Enhancing the Value of the Naphtha Cracker Project-Interim findings

1

2
Agenda

• 1. OIL INDUSTRY OVERVIEW

2. IOC - OVERVIEW
3. IOC KEY CREDIT STRENGTHS
4. STRATEGIC INITIATIVES
5. STRONG FINANCIAL POSITION
3
Agenda

• 1. OIL INDUSTRY OVERVIEW

2. IOC - OVERVIEW
3. IOC KEY CREDIT STRENGTHS
4. STRATEGIC INITIATIVES
5. STRONG FINANCIAL POSITION
4
Regulatory Environment
5
De-regulation History

• Import of Gasoline, HSD and ATF allowed to
  companies having marketing rights
• Phased reduction in subsidies for LPG and
  Kerosene
• FDI in Marketing, EP and Pipelines increased to
  100 subject to certain approvals
• Marketing rights granted to private sector
  entities for marketing of transportation fuels
  through their own retail network

• w.e.f April 1, 2001
• Oil Co-ordination Committee dismantled w.e.f.
  April 1, 2002
• Dues of Oil companies under Oil Pool Accounts
  settled on provisional basis
• Majority of products made freely tradable
• Pricing of all products except LPG and Kerosene
  decontrolled
• Pipeline transportation tariff decontrolled
  w.e.f. April 1, 2002

• DE-REGULATION OF REFINERIES
• Refining sector removed from APM regime
• All products except Gasoline, Gas oil, ATF, LPG
  and Kerosene decontrolled
• Private companies allowed to import crude oil

• FDI in refining sector raised from 49 to 100
• Stand-alone refining companies aligned with
  existing integrated refining and marketing
  companies

2001
1998
1999
2000
2002
2003
2004
2005
Committee constituted by MOPNG in Oct05 to
examine different aspects relating to pricing and
taxation of petroleum products
6
Post De-regulation Industry Dynamics
7
Industry Structure
Oil Natural Gas Corporation Ltd.
UPSTREAM (Exploration Production)
ONGC Videsh Ltd.
Oil India Ltd.
Reliance, Cairn Energy, HOEC, Premier Oil
Indian Oil Corporation Ltd.
DOWNSTREAM (Refining Marketing)
IBP Ltd. (Pure Marketing)
Chennai Petroleum Corporation Ltd. (Pure
Refining)
Bongaigaon Refinery Petrochemicals Ltd.
Hindustan Petroleum Corporation Ltd.
Mangalore Refinery Petrochemicals Ltd.
Bharat Petroleum Corporation Ltd.
Kochi Refinery Ltd. (Pure Refinery)
Numaligarh Refinery Ltd. (Pure Refinery)
Reliance Industries Ltd./ Essar Oil Ltd.
(Gas Transport Distribution)
GAIL (India) Ltd.
Subsidiary of ONGC
8
Industry Dynamics
Market Size 2.3 MBPD
Refining Capacity 2.6 MBPD
Product Pipelines 1.24 MBPD
Crude Pipelines 0.6 MBPD
IOC is the only downstream company that owns
crude pipelines
Share includes subsidiary companies As on 31st
March05
9
Petroleum Products Historical Demand Growth

• Consumption and Production grew at a CAGR of
  2.79 and 4.78 respectively over the last 5
  years
• Demand expected to grow at a CAGR of 3.7 during
  X plan period (2002-03 to 2006-07)

Source PPAC
10
Domestic Crude Availability
The gap being met through imports
Including condensate Refining capacities as
on 1st April
11
Agenda

• 1. OIL INDUSTRY OVERVIEW

2. IOC - OVERVIEW
3. IOC KEY CREDIT STRENGTHS
4. STRATEGIC INITIATIVES
5. STRONG FINANCIAL POSITION
12
Corporate History

• Indian Refineries Ltd.
• 1958

• Indian Oil Company
• 1959

Merger

• Indian Oil Corporation Limited
• 1964

• Assam Oil Company taken over in 1981
• Navratna Board constituted in 1999

13
Facilities
14
Overview

• 
  (000 BPD)
• FY04
  FY05 Growth
• Refining Thruput 753
  733 (2.73)
• Product Sales Volume 992 1,023
  3.13
• Pipeline Thruput 922
  878 (4.74)
• Fortune Global Rank improved to 170 in the
  current year from 189 in the previous year and
  191 a year before.
• Consistently AAA rated by ICRA since the
  beginning.
• International credit rating from Moodys and
  Standard and Poors Baa3 by Moodys and BB
  from Standard and Poors.

Including exports
15
Refineries - Overview
Key Facts

• Owns 7 refineries with 830 TBPD cap.
  32.5 REFINING SHARE
• 67 capacity catering to northern/western region
  - HIGH DEMAND GROWTH AREAS
• All refineries linked by crude pipelines - LOW
  TRANSPORTATION COST
• All refineries linked by product pipelines- MOST
  COST EFFECTIVE EVACUATION SYSTEM
• Potential for brownfield expansions in least time

Bhatinda
Digboi
Panipat
Bongaigaon
Mathura
Numaligarh
Barauni
Guwahati
Bina
Koyali
Haldia
Jamnagar
Mumbai
Paradeep
Vizag
IOCs Refineries Existing Under
Construction / Proposed Subsidiary
Companies
Other Companies Refineries Existing
Under Construction/Proposed
Chennai
Mangalore
Cuddalore
Narimanam
Cochin
As on 1 April05
16
Performance - Refineries

• Highest ever GRM
• Refining margins in tandem with international
  margins
• Refineries accounts for about 78 of IOCs
  earnings during FY 05
• Margin enhancement opportunities thru stream
  sharing improving crude/supply logistics.

17
Pipelines - Overview
Key Facts

• 7,730 kms. of crude / product pipelines with a
  capacity of 1186 TBPD
• Owns approx. 66 of total throughput capacity
  (downstream)
• Low cost crude transportation to all refineries
• Low cost evacuation system linked to all
  refineries
• Two SBM near Vadinar

Jalandhar
Bhatinda
Saharanpur
Meerut
Nahorkatiya
Panipat
Delhi
Tinsukia
Rewari
Bongaigaon
Mathura
Siliguri
Jodhpur
Lucknow
Tundla
Digboi
Chaksu
Barauni
Guwahati
Kanpur
Kot
Sidhpur
Ahmedabad
Kandla
Vadinar
Koyali
BudgeBudge
Salaya
Navgam
Haldia
Manmad
IOCs Pipelines
Vizag
Mumbai
Product Proposed Product Crude Oil Proposed Crude
Vijayawada
Chennai
Other Companies Pipelines
Product Proposed Product Crude Oil
Karur
Madurai
Kochi
As at 1 April, 2005
18
Pipelines - Significant Upside
Significant increase in pipelines earnings due
to recovery of tariff based on rail freight
Average APM Rate (1) (/bbl) Average Rate as per Railway Freight (2) (/bbl) Average Rate as per Railway Freight (2) (/bbl)
Average APM Rate (1) (/bbl) 75 100
Product Pipelines Product Pipelines Product Pipelines Product Pipelines
KAPL Sabarmati 0.20 0.49 0.65
GSPL Siliguri 0.52 1.52 2.03
BKPL Kanpur 0.54 2.25 3.00
HBPL Barauni 0.31 2.07 2.76
MJPL Jalandhar (Ex-Mathura) 0.36 1.74 2.32
KBPL Kandla-Bhatinda 3.15 4.26 5.68
KNPL Navagam 0.16 0.46 0.61
KVSPL Sindhpur 0.19 0.78 1.04
MTPL Tundla 0.43 0.46 0.61
Crude Pipelines Crude Pipelines Crude Pipelines Crude Pipelines
SMPL 0.59 3.98 5.31
HBCPL 1.51 1.94 2.58
(1) Source Company estimates (2) USD Rs.43.75
19
Marketing Overview

IOC IBP Others TOTAL IOC

• LPG Distributors 4699 88
  4214 9001 53
• SKO/LDO Agents 3555
  380 2653 6588 60
• Depots/Terminals 158 17 204 379 46
• LPG Bottling Plants 87 0 82 169 51
• Aviation fuel stations 95 0 29
  124 77
• Retail Outlets 10,228 3,272 13,825
  27,325 49

IOC has a dominant share in marketing
infrastructure in all segments
As of 31 March 2005 IOC includes IBP
20
Marketing - Control Retail Outlet Sites
IOC is focused on strengthening its position and
control in the retail segment
IOC Retail Outlets
of Retail Outlet sites owned / taken over long
lease
3272 retail outlets of IBP 61 company owned /
taken over long lease
21
Research and Development Centre

• A premier RD institute of India with focus on
• Lubricants Technology-over 2000 formulations
  developed, 450 commercial grades of
  lubricants/greases available
• Novel Refining Process Technology
• Green-fuel environmental issues
• Over 228 patents filed and 142 granted
• National Award (for science technology) for
  2004 towards successful commissioning of
  Indigenous INDMAX technology.
• Development marketing of alternative fuels
  Ethanol Blended Bio-Diesel.
• Marketing of technology, expertise, knowledge and
  innovation through Indian Oil Technologies Ltd. a
  wholly owned subsidiary.

22
Environmental Issues
23
Proactively Addressing Environmental Issues
IOC has proactive plans to meet the prospective
Euro / Bharat norms
Road Map to Vehicular Emission Norms Euro
II Euro III Euro IV Metros Introduced April
2005 April 2010 Mega Cities April 2003 April
2005 April 2010 Entire Country April 2005 April
2010 IOC Investment Plans USD/million HSD
Quality Improvement 509 MS Quality
Improvement 333 TOTAL INVESTMENT FOR EUROIII
COMPLIANCE 842 IOC shall be able to meet the
environmental regulations well in time
Bangalore, Hyderabad, Pune, Ahmedabad, Surat,
Kanpur, Agra Approved cost
24
Corporate Governance
25
Strong Corporate Governance
IOC being one of the Navratna strives to
attain the highest levels in Corporate Governance
and Transparency

• The Navratna status gives IOCs management
  significant independence in conducing day-to-day
  operations
• Fully complies with the stipulations laid down on
  Corporate Governance in the Listing Agreement
• The Board consists of optimum combination of
  Executive and non-Executive Directors
• Presently, out of 17 directors, 9 are
  non-executive, independent directors
• Remuneration for whole-time directors is decided
  by the Government of India
• Fully independent and active Audit Committee
• Audit Committee consists of three non-executive
  independent directors

26
Agenda

• 1. OIL INDUSTRY OVERVIEW

2. IOC - OVERVIEW
3. IOC KEY CREDIT STRENGTHS
4. STRATEGIC INITIATIVES
5. STRONG FINANCIAL POSITION
27
Key Credit Strength - Integrated Operations

• REFINING
• Controls 10 Refineries with a capacity of 1088
  TBPD

• PIPELINES
• 4,917 km of product (capacity of 29.85 mmtp)
• 2,813 km of crude oil (capacity of 28.5 mmtp)
• All refineries linked to pipelines

• MARKETING
• Leading marketer in India
• Market share of 48 (including IBP)
• Controls over 50 of marketing infrastructure

Being an integrated player, IOC is insulated to
some extent from oil price fluctuations.
28
Indias 1 Downstream Company

• (USD/billion) FY04 FY05 Rank
• Turnover 29.80 34.44 1
• Net Profit 1.60 1.12 1
• Net Worth 5.27 5.94 1
• Total Assets 12.31 14.64 1
• Market Capitalization (31st March) 13.26 11.69
  1

• Indias No. 1 Corporate in annual listing of
  both Business World Business India, for 2004
• Indias largest downstream oil company
• 18th largest oil company in the world- Fortune
  Global 500

Excluding depreciation misc. expenditure
29
Key Inherent Corporate Strengths

• Growing economy to drive demand of petroleum
  products
• Strategically located inland refineries near high
  demand centres
• Dominant market share
• Unparalleled infrastructure in all segments
• Backed by world class RD facilities
• Strong export potential to neighboring countries
• Focused strategy and management commitment to
  effectively manage change and enhance
  profitability and shareholders value

30
Strong Support from GOI
It is Governments stated objective to maintain a
majority shareholding in this company of
strategic importance for the country

• The Government of India is the majority
  shareholder with 82 of shares directly held IOC
  functions under the administrative control of the
  Ministry of Petroleum Natural Gas.

As at March 31, 2005 Including employees
31
Agenda

• 1. OIL INDUSTRY OVERVIEW

2. IOC - OVERVIEW
3. IOC KEY CREDIT STRENGTHS
4. STRATEGIC INITIATIVES
5. STRONG FINANCIAL POSITION
32

• Strategic Initiatives

33
Future Projections of IOC
Where we intend to be
A US 60 billion Global Integrated Energy Company
by 2011-12
Where we are today
A US 34 billion Company
34
By 2011-12..
Revenue Contribution Billion US
Current Revenue Core Business Petro- chemicals Gas EP Globalization Total
34 9 5.5 4.5 3.5 3.5 60.0
Revenue Stream
35
Optimizing Core Business - Initiatives
36
Optimizing Core Business

• OBJECTIVES
• Overall supply chain optimization
• Provide inputs for review process of capital
  investments in Refineries, Pipelines, Marketing
  and other strategic issues

• SUPPORTING MODELS
• Demand Forecasting
• A tool supported by statistical forecast based on
  historical sales data
• RPMS (Refinery Petrochemical Modelling System)
• A Refinery Planning tool for optimization of
  crude processing and product pattern within the
  constraints of a refinery
• SAND (Supply and Distribution)
• A planning tool for optimization of distribution
  logistics based on supply, demand and logistics
  constraints
• IP (Integrated Planning)
• Integrated planning tool encompassing all
  refineries and product distribution for overall
  supply chain cost optimization based on product
  demand

37
Optimizing Core Business - Refining
Capacity Addition
Increase in Margins (GRMs)

• PLANS
• Panipat () 3.0 MMTPA (from 12 to 15 MMTPA)
• Haldia () 1.5 MMTPA (from 6.0 to 7.5MMTPA)
• Paradip 15 MMTPA Grassroot Refinery with
  Petrochemical Complex
• FURTHER OPPORTUNITIES
• Panipat () 6.0 MMTPA (from 15 to 21 MMTPA)
• Mathura () 3.0 MMTPA (from 8 to11 MMTPA)
• Gujarat () 4.3 MMTPA (from 13.7 to 18 MMTPA)

• CRUDE INPUT COST REDUCTION
• Product Mix Improvement / Value Addition
• Distillate yield improvement
• LPG maximization
• Enhancing HS crude processing capability
• Shipping cost Optimization
• Crude import in VLCC Parcel
• Time Charter of VLCC
• Contract of Affreightment

38
Optimizing Core Business - Marketing

• Retail initiatives
• Distinctive Retail Network
• Best in class QQ service assurance measures
• Premium fuels
• Ambitious loyalty programs
• Value adding facilities with best in class
  partners
• Lubes enhance Brand Value of SERVO through
  focused efforts
• LPG
• Bottling Quality improvement
• Roll out of Star Distributorship Programme
• Increase in non-domestic sales

39
Diversification - Initiatives
40
Petrochemicals

• LAB at Gujarat commissioned in August 2004
  worlds largest single train Kerosene-to-LAB
  plant
• World scale petrochemicals hub at Panipat
• PX/PTA by 1st Quarter of 2006
• Naphtha Cracker Polymer Complex by end 2008
• Propylene unit at CPCL
• Paradip Complex approved in principle
• Haldia Petrochemicals Ltd. 10 Equity Stake

41
Gas

• Petronet LNG Ltd. Dahej, Dahej Expansion
  Kochi
• Integrated LNG Project, Iran
• MOU with Petropars signed on 1st Nov.04 for
  developing and integrating projects in Iran.
• MoU with GSPCL for joint development of KG Basin
  field
• LNG import regasification facilities at Ennore
• Gas marketing in domestic market

42
E P

• Initiatives
• 11 NELP Blocks 2 CBM Blocks
• Farm-in 2 exploration blocks (PremierOil) one
  exploration one development block (HOEC)
• Alliance with Oil India Ltd.
• MoU signed for collaboration in upstream ventures
  overseas and specific domestic projects
• IndianOil-OIL combine awarded 18.4 share in a
  Libyan Block
• Opportunities being jointly pursued in Myanmar
  Iran
• Mergers Acquisitions
• To acquire a mid-size EP company

43
Globalization Initiatives
44
Globalization

• Sri Lanka
• Lanka IOC Pvt. Ltd. incorporated in 2002 (Now
  Lanka IOC Ltd.)
• 170 Retail Outlets 80 more in pipeline
• Over 28 market share
• Trincomalee Tankfarm
• 1/3rd share in Common Storage JV Company
• Maiden IPO oversubscribed 11 times a record in
  Sri Lanka
• Mauritius
• IndianOil Mauritius Ltd. incorporated in 2002
• Terminalling retailing of petro-products
• Over 20 share of aviation business
• 7 market share achieved in 2004-05
• Dubai
• Blending of SERVO lubricants commenced in June
  2004

45
Globalization (Contd)

• Exports
• Term contracts for petroleum product export
  finalized for the first time with Ceylon
  Petroleum Corporation (in Jul02) and with
  Bangladesh Petroleum Corporation (in Mar04)
• SERVO lubricants being exported to more than 10
  countries spread over SAARC, Middle East, South
  East Asia and Africa.

Exports (in TMT) 2003-04 2004-05
Products 1794 1950
Lubricants 18 6
TOTAL 1812 1956
46
Agenda

• 1. OIL INDUSTRY OVERVIEW

2. IOC - OVERVIEW
3. IOC KEY CREDIT STRENGTHS
4. STRATEGIC INITIATIVES
5. STRONG FINANCIAL POSITION
47
Financial Performance
48
Summary Balance Sheet
(USD in millions) As of March 31 As of March 31 As of March 31 As of March 31
(USD in millions) 2004 2005
Sources of Funds
Shareholders Funds 5,274 5,939
Loan Funds 2,787 3,959
Deferred Tax Liability 980 984
Application of Funds
Net Fixed Assets 6,282 7,362
Investments 1,280 1,304
Working Capital 1,479 2,216

• Hidden Reserves
• Strategic investments in ONGC and GAIL IOC
  holds 9.6 shares of ONGC, the flagship EP
  company of India and 4.8 shares of GAIL, the
  only Gas marketing and pipeline company in India
• Combined Market Value of IOCs holding in ONGC
  and GAIL is US 3,546 million as on Sep05
  against investment of USD 550 million

49
Summary Income Statement
(USD in millions) Year ended March 31 Year ended March 31 Year ended March 31 Year ended March 31
(USD in millions) 2004 2005
Gross Sales 29,838 34,498
EBITDA 2,748 1,968
Interest 101 133
Depreciation 429 474
Taxation 615 243
Profit after Tax 1,603 1,118

• Sales increased by over 16
• Decrease in profits mainly due to under
  recoveries on account of SKO/LPG and MS/HSD

50
Key Ratio Analysis
Year ended March 31 Year ended March 31 Year ended March 31
2004 2005
Operating Margin 7.8 4.3
Net Profit Margin 5.4 3.2
EPS () 1.37 0.96
Cash EPS () 1.74 1.38
Return on average capital employed 24.79 15.91
Total Debt to Equity 53.0 67.0
Long-term Debt to Equity 31.0 27.0
Interest Coverage 27.2x 14.8x

• IOCs Stock is trading at around 7 times cash
  EPS, reflecting an earnings yield of 14 per
  annum post bonus

51
Return to Shareholders
Periodic sharing of reserves to reward
shareholders

• BONUS
• 1981-82 1994-95 1999-00 2003-04
• 12 21 11 12

• Consistent dividend payment for the last 39 years

193 post bonus of 12
52
Sizeable Market Capitalization
/bill.
Only Asian oil gas company to figure in Top
Global Stock Picks
53
Subsidiaries and Joint Ventures
54
Overview
Indian Oil Corporation Ltd.
Joint Ventures
Subsidiaries

• Bongaigaon Refinery ( to be merged)
• (Holds 74.46)
• IBP Co. Limited (to be merged)
• (Holds 53.58)
• Chennai Petroleum Corp. Limited
• (Holds 51.88)
• Indian Oil Blending Ltd. (to be merged)
• (Wholly Owned Subsidiary)
• Indian Oil Technologies Limited
• (Wholly Owned Subsidiary)
• Indian Strategic Petroleum Reserves Limited
• (Wholly Owned Subsidiary)
• Lanka IOC Ltd., Sri Lanka
• (Holds 75)
• Indian Oil Mauritius Ltd., Mauritius
• (Wholly Owned Subsidiary)

• Indian Oiltanking Limited
• (5050 JV with Oiltanking GmbH, Germany)
• Lubrizol India Private Limited
• (5050 JV with Lubrizol Corp, USA)
• IndianOil Petronas Private Limited
• (5050 JV with Petronas, Malaysia)
• Avi-Oil India Private Limited
• (JV with Balmer lawrie (25) and NYCO SA (50))
• Petronet LNG Limited
• (JV with BPCL, GAIL, ONGC (12.5 each), Gaz de
  France (10), ADB (5.2), Public (34.8))

55
Subsidiaries Financial Performance
Profit After Taxation




FY04 FY05 CPCL 92 136 BRPL
70 109 IBP 49 13 Lanka IOC 7 24 IOML
(0.18) 0.21
(USD/million)
TOTAL 218 282
56
Subsidiaries - Performance

• IOCs subsidiaries performing better- combined
  profits of BRPL, CPCL, IBP LIOC increased by
  over USD 64 million
• Several initiatives launched to build on combined
  strength
• Rationalization of assets
• Optimization of resources
• Sharing of refinery streams
• MOUs for better business relations

Market capitalization. of subsidiaries
57
Half Year Round Up

• April-September05

58
IOC Financials
(USD/Million)

• Apr-Sep04 Apr-Sep05
• Gross Sales 15387 19553
• EBITDA 1088 630
• Interest 55 95
• Depreciation 217 245
• Tax 227 87
• Net Profit 589 203

Exchange rate per USD of Rs. 46.02 and Rs. 44.05
for Sept04 and Sept05 respectively
59
Financial PerformanceSubsidiaries
(USD/Million)
Turnover
PAT Apr-Sep04 Apr-Sep05
Apr-Sep04 Apr-Sep05 CPCL 1365 2790 63 98 BRPL
505 653 64 27 IBP 1378 1650 (15) (96)

• IBP net loss due to non-revision of prices of
  petroleum products

60
Focused Capex Plan
61
Tenth Plan Outlay (2002-03 to 2006-07)
Total USD 5577 million
(228)
(114)
(1463)
(2034)
(800)
(549)
(389)
Total Capital Expenditure FY 2006 - USD 1046
million
62
Capex Plan Major Projects

• Estimated Cost Completion
• (USD/Million) Schedule
• Ongoing Projects
• Panipat Refinery Expansion 6-12 MMTPA 968 1st
  Qtr. 06
• Crude supply to Panipat through KBPL 70 1st
  Qtr. 06
• Paraxylene PTA at Panipat 1185 1st Qtr. 06
• Paradeep-Haldia Crude Pipeline 269 Mar 06
• MS Quality Improvement Projects 333 Jun06
• Naphtha Cracker Complex,Panipat 1440 Dec08
• Panipat Refinery Expansion 6-12 MMTPA 184 Mar08
• Augmentation of Mundra-Panipat Crude oil
  PL 47 Mar08
• Resid Upgradation Quality Improvement-Gujarat 90
  1 Oct09
• 9 MMTPA Paradip Refinery Project 4731 2009-10

63
Major Projects
Lab at Gujarat
Cost US 274 million
Commissioned August 2004
Capacity Input
Kerosene Stream (TMTPA) 92
Benzene (TMTPA) 40
Output
Linear Alkyl Benzene (TMTPA) 120
Paraxylene PTA at Panipat
Estimated Cost US 1,185 million
Commissioning December 2005
Capacity Input
Naphtha (TMTPA) 500
Output
Paraxylene (TMTPA) 360
PTA (TMTPA) 553
64
Major Projects (Contd)
Naphtha Cracker Complex
Estimated Cost US 1,400 million
Commissioning Dec.08
Capacity Naphtha Consumption (TMPTA) 2,170
Naphtha Cracker AU (Ethylene) (TMTPA) 800
LLDPE / HDPE Swing Unit (TMTPA) 350
HDPE Unit (TMTPA) 300
Polypropylene Unit (TMTPA) 600
MEG Unit (TMTPA) 300
Paradip-Haldia Crude Oil Pipeline Paradip-Haldia Crude Oil Pipeline
Estimated Cost US 269 billion
Commissioning March 2006
Main Line Capacity (MMTPA) 11
Tentative Length (Km)
Offshore / Onshore 23
Main Line 330 353
Tentative Dia (Inches)
Offshore / Onshore 48
Main Line 30
65
Thank You