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56th Annual Report 2007-08

Recent Events

Her Excellency, The Hon’ble President of India, Smt. Pratibha DevisinghPatil presenting the Award for Energy Conservation in Petroleum Sector forthe year 2007, for Visakh Refinery, to C&MD Shri Arun Balakrishnan

His Excellency, Dr. A.P.J. Abdul Kalam, Former President of India,presenting the ‘empi – Indian Express Indian Innovation Award 2006’, forbeing a pioneer in Retail Automation to C&MD, Shri Arun Balakrishnan

Hon’ble Minister of Petroleum & Natural Gas, Shri Murli Deora flagging offthe PCRA Car Rally at Mumbai

Former Secretary- MOP & NG, Shri M.S. Srinivasan InauguratesBahadurgarh POL Terminal

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Recent Events

C&MD Shri Arun Balakrishnan at the CEO Round Table during Global Emotional Intelligence Forum being hosted by HPCL and TISS

Hon’ble Chief Minister of Chhattisgarh, Dr RamanSingh along with C&MD Shri Arun Balakrishnan,Director – Finance Shri B Mukherjee and otherOfficials of State Government during MOU SigningCeremony (between State Government ofChhattisgarh, HPCL & CREDA) for Bio Diesel atRaipur

C&MD Shri Arun Balakrishnan, Director –Finance Shri B Mukherjee and otherSenior Officials of HPCL meets theGovernor of Mizoram, Lt. Gen ( Retd. )Shri M.M.Lakhera on their visit to Mizoram

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Contents

Chairman‘s Message 4

Our Directors 9

Senior Management Team 10

Offices, Auditors & Bankers 13

Notice of AGM 14

Performance Profile 20

Directors’ Report 28

Annexure to Directors’ Report 34

Management Discussion & Analysis Report 47

Special Focus Areas 58

Auditors’ Report 64

Balance Sheet 68

Profit & Loss Account 69

Schedules to Accounts 70

Cash Flow Statement 98

C & AG’s Comments 101

Joint Venture Companies 102

Consolidated Financial Statements 106

Corporate Governance Report 124

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Dear Shareholders,

A very eventful year has passed since I had the privilege of meeting some of you at our 55th Annual GeneralMeeting at Mumbai last September. At the completion of a full year, it is time now to share with you details ofour performance for the Financial Year 2007-08.

Growth in the Indian economy remained strong in 2007-08 with increase in output of 9%. Expansion was ledby the services sector with double digit growth. The industrial sector grew by about 9%. The growth in agriculturesector was a healthy 4.5%. All these indices clearly indicate a satisfactory year for the economy.

High inflation at the beginning of the financial year was contained through a series of measures including hikein interest rates. This had an impact on the consumption of durable goods. Supply concerns, rising demand,falling dollar and speculation continue to push up world oil prices. The price of Brent crude increased by about45% during the financial year, breaching the USD100 per barrel mark in February 2008. The Indian crudebasket price reached USD99 per barrel by the end of the financial year. The Indian government has continuedto exercise control over domestic fuel prices with a view to containing inflationary pressures.

Although exports increased by about 23% during 2007-08, faster growth in imports widened the trade deficit.Strong growth in invisible earnings, however, reduced the impact of higher trade deficit on current accountbalance. Capital flows, especially portfolio investments, were quite strong. FII investments were about USD 29billion during 2007- 2008 compared with USD 7 billion in 2006-07. FDI also doubled to 100 billion US dollars.Foreign exchange reserves at the end of March 2008 exceeded 300 billion US dollars. Large capital inflowsalso caused the rupee to appreciate against dollar by about 12% during 2007-08, marginally mitigating theimpact of higher import price of oil.

The oil consumption in the country seems to show signs of revival and is slated to grow by 7% for the secondconsecutive year. Consumption of automotive fuels (petrol and diesel) grew by 11% while Bitumen and AviationTurbine Fuel increased by 17% and 14% respectively during 2007-08. Demand for Naphtha declined by about4% on account of increased availability of natural gas (through LNG imports).

The Global economy faces difficult times ahead due to stress in western capital markets and rapid decline inthe fortunes of its Financial Institutions caused by the sub-prime crisis. The spiralling price of commoditiessuch as metals and food grains, the possibility of further shocks to the oil market and consequent inflationaryrisk have further added to the world’s woes. While initially the impact of financial turmoil in the western world

Chairman’s Message

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on India has been limited, inflation has started raising its ugly head in India due to rising commodity prices andincreases effected in the price of automotive fuels. Growth prospects for the Indian economy are vulnerable totrade and financial spillovers from the anticipated slowdown in the advanced economies. On the upside,continuing strong investments could provide support to growth.

Physical Performance :

Despite the dismal economic scenario, it is a matter of pride for us that your Corporation was able to recordoutstanding physical performance for the Financial Year 2007-08 as summarized below:

- Highest ever turnover – Rs.1,03,837 crores

- Highest Refinery Crude Thruput – 16.77 (capacity utilization – 129%)

- Highest LOBS Production – 351 TMT

- Highest Pipeline Thruput – 7.8 MMT

- Highest Market Sales – 22.18 MMT

- HPCL Market Growth – 11.9% vs Industry Growth – 7.6%

- Highest Export Sales – 2.28 MMT (2006-07 – 1.91 MMT)

- Best Regional Jet Marketer for the second consecutive year

- Market Leader in Non Domestic LPG – 313 TMT

The Corporation was ranked 290 in the “Fortune 500” global rankings based on revenues for 2008, a remarkableimprovement from last year’s ranking of 336.

As a Public Sector Organization, your Corporation has the obligation to work within the parameters of thepolicies and directions of the Government of India. The Government has to balance a number of economicparameters and also meet the expectations of citizens for an affordable price for commonly used petroleumproducts. While kerosene is used in rural areas for lighting, LPG is the preferred urban cooking medium andDiesel is used for transporting goods across markets. Steep increase in prices of these products in line withincrease in the price of crude oil would naturally have detrimental effects on the economy as well as in the livesof people. Hence such products are made available at an affordable price, which is lower than the manufacturingcost incurred by the oil companies resulting in huge under recoveries to the oil marketing companies.

The Government is fully seized of the matter and has taken measures to mitigate the deteriorating financialsof the downstream companies. These include issuance of oil bonds by the Government, sharing part of theirprofits by upstream companies (ONGC and OIL) and the balance to be borne by the downstream companiesfrom the profits they make from free trade products. Thanks to these measures, your Corporation recorded anet profit of Rs.1135 crores for the year 2007-08.

Since such reimbursements are received intermittently, your Corporation has been facing severe liquidityproblems resulting in increased short and medium term borrowings which have become alarming. This hasnecessitated realignment of Capital and Revenue expenditure without compromising on long-term profitability.While the Corporation is going ahead with its projects for upgrading the Refineries to meet Euro III / IV qualityfuels and certain much needed improvements in infrastructure, it is taking a fresh look at other expenditure


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which can be either scaled down or postponed. Revenue expenditure is being cut to the extent feasible.

Growth Focus :

It is a matter of satisfaction that the following major projects were completed during the Financial Year 2007-08. Some major projects are nearing completion.

- Commissioning of the Rs.1756 crores, 1050 km long Mundra to Bahadurgarh (near Delhi) ProductPipeline of 5 MMTPA capacity. This has improved the availability of petrol, diesel and kerosene innorthern India.

- The Green Fuels Projects at both Mumbai and Visakh Refineries are nearing completion, which whenfully completed would enable us to produce and market Euro III/IV quality petrol.

- South Asia LPG Co. Pvt. Ltd., our Joint Venture with M/s. Total of France, commissioned the LPGCavern storage facility at Visakh. The project, completed at a cost of Rs.333 crores, is the first of itskind in South Asia with a capacity to store 60,000 MT of LPG in a man made cavern at a depth of 160metres below ground level. This is considered as the safest way to store LPG. This facility enablesLPG to be brought in VLGC’s (Very Large Gas Carriers) thus saving on freight costs.

- The other major project in hand is the 9 MMTPA Grass Root Refinery Project at Bathinda in Punjab.With the L.N.Mittal Group joining us as the JV partner and the formation of the new company M/s.HPCL - Mittal Energy Ltd (HMEL) for implementation of this project, the project has gained tremendousmomentum and is scheduled for completion by early 2011.

Your Corporation continues to look for profitable opportunities in the Oil & Gas as well as Energy sectors.These include entry in Exploration and Production, Gas distribution, Alternate Fuels such as Ethanol andBiodiesel, and Wind Energy. Such activities are being undertaken either on our own or through joint ventures/ association with reputed companies. The initial assessment of these projects indicate positive outcomesand hence are being pursued with great care.

Marketing :

The Retail SBU, which markets petrol and diesel across the country, continues to focus on delivery of Qualityand Quantity to customers. After having achieved adequate representation in Cities and on Highways, thefocus during the year has been on penetrating rural markets with low-cost ‘Hamara Pump’ to meet therequirements of farmers besides catering to the new found prosperity in these areas.

With a view to discourage mal-practices in the Retail trade, interventions in the form of automation of highselling Petrol Pumps, satellite tracking of trucks transporting fuels from company depots, introduction of‘Marker’ in kerosene to detect its addition in auto fuels have been put in place.

The Retail identity program of this SBU has made your Company’s Petrol Pumps the best in class in thecountry. This has been supplemented by the Convenience Stores, automation and training of ‘Island Boys’ todeliver service with a smile, making our Pumps the first choice of all classes of motorists.

Aggressive marketing in the area of Lubricants, Aviation fuels, Bitumen and Industrial and Auto LPG are alsobeing undertaken as these are not covered under the price-controlled regime.


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Refining :

Our Refineries at Mumbai and Visakh have performed remarkably well in 2007-08 and have contributedsignificantly to the profitability of your Corporation. Performance parameters have been detailed elsewhere inthe Annual Report and the highlights have been recorded earlier in this message. The major focus at bothMumbai and Visakh Refineries have been on projects that would enhance product quality and improve profitability.

The Green Fuels Project for Euro III/IV Petrol (MS) is nearing completion at both the Refineries. Work hasbeen initiated for putting up facilities (Diesel Hydro Treater) for production of Euro III/IV Diesel at these Units.Upgradation of Lube Refinery to produce Group II/III Base Oils and construction of a second FCCU at MumbaiRefinery is underway.

Both the Refineries face the challenge of being engulfed by unlimited Urban development which is posingsevere safety issues besides limiting avenues for expansion of capacity or installing new plant and equipment.Adjacent land available have been purchased at Mumbai and at Visakh have been leased from the Port Trust.

Exploration and Production :

A new Department was started for channelising investments for Exploration and Production activities. Thougha high risk, long gestation activity requiring large investment, we are continuing with our initiatives afterassessing each potential property carefully and in association with reputed and experienced partners.Investments are routed through HPCL on its own, HPCL with its JV Prize Petroleum, HPCL in association withother major E&P Companies.

Your Corporation currently has 22 properties of which one each are in Australia and Oman, the balance beingwithin our shores.

Human Resources :

Attrition of experienced manpower continues to be of concern. On an average, over 150 officers leave everyyear for better opportunities both within and outside the country. Large scale recruitment and training appearsto be the only solution.

A number of HR initiatives have been introduced to make the Corporation a great place to work. The ‘BalancedScorecard’ tool to set up performance targets and evaluation, Competency Mapping and Development Centresto enhance employee capabilities and Six Sigma for quality improvement have yielded rich dividends and arebeing constantly upgraded to higher levels of sophistication. Such initiatives gives your Management theconfidence to take on bigger challenges in its pursuit of growth.

A significant HR event of the period was the conduct of an International Program on ‘Emotional Intelligence’ inassociation with TISS wherein a large number of professionals and students participated and appreciated theprogram. The Corporation continues to give utmost importance to training by nominating employees both forin-house and external programmes.

The Employee Portal also offers a number of self-learning programs which prepares the employee to take ontechnical and behavioural challenges. Officers are also sponsored for part-time MBA programs of reputedInstitutions.


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Shareholders :

Our Shareholder family is large and is presently over one lakh. You have shown your trust and confidence inthe Corporation by remaining with us and we thank you for reposing your faith in the management. We havealways endeavoured to reward our shareholders with attractive dividends. The record of the Corporation in thisregard is creditable.

The current financial constraint has been due to factors beyond our control. This has resulted in a lower payoutof dividend as compared to previous years. However, we feel that this is a passing phase and the Corporationwill soon have the freedom to price its products. Such freedom will be exercised responsibly by the managementand would include the interests of its customers, shareholders and stakeholders.

Our Stakeholders :

We are also grateful to all our dealers, vendors, contractors, business associates, employees and all otherswho have reposed their faith in HPCL.

Your Corporation which has completed over 50 years of operation will not feel daunted by the current scenariobut will continue to endeavour to meet the challenges posed by unprecedented levels of crude oil prices.

In these difficult times, your Board of Directors has played a significant role in guiding the affairs of yourCorporation. The Independent directors have been a source of inspiration with their wide knowledge andexperience. The Government directors were our conduits to the Ministry and their guidance have beenexceptional. The functional directors are respected professionals in the oil sector and have all been acting intandem to take your company forward.

Our Administrative Ministry, the Ministry of Petroleum & Natural Gas, has been providing continuous guidanceand support in all our efforts. We, on our part, would continue to take HPCL further towards growth andprofitability by meeting the challenges that we face and capitalizing on the opportunities that arise.

At the time of writing this message, there are welcome signs of reduction in crude oil prices. Global efforts arecontinuing to conserve energy and also look at areas to develop alternate and cheaper form of energy. Globalwarming has also given a further urgency to such efforts. A positive outcome would benefit everyone byimproving the quality of the air we breathe and reducing the cost of energy which in some form or other touchesevery human life.

We look forward to your continued support in this ongoing journey.

Thank you,

Arun Balakrishnan


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Our Directors

Shri M A TankiwalaDirector - Refineries

Shri Arun BalakrishnanChairman & Managing Director

(From 01.04.2007)

Shri V ViziasaradhiDirector - Human Resources (From 03.08.2007)

Shri C RamuluDirector - Finance (Till 31.01.2008)

Shri T L SankarDirector

Prof. I M PandeyDirector

Shri P.V. RajaramanDirector (From 20.07.2007)

Shri Prabh DasDirector (Till 05.03.2008)

Shri M NandagopalDirector (Till 23.08.2007)

Shri S Roy ChoudhuryDirector - Marketing

Shri Rajesh V ShahDirector (Till 23.08.2007)

Shri P K SinhaDirector

Shri L.N. GuptaDirector (From 25.06.2008)

Prof. Prakash G. ApteDirector (From 20.07.2007)

Shri B. MukherjeeDirector - Finance (From 01.02.2008)

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Senior Management Team

Shri A.B. PaiGeneral Manager - HRD

Shri Sandeep JosephGeneral Manager - IR

Shri G. HariharanGeneral Manager - Legal

Shri Rakesh KumarGeneral Manager - Tax

Shri R. GanesanGeneral Manager - Internal Audit

Shri Ajit SinghGeneral Manager - DCO

Shri L.M. MotwaniDGM - PR&CC

Shri O.P. PradhanExecutive Director - CS & P

Shri K.V. RaoExecutive Director - Corp. Finance

Shri V.K. JainGeneral Manager - Special

Projects

Shri B.R. MandalChief Vigilance Officer

Shri K.S.R. PrasadExecutive Director-Jt. Ventures

Shri N.R. NarayananCompany Secretary

Shri K. MuraliExecutive Director -

Refineries, Corporate

Ms. Nishi VasudevaExecutive Director-Information

Systems

Shri T.K.KalyanaramanGeneral Manager*

Shri A.V. SarmaGeneral Manager*

Shri Rajan K. PillaiGeneral Manager*

Shri S.P. SinghGeneral Manager - E&P

*: On deputation

Shri S.T. SathiavageeswaranGeneral Manager - Information Systems

Shri P.P. NadkarniGeneral Manager*

Shri T. PramanikGeneral Manager*

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Refineries Team

Shri S.V. SahniExecutive Director - Central

Engineering (R)

Shri D.K. DeshpandeExecutive Director - MR

Shri A.B. SatheExecutive Director - IT & S

Shri B.K. NamdeoGeneral Manager - RCD

Shri P. A. B. RajuExecutive Director - VR

Shri S.C. MehtaGeneral Manager - Technical, MR

Shri K. SrinivasanGeneral Manager - Projects, MR

Shri R.M.N. MararGeneral Manager - Projects, VR

Shri G. SriganeshGeneral Manager - R & D

Shri R.K. GuptaGeneral Manager - SH&E (Refineries)

Shri M.K. SuranaGeneral Manager - Operations, VR

Shri V.V.R. NarasimhamGeneral Manager - Technical, VR

Shri S.G. SubramoneyGeneral Manager - Materials, MR

Ms. Sonal DesaiGeneral Manager - Finance, CE

Shri M. Naveen KumarGeneral Manager - Finance, VR

Shri K.C. AgarwalGeneral Manager - Maintenance, MR

Shri Y.K. RaoGeneral Manager - Materials, VR

Shri N.S.J. RaoGeneral Manager - Operations, MR

Shri Ramanuj RoyGeneral Manager - Finance, MR

Shri V.V. NagadaGeneral Manager - Projects, MR

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Shri C.S. KrishnaswamyGeneral Manager - R&D & QC

Shri P. RajendranGeneral Manager - Mktg. Proj.

Shri M.V. SreeramGeneral Manager - IT (Mktg.)

Shri R. RadhakrishnanGeneral Manager - SZ

Shri Rakesh MisriGeneral Manager - NZ

Shri S.P. GuptaExecutive Director - Finance (Mktg.)

Shri H.R. WateGeneral Manager - Retail

Shri H. KumarGeneral Manager - Retail

Upgradation

Shri A. PandeGeneral Manager

West Zone

Shri J. RamaswamyGeneral Manager

Finance, Direct Sales

Shri Pushp JoshiGeneral ManagerHR (Marketing)

Shri S. Babu GanesanGeneral ManagerEngg. & Projects

Shri K. SrinivasDGM (I/C) - Aviation

Marketing Team

Shri S.P. ChaudhryExecutive Director - Retail

Shri G.A. ShirwaikarExecutive Director - LPG

Shri A.B. ThosarExecutive Director - P&P

Shri R. Sudhakara RaoExecutive Director - Direct Sales

Shri M.S. DamleGeneral Manager - NP&DP

Shri D.M. SabaleGeneral Manager - SH&E (Mktg.)

Shri Y.K. GawaliGeneral Manager - O&D

Shri S.Y. NarvekarGeneral Manager - I&C Sales

Shri D.K. Hota Shri S. Jeyakrishnan General Manager - MRA & P General Manager - EZ

31906550

Note

Accepted set by 31906550

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Registered Office & Headquarters Office

Petroleum House,17, Jamshedji Tata Road,

Mumbai - 400 020.e-mail: [email protected]

website: www.hindustanpetroleum.com

Marketing HeadquartersHindustan Bhavan,

8, Shoorji Vallabhdas Marg,Ballard Estate, Mumbai - 400 001.

Mumbai Refinery

B.D. Patil Marg, Chembur,Mumbai - 400 074.

Visakh Refinery

Post Box No. 15,Visakhapatnam - 530 001.

Zonal Offices

East Zone6, Church Lane,

Post Box No.146,Kolkata-700 001.

West ZoneR&C Building,

Sir J.J. Road, Byculla,Mumbai - 400 008.

North Zone6th & 7th Floor,

Core 1 & 2, North Tower,Scope Minar, Laxmi Nagar,

Delhi - 110 092.

South ZoneThalamuthu Natarajan Building,4th Floor, 8,Gandhi Irwin Road,Post Box No. 3045, Egmore,

Chennai - 600 008.

Offices, Auditors and Bankers

Statutory Auditors

Sudit K. Parekh & Co.Chartered Accountants

Mumbai

V. Sankar Aiyar & Co.Chartered Accountants

Mumbai

Branch Auditors

M/s. Grandhy & Co.Chartered AccountantsMIG-36, D. No.4-68-1/4,Lawsons Bay Colony,

Visakhapatanam-530 017.

Cost Auditors

M/s.D.V.J.Rao & Associates,Visakh Refinery

M/s.R. Nanabhoy & Co.,Mumbai Refinery,

Rohit J. Vora, MumbaiM/s.Mani & Co.Kolkatta

M. Krishnaswamy & Associates, ChennaiM/s.N.D.Birla & Co.,

Ahmedabad

Bankers

State Bank of IndiaUnion Bank of India

Punjab National BankStandard Chartered Bank

Bank of BarodaBank of IndiaCitibank N.A.

Corporation BankICICI Bank

HDFC Bank

Company Secretary

Shri N. R. Narayanan

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Notice of Annual General MeetingNotice of Annual General MeetingNotice of Annual General MeetingNotice of Annual General MeetingNotice of Annual General Meeting

HINDUSTAN PETROLEUM CORPORATION LIMITED(A Government of India Enterprise)

REGISTERED OFFICE : 17 JAMSHEDJI TATA ROAD, MUMBAI 400 020

NOTICE

NOTICE is hereby given that the 56th ANNUAL GENERAL MEETING of the Members of Hindustan PetroleumCorporation Limited will be held on Monday, September 22, 2008, at 11.00 A.M. at “Rama WatumullAuditorium, Kishinchand Chellaram College, Dinshaw Wacha Road, Churchgate, Mumbai – 400020.”, to transact the following business :

ORDINARY BUSINESS:

1. To receive, consider and adopt the Balance Sheet as on March 31, 2008, Profit and Loss Account for theyear ended on that date and Reports of the Board of Directors and Auditors thereon.

2. To declare Equity Dividend for the Financial Year 2007-2008.

3. To appoint a Director in place of Shri P.K. Sinha, who retires by rotation and is eligible for reappointment.

4. To appoint a Director in place of Shri I.M. Pandey, who retires by rotation and is eligible for reappointment.

5. To appoint a Director in place of Shri S. Roy Choudhury, who retires by rotation and is eligible forreappointment.

6. To approve payment of Rs.17.5 Lakhs as remuneration to the Statutory Auditors of the Company to beappointed by the Comptroller & Auditor General of India for auditing the Accounts of the Company for theFinancial Year 2008-09.

SPECIAL BUSINESS:

APPOINTMENT OF DIRECTORS:

7. To consider and, if thought fit, to pass, with or without modification(s), the following resolution as anOrdinary Resolution.

“RESOLVED that Shri B. Mukherjee who was appointed as an Additional Director of the Company by theBoard of Directors under Article 112 of the Articles of Association of the Company with effect from 01.02.2008 and who holds office under the said Article and pursuant to Section 260 of the Companies Act, 1956only upto the date of this Annual General Meeting, and who is eligible for re-appointment under therelevant provisions of the Companies Act, 1956, and in respect of whom the Company has received anotice in writing from a member signifying his intention to propose him as a candidate for the office of theDirector, be and is hereby appointed as a Director of the Company liable to retire by rotation.”

8. To consider and, if thought fit, to pass, with or without modification(s), the following resolution as anOrdinary Resolution.

“RESOLVED that Shri L.N. Gupta who was appointed as an Additional Director of the Company by theBoard of Directors under Article 112 of the Articles of Association of the Company with effect from 25.06.2008and who holds office under the said Article and pursuant to Section 260 of the Companies Act, 1956 only

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upto the date of this Annual General Meeting, and who is eligible for re-appointment under the relevantprovisions of the Companies Act, 1956, and in respect of whom the Company has received a notice inwriting from a member signifying his intention to propose him as a candidate for the office of the Director,be and is hereby appointed as a Director of the Company liable to retire by rotation.”

INCREASE IN THE BORROWING POWERS OF THE COMPANY:

9. To consider and, if thought fit, to pass, with or without modification(s), the following resolution as SpecialResolution:

“RESOLVED THAT in supersession of the resolution passed at the Annual General Meeting of theCorporation held on September 21, 2005 and pursuant to Section 293(1)(d) and any other applicableprovisions of the Companies Act, 1956, the consent of the Company be and is hereby accorded to theBoard of Directors of the Company to borrow moneys for and on behalf of the Company from time to timeas deemed by it to be requisite and proper for the purpose of the business of the Company, but so that themoneys to be borrowed together with the moneys already borrowed by the Company and remainingoutstanding (apart from temporary loans obtained from the Company’s bankers in the ordinary course ofbusiness) shall not exceed at any time Rs.20000 Crores (Rupees Twenty Thousand Crores) in excess ofthe paid-up capital of the Company and its free reserves i.e. reserves not set apart for any specificpurpose.”

“RESOLVED THAT the consent of the Company be and is hereby accorded in terms of Section 293(1)(a)and all other applicable provisions, if any, of the Companies Act 1956 (including any statutory modificationor re-enactment thereof, for the time being in force), to the Board of Directors of the Company to create /provide Security for the sums borrowed on such terms and conditions and in such form and manner andwith such ranking as to priority as the Board in its absolute discretion thinks fit on the assets of theCompany and may be agreed to between the Corporation and lenders so as to secure the borrowings bythe Company, together with interest costs, charges, expenses and all other monies payable by theCompany to the concerned Lenders / Institutions, under the respective arrangement entered into / to beentered by the Company.” **

“RESOVED further that the Securities to be created by the Company for its borrowings as aforesaid mayrank with the security already created in the form of mortgage and / or charges already created or to becreated in future by the Company as may be agreed to between the Company and concerned parties.”

“RESOLVED further that for the purpose of giving effect to this Resolution, the Board or any Committee orperson authorized by the Board, be and are hereby authorized to finalise, settle and execute suchdocuments / deeds / writings / papers / agreements as may be required and to do all the acts, deeds,matters and things as it may in its absolute discretion deem necessary, proper or desirable and to settleany question, difficulty or doubt that may arise in regard to creating security as aforesaid or otherwiseconsidered to be in the best interests of the Company.”

**: The approval of the Shareholders under Section 293 (1)(a) will also be obtained separately throughthe process of “Postal Ballot” as provided under Section 192 A of the Companies Act, 1956.

AMENDMENTS TO ARTICLES OF ASSOCIATION:

10. To consider and, if thought fit, to pass, with or without modification(s), the following resolution as a SpecialResolution

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“RESOLVED THAT, Clause 67 of the Articles of Association of the Corporation be modified so as to deletethe last proviso, viz., “Provided further that unless the shareholders shall be Special Resolution specificallyso authorize, the Board shall not be entitled to exercise the borrowing powers in such manner as wouldresult in the debt equity ratio of the Company being changed beyond the range of 1:1 to 2.5:1”. ”

BY THE ORDER OF THE BOARD

N.R. NarayananCompany Secretary

Date : August 11, 2008Regd.Office : 17, Jamshedji Tata Road

ChurchgateMumbai - 400 020

NOTES :1. A MEMBER ENTITLED TO ATTEND AND VOTE AT THE MEETING IS ENTITLED TO APPOINT A PROXY

TO ATTEND AND VOTE INSTEAD OF HIMSELF AND SUCH PROXY NEED NOT BE A MEMBER OF THECOMPANY. Proxies in order to be effective, must be deposited at the Registered Office of the Companynot less than 48 hours before the time of the meeting.

2. The Explanatory Statement made pursuant to Section 173(2) of the Companies Act, 1956 in respect of theitem Nos. 6 to 10 of the Notice is annexed herewith.

3. Dividend on Equity Shares as recommended by the Directors for the year ended March 31, 2008, if approvedat the meeting, will be payable to those eligible members whose names appear :

(1) As Beneficial owners, as on September 04, 2008 as per the list to be furnished by National SecuritiesDepository Ltd. and Central Depository Services (India) Ltd. in respect of shares held in electronicform, and

(2) As Members in the Register of Members of the Company after giving effect to all valid share transfersin physical form lodged with the Company on or before September 04, 2008.

4. Members are requested to bring their copies of the Annual Report to the Meeting. Members / Proxiesattending the Meeting should bring the Attendance Slip, duly filled, for handing over at the venue of themeeting.

5. (a) Members holding shares in physical form are requested to advise immediately change in their address,if any, quoting their Folio number(s), to M/s.Intime Spectrum Registry Limited (ISRL), the Registrarsat their address given below.

(b) Shareholders holding shares in dematerialised form are requested to advise immediately change inaddress, if any, quoting their respective Client ID / DP ID Nos., to their respective Depository Participantsand not to M/s.ISRL or to the Company.

6. (a) Members holding shares in physical form, who have not given the Bank Particulars / Mandate, ECSMandates earlier or if there is any change in the details, are requested to send the same quoting theFolio number(s), to our Registrars M/s. ISRL on or before September 04, 2008.

(b) All Shareholders who are holding shares in Dematerialised form are requested to advise change, ifany, in details of their bank account / ECS mandates to their respective Depository Participantsimmediately to enable the company to pay the dividend accordingly.

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7. Members are hereby informed that Dividends which remain unclaimed / unencashed over a period of 7years have to be transferred by the Company to Investor Education & Protection Fund constituted by theCentral Government under Section 205A and 205C of the Companies Act, 1956.

We give below the details of Dividends paid by the Company and their respective due dates of transfer tothe Fund of the Central Government if they remain unencashed.

Date of declaration of Dividend for the year Month & year of Dividend transfer to the Fund

28.09.2001 2000-2001 Oct.2008

28.08.2002 2001-02 (Final) Sep.2009

30.01.2003 2002-03 (Interim) Feb.2010

24.09.2003 2002-03 (Final) Oct.2010

22.12.2003 2003-04 (Interim) Jan.2011

09.09.2004 2003-04 (Final) Oct.2011

09.12.2004 2004-05 (Interim) Jan.2012

26.09.2005 2004-05 (Final) Oct.2012

14.09.2006 2005-06 (Final) Oct.2013

20.12.2006 2006-07 (Interim) Jan.2014

06.09.2007 2006-07 (Final) Oct.2014

It may please be noted that no claim can be made by the shareholders for the unclaimed Dividends whichhave been transferred to the credit of the Investor Education & Protection Fund of the Central Governmentunder the amended provision of Section 205B of the Companies (Amendment) Act, 1999.

In view of the above regulation, the shareholders who are yet to encash the dividend are advised to sendrequests for duplicate dividend warrants in case they have not received the Dividend Warrants for any ofthe above mentioned financial years and / or revalidation of unencashed Dividend Warrants still held bythem to the Registrars and Transfer Agents of the Company so that dividends can be encashed.

8. The address of Registrars and Transfer Agents of the Company is as follows :

M/s.INTIME SPECTRUM REGISTRY LTD.Unit:HINDUSTAN PETROLEUM CORPORATION LTD.C-13, Pannalal Silk Mills CompoundLBS Marg, Bhandup (West), Mumbai - 400 078Telephone No.: 022 – 25963838.Fax No.: 022 - 25946969

9. Appointment / Re-appointment of DirectorsAt the ensuing Annual General Meeting, S / Shri P.K. Sinha, I.M. Pandey, and S. Roy Choudhury retire byrotation and being eligible, offer themselves for re-appointment.

EXPLANATORY STATEMENT IN PURSUANCE OF SECTION 173(2) OF THE COMPANIES ACT, 1956.

6. HPCL is a Government Company within the meaning of Section 617 of the Companies Act, 1956. In termsof the provisions of Section 619 of the Companies Act, 1956, Statutory Auditor/s for a Government Company

18


is/are appointed by the Comptroller & Auditor General of India (C&AG). In terms of Section 224 (8) (aa) ofthe Companies Act 1956, the remuneration of the Auditors is required to be fixed by the Company in aGeneral Meeting or in such a manner as the Company in a General Meeting may determine.

The Board of Directors of the Company have recommended a remuneration of Rs.17.5 Lakhs plus out ofpocket expenses to the Statutory Auditors (including Joint / Branch Auditors, if any) of the Company to beappointed by the C&AG for auditing the Accounts of the Company for the Financial Year 2008-09 for theapproval of the shareholders. The Corporation will shortly submit an application to the Comptroller &Auditor General of India, regarding appointment of Statutory Auditors.

7. Shri B. Mukherjee was appointed as an Additional Director on the Board effective 01.02.2008. In terms ofSection 260 of the Companies Act, 1956 and Article 112 of the Articles of Association of the Company, heholds office upto the date of next Annual General Meeting and is eligible for re-appointment. The Companyhas received a notice proposing the candidature of Shri B. Mukherjee for the office of a Director in terms ofSections 255 & 257 of the Companies Act, 1956.

Shri B. Mukherjee prior to his appointment as Director (Finance) was Executive Director – CorporateFinance. The Board recommends appointment of Shri B. Mukherjee.

None of the Directors other than Shri B. Mukherjee are interested in the resolution.

8. Shri L.N. Gupta was appointed as an Additional Director on the Board effective 25.06.2008. In terms ofSection 260 of the Companies Act, 1956 and Article 112 of the Articles of Association of the Company, heholds office upto the date of next Annual General Meeting and is eligible for re-appointment. The Companyhas received a notice proposing the candidature of Shri L.N. Gupta for the office of a Director in terms ofSections 255 & 257 of the Companies Act, 1956.

Shri L.N.Gupta, is Joint Secretary – Refineries in the Ministry of Petroleum & Natural Gas, New Delhi. TheBoard recommends appointment of Shri L.N. Gupta.

None of the Directors other than Shri L.N. Gupta are interested in the resolution.

9. In terms of Section 293(1)(d) of the Companies Act, 1956, the Board of Directors shall not borrow moneyswhere the moneys to be borrowed together with moneys already borrowed (other than the temporary loansobtained from the Company’s bankers in the ordinary course of business) exceed the aggregate of thepaid up capital and free reserves of the Company except with the consent of the shareholders obtained ina General Meeting.

The shareholders of the Company at the Annual General Meeting held on September 21, 2005 haveaccorded their consent to borrow money not exceeding Rs.5,000 Crores over and above the aggregate ofthe paid-up capital of the company and its free reserves.

The global crude oil prices have witnessed sharp rise over the last few years and are still ruling at very highlevels. With the increase in crude oil prices and sustained increase in under-recoveries, the fund requirementsof the company have increased substantially to meet its working capital requirements and capital expenditureprogramme envisaged during the next few years. The borrowings needs of the Company have also increasedsubstantially over a period of time. Therefore, a need has arisen to increase the borrowing limits of theCompany with the approval of the shareholders.

As the creation of Security through mortgage and/or charge on the moveable and immoveable propertiesof the Company may be deemed as disposal of the whole or substantially the whole of one or more of theCompany’s undertaking(s), consent of the shareholders is being sought as a measure of abundant caution


19


under the provisions of Section 293(1)(a) of the Companies Act, 1956.

The approval of the Shareholders under Section 293 (1)(a) will also be obtained through the process of“Postal Ballot” as provided under Section 192 A of the Companies Act read with the provisions of Companies(Passing of Resolutions by Postal Ballot) Rules, 2001, separately.

None of the Directors are interested in the resolution except to the extent of their shareholdings in theCorporation.

The Directors recommend the resolution to be adopted as a Special Resolution by the Shareholders.

10. Consequent to revision in borrowing powers in line with provisions of Companies Act, 1956, the saidprovisions in Articles of Association is not considered necessary. The Corporation would ensure that theborrowings remains within the overall limit approved by the Shareholders.

None of the Directors are interested in the resolution except to the extent of their shareholdings in theCorporation.

The Directors recommend the resolution to be adopted as a Special Resolution by the Shareholders.

BY THE ORDER OF THE BOARD

N.R.NARAYANANCOMPANY SECRETARY

Date : August 11, 2008Regd. Office : 17, Jamshedji Tata Road,

Churchgate,Mumbai - 400 020.

ANNEXURE TO ITEMS 3 TO 5 & 7 TO 8 OF THE NOTICE

Details of Directors seeking appointment / reappointment at the 56th Annual General Meeting (in pursuance ofClause 49 of the Listing Agreement)

Name of the Director P.K. Sinha I.M. Pandey S. Roy Choudhury B. Mukherjee L.N. Gupta

Date of Birth 18.07.1955 25.08.1947 01.03.1954 03.05.1953 17.08.1959

Nationality Indian Indian Indian Indian Indian

Date of Appointment 01.03.06 09.12.05 10.05.04 01.02.2008 25.06.2008

on the Board

Qualifications IAS, M.Phil in PH.D in B.E. (Mech.) F.C.A IAS, MA (Eco.),

Social Science & Finance MBA,

Master Diploma in (Birmingham

Public Administration University)

List of Directorships 1. IOCL 1. Cochin 1. HINCOL 1. Petronet 1. Engineers

held in other 2. BPCL Shipyard Ltd. 2. Petronet (MHB) Ltd. India Ltd. India Ltd.

Companies 2. Indroma 3. Mangalore

(Thailand) Refinery & Petro- 2. HPCL-Mittal 2. India Strategic

chemicals Ltd. Services Ltd. Petroleum

4. HPCL-Mittal Reserves Ltd.

Energy Ltd.


20


PPPPPerformance Prerformance Prerformance Prerformance Prerformance Profileofileofileofileofile

21


2007-08 2007-08 2006-07 2005-06 2004-05 2003-04

FINANCIAL US$ Million Rs./Crores Rs./Crores

Sales / Income from operations 27,948 112,098.27 96,918.15 76,920.26 65,218.33 57,511.13

Gross Profit 686 2,751.97 3,094.14 1,151.21 2,381.83 3,642.66

Depreciation 212 850.82 704.00 690.23 659.59 606.58

Interest 198 792.48 422.98 175.88 81.64 55.65

Tax (Incl. Deferred Tax) (10) (39.34) 386.15 (131.91) 363.27 1,076.49

Provision for Fringe Benefit Tax 3 13.13 9.84 11.38 - -

Net Profit 283 1,134.88 1,571.17 405.63 1,277.33 1,903.94

Dividend 25 101.59 610.80 101.80 509.00 746.81

Tax on Distributed Profits 4 17.26 97.75 14.28 71.15 95.65

Retained Earnings 253 1,016.03 862.62 289.55 697.18 1,061.48

INTERNAL RESOURCES GENERATED 516 2,069.38 1,603.08 989.47 1,277.44 1,722.10

VALUE ADDED 1,506 6,041.68 6,209.19 4,198.13 5,208.06 6,061.19

WHAT CORPORATION OWNS

Gross Fixed Assets 4,879 19,570.04 15,638.48 13,479.25 12,393.17 11,387.43

Depreciation 1,905 7,640.77 6,817.64 6,141.85 5,449.53 4,809.32

Net Fixed Assets 2,974 11,929.27 8,820.84 7,337.40 6,943.64 6,578.11

Capital Work in Progress 827 3,315.95 4,243.56 2,363.88 786.84 496.14

Investments - JVCs & Subsidiary 269 1,077.26 1,029.73 825.76 825.76 817.34

- Others 1,436 5,759.82 6,097.74 3,201.88 931.08 1,231.08

Net Current Assets 1,711 6,863.68 1,345.21 3,055.09 2,513.63 1,775.02

Deferred Tax Liability (398) (1,595.98) (1,420.90) (1,384.44) (1,374.75) (1,454.08)

Total 6,819 27,350.00 20,116.18 15,399.57 10,626.20 9,443.61

WHAT CORPORATION OWES

Net Worth 2,634 10,563.30 9,598.65 8,735.74 8,440.85 7,742.81

Share Capital 85 339.72 338.95 338.94 338.93 338.90

Share Forfeiture (0) (0.70) - - - -

Reserves 2,549 10,224.28 9,259.70 8,396.80 8,101.92 7,403.91

Borrowings 4,185 16,786.70 10,517.53 6,663.83 2,185.35 1,700.80

Total 6,819 27,350.00 20,116.18 15,399.57 10,626.20 9,443.61

PHYSICAL Million Tonnes

CRUDE THRUPUT 16.77 16.66 13.82 13.94 13.70

- Mumbai Refinery 7.36 7.42 6.25 6.12 6.11

- Visakh Refinery 9.41 9.24 7.57 7.82 7.59

PIPELINE THRUPUT 7.83 6.73 5.65 6.05 6.14

MARKET SALES 24.46 21.69 19.42 20.09 19.53


Notes: 1. Previous year figures have been regrouped/reclassified wherever necessary2. 1 US$ = Rs.40.11 (Exchange Rate as on 31.03.2008)

22



23


2007-08 2007-08 2006-07 2005-06 2004-05 2003-04

FUND FLOW STATEMENT US$ Million Rs./Crores Rs./CroresSources of Funds :Profit after Tax 283 1,134.88 1,571.17 405.63 1,277.33 1,903.94Depreciation 213 856.41 704.00 690.23 659.59 606.58LPG Deposits 47 189.59 152.55 124.57 175.92 172.12Borrowings (Net) 1,571 6,301.17 3,784.38 4,322.23 307.37 382.32Share Capital 0 0.07 0.01 0.01 0.03 0.07Share Premium 1 2.05 0.47 0.39 0.83 2.41Redemption of Oil bonds 1,131 4,535.00 1,950.73 850.00 300.00 -Receipt of Capital Grants from OIDB - - - 4.94 - -Amortisation of Capital Grant 0 (0.20) (0.19) - - -Charge against General Reserve onaccount of Transitional Liability of AS-15R (13) (53.31) - - - -Oil Bonds receivable 860 3,448.45 - - - -Redemption/Sale of Investment - - - - - 0.21Provision for Deferred Tax 50 202.53 36.46 9.69 (79.33) 54.04Deferred Tax Asset due to AS-15R implication (7) (27.45) - - - -Adj. on account of sale/ deletion of Assets &Provision for diminution in Investment 15 62.42 99.30 1.66 6.81 43.37

Total 4,151 16,651.61 8,298.88 6,409.35 2,648.55 3,165.06Utilisation of Funds :Dividend 25 101.59 610.80 101.80 509.00 746.81Tax on Distributed Profits 4 17.26 97.75 14.28 71.15 95.65Capital Expenditure 765 3,066.91 4,096.30 2,694.43 1,322.63 941.32Working capital : Increase/(Decrease) 1,371 5,497.36 (1,607.02) 456.75 738.65 1,347.07Investment - JVCs (Incl. Advancetowards Equity & Share ApplicationMoney pending allotment) 66 265.49 171.16 21.29 7.12 34.21Investment Oil Bonds 1,920 7,703.00 4,929.89 3,120.80 - -Total 4,151 16,651.61 8,298.88 6,409.35 2,648.55 3,165.06CONTRIBUTION TO EXCHEQUERExcise Duty 1,850 7,422.32 7,349.34 5,852.34 6,189.05 6,128.99Customs Duty 812 3,256.14 2,575.38 1,423.52 1,397.73 1,139.70Sales Tax 2,734 10,964.99 9,416.65 8,811.86 7,977.27 6,986.11Service Tax 9 38.07 23.57 11.13 6.74 0.15Income Tax 15 61.17 72.29 (141.49) 629.82 617.70Fringe Benefit Tax 3 10.64 9.82 11.07 - -Total 5,423 21,753.33 19,447.05 15,968.43 16,200.61 14,872.65

RATIOSGross Profit/Sales ( % ) 2.45 3.19 1.50 3.65 6.33Net Profit/Sales ( % ) 1.01 1.62 0.53 1.96 3.31Earnings Per Share (Rs.) 33.48 46.35 11.97 37.69 56.18Cash Earnings Per Share (Rs.) 64.55 68.20 32.62 54.81 75.67Avg. Sales/Employee (Rs. Crores) 9.48 8.40 6.87 6.13 5.08Avg. Net Profit/Employee (Rs. Crores) 0.11 0.14 0.04 0.12 0.17Debt Equity Ratio (Long term debt to equity) 0.26:1 0.24:1 0.13:1 0.02:1 0.05:1

MANPOWER (Nos.) 10,949 10,891 10,778 10,561 11,088


24



2007-08 2007-08 2006-07 2005-06 2004-05 2003-04

How Value is Added US$ Million Rs./Crores Rs./Crores

Income :

Sales / Income from operations 27,948 112,098.27 96,918.15 76,920.26 65,218.33 57,511.13

Add: Increase/(Decrease) in Inventory 587 2,355.87 243.55 1,408.96 34.87 357.50

28,535 114,454.14 97,161.70 78,329.23 65,253.20 57,868.63

Cost of Raw Materials :

Raw Material Consumption 9,480 38,024.65 35,816.79 25,450.29 20,576.22 14,940.83

Purchase for resale 15,509 62,205.94 46,850.22 42,178.12 33,842.86 30,304.41

Packages 28 111.91 105.11 95.99 90.38 79.15

Stores & Spares 23 93.86 103.57 85.86 70.77 67.87

Utilities 48 190.82 160.58 129.60 114.34 104.10

25,088 100,627.18 83,036.27 67,939.86 54,694.57 45,496.36

Duties applicable to products 1,941 7,785.28 7,916.24 6,191.23 5,350.57 6,311.08

Total Value Added 1,506 6,041.68 6,209.19 4,198.13 5,208.06 6,061.19

How Value is Distributed

Operations :

Operating & Service Costs 598 2,400.38 2,385.63 2,405.43 2,113.82 1,848.97

Employees’ Benefits 216 867.66 729.42 641.49 712.41 569.56

Providers of Capital

Interest on borrowings 202 808.56 422.98 175.88 81.64 55.65

Dividend 30 118.85 708.55 116.08 580.15 842.46

Income Tax/Fringe Benefit Tax (7) (26.21) 395.99 (120.53) 363.27 1,076.49

Re-deployment in Business

Retained Profit 253 1,016.03 862.62 289.55 697.18 1,061.48

Depreciation 214 856.41 704.00 690.23 659.59 606.58

Total Value Distributed 1,506 6,041.68 6,209.19 4,198.13 5,208.06 6,061.19

25


2007-08 2006-07 2005-06 2004-05 2003-04

SALES VOLUME* 000 Tonnes

Light Distillates

Liquified Petroleum Gas 2,872.13 2,650.51 2,526.37 2,510.97 2,282.47

Naphtha 2,295.97 2,223.37 1,876.85 2,160.90 2,245.74

Motor Spirit 2,525.20 2,377.89 2,078.61 2,035.96 1,948.79

Hexane 35.09 29.40 27.40 42.64 44.50

Propylene 35.51 33.37 31.75 32.61 31.58

Sub-total 7,763.90 7,314.54 6,540.98 6,783.08 6,553.08

Middle Distillates

Mineral Turpentine Oil 58.42 50.06 41.35 56.74 47.96

Aviation Turbine Fuel 738.16 596.83 504.18 409.34 277.95

Superior Kerosene Oil 1,790.84 1,793.02 1,732.63 1,766.41 1,792.98

High Speed Diesel 9,551.72 7,907.08 7,353.38 7,632.80 7,453.77

JBO/WO 3.47 3.57 4.83 6.91 8.50

Light Diesel Oil 147.51 154.74 196.27 289.98 309.69

Sub-total 12,290.12 10,505.31 9,832.64 10,162.18 9,890.85

Lubes & Greases 491.62 320.23 287.84 254.25 334.08

Heavy Ends

Furnace Oil 2,472.75 2,256.13 1,685.15 1,726.04 1,429.23

Low Sulphur Heavy Stock 325.56 351.15 388.03 457.25 554.14

Bitumen 909.78 756.54 543.48 574.31 656.79

Others 211.16 181.62 139.60 131.53 108.00

Sub-total 3,919.24 3,545.44 2,756.26 2,889.13 2,748.16

Total 24,464.88 21,685.52 19,417.72 20,088.64 19,526.17

* Including Exports

MARKETING NETWORK Numbers

Regional Offices 91 86 85 85 81

Terminals/Installations/TOPs 42 37 37 36 36

Depots 93 93 92 100 89

LPG Bottling Plants 43 42 41 40 40

ASFs 16 13 13 10 10

Retail Outlets 8329 7909 7313 6667 5502

SKO/LDO Dealers 1648 1648 1648 1648 1647

LPG Distributors 2232 2238 2202 2153 1993

LPG Customers (in crores) 2.52 2.39 2.28 2.17 1.99


26


2007-08 2006-07 2005-06 2004-05 2003-04

PRODUCTION VOLUME - MUMBAI REFINERY 000 Tonnes

Light Distillates

Liquified Petroleum Gas 250.98 250.80 193.00 172.20 161.50

Naphtha 927.75 936.00 714.90 744.30 695.40

Motor Spirit 413.51 418.20 280.40 308.40 259.00

Hexane 36.69 27.00 35.30 38.90 42.80

Solvent 1425 9.10 7.80 6.10 8.90 11.20

Sub-total 1,638.03 1,639.80 1,229.70 1,272.70 1,169.90

Middle Distillates

Mineral Turpentine Oil 60.18 50.60 44.60 54.00 50.80


Superior Kerosene Oil 152.72 239.00 279.40 335.90 392.10


Light Diesel Oil 87.71 108.30 174.40 241.50 287.70

Sub-total 3,044.43 3,045.90 2,759.60 2,732.60 2,725.00

LOBS/TOBS 351.36 338.10 279.70 214.00 277.60

Heavy Ends

Furnace Oil 1,003.93 1,256.90 976.60 933.50 976.20


Bitumen 631.55 499.20 401.20 324.80 338.30

Others (Incl. input of BH Gas) 98.86 73.40 55.80 49.50 47.10

Sub-total 1,872.40 1,940.70 1,530.00 1,500.40 1,536.20

Total 6,906.22 6,964.50 5,799.00 5,719.70 5,708.70

Intermediate Stock Differential (55.08) (16.00) 27.10 (3.90) (0.60)

Fuel & Loss 504.25 470.30 422.50 402.20 400.20

Total 7,355.39 7,418.80 6,248.60 6,118.00 6,108.30


27


2007-08 2006-07 2005-06 2004-05 2003-04

PRODUCTION VOLUME - VISAKH REFINERY 000 Tonnes

Light Distillates

Liquified Petroleum Gas 369.09 343.60 273.76 296.81 323.55

Naphtha 1,264.23 1,195.20 928.74 812.59 845.98

Motor Spirit 827.79 811.20 661.81 677.37 734.83

Propylene 34.94 33.20 32.92 32.15 31.66

Sub-total 2,496.05 2,383.20 1,897.23 1,818.92 1,936.02

Middle Distillates

Mineral Turpentine Oil - - - - 1.71


Superior Kerosene Oil 897.09 1,016.00 824.17 715.32 731.81


JBO/WO 4.23 3.80 3.62 5.38 7.75

CO 4.96 - 28.05 - -

Light Diesel Oil 90.77 70.90 63.71 89.21 110.54

Sub-total 4,625.21 4,833.40 3,934.32 4,073.94 3,676.07

Heavy Ends

Furnace Oil 1,295.07 989.50 839.31 926.45 848.47


Bitumen 307.54 230.80 156.75 240.09 288.51

Others 31.92 20.90 8.78 11.68 11.32

Sub-total 1,788.05 1,462.20 1,295.81 1,444.72 1,532.93

Total 8,909.31 8,678.80 7,127.36 7,337.58 7,145.02

Intermediate Stock Differential (25.44) 29.30 (6.66) 7.01 (18.86)

Fuel & Loss 525.61 536.40 453.60 477.59 465.32

Total 9,409.48 9,244.50 7,574.30 7,822.18 7,591.48


28


TO THE MEMBERS

On behalf of the Board of Directors, I have great pleasure in presenting to you the fifty sixth Annual Report on theworking of the Company, together with the Audited Accounts for the year ended 31st March 2008.

HIGHLIGHTS

FINANCIAL (Rs./Crores) 2007-08 2006-07

Sales/Income from Operations 1,12,098.27 96,918.15

Profit before Depreciation, Interest and Tax 2,751.97 3,094.14

Depreciation (850.82) (704.00)

Interest (792.48) (422.98)

Profit before Tax 1,108.67 1,967.16

Provision for Tax� Current Tax (166.74) (652.67)

� Deferred Tax (202.53) (36.46)

� Taxation of earlier years written back 408.61 302.98

� Fringe Benefit Tax (13.13) (9.84)

Profit after Tax 1,134.88 1,571.17

Balance brought forward from previous year 6,892.13 6,186.63

Appropriations

General Reserve (113.49) (157.12)

Proposed Dividend :Interim - (203.60)

Final (101.59) (407.20)

Tax on distributed profits (17.26) (97.75)

Balance carried forward 7,794.67 6,892.13

PHYSICAL PERFORMANCE (MMT)

Market Sales (incl. Exports) 24.46 21.69

Crude Thruput:

- Mumbai Refinery 7.36 7.42- Visakh Refinery 9.41 9.24

SHAREHOLDERS’ VALUE (Rupees)Earnings Per Share 33.48 46.35

Cash Earnings Per Share 64.55 68.20

Book Value Per Share 311.59 283.19

DIVIDEND

Your Directors, after taking into account the financial results of the Company during the year, have recommendeddividend of 30% (including NIL interim dividend) for the year 2007-08 as against 180% (including interimdividend of 60%) paid for the year 2006-07. The dividend for 2007-08, including dividend tax provision willabsorb Rs.118.85 crores (2006-07: Rs. 708.55 crores).

Directors’ ReportDirectors’ ReportDirectors’ ReportDirectors’ ReportDirectors’ Report

We look beyond balance sheet while undertaking CSR initiatives

29


SALES/INCOME FROM OPERATIONS

Your Company has achieved sales/income from operations of Rs. 1,12,098.27 crores as compared to Rs.

96,918.15 crores in 2006-07.

PROFIT

Your Company has earned gross profit of Rs. 2,751.97 crores as against Rs. 3,094.14 crores in 2006-07 and

profit after tax of Rs. 1,134.88 crores as compared to Rs. 1,571.17 crores in 2006-07.

INTERNAL RESOURCES GENERATION

The Internal Resources generated were Rs. 2,069.38 crores as compared to Rs. 1,603.08 crores in 2006-07.

CONTRIBUTION TO EXCHEQUER

Your Company has contributed a sum of Rs. 21,753.33 crores to the exchequer by way of duties and taxes,

as compared to Rs.19,447.05 crores in 2006-07.

DIRECTORS’ RESPONSIBILITY STATEMENT

In terms of Section 217(2AA) of the Companies Act, 1956, your Directors state that:

(i) In the preparation of the Annual Accounts, all the applicable Accounting Standards have been followedalong with proper explanation relating to material departures.

(ii) The Company has 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 theCompany as on 31st March 2008 and of the Profit & Loss Account of the Company for the year ended onthat date.

(iii) The Company has taken proper and sufficient care for the maintenance of adequate accounting records inaccordance with the provisions of the Companies Act, 1956 for safeguarding the assets of the Companyand for preventing and detecting fraud and other irregularities.

(iv) These Accounts have been prepared on a going concern basis.

MEMORANDUM OF UNDERSTANDING WITH GOVERNMENT OF INDIA


Positive home life balance leads to higher productivity

The performance of the Corporation of

the year 2007-08 qualifies for

“Excellent” rating basis self

assessment. The details of performance

vis-à-vis MOU 2007-08 targets are

enclosed (Annexure I).

Signing of MOU with Government of India for theyear 2008-09. Seen in the picture are former Secretary– MOP&NG, Shri M. S. Srinivasan and C&MD,Shri Arun Balakrishnan

30


REFINERY PERFORMANCE

HPCL refineries achieved the highestever combined crude thruput of 16.77MMT as against 16.66 MMT achievedduring 2006-07.

During the year, Mumbai Refineryachieved crude thruput of 7.36 MMT asagainst 7.42 MMT for the year 2006-07,which corresponds to capacityutilization of 133.73%. The Fuel andLoss at Mumbai Refinery was 6.85%during the year which is better thanMOU excellent target of 7.40%.


Employee motivation leads to greater involvement

During the year, Visakh Refineryachieved crude thruput of 9.41 MMT as against 9.24 MMT for the year 2006-07, which corresponds to capacity

utilization of 125.50%. The Fuel and Loss at VisakhRefinery was 5.58% during the year which is betterthan MOU excellent target of 6.80%.

Gross refining margins of Mumbai Refinery averagedat US$ 5.98 per barrel as against US$ 4.78 per barrelfor the year 2006-07. Gross refining margins ofVisakh Refinery averaged at US$ 6.98 per barrel asagainst US$ 3.51 per barrel for the year 2006-07.Both refineries are on the verge of completing newfacilities to produce environment friendly fuel.

Mumbai Refinery achieved highest ever LOBSproduction of 351 TMT against installed capacity of335 TMT, thus achieving capacity utilization of104.70%.

The particulars with respect to Conservation of Energy, Technology Absorption. Foreign Exchange Earning &

Outgo are detailed in Annexure II.

Similarly, particulars relating to control of Pollution and other initiatives by Refineries are listed in Annexure

III of Directors’ Report.

MARKETING PERFORMANCE

The market sales (including exports) registered 24.46 MMT as against 21.69 MMT recorded in 2006-07. The

company achieved highest ever turnover of Rs. 1,03,837.43 crores during the year as against Rs. 91,448.03

crores during 2006-07.

Hon’ble Minister of Petroleum & Natural Gas, Shri Murli Deora Inaugurates Visakh RefineryGolden Jubilee Celebration

Visakh Refinery

31


VIGILANCE

Vigilance Department, in the current

year has strived to emphasize in its

activities, an environment of proactive

vigilance, the importance of

transparency, adherence to

professionalism and high standards in

customer service and project execution.

The stress has been on preventive

vigilance rather than being on fault

finding mission.

The initiatives on which special thrust

was given in the current year are

highlighted below:

A. Preventive Vigilance Activities

a. System Review - A systems study of crude procurement process, newly introduced disbursement

automation and vendor management system, and internal controls in place for e-payment was

carried out.

b. Interactive Sessions - Vigilance Awareness Week was observed from 12/11/07 to 16/11/07 all

over India in all the offices of HPCL.

c. Inspections - During the year, 2302 inspections were conducted at Terminals, Depots, Retail

outlets and LPG Dealerships.

B. Investigative Vigilance Activities

a. CTE Inspections/Tender Review

During the year, 255 inspections of contracts and major purchases were conducted.

b. Complaints

The practice of interacting directly with the person against whom complaint is received has been

continued by vigilance officers to understand and hear the person. Further, on many occasions,

CVO’s personal interactions with the officers complained against during his visits to various HPCL

locations have helped in building confidence, increasing transparency and awareness.

INDUSTRIAL RELATIONS

Industrial Relations climate during the year 2007-08 continued to be harmonious and there was no loss of

production/man hours. Various spot settlements were signed with Unions for improvement in productivity,

redeployment of workmen and commissioning of new facilities which resulted in optimum utilization of manpower.

During the year, an “e-care portal” was launched for attending to employee complaints on-line. The Corporation

bagged “Employer Branding Award 2008” from the Asia Pacific HRD Congress for its uniqueness and innovation


CVO, Shri B.R. Mandal inaugurating Vigilance Awareness Week At East Zone

We continuously train our employees to enhance capabilities

32


in Human Resource Management. A unique training initiative “JI HAAN SAMARTH” launched internally toimpart training to all LPG delivery-men was a grand success and received excellent feedback from end users.

OFFICIAL LANGUAGE IMPLEMENTATION

Progressive use of Hindi in the Corporation continues to receive due importance.

SC / ST LIAISON

The overall representation of SC / ST employees in the Corporation is 27.91%. During the year, your Corporationhas carried out a number of Welfare / Development activities.

CORPORATE GOVERNANCE

The Corporation has complied with thevarious requirements of CorporateGovernance. The details in this regardform part of this Annual Report.

MANAGEMENT DISCUSSION &ANALYSIS REPORT

This report has been given separately.

PARTICULARS OF EMPLOYEES

A statement providing the information asrequired under Section 217 (2A) of theCompanies Act, 1956 is annexedherewith (Annexure IV). The detailsregarding the number of womenemployee’s vis-à-vis the total number of employees in each group is also annexed (Annexure V).

DIRECTORS

HPCL Board presently comprises of 10 Directors. The Whole-time Directors are S/Shri Arun Balakrishnan,Chairman & Managing Director, S. Roy Choudhury, Director-Marketing, M.A. Tankiwala, Director-Refineries,V. Viziasaradhi, Director-Human Resources, and B. Mukherjee, Director-Finance.

The Part-time Directors are S/Shri P.K. Sinha, T.L. Sankar, I.M. Pandey, Prakash G. Apte and P.V. Rajaraman.

The following are the changes in directorships that occurred during the year:

� Shri Prabh Das, Joint Secretary, MOP&NG, who joined the HPCL Board on 03.05.2005 ceased to be

Director with effect from 05.03.2008 upon his resignation from the Government service.

� Shri P.K. Sinha, Additional Secretary & Financial Advisor, MOP&NG, who joined the HPCL Board on

01.03.2006 continues to be ex-officio Part-time Director of the Corporation.

� S/Shri Rajesh V. Shah & M. Nandagopal, who joined the HPCL Board on 21.01.99, ceased to be

Directors with effect from 23.08.2007.

� S/Shri T.L. Sankar, I.M. Pandey, P.V. Rajaraman and Prakash G. Apte continue to be part-time non-

official Directors of the Corporation.


Company Secretary, Shri N R Narayanan receiving the ‘Golden Peacock Award’ for Excellencein Corporate Governance – 2007 from former Prime Minister of Sweden, Dr. Ola Ullsten

We encourage employees to train themselves further

33


� S/Shri Arun Balakrishnan, Chairman & Managing Director, S. Roy Choudhury, Director-Marketing,M.A. Tankiwala, Director-Refineries, V. Viziasaradhi, Director-Human Resources, continue as thewhole time Directors of the Corporation.

� Shri C. Ramulu, Director-Finance retired from the services of the Corporation effective 31.01.08 onattaining the age of superannuation.

� Shri B. Mukherjee has been appointed as Director-Finance with effect from 01.02.08 who has beenco-opted as an Additional Director liable to retire at the next Annual General Meeting and is eligiblefor re-appointment.

� As per the provisions of Section 256 of the Companies Act, 1956, S/Shri P.K. Sinha, I.M. Pandey andS. Roy Choudhury are the Directors who will retire by rotation at the next AGM and are eligible for re-appointment.The Board of Directors place on record their sincere appreciation of the valuable services rendered by

S/Shri Prabh Das, Rajesh V. Shah, M. Nandagopal and C. Ramulu during their tenure on the Board.

ACKNOWLEDGEMENTS

The Directors gratefully acknowledge the valuable guidance and support extended by the Government of India,Ministry of Petroleum and Natural Gas, other Ministries, Petroleum Planning & Analysis Cell and the StateGovernments.The Directors also acknowledge the contribution made by the large number of dealers and distributors spreadall over the country towards improving the service to our valued customers as well as for the overall performanceof the Company.The employees of the Company have continued to display their total commitment towards the pursuit ofexcellence. Your Directors take this opportunity to place on record their appreciation for the valuable contributionmade by the employees and look forward to their services with zeal and dedication in the years ahead toenable the Company to scale even greater heights.Your Directors are thankful to the shareholders for their faith and continued support in the endeavors of theCompany.

For and on behalf of the Board of DirectorsARUN BALAKRISHNAN

May 29, 2008 Chairman & Managing Director


We empower employees to exercise authority with accountability

Seen in the picture are C&MD Shri Arun Balakrishnan, Director-Marketing Shri S. Roy Choudhury, Director-Refineries Shri M.A. Tankiwala,Director-Human Resources Shri V. Viziasaradhi & Director-Finance Shri B. Mukherjee

34


Annexure – I

MOU TARGETS VERSUS ACTUAL PERFORMANCE : 2007-08

CRITERIA UNIT Target Actual“Excellent” Achieved

Level

COMMON PARAMETERS (A)

I. STATIC FINANCIAL PARAMETERS:

a) Financial Performance Indicators:

i) Gross Margin / Gross Block % 17.91 30.00

ii) Net Profit / Net Worth % 16.49 25.26

iii) Gross Profit / Capital Employed % 18.11 34.67

b) Financial Indicators (size):

i) Gross Margin Rs. Crs. 4000 5871

ii) Gross Sales Rs. Crs. 81000 103837

c) Financial Returns:

i) PBDIT / Total Employment Rs. Lakhs 34.72 53.76

ii) Added Value / Gross Sales % 3.08 4.40

II. DYNAMIC PARAMETERS:

EMPLOYEE TRAINING & MOTIVATION

No. of Training Programmes Designed Nos. 8 9

Organisation Transformation workshops through Project ACE Nos. 30 36

No. of Internal Coaches trained and certification No. of Officers 12 12

Competency Profiling for Officers No. of Officers 200 1227

Six sigma Projects No. of Projects 8 10

IR related workshops for all employees No. of workshops 24 25

Internal Faculty members utilised in training programmes Nos. 150 232

R&D FOR SUSTAINED & CONTINUOUS INNOVATION

Filing of Patents Dates 31-1-2008 02-01-2008

New Product launches/R&D efforts Nos. 5 5

QUALITY CONTROL

Setting up 2 Nos. CFR Engines Dates 31-12-2007 20-10-2007

Setting up of 5 New Labs for testing fuels Dates 31-12-2007 26-12-2007

Annexure to Directors’ ReportAnnexure to Directors’ ReportAnnexure to Directors’ ReportAnnexure to Directors’ ReportAnnexure to Directors’ Report

We value and recognise loyal and committed employees

35



Level

RETAIL

Increase in Quantity of Ethanol used for Blending over historical % 12 772.6

Bio-Diesel: Initiating Jatropha cultivation for 2 projects Dates 28-02-2008 28-01-2008

PROJECT IMPLEMENTATION (MODERNISATION & EXPANSION)Refinery Projects

Receipt of all equipment for FCCU-II Revamp at Visakh Refinery Dates 30-11-2007 30-11-2007

Order placement for reactors of LOBS quality upgradation project Dates 30-11-2007 30-06-2007

Mechanical completion of Wind farm of 25 MW Wind Power project

at Brahmanvel Dates 31-08-2007 *

Visakh Refinery Expansion - Feasibility Study Dates 28-02-2008 31-10-2007

Direct Sales

Commissioning of dedicated Bunkering Terminal at Mumbai Dates 31-01-2008 25-01-2008

Mundra-Delhi Pipeline Project

Commissioning of Pipeline Dates 31-05-2007 27-05-2007

GURU GOBIND SINGH REFINERIES LTD.

Financial Closure Dates 31-07-2007 27-07-2007

Finalisation of technology for Major units Dates 31-12-2007 31-08-2007

SAFETY PARAMETERS

Reportable accidents in Refineries Accident/Million 0.40 0.18Man Hrs.

Number of Surveillance Safety Audits to be conducted bySH&E Dept. Nos. 24 26

*Project not fully completed due to force majeure condition.

EVALUATED MARKS - DYNAMIC PARAMETERS

SPECIFIC PARAMETERS (B)

I. Sector Specific:-Crude Thruput:Mumbai Refinery MMT 6.35 7.36Visakh Refinery MMT 7.90 9.41

Distillate Yields: Mumbai Refinery Wt% 68.10 71.10Visakh Refinery Wt% 78.50 79.18

Specific Energy consumption: Mumbai Refinery MBTU/NRGF 100.20 92.50Visakh Refinery MBTU/NRGF 97.00 87.66

Market Share: MS - Retail % 25.60 25.55HSD - Retail % 23.18 23.30


Pride, trust, camaraderie forms part of our vision ………….. we ensure this.

36



Level

II. Enterprise Specific & Efficiency Parameters:-

Automation of Retail Outlets Nos. 800 248

Third Party Certification of Retail Outlets % 80 100

Global Positioning System (GPS) for Tank Trucks Nos. 2000 3948

Addition of Branded Fuels in CLUB HP outlets-POWER Nos.(cuml.) 2600 2675

Addition of Branded Fuels in CLUB HP outlets-TURBOJET Nos.(cuml.) 3600 3650

Marketing of Non-Domestic LPG TMT 225 313

LPG Backlog % 0.3 0

Average Refining cost (Excluding Depreciation, turnaround & Rs./MT 410 337

one time expenses)

Average Marketing cost (Excluding Depreciation) Rs./MT 535 494

OVERALL RATING EXCELLENT


An employee of HPCL is always an employee……………….. we take care of them even after retirement.

Annual Sports Meets 2008

37



Annexure – II

Particulars with respect to Conservation of Energy, Technology Absorption and Foreign Exchange Earning/Outgo as per Companies (Disclosure of Particulars in the Report of Board of Directors) Rules, 1988.

ENERGY CONSERVATION & TECHNOLOGY ABSORPTION

I. CONSERVATION OF ENERGY

a) Energy Conservation measures undertaken and Additional Investment / proposals forimplementation on conservation of energy

Mumbai and Visakh Refineries accorded highest priority to energy conservation and have undertakenseveral Encon measures by operational improvements and implementation of Encon projects. VariousEncon measures undertaken during 2007-08 are as follows:

Mumbai Refinery

1. Carried out on-line chemicalcleaning of FRE-CDU/VDU andLR-VDU heaters by M/s GTCTechnology and improvedefficiency of heaters by 1.5%to 2.3%.

2. Installations of secondary sealson two numbers floating roofNaphtha / MS tanks to reducethe tank emission.

3. Carried out compressed airleak survey and implementedthe recommendation, whichhelped to reduce air leak by 40%.

4. Developed in-house economical schemes for firing the gas in the furnaces / boilers. Signed the GasTransmission Agreement (GTA) with GAIL to use the gas network.

5. Processed approx. 4890 m3 of sludge by engaging external agency and recovered potential 3574 m3oil through Mechanical Oil Recovery technology.

6. Organized Oil Conservation Fortnight during January 15 to 31, 2008 to generate mass awarenessamong public for conservation of petroleum products. During the fortnight, several activities like freePUC check up for vehicles, display of oil conservation posters and slogan/quiz & drawing competitionsin various schools at Chembur area were conducted.

7. Implementing the generation of low pressure flash steam from high pressure condensate in Light endsUnits.

We provide feedback to employees on their performance.

Mumbai Refinery

38


8. It has been planned to provide PRDS system in the Light End Unit to optimize the steam consumptionin Depentaniser and Dehaxaniser and two number desuperheaters for Naphtha stabilizers.

9. Installation of Desuperheater has been planned to reduce the steam temperature of MP steam headerby quenching the boiler feed water at Lube units which will produce the additional steam.

10. Proposal has been developed to increase SEU-I furnace (F-202) CIT by installing two additionalexchangers.

11. It has been planned to improve Diesel Unifying Unit furnace preheat by installing the additional heatexchanger in raw diesel pre heat circuit.

Visakh Refinery

1. Visakh Refinery achieved best ever Specific Energy Consumption of 87.66 MBTU/BBL/NRGF ascompared to previous best of 87.95 MBTU/BBL/NRGF during the year 2006-2007.

2. Reduced Specific fuel consumption in CPP from 0.371 MT/MWH in 2006-07 to 0.367 MT/MWH in2007-08.

3. Carried out frequent steam leak surveys and reduced steam leaks from 4.6 T/Hr to 1.84 T/Hr.

4. Carried out air leak survey and reduced air leaks considerably.

5. Routed hot well off gas to Atmospheric Furnace in CDU-II, which resulted into an estimated energysaving of ~2530 SRFT.

6. Processed approx. 3550 m3 of sludge by engaging M/s Balmer Lawrie and recovered potential oil.

7. Carried out In-situ chemical processing of high oily crude sludge of Tank 01E to recover oil.

8. Carried out on-line chemical cleaning of Atmospheric & Vacuum Furnaces, resulting in fuel savings.

9. Organized Oil Conservation Fortnight during January 15 to 31, 2008 to generate mass awareness inpublic for conservation of petroleum products. During the fortnight, several activities like, display of oilconservation posters / slogans, distribution of literature on energy conservation and quiz / drawingcompetitions in the schools were conducted.

10. Conducted a training program on Energy Conservation alongwith M/s National Productivity Council tocreate the awareness among employees and their families.

11. Carried out joint oil conservation survey for “Furnace / Boiler Insulation Effectiveness” & “Furnace /Boiler Efficiency”.

b) Impact of above on energy conservation measures and consequent impact on cost ofproduction of goods.

Various measures undertaken during the year 2007-08 resulted in estimated energy savings of approx.11247 SRFT, which is equivalent to Rs. 25.9 crores.


Competent performance is acknowledged and applauded

39



We encourage employees to suggest, to participate, to innovate……..

c) Total energy consumption and energy consumption per unit of production:

Please refer Form – A of the Annexure-II to the Directors’ Report.

II. TECHNOLOGY ABSORPTION, ADAPTATION & INNOVATION

a) Efforts made towards technology absorption, adaption & innovation information is given in Form-B ofAnnexure – II.

b) Imported Technology (imported during last 5 years) :

Technology Imported Year of Whether fully If not absorbed,

Import absorbed or not Reasons

Mumbai Refinery:

Diesel Hydro De-sulfurisation Unit 2nd

Reactor at MR 2004 Yes

Continuous Catalytic Reformer (CCR) 2004 No Plant under construction

Isomerisation Unit 2004 No Plant under construction

Fluidized Catalytic Cracking Unit (New) 2004 No Plant under construction

Prime G + Unit 2004 No Plant under construction

Flue Gas Desulphurization 2005 No Plant under construction

Online clearing of heaters 2006 Yes -

Visakh Refinery:

Diesel Hydro De-sulfurisation Unit 2nd Reactor 2005 Yes

Online Cleaning of Heaters 2006 Yes

Use of Gasoline sulfur reduction additives 2005 Yes

Use of Regen Flue Gas Sulfur Reduction Additive 2006 Yes

Continuous Catalytic Reactor 2004 No Plant under construction

Isomerisation Unit 2004 No Plant under construction

Fluidized Catalytic Cracking Unit (Revamp) 2004 No Plant under construction

Sulfur Recovery Unit 2005 No Plant under construction

Flue Gas Desulphurization 2005 No Plant under construction

III. FOREIGN EXCHANGE EARNING AND OUTGO

a) Activities relating to exports:

Various initiatives have been taken to increase exports and for development of new Export marketsfor products and services. Efforts are on to access international markets and to tap export potentialfor free trade products and lubricants.

b) Total Foreign Exchange used and earned:

Please refer Notes to Accounts – Schedule 20 B, Note 16 F, G, H & I.

40


FORM-A

FORM FOR DISCLOSURE OF PARTICULARS WITH RESPECT TO CONSERVATION OF ENERGY

MUMBAI REFINERY

(A) Power and Fuel Consumption 2007-08 2006-07

1 (a) Electricity PurchasedUnits (Million KWH) 127.14 122.22Total Amount (Rs. Crores) 63.00 51.44Rate Per Unit (Excluding demand charges) (Rs./KWH) 4.03 3.32Maximum Demand Charges (Rs. Crores) 11.69 10.85

(b) Own GenerationThrough Steam Turbine / GeneratorUnits (Million KWH) 237.29 216.25Units per tonne of fuel 2409.00 2405.85Cost per unit (Rs./KWH) 9.13 9.39

2 Furnace Oil / LSHSQuantity (Thousand tonnes) 274.63 191.87Total amount (Rs. Crores) 510.95 297.76Average rate (Rs./ Ton) 18605.00 15519.00

3 NaphthaQuantity (Thousand tonnes) 125.10 121.17Total amount (Rs. Crores) 373.07 312.64Average rate (Rs./Ton) 29822.00 25802.00

4 LPGQuantity (Thousand tonnes) 10.46 5.00Total amount (Rs. Crores) 29.70 12.28Average rate (Rs./ Ton) 28401.00 24568.00

5 Refinery GasQuantity (Thousand tonnes) 76.07 64.52Total amount (Rs. Crores) 141.53 100.13Average rate (Rs./ Ton) 18605.00 15519.00

6 BH GasQuantity (Thousand tonnes) 8.04 7.83Total amount (Rs. Crores) 4.47 4.39Average rate (Rs./ Ton) 5562.00 5607.00

7 CokeQuantity (Thousand tonnes) 34.58 32.41Total amount (Rs. Crores) 64.33 50.30Average rate (Rs./ Ton) 18605.00 15519.00

(B) Consumption per Unit of ProductionElectricity (KWH/TMT of crude) 49.55 45.62Fuel Oil (Tonne/TMT of crude) 54.35 42.19Gas (Tonne/TMT of crude) 12.86 10.43Coke (Tonne/TMT of crude) 4.70 4.37

We emphasize to our employees to look at all activities with a ‘corporate perspective’.


41


VISAKH REFINERY

(A) Power and Fuel Consumption 2007-08 2006-07

1 (a) Electricity purchased

Units (Million KWH) 10.46 6.57

Total amount (Rs. Crores) 6.37 5.19

Rate Per Unit (Excluding demand charges) (Rs./KWH) 6.08 3.18

Maximum Demand charges (Rs. crores) 3.12 3.10

(b). Own Generation (CPP)

Million KWH 289.84 301.62

Units Per Ton of Fuel 2726.11 2697.67

Cost Per Unit (Rs./KWH) 6.73 5.45

2. Furnace Oil /LSHS

Quantity (TMT) 133.86 129.88


Average Rate (Rs./Ton) 19356.00 16247.00

3 CPP Fuel

Quantity (TMT) 106.32 111.81



4. Naphtha (DHDS)

Quantity (TMT) 40.52 47.80



5. Refinery Gas

Quantity (TMT) 107.69 108.12


Average Rate (Rs./Tonne) 19272.00 16217.00

6. Coke

Quantity (TMT) 88.08 84.85


Average Rate (Rs./Tonne) 19341.00 16143.00

(B) Consumption per unit of production

Electricity (KWH/Ton of Crude) 31.91 33.34

Liquid fuel (Tons/TMT of Crude) 29.83 31.31

Gas fuel (Tons/TMT of Crude) 11.44 11.70

Coke Fuel (Tons/TMT of Crude) 9.36 9.18

Threshold ‘ROI’ is the basis of our investment decisions


42



FORM-B

FORM FOR DISCLOSURE OF PARTICULARS WITH RESPECT TO ADAPTION & INNOVATION

1. RESEARCH & DEVELOPMENT (R&D)

� COLLABORATIVE R&D PROJECTS

MOUs have been finalized with Research Collaborators for the following projects:

a. Optimization studies of food grade Hexane manufacturing unit and feasibility study forproducing polymer-grade Hexane (With IIP)

Study was initiated alongwith IIP during 2004-05 for optimizing the existing Mumbai RefineryHexane Plant’s operating conditions to explore the possibility to produce WHO and Polymergrade Hexane, which have more stringent quality specifications w.r.t sulfur & benzene content.

A feasibility study and test run has been planned during 2008-09.

b. Optimization studies of NMP Lube Extraction Unit (With IIP)

Study was initiated alongwith IIP during 2004-05 to optimize Mumbai Refinery NMP Lube ExtractionUnit’s operating parameters to obtain specific product quality & thruput maximization. Improvementin colour, sulfur and saturates is also expected by increasing the severity of hydrofining andselection of suitable catalyst. A substantial energy saving is also expected by pinch analysis ofheat exchangers in the unit.

A controlled test run was conducted jointly by IIP-HPCL personnel. The test run samples wereanalyzed by IIP for Physico Chemical Characterization.

Determination of Lube potential, Critical Solution Temperature, LLE single stage studies,Preliminary Glass Packed Columns & Pinch Simulation studies have been completed and finalreport has been prepared. The modification suggested will be implemented accordingly.

c. Membrane Separation Study to recover Propylene from Visakh Refinery Gas Mixture &LPG (With IICT Hyderabad)

Collaborative R&D is in progress with IICT Hyderabad for membrane separation of propylene fromLPG. Validation of Membrane and test run with pure gas was done. Test run with gas mixture isbeing carried out for different membranes. IICT is in process of writing simulation program fordetermining the number of stages for achieving desired propylene purity and membrane arearequirement based on feed capacity and composition of C3 fraction.

d. Implementation of Advance Process Control Technology

Visakh refinery engaged M/s Honeywell and implemented Advance Process Control Technologyin 6 units to optimize the plant operation to derive maximum benefits.

� EXPENDITURE ON R&D

a. Capital Expenditure : Rs. 7.94 crores

b. Revenue Expenditure : Rs. 2.13 crores

We leverage ‘IT’ to the maximum – MIS / e-payment / e-procurement / website management

43


2. UPGRADATION INITIATIVES

� Optimized de-waxing aid dose and improved 2nd stage de-waxing unit performance, which resulted inhighest ever LOBS production of 351 TMT at Mumbai Refinery.

� Initiated to produce heavy FO (bunker fuel of 380cst viscosity) for exports, which enabled to increaseHSD production.

� Carried out Integrated Refinery Business Improvement Program (IRBIP) thru Shell Global SolutionsInternational to improve the margins of Visakh Refinery.

� Visakh Refinery enhanced its capability to process wide range of crude and further widened its crudebasket, which has resulted in benefits of operating flexibility and margins.

� By optimising additives in FCCU catalyst, Gasoline Sulphur reduction was achieved, which hashelped in processing more medium/high Sulphur Crude, thereby improving the margins.

Annexure - III

Control of Pollution & other initiatives taken by Refineries are as follows:

MUMBAI REFINERY:

A. HAZARDOUS WASTE MANAGEMENT

� Hazardous Waste Disposal

a. Mumbai Refinery adopted ‘Mechanical Oil Recovery Technology’ by the contractor, M/s. MidContinent, Singapore.

b. In order to comply with the “Hazardous Wastes Management & Handling Rules - 2004”, spentcatalysts/old chemicals/discarded chemicals continue to be disposed off (since Nov. 2004 onwardstill Mar. 2008) at registered “Common Hazardous Wastes Treatment Storage Disposal Facility”(CHWTSDF), operated by Mumbai Waste Management Limited (MWML) for landfill/incineration.

� Solid Waste Disposal

a. MR has completed treating the entire tank farm pits sludge by processing approx. qty. of 35,000m3, from March 2003 to December 2007 and recovered 21,477 m3 of potential oil from thesludge with an approx. net gain of Rs. 15 crores.

b. MR, for the first time, has disposed approx. 110 Tons of spent catalysts, resins & alumina ballsthrough a sale deed to a MPCB approved vendor. The spent items sale initiative has resulted insaving of approx. Rs. 4.5 lakhs which otherwise disposing the spent catalyst to “CHWTSDF”would have resulted in a financial liability.

B. AIR EMISSION CONTROL & MONITORING

� CPP analyzer stack station software has been upgraded from present PLC based to PC based in linewith other stack stations to improve the performance. CPP data can be viewed on central PC locatedat New Admin Bldg, MR.

� “Electronic Display Board” has been commissioned at MR main gate which is proposed to displayon-line ambient air quality and updated treated effluent data towards transparency of compliance andfor public awareness.


Safety, Health and Environment is always top in management focus

44


C. EFFLUENT WATER TREATMENT & CONTROL

� In line with the national efforts and also considering increased complexity & production capacities,environmental improvements have been achieved through up-gradation of existing technologies forreduction in pollution levels. These effluent treatment plants ensure that all the water effluent generatedduring various process operations in the refinery are treated as per the set standards prescribed byState Pollution Control Boards. An Environmental Management System audit carried out at regularintervals enabling to ensure environmental compliance. To achieve further reduction in pollutant levelsbeyond MINAS, Mumbai Refinery has approved to put up an Integrated Effluent Treatment Plant(ETP) project by replacing the existing ETP-I & ETP-II with the latest state-of-art technology at a costof Rs.138 crores. The execution & commissioning is expected to be completed by the year 2009.

� Rotary Drum Skimmers (RDS) installed & commissioned upstream of Old & New API separators forbetter recovery of free oil and reduce load on API Separators.

� Replaced Bio tower rotary distributor arm to further excel the performance of ETP-I unit. This hasimproved effectiveness of biological treatment and resulted in better control on treated effluent qualityand facilitating in meeting BOD reduction.

D. ISO 14001:2004 CERTIFICATE RENEWAL

� Mumbai Refinery has successfully conducted the ‘Third Surveillance Verification / Certification Audit’by the appointed “Certification Agency”, M/s. SGS India Pvt. Ltd. The “Certification Agency” hasverified the implementation & operation of the “Environmental Management System” (EMS) withrevised standard alongwith its continual improvement and recommended the continuation of the ISO-14001:2004 Std. Certification for MR.

� MR has successfully organized ‘Two batches’ of “5 - Day Lead Auditor Training Programme” of ISO-14001: 2004, and trained its 44 employees to strengthen the Internal Auditors’ team. These trainingprogrammes were coordinated by PS&E, HR-Trng. & Training Department – HQO.

42 nos. of Environmental Awareness Programs were conducted for various departments/sectionsregarding EMS / ISO -14001:2004 implementation and Operations in the Refinery.

Submission of Environment Statement 2006-07:

� Environment Statement 2006-07 was timely submitted to Maharashtra Pollution Control Board as perthe Government of India (Ministry of Environment & Forests) notification No. GSR (E) dated March13, 1992.

E. PUBLIC AWARENESS ACTIVITIES:

As a part of public awareness campaign, the following environmental awareness activities were carriedout:

� MR has observed the ‘INTERNATIONAL EARTH DAY’ on 22nd April 2007. Banners with ‘environmentprotection messages’ were displayed at all prominent locations within the Refinery premises forawareness of employees.

� MR had organized various activities on ‘WORLD ENVIRONMENT DAY - 2007’ by conducting a “TreePlantation” program by senior Management, conducting Quiz & Slogan Contests (in English, Hindi &Marathi) for Refinery employees, Drawing competitions & distribution of Environmental messageembossed T-shirts for HP Nagar East & West Colony children, organised a film show titled “OurBirds’’ for HP Nagar East children, organised two special lectures by MPCB Officials for Refinery


The awards won by us recognise our efforts …..but they are benchmarks to perform better.

45


Employees and organized distribution of Waste Bins (10 nos. 25 litres size and one 240 litres sizebins per school) to 5 schools of Chembur.

VISAKH REFINERY:

A. EMISSIONS MANAGEMENT

� Purchase of portable multi flue gas analyzer for more efficient monitoring.

� Creating awareness through various literary programs and saplings distribution was done on theoccasion of World Environment Day on 05/06/07.

� Commissioning of SRU-Integration project, thereby leading to reduced pollution levels and operatingcosts of ARI-SRU’s.

� Treatment of Merox SWSG in DSRU Trains.

� Increased capacity utilization of DSRU Trains thereby leading to increase in Pure Sulphur production.

� Significant reduction in average SO2 emissions from the Refinery post SRU-Integration.

� Carried out Leak Detection & Repair for fugitive emissions management and found emissions wellwithin the stipulated limits.

B. LIQUID EFFLUENT MANAGEMENT

� Aeration facility was provided in equalization tanks at ETP.

� Implementation of NEERI recommendations are in progress.

C. OTHER ACTIVITIES UNDERTAKEN

� On process safety and risk management, MOU was signed with Visakhapatnam Port Trust in

September 2007 for handling offsite oil spill contingencies.

� Commissioned FGAAU in the month of November 2007 & subsequently ARI SRUs were shut-down

resulting in substantial savings in chemicals, operating cost and power & utilities.


Director-Refineries, Shri M.A. Tankiwalaexchanging agreement with CEO - ADNOC,Mr. Yousef Omair Bin in presence of C&MD,Shri Arun Balakrishnan and Joint Secy. &Financial Advisor – MOP&NG, Shri P.K. Sinha,for Increase of Term Crude Oil Contract withM/s. Abu Dhabi National Oil Company.

Work life balance gets positive with meaningful work. Our employees experience this

46


1 2 3 4 5 6 7 8 9

Sr. Name Designation / Remuneration Qualifications Exper- Date of Age Last EmploymentNo Nature of Duties ience Joining

(Rs.) (Years)

1 SIGANPORIA HORMAZ MEHLI Sr Manager-Facilities & Mntc 1704582 HSC/Inter/PUC 36 1/22/1972 60 Ruby Automobile Engineer, Mumbai2 ROY D Ch Manager - QC 1275018 DME 33 2/1/1975 60 M/s Sahney Kirkwood Pvt. Ltd, Mumbai3 BISWAS S K Exe Director - Proj.&P/L 2488423 DME 33 2/1/1975 60 Vijay Tanks and Vessels Pvt. Ltd, Mumbai4 GAIKWAD SAKHARAM SHANKAR DGM - HR(CSR), Chief Liaision 2258796 B.COM,LLB,DPM 32 10/20/1975 60 Officer of the Asst. Director Genereal, Mumbai5 BHIDE A K Exe Director - Corp Finance 1418687 B.COM,FCA/ACA 30 1/1/1978 60 Sharp and Tannan, Mumbai6 KOLI P K Fitter 613568 Non SSC 39 8/2/1969 60 Nil7 YELLEPEDDY RAGHAVA VENKATA Dy Gen Manager-HINCOL 2001714 B Tech (Mechanical) 24 10/20/1983 47 Nil8 SRINIVASAN P Sr Manager - Instrumentation 1141054 BSc Engg (Electrical) 24 11/21/1983 49 Nil9 SINGH LAL General Service Asstt. 479417 SSC/SSLC 24 9/28/1984 60 Army10 PELLURI SRIMAN NARAYANA MURTHY Deputy General Manager - Finan 1512501 B.COM,FCA/ACA 22 7/24/1986 50 Bharat Heavy Electricals Ltd, Hyderabad11 WAGHMARE GOUTAM V Ch. Accounts Asst. 505436 M.COM 21 5/26/1987 49 Walchandnagar Industries Ltd12 DEBASISH MOHAPATRA Manager - LPG Proj (Raja Site) 1074102 BSc Engg (Mechanical),DBM 20 12/28/1987 42 Nil13 BANAYAT GIANSINGH GARIBSINGH Ch. Accounts Asst. 1101645 BA 29 3/1/1979 60 Parel Investment and Trading Co. Ltd14 CHITYALA SATYANARAYANAMURTHY Ch. Accounts Asst. 1000939 BSC 38 3/1/1970 60 Nil15 MISRA ASISH KUMAR Sr.Manager-Planning & Monitori 1608489 BSc Engg (Mechanical) 19 1/9/1989 41 Nil16 DATE SANJAY MURARI Sr Fin Manager - PVA & Oil Exc 1317166 B.COM,FCA/ACA 19 9/18/1989 46 Inidan Oil Corporation Ltd, Mumbai17 VEERAMANI JAYARAMAN Dy Manager - ERP 596611 BE(Electronics & Telecommunication) 13 8/1/1995 33 Nil18 VEDAK A S Chief Maint. Technician 763469 ITI /NCTVT-Electrical 34 9/11/1974 60 ‘Ruttonsha Simpson Pvt. Ltd’19 MORE C K Chief Process Technician 672016 BSC-Chemistry 25 9/19/1983 50 ‘Enotro Associates’20 SURENDER B Sr LPG Operator 270406 SSC/SSLC 20 4/14/1988 45 Nil21 VAIDYA V P Sr Manager -Loss Coordination 1488371 BSC 38 7/27/1970 60 Nil22 NAIK P V Sr Manager - Process(CEC) 1333151 BE (Chemical) 19 3/14/1989 44 Megabase Data Pvt. Ltd, Mumbai23 PARAMESWARAN R Ch Manager - Electrical 962171 BOE,BSc Engg (Electrical) 19 6/7/1989 49 Oil and Natural Gas Commision (ONGC)24 BAGADA HITEESHKUMAR L Exe - Planning 772807 BE (Chemical) 17 10/29/1990 42 Nil25 SANJEEV AGARWAL Manager - T&A Dev LR 934083 BE(Production),MBA - Finance 17 10/29/1990 41 Nil26 JAIN SHARAD SAJAN Manager - Opn Analysis/Admin 753600 B Tech ( Chemical) 16 10/28/1991 38 Nil27 POKKUNURI RAMA KRISHNA Deputy General Manager - Maint 1835064 BE(Mech),MSC 32 1/12/1976 60 Hindustan Shipyard Ltd, Visakhapattanam28 VENKATARAMAN JAGANNATHAN Gen Manager - Special Assignme 1907987 BE(Mech),MTech 32 1/19/1976 60 Shree Digvijay Cement Co. Ltd, Gujarat29 ANNAJIRAO M V Chargeman - Opns 848398 SSC/SSLC,Dip in Co-operation 27 1/8/1981 60 M/s. Engineers India Ltd.30 VIJAYAKUMAR V Sr Superintendent - Production 796822 BSC 28 4/16/1980 60 M/s. Andhra Steel Corpn. Pvt.Ltd.31 RAO A S Exe Director - VR 2194663 DBM,MTech(Chemical) 26 12/31/1981 60 M/s Engineers India Ltd, New Delhi32 JANARDHANARAO N Male Nurse 867413 SSC/SSLC,Certificate in Medical 26 6/21/1982 60 Naval Store Depot33 NAIR SUDHIR P Manager - Project Process 890895 B Tech ( Chemical) 19 3/13/1989 44 J K Synthetics Ltd, Kota34 ABRAHAM JOSHY Manager - Minor Projects 687223 B Tech (Mechanical), MTech (Production) 18 10/20/1989 43 Nil35 SINHA PRABHAT KUMAR Manager - DHDS / Lighting 1042838 BE(Electrical) 17 10/29/1990 39 Nil36 SANAGAVARAM CHAKRADHAR Manager - Inspection 1262779 BE(Mettallurgy) 16 10/28/1991 39 Nil37 CHAGANTY VENKATA RAMANA KUMAR Senior Manager-ERP Central Team 1006456 Dip in Info System Audit,FCA/ACA 16 7/16/1992 44 Nil38 RAJENDRAN B Jr. Operator 708085 Non SSC 31 12/14/1976 60 Nil

1 Employees listed in the statement were employed for part of the year and were in receipt of remuneration at the rate of notless than Rs. 200,000/- per month.

2 Employment in the Corporation is non-contractual.

3 Employment provides for termination of services by either party giving one month’s notice.

4 None of the Employees are related to any of the Directors.

Information as per Section 217(2A), read with Companies (Particulars of Employment) Rules, 1975 and forming part of theDirectors’ Report for the period 1st April 2007 to 31st March 2008.

Annexure - IV


We cheer our people to create their dream organisation

Annexure - VSTATEMENT SHOWING WOMEN EMPLOYEES AS ON MARCH 31, 2008

Group Total No. of Employees No. of Women Employees % of Women Employees

A 4157 294 7.07B* — — —C 6618 418 6.32D 174 9 5.17TOTAL 10949 721 6.59

*HPCL has no posts classified under group ‘B’ as the entry in non-management grades has been re-classified in group ‘C’ effective1.1.1994.

47


Management Discussion & Analysis ReportManagement Discussion & Analysis ReportManagement Discussion & Analysis ReportManagement Discussion & Analysis ReportManagement Discussion & Analysis Report

DEVELOPMENTS IN THE ECONOMY & OIL SECTOR

Growth in the Indian economy remained strong in 2007-08 with increase in output of 9%. Expansion was led bythe services sector with double digit growth. The industrial sector grew by about 9%. The growth in agriculturesector was a healthy 4.5%.

High inflation at the beginning of financial year was contained through a series of measures including hike ininterest rates. This had an impact on the consumption of durable goods. Supply concerns, rising demand,falling dollar, speculation etc. continue to push up world oil prices. The Brent crude price increased by about45% during the financial year, breaching $100 per barrel mark in February 2008. The Indian crude basket pricereached $99 per barrel by the end of the financial year. The Indian government has continued to exercise controlover domestic fuel prices with a view to containing inflationary pressures.

Although exports increased by about 23% during 2007-08, faster growth in imports widened the trade deficit.Strong growth in invisible earnings, however, reduced the impact of higher trade deficit on current accountbalance. Capital flows, especially portfolio investments, were quite strong. As a result, foreign exchange accretionsexceeded 100 billion US dollars. Foreign exchange reserves at the end of March 2008 exceeded 300 billion USdollars. Large capital inflows also caused the rupee to appreciate against dollar by about 12% during 2007-08,marginally mitigating the impact of higher import price of oil.

The oil consumption in the country seems to show signs of revival and is slated to grow by 7% for the secondconsecutive year. Consumption of petrol and diesel grew by 11% during the financial year 2007-08. Bitumen andaviation fuel demand increased by 17% and 14% respectively during 2007-08. Naphtha demand, however,declined by about 4% in the same period. This appears to be on account of increased availability of natural gasthrough LNG imports.

PHYSICAL / FINANCIAL PERFORMANCE

HPCL Refineries at Mumbai and Visakh achieved a combined crude thruput of 16.77 MMT as against 16.66MMT achieved during 2006-07. Gross refining margins of Mumbai and Visakh Refinery averaged at $5.98 perbarrel and $ 6.98 per barrel respectively. The Market Sales (including exports) were 22.18 MMT as against21.69 MMT during 2006-07. The Company achieved highest ever turnover of Rs.1,03,837 crores during the yearas against Rs.91,488 crores in 2006-07. The profit after tax for the year is Rs.1134.88 crores as againstRs.1571.17 crores for the financial year 2006-07. Higher refining margins, higher other income, inventory gains,and compensation in the form of oil bonds / upstream share etc., have contributed to the profitability.

In view of rising crude oil prices and continuing pressure on margins, the Corporation has undertaken review ofon going activities to realign its “Capital expenditure program”. Several measures to achieve reduction in operatingexpenses have also been initiated. However important project activities and other critical operational activitieswould not be affected.

FINANCE

The Company had to raise resources from the market to meet additional fund requirements. The borrowings

have gone up by 60% from Rs.10,518 Crores in March, 2007 to Rs.16,787 Crores in March, 2008 due to higher

burden of under recoveries borne by HPCL and the time lag between incurring of under-recoveries and realizationfrom Oil Bonds. This increase in borrowings was inspite of selling Oil Bonds amounting to Rs.4,535 Crores

Our employees link their aspirations to organizational vision.

48



during the year. With a view towards costoptimization, the requirement of fundswas met through a combination ofvarious short term instruments and longterm loans in the form of externalcommercial borrowings and loans fromOil Industry Development Board. Theforeign exchange risk was managed bytimely hedging / forward cover in foreignexchange market.

E-payment system has beenestablished across the Corporation andE-collection initiatives are underimplementation on large scale.

Pursuant to the Government directive forconducting Audit and Cost Accounts, the Cost Audit was conducted for the first time during 2006-07 in respectof various manufacturing facilities of the Corporation for the year ended March 31, 2007.

PERFORMANCE OF THE REFINERIES

HPCL refineries processed highest ever combined throughput of 16.77 MMT against installed capacity of 13.00MMT, achieving a capacity utilization of 129.1 %.. Table below provides information on performance of tworefineries on various parameters.

Parameter MR VR

Crude processed 7.36 MMT(133.7%) 9.41 MMT(125.5%)(Capacity utilization) (Capacity Utilisation)

Fuel & Loss 6.85 wt% 5.58 wt%

Distillate Yield 71.1 wt% 79.18 wt%

Specific Energy Consumption 92.5 MBTU/BBL/NRGF 87.66 MBTU/BBL/NRGF

Mumbai Refinery also achieved highest ever LOBS production of 351 TMT against installed capacity of 335

TMT, indicating the capacity utilization of 104.7 %.

Refinery Projects

Mumbai Refinery (MR) is implementing the “Green Fuels & Emission Control Project to meet the EURO-III / IV

specifications for MS. The major facilities proposed under this project are NHT/CCR, Isomerization unit, FCC

Gasoline hydrotreater unit with associated auxiliaries. The Project is in the advanced stage of completion and

will be commissioned during 2008-09.

MR is also implementing a New FCCU unit of 1.5 MMTPA capacity for enhancing production of value added

products like, LPG, MS and HSD. The approved cost of the project is Rs. 900 Crores. The project is expected

Happy, energized and committed employees create delighted and committed customers.

Hon’ble Minister of Corporate Affairs, Shri Prem Chand Gupta presenting ICWAI’s NationalAward for Excellence in Cost Management to Director – Finance, Shri B Mukherjee.

49



to be completed by the end of year 2009.

A Lube Oil Up-gradation Project hasbeen undertaken by MR at an estimated

cost of Rs.1030 Crores to upgrade the

Lube Oil Base Stock (LOBS) quality from

current level of Group-I to Group-II / III

specifications. The project is expected

to be completed by May 2010.

Refinery has undertaken to replaceexisting Effluent Plants I & II with new

Integrated ETP by adopting Cyclic

Activated Sludge treatment followed by

Membrane Bio-Reactor and Tertiary

Treatment Plant. The project is expected

to be completed by June 2009.

Visakh Refinery is implementing the mega project to meet EURO-III / IV grade of MS quality in line with Auto

Fuel Policy. Under this project, the refining capacity is also envisaged to be increased to 8.33 MMTPA from

current 7.5 MMTPA. The Project is in the advanced stage of completion and will be commissioned during

2008-09.

Refinery Projects over the cost of Rs.11000 Crores with a potential of Rs.400 Crores revenue generation are now

being implemented by the Refineries through close coordination with Central Engineering Department (CEC).

CEC Department was formed with the objective of minimizing the time from project conceptualization to

commissioning through standardization, synergy between the two of our refineries at all stages and striving

excellence in project management.

PERFORMANCE OF MARKETING

RETAIL

* HPCL Marketed 22.18 MMT of various

products, registering an impressive

growth of 11.9% over historical. HPCL’s

market growth rate at 11.9% surpassed

industry growth rate of 7.6%.

* HPCL’s Market share increased to

17.38% in 2007-08 as against 16.7% in

2006-07.

Our work culture encourage to experiment and innovate

Retail Outlet at Pune

Signing of MOU between HPCL, GAIL, OIL, Mittal Energy Investments & TOTAL of France forsetting of grass root Refinery cum Petrochemical Complex in Visakh, AP.

50



Collaboration with suppliers to reduce

the lead time on supplies, leveraging

technology to enhance Quality / Quantity

measures, supply chain management

for optimizing distribution cost, reducing

inventory carrying cost, reviewing pricing

of branded products, increasing non-fuel

income, leveraging technology, reduced

spends on Branding, building capacities

in infrastructure in lieu of network

expansion and educating the customers

are several of the steps being taken by

HPCL to combat the negative effect on

top line growth.

There are opportunities in the sale of

branded fuels and a significant increase is expected in branded fuels business. Sale of gaseous fuels – especially

CNG and Auto LPG is another promising area. Opportunity is also seen in Allied Retail Business by providing

additional conveniences to Retail Customers through tie-up with well known companies.

PROJECTS & PIPELINES

To enhance Q&Q initiatives further, Terminal Automation System at 33 locations has been undertaken. This

initiative will ensure the project deliverables that will benefit not only the end customer but also retail outlets.

The project includes Terminal Automation System facilities like TT loading automation, tank farm management

system, online density metering, pump sequencing and automation, access control for tank trucks, PLC control,

etc. The project, being rolled out in phases across the 33 locations in the country, has been completed in 15

locations by 2007-08.

Our marketing strategies are aligned with the customer needs and vision

Hon’ble Minister of Information and Broadcasting Shri Priya Ranjan Dasmunsi presenting theReader’s Digest “Trusted Brand - Asia” Platinum Award 2008 to Executive Director–Retail, ShriS P Chaudhry

Mumbai-Pune-Solapur Pipeline Route Mundra Delhi Pipeline Route

51



Mundra Delhi Pipeline project was approved in July, 2004 at a cost of Rs.1756.93 and was completed on

schedule in May 07. The 5 MMTPA capacity pipeline achieved a thruput of 0.62 MMT between November 2007

to March 2008 and is expected to achieve a thruput of 3.0 MMT during 2008-09.

Additional marketing infrastructure viz. new grass-root TOP, ATF facilities, additional product tankages, tank /

truck loading facilities, rail loading gantry facilities was undertaken to improve the supply and distribution

network..

Feasibility studies for pipelines to evacuate product from the grassroot refinery at Bhatinda in Punjab to existingBahadurgarh Terminal and Bhatinda Depot are being taken up. Once approved, these pipeline projects are

scheduled for completion co-terminus with the refinery.

LPG SBU

LPG business line recorded a growth of

7.8%. Non-Domestic (ND) LPG sales

were 313 TMT, an all time high volume.Market leadership position was

maintained with 39% market share. The

ND Packed and Bulk segment

registered a growth of 37% and 31%,

respectively. Competitive advantage wassustained through project investments

at customer premises with long term

agreements, launch of Liquid Off-Take

(LOT) Valves for non-domestic cylinders

and increased thrust on conversion.

LPG Plants achieved bottling of 2738

TMT, a growth of 7.75 %. Mangalore LPG

import facility recorded highest ever thru put of 1.6MMT. Bottling capacity was augmented by 132 TMTtaking the total bottling capacity to 2440 TMT whilebulk storage capacity was augmented by 2900 MTthrough mounded storage at Hoshiarpur, Kondapally& Rajahmundry.

Sales of CNG increased by 14% on all India basiswith a sales volume of 117453 MT. For the first timein industry, automation of all 10 CNG stations inAhmedabad was completed facilitating centralizedmonitoring and integrating all CNG operations.

Signing of MOU “Ji Haan Samarth” between LPG SBU and HR – Marketing to impart training toLPG deliverymen across the country. Seen in the picture are C&MD, Shri Arun Balakrishnan,former, Director – Finance, Shri C. Ramulu, Director – Refineries, Shri M.A. Tankiwala, the thenED-IR, Shri V. Viziasaradhi and ED-LPG, Shri G.A. Shirwaikar.

Recently Commissioned Rajahmundry LPG Bottling Plant

Our rewards and recognition system creates, encourages and sustains excellence

52



In view of substantial subsidy provided to customers, HPCL has been focusing on task of identifying andweeding out of multiple connections with the customers. The objective is not only to arrest diversion but also toleverage customer database for market segmentation and launch of product/ service/ initiative & ARB productsbased on the said segmentation.

LPG SBU also proposes to pilot the RFID project to optimize cylinder inventory, enable 100% automation ofbottling process, tracking of cylinders & generate cylinder database.

The joint venture of HPCL and TOTAL, South Asia LPG Company Pvt. Limited (SALPG), commissioned Rs.333crore underground cavern facility to store 60,000 MT LPG in Visakhapatnam. For the first time in the country,VLGC (Very large Gas Carrier) of 39TMT was evacuated in the facility. The cavern is expected to ease LPGstorage constraint on eastern coast and it will enable oil companies to meet LPG demand in the country.

DIRECT SALES:

This SBU registered a growth of 7.8% as compared to industry growth of 5%. Lubes/Grease business recordeda growth of 34.8% as compared to Industry growth of 29%. Focus has been on tie-ups with major customers

like Tatas, Mahindras to produce special branded lubricants to cater to the requirements of the new generation

vehicles being manufactured by these companies.

After completion of lube refinery expansion project, the Corporation will be in a position to market higher grade

and value added lubricants to not only markets in India but also outside the country.

AVIATION :

Keeping pace with the growth in the Aviation sector, the growthof Aviation SBU has been phenomenal. Despite entry of new

players in the Jet Fuel Market, the SBU has maintained its

leadership position in terms of growth. Jet Fuel Sales have

reached 737 TMT registering a growth of 23.74% against

industry growth of approximately 14%. The market share has

increased by 1.2% to 16%. The growth in the domesticsegment has been 32.8% against industry growth of 20.9%.

The SBU has been taking action for all round excellence and

has taken specific measures in the field of operationalexcellence, Safety, Health and Environment, a strong brand

presence all ultimately aimed at customer delight. All the major

locations have been certified to ISO 18001 standards (OHSAS)

apart from the ISO 9001 and ISO 14001standards. High safety

standards at the locations have resulted in various safety

awards for the business.

The SBU has initiated action for expansion of network, fleet

augmentation, consolidation and strategies to consolidate in

line with the changing dynamics of the market and with a view to sustain the current sales growth coupled with

balancing the top-line and bottom-line.

We train our employees to sharpen their current skills and develop new competencies

53



CORPORATE R&D

The Corporation has given special focus on enhancing Research & Development initiatives in the recent years.

A R&D Centre is currently being set up at Bangalore. The Centre would be world class in terms of infrastructure

and other facilities.

A budget of about Rs.356 crores has been approved for setting up a R&D Centre and for various R&D initiatives

to be incurred in a phased manner. These initiatives are being undertaken in collaboration with reputed institutions

both within and outside the country. Some of the Institutions are IIT Kanpur, Indian Institute of Science, Bangalore,

Metex France, RTI USA. The focus area for R&D include nano particles in lubricants, production of Biobutanol,

depolymerising catalysts etc. in the arena of hydro carbon sector.

ENTERPRISE RESOURCE PLANNING (ERP)

The Enterprise Resource Planning (ERP) system has been supporting principal business processes of your

Corporation. After migration of all account balances into the system, ERP system has been storing complete

financial information of the Corporation from the beginning of the year. Various add-on applications based on the

ERP system have been put in place to exploit the potential of the System.

The System has contributed for closing the quarterly accounts within a week of completion of the quarter and

also early closing of the Annual Accounts. The System also helps the decision makers at various levels in

taking timely business decisions based on on-line and accurate information that is available from the System.

Standardization of business processes in the system has resulted in better management control. Cost of

operations can be tracked easily in the System enabling greater control.

INTERNATIONAL TRADE & SUPPLIES

Crude Oil Imports

The total crude oil purchases during the

year were 16820 Thousand metric

tonnes (TMT), the indigenous

procurement being 4214 TMT and the

balance 12607 TMT being imports.

Product Imports / Exports

The product imports during the year were

2637 TMT, HSD accounting for bulk of

the imports. The product exports during

the year were 2225 TMT. Naphtha and

FO formed bulk of the exports. Export

incentives in the form of advance licence

were obtained against the exports. This

would enable duty free import of crude oil equivalent to CIF value of approximately Rs.264 Crores.

Crude Unloading at Visakh

Our ‘MIS’ endeavour towards dual flow of information – employees to management and management to employees

54



EXPLORATION AND PRODUCTION

During the year 2007-08, a separate SBU was set up. The focus is to acquire a balanced portfolio of assets

comprising exploration, development and producing fields. By adopting best practices in terms of business

processes in this new field from inception, and augmenting the organization suitably, the sustainability of the

business model is sought to be secured. The strategy also aims to synergise the strength of Prize Petroleum

Company, floated by the Corporation in joint venture with financial institutions.

HP E&P currently has participating interests varying from 10% to 20% in 19 blocks in India and in 2 blocks

overseas (in Oman and Australia). In addition, HP E&P is part of the consortium developing the Mumbai High

offshore Cluster 7 fields on service contract from ONGC, with a major share of 60%.

HUMAN RESOURCES

The HR initiatives are aimed at enhancing

the motivation, morale and capability of

employees across the Organisation. The

Balanced Scorecard System as a tool

for performance evaluation both at the

Corporate and Departmental level has

been fully implemented, providing

valuable and timely MIS to the top

Management. This MIS enables the

Management to know the actual

performance vis-à-vis the target set for

both for the Dept as well as for the

Corporation. It also enables the

Management to take any mid-course

correction steps so that the Organisation as a whole is able to meet with all its objectives set for the year and

also ensure forward planning towards its Long Term

Vision and Goals.

Greater emphasis has been laid on training not only to

enhance the capabilities of the employees but also

update their skills in respective functional areas as well

as related areas. This includes both the inhouse

training and external training.

Industrial Relations’ climate during the year 2007-2008

continued to be harmonious in all the locations of

Marketing Division, Mumbai Refinery and Vizag

Director-HR, Shri V. Viziasaradhi receiving the “Asian CSR Award 2007” under “Best WorkplacePractices” category, at a function held at Vietnam, from “Asian Institute of Management” and“Chemoil”.

Management Development Institute at Nigdi, Pune

Our business units compete internally to excel but align between each other towards corporate goals.

55


Refinery and there was no loss of production and loss of manhours during the year.

OFFICIAL LANGUAGE IMPLEMENTATION

Official Language Implementation has been given utmost importance in the Corporation. Efforts in associating

Official Language with productivity of various Strategic Business Units of the Organisation further gained

momentum.

CORPORATE GOVERNANCE

A separate segment forms part of this report. However, it would be relevant to point out here that the Corporation

is giving utmost importance to compliance with CG requirements including compliance of regulations, transparent

management process, adherence to both internal and external value norms and robust grievance redressal

mechanism.

The Corporation has been complying with the requirement of Right to Information Act (RTI). The Corporation has

also implemented the Integrity Pact in liaison with “Transparency International” with effect from September 01,

2007.

CORPORATE SOCIAL RESPONSIBILITY

The Corporation spent a sum of Rs. 6.60 crores in 2007-08 in this segment. It included Rs.5.70 crores spent in

Special Component Plan including schemes to provide benefit to weaker sections of the Society.

A sum of Rs.84 Lakhs was spent on other CSR activities like AIDs Awareness Campaign, Rural Education,

Computer Training, Trade/Skills Training to Weaker Sections, support to Rural Schools etc. Such activities

were undertaken in co-ordination with NGOs and reputed institutions like CII etc.


Shri Arun Balakrishnan, C&MD, paying homage to Bharatratna Dr. Babasaheb Ambedkar at

Chaitya Bhoomi, Mumbai & Shri S. Roy Choudhury, Director – Marketing, distributing food

on the occasion of ‘Mahanirvan Diwas’.

“Balanced scorecard tool” is utilised to fix performance targets and evaluations thereon

56


GLOBAL COMPACT

HPCL is also a Member of the Global Compact Society of India which is the India Unit of the United NationGlobal Compact, the largest voluntary corporate initiative in the World. It offers a unique platform to engagecompanies in responsible business behaviour through the principles of Human Rights, Labour Standards,Environment norms and Ethical practices. All these area receives constant attention of the top Management toensure continuous compliance.

THE FUTURE

The Global economy faces a tough time ahead due to financial stress in western capital markets, spiralingcommodity and grain prices and consequent inflationary risks and possibility of further shocks to the oil market.Thus far, the impact of financial turmoil in the western world on India has been limited. However, inflation hasstarted to pick up again in India owing to rising commodity prices. Growth prospects for the Indian economy arevulnerable to trade and financial spillovers from the anticipated slowdown in the advanced economies. On theupside, continuing strong investments could provide support to growth.

The future is challenging. The Corporation could continue to face pressures on margins. The scenario calls forconsolidation and optimization of projects for future growth. The Corporation with its strong fundamentals andgrowth plans is confident of meeting the challenges ahead and live up to the expectations of all segments of itsStakeholders.

CAUTIONARY STATEMENT

Matters covered in the Management Discussion and Analysis Reports describing the Company’s objectives,projections, estimates, expectations may be “forward looking statements” within the meaning of applicablesecurities laws and regulations. The actual performance could vary from those projected or implied. Important orunforeseen factors that could make a difference to the Company’s operations include economic conditionsaffecting demand / supply and price conditions in the domestic market in which the Company predominantlyoperates, changes in regulations, and other incidental factors.


C&MD, HPCL, Shri Arun Balakrishnan and C&MD, ONGC,

Shri R.S. Sharma exchanging the MOU covering product

sale-purchase, infrastructure services and cooperation in

energy and related fields

Signing of MOU between HPCL & Oil India Ltd for pursuing

opportunities in upstream & downstream sectors & other

businesses of mutual interest in India & abroad. Seen in the

picture are Director – Refineries, HPCL Shri M A Tankiwala and

Director – HR&BD, OIL Shri J K Talukdar


57


Our Dealers

East Zone

Management Development Programme for New Dealers

South Zone

Management Meets Top Performing Dealers

LPG Dealers at Kolkata

Retail Dealers at Kolkata Retail Dealers at New Delhi


58


Special FSpecial FSpecial FSpecial FSpecial Focus Areasocus Areasocus Areasocus Areasocus Areas

AWARDS / RECOGNITIONS

� Silver Trophy at Lakshya 2006 from National Institute of Training in Industrial Engineering (NITIE) andsupported by Confederation of Indian Industry (CII) for HPCL’s article on “The Power of Collective Leadership”co-authored by S/Shri Ashis Sen & M.P. Eshwar, presented during Lakshya 2006 – the 7th Annual FlagshipCorp. event by NITIE

� Greentech Safety Award 2006 – Gold Award to Santacruz ASF from Shri Tony Smith, ED-National SafetyCouncil, USA for outstanding achievements in the field of Industrial Safety.

� Greentech Safety Award 2006 – Silver Award to Chennai / Dum Dum / Bangalore / Calicut & Cochin ASFfrom Shri Tony Smith, ED-National Safety Council, USA for outstanding achievements in the field ofIndustrial Safety.

� Greetech Safety Award 2006 – Gold Award to Mumbai Refinery from Shri Tony Smith, ED-NationalSafety Council, USA for outstanding achievements in the field of Industrial Safety.

� The Best Safe Industry Award 2006 from Shri Iqbal Ansari, the Hon’ble Minister for Social Welfare &Minorities – Govt. of Karnataka for outstanding achievements in the field of Safety.

� DMA Erehwon Innovative HR Initiatives Award from Smt. Anu Aga, Chairperson, Thermax for InnovativeHR Initiatives.

� Readers’ Digest Trusted Brand – Asia Gold Award (Gas Station Category) from the Readers’ Digest forthe most trusted brand.

� Mangalore POL Golden Peacock Award 2007 awarded by World Environment Foundation & the Instituteof Directors from Dr. Ola Ullsten, former Prime Minister of Sweden for excellence in occupational Healthand Safety Management.

� Golden Peacock Award 2007 to Mangalore POL Terminal awarded by World Environment Foundation &the Institute of Directors from Dr. Ola Ullsten, former Prime Minister of Sweden for excellence in occupationalHealth and Safety Management.

� Golden Peacock Award 2007 to Mumbai Refinery awarded by World Environment Foundation & theInstitute of Directors from H.E. Shri V. S. Khoje, the Governer of Himachal Pradesh for excellence inoccupational Health and Safety Management.

� Distinguished Fellow Award 2007 to Shri Arun Balakrishnan, C&MD awarded by Institute of Directorsfrom Smt. Kalpana Morparya, Jt. Director-IOD for significant contribution in Corporate & NationalDevelopment.

� CNBC Awaaz Consumer Award 2007 – Auto Fuel Category awarded by CNBC Awaaz for ‘The MostPreferred Brand of Automotive Fuel’ – Power.

� Greentech Environment Excellence Award from Greentech Foundation for Environment Excellence fromHon’ble Chief Minister of Goa, Shri Digambar Kamath:

� Gold Award 2007 to Palam ASF

� Silver Award 2007 to Santacruz ASF

� Gold Award 2007 to Mumbai Refinery


59



� Greentech Environment Excellence Award – Gold Award 2007 to Hassan Terminal from GreentechFoundation from Shri Kamleshwar Sharan, President – Greentech Foundation for Environment Excellence.

� Environment Excellence Silver Award to Goa ASF from Greentech Foundation for Environment Excellencefrom Hon’ble Chief Minister of Goa, Shri Digambar Kamath

� Most admired Retailer of the Year - Forecourt Retailing Award 2007 from Images Retail Award 2007 forRetailing

� Safety Innovation Award 2007 to Palam ASF & Santacruz ASF awarded by Institute of Engineers (India),Safety & Quality Forum for efforts towards developing total Safety Culture and Innovation from Hon’bleMinister of State for Heavy Industries & Public Enterprises, Shri Kanti Singh.

� Amity HR Excellence Award 2007 for innovative strategies for HR Management & Development fromAmity University.

� CIO 100 Award for using innovative technology in IT – Project Parivartan from IDG (International DataGroup) by Mr. David Hill – CEO & President, IDG.

� Oil Industry Safety Award – Marketing POL Organisations received first rank from OISD for safety standardsby Shri M.S. Srinivasan, Secretary – Petroleum & Natural Gas.

� Golden Peacock Award 2007 for Best Work Place Practices from Institute of Directors by Smt.SheilaDixit, Hon’ble Chief Ministry, New Delhi.

� Asian CSR Award 2007 for Best Work Place Practices from Asian Institute of Management & Chemoil.

� NIIS Award to DGM – Engg. Services, Shri V.S. Rao – Corrosion Awareness Award 2007 for Excellencein Corrosion Science from NACE International India Section (NIIS).

� The National Safety Award 2006 – the Runners up trophy to Budge Budge Terminal-I for safety standardsfrom National Safety Council by Shri Oscar Fernandes, Hon’ble Minister for Labour & Employment, Govt.of India.

� Runners up Trophy to Internal Coaches for HPCL’s article on “Achieving Leadership Excellence throughEmotional Intelligence” co-authored by S/Shri Ashis Sen & M.P. Eshwar, presented during Lakshya2007, the 8th Annual Flagship Corp. Event by NITIE.

� The Finalist Trophy in Financial Management Category for HPCL’s article on “Ratio Analysis at HPCL”co-authored by Shri J Srihari Kumar, Dy. Manager – Finance Ghatkesar Terminal, Secunderabad RO andShri N. Srikanth, Dy. Manager-Finance, GMO-SZ.

� Silver Trophy at EMPI Indian Express Indian Innovation Award for implementation and adaptation of IT forimproved logistics and cost reduction in the Indian Petroleum Industry from EMPI Indian Express byFormer President of India, Dr.A.P. J. Abdul Kalam.

� Star Retailer Award 2007 for ‘The Forecourt Retailer of the Year’ from India Retail Business.

� ENCON Award 2007 to Visakh Refinery for Energy Conservation in Petroleum Refining Sector fromBureau of Energy Efficiency by Hon’ble President of India, Smt. Pratibha Devi Singh Patil.


60


� CA Corporate Leader Exact Award for CA Professional from Institute of Chartered Accountants of India byHon’ble Union Minister for State for Home Affairs, Shri P. Shriprakash Jaiswal.

� Project Finance International 2007 Award for the Petrochemical Deal of the Year in Asia Pacific presentedfor Guru Gobind Singh Refineries to HPCL, SBI Capital, Mittal Energy.

� Golden Peacock Innovation Award 2007 to Chennai ASF for development of aircraft refueling and HoseEnd Pressure Control Valve (HEPCV) Test rig.

� The Best SLC Award to SLC – Visakh Refinery (AP) in the category of Big States in recognition of effortsmade in promoting Oil & Gas Conservation during OGCF 2007.

� Employer Branding Award – Life Time Achievement Award to C&MD from Asia Pacific HRM.

� Excellence award to Shri A.S. Rao, ED-VR from Delhi Telugu Academy for his exemplary services toindustry handed over by Shri K. Rosaiah, the Hon’ble Minister for Finance – AP State.

� Golden Peacock Award for Excellence in Corporate Governance 2007 from Institute of Directors / WorldCouncil for Corporate Governance.



Hon’ble Minister – P&NG, Shri Murli Deora presenting the Petrofed Oil &Gas Award for ‘Human Resources Management – Company of the Year’ toC&MD, Shri Arun Balakrishnan & Director – Human Resources, Shri V.Vizia Saradhi in the presence of former Secretary – MOP&NG, Shri M. S.Srinivasan

The OISD Safety Award 2006-07 for the Best Performance in POL MarketingOrganizations was presented to C&MD, Shri Arun Balakrishnan, by formerSecretary – MOP&NG, Shri M.S. Srinivasan.

OISD Safety Award 2007-08 for Best Performer amongst LPG MarketingOrganizations & Lube Blending Plants was presented to Director –Refineries, Shri M.A. Tankiwala and ED-LPG SBU, Shri G.A. Shirwaikarby former Secretary- MOP&NG, Shri M S Srinivasan.

Hon’ble Union Minister of State for Home Affairs, Shri Shriprakash Jaiswal,presenting the CA Professional Award under the Public/Govt. SectorCategory to former Director-Finance, Shri C. Ramulu.

61



JOINT VENTURES

Your Company’s Joint Ventures have performed very well during the year 2007-08.

South Asia LPG Co. Pvt. Ltd. (SALPG)

SALPG, a Joint Venture Company withTotal Gas and Power India (a whollyowned subsidiary of Total of France) wasincorporated on November 16, 1999,with HPCL’s equity contribution of 50%.First of its kind in India, the undergroundSALPG Cavern facility for storing LPGwas commissioned in December, 2007and formally inaugurated by the Hon’bleMinister of Petroleum & Natural Gas on14th January, 2008. The Cavern MarineTerminal has a 60,000 MT capacityunderground LPG storage Cavern andassociated receiving & despatchfacilities at Visakhapatnam. The SALPGCavern is the largest LPG storage facility

in South Asia with the lowest point 192 M belowthe Mean Sea Level (MSL) ranking among thedeepest Caverns in the World.

During the initial 3 months of its operation,SALPG has discharged three VLGC (Very LargeGas Carrier) parcels and handled a volume ofover 156000 MT of LPG. The Cavern storagefacility would enable meeting the growing demandof LPG in India and also the export of LPG tothe deficit markets in South Asia / South EastAsia.

Hindustan Colas Ltd. (HINCOL)

The performance of HINCOL, another Joint Venture with Colas of France, incorporated on July 17, 1995, hasbeen extremely impressive as it has registered significant growth during the year. HINCOL achieved a volumegrowth of 32% and profitability growth of 97% during the year and consolidated its status as the MarketLeader. The turnover of the company crossed Rs.250 crores for the year 2007-08. The products of HINCOL arewidely used by agencies associated with road construction.

During the year, a new manufacturing facility for Emulsion and Modified Bitumen was commissioned at Jhansi,bringing total manufacturing locations spread across India to 7, manufacturing high quality value added bituminousproducts such as bitumen emulsions, cutbacks & modified bitumen. The introduction of cost effective emulsifiers


Hon’ble Minister of Petroleum & Natural Gas, Shri Murli Deora Inaugurates SALPGunderground LPG Cavern Storage

Recently commissioned SALPG underground LPG Cavern Storage

62



for emulsion, cost effective modifiers for Modified Bitumen, innovation of packaging options coupled with focuson distribution network has helped the company to be competitive in the market. The focus on invert emulsionsenabled HINCOL to realise better margins on its products. During the year, 4000MT of Polymer ModifiedBitumen manufactured by HINCOL was used for the new Airports at Bangalore and Hyderabad.

The company has increased its dividend to 25% (Last year 15%) during the year 2007-08.

HPCL–Mittal Energy Ltd. (HMEL)

HPCL has entered into a Joint Venture with M/s. Mittal Energy Investments Pte Limited (MEI), Singapore, anL.N Mittal group company, for implementation of Guru Gobind Singh Refinery, a greenfield refinery projectlocated at Bathinda, Punjab. The refinery is designed to process 9 MMTPA of Arab Heavy Crude with flexibilityto process other heavy / sour / acidic crudes. The configuration of the refinery includes primary units andsecondary process units viz. CDU/VDU, VGO-HDT, FCC, NCU/ISOM, HGU, DHDT, SRU, DCU andPolypropylene manufacturing facilities. Other facilities include utilities such as CPP, Steam generation, EffluentTreatment plant, product storage etc.

During the year, HMEL has incorporated a wholly owned subsidiary viz. M/s HPCL-Mittal Pipelines Limited(HMPL) to set up and operate business relating to crude oil receipt, its storage and cross country transportationof crude oil. Both HMEL & HMPL have achieved financial closures and are currently in process of awardingmajor contracts and orders for equipments.

Manglore Refinery and Petrochemicals Ltd. (MRPL)

MRPL with a capacity of 3 MMTPA was commissioned in March 1996. The capacity of the refinery wasenhanced to 9 MMTPA during 1999-2000. ONGC acquired the entire equity stake of IRIL in MRPL on 03.03.2003and also infused Rs 600 crores into MRPL as additional equity on 30.03.2003. The FIs/Lenders of MRPLconverted Rs 365 crores of debt into equity and Rs 160 crores debt into ZCBs. Consequent to the above,HPCL’s equity stands at 16.95% after which a fresh Shareholder Agreement dated 03.03.2003 has beensigned by HPCL with ONGC to take care of the intersts of HPCL. MRPL has declared a dividend of 12% for thefinancial year 2007-08. HPCL and MRPL have been exchanging intermediate process streams between theirrefineries to supplement efforts to meet new environmental norms in respect of products like MS and HSD onmutually agreed terms

Prize Petroleum Company Ltd. (PPCL)

HPCL, in partnership with ICICI and HDFC, had formed this Joint Venture E&P Company for participating inexploration and production of hydrocarbons. PPCL was incorporated on October 28, 1998. PPCL is alsoproviding consultancy services related to E&P.

The consortium of PPCL, HPCL and Trenergy of Malaysia, which had signed the Service Contract for developmentof ONGC’s offshore marginal fields-Cluster-7, has made considerable progress during the year. Initial DevelopmentPlan (IDP) duly approved by all consortium partners has been submitted to ONGC Limited. Reservoir simulationstudy has been completed.

PPCL has signed a Service Contract with ONGC Ltd for development of marginal fields in Cambay basin with50% holding in the consortium. During the year, these fields produced 49,123 barrels of oil.

PPCL has also entered into a Production Sharing Contract (PSC) with 50% stake in an onland marginal field

at Sanganpur. During the year, there was a production of 1,426 barrels of oil from this field.


63


In respect of onshore block (under NELP-VI) at South Rewa in Madhya Pradesh, after receipt of PetroleumExploration License (PEL) from State Govt., the exploration activities as per committed minimum work programhave been initiated. PPCL is the Operator in this field.

Petronet India Ltd. (PIL)

Petronet India Ltd. (PIL) was incorporated on May 26, 1997 as a joint venture company with 50% equity by oilPSUs and balance 50% taken by private companies/financial institutions. Special Purpose Vehicles (SPVs)were floated by PIL with oil companies for implementing individual pipeline projects, viz, Petronet MHB, PetronetCCK and Petronet VK which are operating companies.

Since oil companies are now having pipelines independently, PIL has initiated action to disinvest its equityholding in individual JVs.

Petronet MHB Ltd. (PMHBL)

HPCL, along with Petronet India Limited (PIL) promoted Petronet MHB Limited (PMHBL) for construction ofMangalore- Hassan- Bangalore Pipeline at a cost of Rs. 667 Crores with debt equity ratio of 3:1. The jointventure company was incorporated on July 31, 1998. Initially PIL& HPCL each contributed 26% towardsequity. ONGC joined as a strategic partner in the company by taking 23% equity in April, 2003. The Pipelineis meeting the transportation needs between Mangalore-Hassan-Bangalore.

PMHBL achieved 50% higher throughput of 2.141 MMT during the year 2007–08 as compared to 2006-07.Revenue generation was higher by 52% during the year 2007-08 at Rs.57.29 Crores as compared to 2006-07.

PMHBL obtained Integrated Management System Certification covering Quality management System–ISO–9001, Environmental Management system – ISO – 14001 and OHSAS – 18001 in any PSU pipeline or PILpipelines.

Bhagyanagar Gas Ltd. (BGL)

Bhagyanagar Gas Ltd. (BGL) was incorporated on August 22, 2003 as a Joint Venture Company by GAIL andHPCL for distribution and marketing of environmental friendly fuels (green fuels) viz. CNG and Auto LPG for usein the transportation, domestic, commercial and industrial sectors, in the state of Andhra Pradesh.

BGL successfully launched CNG in Vijayawada & Hyderabad and is operating 5 CNG dispensing stations inVijayawada and 3 CNG Dispensing stations in Hyderabad. During the year, the first CNG Bus Dispensingstation was commissioned in Vijayawada which supplies CNG to the buses operated by APSRTC. BGL isalso operating 4 Auto LPG Outlets – 3 in Hyderabad and 1 in Tirupati. BGL achieved 63% higher sales at Rs33.12 crores during the year 2007–08 as compared to previous year.

Aavantika Gas Ltd. (AGL)

Aavantika Gas Limited (AGL) was incorporated on June 07, 2006 as a Joint Venture Company by GAIL andHPCL for distribution and marketing of environmental friendly fuels (green fuels) viz CNG and Auto LPG for usein the transportation, domestic, commercial and industrial sectors, in the State of Madhya Pradesh.

During the year, AGL has completed construction of CNG Mother Station at Indore and achieved mechanicalcompletion thereof. 5 Daughter Stations for dispensing CNG, 4 at Indore and 1 at Ujjain are also ready foroperation. The commercial operations could not be commenced during the year as license is required fromPetroleum and Natural Gas Regulatory Board (PNGRB), a regulatory body set by an Act of Parliament. Thematter has been taken up with PNGRB.




64

Auditors’ ReportAuditors’ ReportAuditors’ ReportAuditors’ ReportAuditors’ Report

TO THE MEMBERS OF HINDUSTAN PETROLEUM CORPORATION LIMITED

1. We have audited the attached Balance Sheet of Hindustan Petroleum Corporation Limited as at March 31,2008, and also the Profit and Loss Account and Cash Flow Statement of the Company for the year ended on thatdate annexed thereto. These financial statements are the responsibility of the Company’s management. Ourresponsibility is to express an opinion on these financial statements based on our audit.

2. We conducted our audit in accordance with the auditing standards generally accepted in India. These Standardsrequire that we plan and perform the audit to obtain reasonable assurance about whether the financial statementsare free of material misstatements. An audit includes examining, on a test basis, evidence supporting theamounts and disclosures in the financial statements. An audit also includes assessing the accounting principlesused and significant estimates made by management, as well as evaluating the overall financial statementpresentation. We believe that our audit provides a reasonable basis for our opinion.

3. As required by the Companies (Auditor’s Report) Order, 2003 as amended by Companies (Auditor’s Report)(Amendment) Order, 2004 (together ‘the Order’), issued by the Central Government of India in terms of sub-section (4A) of section 227 of the Companies Act; 1956, we give in the Annexure, a statement on the mattersspecified in paragraph 4 of the said Order.

4. Further to our comments in the Annexure referred to in paragraph 3 above, we report that:

(a) We have obtained all the information and explanations which, to the best of our knowledge and belief,were necessary for the purpose of the audit;

(b) In our opinion, proper books of account, as required by law, have been kept by the Company, so far as itappears from our examination of these books, and proper returns, adequate for the purposes of ouraudit, have been received from the branches;

(c) The Branch Auditors’ report, made available to us, has been appropriately dealt with while preparing ourreport;

(d) The Balance Sheet, Profit and Loss Account and Cash Flow Statement dealt with by this report are inagreement with the books of account;

(e) The Balance Sheet, Profit and Loss Account and Cash Flow Statement dealt with by this report comply withthe Accounting Standards referred to in sub-section (3C) of Section 211 of the Companies Act, 1956;

(f) On the basis of the written representations received from directors of the Company, as at March 31, 2008and taken on record by the Board of Directors, we report that none of the directors is disqualified as atMarch 31, 2008, from being appointed as a director in terms of clause (g) of sub-section (1) of Section 274of the Companies Act, 1956; and

(g) In our opinion, and to the best of our information and according to the explanations given to us and readwith Note No. 4 to Schedule 20B, regarding treatment of certain Income Tax benefits, the said accountsgive the information required by the Companies Act, 1956, in the manner so required and give a true andfair view in conformity with the accounting principles generally accepted in India;

(i) in the case of the Balance Sheet, of the state of affairs of the Company as at March 31, 2008;

(ii) in the case of the Profit and Loss Account, of the profit for the year ended on that date; and

(iii) in the case of the Cash Flow Statement, of the cash flows for the year ended on that date.

For Sudit K. Parekh & Co. For V. Sankar Aiyar & Co.

Chartered Accountants Chartered Accountants

Srikant V. Jilla G. SankarPartner PartnerMembership No. 39461 Membership No. 46050

Place : New Delhi

Date : May 29, 2008



65656565

Annexure to the Auditors’ ReportAnnexure to the Auditors’ ReportAnnexure to the Auditors’ ReportAnnexure to the Auditors’ ReportAnnexure to the Auditors’ Report

(Referred to in Paragraph 3 of our Report of even date)

1. (a) The Company has maintained proper records showing full particulars including quantitative details andsituation of fixed assets except for items likes pipes, valves, meters, instruments and other similar itemspeculiar to a continuous process industry.

(b) As explained to us, the Company, having regard to the size and nature of its business, has adopted apractice of carrying out physical verification of its fixed assets, except LPG cylinders and fixed assets of theerstwhile Kosan Gas Company undertaking, not handed over, on a staggered basis, over a period of fiveyears in the case of furniture, fixtures and office equipment and over a period of three years in the case ofPlant and Machinery and other assets. We were informed that discrepancies noticed on such verificationas compared to the book records have been properly dealt with in the books of account. The existence offixed assets situated at the residence of employees has, however, been ascertained on a self-declarationbasis.

(c) Fixed Assets disposed off during the year were not substantial and, therefore, do not affect the goingconcern assumption.

2. (a) As explained to us, the inventories were physically verified during the year by the Management at reasonableintervals.

(b) The procedures of physical verification of inventory followed by the management are reasonable andadequate in relation to the size of the Company and the nature of its business. In the case of materialslying with third parties, certificates confirming stocks held have been received from them.

(c) The Company has maintained proper records of inventory. We were informed that discrepancies noticedon physical verification, as compared to the book records, were not material and have been properly dealtwith in the books of account.

3. Based on the audit procedures applied by us and according to the information and explanations given to us, theCompany has neither granted nor taken loans, secured or unsecured to/from companies, firms or other partiescovered in the register maintained under Section 301 of the Companies Act, 1956. Consequently, sub clauses(b), (c), (d), (e), (f) and (g) of sub-para (iii) of para 4 of the Order are not applicable.

4. In our opinion and according to the information and explanations given to us, and having regard to the explanationsthat some of the items are of a specialized nature, in respect of which suitable alternative sources do not existfor obtaining comparative quotations, there are adequate internal control procedures commensurate with thesize of the Company and nature of its business for the purchase of inventory and fixed assets and for the saleof goods and services.

5. In our opinion and according to the information and explanations given to us, there are no contracts andarrangements referred to in Section 301 of the Companies Act, 1956 entered into during the year that need tobe entered in the register maintained under that Section. Accordingly, sub clause (b) of sub-para (v) of para 4 ofthe Order is not applicable to the Company for the current year.

6. In our opinion, and according to the information and explanations given to us, the Company has complied withthe directives issued by the Reserve Bank of India and the provisions of Section 58A and Section 58AA or anyother relevant provisions of the Companies Act, 1956, and the rules framed there under with regard to depositsaccepted from the public. We have been informed that no order has been passed by the Company Law Boardor National Company Law Tribunal or Reserve Bank of India.

7. In our opinion, the Company has an internal audit system commensurate with its size and the nature of itsbusiness.

8. We have broadly reviewed the books of account maintained by the Company in respect of products where,pursuant to the Rules made by the Central Government, the maintenance of cost records has been prescribedunder Section 209 (1) (d) of the Companies Act, 1956. We are of the opinion that prima facie the prescribed



66


accounts and records have been maintained and are being made. We have not, however, made a detailedexamination of the records with a view to determine whether they are accurate or complete.

9. (a) According to the information and explanations given to us and on the basis of our examination of thebooks of account, the Company has, during the year, been generally regular in depositing with theappropriate authorities, undisputed statutory dues, including Provident Fund, Investor Education andProtection Fund, Income Tax, Sales Tax, Wealth Tax, Service Tax, Custom Duty, Excise Duty, Cess and anyother material statutory dues.

(b) According to the information and explanations given to us and on the basis of our examination of thebooks of account, no undisputed amounts payable in respect of Income Tax, Sales Tax, Wealth Tax,Service Tax, Custom Duty, Excise Duty, Cess were in arrears, as at March 31, 2008, for a period of morethan six months from the date they became payable.

(c) According to the information and explanations given to us, dues relating to Sales Tax/Custom Duty/WealthTax/Service Tax/Excise Duty/Cess, which have not been deposited on account of disputes with the relatedauthorities, have been reflected in the table below:


STATUTE FORUM WHERE AMOUNT IN PERIOD TO WHICH

PENDING Rs. / Crores THE AMOUNT RELATES

Income Tax Act, 1961 Appellate Tribunal 0.20 2006-07Commissioner (A) 20.88 2004-05

21.08Central Excise Act 1944 Commissioner (A) 39.68 2000-03, 1998, 2005-06, 2000-01,

2003-04, 2004-05, 2005-06Assistant Commissioner 66.31 1996-98, 1999-2000, 2001-04, 1988-94, 1994-96,

1997-98, 1998-99, 2000-01, 2001- 04CESTAT 346.15 1996-04, 1994-95 , 2005-06, 2006-07Revisionary authority 0.86 2004

453.00

Various Central & Board of Revenue 0.19 1985-86, 1986-87State Sales Tax Acts CIVIL COURT 0.14 2001-05

Rajasthan Kar Board 2.58 1999-00CESTAT 110.46 1987-88, 1989-05 1994-95,

1995-96, 1996-97,1997-98,1999, 1999-00, 2000-01, 2001-02, 2002-03

High Court 1079.16 1979-80,1984-85,1991-93, 1993-941994-95, 1995-96 1996-97,1997-98,1999,1999-00, 2000-01, 2001-02, 2002-03, 2003-04

Commissioner / DCCT / 2163.76 1976-77, 1977-78, 1978-79, 1985-86, 1986-87,ADC / JCCT / ACCT 1987-88, 1991-93, 1993-94 1994-95, 1995-96

1996-97,1997-98,1999, 1999-00, 2000-01,2001-02, 2002-03, 2003-04, 2004-05, 2005-06

3356.29

Custom Act, 1962 CESTAT 67.52 1993-97, 1995-98, 1998-99, 2002-04, 2006-0767.52

Service Tax CCEA 0.19 2003-06CESTAT 4.32 2002-07

4.51

Grand Total 3902.40


67676767


10. The Company does not have any accumulated losses at the end of the financial year and has not incurred

cash losses in the financial year and in the financial year immediately proceeding such financial year.

11. According to the information and explanations given to us, and based on checks carried out by us, the

Company has not defaulted in repayment of dues to financial institutions or banks. The question of default

in repayment of dues to debenture holders does not arise since no debentures were outstanding during

the financial year.

12. According to the information and explanations given to us, the Company has not granted loans and

advances on the basis of security by way of pledge of shares, debentures and other securities.

13. In our opinion and according to information and explanations given to us, the Company is not a chit fund

or a nidhi/mutual benefit fund/society. Therefore the provisions of sub-para (xiii) of para 4 of the Order are

not applicable to the Company.

14. According to the information and explanations given to us, the Company is not dealing or trading in

shares, securities, debentures and other investments. Therefore the provisions of sub-para (xiv) of para

4 of the Order are not applicable to the Company.

15. In our opinion and according to information and explanations provided to us, the Company has not

provided guarantees for loans taken by others from banks and financial institutions.

16. In our opinion, the term loans taken during the year have been applied for the purpose for which they were

raised.

17. According to the information and explanations given to us, and on an overall examination of the Balance

Sheet of the Company, funds raised on short-term basis have, prima facie, not been used during the year

for making long-term investments.

18. According to the information and explanations given to us, during the year the Company has not made any

preferential allotment of shares to parties and companies covered in the Register maintained under

Section 301 of the Companies Act, 1956.

19. The Company has not raised any monies by way of issue of debentures. Therefore, the provisions of sub-

para (xix) of para 4 of the Order are not applicable to the Company.

20. The Company has not made any public issue of securities during the year.

21. According to information and explanations given to us and based on audit procedures performed and

representations obtained from the management, we report that no material fraud on or by the Company,

has been noticed or reported during the year under audit.

For Sudit K. Parekh & Co. For V. Sankar Aiyar & Co.Chartered Accountants Chartered Accountants


Place : New DelhiDate : May 29, 2008


68


SCHEDULE 2007-08 2006-07

SOURCES OF FUNDSShareholders’ Funds:

a) Capital 1 339.01 338.95b) Reserves and Surplus 2 10,224.28 9,259.70

10,563.29 9,598.65Loan Funds:

a) Secured Loans 3 1,118.48 1,005.48b) Unsecured Loans 4 15,668.22 9,512.05

16,786.70 10,517.53Deferred Tax Liability 1,595.98 1,420.90

TOTAL 28,945.97 21,537.08

APPLICATION OF FUNDSFixed Assets: 5

a) Gross Block 19,570.04 15,638.48b) Less: Depreciation 7,640.77 6,817.64

c) Net Block 11,929.28 8,820.84d) Capital Work-in-Progress 6 3,315.95 4,243.56

15,245.23 13,064.40Investments 7 6,837.05 7,127.47Current Assets, Loans and Advances:

a) Inventories 8 12,020.28 8,098.40b) Sundry Debtors 9 1,710.66 1,577.78c) Cash and Bank Balances 10 294.01 86.79d) Other Current Assets 11 49.46 92.33e) Loans and Advances 12 5,222.96 1,609.40

19,297.37 11,464.70Less:Current Liabilities and Provisions: 13

a) Liabilities 11,893.37 8,891.77b) Provisions 540.32 1,227.72

12,433.69 10,119.49

Net Current Assets 6,863.68 1,345.21

TOTAL 28,945.97 21,537.08

STATEMENT OF SIGNIFICANT ACCOUNTING POLICIESAND NOTES FORMING PART OF ACCOUNTS 20

Rs./ Crores

ARUN BALAKRISHNANChairman & Managing Director

B. MUKHERJEE FOR SUDIT K. PAREKH & CO. FOR V. SANKAR AIYAR & CO.Director-Finance Chartered Accountants Chartered Accountants

N.R. NARAYANAN SRIKANT V. JILLA G. SANKARCompany Secretary Partner Partner



Balance Sheet as at 31st MarBalance Sheet as at 31st MarBalance Sheet as at 31st MarBalance Sheet as at 31st MarBalance Sheet as at 31st March, 2008ch, 2008ch, 2008ch, 2008ch, 2008

69


SCHEDULE 2007-08 2006-07INCOME

Sale of Products 103,837.43 91,448.03(Net of Discount Rs. 902.57 crores; 2006-07 Rs.728.98 crores )Less : Excise Duty Paid 7,394.51 7,876.89Net Sales 96,442.92 83,571.14Recovery under Subsidy Schemes 8,260.84 5,470.12Other Income 14 1,197.97 680.30

105,901.73 89,721.56

INCREASE /(DECREASE) IN INVENTORY 15 2,355.87 243.55EXPENDITURE AND CHARGES

Purchase of Products for resale 62,205.94 46,850.22Raw materials consumed 38,024.65 35,816.79Packages consumed 111.91 105.11Excise Duty on inventory differential 390.77 45.40Transhipping Expenses 2,105.52 1,749.46Payments to and provisions for Employees 16 867.66 729.42Exploration Expenses 16.51 20.11Other Operating Expenses 17 1,761.02 1,560.51Depreciation/Amortisation 850.82 704.00Borrowing Cost 18 792.48 422.98

107,127.28 88,004.00PROFIT FOR THE YEAR BEFORE PRIOR PERIOD ADJUSTMENTS AND TAXES 1,130.32 1,961.11PRIOR PERIOD ADJUSTMENTS 19 21.65 (6.05)

PROFIT BEFORE TAXES 1,108.67 1,967.16

PROVISION FOR CURRENT TAXATION 166.74 652.67PROVISION FOR DEFERRED TAXATION (NET) 202.53 36.46PROVISION FOR TAXATION OF EARLIER YEARS WRITTEN BACK (408.61) (302.98)PROVISION FOR FRINGE BENEFIT TAX 13.13 9.84

PROFIT AFTER TAXES 1,134.88 1,571.17Balance brought forward 6,892.13 6,186.63

PROFIT AVAILABLE FOR APPROPRIATION 8,027.01 7,757.80APPROPRIATED FOR:General Reserve 113.49 157.12Interim Dividend - 203.60Proposed Final Dividend 101.59 407.20Tax on Distributed Profits 17.26 97.74

BALANCE CARRIED FORWARD 7,794.67 6,892.14EARNINGS PER SHARE (in Rs.) - Basic & Diluted 33.48 46.35

(2007-08 : EPS = Net Profit - Rs. 1,134.88 crores / Weighted avg. no. of shares - 33.89 crores; 2006-07 : EPS = Net Profit - Rs. 1,571.17 crores / Weighted avg. no. of shares - 33.895 crores)

STATEMENT OF SIGNIFICANT ACCOUNTING POLICIESAND NOTES FORMING PART OF ACCOUNTS 20

Rs./ Crores

PrPrPrPrProfit and Loss Aofit and Loss Aofit and Loss Aofit and Loss Aofit and Loss Account for the year ended 31st Marccount for the year ended 31st Marccount for the year ended 31st Marccount for the year ended 31st Marccount for the year ended 31st March, 2008ch, 2008ch, 2008ch, 2008ch, 2008






70


Schedules forming part of the Balance SheetSchedules forming part of the Balance SheetSchedules forming part of the Balance SheetSchedules forming part of the Balance SheetSchedules forming part of the Balance Sheet

2007-08 2006-071. CAPITAL

A. Authorised:75,000 Cumulative Redeemable Preference Shares of Rs. 100/- each 0.75 0.7534,92,50,000 Equity Shares of Rs.10/- each 349.25 349.25

350.00 350.00B. Issued, Subscribed & Called up:

33,93,30,000 Equity Shares of Rs.10 each 339.33 339.33Less: 7,02,750 Shares Forfeited during the year (0.70) -33,86,27,250 equity shares of Rs. 10 each fully paid up 338.63 339.33

Less: Calls unpaid by Others - (0.38)Add: Shares Forfeited (Money received) 0.39 -

339.01 338.95NOTES :-(1) 77,50,000 fully paid up equity shares of Rs. 10/- each were allotted to

the shareholders of Lube India Limited on the amalgamation of thatcompany for consideration other than cash.

(2) 52,00,000 fully paid up equity shares of Rs. 10/- each were allotted tothe President of India, for consideration other than cash, on theamalgamation of Caltex Oil Refining India Limited with the Corporation.

(3) 26,44,30,000 equity shares of Rs. 10/- each were allotted as fully paidbonus shares by capitalisation of Capital Reserve, Capital RedemptionReserve and accumulated profits.

(4) During the current year Company has forfeited 7,02,750 shares issuedas a part of the public issue in 1994-95, due to non receipt of allotmentand/or call money from shareholders. Accordingly, the paid up sharecapital has been reduced from Rs. 339.33 crores to Rs. 338.63 crores.

2. RESERVES AND SURPLUSShare Premium AccountAs per last Balance Sheet 1,151.71 1,164.12Add : Premium Adjusted 2.06 0.00Less : Calls Unpaid 0.00 12.41

1,153.77 1,151.71Capital Grant

As per last Balance Sheet 4.74 4.93Received during the year - -

4.74 4.93Less: Amortised during the year (0.19) (0.19)

4.55 4.74General ReserveAs per last Balance Sheet 1,211.11 1,053.99Less:Transitional Liability booked in line with provisions of AS-15 (Revised) (53.31) -Add:Transfer from Profit & Loss Account 113.49 157.12

1,271.29 1,211.11Profit and Loss AccountSurplus as per Account annexed 7,794.67 6,892.14

10,224.28 9,259.70

Rs./ Crores


71


Rs./ Crores


2007-08 2006-07

3. SECURED LOANS

i. Collateral Borrowing and Lending Obligation (CBLO) 605.00 460.00

(Secured by Pledge of Oil Bonds)

(Due for repayment within one year Rs. 605 crores; 2006-07:

Rs. 460 crores)

ii. Overdrafts from Banks 513.48 545.48

(Secured by hypothecation of Stock-in-Trade)

1,118.48 1,005.48

4. UNSECURED LOANS

Fixed Deposits 0.02 0.02

Clean Loans from Banks 9,200.00 5,830.00

(Due for repayment within one year Rs. 9200.00 crores; 2006-07 :

Rs. 5830 crores)

Short Term Loans from Banks 3,738.13 1,356.87

(repayable in foreign currency)

(Due for repayment within one year Rs. 3738.13 crores; 2006-07 :

Rs. 1356.87 crores)

Term Loan from Oil Industry Development Board 1,075.00 1,250.00

(Due for repayment within one year Rs. 450 crores; 2006-07 :

Rs. 200 crores )

Syndicated Loans from Foreign Banks 1,655.07 1,075.16

(repayable in foreign currency)

(Due for repayment within one year Rs. Nil; 2006-07 : Rs. Nil)

15,668.22 9,512.05


72


5. FIXED ASSETS (A & B) Rs. /Crores

Gross Block Additions/ Deductions/ Gross Block Depreciation Total Net Netat cost Reclassifi- Reclassifi- at cost and Depreciation Block Block

as at cations cations as at Amortisation and as at as at01-04-2007 31-03-2008 for the year Amortisation 31-03-2008 31-03-2007

2007-2008 upto31-03-2008

A. OTHER THAN INTANGIBLE ASSETS1. Land - Freehold (C) 477.68 22.94 - 500.62 - - 500.62 477.682. Roads and Culverts (E&F) 771.66 228.05 1.25 998.46 15.58 83.82 914.64 703.213. Buildings (D) 1,498.73 333.82 2.73 1,829.82 36.19 219.29 1,610.53 1,314.944. Leasehold Property - Land 90.04 15.36 - 105.40 3.50 26.55 78.85 67.005. Railway Siding and 281.40 0.90 0.43 281.87 12.88 139.89 141.98 154.19

Rolling Stock (E)6. Plant and Equipment(E, F & G) 12,043.51 3,227.21 42.55 15,228.17 750.07 6,888.02 8,340.15 5,882.117. Furniture, Fixtures 321.50 103.31 8.56 416.25 28.93 190.87 225.38 153.03

and Office/Lab.Equipment

8. Transport Equipment 100.50 22.22 2.41 120.31 3.96 54.87 65.44 47.439. Unallocated capital 0.20 - - 0.20 - 0.20 - -

Expenditure onLand DevelopmentTotal (A) 15,585.22 3,953.81 57.93 19,481.10 851.11 7,603.51 11,877.59 8,799.59

B. INTANGIBLE ASSETS1. Right of Way 8.67 8.09 - 16.76 - - 16.76 8.672. Technical / Process Licences 10.31 15.63 - 25.94 1.43 4.54 21.40 7.203. Software 34.28 12.15 0.18 46.25 3.99 32.72 13.53 5.38

Total (B) 53.26 35.87 0.18 88.95 5.42 37.26 51.69 21.25

GRAND TOTAL (A+B) 15,638.48 3,989.68 58.11 19,570.05 856.53 7,640.77 11,929.28 8,820.84

Previous Year 13,479.25 2,201.54 42.31 15,638.48 704.22 6,817.64 8,820.84

A. Includes assets costing Rs. 0.01 Crores (2006-2007 : Rs. 0.07 Crores) of erstwhile Kosan Gas Company nothanded over to the Corporation. In case of these assets, Kosan Gas Company were to give up their claim.However, in view of the tenancy right sought by third party, the matter is under litigation.

B. Includes Rs.74.75 Crores (2006-2007 : Rs.74.75 Crores) being the Corporation’s Share of Cost of Land &Other Assets jointly owned with other Oil Companies.

C. Title Deeds to some of the lands acquired are still to be obtained. In certain cases, registration of the title of theassets is pending as the legal formalities are yet to be completed.

D. Includes Rs. 0.01 lakhs (2006-2007 : Rs.0.01 lakhs) being share application money in Co-operative HousingSocieties.

E. Includes Rs 50.64 Crores (2006-2007 : Rs 42.56 Crores) towards Plant and Machinery, Roads & Culverts,Transformers & Transmission lines, Railway Sidings & Rolling Stock, ownership of which does not vest with theCorporation. These assets are amortised at the rate of depreciation specified in Schedule XIV of the CompaniesAct,1956.

F. Includes following assets which are used for distribution of PDS Kerosene under Jana Kalyan Pariyojanaagainst which financial assistance is being provided by OIDB.

(Rs./Crores)

Description First Cost (31/03/2008) First Cost (31/03/2007)Roads & Culverts 0.16 0.16Buildings 1.70 1.70Plant & Equipment 3.30 3.30Total 5.16 5.16



73


2007-08 2006-07

6. CAPITAL WORK-IN-PROGRESS (at Cost)

Unallocated Capital Expenditureand Materials at Site 2,647.14 3,683.14

Advances for Capital Expenditure 372.72 83.68Capital Stores 19.46 33.44Capital Stores lying with Contractors 17.07 109.87

Capital goods in transit 24.58 124.623,080.96 4,034.75

Construction period expenses pending apportionment

(Net of recovery) :Establishment charges 29.80 57.36Interest 102.05 130.06

Other Borrowing Cost * 103.06 21.09Depreciation 0.08 0.30

234.99 208.81

3,315.95 4,243.56* Includes an amount of Rs. 12.11 crores towards reversal of finance cost of prior period (2006-07 : Nil)

7. INVESTMENTS

I. LONG TERM INVESTMENTS (at Cost):

A. TRADE INVESTMENTS

Quoted

1. Mangalore Refinery and Petrochemicals Ltd.29,71,53,518 Equity Shares of Rs. 10/- each fully paid up 471.68 471.68

2. 7.00% Oil Companies Government of India Special Bonds 2012 77.02 777.02

Unquoted1. HPCL-Mittal Energy Ltd. (Formerly Guru Gobind Singh Refineries Ltd.) 382.97 335.46

38,29,70,000 Equity Shares (33,54,60,000 Equity Shares for 2006-07)of Rs. 10/- each fully paid-up

2. Hindustan Colas Ltd.47,25,000 Equity Shares of Rs. 10/- each fully paid up 4.73 4.73

3. Petronet India Ltd.1,59,99,999 Equity Shares of Rs. 10/- each fully paid up 16.00 16.00

Less : Provision for Diminution (16.00) (16.00)


Rs./ Crores


G. Includes Assets retired from active use and held for disposal - Gross Value : Rs. 18.06 Crores (2006-2007 : Rs.4.97 Crores). These Assets are valued at their Net Book Value or Net Realisable Value whichever is lower : Rs2.66 Crores (2006-2007 : Rs. 0.82 Crores).

H. Additions / re-classifications includes a sum of Rs. 3.95 Crores towards reversal of excess capitalisation offinance cost in prior period (2006-07 : Nil).

I. Depreciation for the year includes a sum of Rs. 0.15 Crores towards reversal of excess depreciation of priorperiod (2006-07 : Nil).

74



4. Petronet MHB Ltd.15,78,41,000 Equity Shares of Rs. 10/- each fully paid up 157.84 157.84

5. Prize Petroleum Co. Ltd99,99,600 Equity Shares of Rs. 10/- each fully paid up 10.00 10.00

6. South Asia LPG Co. Pvt. Ltd.5,00,00,000 Equity Shares of Rs. 10/- each fully paid up 50.00 50.00

7. Bhagyanagar Gas Ltd.12,497 Equity Shares of Rs. 10/- each fully paid up 0.01 0.01

8. Aavantika Gas Ltd.12,498 Equity Shares of Rs. 10/- each fully paid up 0.01 0.01TOTAL (A) 1,154.26 1,806.75

B. OTHER INVESTMENTS

Quoted

1. Government Securities of the face value of Rs. 0.02 crore

(2006-07 : Rs. 0.02 crore)

- Deposited with Others 0.02 0.02

- On hand - Rs. 0.25 lakh (2006-07 : Rs. 0.25 lakh) 0.00 0.00

2. Scooters India Ltd.

10,000 Equity Shares of Rs. 10/- each fully paid up 0.01 0.01

Unquoted

1. Government Securities of the face value of Rs. 0.24 lakh

(2006-07: Rs. 0.24 lakh)

- Deposited with Others - Rs. 0.10 lakh (2006-07 : Rs. 0.10 lakh) 0.00 0.00

- On hand** - Rs. 0.14 lakh (2006-07 : Rs. 0.14 lakh) 0.00 0.00

2. East India Clinic Ltd.

- 1/2% Debenture of face value of Rs. 0.15 lakh

(2006-07 : Rs. 0.15 lakh) 0.00 0.00

- 5% Debenture of face value of Rs. 0.07 lakh

(2006-07 : Rs. 0.07 lakh) 0.00 0.00

3. Shushrusha Citizen Co-operative Hospital Limited

100 Equity Shares of Rs. 100/- each fully paid up

- Rs. 0.10 lakh (2006-07 : Rs. 0.10 lakh) 0.00 0.00

4. Petroleum India International (Association of Persons)***

Contribution towards Seed Capital 5.00 0.05

TOTAL (B) 5.03 0.08

TOTAL LONG TERM INVESTMENTS 1,159.29 1,806.83

Less: Provision for loss on Investments** - Rs. 0.14 lakh 0.00 0.00

(2006-07 : Rs. 0.14 lakh)

TOTAL: I 1,159.29 1,806.83

Rs./ Crores

2007-08 2006-07


75



Rs./ CroresII. CURRENT INVESTMENTS (at Cost or Fair Value whichever is lower) 2007-08 2006-07

TRADE INVESTMENTS

Quoted

i. 7.47% Oil Marketing Companies’ GOI Special Bonds, 2012 169.48 393.77

ii. 7.61% Oil Marketing Companies’ GOI Special Bonds, 2015 395.06 380.92

iii. 7.75% Oil Marketing Companies’ GOI Special Bonds, 2021 270.20 991.51

iv. 8.01% Oil Marketing Companies’ GOI Special Bonds, 2023 205.07 838.08

v. 8.13% Oil Marketing Companies’ GOI Special Bonds, 2021 14.38 691.47

vi. 8.20% Oil Marketing Companies’ GOI Special Bonds, 2024 * 260.78 1,006.95

vii. 8.40% Oil Marketing Companies’ GOI Special Bonds, 2026 * 804.94 1,017.94

viii. 7.95% Oil Marketing Companies’ GOI Special Bonds, 2025 1,658.85 -

ix. 8.40%-II Oil Marketing Companies’ GOI Special Bonds, 2025 1,899.01 -

TOTAL CURRENT INVESTMENTS - II 5,677.76 5,320.64

TOTAL [I+II] 6,837.05 7,127.47

Cost Market / Redemption Value

2007-08 2006-07 2007-08 2006-07

Aggregate of quoted Investments 6,373.29 6,653.74 8,068.12 7,094.89

Aggregate of unquoted Investments 610.56 574.11

6,983.84 7,227.84

* Pledged with Clearing Corporation of India Limited against CBLO Loan

** Includes Rs. 0.14 lakh (2006-07 : Rs. 0.14 lakh) not in the possession of the Company

*** Members in Petroleum India International (AOP) where Hindustan Petroleum Corporation Ltd., Bharat PetroleumCorporation Ltd., Bongaigaon Refineries & Petrochemicals Ltd., Kochi Refineries Ltd., Engineers India Ltd.,IBP Co. Ltd., Indian Petrochemicals Corporation Ltd., Chennai Petroleum Corporation Ltd. have a share of12.50% each

8. INVENTORIES

(As per Inventory taken, valued and certified by the Management) 2007-08 2006-07 Raw Materials (Including in transit - Rs. 1410.77 crores; 2006-07 : Rs. 799.54 crores) 3,443.05 1,897.14 Finished Products - (Including in transit between locations - Rs.322.26 crores; 2006-07 : Rs.52.04 crores) 7,905.02 5,636.65 Stock in Process 485.61 398.11 Packages 10.38 7.92

11,844.06 7,939.82 Stores and Spares * 176.22 158.58 (Including in transit - Rs. 5.80 crores; 2006-07 : Rs. 7.07 crores)

12,020.28 8,098.40 * Includes stock lying with contractors Rs. 1.07 crore (2006-07 :

Rs. 0.96 crore)


Rs./ Crores

Rs./ Crores

76


Rs./ Crores

2007-08 2006-07


9. SUNDRY DEBTORS : (Unsecured)

Over six months :

Considered good 83.71 74.19

Considered doubtful 57.45 63.61

Others :

Considered good 1,643.64 1,519.35

1,784.80 1,657.15

Less: Provision for Doubtful Debts * 74.14 79.37

1,710.66 1,577.78

* Provision for doubtful debts, in addition to specific provision, includes an ad-

hoc provision @ one per cent of outstanding domestic debts (other than

those relating to oil marketing companies and subsidiary/joint venture

companies).

10. CASH AND BANK BALANCES

Cash on hand 1.34 1.38

Cheques Awaiting Deposit 4.33 5.19

With Scheduled Banks:

On Current Accounts 284.69 76.90

On Non-operative Current Accounts* 0.01 0.01

On Fixed Deposit Accounts ** 3.54 3.24

With Others:

In Current Account with Municipal Co-operative

Bank Ltd. (maximum balance during the year

Rs. 0.11 crore, 2006-07 : Rs. 0.11 crore) 0.10 0.07

294.01 86.79

* Represents amount deposited as per Court Order pending final disposal.

** Includes lodged as security deposit with Mumbai Port Trust - Rs. 0.54 crore

(2006-07 : Rs. 0.54 crore) and with IAAI - Rs. 0.24 crore (2006-07 :

Rs. 0.24 crore).

11. OTHER CURRENT ASSETS

Interest accrued on Bank Deposits and Investments 49.46 92.33


77


Rs./ Crores

2007-08 2006-07

Schedules forming part of the PrSchedules forming part of the PrSchedules forming part of the PrSchedules forming part of the PrSchedules forming part of the Profit and Loss Aofit and Loss Aofit and Loss Aofit and Loss Aofit and Loss Accountccountccountccountccount

12. LOANS AND ADVANCES

Secured, considered good :

Advances recoverable in cash or in kind or for value to be received * 374.51 350.48

Interest Accrued thereon 135.42 125.16

Unsecured, considered good :

Advances recoverable in cash or in kind or for value to be received 3.80 61.99

Balances with Excise, Customs, Port Trust etc. 195.39 258.17

Other Deposits 132.39 135.23

Prepaid Expenses 15.83 9.95

Amounts recoverable under Subsidy Schemes ** 3,524.89 21.74

Share application money pending allotment 204.98 8.46

Advance towards equity 33.50 17.00

Other Accounts Receivable *** 602.26 621.22

Unsecured, considered doubtful :

Accounts Receivable & Deposits 2.92 2.92

5,225.89 1,612.32

Less : Provision for Doubtful Receivables 2.92 2.92

5,222.96 1,609.40

* Includes Rs.0.45 crore, (2006-07 : Rs.0.38 crore) due from Directors;

maximum balance - Rs.0.45 crore, (2006-07 : Rs.0.42 crore) and Rs.0.01

crore (2006-07 : Rs.0.01 crore) due from an Officer; maximum balance-

Rs.0.01 crore, (2006-07 : Rs.0.02 crore).

** Includes Rs.3,448.45 crores towards oil bonds yet to be received.

*** Includes Rs.5.38 crores (2006-07 : Rs.10.88 crores) being amount due

towards Company’s share of profit in Petroleum India International.


78


Rs./ Crores

2007-08 2006-07

13. CURRENT LIABILITIES AND PROVISIONS

A. Current Liabilities

Sundry Creditors

i) Total outstanding dues of Micro, Small and Medium Enterprises * 0.07 3.70

ii) Total outstanding dues of creditors other than above 6,897.42 4,372.71

Deposits from Dealers/Consumers for LPG Cylinders 3,016.04 2,826.45

Other Deposits 145.42 131.77

Accrued Charges/Credits 115.91 106.50

Interest accrued but not due on loans 49.60 47.38

Preference share capital redeemed remaining unclaimed/unencashed 0.01 0.01

Unclaimed Dividend** 4.81 11.52

Other Liabilities 1,664.09 1,391.73

11,893.37 8,891.77

B. Provisions

Provision for Tax (Net) 227.25 578.25

Provision for Dividend 101.59 407.20

Provision for Pension 39.56 41.40

Provision for other retirement benefits 151.52 131.03

Provision for Fringe Benefit Tax 3.13 0.64

Tax on Distributed Profits 17.26 69.20

540.32 1,227.72

12,433.69 10,119.49

* The Company is in the process of identifying suppliers/service providers falling under Micro, Small & Medium

Enterprises Development Act, 2006. To the extent of parties already identified, the outstanding balance,

including interest thereon, if any, as on March 31, 2008 is disclosed. The previous year’s figures represent

outstanding dues towards SSI units.

** No amount is due as at the end of the year for credit to Investors’ Education and Protection Fund.



79



2007-08 2006-07

14. OTHER INCOME

Interest (Gross): *

On Investments 400.98 265.08

On Deposits 0.19 0.11

On Staff Loans 18.08 16.56

On Customers’ Accounts 10.89 10.18

On Others 66.60 3.31

496.74 295.24

Dividend income 24.48 21.51

Share of Profit from Petroleum India International (AOP) 0.72 0.95

Rent Recoveries 47.04 41.27

Profit on sale of Long Term Investments 2.10 -

Exchange rate variation (Net) 485.20 198.42

Miscellaneous Income ** 141.69 122.91

701.23 385.06

1,197.97 680.30

Note:

* Tax deducted at source amounts to Rs. 0.13 crore (2006-07 : Rs. 1.19 crore)

** Miscellaneous Income includes Rs. 0.19 crore (2006-07 : Rs. 0.19 crore) on

account of amortisation of capital grant.

15. INCREASE / (DECREASE) IN INVENTORY

Closing Stock:

Stock in Process 485.61 398.11

Finished Products 7,901.30 5,636.64

8,386.91 6,034.75

Less: Opening Stock:



6,031.04 5,791.20

2,355.87 243.55

16. PAYMENTS TO AND PROVISIONS FOR EMPLOYEES

Salaries, Wages, Bonus, etc. 634.20 556.86

Contribution to Provident Fund 44.18 41.04

Pension, Gratuity etc. 35.18 7.46

Employee Welfare Expenses 157.70 125.87

Less: Recoveries 3.60 1.81

154.10 124.06

867.66 729.42

Rs./ Crores


80


2007-08 2006-0717. OTHER OPERATING EXPENSES

Consumption of Stores, Spares and Chemicals 93.86 103.57Power and Fuel 1,934.30 1,681.58Less : Fuel of own production consumed 1,917.29 1,667.64

17.01 13.94Repairs and Maintenance - Buildings 29.45 18.95Repairs and Maintenance - Plant & Machinery 282.76 241.23Repairs and Maintenance - Other Assets 50.05 42.15Insurance 20.73 19.20Rates and Taxes 35.28 29.16Irrecoverable Taxes and Other Levies 154.14 203.40Equipment Hire Charges 1.82 3.36Rent 107.59 123.42Travelling and Conveyance 94.61 74.25Printing and Stationery 8.84 9.96Electricity and Water 173.81 146.64Charities and Donations 18.53 14.56Stores & spares written off 0.08 4.87Loss on Sale of Current Investment 160.20 18.49Loss on Sale of Long Term Investment 42.00 1.54Provision for Diminution in value of Current Investments 62.42 83.30(After adjusting provision no longer requiredwritten back Rs. Nil, 2006-07 : Rs.1.08 crores)Provision for Investment - 16.00Provision for Doubtful Debts (5.23) 42.79(After adjusting provision no longer requiredwritten back Rs. 8.90 crores, 2006-07 : Rs. 4.23 crores)Loss on Sale/write off of Fixed Assets/CWIP 4.51 3.41Security Charges 42.28 32.92Advertisement & Publicity 100.49 110.27Sundry Expenses and Charges (Not otherwise classified) 243.83 188.00Consultancy & Technical Services 21.96 19.34Exchange Rate Variation - (4.21)

1,761.02 1,560.5118. BORROWING COST

Interest on :Long Term Loans 54.70 3.00Short Term Loans 719.42 385.12Overdraft from Banks 16.95 18.32Others 1.41 0.10Other Borrowing Costs - 16.44

792.48 422.9819. PRIOR PERIOD DEBITS / (CREDITS)

Excise duty provision reversed - (6.05)Depreciation 5.59 -Finance Cost 16.06 -

21.65 (6.05)

Rs./ Crores



81


Statement of Significant AStatement of Significant AStatement of Significant AStatement of Significant AStatement of Significant Accounting Pccounting Pccounting Pccounting Pccounting Policies and Notes forming part of Aolicies and Notes forming part of Aolicies and Notes forming part of Aolicies and Notes forming part of Aolicies and Notes forming part of Accountsccountsccountsccountsccounts

20 A. SIGNIFICANT ACCOUNTING POLICIES

The financial statements are prepared under historical cost convention in accordance with Generally Accepted

Accounting Principles (GAAP), Accounting Standards referred to in the Companies (Accounting Standards)

Rules, 2006 issued by the Central Government and the relevant provisions of the Companies Act, 1956. All

income and expenditure having material bearing are recognized on accrual basis, except where otherwise

stated. Necessary estimates and assumptions of income and expenditure are made during the reporting

period and difference between the actual and the estimates are recognised in the period in which the results

materialise.

1. FIXED ASSETS

Land acquired on lease for 99 years or more is treated as freehold land.

2. INTANGIBLE ASSETS

a. Cost of Right of Way for laying pipelines is capitalised as Intangible Asset and being perpetual in

nature, is not amortised.

b. Costs incurred on technical know-how / license fee relating to process design / plants / facilities are

capitalised as Intangible Assets.

c. Cost of Software directly identified with hardware is capitalised along with the cost of hardware.

Application software is capitalised as Intangible Asset.

3. CONSTRUCTION PERIOD EXPENSES ON PROJECTS

a. Related expenditure (including temporary facilities and crop compensation expenses) incurred during

construction period in respect of plan projects and major non-plan projects are capitalised.

b. Financing cost incurred during the construction period on loans specifically borrowed and utilised for

projects is capitalised. Financing cost includes exchange losses in relation to borrowings denominated

in foreign currency.

c. Financing cost, if any, incurred on general borrowings used for projects during the construction

period is capitalised at the weighted average cost.



82

4. DEPRECIATION

a. Depreciation on Fixed Assets is provided on the Straight Line method, in the manner and at the rates

prescribed under Schedule XIV to the Companies Act, 1956 and is charged pro rata on a monthly

basis on assets, from / upto and inclusive of the month of capitalisation / sale, disposal or deletion

during the year.

b. All assets costing up to Rs. 5000/-, other than LPG cylinders and pressure regulators, are fully

depreciated in the year of capitalisation.

c. Premium on leasehold land is amortised over the period of lease.

d. Machinery Spares, which can be used only in connection with an item of fixed asset and the use of

which is expected to be irregular, are depreciated over a period not exceeding the useful life of the

principal item of fixed asset.

e. Intangible Assets other than application software are amortised on a straight line basis over the

useful life of the parent asset.

f. Application software are normally amortised over a period of four years, or over its useful life, whichever

is earlier.

5. IMPAIRMENT OF ASSETS

At each balance sheet date, an assessment is made of whether there is any indication of impairment. An

impairment loss is recognised whenever the carrying amount of assets of cash generating units (CGU)

exceeds their recoverable amount.

6. FOREIGN CURRENCY TRANSACTIONS

a. Foreign Currency transactions during the year are recorded at the exchange rates prevailing on the

date of transactions.

b. All foreign currency assets, liabilities and forward contracts are restated at the rates prevailing at the

year end.

c. All exchange differences (except as stated in para 3 (b) of schedule 20A) are dealt with in the profit

and loss account including those covered by forward contracts, where the premium / discount arising

from such contracts are recognised over the period of contracts.

d. The realised gain or loss in respect of commodity hedging contracts, the pricing period of which has

expired during the year, are recognised in the Profit & Loss Account along with the underlying

transaction. However, in respect of contracts, the pricing period of which extends beyond the balance

sheet date, suitable provision is made for likely loss, if any.



83


7. INVESTMENTS

a. Long-term investments are valued at cost and provision for diminution in value thereof is made,

wherever such diminution is other than temporary.

b. Current investments are valued at the lower of cost and fair value.

8. INVENTORIES

a. Crude oil is valued at cost on First In First Out (FIFO) basis or at net realisable value, whichever is

lower.

b. Raw material for lubricants and finished lubricants are valued at weighted average cost or at net

realisable value, whichever is lower.

c. Stock-in process is valued at raw material cost plus cost of conversion or at net realisable value,

whichever is lower.

d. Finished products other than Lubricants are valued at cost (on FIFO basis) or at net realisable value,

whichever is lower.

e. Empty packages are valued at weighted average cost.

f. Stores and spares are valued at weighted average cost.

g. Value of surplus, obsolete and slow moving stores and spares, if any, is reduced to net realisable

value. Surplus items, when transferred from completed projects are valued at cost / estimated value,

pending periodic assessment / ascertainment of condition.

9. DUTIES ON BONDED STOCKS

Excise / Customs duty is provided on stocks stored in Bonded Warehouses (excluding goods exempted

from duty / exports or where liability to pay duty is transferred to consignee).

10. GRANTS

a. In case of depreciable assets, the cost of the asset is shown at gross value and grant thereon is

treated as Capital Grants, which is recognised in the Profit and Loss Account over the period and in

the proportion in which depreciation is charged.

b. Grants received against revenue items are recognised as income.




84

11. PROVISIONS

A provision is recognised when there is a present obligation as a result of a past event and it is probable

that an outflow of resources will be required to settle the obligation in respect of which a reliable estimate

can be made.

12. EXPLORATION & PRODUCTION EXPENDITURE

“Successful Efforts Method” of accounting is followed for Oil & Gas exploration and production activities

as stated below:

a. Cost of surveys, studies, carrying and retaining undeveloped properties are expensed out in the year

of incurrence.

b. Cost of acquisition, drilling and development are treated as capital work-in-progress when incurred

and are capitalised when the well is ready to commence commercial production.

c. Accumulated costs on exploratory wells in progress are expensed out in the year in which they are

determined to be dry.

The proportionate share in the assets, liabilities, income and expenditure of joint operations are accounted

as per the participating interest in such joint operations.

13. EMPLOYEE BENEFITS

Liability towards long term defined employee benefits - leave encashment, gratuity, pension, post –

retirement medical benefits, long service awards, ex-gratia and death benefits are determined on actuarial

valuation by independent actuaries at the year end by using Projected Unit Credit method. Liability so

determined is funded in the case of leave encashment and gratuity, and provided for in other cases.

In respect of Provident Fund, the contribution for the period is recognized as expense and charged to

Profit & Loss account.

Short term employee benefits are recognized as an expense at an undiscounted amount in the Profit and

Loss Account of the year in which the related services are rendered.

14. SALE OF PRODUCTS

Sales are net of discount, include applicable excise duty, surcharge and other elements as are allowed

to be recovered as part of the price but excludes VAT/sales tax.



85



15. RESEARCH & DEVELOPMENT

Expenditure incurred on research activities is charged off in the year in which it is incurred. Expensesdirectly related to development activities which are capable of generating future economic resources, aretreated as intangible assets.

16. TAXES ON INCOME

a. Provision for current tax is made in accordance with the provisions of the Income Tax Act, 1961.

b. Deferred tax on account of timing difference between taxable and accounting income is provided byusing tax rates and tax laws enacted or substantively enacted as at the balance sheet date.

17. CONTINGENT LIABILITIES AND CAPITAL COMMITMENTS

Contingent Liabilities and Capital Commitments are considered only for items exceeding Rs. 1.00 Lakh ineach case. Contingent Liabilities in respect of show cause notices are considered only when convertedinto demands.

18. ACCOUNTING/CLASSIFICATION OF EXPENDITURE AND INCOME

a. Insurance claims are accounted on acceptance basis.

b. All other claims/entitlements are accounted on the merits of each case/realisation.

c. Raw materials consumed are net of discount towards sharing of under-recoveries.

d. Income and expenditure of previous years, individually amounting to Rs. 5 lakhs and below are notconsidered as prior period items.

20 B. NOTES FORMING PART OF ACCOUNTS

1. In respect of sale of sensitive petroleum products {MS, HSD, LPG (Domestic) and SKO (PDS)}, as

advised by the Ministry of Petroleum & Natural Gas, a part of the under-recovery suffered by the

Corporation during the year was compensated by ONGC and GAIL, by offering discounts on prices of

crude, SKO and LPG purchased from them. Accordingly, the Corporation has accounted the discount

received as follows:

(a) Rs. 4,561.89 crores (2006-07: Rs. 3,238.73 crores) discount received, on crude oil purchasedfrom ONGC, has been adjusted against ‘Raw Material Cost’.

(b) Rs. 847.00 crores (2006-07 : Rs. 922.41 crores) discount received on purchase of SKO (PDS)and LPG (Domestic) from ONGC and GAIL has been adjusted against ‘Purchase of Product forResale’.

2. In principle approval of Govt. of India for issuance of Oil Bonds amounting to Rs. 7,703 crores (2006-07: Rs. 4,929.89 crores) has been received and the same has been accounted under the head“recovery under subsidy scheme”.

3. (a) Inter-Oil Company transactions are reconciled on a continuous basis. However, year end balances

are subject to confirmation/reconciliation.



86


(b) Customers’ Accounts are reconciled on an ongoing basis and such reconciliation is not likely to

have a material impact on the outstanding or classification of the accounts.

4. Considering the uncertainties attached to certain benefits under the Income Tax Act, the Corporationhas been accounting for such tax benefits in the year they are allowed in the assessments. Accordingly,the Corporation, upon completion of assessment for the financial year 2004-05 (assessment year2005-06) has reversed provision for tax amounting to Rs. 408.61 crores (2006-07: Rs. 302.98 crores).

5. The Corporation has, as at the balance sheet date, entered into forward contracts amounting to USD525 million (2006-07: USD 589 million) to hedge its foreign currency exposure towards loans/exportearnings. The Corporation does not generally hedge the risks on account of foreign currency exposurefor the payment of crude. Exposures not hedged as of balance sheet date amounted to USD 1,100.83million (2006-07: USD 555.99 million) towards purchase of crude and USD 244.91 million (2006-07:USD 144 million) in respect of loans taken.

6. In line with the prevailing accounting policy relating to commodity hedging contracts, mark-to-marketloss of Rs. 9.34 crores (last year – Rs. nil) has been provided in the books in respect of thosecontracts, the pricing period of which extends beyond the balance sheet date.

7. Corporation’s stake in wholly owned subsidiary, Guru Gobind Singh Refineries Ltd. (upto July 18,2007) has been reduced with induction of Mittal Investments S.A.R.L.. The new undertaking is namedas HPCL - Mittal Energy Ltd., wherein both the joint venture partners are holding equal stake as on

March 31, 2008.

8. Deferred Tax Assets/(Liabilities) arising due to timing differences comprise of:

Rs./Crores

2007-08 2006-07

Deferred Tax AssetProvision for Gratuity / Pension 13.45 14.07Provision for Medical Benefits 16.06 4.40Provision for Leave Encashment 32.84 32.84Provision for Leave Fare Assistance 6.74 -Provision for ex-gratia 11.28 -Provision for Death Benefits 7.80 -Provision for Long Service Awards 10.56 -Others 99.28 73.92Total (A) 198.01 125.23Deferred Tax LiabilityDepreciation (1,752.27) (1,503.60)Others (41.72) (42.53)Total (B) (1,793.99) (1,546.13)

Deferred Tax Liability (A + B) (1,595.98) (1,420.90)


87


9. Pending finalisation of the salary revision in respect of management employees effective January 01,

2007, no provision has been made in the books for the differential payable except to the extent of ad-hoc

relief paid / payable for the period, as the amount is not determinable.

10. During the year Company has forfeited 7,02,750 shares (2006-07 : nil) issued as a part of the public issue

in 1994-95, due to non receipt of allotment and/or call money from shareholders.

11. Related Party disclosure:

(Rs. /Crores)

Particulars Joint Venture Companies

2007-08 2006-07

Sales 217.24 198.16

Purchases 11,466.70 7761.11

Investment in land - 13.99

Investment in equity 44.03 163.67

Advance towards equity 16.50 19.50

Share application pending allotment 200.00 3.69

Interest 1.37 0.72

Services 3.00 0.41

Others 6.32 9.74

The names of related parties are as follows:

Subsidiary Company: Guru Gobind Singh Refineries Ltd. (upto July 18, 2007)

Joint Venture Companies: Mangalore Refineries and Petrochemicals Ltd., Hindustan Colas Ltd., Prize

Petroleum Co. Ltd., Petronet India Ltd., Petronet MHB Ltd., South Asia

LPG Co. Pvt. Ltd., Bhagyanagar Gas Ltd., Aavantika Gas Limited and

HPCL - Mittal Energy Ltd. (Formerly Guru Gobind Singh Refineries Ltd.)

from July 19 , 2007

Key Management Personnel: Shri Arun Balakrishnan, Chairman and Managing Director, Shri V.

Viziasaradhi, Director – Human Resources, Shri C. Ramulu, Director –

Finance (upto January 31, 2008), Shri B. Mukherjee, Director – Finance

(from February 1, 2008), Shri S. Roy Choudhury, Director – Marketing,

Shri M.A. Tankiwala, Director – Refineries

Details of remuneration to directors are given in Note 20 B. 16 E of Notes to Accounts.




88

The Corporation has entered into production sharing oil & gas exploration contracts with Govt. of India in

consortium with other body corporates. These consortia are:

A) Name of the Block Participating Interest of HPCL in %

31/03/2008 31/03/2007

In India

Under NELP IV

KK- DWN-2002/2 20 20

KK- DWN-2002/3 20 20

CB- ONN-2002/3 15 0

Under NELP V

AA-ONN-2003/03 15 15

Under NELP VI

CY-DWN-2004/1 10 10

CY-DWN-2004/2 10 10

CY-DWN-2004/3 10 10

CY-DWN-2004/4 10 10

CY-PR-DWN-2004/1 10 10

CY-PR-DWN-2004/2 10 10

KG-DWN-2004/1 10 10

KG-DWN-2004/2 10 10

KG-DWN-2004/3 10 10

KG-DWN-2004/5 10 10

KG-DWN-2004/6 10 10

MB-OSN-2004/1 20 20

MB-OSN-2004/2 20 20

RJ-ONN-2004/1 20 20

RJ-ONN-2004/3 15 15

Others

ONGC Cluster 7 60 60

Outside India

BLOCK 56-OMAN 12.50 12.50

BLOCK WA-388-P, AUSTRALIA 20 20

B) The approval of assignment of Cambay block- CB-ONN-2002/3 in favor of the Company by Prize Petroleum

Co. Ltd, awarded under NELP IV is awaited from Ministry of Petroleum and Natural Gas.



89



12. In compliance of AS-27 ‘Financial Reporting of Interest in Joint Ventures’, the required information is as

under:

a) Jointly Controlled Entities

Country of Percentage of Percentage of

Incorporation ownership ownership

interest as on interest as on

31st March, 2008 31st March, 2007

Hindustan Colas Ltd. India 50.00 50.00

South Asia LPG Company Pvt. Ltd. India 50.00 50.00

Prize Petroleum Company Ltd. India 50.00 50.00

Mangalore Refinery and Petrochemicals Ltd. India 16.95 16.95

Bhagyanagar Gas Ltd. India 25.00 25.00

Petronet India Ltd.* India 16.00 16.00

Petronet MHB Ltd. India 28.77 28.77

Aavantika Gas Ltd. India 25.00 25.00

HPCL-Mittal Energy Ltd. India 50.00 -

(Formerly Guru Gobind Singh Refineries Ltd.)

*Corporation’s share in Petronet India Ltd. is not reported hereunder as the Management has provided forfull diminution in the value of investment.

b) In respect of jointly controlled entities, the Corporation’s share of assets, liabilities, income, expenses,contingent liabilities and capital commitments as furnished below on the basis of audited / unaudited

financial statements received from these joint venture companies:

Rs. / Crores

2007-08 2006-07

i. Assets

� Long Term Assets 1256.46 1,027.61

� Investments 109.35 15.16

� Current Assets 1648.03 800.25

ii. Liabilities

� Loans (Secured & Unsecured) 520.68 520.95

� Current Liabilities & Provisions 941.19 572.75� Deferred Tax Liability 74.58 83.57

iii. Income 5724.63 4,954.86

iv. Expenses* 5514.01 4,868.03

v. Contingent Liabilities 153.70 141.30

vi. Capital Commitments 728.27 50.29

* Including Tax



90

13. Operating Leases :

Assets taken on lease primarily consist of properties for use by the Corporation and leased land taken for

the purpose of setting up retail outlets. These lease arrangements are normally renewed on expiry of the

term. Amount of lease rental expenses recognized in the Profit and Loss Account is given under Schedule

17 – “Other Operating Expenses”.

14. Considering the Government policies and modalities of compensating the oil marketing companies towards

under-recoveries, future cash flows have been worked out based on the desired margins for deciding on

impairment of related Cash Generating Units. Since there is no indication of impairment of assets as at

Balance Sheet date as per the assessment carried out, no impairment has been considered. In view of

assumptions being technical, peculiar to the industry and Government policy, the auditors have relied on

the same.

15. Employee Benefits :

a) During the year, the Corporation has adopted Accounting Standard (AS) - 15 (Revised 2005) on

Employee Benefits issued under Companies (Accounting Standards) Rules, 2006.

b) The Corporation has determined the liability for employee benefits as at April 1, 2007 in accordance

with the AS-15 (Revised) and adjusted Post Retirement Medical Benefit of Rs. 21.39 crores (net of

deferred tax asset of Rs.11.01 crores), Long Service Awards of Rs.17.22 crores (net of deferred tax

assets of Rs. 8.87 crores) and Death Benefits of Rs. 14.70 crores (net of deferred tax asset of Rs.

7.57 crores) against the General Reserve in accordance with the transitional provisions of AS -15

(Revised).

c) The fair value of the assets of Provident Fund Trust and the returns on these assets as on the

Balance Sheet date is greater than the obligation, including interest, and no additional provision is

required to be recognized in the Profit and Loss Account over and above the fixed contribution

recognized.

d) The liability towards unpaid Leave Fare Assistance as of March 31, 2008 for Rs. 19.84 crores has

been provided by Corporation.



91




e ) Defined Benefit Plans - As per actuarial valuation

Particulars Leave Gratuity Pension Post Long Ex - Gratia DeathEncashment Retirement Service Benefits

Medical AwardsBenefit

Funded Funded Non-Funded Non-Funded Non-Funded Non-Funded Non-Funded

Refer foot-notes : 1 2 3 4 5 6 7

1 Change in Defined Benefit Obligations(DBO) during the year endedMarch 31, 2008Defined Benefit Obligation at thebeginning of the year 106.89 141.92 39.20 56.55 26.09 - 22.27Interest Cost 8.02 10.64 3.09 5.00 2.04 - 2.00Current Service Cost 9.31 3.32 0.39 2.00 1.51 - -Past Service Cost (Vested Benefits) - - - - - 29.29 -Benefit Paid - (5.74) (5.41) (1.62) (1.12) (1.51) (3.54)Acturial (gain)/loss on Obligation 22.32 (6.29) 2.28 (3.50) 2.55 5.42 2.23Defined Benefit Obligation at the endof the year 146.53 143.86 39.56 58.43 31.08 33.20 22.96

2 Change in Fair Value of Assets duringthe year ended March 31, 2008Fair Value of Plan Asset at thebeginning of the year - 156.28 N/A N/A N/A N/A N/AExpected return on Plan Assets 2.87 14.51 N/A N/A N/A N/A N/AActurial gain/(loss) - - N/A N/A N/A N/A N/AContribution by employer 106.90 - 5.41 1.62 1.12 1.51 3.54Benefit Paid - (5.74) (5.41) (1.62) (1.12) (1.51) (3.54)Fair Value of Plan Asset at the endof the year 109.78 165.04 N/A N/A N/A N/A N/A

3 Net asset/(liability) recognized inbalance sheet as at March 31, 2008Defined Benefit Obligation at the endof the year 146.53 143.86 39.56 58.43 31.08 33.20 22.96Fair Value of Plan Asset at the end ofthe year 109.78 165.04 - - - - -Amount recognised in the BalanceSheet - Schedule 13 B (36.76) 21.18 (39.56) (58.43) (31.08) (33.20) (22.96)

4 Components of employer expensesCurrent Service Cost 9.31 3.32 0.39 2.00 1.51 - -Interest Cost 8.02 10.64 3.09 5.00 2.04 - 2.00Past Service Cost (Vested Benefits) - - - - - 29.29 -Expected Return on Plan Asset (2.87) (14.51) - - - - -Acturial (gain)/loss 22.32 (6.29) 2.28 (3.50) 2.55 5.42 2.23Total expenses recognized in Profitand Loss Account in Schedule 16 36.77 (6.83) 5.77 3.50 6.11 34.71 4.23

5 Actuarial AssumptionsDiscount Rate 8.00% 8.00% 8.00% 8.00% 8.00% 8.00% 8.00%Expected return on plan assets Note 8 Note 8 - - - - -Salary escalation 4.00% 4.00% 4.00% - - - -Inflation - - - 6.00% 5.00% - -Mortality rate LIC (1994-96) Mortality Table

6 The major categories of plan assetsas a percentage to total plan assetsCentral Govt. Securities 63.28% 63.28% N/A N/A N/A N/A N/AState Govt. Securities 13.57% 13.57% N/A N/A N/A N/A N/AOthers 23.15% 23.15% N/A N/A N/A N/A N/A

7 Effect of one percentage point changein assumed medical inflation rate for One percentage point increase in One percentage point decrease inPost Retirement Medical Benefit medical inflation rate medical inflation rateRevised DBO as at March 31, 2008 63.95 55.07Revised service cost for 2007-08 1.95 2.11Revised interest cost for 2007-08 5.63 4.37

Rs. / Crores


92

Foot Notes :

1 Leave Encashment : All employees are entitled to avail earned leave and sick leave during the service

period and the same can be encashed on superannuation, resignation, termination or by nominee on

death. Further, the accumulated earned leave can also be encashed during the service period.The

contribution for increase in actuarial liability as of March 31, 2008 over March 31, 2007 towards leave

encashment is funded to LIC. As per the practice followed, payment made to employees during the year

to the extent of Rs. 12.27 crores is not claimed from LIC, hence, benefit paid during the year is shown

as “nil” in the above table. Total expenses recognized in Profit and Loss Account on account of this

benefit is Rs. 49.04 crores (i.e. provision of Rs. 36.77 crores towards increase in liability and payments

made by Corporation for Rs. 12.27 crores).

2 Gratuity : All employees are entitled to receive gratuity as per the provisions of Payment of Gratuity Act,

1972. The surplus in plan assets over gratuity obligation and interest earned thereon has not been

recognized in books, as the same belongs to Gratuity Trust.

3 Pension : The employees covered by the Pension Plan of the Corporation are entitled to receive monthly

pension for life. The difference of Rs. 2.19 crores in pension obligation given by Actuary at the beginning

of the year (i.e. from Rs. 41.39 crores shown as closing liability of previous year to Rs. 39.20 crores

shown in above table) has been recognized in Profit and Loss Account.

4 Post Retirement Medical Benefit : The serving and superannuated employees are covered under medical

insurance policy taken by Corporation. It provides reimbursement of medical expenses for self and

dependents as per the terms of the policy.

5 Long Service Awards : The Corporation has policy of giving service awards to its employees in the form

of momento on completion of specified length of service and superannuation.

6 Ex-gratia : The ex-employees of Corporation covered under the Scheme are entitled to get ex-gratia

based on the grade at the time of their retirement. The benefit will be paid to eligible employees till their

survival, and after that, till the survival of their spouse. Since the scheme is introduced from April 2007,

the past service cost of Rs. 29.29 crores has been recognized in Profit and Loss Account.

7 Death Benefits : The families of deceased employees are paid at a specified percentage of last drawn

salary till the notional date of retirement age under the provisions of Superannuation Benefit Fund

Scheme.

8 The expected return on plan assets is based on market expectation, at the beginning of the period, for

returns over the entire life of the related obligation.

9 The estimates of future salary increases, considered in actuarial valuation, take account of inflation,

seniority, promotion and other relevant factors, such as supply and demand in the employment market.

10 This being the first year in which the Corporation has adopted AS-15 (Revised), hence, comparative

figures for last year have not been provided.



93


Rs. / Crores

2007-08 2006-07

16 A. Estimated amount of contracts remaining to be

executed on Capital Account not provided for 1868.33 2600.38

B. No provision has been made in the accounts in

respect of the following disputed demands/claims

since they are subject to appeals/representations

filed by the Corporation:

i. Income Tax 21.08 0.20

ii. Sales Tax/Octroi 3415.17 3241.37

iii. Excise/Customs 526.80 574.70

iv. Land Rentals & Licence Fees 97.47 91.37

v. Others 120.98 37.12

C. Contingent Liabilities not provided for in respect 4181.50 3944.76

of appeals filed against the Corporation:

i. Sales Tax/Octroi 89.10 84.43

ii. Excise/Customs 83.55 75.55

iii. Employee Benefits/Demands (to the extent quantifiable) 141.52 89.37

iv. Guarantees on behalf of others 161.63 160.88

v. Claims against the Corporation not

acknowledged as debts 199.27 200.65

vi. Others 22.06 20.57

697.13 631.45

D. Payment to Auditors:

i. Audit fees 0.15 0.13

ii. Other Services 0.11 0.09

iii. Reimbursement of expenses 0.02 0.03

0.28 0.25

E. Managerial Remuneration:

i. Salary and Allowances 0.50 0.61

ii. Contribution to Provident Fund and other funds 0.04 0.04

iii. Pension and Gratuity 0.02 0.02

iv. Other benefits 0.11 0.14

F. C.I.F. value of imports during the year (excludes canalised imports):

i. Raw materials 29,343.53 27,746.34

ii. Stores, Spares and Chemicals 62.76 42.68

iii. Capital Goods, Components and Spares 180.89 205.80




94

Rs. / Crores

2007-08 2006-07

G. i. Expenditure in foreign currency on account of:Engineering, Technical and other services, demurragecharges, royalties and other matters 166.69 107.74

ii. Foreign Currency payments for crude 28,804.24 27,260.55

H. Earnings in foreign exchange: (On accrual basis)Export of goods calculated on FOB basis 6,930.17 5,198.84Includes Rs. 563.32 crores (2006-07 : Rs. 449.57 crores)received in Indian currency out of repatriable fundsof foreign airline customers

I. Value of Raw Materials, Spare Parts andComponents consumed:i Raw Materials

- Imported (in %) 77.30 82.33- Imported (in Value) 30,102.21 29,486.89- Indigenous (in %) 22.70 17.67- Indigenous (in Value) 8,839.35 6,329.91

ii Spare Parts & Components- Imported (in %) 27.08 33.11- Imported (in Value) 25.58 30.27- Indigenous (in %) 72.92 66.89- Indigenous (in Value) 68.88 61.15

J. Licensed capacity at year end in Metric Tonnes per annumas certified by the Management on which the Auditors haverelied upon:i. Petroleum fuel and lube products 13,000,000 13,000,000ii. Lubricating Oils 122,173 122,173iii. Textile Auxiliaries 3,391 3,391iv. Hydraulic Brake Fluid 556 556v. Insecticides 782 782vi. Greases 5,913 5,913

K. Installed capacity at year end in Metric Tonnes per annumas certified by the Management on which the Auditors haverelied upon:i. Petroleum fuel and lube products 13,000,000 13,000,000ii. Lubricating Oils,Greases and Textile Auxiliaries* 319,779 319,779iii. Hydraulic Brake Fluid and Insecticides 4,062 4,062

* Product manufacturing facilities are interchangeable



95



Rs. / Crores

2007-08 2006-07

L. Production in Metric Tonnes:

a. Petroleum fuel and lube products

i. Bulk Petroluem Products 15,333,484 15,358,188

ii. Lubricating Oil Base Stocks(including

Transformer Oil Base Stocks) 351,316 338,074

iii. Carbon Black Feed Stock 39,461 35,324

iv. Axle Oil 2 -

v. Rubber Processing oil 50,606 32,274

b. Lubricating Oils 191,703 155,164

c. Textile Auxiliaries 76 575

d. Hydraulic Brake Fluid - 309

e. Insecticides 222 331

f. Greases 3,894 2,490

M. Information for each class of goods purchased, sold and stocks during the year :

Value in Rs./CroresOpening Stock Purchases Sales* Closing Stock

2007-08 2006-07 2007-08 2006-07 2007-08 2006-07 2007-08 2006-07Bulk Petroleum MT 1889164 1892101 16517089 13448825 31382988 28808571 2323886 1889164Products Value 5,320.28 5,160.43 0.01 46,840.57 0.01 89,259.71 7,621.37 5,320.28

Lubricating Oil MT 52813 18634 80194 55763 22569 52813Base Stocks Value 148.13 58.99 - - 236.33 259.44 84.43 148.13(Incl. TrnsformerOil Base stock)

Carbon Black MT 1203 1157 38385 34278 1395 1203Feed Stock Value 1.86 1.98 - - 81.75 64.34 3.31 1.86

Axle Oil MT 12 28 3 16 11 12Value 0.06 0.13 - - 0.02 0.06 0.06 0.06

Lubricating Oils MT 28143 24223 422350 279648 31266 28143Value 147.30 147.87 - - 2,358.70 1,830.11 177.44 147.30

Textile Auxillaries MT 23 41 58 593 41 23Value 0.16 0.24 - - 0.42 4.02 0.25 0.16

Insecticides MT 424 397 310 304 336 424Value 3.48 3.43 - - 2.40 2.31 2.44 3.48

Greases MT 2031 1894 2421 1480 6,266 3833 2080 2031Value 15.38 11.67 15.60 9.66 55.59 28.04 15.72 15.38

Total MT 1973813 1938475 16519510 13450305 31930554 29183006 2381584 1973813Value 5,636.65 5,384.74 62,205.94 46,850.22 103,837.43 91,448.03 7,905.02 5,636.65

* Sales include sales to other Oil Companies.

No adjustment for Transit / Operation / Temperature Variations / Consumption for Own Use have been made inthe above information. Previous year’s figures have been regrouped and rearranged wherever necessary forcomparison and adjustment.



96


Value in Rs. / Crores

2007-08 2006-07


N. Raw Materials consumed:

i. Crude Oil Processed

- Tonnes 16,791,612 16,659,701

- Value 37,540.64 35,365.11

ii. Other Petroleum Products

- Tonnes 326,856 75,385

- Value 1,075.85 324.26

iii. Additives, Inhibitors and Chemicals

- Value 162.27 72.29

iv. Non-Petroleum Products

- Value 162.81 55.14

O. Expenditure incurred on Research and Development:

i. Capital 7.94 -

ii. Revenue 2.13 2.92

P. Interest on Project specific borrowings capitalised 166.38 142.40

Q. Exchange Differences:

i. Adjusted in the carrying amount of Fixed Assets during 1.46 4.25

the accounting period

ii. In respect of Forward Exchange contracts to be recognised 219.88 207.75

in Profit or Loss for one or more subsequent accounting

periods

97


2007-08 2006-07Downstream Exploration Total Downstream Exploration Total

Petroleum & Production Petroleum & Production

RevenueExternal Revenue 105,377.69 - 105,377.69 89,403.86 - 89,403.86Inter-segment Revenue - - - -Total Revenue 105,377.69 - 105,377.69 89,403.86 - 89,403.86ResultSegment Results 1,658.24 (16.51) 1,641.73 2,211.88 (20.11) 2,191.77Less: Unallocated Expenses - - - - - -Net of unallocated Income - - - - - -Operating Profit 1,658.24 (16.51) 1,641.73 2,211.88 (20.11) 2,191.77Less:Borrowing Cost 792.48 422.98Provision for dimunition ininvestments 62.42 99.30Loss / (Profit) on Sale ofInvestments 202.20 20.03Add:Interest/Dividend(Incl. Share of profit from PII) 521.94 317.70Profit/(Loss) on Sale of

Investments 2.10 -

Profit before Tax 1,108.67 1,967.16Less: Taxes (includingDeferred tax / FBT) (26.21) 396.00Profit after Tax 1,134.88 1,571.16Other InformationSegment Assets 33,718.95 25.78 33,744.73 23,931.11 4.58 23,935.69Corporate Assets 7,634.92 7,720.89Total Assets 41,379.65 31,656.58Segment Liabilities 12,001.37 78.27 12,079.64 9,012.12 40.56 9,052.68Corporate Liabilities 18,736.73 13,005.26Total Liabilities 30,816.37 22,057.94Capital Expenditure 3,033.26 25.78 3,059.04 4,091.72 4.58 4,096.30Depreciation 856.53 - 856.53 704.00 - 704.00

Notes:1. The Company is engaged in the following business segments:

a) Downstream i.e. Refining and Marketing of Petroleum Productsb) Exploration and Production of Hydrocarbons

Segments have been identified taking into account the nature of activities and the nature of risks andreturns.

2. Segment Revenue comprises the following:a) Turnover (Net of Excise Duties)b) Subsidy from Government of Indiac) Other income (excluding interest income, dividend income and investment income)

3. There are no geographical segments.17. Previous year’s figures have been regrouped / reclassified wherever necessary.



R. Information regarding Primary Segment Reporting as per AS-17 for the year ended March 31, 2008 isas under:

Rs./Crores


98

Cash Flow Statement for the year ended 31st MarCash Flow Statement for the year ended 31st MarCash Flow Statement for the year ended 31st MarCash Flow Statement for the year ended 31st MarCash Flow Statement for the year ended 31st March, 2008ch, 2008ch, 2008ch, 2008ch, 2008

Rs./Crores

A. Cash Flow From Operating Activities 2007-08 2006-07

Net Profit before Tax & Extraordinary items 1,108.67 1,967.16Adjustments for :

Depreciation (prior period) 5.59 -Depreciation / Amortisation 850.82 704.00Exchange rate variation included in Fixed Assets/CWIP 16.06 -Loss on Sale/write off of Fixed Assets/ CWIP 4.51 3.41

Amortisation of capital grant (0.19) (0.19)Spares written off 0.08 4.87Provision for diminution in value of investments 62.42 99.30

Borrowing Cost 792.48 422.98Exchange rate difference on loans (93.91) -Oil Bond receivable (3,448.45) -Provision for Doubtful Debts (5.23) 42.79Interest Income (401.16) (265.19)Share of Profit from PII (0.72) (0.95)

Dividend Received (24.48) (21.51)(Profit)/Loss on sale of long term investment (2.10) -(Profit)/Loss on sale of Oil Bonds 202.20 20.03

Operating Profit before Working Capital Changes (933.42) 2,976.70Increase / (Decrease) in Working Capital :Trade Receivables (127.65) (228.31)

Other Receivables 47.90 95.25Inventories (3,921.96) (292.98)Trade and other Payables 3,351.34 1,319.59

(650.37) 893.55Cash generated from operations (1,583.79) 3,870.25

Direct Taxes / FBT refund / (paid) - Net (119.76) (82.74)Cash Flow before extraordinary items (1,703.55) 3,787.51

Extraordinary items - -Net Cash from operating activities ( A ) (1,703.55) 3,787.51

B. Cash Flow From Investing Activities

Purchase of Fixed Assets (incl. Capital Work in Progress /

excluding interest capitalised) (3,163.83) (3,851.02)

Sale of Fixed Assets 20.54 10.47

Purchase of Investment (Including share application money (4,520.03) (5,101.05)

pending allotment/Advance towards Equity)

Sale Proceeds of Oil Bonds 4,334.90 1,930.70

Interest received 444.04 184.24

Dividend Received 24.48 21.51

Share of profit from PII 0.72 0.95

Net Cash from investing activities ( B ) (2,859.18) (6,804.20)


99


FOR AND ON BEHALF OF THE BOARD



N. R. NARAYANAN SRIKANT V. JILLA G. SANKARCompany Secretary Partner Partner


Cash Flow Statement for the year ended 31st MarCash Flow Statement for the year ended 31st MarCash Flow Statement for the year ended 31st MarCash Flow Statement for the year ended 31st MarCash Flow Statement for the year ended 31st March, 2008ch, 2008ch, 2008ch, 2008ch, 2008

Rs. / Crores

2007-08 2006-07

C. Cash Flow From Financing ActivitiesProceeds from Calls in Arrear (Net) 2.12 0.48Interest received on calls in arrear 7.47 -Dividend paid on forfeited share (7.47) -Long term loans raised 232.08 1,249.99Short term loans raised / (repaid) 5,865.64 2,586.41Interest Paid on Loans (814.77) (497.41)Dividend paid (including dividend distribution tax) (483.11) (347.90)

Net Cash from financing activities ( C ) 4,801.96 2,991.57Net Increase / (Decrease) in Cash andCash Equivalents (A + B + C) 239.23 (25.12)

Cash & Cash Equivalents as on 1st April (Opening):Cash / Cheques on Hand 6.57 3.30Balances with Scheduled Banks

- On Current Accounts 76.90 36.11- Others 3.25 3.12

Balances with other Banks 0.07 0.0686.79 42.59

Overdrafts from Banks (545.48) (476.16)(458.69) (433.57)

Cash & Cash Equivalents as on 31st March (Closing):Cash / Cheques on Hand 5.69 6.57Balances with Scheduled Banks

- On Current Accounts 284.69 76.90- Others 3.54 3.25


Overdrafts from Banks (513.48) (545.48)(219.46) (458.69)

Net Increase / (Decrease) in Cash and Cash Equivalents 239.23 (25.12)

Note: Previous year’s figures have been regrouped / reclassified wherever necessary.



100

Balance Sheet Abstract and CompanyBalance Sheet Abstract and CompanyBalance Sheet Abstract and CompanyBalance Sheet Abstract and CompanyBalance Sheet Abstract and Company’s General Business Pr’s General Business Pr’s General Business Pr’s General Business Pr’s General Business Profileofileofileofileofile

I. REGISTRATION DETAILS

REGISTRATION NO. : 0 8 8 5 8 STATE CODE: 1 1

BALANCE SHEET DATE : 3 1 0 3 2 0 0 8

II. CAPITAL RAISED DURING THE YEAR (Amount in Rs.Thousands)

PUBLIC ISSUE RIGHTS ISSUE

N I L N I L

BONUS ISSUE PRIVATE PLACEMENT

N I L N I L

III. POSITION OF MOBILISATION AND DEPLOYMENT OF FUNDS (Amount in Rs.Thousands)

TOTAL LIABILITIES TOTAL ASSETS

3 9 3 2 7 0 4 3 6 3 9 3 2 7 0 4 3 6

SOURCES OF FUNDS

PAID -UP CAPITAL RESERVES & SURPLUS

3 3 9 0 1 4 7 1 0 2 2 4 2 7 9 2

SECURED LOANS UNSECURED LOANS

1 1 1 8 4 7 7 6 1 5 6 6 8 2 2 1 6

DEFFERED TAX LIABILITY

1 5 9 5 9 7 6 3

APPLICATION OF FUNDS

NET FIXED ASSETS INVESTMENTS

1 5 2 4 5 2 2 5 5 6 8 3 7 0 5 5 8

NET CURRENT ASSETS MISC.EXPENDITURE

6 8 6 3 6 8 7 9 N I L

ACCUMULATED LOSSES

N I L

IV. PERFORMANCE OF THE COMPANY (Amount in Rs.Thousands)

TURNOVER TOTAL EXPENDITURE

1 0 3 8 3 7 4 3 1 4 1 0 4 7 7 1 4 2 4 2

PROFIT /LOSS BEFORE TAX PROFIT /LOSS AFTER TAX

+ 1 1 0 8 6 6 7 0 + 1 1 3 4 8 7 5 2

EARNINGS PER SHARE IN RS. DIVIDEND RATE %

3 3 . 4 8 3 0

V. Generic Names of Three Principal

Products of the Company

(as per monetary terms )

Item Code No. (ITC Code) 2 7 1 0

Product Description B U L K P E T R O L E U M

P R O D U C T S

Item Code No. (ITC Code) 2 7 1 0 0 0 4 1 / 6 1

Product Description L U B R I C A N T S

Item Code No. (ITC Code) 2 9 0 1 2 2 0 0

Product Description P R O P Y L E N E

ARUN BALAKRISHNAN B. MUKHERJEE N.R. NARAYANANChairman & Managing Director Director-Finance Company Secretary



101


COMMENTS OF THE COMPTROLLER AND AUDITOR GENERAL OF INDIA UNDER SECTION 619 (4) OF

THE COMPANIES ACT, 1956 ON THE ACCOUNTS OF HINDUSTAN PETROLEUM CORPORTION LIMITED

FOR THE YEAR ENDED 31 MARCH 2008

The preparation of financial statements of Hindustan Petroleum Corporation Limited for the year ended

31 March 2008 in accordance with the financial reporting framework prescribed under the Companies Act,

1956 is the responsibility of the management of the company. The statutory auditors appointed by the Comptroller

and Auditor General of India under Section 619(2) of the Companies Act, 1956 are responsible for expressing

opinion on these financial statements under section 227 of the Companies Act, 1956 based on independent

audit in accordance with the auditing and assurance standards prescribed by their professional body the

Institute of Chartered Accountants of India. This is stated to have been done by them vide their Audit Report

dated 29 May 2008.

I, on the behalf of the Comptroller and Auditor General of India, have conducted a supplementary audit under

section 619 (3) (b) of the Companies Act, 1956 of the financial statements of Hindustan Petroleum Corporation

Limited for the year ended 31 March 2008. On the basis of my audit nothing significant has come to my

knowledge which would give rise to any comment upon or supplement to Statutory Auditors’ report under

section 619(4) of the Companies Act, 1956.

For and on the behalf of the

Comptroller and Auditor General of India

K.P. Sasidharan

Principal Director of Commercial Audit

& ex-officio Member Audit Board-II, Mumbai.

Place : Mumbai

Date : 2 July, 2008

C & AGC & AGC & AGC & AGC & AG’s Comments’s Comments’s Comments’s Comments’s Comments



102

Joint VJoint VJoint VJoint VJoint Venturesenturesenturesenturesentures

Sl. Name of the Date of Shareholdings Nature of Operations

No. Joint Venture Incorporation

1. HPCL-Mittal Energy Ltd. 13.12.2000 HPCL - 50.00%* Construction of 9 MMTPA

[Fully owned subsidiary Mittal Investments petroleum refinery at Bhatinda,

company (Guru Gobind Singh S.A.R.L. - 50.00%* Punjab.

Refineries Ltd.) till 18.07.2007]

* Prior to induction of 2% shareholding by Financial Institutions.

2. Mangalore Refinery & 07.03.1988 ONGC - 71.62% Refining of crude oil and

Petrochemicals Ltd. HPCL - 16.95% manufacturing of petroleum

Others - 11.43% products.

3. Hindustan Colas Ltd. 17.07.1995 HPCL - 50.00% Manufacture and marketing of

COLASIE - 50.00% Bitumen Emulsions & Modified

Bitumen.

4. South Asia LPG Co. Pvt. Ltd. 16.11.1999 HPCL - 50.00% Storage of LPG in underground

TOTAL - 50.00% cavern (60,000 MT capacity)

and associated receiving and

dispatch facilities at Visakh.

5. Prize Petroleum Co. Ltd. 28.10.1998 HPCL - 50.00% Exploration and production

ICICI & activities in the oil and gas

Associates - 45.00% sector.

HDFC - 5.00%

6. Petronet India Ltd. 26.05.1997 HPCL - 16.00% To act as nodal agency for

Financial/ developing identified and

Strategic prioritized petroleum product

Investors - 50.00% pipelines in the country.

Others PSUs - 34.00%


103


Sl. Name of the Date of Shareholdings Nature of Operations

No. Joint Venture Incorporation

7. Petronet MHB Ltd. 31.07.1998 HPCL - 28.77% Operation and maintenance of

Petronet petroleum product pipeline

India Ltd. - 7.89% between Mangalore-Hassan-

ONGC - 28.77% Bangalore.

Financial/

Strategic

Investors - 34.57%

8. Bhagyanagar Gas Ltd. 22.08.2003 HPCL - 25.00% Distribution and marketing of

GAIL - 25.00% environmental friendly fuels

AP Govt. - 50.00% (Green Fuels) viz. CNG and

Auto LPG in the state of

Andhra Pradesh.

9. Aavantika Gas Ltd. 07.06.2006 HPCL - 25.00% Distribution and marketing of

GAIL - 25.00% environmental friendly fuels

Financial - 50.00% (Green Fuels) viz. CNG and

Institutions Auto LPG in the state of Madhya

Pradesh.

Joint VJoint VJoint VJoint VJoint Venturesenturesenturesenturesentures

VLCC Unloading LPG at SALPG Plant, Visakh


104


104


AUDITORS’ REPORT TO THE BOARD OF DIRECTORS OF HINDUSTAN PETROLEUM CORPORATIONLIMITED ON THE CONSOLIDATED FINANCIAL STATEMENTS OF HINDUSTAN PETROLEUMCORPORATION LIMITED AND ITS INTERESTS IN JOINT VENTURE COMPANIES

1. We have audited the attached Consolidated Balance Sheet of Hindustan Petroleum CorporationLimited, its interests in Joint Venture Companies as at March 31, 2008, the Consolidated Profit andLoss Account and Consolidated Cash Flow Statement for the year ended on that date annexed thereto,which we have signed under reference to this report. These financial statements are the responsibilityof Hindustan Petroleum Corporation Limited’s Management. Our responsibility is to express anopinion on these financial statements based on our audit.

2. We conducted our audit in accordance with Generally Accepted Auditing Standards in India. TheseStandards require that we plan and perform the audit to obtain reasonable assurance whether thefinancial statements are prepared, in all material respects, in accordance with an identified financialreporting framework and are free of material misstatement. An audit includes examining, on a testbasis, evidence supporting the amounts and disclosures in the financial statements. An audit alsoincludes assessing the accounting principles used and significant estimates made by management,as well as evaluating the overall financial statement presentation. We believe that our audit provides areasonable basis for our opinion.

3. The audited financial statements of the five of the Joint Venture Companies reflecting total assets ofRs. 2,175.07 crores as at March 31, 2008 and revenue of Rs. 5711.07 crores for the year ended onthat date, have been audited by other auditors, on which we have relied. We have also relied onunaudited provisional financial statements of three other Joint Venture Companies, viz. South AsiaLPG Company Private Limited, Aavantika Gas Limited and HPCL - Mittal Energy Limited (formerlyGuru Gobind Singh Refineries Limited) which was a subsidiary up to July 18, 2007, reflecting totalassets of Rs. 843.12 crores as at March 31, 2008 and revenues of Rs. 13.56 crores for the year endedon that date, for the purpose of our examination of the consolidated financial statements.

4. We report that the consolidated financial statements have been prepared by the Company in accordancewith the requirements of Accounting Standard 21 “Consolidated Financial Statements” and AccountingStandard 27 “Financial Reporting of Interests in Joint Ventures”, issued under Companies (AccountingStandards) Rules, 2006, on the basis of separate audited financial statements of Hindustan PetroleumCorporation Limited and five Joint Venture Companies and unaudited provisional financial statementsof three other Joint Venture Companies.

5. On the basis of information and explanations given to and read with Note no. 9 of schedule 20 regardingtreatment of Income Tax benefits, and in consideration of separate audit reports on individual financialstatements of Hindustan Petroleum Corporation Limited and its Joint Venture Companies, in ouropinion, the consolidated financial statements give a true fair view in conformity with the accountingprinciples generally accepted in India:


105


(a) in the case of the Consolidated Balance Sheet, of the consolidated state of affairs of HindustanPetroleum Corporation Limited and its Joint Venture Companies as at March 31, 2008;

(b) in the case of the Consolidated Profit and Loss Account, of the consolidated results of operationsof Hindustan Petroleum Corporation Limited, and its Joint Venture Companies for the yearended on that date; and

(c) in the case of the Consolidated Cash Flow Statement, of the consolidated cash flows ofHindustan Petroleum Corporation Limited, and its eight Joint Venture Companies for the yearended on that date.

For Sudit K. Parekh & Co. For V. Sankar Aiyar & Co.Chartered Accountants Chartered Accountants




Retail Strategy Meet

Finance Strategy Meet


106


106

Consolidated Balance Sheet as at 31st March, 2008

Rs./CroresSCHEDULE 2007-08 2006-07

SOURCES OF FUNDSShareholders’ Funds:

a) Capital 1 340.58 340.51b) Reserves and Surplus 2 10,424.91 9,227.34

10,765.49 9,567.85Share Application Money Pending Allotment - 1.24Loan Funds:

a) Secured Loans 3 1,340.31 1,189.35b) Unsecured Loans 4 15,959.57 9,842.39

17,299.88 11,031.74Deferred Tax Liability 1,670.56 1,504.47TOTAL 29,735.93 22,105.30APPLICATION OF FUNDSFixed Assets: 5

a) Gross Block 21,271.89 17,250.73b) Less: Depreciation 8,290.15 7,394.38c) Net Block 12,981.74 9,856.35d) Capital Work-in-Progress 6 3,519.94 4,546.09

16,501.68 14,402.44Investments 7 5,869.17 6,112.90Current Assets, Loans and Advances:

a) Inventories 8 12,643.15 8,528.45b) Sundry Debtors 9 2,108.03 1,790.40c) Cash and Bank Balances 10 793.39 125.76d) Other Current Assets 11 51.84 92.63e) Loans and Advances 12 5,127.60 1,724.53

20,724.01 12,261.77Less:Current Liabilities and Provisions: 13

a) Liabilities 12,741.32 9,423.79b) Provisions 621.96 1,254.55

13,363.28 10,678.34Net Current Assets 7,360.73 1,583.43Miscellaneous Expenditure to the extent not written off or adjusted 4.35 6.53

TOTAL 29,735.93 22,105.30NOTES FORMING PART OF CONSOLIDATED ACCOUNTS 20

ARUN BALAKRISHNAN FOR SUDIT K. PAREKH & CO. FOR V. SANKAR AIYAR & CO.Chairman & Managing Director Chartered Accountants Chartered Accountants

B MUKHERJEE SRIKANT V. JILLA G. SANKARDirector-Finance Partner Partner

N.R. NARAYANANCompany Secretary

PLACE : New DelhiDATE : May 29, 2008


107


Consolidated Profit & Loss Account for the year ended 31st March, 2008

INCOMESale of Products 1,10,317.28 97,019.84Less: Excise duty Paid 8,219.01 8,520.42Net Sales 1,02,098.27 88,499.42Recovery under Subsidy Schemes 8,260.84 5,470.12Other Income 14 1,267.25 711.09

1,11,626.36 94,680.63INCREASE / (DECREASE) IN INVENTORY 15 2,374.44 378.40EXPENDITURE AND CHARGES

Purchase of Products for resale 62,211.33 46,854.33Raw materials consumed 43,219.50 40,462.38Packages consumed 121.33 111.65Excise duty on inventory differential 392.74 57.20Transshipping Expenses 2,105.98 1,749.53Payments to and provisions for Employees 16 892.54 741.59Exploration Expenses 16.51 20.74Other Operating Expenses 17 1,843.37 1,664.49Depreciation/Amortisation 930.36 778.18Borrowing Cost 18 820.46 459.81Miscellaneous Expenditure written off 1.34 0.06

1,12,555.46 92,899.96PROFIT FOR THE YEAR BEFORE TAXES 1,445.34 2,159.07PRIOR PERIOD DEBITS / (CREDITS) (NET) 19 21.78 (6.05)

PROFIT BEFORE TAXES 1,423.56 2,165.12PROVISION FOR CURRENT TAXATION 271.46 667.45LESS: MAT CARRIED FORWARD AVAILABLE FOR SET OFF (30.43) -PROVISION FOR DEFERRED TAXATION (NET) 193.53 111.79PROVISION FOR TAXATION IN EARLIER YEARS WRITTEN BACK (388.51) (298.22)PROVISION FOR FRINGE BENEFIT TAX 13.41 10.08

PROFIT AFTER TAXES 1,364.10 1,674.02Balance brought forward 6,961.42 6,197.29

PROFIT AVAILABLE FOR APPROPRIATION 8,325.52 7,871.31APPROPRIATED FOR:General Reserve 119.85 157.36Interim Dividend - 203.60Proposed Final Dividend 138.42 431.67Tax on Distributed Profits 23.53 101.91

BALANCE CARRIED FORWARD 8,043.72 6,976.77EARNINGS PER SHARE (in Rs.) 40.25 49.39(2007-08 : EPS = Net Profit - Rs. 1363.96 crores / Weighted avg. no. of shares - 33.89 crores;2006-07 : EPS = Net Profit - Rs. 1674.02 crores / Weighted avg. no. of shares - 33.89 crores)

NOTES FORMING PART OF CONSOLIDATED ACCOUNTS 20

Rs./Crores2007-08 2006-07


ARUN BALAKRISHNAN FOR SUDIT K. PAREKH & CO. FOR V. SANKAR AIYAR & CO.Chairman & Managing Director Chartered Accountants Chartered Accountants

B MUKHERJEE SRIKANT V. JILLA G. SANKARDirector-Finance Partner Partner

N.R. NARAYANANCompany Secretary

PLACE : New DelhiDATE : May 29, 2008

108


108

Schedules forming part of the Consolidated Balance Sheet

1. CAPITAL

A. Authorised:75,000 Cumulative Redeemable Preference Shares of Rs. 100 each 0.75 0.7534,92,50,000 Equity Shares of Rs.10 each 349.25 349.25

350.00 350.00B. Issued :

33,93,30,000 equity shares of Rs. 10 each 339.33 339.33C. Issued, Subscribed & Called up:

33,93,30,000 Equity Shares of Rs.10 each fully paid up 339.33 339.33Less: 7,02,750 Shares Forfeited during the year 0.70 -33,86,27,250 equity shares of Rs. 10 each fully paid upLess: Calls unpaid by Others - 0.38Add: Shares Forfeited (Money received) 0.39 -

339.02 338.95Preference Shares 1.56 1.56

340.58 340.512. RESERVES AND SURPLUS

Share Premium AccountAs per last Balance Sheet 1,094.83 1,044.66Add: Premium Adjusted 2.06 -Less: Calls Unpaid 0.05 12.46

1,096.84 1,032.20Capital GrantAs per Last Balance Sheet 4.74 4.93Less: Amortised during the year 0.19 0.19

4.55 4.74Capital Reserve 0.08 0.08Market Development Reserve 1.40 1.40General ReserveAs per last Balance Sheet 1,211.78 1,054.79Add/(Less): Transitional Liability booked in line with provisions ofAS-15 (Revised) (53.30) -Add: Transfer from Profit & Loss Account 119.85 157.36

1,278.33 1,212.15Profit & Loss Account Surplus as per Account annexed 8,043.72 6,976.77

10,424.92 9,227.343. SECURED LOANS

Collateral Borrowing and Lending Obligation (CBLO) 605.00 460.00Overdrafts from Banks 513.48 545.51Rupee Term Loan 25.06 28.82Long Term Loans from Banks 119.25 63.07Foreign Currency Loan 25.95 45.39Zero Coupon Bonds 41.63 -Others 9.94 46.56

1,340.31 1,189.35

Rs./Crores2007-08 2006-07


109


A. OTHER THAN INTANGIBLE ASSETS1. Land - Freehold 523.28 35.63 - 558.90 - - 558.90 567.002. Roads and Culverts 782.75 319.46 1.25 1,100.96 16.27 85.38 1,015.58 722.613. Buildings 1,555.95 345.31 2.73 1,898.53 37.58 230.46 1,668.07 1,365.114. Leasehold Land 110.38 16.01 - 126.39 3.94 29.59 96.81 96.625. Railway Siding and

Rolling Stock 281.41 0.90 0.43 281.88 12.88 139.89 141.99 154.216. Plant and Machinery 13,419.66 3,291.57 48.59 16,662.64 825.04 7,518.44 9,144.20 6,709.347. Furniture, Fixtures

and Office/LaboratoryEquipment 323.99 103.88 8.58 419.29 29.23 192.25 227.05 166.76

8. Transport Equipment 102.08 24.18 2.98 123.28 4.05 55.53 67.75 48.569. Unallocated Capital Expenditure

on Land Development 0.49 0.04 0.11 0.42 0.07 0.50 -0.07 -10. Share of FA in Joint Venture

- ONGC Onshore Marginal Fields 2.11 0.77 - 2.88 0.60 0.66 2.23 2.06- Project Sanaganpur 3.17 0.17 - 3.34 0.12 0.13 3.21 1.88

Total (A) 17,105.26 4,137.93 64.67 21,178.52 929.79 8,252.82 12,925.71 9,834.15

B. INTANGIBLE ASSETS1. Right of Way 12.54 8.09 - 20.63 - - 20.63 18.122. Technical/Process Licences 10.31 15.63 - 25.94 1.43 4.50 21.44 14.373. Software 34.43 12.54 0.18 46.80 4.05 32.83 13.98 32.82

Total (B) 57.28 36.26 0.18 93.37 5.48 37.33 56.04 65.31

Assets not in use held for disposal 1.07 - 1.07 - - - - -Less : Provision

Total (C) 1.07 - 1.07 - - - - -

GRAND TOTAL (A+B+C) 17,163.61 4,174.19 65.92 21,271.89 935.27 8,290.14 12,981.75 9,899.46

Previous Year 15,000.70 2,305.36 55.33 17,250.73 781.61 7,394.38 9,856.35

Gross Blockat cost

as at01-04-2007

Additions/Reclassifi-

cations

Gross Blockat cost

as at31-03-2008

Depreciationand

Amortisationfor the year

2007-2008

Deductions/Reclassifi-

cations

TotalDepreciation

andAmortisation

upto31-03-2008

Net Blockas at

31-03-2008

Net Blockas at

31-03-2007


5. FIXED ASSETS Rs./Crores

Rs./Crores2007-08 2006-07

4. UNSECURED LOANSFixed Deposits 0.02 0.02

From Oil Industry Development Board 1,075.00 1,250.00

Clean Loans 9,200.00 5,830.00

Syndicated Loans from Foreign Banks 1,655.07 1,075.16

Foreign Currency Loans - 44.51

Advance towards Equity - 1.25

Short Term Loans From Banks 3,738.13 1,356.87

Sales Tax Deferment Loan 35.23 30.33

Others 256.12 254.25

15,959.57 9,842.39


110


110


6. CAPITAL WORK-IN-PROGRESS (at cost)

Unallocated Capital Expenditure and Materials at Site 2,752.52 3,878.91

Advances for Capital Expenditure 415.55 84.93

Capital Stores 19.46 33.45

Capital Stores lying with Contractors 17.07 109.87

Capital goods in transit 24.58 124.62

3,229.18 4,231.78

Construction period expenses pending apportionment (Net of recovery) - 0.15

Establishment charges 85.57 148.85

Interest 102.05 135.05

Other Borrowing Cost 103.06 21.09

Depreciation 0.08 9.17

290.76 314.31

3,519.94 4,546.09

7. INVESTMENTS

I. LONG TERM INVESTMENTS (at cost):


Quoted

1. Mangalore Refinery and Petrochemicals Ltd. - -

2. 7.00% Oil Companies Government of India Special Bonds 2012 77.02 781.64

Unquoted

1. Petronet MHB Limited - 6.93

2. Petronet VK Limited - 4.16

Less: Provision for Investment - (2.72)

3. Petronet CCK Limited - 4.16


4. Petronet CI Limited - 0.60


5. Petronet India Ltd. 16.00 -

Less: Provision for Diminution (16.00) -

TOTAL(A) 77.02 792.18

B. OTHER INVESTMENTS

Quoted

1. Government Securities of the face value of Rs. 0.02 crores

(2006-07 : Rs. 0.02 crores)

Deposited with Others 0.02 0.02

On hand (Rs. 25,000/- ) 0.00 0.00

2. Scooters India Ltd.

10,000 Equity Shares of Rs. 10 each fully paid up 0.01 0.01

Rs./Crores2007-08 2006-07


111



Rs./Crores

2007-08 2006-07Unquoted

1. Government Securities of the face value of Rs. 0.24 lakhs(2006-07 : Rs. 0.24 lakhs)Deposited with Others - Rs. 0.10 lakhs (2006-07 : Rs. 0.10 lakhs) 0.00 0.00On hand - Rs. 0.14 lakhs (2006-07 : Rs. 0.14 lakhs) 0.00 0.00

2. East India Clinic Ltd.1/2% Debentures of face value of Rs. 0.15 lakhs(2006-07 : Rs. 0.15 lakhs) 0.00 0.005% Debentures of face value of Rs. 0.07 lakhs(2006-07 : Rs. 0.07 lakhs) 0.00 0.00

3. Shushrusha Citizen Co-operative Hospital Limited100 Equity Shares of Rs. 100 each fully paid up Rs. 0.10 lakhs(2006-07 : Rs. 0.10 lakhs) 0.00 0.00

4. Petroleum India International (AOP)Contribution towards Seed Capital 5.00 0.05TOTAL (B) 5.03 0.08TOTAL LONG TERM INVESTMENTS 82.05 792.26Less: Provision for loss on Investments** - Rs. 0.14 lakh 0.00 0.00TOTAL I 82.05 792.26

** Includes Rs. 0.14 lakhs (2006-07 : Rs. 0.14 lakhs) not in the possession of the Company

II. CURRENT INVESTMENTS (at Cost or Fair Value whichever is lower)


Quoted

i. 7.47% Oil Marketing Companies’ GOI Special Bonds, 2012 169.48 393.77ii. 7.61% Oil Marketing Companies’ GOI Special Bonds, 2015 395.06 380.92iii. 7.75% Oil Marketing Companies’ GOI Special Bonds, 2021 270.20 991.51iv. 8.01% Oil Marketing Companies’ GOI Special Bonds, 2023 205.07 838.08v. 8.13% Oil Marketing Companies’ GOI Special Bonds, 2021 14.38 691.47vi. 8.20% Oil Marketing Companies’ GOI Special Bonds, 2024* 260.78 1,006.95vii. 8.40% Oil Marketing Companies’ GOI Special Bonds, 2026* 804.94 1,017.94viii. 7.95% Oil Marketing Companies’ GOI Special Bonds, 2025 1,658.85 -ix. 8.40% -II Oil Marketing Companies’ GOI Special Bonds, 2025 1,899.01 -x. 7% Oil Companies Government of India Special Bonds, 2012 4.62 -TOTAL (A) 5,682.39 5,320.64B. Non Trade (Unquoted) InvestmentsUnquotedInvestments in Units of UTII). UTI Liquid Plus (5232355.535 units @ Rs. 1000.214) 88.71 -ii). UTI Liquid Cash Plan (927057.409 units @ Rs. 1019.4457) 16.02 -

(During the year invested in UTI Growth Plan which was fully matured)TOTAL (B) 104.73 -

TOTAL II 5,787.12 5,320.64

TOTAL [ I + II ] 5,869.17 6,112.90

* Pledged with Clearing Corporation of India Limited against CBLO Loan


112


112


Rs./Crores

2007-08 2006-078. INVENTORIES

Raw Materials 3,787.14 2,070.78



Packages 10.65 8.17

12,448.61 8,355.04

Stores and Spares 194.54 173.41

12,643.15 8,528.45

9. SUNDRY DEBTORS : (Unsecured)

Over six months:

Considered good 92.13 79.49


Others:

Considered good 2,032.58 1,726.67


2,186.94 1,874.01

Less: Provision for Doubtful Debts 78.92 83.61

2,108.02 1,790.40

10. CASH AND BANK BALANCES

Cash on hand 2.02 1.40

Cash & Cheques Awaiting Deposit 5.39 7.02

With Scheduled Banks:

On Current Accounts 307.03 86.40

On Non-operative Current Accounts 0.01 0.01

On Fixed Deposit Accounts 478.84 30.86

With Others:

In Current Account with Municipal Co-operative

Bank Ltd. (maximum balance during the year

Rs. 0.11 crore; 2006-07 : Rs. 0.11 crore) 0.10 0.07

793.39 125.76

11. OTHER CURRENT ASSETS

Interest accrued on Bank Deposits and Investments 51.84 92.63


113


Schedules forming part of the Consolidated Profit & Loss Account

12. LOANS AND ADVANCES

Secured, considered good:Advances recoverable in cash or in kind or for value to be received 383.47 353.32Interest Accrued thereon 135.57 125.16

Unsecured, considered good:Advances recoverable in cash or in kind or for value to be received 87.11 155.86Balances with Excise, Customs, Port Trust etc. 217.75 270.99Other Deposits 136.50 137.70Prepaid Expenses 15.94 17.79Amounts recoverable under Subsidy Schemes 3,524.89 21.74Advance towards Equity 20.34 10.25Share Application Money Pending Allotment 2.67 3.73Other Accounts Receivable 603.36 627.99

Unsecured, considered doubtful:Accounts Receivable & Deposits 2.95 3.10

5,130.55 1,727.63Less : Provision for Doubtful Receivables (2.95) (3.10)

5,127.60 1,724.53

13. CURRENT LIABILITIES AND PROVISIONSA. Current Liabilities

Sundry Creditorsi) Total outstanding dues of Micro, Small and Medium Enterprises* 5.00 3.87ii) Total outstanding dues of creditors other than above 7,703.69 4,879.37Deposits from Dealers/Consumers for LPG Cylinders 3,016.04 2,826.45Other Deposits 149.83 136.47Accrued Charges/Credits 115.90 106.50Interest accrued but not due on loans 50.62 48.07Interest accrued and due on Debentures 0.32 0.52Preference share capital redeemed remaining unclaimed/unencashed 0.01 0.01Unclaimed Dividend 5.68 12.12Unpaid Matured Debentures / fixed deposits 1.39 1.98Other Liabilities 1,692.85 1,408.43

12,741.33 9,423.79B. Provisions

Provision for Tax (Net) 263.19 574.14Proposed Dividend 138.42 431.67Provision for Gratuity / Pension 40.01 41.44Provision for other retirement benefits 153.66 133.27Provision for Fringe Benefit Tax 3.15 0.67Tax on Distributed Profits 23.53 73.36

621.96 1,254.5513,363.29 10,678.34

* The previous year’s figures represent outstanding dues towards SSI units

Rs./Crores2007-08 2006-07


114


114


14. OTHER INCOME

Interest (Gross):

On Investments 404.23 265.41

On Deposits 0.39 0.37

On Staff Loans 18.09 16.56

On Customers’ Accounts 10.89 10.18

On Others 72.04 6.66

505.64 299.18

Dividends 24.48 21.51

Share of Profit from Petroleum India International (AOP) 0.72 0.95

Rent Recoveries 47.04 41.27

Profit on sale of Investments 2.10 0.00

Exchange rate variation (Net) 508.51 208.14

Miscellaneous Income 178.76 140.04

761.61 411.91

1,267.25 711.09

15. INCREASE / (DECREASE) IN INVENTORY

Closing Stock:



8,646.91 6,276.19

Less: Opening Stock:



6,272.47 5,897.79

2,374.44 378.40

16. PAYMENTS TO AND PROVISIONS

FOR EMPLOYEES

Salaries, Wages, Bonus, etc. 657.01 567.61

Contribution to Provident Fund 45.18 41.81

Pension, Gratuity etc. 35.27 7.48

Retirement Benefits 0.04 -

Employee Welfare Expenses 158.64 126.50

Less: Recoveries 3.60 1.81

155.04 124.69

892.54 741.59

Rs./Crores

2007-08 2006-07


115


Rs./Crores

2007-08 2006-0717. OTHER OPERATING EXPENSES

Consumption of Stores, Spares and Chemicals 99.75 107.15Power and Fuel 2163.67 1864.96Less : Fuel of own production consumed 2143.09 1848.09

20.58 16.87Repairs and Maintenance - Buildings 30.07 19.34Repairs and Maintenance - Plant & Machinery 292.17 248.78Repairs and Maintenance - other assets 52.55 9.58Insurance 22.82 21.71Rates and Taxes 72.28 29.41Irrecoverable Taxes and Other Levies 154.14 276.51Equipment Hire Charges 1.82 3.35Rent 109.04 124.99Travelling and Conveyance 95.44 74.86Printing and Stationery 8.93 10.03Electricity and Water 174.48 146.95Charities and Donations 18.53 14.56Loss on Sale/write off of Fixed Assets/CWIP 4.66 3.92Stores & spares written off 0.60 5.27Provision for Diminution in value of Current Investments 62.42 83.30Loss on Sale of Current Investment 160.20 18.49Loss on Sale of Long Term Investment 42.00 1.54Provision for Investments - 4.71Provision for Doubtful Debts and write-off (4.65) 43.81Security Expenses 42.45 33.04Advertisement & Publicity 101.91 110.48Consultancy and Technical Charges 22.89 19.97Sundry Expenses and Charges (Not otherwise classified) 258.29 235.87

1843.37 1664.49

18. BORROWING COSTInterest on:Long Term Loans 54.70 25.11Short Term Loans 719.42 385.33Overdraft from Banks 16.95 18.32Fixed Deposits 20.27 -Others 9.12 14.61Other Borrowing Cost - 16.44

820.46 459.81

19. PRIOR PERIOD DEBITS/(CREDITS)Excise Duty Reversed - (6.05)Depreciation 5.59 -Finance Cost 16.19 -

21.78 (6.05)



116


116

Notes forming part of the Consolidated Financial Statements

20. Notes forming part of the Consolidated Financial Statements for the year ended 31st March 2008

1. Basis of preparation

The Company has prepared consolidated financial statements in accordance with Accounting Standard

– 21 (Consolidated Financial Statements) and Accounting Standard – 27 (Reporting for Financial Interest

in Joint Ventures).

Company’s stake in wholly owned subsidiary, Guru Gobind Singh Refineries Ltd. (up to July 18, 2007)

has been reduced with induction of Mittal Investments S.A.R.L. The new joint venture entity is named as

HPCL-Mittal Energy Ltd., wherein both the joint venture partners are holding equal stake as on March 31,

2008. As a result, the opening balance of current year may not match with the previous year’s figures.

Since Company has a subsidiary during the year, consolidated financial statements have been prepared.

2. Principles of Consolidation

As far as possible, the consolidated financial statements are prepared using uniform accounting policies

for like transactions and other events in similar circumstances and are presented in the same manner as

the companies separate financial statements.

3. Companies included in Consolidation

Joint Ventures % Holding

HPCL - Mittal Energy Limited (Formerly Guru Gobind SinghRefineries Limited) 50.00Hindustan Colas Limited 50.00

South Asia LPG Company Private Limited 50.00

Prize Petroleum Company Limited 50.00

Mangalore Refinery and Petrochemicals Limited 16.95

Bhagyanagar Gas Limited 25.00

Petronet India Limited* 16.00

Petronet MHB Limited 28.77

Aavantika Gas Limited 25.00

*Proportionate consolidation in respect of Investments in Petronet India Limited has been discontinued inthe preparation of Consolidated Financial Statements as the management has provided for full diminutionin the Value of Investment. As a result, the opening balance of certain assets & liabilities in current yearmay not match with the previous year’s figures.

4. In respect of sale of sensitive petroleum products (MS, HSD, LPG (Domestic) and SKO (PDS)), asadvised by the Ministry of Petroleum & Natural Gas, a part of the under-recovery suffered by the ParentCompany during the year was compensated by ONGC and GAIL, by offering discounts on prices ofcrude, SKO and LPG purchased from them. Accordingly, the Parent Company has accounted the discountreceived as follows:


117



(a) Rs. 4,561.89 crores (2006-07: Rs. 3,238.73 crores) discount received, on crude oil purchased from

ONGC, has been adjusted against ‘Raw Material Cost’.

(b) Rs. 847.00 crores (2006-07: Rs. 922.41 crores) discount received on purchase of SKO (PDS) and

LPG (Domestic) from ONGC and GAIL has been adjusted against ‘Purchase of Product for Resale’.

5. In principle approval of Govt. of India for issuance of Oil Bonds amounting to Rs. 7,703 crores (2006-07:

Rs. 4,929.89 crores) has been received and the same has been accounted by Parent Company.

6. Significant Accounting Policies and additional information:

The significant accounting policies have been set out in the notes to accounts of the parent company

Hindustan Petroleum Corporation Limited. Additional information not impacted by consolidation is also

set out in the notes to the accounts of the parent company.

7. Figures pertaining to the Joint Ventures have been reclassified wherever necessary to conform to the

Company’s Financial Statements.

8. Related Party disclosure:

Rs./ Crores

2007-08 2006-07

Sales 6.10 6.16Purchases 1.86 0.12Dividend 0.59 0.35Advance towards equity - -Share application money pending allotment - -Services 0.01 0.51Others 1.61 0.05Interest paid - -Services received 0.80 0.82

The names of parties are as follows:

Joint Venture Companies:

ONGC Manglore Petrochemicals Ltd., Shell MRPL Aviation Fuels & Services Pvt. Ltd, M/s Colasie SA,M/s Colas SA, Hydrocarbon Resources Development Pvt. Ltd., Gas Authority of India Limited


118


118


Key Management Personnel:

Shri Arun Balakrishnan, Chairman & Managing Director

Shri V. Viziasaradhi, Director - Human ResourcesShri C. Ramulu, Director - Finance (up to January 31, 2008)Shri B. Mukherjee, Director - Finance (from February 1, 2008)Shri S. Roy Choudhury, Director - MarketingShri M. A. Tankiwala, Director - RefineriesShri R. Rajamani, Managing DirectorShri L. K. Gupta, DirectorShri Y. V. V. Raghava, Manager (up to January 09, 2008)Dr. M. N. Prasad, ManagerShri S. B. Pandey, Managing DirectorShri Prabh Das, Chief Executive Officer and Managing Director (from March 11, 2008)Shri B S Sant, Managing Director (up to March 10, 2008)Shri Rajan Tandon, Director (from January 07, 2008)

Shri K. S. R. Prasad, Director (from February 01, 2008)

Details of remuneration to directors are given in Note 11 (E) of Consolidated Notes to Accounts

9. Considering the uncertainties attached to certain benefits under the Income Tax Act, the Corporation has

been accounting for such tax benefits in the year they are allowed in the assessments. Accordingly, the

Corporation, upon completion of assessment for the financial year 2004-05 (assessment year 2005-06)

has reversed provision for tax amounting to Rs. 408.61 crores (2006-07: Rs. 302.98 crores).

10. Employee Benefits:

A. During the year, Accounting Standard (AS) – 15 (Revised 2005) on “Employee Benefits” issued under

the Companies (Accounting Standards) Rules, 2006 has been implemented.

B. Liability towards long term defined employee benefits is determined on actuarial valuation byindependent actuaries at the year end by using Projected Unit Credit method. However, in case of fewjoint venture entities, the liability was recognized based on best estimates.

C. In respect of Provident Fund, the contribution for the period is recognized as expense and charged toProfit & Loss account.

D. Short term employee benefits are recognized as an expense at an undiscounted amount in the Profitand Loss Account of the year in which the related services are rendered.

E . Summarized disclosure on defined benefit plans is given hereunder :

Rs./ Crores

Particulars 01.04.07 31.03.08 Change

Defined Benefit Obligation (DBO) 399.32 484.92 85.60

Fair value of Assets 274.82 156.28 (118.54)

Amount recognized in the Balance Sheet 231.29

Total expenses recognized in Profit and Loss Account 93.92


119


Rs./Crores

2007-08 2006-0711. A. Estimated amount of contracts remaining to be

executed on Capital Account not provided for 2,595.90 3,344.70

B. No provision has been made in the accounts

in respect of the following disputed demands/claims

since they are subject to appeals/representations

and a substantial portion thereof is recoverable

from Pool Account:


ii. Sales Tax/Octroi 3,415.17 3,241.37


iv. Land Rentals & Licence Fees 97.47 91.37

v. Others 120.98 37.12

C. Contingent Liabilities not provided for in respect of:


ii. Sales Tax/Octroi 148.09 149.34


iv. Employee Benefits/Demands (to the extent quantifiable) 141.52 89.37

v. Guarantees on behalf of others 165.53 168.84

vi. Claims against the Corporation not acknowledged as debts 253.20 259.16

vii Enhancement of Compensation against land acquired 12.58 23.78

viii. Service Tax 0.08 0.08

ix. Navi Mumbai Municipal Corporation Cess 0.02 -

x. Others 27.05 34.00

D. Payment to Auditors:

- Audit fees 0.25 0.19

- Tax audit fees 0.01 0.02

- Other services 0.12 0.10

- Reimbursement of expenses 0.06 0.12



120


120

Rs./Crores

2007-08 2006-07

E. Managerial Remuneration :

- Salary and Allowances 0.85 0.92

- Contribution to Provident Fund and other funds 0.06 0.06

- Pension and Gratuity 0.02 0.02

- Other benefits 0.16 0.19

F. Deferred Tax Assets/(Liabilities) arising due to timing

differences comprises of:

Deferred Tax Assets

Provision for Gratuity/Pension 13.49 14.10

Provision for Medical Benefits 16.06 4.40

Provision for Leave Encashment 32.84 32.84

Provision for doubtful debts 0.06 0.04

Provision for ex-gratia 11.28 0.00

Provision for Death Benefits 7.80 0.00

Provision for Long Service Awards 10.56 0.00

Provision for Leave Fare Assistance 67.45 0.00

Unabsorbed Losses and Allowances 45.83 81.41

Others 148.53 81.70

Total 293.19 214.49

Deferred Tax Liabilities

Depreciation 1,922.08 1,676.44

Others 41.68 42.53

Total 1,963.75 1,718.97

Deferred Tax Asset/(Liability) (1,670.56) (1,504.47)



121



G. Information regarding Primary Segment Reporting as per AS-17 for the year ended March 31, 2008 is as under:

Rs./Crores2007-08 2006-07

Downstream Exploration Total Downstream Exploration TotalPetroleum & Production Petroleum & Production

RevenueExternal Revenue 111,093.42 - 111,093.42 94,358.99 - 94,358.99Inter-segment Revenue - - - - - -

Total Revenue 111,093.42 - 111,093.42 94,358.99 - 94,358.99

ResultSegment Results 2,013.99 (16.51) 1,997.48 2,426.02 (20.74) 2,405.28Less: Unallocated Expenses - - - - - -Net of unallocated Income - - - - - -

Operating Profit 2,013.99 (16.51) 1,997.48 2,426.02 (20.74) 2,405.28

Less:Interest Expenditure 820.46 459.81Provision for dimunition in investments 62.42 88.01Loss on Sale of Investments 202.20 20.03Add:Interest/Dividend(Incl Share of profit from PII) 530.84 321.64Provision for dimunition inInvestments written backPrior year (Expenses) / Income (21.78) 6.05Profit on Sale of Investments 2.10 -Profit before Tax 1,423.56 2,165.12Less: Taxes(including Deferred tax / FBT) 59.46 491.10Profit after Tax 1,364.10 1,674.02Other InformationSegment Assets 36,606.78 25.02 36,631.80 26,074.54 4.58 26,079.12Corporate Assets 6,467.41 6,704.52Total Assets 43,099.21 32,783.64Segment Liabilities 12,799.45 77.52 12,876.97 9,494.59 41.21 9,535.80Corporate Liabilities 19,456.75 13,679.99Total Liabilities 32,333.72 23,215.79Capital Expenditure 3,123.02 25.02 3,148.04 3,982.09 4.58 3,986.67Depreciation 935.27 - 935.27 780.63 - 780.63

Notes:1. The Group is engaged in the following business segments:

a) Downstream i.e. Refining and Marketing of Petroleum Productsb) Exploration and Production of Hydrocarbons

Segments have been identified taking into account the nature of activities and the nature of risks and returns.2. Segment Revenue comprises the following:

a) Turnover (Net of Excise Duties)b) Subsidy from Government of Indiac) Net Claim/(surrender to) PPAC/GOId) Other income (excluding interest income, dividend income and investment income)

3. There are no geographical segments.

14. Previous year’s figures have been regrouped/reclassified wherever necessary.


122


122

Rs./Crores

2007-08 2006-07A. Cash Flow From Operating Activities

Net Profit before Tax & Extraordinary items 1,423.56 2,165.12Adjustments for :

Depreciation / Amortisation 930.36 778.18Depreciation (prior period) 5.59 -Finance cost included in Fixed Asset 16.19 -Miscellaneous Expenditure written off 1.34 0.06Loss on Sale/write off of Fixed Assets/ CWIP 4.66 3.92Amortisation of capital grant (0.19) (0.19)Spares written off 0.60 5.27Provision for diminution in investments 62.42 88.01Interest Expense 820.46 459.81Provision for Doubtful Debts (4.65) 43.81Interest Income (404.62) (265.78)Share of Profit from PII (0.72) (0.95)Dividend Received (24.48) (21.51)(Profit)/Loss on sale of Oil Bonds 200.10 20.03

Operating Profit before Working Capital Changes 3,030.62 3,275.78(Increase) / Decrease in Working Capital :

Trade Receivables (312.93) (239.78)Other Receivables (3,393.89) 85.98Inventories (4,115.30) (399.33)Trade and other Payables 3,260.43 1,492.48

(4,561.69) 939.35Cash generated from operations (1,531.07) 4,215.13

Direct Taxes / FBT refund / (paid) - Net (174.40) (98.85)Cash Flow before extraordinary items (1,705.47) 4,116.28

Extraordinary items - -

Net Cash from operating activities ( A ) (1,705.47) 4,116.28

B. Cash Flow From Investing ActivitiesPurchase of Fixed Assets (incl. Capital Work in Progress /excluding interest capitalised) (3,052.52) (3,986.67)Sale of Fixed Assets 30.16 24.94Purchase of Investment (Including share application moneypending allotment/Adv. towards Equity) (4,362.72) (4,898.93)Misc Expenditure paid by HPCL-Mittal Energy Ltd. 0.84 (1.88)Sale Proceeds of Oil Bonds 4,334.90 1,930.70Interest received 445.41 184.70Dividend Received 24.48 21.51Share of profit from PII 0.72 0.95

Net Cash from investing activities ( B ) (2,578.73) (6,724.68)

Consolidated Cash Flow Statement for the year ended 31st March, 2008


123


Consolidated Cash Flow Statement for the year ended 31st March, 2008

Rs./Crores

2007-08 2006-07C. Cash Flow From Financing Activities

Share premium received 64.71 0.48Share application money received/(paid) (1.24) (27.16)

Advance towards equity received /(paid) (1.25) (1.39)Long term loans raised 442.90 1,143.08Fixed deposits / debentures repaid (0.59) (0.35)

Short term loans raised / (repaid) 5,858.52 2,430.83Interest Paid on Loans (866.68) (564.86)Dividend paid (including dividend distribution tax) (511.47) (371.83)

Net Cash from financing activities ( C ) 4,984.90 2,608.80NET INCREASE / (DECREASE) IN CASH ANDCASH EQUIVALENTS (A + B + C) 700.70 0.40

CASH & CASH EQUIVALENTS AS ON 1ST APRIL (OPENING) :Cash / Cheques on Hand 8.41 4.02Balances with Scheduled Banks

- On Current Accounts 86.34 42.13 - Others 29.90 9.80

Balances with other Banks 0.07 0.06

124.72 56.01Overdrafts from Banks (545.51) (476.16)

(420.79) (420.15)

CASH & CASH EQUIVALENTS AS ON 31ST MARCH (CLOSING):Cash / Cheques on Hand 7.41 8.42Balances with Scheduled Banks

- On Current Accounts 307.03 86.40 - Others 478.85 30.87


Overdrafts from Banks (513.48) (545.51)279.91 (419.75)

NET INCREASE / (DECREASE) IN CASH AND CASH EQUIVALENTS 700.70 0.40

Note: Previous year’s figures have been regrouped / reclassified wherever necessary.

FOR AND ON BEHALF OF THE BOARD


B. MUKHERJEE FOR SUDIK K. PAREKH & CO. FOR V. SANKAR AIYAR & CO.Director-Finance Chartered Accountants Chartered Accountants


Place: New DelhiDate : May 29, 2008


124


124

Corporate GovernanceCorporate GovernanceCorporate GovernanceCorporate GovernanceCorporate Governance

HPCL lays special emphasis on conducting its affairs within the framework policies, internal and externalregulations and in a transparent manner. Being a Government Company, besides compliance to CorporateGovernance Regulations, its activities are also subject to review by several external authorities like theComptroller & Auditor General of India (CAG), the Central Vigilance Commission (CVC), ParliamentaryCommittees etc.

DECISION MAKING PROCESS:

At the apex level is the HPCL Board of Directors (The Board). The Board has constituted several sub-committees,such as the Committee of Functional Directors (CFD), the Audit Committee, the Investment Committee, theHR / Remuneration Committee, the Investor Grievance Committee, etc. The composition of these Committeesis given in this Report. The meetings of these committees are convened on need basis and minutes of thesemeetings are placed for information of the Board. Majority of the members of the Committees except the CFDare Independent Directors with the Whole Time Directors playing a facilitating role.

The Corporation has constituted an Executive Council comprising of Chairman & Managing Director, theFunctional Directors and the SBU Heads of the Corporation. This council discusses important issues concerningthe organization, analyses the same and recommend the ‘way forward’ in respect of matters discussed.Emphasis is laid on team approach, mutual support of functions and joint deliberations on issues by thecouncil which has enhanced further the decision making process. It has thus facilitated an integrated thinkingprocess and an aligned approach across the Corporation for achieving the Corporate Vision and each one ofthe aspirational aspects contained in the Vision Statement. In the recent period, powers have been furtherdelegated to Field Levels to enhance faster decision making process.

Disclosures :

Given below are the various information forming part of Corporate Governance disclosures :-.

1. Board of Directors :

1.1 Composition of Board of Directors

Executive Directors including Chairman (Whole-time) 5

Non-Executive Govt. Directors (Ex-officio) 2

Non-Executive Independent Directors (Non-official) 4

Total 11

1.2 Board Meetings:

Ten Board Meetings were held during the Financial Year on the following dates:

16th April 2007 4th May 2007 29th May 2007 30th July 2007

22nd August 2007 29th October 2007 30th November 2007 27th December 2007

28th January 2008 17th March 2008


125


Corporate Governance (Contd.)Corporate Governance (Contd.)Corporate Governance (Contd.)Corporate Governance (Contd.)Corporate Governance (Contd.)

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126


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127



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128


128


1.4 PROFILES OF DIRECTORS:

Shri Arun Balakrishnan

Shri Arun Balakrishnan is a Chemical Engineer and an alumni of the Indian Institute of Management,

Bangalore. He joined HPCL in 1976 as a Management Trainee. He has held various positions in Marketing

and Corporate functions around the country. These include positions such as Regional Manager at Orissa,

Director Planning - OCC, General Manager - International Operations, General Manager - Lubricants &

Specialities and Chief General Manager - Direct Sales.

He is credited with launching a number of successful lubricant brands and for spreading the HP Lubes

distributors network in the ASEAN countries. Shri Arun Balakrishnan attended a program on Management

in the United Kingdom under the Colombo Plan Program. He has also attended various seminars and

conferences related to Petroleum & Energy.

Shri Arun Balakrishnan who was earlier Director (HR) has taken over as Chairman & Managing Director of

the Corporation effective April 01, 2007.

Shri P.K. Sinha

Shri P.K. Sinha, Additional Secretary & Financial Advisor, Ministry of Petroleum & Natural Gas is a Post

Graduate from Delhi School of Economics and an IAS officer of U.P. Cadre. Shri P.K. Sinha also holds

M.Phil in Social Sciences and Masters Diploma in Public Administration. Shri Sinha has served both in

the Central and State Governments, including as District Magistrate of Jaunpur and Agra Districts,

Commissioner of Varanasi Division and Principal Secretary, Irrigation, Uttar Pradesh. Shri Sinha has also

served in the Ministry of Power, Department of Youth Affairs and Sports in the Central Government before

joining the MOP&NG.

Shri L N Gupta

Shri L N Gupta has been appointed as an Additional Director in the HPCL Board effective June 25, 2008.

Shri L N Gupta has recently joined as a Joint Secretary (Refineries) in the Ministry of Petroleum and

Natural Gas. He is an IAS Officer and has done his M.A. in (Economics) and MBA from Birmingham

University.

He served in the Government of Orissa as Sub Collector, Deogarh, Project Officer, DRDA, Sundergarh,

Managing Director, OSTC/Orissa Textile Mills Limited, Choudwar. He has also served as a Deputy Secretary

to the Government of India, Department of Personnel and Training, Vice Chairman, Bhubaneswar

Development Authority and Administrator, Bhubaneswar Municipal Corporation, Revenue Development

Commissioner (Central), Cuttack, Chairman and MD, Orissa Industrial Infrastructure Development


129



Corporation, Commissioner cum Secretary, Department of Steel and Mines, Chairman and MD, Orissa

Hydro Power Corporation and Resident Commissioner, Government of Orissa, New Delhi.

Shri Prabh Das

Shri Prabh Das, Joint Secretary of Ministry of Petroleum & Natural Gas (MOP&NG) is a member of Indian

Administrative Service. He is a B.Tech (Hons). from IIT, Kharagpur. He has also completed his Master of

Business Administration from Southern Cross University, Australia. He has worked as a District Magistrate

and Collector in Midnapur & Jalpaiguri Districts for a period of 5 years. Shri Prabh Das has also worked as

a Deputy Secretary / Director in the Department of Ocean Development and Ministry of Commerce,

Government of India. He has also worked as a Special Secretary ( Transport ) Government. of West

Bengal and Chief Executive Officer of Calcutta Metropolitan Development Authority.

Shri Prabh Das joined the Ministry of Petroleum & Natural Gas as Joint Secretary in March 2003. He is

also a Director on the Boards of Indian Oil Corporation Ltd., Engineers India Ltd. and Chennai Petroleum

Corporation Ltd.

Shri Prabh Das resigned from HPCL Board effective March 05, 2008 consequent to resigning from MOP&NG.

Shri T.L. Sankar

T.L. Sankar is a civil servant, served as a Member of the Indian Administrative Service for over 35 years.

On retirement, he served as Principal, Administrative Staff College of India (ASCI), Hyderabad for over

seven years and continues to be an Advisor (Energy) in ASCI.

He served as Secretary, Fuel Policy Committee (1970-75) and Principal Secretary of the Working Group

on Energy Policy (1978-79). In 1976, he was the Planning Commission & first Energy Adviser. Since then

he has been associated with energy and other national policy initiatives. He was Secretary of the Fuel

Policy committee (1970-75), and Member Secretary of the Working Group on Energy Policy (1978-79),

Vision Hydrocarbon 2025, Member of Disinvestments Commission and Population Foundation of India.

He headed Gas Price Revision Committee 1997 and A.P. Natural Gas Utilization Committee 2003. Recently

he served as a Member of the Integrated Energy Policy Committee (2006) and as Chairman of the Expert

Committee for comprehensive review and recommending a roadmap for coal sector in India (2007).

In the State of A.P. he served as Chairman AP State Electricity Board, and Principal Secretary in the

Departments of Industry and Finance. He has served United Nations as Advisor on Energy issues to the

Governments of Sri Lanka, Tanzania, Jamaica, North Korea and Bangladesh. He headed Asian Development

Bank & Asian Energy Survey in early eighties.

He has been awarded Padma Bhushan by the President of India in 2004 in recognition of his services to

the Country.


130


130

Shri I.M. Pandey

Professor I M Pandey, currently Chairman of the Pearl Academic Council, holds a PhD in Corporate

Finance from the Delhi School of Economics, University of Delhi, India. He also holds the position of

Visiting Professor at School of Management, Asian Institute of Technology (AIT) where he was Dean from

November 2005 to December 2007. He is an Adjunct Professor at Universitas 21 Global, Singapore.

He has been Professor of Finance and Accounting at the Indian Institute of Management, Ahmedabad,

India, where he has also served Dean, Officiating Director, Chairman of the Doctoral Program and Chairman

of Finance and Accounting Area. On leave from IIM-A, currently, he is the Dean, AIT School of Management.

He has also taught at universities in the Asia (School of Management, University Science Malaysia;

Independent University of Dhaka), Europe (ESCP, France; University of Birmingham, UK) and the US

(College of Business Administration, Kansas State University). Dr Pandey’s areas of research and teaching

include Corporate Finance, emerging Financial Markets, Management Control System, Entrepreneurial

Finance and Corporate Governance. He sits on the Board of Directors of Indorama Polymer Limited

(Thailand) and Cochin Shipyard Company. He also served on the boards of Industrial Finance Corporation

of India, Gujarat Heavy Chemicals Limited; IDBI-Principal Asset Management Company; Industrial

Development Bank of India Western Region Advisory Committee; National Institute of Bank Management;

and Ahmedabad Stock exchange. He was a member of the Controller of Capital Issues Committee,

Government of India. Dr Pandey has also served as a Consultant and Advisor to Public and Private Sector

Organisations including the World Bank, the Asian Development Bank and the European Union.

He has published 10 books, six Research Monographs and about 70 Articles and 40 Management cases

in refereed journals. His book, *Financial Management*, is a leading text in India and many other countries.

His research papers appear in international journals like Managerial Finance; Asia Pacific Journal of

Economics and Business; Global Business & Finance Review; Journal of Financial Management;

Multinational Business Review; Technovation; Accounting & Business Review etc. Dr Pandey was recipient

of the “Teacher of the Year Award” from the School of Management, Asian Institute of Technology, Thailand

and “Best Course and Teacher Award” from the Indian Institute of Management, Ahmedabad. He is on the

editorial boards of several journals such as International Journal of Accounting, Auditing and Performance

Evaluation; International Journal of Learning and Change; The Global Business & Finance Review etc. He

has also served as Editor of IIMA’s journal: Vikalpa: Journal of Decision Makers for about three years.

Shri C. Ramulu

Shri C. Ramulu retired from the post of Director-Finance of the Corporation effective January 31, 2008 after

attaining the age of superannuation. Shri C. Ramulu is a Chartered Accountant and Company Secretary



131


and is a rank holder at the All India level. Shri C. Ramulu secured distinction in MBA from the University of

Leeds, U.K.

Shri C. Ramulu commenced his career in the Petroleum Industry with Caltex India Ltd., which was

nationalized and merged with HPCL. His wide experience encompasses Financial Management in varied

positions spread across the organization in Refining, Marketing and Corporate Divisions and General

Management including Strategy Planning, Management of Joint Ventures, etc. He has attended several

International Senior Management Programmes. He has also presented several papers at National &

International Conferences, Seminars etc. Shri Ramulu successfully handled the Public issue of HPCL for

raising equity capital of Rs.1200 crores. In recognition of his valuable contribution to the Industry, the

Institute of Chartered Accountants of India has conferred on him the prestigious “Professional Manager of

the Year” Award for 2007-08.

Shri S. Roy Choudhury

Shri S. Roy Choudhury took charge as Director - Marketing effective May 10, 2004.

Shri S. Roy Choudhury is a Mechanical Engineer from University of Assam. He commenced his career in

the Petroleum Industry with Refinery Division of Assam Oil Company, Digboi, then a subsidiary of Burma

Oil Company. Shri Roy Choudhury joined HPCL on June 21, 1982 as Construction Engineer. He has held

various positions in the Company in Pipelines Projects, Engg. & Projects, Supply & Distribution, Operations,

Sales & Marketing. He is well known in the Oil Industry for his knowledge and expertise in the cross

Country Pipeline. He was holding the position of Executive Director (Direct Sales) prior to his appointment

as Director - Marketing.

Shri M.A. Tankiwala

Shri M.A. Tankiwala, a Graduate in Mechanical Engineering, commenced his career in the Mumbai Refinery

of HPCL. He has had a wide exposure to the Petroleum Industry spanning more than three decades in the

Refining Sector.

Shri M.A. Tankiwala was the Managing Director of Guru Gobind Singh Refineries Ltd. (GGSRL), a fully

owned subsidiary of HPCL and was instrumental in developing the grass roots project.

He also served on the Board of Mangalore Refineries & Petrochemicals Limited (MRPL) the first refinery in

the Joint Sector as Managing Director (Technical) and ensured that due share was given to MRPL in

meeting the country’s energy demand.

He has worked in both Mumbai and Visakh Refineries of HPCL in various capacities and contributed to

the growth and development of the refinery operations of the Corporation.



132


132

Shri V. Viziasaradhi

Shri V. Viziasaradhi has done Graduation and Post Graduation in Industrial Relations and Personnel

Managementfrom University of Andhra Pradesh. He joined HPCL in December 1979. Before joining HPCL,

he had 4 years of experience in Bharat Heavy Plate & Vessels.

He has had a wide exposure to the Petroleum Industry over 28 years in Human Resources and Industrial

Relations in Refineries, Marketing and Corporate Divisions of HPCL.

Prior to taking over as Director(HR), Shri V. Viziasaradhi was Executive Director – Industrial Relations of

HPCL.

Shri Prakash G Apte

Prof. Prakash G. Apte, who joined HPCL Board effective July 20, 2007 is the Director and UTI Chair

Professor at the Indian Institute of Management Bangalore. His special areas of interest are International

Finance, exchange rate behaviour, financial derivatives and risk management.

Prof. Apte holds a Ph.D in Economics from Columbai University, PGDM from IIM Calcutta and B.Tech.

from IIT Bombay. He has taught Economics at the Vassar College, Poughkeepsie, USA and Columbia

University. He was a Consultant at Edison Electric Institute, New York and a Project Manager at Centron

Industrial Alliance, Bombay.

Prof. Apte has published four books – International Financial Management, Global Business Finance,

Text Book of Econometrics and Macro Economics and several articles in professional journals and economic

and financial periodicals. He has served on expert committees appointed by NSE, SEBI and RBI. He is on

the Board of several companies and institutions such as BEML, Power Finance Corporation and IIT-B. He

is also a consultant to several leading organizations in government, public and private sectors. He has

been a Visiting Faculty at the Katholieke Universiteit Leuven, Belgium, Goteborg University, Sweden and

S.P. Jain Centre of Management, Singapore.

Shri P.V. Rajaraman

Shri P. V. Rajaraman, who joined HPCL Board effective July 20, 2007 is a retired IAS Officer. He holds

Master’s degrees in Physics (Madras University) and Management (University of Leeds, U.K). He has

worked as Director in the Ministry of Chemicals and Fertilisers, Government of India, Managing Director,

India Cements, Chairman and Managing Director, Tamilnadu Housing Board, Commissioner of Sugar and

Chairman and Managing Director, Tamilnadu Sugar Corporation, Secretary to the Government of Tamilnadu

in the Commercial Taxes, Home and Finance Departments, Development Commissioner and Chairman,

Tamilnadu Industrial Investment Corporation.

Shri P.V. Rajaraman is a Director on the Board of the Small Industries Development Bank of India.



133


Shri B. Mukherjee

Shri Bhaswar Mukherjee took charge as Director-Finance of HPCL effective February 01, 2008.

Shri Mukherjee is a fellow member of the Institute of Chartered Accountants of India. During his career of

over 28 years in the Organisation, he has headed several functions in Finance, Internal Audit and Human

Resource Development. He has driven the major strategy initiative of Balanced Score Card. He is also a

Director on the Board of some Joint Venture Companies of HPCL Shri B. Mukherjee has been actively

participating in various seminars and workshops, both at national and international levels.

2. REMUNERATION OF DIRECTORS :

� HPCL being a Government Company, the remuneration payable to its whole-time directors is approved

by the Government and advices received through the Administrative Ministry, viz., Ministry of Petroleum

& Natural Gas.

� The non-official part–time Directors are paid Sitting Fees for Meetings of the Board and Board Sub-

Committees attended by them.

� HPCL does not have a policy of paying commission on profits to any of the Directors of the company.

� The remuneration payable to officers below Board level is also approved by the Government of India.



134


134

3. BOARD SUB-COMMITTEES :

A. Audit Committee :

The Audit Committee comprises of the following Directors:

1. Shri T L Sankar * Non-Executive Independent Director

2. Shri P.V. Rajaraman ** Non-Executive Independent Director

3. Shri I.M. Pandey Non-Executive Independent Director

4. Shri B. Mukherjee *** Whole-Time Director

* : In view of the appointment of Shri P.V. Rajaraman as Chairman of the Audit Committee, Shri T.L.Sankar continues to be a Member of the Audit Committee.

** : Shri P.V. Rajaraman was inducted as a Member in the Audit Committee effective October 16,2007. Later Shri P.V. Rajaraman was appointed as the Chairman of the Audit Committee effectiveMay 29, 2008.

*** : Shri B. Mukherjee was inducted in the Audit Committee effective 01.02.2008.

The terms of reference of the Audit Committee are as provided under the Companies Act, 1956 andother applicable regulations.

The scope of the Audit Committee includes the following:

• Reviewing with Management the annual financial statements before submission to the Board.

• Reviewing with the Management, Statutory Auditors and Internal Auditors, the adequacy of internalcontrol systems.

• Reviewing the adequacy of internal audit function, including the structure of the internal auditdepartment, staffing and seniority of the official heading the department, reporting structure,coverage and frequency of internal audit.

• Discussion with internal auditors on any significant findings and follow up thereon.

• Reviewing the findings of any internal investigations by the internal auditors into matters wherethere is suspected fraud or irregularity or a failure of internal control systems of a material natureand reporting the matter to the Board.

• Reviewing the Company’s financial and risk management policies.

The Committee, at the meeting held on May 29, 2008 reviewed the Accounts for the year 2007-08,before the Accounts were adopted by the Board.

Dates when Audit Committee Meetings held:

29th May 2007 30th July 2007 16th October 2007 29th October 200724th January 2008 10th April 2008 29th May 2008



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Attendance at the Audit Committee Meetings:

Names of No. of No. of % ofthe Directors Meetings held Meetings attended attendance

Shri T. L. Sankar 7 6 86%

Shri Rajesh V. Shah * 2 1 50%

Shri M. Nandagopal * 2 1 50%

Shri C. Ramulu * 3 3 100%

Shri I.M. Pandey 7 4 57%

Shri P.V. Rajaraman 5 5 100%

Shri B. Mukherjee 2 2 100%

* : S/Shri Rajesh V. Shah and M. Nandagopal have resigned from the HPCL Board as well asAudit Committee effective August 23, 2007.

* : Shri C. Ramulu has retired from the services of the Corporation effective 31.01.08 and ShriB. Mukherjee was inducted as Member of the Audit Committee effective 01.02.08.

B. Committee on HR Policies :

The Company has already constituted the Board Sub - Committee on HR Policies to look into variousaspects including remuneration as well as Compensation and Benefits for the employees. TheCommittee comprised of:

1. Shri T.L. Sankar

2. Shri I.M. Pandey

3. Shri V. Viziasaradhi *

4. Shri Prakash G. Apte**

* : Shri V. Viziasaradhi was inducted as Convenor of the Committee effective 03.08.2007.

** : Shri Prakash G. Apte has been inducted in the Committee effective May 29, 2008.

Director-Human Resources, is the Convenor of the Committee.

The Committee has been since renamed as ‘Committee on HR – Policies / RemunerationCommittee’.

C. Investment Committee :

The Company had constituted the Investment Committee with the following members.

1. Shri T. L. Sankar

2. Shri Rajesh V. Shah

3. Shri Prabh Das

4. Shri C. Ramulu



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This Committee was reconstituted effective May 29, 2008 with the following members:

1. Shri T. L. Sankar

2. Shri I.M. Pandey

3. Shri Prakash G. Apte

4. Shri B. Mukherjee

Shri T. L. Sankar is the Chairman of the Committee. This Committee reviews investment proposalsbefore they are placed before the Board for its consideration. During the year the Committee met onJune 16, 2008 and July 11, 2008 for considering the investment proposals before they were placed forthe approval of the Board.

Names of No. of No. of % ofthe Directors Meetings held Meetings attended Attendance

Shri T. L. Sankar 2 1 50%

Shri I.M. Pandey 2 2 100%

Shri Prakash G. Apte 2 2 100%

Shri B. Mukherjee 2 2 100%

D. Shareholders Investors Grievance Committee:

The Company has constituted an Investor Grievance Committee comprising of Non-Executive Directorsas follows :

1. Shri P.V. Rajaraman Non-Executive Independent Director

2. Shri I.M. Pandey Non-Executive Independent Director

3. Shri C. Ramulu* Whole-time Director

4. Shri B. Mukherjee* Whole-time Director

* : Shri C. Ramulu has retired from the services of the Corporation effective 31.1.2008.Consequent to this, Shri B. Mukherjee was inducted as Member of the Investor GrievancesCommittee effective 01.02.08.

Shri P.V. Rajaraman is the Chairman of the Committee.

The Committee reviews the status of Investor Grievances and Services and other important matters ofinvestors’ interest.

Dates of Investor Grievance Committee Meetings:

29th May 2007 22nd August 2007 29th October 2007 28th January 2008

E. Remuneration Committee:

HPCL did not felt the need for a Remuneration Committee in view of the fact that the Company is aGovernment Company as per Section 617 of the Companies Act, 1956 and since the remuneration ofthe Whole-Time Functional Directors are fixed by the Government of India.



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However, having regard to the aspects covering wage revisions / other benefits to the Officers arisingfrom time to time, the Board has renamed the Committee on HR Policies as HR Policies / RemunerationCommittee.

The details of Remuneration paid to all the Functional Directors are given below:

� The remuneration of the whole time Functional Directors include basic salary, allowancesand perquisites as determined by the Government of India. Moreover, they are entitled toprovident fund and superannuation contributions as per the rules of the Company.

� The gross value of the fixed component of the remuneration, as explained above, paid to thewhole-time Functional Directors, during the financial year 2007-08 is given below:

(Rs. in Lakhs)

Name of the Salaries & Contribution to Contribution to Other TotalDirector Allowances Provident Superannuation Benefits

Fund Fund andGratuity

Arun Balakrishnan 9.91 0.92 0.34 2.45 13.62(C&MD)

C. Ramulu * 10.52 0.76 0.34 2.83 14.45(Director-Finance)

S. Roy Choudhury 8.63 0.76 0.30 2.65 12.34(Director – Marketing)

M.A. Tankiwala 10.33 0.98 0.31 0.60 12.22(Director-Refineries)

V. Viziasaradhi ** 9.55 0.89 0.32 1.85 12.61(Director-HR)

B. Mukherjee *** 1.16 0.14 0.05 0.34 1.69(Director-Finance)

* : Shri C. Ramulu retired from the services of the Corporation after attaining the age ofsuperannuation on 31.01.08.

** : Shri V. Viziasaradhi was appointed as Director-Human Resources effective 03.08.2007.*** : Shri B. Mukherjee was appointed as Director-Finance effective 01.02.2008.

4. SITTING FEES FOR THE YEAR 2007-2008:

The details of Sitting Fees paid to Part-time Independent Directors for the year 2007-08 for attending theBoard / Sub-committee meetings are given below:

(Figures in Rs.)

Details of Meetings T.L.Sankar Rajesh V.Shah M.Nandagopal I.M.Pandey Prakash G. Apte P.V. Rajaraman

Board 80000 30000 30000 50000 30000 60000

Audit Committee 60000 10000 10000 40000 - 50000

HR Committee - - - - - -

Investor GrievancesCommittee - 10000 20000 10000 - 20000

Retail - - - - - -

Total Sitting 140000 50000 60000 100000 30000 130000 fees paid


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5. DIRECTORS’ SHAREHOLDING

Shri T. L. Sankar is holding 150 shares of the Corporation as of date. Other than Shri T. L. Sankar none ofthe other non-officio and ex-officio Directors of the Corporation are holding any shares in the Corporation.

6. RIGHT TO INFORMATION ACT 2005

The Right to Information Act, 2005(RTI) that became effective 12th October 2005 is being compliedwi th by HPCL. HPCL has hosted deta i led in format ion in i ts WEB por ta l“www.hindustanpetroleum.com”, and update the same from time to time. Officers across thecountry, representing different Departments, have been appointed as Public Information Officersand Appellate Authorities to deal with the queries received under RTI.

7. INTEGRITY PACT

The Corporation has introduced “Integrity Pact” (IP) to enhance ethics / transparency in theprocess of awarding contracts. An MoU has been signed with “Transparency International” onJuly 13, 2007. This was made applicable in the Corporation effective September 01, 2007. TheIntegrity Pact has now become a part of tender documents to be signed by the Company and bythe successful vendor / bidder.

8. SHARES DEPARTMENT ACTIVITIES

HPCL has a Shares Department under the Company Secretary. Apart from the other work, it also monitorsthe activities of R&T Agents, M/s.Intime Spectrum Registry Ltd., and looks into the issues relating toshareholders. Share transfers, transmissions and other important matters that are approved by the ShareTransfer Committee.

Presently, HPCL has over 1,11,048 shareholders. The Corporation regularly interacts with the shareholdersthrough letters, investors’ meets, at the AGM, wherein the details/activities of the Corporation, itsperformance and its future plans are provided to the Shareholders.

The Company has been taking appropriate steps to ensure that Shareholder related activities are givenhigh priority and references / representations, if any are resolved at the earliest.

The Company Secretary of the Corporation is the Compliance Officer in terms of the requirements of TheStock Exchange, Mumbai.

The quarterly results are published in the English and Vernacular newspapers. The Company also organisesPress Meets and Press Releases. The Financial Performance and other details are also posted on theCompany’s web-site viz. www.hindustanpetroleum.com.

9. During the year 2007-08, there were no material transactions with Directors or their relatives havingpotential conflict with the interests of the Company at large.



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There have been no instances of non-compliance by the Company or penalties, strictures imposed on theCompany by any Stock Exchange or SEBI or any Statutory Authority, on any matters relating to capitalmarkets during the last 3 years.

10. DETAILS OF ANNUAL GENERAL MEETINGS :

10.1 Location and time, of the three Meetings held :

Year Location Date Time

2006-07 Y.B. Chavan Auditorium, Mumbai 06.09.07 3.00 p.m.



10.2 Whether Special Resolutions were put through postal ballot last year ?No.

10.3 Are votes proposed to be conducted through postal ballot this year?If required.

11. MEANS OF COMMUNICATION :

� Half yearly report Press Advertisements, advices to Stock Exchanges, etc.

� Quarterly results Mainly business / regional newspapers, like Economic Times,� Which newspapers Times of India, Financial Express, Indian Express, Loksatta

normally published in etc.

� Websites where quarterly www.hindustanpetroleum.comresults are displayed

� Whether it also displays official Yes

news releases & presentationsmade to institutional investors /analysts

� Whether Management Discussion Yes& Analysis Report is a part of

Annual Report

� Whether shareholder information Shareholder information has been incorporated in thesection forms part of Annual Report Annual Report. The Company also communicates with

the shareholders from time to time.

12. GENERAL SHAREHOLDER INFORMATION :

12.156th Annual General Meeting

Date and Time : September 22, 2008 at 11.00 AM

Venue : Rama Watumull Auditorium

Kishinchand Chellaram College,

Dinshaw Wacha Road,

Churchgate, Mumbai-400 020.



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12.2 Financial calendar

Financial reporting for Qtr.ending 30/06/08 End Jul. 2008Financial reporting for Qtr.ending 30/09/08 End Oct. 2008Financial reporting for Qtr.ending 31/12/08 End Jan. 2009Financial reporting for Qtr.ending 31/03/09 End May 2009Annual General Meeting for year ending 31/03/2009 Aug-Sep. 2009

12.3 Date of Book Closure : September 05, 2008 - September 22, 2008.

12.4 Dividend payment date (tentative) : September 26, 2008

12.5 (a) Listing on Stock Exchanges as of 31.03.08 :

The Bombay Stock Exchange Ltd. The National Stock Exchange of India Ltd.Phiroze Jeejeebhoy Towers, Dalal Street, Exchange Plaza, 5th Floor, Plot No. C/1,Mumbai – 400 001 G-Block,Bandra-Kurla Complex, Bandra (East),

Mumbai – 400 051

12.5 (b) Listing fees : Listing fees for financial year 2008-09 have been paid to theStock Exchanges in April, 2008.

The approval for delisting of shares have been obtained from Delhi and the Kolkatta Stock Exchangesduring the Financial Year.

12.6 Stock Codes :

BSE : 500104

NSE : HINDPETRO

ISIN (for trading in Demat form) : INE094A01015

12.7 Stock Market Data :

HPCL Share Price – BSE

Year High Rs. Low Rs.

2007-08 405.90 218.00

2006-07 361.00 206.00

2005-06 348.00 283.30

2004-05 538.50 225.55

2003-04 542.45 269.40



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Performance in comparison to broad based indices

As on HPCL Share price Rs. BSE 30 SENSEX NSE 50 NIFTY

31-3-2008 255.60 15644.44 4734.50

31-3-2007 246.70 13072.10 3821.55

31-3-2006 322.90 11279.96 3402.55

31-3-2005 305.95 6492.82 2035.65

31-3-2004 507.60 5590.60 1771.90

HPCL SHARE PRICE MONTHLY DATA

Month Mumbai Stock Exchange National Stock Exchange

High Low Close Volume High Low Close Volume

Rs. Rs. Rs. Nos. Rs. Rs. Rs. Nos.

April 2007 280.85 238.05 270.10 3899141 281.00 237.15 270.10 10927425

May 2007 309.90 270.50 290.70 3909524 310.00 270.00 294.70 13431103

June 2007 299.70 260.00 267.85 4651434 298.90 259.00 270.65 17972723

July 2007 276.70 250.30 257.40 3554158 277.00 250.05 257.65 16078485

August 2007 261.50 222.70 234.20 3955007 261.75 220.15 235.00 13686424

September 2007 291.05 230.50 266.00 5263274 291.70 232.15 266.85 16196244

October 2007 282.80 226.20 239.55 6997543 282.90 226.30 239.25 20499031

November 2007 331.00 232.10 273.10 13570641 332.50 222.20 272.60 39789165

December 2007 376.50 275.00 369.20 12502119 376.45 276.00 369.30 40726473

January 2008 405.90 218.00 255.80 11734963 404.80 205.00 253.35 40373450

February 2008 323.15 249.00 299.15 7932877 323.95 248.00 300.30 27973392

March 2008 308.00 250.25 255.60 3977473 307.85 250.10 256.40 15673100



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PER SHARE AND RELATED DATA :

2007-08 2006-07 2005-06 2004-05 2003-04 2002-03

Per Share Data Unit

EPS Rs. 33.48 46.35 11.97 37.69 56.18 45.37

CEPS Rs. 64.65 68.20 32.62 54.81 75.67 62.94

Dividend Rs. 3.00 6.00 3.00 15.00 22.00 20.00

Book Value Rs. 311.59 283.19 257.74 249.05 228.47 197.12

Dividend Payout % 10.47 45.10 28.62 45.42 44.23 49.24

Price to Earnings* Multiple 7.63 5.32 26.98 8.12 9.03 6.49

Price to Cash Earnings* Multiple 3.96 3.62 9.90 5.58 6.71 4.68

Price to Book Value * Multiple 0.81 0.87 1.25 1.23 2.22 1.49

*Based on March 31 Rs. 255.80 246.70 322.90 305.95 507.60 294.40

closing prices

12.8 Registrars and Transfer Agents : M/s.INTIME SPECTRUM REGISTRY LTD

C-13, Pannalal Silk Mills Compound,

LBS Marg, Bhandup (W),

Mumbai - 400 078.

12.9 Share Transfer System

Activities relating to Share Transfers are carried out by M/s.ISRL who are the Registrars and Transfer

Agents of the Company who have arrangements with the Depositories viz., National Securities

Depository Limited and Central Depository Services Limited. The transfers are approved by the Share

Transfer Committee. Share transfers are registered and Share Certificates are despatched within a

period of 30 days from the date of receipt if the documents submitted are correct and valid in all

respects.

The number of shares transferred during the last two years:

2007-08 - 48,360

2006-07 - 59,100



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12.10 Status of Investor Services:

Investor correspondence replied during the year are as follows:

Nature of Correspondence Number

1. Share Transfers and related issues / Demat / Warrant Conversion 268

2. Transmission of Shares / Nomination for shares 153

3. Issue of Duplicate Share Certificates / Bonus / Rectification of shares 247

4. Dividend related issues / ECS / Bank Mandate 5918

5. Request for Change of Address 480

6. Call Money Payment Correspondence / Reminders / Forfeiture Shares 70

7. SEBI/NSE / BSE / NSDL / CDSL Complaints & Legal cases 15

8. Others 352

Total 7503

All complaints received from SEBI, Stock Exchanges, Department of Company Affairs etc., have

been appropriately dealt with.

12.11 Dematerialisation of shares and liquidity:

The total number of shares dematerialised as on 31.03.2008 is 16,28,37,661 representing 98.36%

of share capital excluding shares held by the Government of India.

Trading in Equity shares of the Company is permitted only in dematerialised form, w.e.f., February

15, 1999 as per notification issued by the Securities and Exchange Board of India (SEBI).

12.12 Outstanding GDRs / ADRs / Warrants or any convertible instruments, conversion date and

likely impact on equity

There are no outstanding Warrants to be converted into Equity shares.

Detachable Tradeable Warrants issued alongwith public issue shares in April 1995 were converted

into equity shares during the period February 1997- April 1997. The Warrant certificates were not

called back by the Company and bear no value.



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12.13 Plant Locations:

The Corporation has 2 Refineries located at Mumbai and Visakh. It has 91 Regional offices, 42

Terminals / Installations / Tap off Points, 93 Depots, 43 LPG Bottling Plants, 8329 Retail outlets,

16 ASFs, 1648 SKO / LDO Dealers and 2232 LPG Distributors etc., located all over the country.

12.14 Address for correspondence

Registrars and Transfer Agents: Company’s Shares Department:

M/s.INTIME SPECTRUM REGISTRY LTD. Shares Department

Unit:HINDUSTAN PETROLEUM HINDUSTAN PETROLEUM

CORPORATION LTD. CORPORATION LIMITED

C-13, Pannalal Silk Mills Compound 2nd Floor, Petroleum House,

LBS Marg, 17, Jamshedji Tata Road,

Bhandup (West), Mumbai - 400 078 Churchgate, Mumbai - 400 020

Telephone No.: 22 – 25963838. Telephone No.: 022 - 22863900

Fax No.: 022 - 25946969 Ext. 3204/3201/3233/3239/3208

12.15 DISTRIBUTION SCHEDULE AS ON 31.03.2008

No. of Physical Holding Dematerialised Total Shareholding PercentageShares Holding

No. of No. of No. of No. of No. of Share No. of Shareholders HoldingShare Shares Share Shares Holders Share

Holders

1-500 11924 2175528 90134 10157870 102058 12333398 91.90 3.64

501-1000 593 435690 4901 3725348 5494 4161038 4.95 1.23

1001-5000 53 86921 2767 5419432 2820 5506353 2.54 1.63

5001-10000 2 13800 258 1909037 260 1922837 0.23 0.57

10001 & Above 1 173076750 415 141626874 416 314703624 0.38 92.93

TOTAL 12573 175788689 98475 162838561 111048 338627250 100.00 100.00



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12.16 Shareholding pattern as on :

31/03/2008 31/03/2007

Category No. of No. of % No. of No. of %Share Shares Share Shares

Holders Holders

President of India 1 173076750 51.11 1 173076750 51.01

Financial Institutions 20 64802002 19.14 23 59329055 17.48

FIIs/OCBs 149 44783501 13.23 155 53018946 15.62

Banks 9 419124 0.12 16 1033322 0.30

Mutual Funds 53 18229295 5.38 73 24139353 7.11

NRIs 3304 1403142 0.41 3085 1185976 0.35

Employees 909 405890 0.12 974 435240 0.13

Others 106603 35507546 10.49 89710 27111358 7.99

Total 111048 338627250* 100.00 94037 339330000* 100.00

* 702750 shares forfeited during the year for non-payment of call monies.



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12.17 Code of Conduct:

In compliance with the terms of clause 49 of the Listing Agreement with Stock Exchanges, “Code

of conduct for Board Members and Senior Management Personnel of Hindustan Petroleum

Corporation Limited” has been devised and made effective 1.1.2006. The purpose of this Code is to

enhance further ethical and transparent process in managing the affairs of the company. This Code

has been made applicable to

a) All Whole-Time Directors

b) All Non-Whole Time Directors including independent Directors under the provisions of law

and

c) Senior Management Personnel.

This code would be read in conjunction with the Conduct, Discipline & Appeal Rules for Officers

applicable to Whole time Directors and Senior Management Personnel.

All the Board Members and Senior Management Personnel have provided the Annual Compliance

Certificate duly signed by them as on March 31, 2008.

12.18 Compliance of Clause 49 of the Listing Agreement

The Corporation is complying with the various mandatory and non-mandatory Corporate Governance

requirements envisaged under Clause 49 of the Listing Agreement with the Stock Exchanges.



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This is to certify that the company has laid down Code of Conduct for all Board Members and Sr. Managementof the Company and the same are uploaded on the website of the company - www.hindustanpetroleum.com.

Further certified that the Members of the Board of Directors and Senior Members have confirmed compliancewith the Code as applicable to them during the year ended March 31, 2008.

Arun Balakrishnan

Chairman & Managing Director

AAAAAuditoruditoruditoruditoruditor’s Certificate on Corporate Governance’s Certificate on Corporate Governance’s Certificate on Corporate Governance’s Certificate on Corporate Governance’s Certificate on Corporate Governance

To,

The Board of Directors of

Hindustan Petroleum Corporation Limited

We have examined the compliance of Corporate Governance by Hindustan Petroleum Corporation Limited forthe year ended on March 31, 2008 as stipulated in Clause 49 of the Listing Agreement of the said Companywith Stock Exchanges in India and the DPE Guidelines on Corporate Governance for Central Public SectorEnterprises.

The compliance of conditions of Corporate Governance is the responsibility of the management. Our examinationwas limited to procedures and implementation thereof, adopted by the Company for ensuring the complianceof the conditions of the Corporate Governance. It is neither an audit nor an expression of opinion on thefinancial statements of the Company.

In our opinion and to the best of our information and according to the explanations given to us, we certify thatthe company has complied with the mandatory requirements of Corporate Governance as stipulated in Clause49 of the abovementioned Listing Agreement and the DPE guidelines on Corporate Governance for CPSEexcept compliance of Clause 49(I)(A)(ii) of the Listing Agreement and 3.1.2 of the DPE guidelines relating tothe number of Independent Directors on the Board of Directors of the Company.

We further state that such compliance is neither an assurance as to the future viability of the Company nor the

efficiency or effectiveness with which the management has conducted the affairs of the Company.

For and on behalf of For and on behalf of

Sudit K Parekh & Co V. Sankar Aiyar & CompanyChartered Accountants Chartered Accountants

Srikant V. Jilla G. SankarPartner Partner(Membership No.39461) (Membership No.46050)

Place : MumbaiDate : August 05, 2008

Declaration of the Chairman & Managing Director


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