CORPORATE GOVERNANCE

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GAIL (India) Limited
Welcome To Presentation on Challenges in PSUs
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CONTENTS

• Challenges in PSUs
• Challenges Before GAIL A Navratna PSU
• Managing Challenges Step to Shape Future
• GAIL - A Success Story
• Emergence of Corporate Governance to Face PSU
  Challenges
• Corporate Governance in GAIL
• Conclusion

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• When you've got something to prove, there's
  nothing greater than a challenge.
• Terry Bradshaw

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• Challenges
• in PSUs

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Challenges in PSUs

• What are the Challenges?
• Liberalization in the Economy
• Growing business complexities
• Business Process Re-engineering Keeping in view
  the International Best Practices
• Rapid changes in Information Technology
• Prudent use of human resources
• Corporate Social Responsibility vis-à-vis
  Profitability
• Total Quality Management for Customer Satisfaction

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Challenges in PSUs

• Why is it necessary to face the challenges?
• To Retain the Market Share
• Sustainable improvement in Profitability
• Growth in Business
• Technology adoption to control the cost
• Stake holders satisfaction
• Customer satisfaction
• Employees satisfaction

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• Challenges Before GAIL A Navratna PSU

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Challenges Before GAIL A Navratna PSU

• Draft pipeline policy
• APM to Market driven prices
• Regulatory environment
• Unbundling process
• Sourcing of Gas
• Diversification, Mergers Acquisitions
• Financial Re-Engineering including Risk
  Management
• Human Resource Development

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• Managing
• Challenges
• - Steps
• to Shape
• Future

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Managing Challenges Steps to Shape Future

• Draft Pipeline Policy
• Identification of Potential market
• Tie up for sourcing of gas
• Adoption of Best practices for better Project
  Management
• APM to Market driven prices
• Cost control in order to face the gas market
  forces
• Business Process Re-Engineering for reduction in
  process cost of LPG Petrochemicals
• Volume Growth

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Managing Challenges Steps to Shape Future

• Regulatory Environment
• Representation for Establishing National Gas
  Grid for effective utilization of resources
• Representation for exempting GAIL from LPG
  Kerosene Subsidy
• Creation of cell to monitor regulatory
  environment
• Unbundling Process
• Accounting separation of Natural Gas trading and
  Transmission carried out
• Preparing for physical and legal separation if
  required by Regulator

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Managing Challenges Steps to Shape Future

• Sourcing of Gas
• Creation of dedicated cells for Domestic and
  International Gas sourcing at competitive prices
• Adoption of new Technology to bring gas to India
• Participation of various domestic and
  international blocks
• RD on Alternate sources of gas like CBM Gas
  Hydrates
• Diversification, Mergers Acquisitions
• Creation of 100 subsidiary in Singapore for
  Global Investment opportunities
• Strategic investment in equity
• Diversified into EP and Sale of Crude oil
• Entry into retail marketing of LPG

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Managing Challenges Steps to Shape Future

• Financial Re-Engineering including Risk Mgt
• Prepayment of High cost bearing loans
• Restricting of loan portfolio
• Advanced stage of setting up of integrated
  Treasury and Risk Management Desk
• Effective utilization of temporary surplus funds
• Human Resource Development
• International exposures to the executives for
  adoption of international best practices
• State of Art GAIL Training Institutes
• Sharing of Experiences of eminent personalities
  through Looking Beyond series of lectures

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• GAIL - A Success Story

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GAIL - A Success Story
TRACK RECORD OF STEADY GROWTH
IN RUPEES BILLION
PROFIT AFTER TAX
REVENUES
5 year CAGR of T.O 11 PAT 18
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GAIL - A Success Story

• GAIL Recent Significant Achievements
• 70 Growth in PAT of Q2 over Q1 05-06
• Steady growth in Market Cap
• Consistent growth in value added per employee
• High leverage due to low debt equity ratio
• Increasing trend in EPS
• Growth in Gas transmission volumes
• Lean Thin Organization

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GAIL - A Success Story

• Laurels of GAIL
• Golden Peacock for National Training Award for FY
  2004-05
• Golden Peacock Award for Corporate Governance for
  FY 2003-04
• Hewitt Award For Best Employer In India 2004
• NPMP Awards For Excellence in Project Management
  2003-04
• National Merit Award (Public Sector) for
  excellence in Cost Management from ICWAI.
• Best overall performance in upstream sector by
  PCRA for energy efficiency/saving measures
• Scope Excellence Award (2002-03) Outstanding
  Contribution To Public Sector Management
• 12th amongst 30 Indian companies appearing in the
  list of Forbes 2000 The worlds wealthiest
  companies 2005

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• Emergence of Corporate
• Governance to face
• PSU Challenges

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What is Corporate Governance?

• Corporate Governance is nothing but a step
  towards strengthening of the organization so as
  to face the challenges
• It is stepping into the shoes of the
  shareholders, stakeholders, vendors, suppliers
  employees by the Top Managers and CEO of the
  company
• Process and mechanisms by which the capital
  market monitors the actions of corporate
  management

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Why Corporate Governance?

• TRANSPARENCY
• ACCOUNTABILITY
• CONTROL
• TRUSTEESHIP
• ETHICS

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Emergence of Corporate Governance in India

• SEBI appointed in May 1997 the Kumar Mangalam
  Birla Committee
• Companies Amendment Act, 2000 introduced
• - Setting up of Audit Committee
• - Directors Responsibility Statement
• Kumar Mangalam Birla Committee recommendations
  adopted by SEBI in 2000
• Clause 49 introduced in Listing Agreement
• Narayana Murthy Committee recommendations revised
  Clause 49
• Definition of independent directors
• Certificate by CFO CEO
• Risk Assessment Mitigation strategy of the
  company
• Code of Conduct for top Management

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• Corporate Governance in GAIL

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Corporate Governance in GAIL

• Equal number of Independent and full time
  Functional Directors
• Regular Board Meetings
• Regular Audit committee meetings
• E-payments, E-receivable, E-investments for
  transparency
• Payment of Dividend through Electronic clearing
• Bill Watch System
• Meeting the compliance requirements
• Shareholders / Investors Grievance Committee
• Implemented code of conduct Board members and
  senior management
• Voluntary Secretarial Audit

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• Conclusion

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Conclusion

• PSU Challenges How it is good for improvement
  of the Company?
• Challenge - A Stimulator
• Food for thinking out of Box
• Striving for doing the things differently
• Challenge is the doing the thing Right first time
• Maintaining Balance between commercial Social
  obligations

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• There are no laurels in life...
• just new challenges.
• Katharine Hepburn

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• THANK YOU

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Areas of corporate challenge

• Global Challenges
• Integrate with gas projects which can supply gas
  to India (pipelines, LNG, CNG)
• Enter new emerging gas rich countries with good
  relations with India (Egypt, South Africa)
• Enter (selectively) other countries with
  expanding gas sector and good project
  opportunities (China, West-Asia, Africa)
• Partner with Reputed Companies
• Limited period for opportunities - Global Majors
  consolidating
• Enter into strategic alliance for production of
  petrochemicals (Iran)

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Areas of corporate challenge

• Other Challenges
• Fight for Market Share
• Customer delight
• Wealth Creation
• CSR
• Environment Friendly approach
• Investor Satisfaction
• RD
• Cost Control
• Manpower Quality Selection Training
  Retention
• Technology Savvy Adoptability to latest
  technology
• Project Management Skills

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Identified Corporate Challenges

• Gas metering issues in HBJ Regional pipelines
• Recovery of outstanding amounts from gas
  customers
• Benchmarking issues
• Stock loss
• Energy consumption
• Effective Tax management
• Activity based budgeting
• Investor Relationship management
• Decision Making process re-engineering

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Corporate Challenges Schemes Step to Shape
Tomorrow

• Identified 2 projects under Corporate Challenge
  Scheme
• Waste heat recovery in compressor station and
  process plants
• To make GAIL Tel a Profitable competitive SBU
  of the company
• Objectives
• Team Work
• Cost Reduction
• Entrepreneurship feeling among the employee
• Leveraging the in-house talent pool
• Achieving operational excellence in core business

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Areas of corporate challenge

• Business Related Challenges
• Gas Sourcing Domestic International
• Awareness of Fuel for Tomorrow
• Upstream Downstream Integration
• Merger Acquisition
• Financial Risk Management
• Diversification

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Areas of corporate challenge

• Regulatory Challenges
• Promoted by GoI
• Regulatory Sector
• Downstream - Allocation of Gas, Delivered Price,
  Tariff Control
• PSU Culture CAG Vigilance
• Statutory Compliance
• LPG Kerosene Subsidy

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Meeting the Challenges - Global
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Meeting the Challenges - Business
Gas Sourcing
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Meeting the Challenges - Other
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Corporate Governance in GAIL

• GAIL believes that effective Corporate
  Governance is characterized by the practice of
  principles of transparency , fairness, disclosure
  and accountability.
• The Board pursues its Corporate Governance
  objective by demonstrating sincerity in dealing
  with management, fairness in dealing with
  employees, meeting the compliance requirements of
  the Government and practice of ethical corporate
  citizenship in the society.

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Corporate Governance in GAIL

• Keeping the tradition of believing in the
  highest standard of Corporate Governance, GAIL
  has received the Golden Peacock Award for
  excellence in Corporate Governance for the year
  2003-04.

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Corporate Governance in GAIL

• The Board of Directors of GAIL has implemented a
  CODE OF CONDUCT FOR BOARD MEMBERS AND SENIOR
  MANAGEMENT PERSONNEL in accordance with revised
  Clause 49 of Listing Agreement of Stock Exchanges
  on Corporate Governance. The Code has also been
  posted on the web-site of the Company.
• The Code was put in place by GAIL well ahead of
  the deadline of 31st December, 2005 set by SEBI
  for implementation of the revised Clause 49.
• The revised Clause 49 provides for minimum of
  four meetings of the Board of Directors, with a
  maximum time gap of three months between any two
  meetings.
• In GAIL, during fiscal 2004-05, fifteen meetings
  of the Board of Directors were held. During the
  current fiscal, nine meetings of the Board of
  Directors have already been convened.

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Corporate Governance in GAIL

• The revised Clause 49 provides for minimum of
  four meetings of the Audit Committee with an
  interval of not more than four months between two
  meetings.
• In GAIL, during fiscal 2004-05, ten meetings of
  the Audit Committee were held. During the current
  fiscal, seven meetings of the Audit Committee
  have already been convened.
• GAIL has voluntarily undergone SECRETARIAL AUDIT
  by an independent firm of Company Secretaries.
• Although a non-mandatory requirement under Clause
  49, GAIL already has a WHISTLE BLOWER POLICY in
  place.
• GAIL is fully compliant with the requirement of
  revised Clause 49 that not less than 50 of the
  Board of Directors to comprise of Non-executive
  Directors.

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Corporate Governance in GAIL

• Corporate Governance of GAIL includes Reporting
  of
• Board Meetings
• Audit Committee
• Composition Qualifications
• Audit Committee Meetings and attendance thereat
• Shareholders/ Investors Grievance Committee
• General Body Meetings
• Disclosures
• Disclosure on materially significant related
  party transactions
• Details of non-compliance relating to Capital
  Market

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Corporate Governance in GAIL

• Cont
• Means of Communication
• Forthcoming AGM Date, Time and Venue
• Financial Calendar
• Dividend Payment Date
• Date of Book Closure
• Payment of Dividend through Electronic Clearing
  Service (ECS)
• Transfer of Unclaimed Dividend Amount to Investor
  Education and Protection Fund (IEPF)
• Particulars of Directors appointed/re-appointed
• Listing Fees
• Share Transfer System