Internal Auditors, who conduct audits for various activities. The reports of the Internal Auditors are submitted to the Management and the Board's Audit Committee. There is a thorough review of the adequacy of internal control system. DETAILS OF JOINT VENTURES / ASSOCIATE COMPANY(S) A Solid Cargo Port through a Joint Venture Company namely Adani Petronet (Dahej) Port Private Ltd., had commenced its operations in August 2010 at Dahej Port. Solid Cargo Port Terminal has facilities to import/export bulk products like coal, steel and fertilizer. PLL has 26% equity in this Joint Venture along with the Adani Group. PERFORMANCE AND FINANCIAL POSITION OF JOINT VENTURE COMPANY The financial highlights of solid cargo company for the year ended 31st March, 2015 was as under: The cargo handling operations at the port is fairly mechanized and port is well connected with road and railway. The cargo handled comprises of steam coal, rock phosphate and project cargo etc. The key aspects of company's performance during the financial year 2014-15 are as follows: • Solid Cargo volume increased by 57% from 7.89 mmt in FY 2013-14 to 12.42 mmt in FY 2014-15. Solid Cargo Port of Adani Petronet at Dahej • Total number of vessels handled at Dahej Solid Cargo Port was 182 during FY 2014-15 as against 123 for FY 2013-14; a growth of 48% year on year. CONSERVATION OF ENERGY, TECHNOLOGY ABSORPTION AND FOREIGN EXCHANGE EARNINGS AND OUTGO All possible measures have been undertaken successfully by your Company to achieve the desired objective of energy conservation and technology upgradation. In order to ensure optimum conservation of energy and absorption of technology, your Company's engineers have been interacting with industry peers, technology providers and EPC Contractors. They have also been nominated to important national and international seminars. A team has closely worked with Project Consultant and EPC Contractors in all phases of designing and construction of Dahej and Kochi LNG Terminals. FOREIGN EXCHANGE EARNINGS AND OUTGO Your Company has incurred expenditure in foreign exchange to the extent of X 37,653 Crore during the year under review. Foreign exchange earnings during the year were X 441 Crore. EXTRACT OF THE ANNUAL RETURN The extract of the annual return in Form No. MGT - 9 is attached herewith as Annexure A and is a part of the Board's report. CORPORATE SOCIAL RESPONSIBILITY (CSR) Petronet Limited Ltd., as responsible Corporate has been undertaking Socio-Economic Development Projects/ Programs and also supplementing the efforts of the local institutions/NGOs/local Government/implementing agencies in the field of Education, Healthcare, Community Development, Entrepreneurship etc. to meet priority needs of the marginalized and underserved communities with the aim to help them to become self-reliant. These efforts are being undertaken preferably in the local area and areas around our work centers/ project sites. In terms of provisions of Companies Act, 2013, an amount of X 28.84 Crore was required to be utilized on CSR activities. However, only X 4.24 Crore was utilized on account of CSR activities during the financial year. You are aware that the guidelines for the expenditure on CSR activities are fairly recent and the Company has been transitioning and adopting the new CSR policies / guidelines which lead to the lower expenditure. The Company is in a continuous process of finding and evaluating various large projects for taking up/spending required amount on account of CSR activities. The disclosure as per Rule 9 of Companies (Corporate Social Responsibility Policy) Rules, 2014 is attached herewith as Annexure B and form part of Board Report. DIRECTORS A) Changes in Directors and Key Managerial Personnel During the year under review, following are the changes among the Directors: The Board placed on record its appreciation for the contributions made by Shri B. C Bora, Shri Ashok Sinha, Shri A. M. K. Sinha, Shri R. Ram Mohan and Shri Tapan Ray. B) Declaration by Independent Directors During the year, three Independent Directors namely Shri Arun Kumar Misra, Shri Sushil Kumar Gupta and Dr. Jyoti Kiran Shukla were appointed to the Board. Declaration by all the Independent Director(s) has been obtained stating that they meet the criteria of independence as provided in sub-section (6) of Section 149 of the Companies Act, 2013. An Independent Director will hold office for a term up to a period of three years on the Board of a Company from their respective date of appointment. C) Formal Annual Evaluation of Board As required under the relevant provisions of the Companies Act 2013, Company has a process for evaluation of the Board, its committees and individual Directors. However, Company is in the process of laying down the specific criteria for evaluation of performance of the entire Board and members. The evaluation is proposed to be made on the following parameters; 1. Composition & Quality 2. Understanding the Business, including Risks 3. Process & Procedures 4. Oversight of the Financial Reporting Process, including Internal Controls 5. Oversight of Audit Functions 6. Ethics & compliance 7. Monitoring Activities 8. Overall evaluation KEY MANAGERIAL PERSONNEL Dr. A. K. Balyan, MD & CEO, Shri R. K. Garg, Director (Finance) and Shri K. C. Sharma, Company Secretary are the Key Managerial Personnel of the Company in terms of Section 203 of the Companies Act, 2013. NUMBER OF MEETINGS OF THE BOARD OF DIRECTORS During the year, four Board Meetings were held on 30th April 2014, 4th August 2014, 7th November, 2014 and 5th February, 2015. The intervening gap between the meetings was within the period prescribed under the Companies Act, 2013 and also as per Listing Agreement. AUDIT COMMITTEE The Company has duly constituted an Audit Committee of the Board. The Audit Committee comprises of the following Directors as on 31st March, 2015: 1 Shri Arun Kumar Misra, Chairman 2 Shri D. K. Sarraf, Member 3 Shri Sushil Kumar Gupta, Member All the Members of the Audit Committee are Non-executive Directors and two out of three Members are Independent Directors namely Shri Arun Kumar Misra and Shri Sushil Kumar Gupta. The quorum of the Audit Committee is two Members. The then Chairman of the Audit Committee also attended the last Annual General Meeting of the Company held on 18th September, 2014. NOMINATION AND REMUNERATION COMMITTEE In terms of provisions of Section 178 of Companies Act, 2013 as well as the Listing Agreement, Board of Directors has constituted a Nomination and Remuneration Committee. As on 31st March, 2015, the Nomination and Remuneration Committee comprises of the following Directors: 1. Shri Arun Kumar Misra, Chairman 2. Shri D. K. Sarraf, Member 3. Shri Sushil Kumar Gupta, Member All the Members of Nomination and Remuneration Committee are Non-executive Directors and two out of three Members are Independent Directors namely Shri Arun Kumar Misra and Shri Sushil Kumar Gupta. Policy on Directors' Appointment and Remuneration Pursuant to Article no. 109 and 111 of the Articles of Association of the Company, the Board may appoint Managing Director & CEO and other Whole-time Directors subject to provision of Section 203 and other applicable provisions of the Act. The Search Committee, as constituted by the Board from time to time, finalizes the Qualification, Age, experience and other relevant criteria like experience etc. for the position under consideration and the notification for the vacant position is circulated. Based on the suitability of the candidates, the Search Committee of the Board shortlists candidates for personal interaction and recommend potential candidates in order of merit to Nomination and Remuneration Committee which in turn makes its recommendation to the Board. The final recommendation with suitable compensation and other terms for appointment is then approved by the Board subject to confirmation by the shareholders in the general meeting. Such appointment is for a fixed term not exceeding five years at a time, upon such terms and conditions as approved by the shareholders. Compensation Policy A Compensation Benchmarking Survey is done to assess the competitiveness of total remuneration which is being paid to Directors, key managerial personnel and senior management The outcome of the same is presented before Nomination and Remuneration Committee to assess the reasonableness to attract, retain and motivate Directors and other senior managerial personnel. PARTICULARS OF LOANS, GUARANTEES OR INVESTMENTS UNDER SECTION 186 No loan, investment / guarantee have been given by the Company under Section 186 of the Companies Act, 2013. PARTICULARS OF CONTRACTS OR ARRANGEMENTS WITH RELATED PARTIES The particulars of every contract or arrangements entered into by the Company with related parties referred to in sub-section (1) of section 188 of the Companies Act, 2013 including certain arms length transactions under third proviso thereto is disclosed in Form No. AOC -2 attached as Annexure C. PARTICULARS OF EMPLOYEES PURSUANT TO SECTION 197 OF THE COMPANIES ACT, 2013 Pursuant to provisions of Section 197 of the Companies Act, 2013, read with the Rule 5 of Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, the names and other particulars of employees are set out in Annexure D to the Directors' Report. SECRETARIAL AUDIT REPORT A Secretarial Audit Report submitted by M/s A. N. Kukreja & Co., Company Secretaries, is annexed with the report as Annexure E. Regarding inadequate number of Independent Directors as stated in the Secretarial Audit Report, it is stated that Company is in the process of finding suitable candidates to be appointed as Independent Directors and shortly the requisite number of Independent Directors will be appointed. DISCLOSURES PURSUANT TO SECTION 197(12) OF THE COMPANIES ACT, 2013 The ratio of remuneration of each Director to the median employees remuneration and such other details in terms of Section 197 (12) of Companies Act, 2013 read with Rule 5 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 forms part of Directors' Report and is attached herewith as Annexure F. DISCLOSURE UNDER SEXUAL HARRASSMENT OF WOMEN AT WORKPLACE (PREVENTION, PROHIBITION & REDRESSAL) ACT, 2013 During the year ended 31st March, 2015, no complaint(s) of Sexual Harassment has been received by the Company. CORPORATE GOVERNANCE CERTIFICATE As required under Clause 49 of the Listing Agreement with the Stock Exchanges, the Report on Corporate Governance, together with Auditors' Certificate regarding Compliance of the SEBI Code of Corporate Governance, is annexed herewith. MANAGEMENT DISCUSSION AND ANALYSIS The Annual Report contains a separate section on Management Discussion and Analysis which is a part of the Directors' Report. INDUSTRIAL RELATIONS Your Company continued to enjoy cordial and smooth relations amongst all its employees at Dahej and Kochi terminals. RISK MANAGEMENT POLICY The Company has laid down policies and procedures to inform the Members of the Board about the risk assessment and minimization procedure. A Risk Management Committee consisting of Whole-time Directors periodically reviews the procedures to ensure that Executive Management controls risk through properly defined framework. The risk assessment framework encompasses, inter-alia, methodology for assessing risks on ongoing basis, risk prioritization, risk mitigation, monitoring plan and comprehensive reporting system. DETAILS OF ESTABLISHMENT OF VIGIL MECHANISM FOR DIRECTORS AND EMPLOYEES The Board of Directors of the Company has approved the Vigil Mechanism in terms of provisions of Section 177 of Companies Act, 2013 and Clause 49 of the Listing Agreement for Directors and employees of the Company to report, to the management, concerns about unethical behavior, actual or suspected fraud or violation of the policy. The same has also been hosted on the website of the Company. DIRECTORS' RESPONSIBILITY STATEMENT Pursuant to the provisions of clause (c) of sub-section (3) of Section 134 of the Companies Act, 2013, Directors hereby confirm that: (a) in the preparation of the annual accounts, the applicable accounting standards have been followed along with proper explanation relating to material departures; (b) the Directors have selected such accounting policies and applied them consistently and made judgmentsand estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the Company at the end of the financial year and of the profit and loss of the Company for that period; (c) the Directors have taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of this Act for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities; (d) the Directors have prepared the annual accounts on a going concern basis; (e) the Directors have laid down internal financial controls to be followed by the Company and that such internal financial controls are adequate and are operating effectively; and (f) the Directors have devised proper systems to ensure compliance with the provisions of all applicable laws and that such systems are adequate and operating effectively. DEPOSITS During the year, your Company did not accept any deposits from the public under Section 73 of the Companies Act, 2013. STATUTORY AUDITORS M/s T. R. Chadha & Co., Chartered Accountants, will retire at the ensuing Annual General Meeting (AGM) of your Company and being eligible, offer themselves for re-appointment. The re-appointment, if made, for the financial year 2015-16, will have to be approved by Ordinary Resolution as required under Section 139 of Companies Act, 2013. AUDITORS' REPORT Auditor has submitted an unqualified report for the financial year 2014-15. COST AUDITOR The Board of Directors has re-appointed M/s Sanjay Gupta & Associates as the Cost Auditor of the Company for the Financial Year 2014-15. The Cost Audit Report for the year 2013-14 has been filed under XBRL mode on 25th September, 2014. ACKNOWLEDGEMENTS The Board of Directors sincerely thanks and wishes to place on record its appreciation of the Ministry of Petroleum and Natural Gas, Government of India, State Governments of Gujarat, Kerala and Andhra Pradesh, Promoters of the Company, Engie (erstwhile GDF Suez), RasGas, Exxon Mobil and other LNG suppliers, gas off-takers and consumers of re-gasified LNG, Auditors, Lenders and the Employees of the Company for their whole-hearted co-operation and unstinted support. The Directors want to express their deep-felt thanks and best wishes to all the shareholders for the continued support and the trust they have reposed in the Management. The Directors look forward to a better future and further growth. For and on behalf of the Board of Directors (R. K. Garg) Director (Finance) (Dr. A. K. Balyan) MD & CEO Place : New Delhi Date : 15th July, 2015 |