project report -vijay kashyap

8/6/2019 Project Report -Vijay Kashyap

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Oil and Natural Gas Corporation Ltd.

Management

ACKNOWLEDGEMENT

A task or a project cannot be completed alone. It requires the efforts of manyindividuals. It is a great pleasure for me to have the opportunity to extendthanks to everybody who helped me through the successful completion of this summer internship project in ONGC without the help of whom, thisproject would have been difficult to complete.

At first, I thank ONGC Ltd. for giving me such challenging projects to workupon. I hope this challenge has brought best out of me.

I am indebted to my Company guides Mr. Amarjeet Singh Yadav, (F&A)Officer in ONGC , for the direction and purpose he gave to the projectthrough his invaluable insights, which constantly inspired me to think beyondthe obvious. His support and encouragement helped me to look at theproject from different aspects.

I am also thankful to all the employees of ONGC who were very cooperativeand provided their maximum support to me in the completion of the report.

Finally, I express my thankfulness to all those who have directly or indirectlycontributed towards the successful completion of this report.

The project was a tough journey but a learning experience.

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T A B L E O F C O N T E N T

S.NO.

CONTENTS PAGE NO.

1 INTRODUCTION 4

2 COMPANY PROFILE 5

3 OBJECTIVE 10

4ONGC HISTORY

10

5 ONGC VISION & MISSION 13

6 ORGANIZATION CHART 14

7 RESEARCH METHODOLOGY 16

8 INTRODUCTION TO THE TOPICOF STUDY

17

9PRINCIPLES CONCERNINGINVESTMENTS

25

10 PROCEDURE FOR INVESTMENTSOF SURPLUS FUNDS

40

11 SETTLEMENT, ACCOUNTING &RECONCILATION

45

12 RECOMMENDATIONS 69

13 P/L a/c &Balance Sheet 73

14 CONCLUSION 75

15 CRISIL REPORT 76

16 BIBLIOGRAPHY 87

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INTRODUCTION

ONGC management continues to strive for excellence in good governanceand responsible management practices, benchmarking with best of globalcompanies.

ONGC has been practicing corporate governance principles much before itbecame mandatory. Your company believes that for a company to besuccessful it must maintain global standards of corporate conduct towardsits stakeholders. The company believes that it is rewarding to be bettermanaged and governed and to identify its activities with national interest. Tothat end, your company has always focused on good corporate governancewhich is the key driver of sustainable corporate growth and long term valuecreation.

Your company views corporate governance in its widest sense almost like atrusteeship, a philosophy to be progressed, a value to be imbibed and anideology to be ingrained into the corporate culture.

It is not merely compliance and simply a matter of creating checks andbalances; it is an ongoing measure of superior delivery of companysobjectives with a view to translate opportunities into reality. It involvesleveraging its resources and aligning its activities to national need,shareholders benefit and employee growth, thereby delighting all itsstakeholders, while minimizing the risks. The primary objective is to createand adhere to a corporate culture of conscience and consciousness,transparency and openness, fairness, accountability, propriety, equity,sustainable value creation, ethical practices and to develop capabilities andidentify opportunities that best serve the goal of value creation, therebycreating an outperforming organization.

1.1 Corporate Governance Recognized

In recognition of excellence in Corporate Governance, the following awardshave been conferred on ONGC:

Golden Peacock Award for Excellence in Corporate Governance -2002' by the Institute of Directors;

ICSI National Award for Excellence in Corporate Governance' - 2003by the Institute of Company Secretaries of India; and

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ONGC is placed 152 in Forbes Global 2000 listing for year 2009(this is up 46notches above last years rank of 198th). Forbes composite score is based onthe ranking for sales, profits, assets and market value, which makes itrealistic and admired

Finance Asia 100 list ranks ONGC no 1 among Indian Blue Chips.

Indian Rankings/ Recognitions

Ranked 3rd in the Business World Real 500 survey list of the Indiancompanies on the sum of total assets and total income of aCompany.(October 2008)

Biggest Wealth-Creator for Stakeholders The People of India (through Government of India) built ONGC with Rs. 342.8Crore , contributed over 2 years from 1959 to 1981. ONGC has paid back sofar: (a) Contribution to Exchequer: Rs. 2,33,486 Crore (Rs. 1,87,813 Crore toCentral exchequer, Rs. 45,673 Crore to State exchequers) (b) Dividend(cumulative): Rs. 46,212 Crore till FY2009( GoI: Rs. 36,360 Crore +Othershareholders Rs. 9,852 Crore (c) Government of India realized Rs. 14,380Crore throughprogressive Disinvestment in 2004.

PerformanceDuring FY09, ONGC registered highest-ever Sales Income (Turnover) of Rs.63,949 Crore (up 6% from Rs. 60,137 Crore in FY08). The CompoundedAnnual Growth Rate (CAGR) in Turnover in last 5 years is 14.49 %. It earnednet Profit of Rs. 16,126 Crore despite providing for highest-ever subsidydiscount of Rs. 28,225 Crore (up 28% from Rs. 22,001 Crore in FY08) as perthe directives of the GoI. The Compounded Annual Growth Rate (CAGR) inNet Profit in last 5 years is 13.23%.

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ONGC continues to be a zero debt Company.

Exploration:ONGC has discovered 6 of the 7 commercially-producing Indian Basins, in thelast 50 years, adding over 6.9 billion tones of In-place Oil & Gas volume of hydrocarbons. ONGC has bagged 104 of the 203 Blocks (more than 50%)awarded in the seven rounds of bidding, under the New Exploration LicensingPolicy (NELP) of the Indian Government. In addition ONGC is expected to beawarded 17 out of 36 blocks in NELP-VIII round of bidding.ONGC has recoverable reserves of 1.5 billion tonnes of Oil and Gas andproduces more than 1.2 million Barrels of Oil Equivalent (BOE) per day,meeting around 79% of Indias domestic production of Oil & Gas (during2008-09).It has registered an RRR (Reserve Replacement Ratio) of more than 1 duringthe last fivesuccessive years. ONGC accreted ultimate reserve of 68.90 MMT during2008-09 againstproduction of 47.85 MMT of O+OEG thereby achieving an RRR of 1.44.

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During 2008-09 ONGC made 28 discoveries which include 15 New Prospects(2 Deep waters, 1 Shallow water, 12 Onshore) and 13 new pools. Initial In-place volume of hydrocarbons of 284.81 MTOE is highest in 20 years andUltimate reserve accretion at 68.90 MTOE are highest in 18 years.

Production:During FY09, ONGCs combined Oil & gas production from Domestic, JV andOverseas was 61.23 Million Tonnes of Oil Equivalent (ONGC: 47.85, OVL:8.78, PSC JV: 4.6).

Biggest Indian Multinational:ONGCs wholly-owned subsidiary ONGC Videsh Ltd. (OVL) is the biggestIndian multinational, with 39 Oil & Gas projects (9 of them producing) in 15countries. Of these 25 are under exploration, 5 are discovered & underDevelopment and 9 are producing. Overseas Projects include a 741 km longcompleted Pipeline in Sudan.Production from overseas properties have grown from 3.87 million metrictones oil equivalent in 2003-2004 to 8.78 million metric tones oil equivalentin 2008-09.During 2008-09, ONGC acquired 7 oil and gas projects, 2 of them producing.Ultimate reserve buildup had been the highest-ever at 135.08 MTOE.Production from Imperial Energy, which ONGC acquired in Jan2009,increased to 11,500 bopd from 6,000 bopd within six-seven months of acquisition by OVL (a 100% subsidiary of ONGC).

Infrastructure:

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ONGCs fleet comprises of 118 Onland drilling rigs (70 own and 11 charter-hired), 39 Offshore rigs (9 owned and 28 charter-hired) and 84 workover rigs(70 owned and deployed in onshore areas; 24 charter-hired, deployed inoffshore). It operates 240 Onland installations; in Offshore, it operates 160Well platforms and 34 Process & other platforms. It owns 2 Multi-Support

Vessels (MSVs), one Seismic Survey and one Stimulation services vessel.It owns and operates more than 25,000 kilometers of pipelines in India,including nearly 6,500 kilometers of sub-sea pipelines the longest in India.All the installations of ONGC Indias Greenest Company - are certified forQuality, Health, Safety and Environment Management (QHSE), making ONGCunique in the world in this regard.

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Market:ONGC has 2.139 billion shares in market with around 400,000 shareholders -which include more than 450 Foreign Institutional Investors (FIIs). ONGCcontinues to be amongst top three highest market capitalization companiesin the country to broad-based development and sustainable economy.

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OBJECTIVE

The objective my study is the analysis of short term funds. This report

includes brief analysis of investment procedure and investment avenuespermitted by DPE guidelines for investment. Thorough study of CRISIL reporthelped me in gaining knowledge about the risk based limit structure.

ONGC HISTORY

FoundationIn August 1956 Oil and Natural Gas Commission was formed. Raised

from mere directorate status to Commission, it has enhanced powers. In1959, these powers were further enhanced by converting the commissioninto a statutory body by an act of Indian parliament. Major functions of ONGCaccorded to this provision were to plan, promote, organize and implementprograms for the development of petroleum resources and the productionand sale of petroleum and its products .

1960-1990 ONGC since 1959 has made its presence noted in most parts of India and in overseas territories. ONGC found new resources in Assam andalso established the new oil province in Cambay basin (Gujarat). In 1970 withthe discovery of Bombay high (now known as Mumbai High), ONGC wentoffshore. Most important contribution of ONGC, however, is its self relianceand development of core competence in exploration and productionactivities at a global competitive level .

Post 1990 Post 1990, the liberalized economic policy was brought intoeffect, subsequently partial disinvestments of government equity in PSUswere sought. As a result, ONGC was reorganized as a limited Company andafter conversion of business of the erstwhile Oil & Natural Gas Comm- ission

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to that of Oil & Natural Gas Corporation Ltd in 1993, 2% of shares throughcompetitive bidding were disinvested. Further expansion of equity was doneby 2% share offering to ONGC employees. Another big leap was taken inMarch 1999, when ONGC, OIL (Oil India Corporation) and GAIL (Gas Authorityof India Ltd.) agreed to have cross holding in each others stocks.Consequently Government sold off 10% of its share holding in ONGC to IOCand 2.5% to GAIL. With this the Government holding in ONGC came down to84.11%. In 2002-03 ONGC took over Mangalore Refinery and PetrochemicalsLtd (MRPL) from Birla Group and announced its entrance into retailingbusiness. ONGC also went into global fields, through its subsidiary ONGCVidesh Ltd (OVL). ONGC has major investments in Vietnam, Sakhalin andSudan.

Oil and Natural Gas Corporation (ONGC) incorporated on June 23,1993, is anIndian Public Sector petroleum Company. It is a Fortune Global 500Company. It is highest profit making corporation in India. It was set up as acommission on August 14, 1956. Indian Government holds 74.14% equitystake in this Company.

ONGC achieves highest Reserve Accretion in last two decades

ONGC Board in its 203rd Meeting held on 26th April 2010 noted the FY10Physical E&P performance results and adopted hydrocarbon reserves whichare as follows:

1.Discoveries and Reserve Accretion: The Ultimate Reserve accretion of ONGC including its Joint Ventures in

domestic fields in 2009-10 has been 87.37 MTOE (Million tonne oil and oilequivalent gas) against the MoU Target of 76.28 MTOE(114.5% achievement).Ultimate Reserve accretion in ONGC operated fields has been 82.98 MTOE;the highest ultimate reserve accretion in the last 20 years.

Significant finds of the last fiscal are Kasomarigaon in Assam, SouthMahadevpatnam & Pennugonda in KG onland, GK-28-1 in Kutch offshore andPER-1 in Mumbai offshore. Kasomarigaon and Pennugonda discoveries havealready been put on production.

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In FY11, ONGC has made three Discoveries in April, 2010, out of whichone is a new prospect and two are new pools (Annexure-I). These threediscoveries have also been notified to DGH.

One of the new pool discoveries of April10 is a well from Kutch OffshoreBasin; GK-28-2, and has tested oil for the first time in the sub-trappeanCretaceous reservoirs of Western Offshore. ONGC, through adoption of innovative data acquisition and processing techniques, has been makingefforts to unfold the sedimentation pattern and tectonic set up of sub-trappean sequences. Exploratory leads obtained could establish a fewdiscoveries in Tertiary as well as Mesozoic sections. Prospect GK-28 wasfinally validated with the help of state-of-the-art data processing techniques.

The first well drilled on this prospect to a depth of 1550m tested gas fromshallow Mid-Miocene sediments. The next well GK-28-2, drilled on thisprospect, tested oil in Late Cretaceous sediments in the interval 2557 and

2558.5 m. Both these discoveries are significant. It is for the first time that oilis produced from the Late Cretaceous in the entire Western Offshore of India. This find heralds a bold initiative to upgrade Category-II Basin to Category-I.

2. ONGC maintains Production levels: The combined Oil & Gas production of ONGC, including OVL and ONGCs

share in PSC-JVs registered 61.04 million tones of oil and oil equivalent gas(MTOE) during the year 2009-10; marginally less compared to productionduring FY09 i.e., 61.23 MTOE.

This year, ONGC achieved all the production targets except that for crude oil.Crude oil production registered 24.858 MMT against the target of 25.764 MMT(97%); whereas gas production has been 104% against the target.

The detailed production from ONGC, OVL and ONGC-Joint Venture Fields areas follows:

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Oil production registered a decline mainly due to natural decline in some

major producing fields of ONGC and OVL.

Natural Gas production from ONGC operated domestic fields and OVL fieldsregistered increase of 2.77% and 7.25% respectively. However, gasproduction from PSC JV fields registered a decline of 15.73% mainly onaccount of 27% decrease in production from Tapti field and 5% decrease inproduction from Panna & Mukta fields.

Commenting on the E&P performance, Mr. R S Sharma, ONGC CMD stated,Against the global average rate of declining production from mature fields,the performance of ONGC is very much satisfactory. I am delighted to

mention that the Reserve Replacement Ratio (RRR: the ratio of reserveaccretion to the production) of ONGC in its own domestic fields in this fiscalhas been exceptionally impressive 1.73 for 3P reserves and 1.33 for 1Preserves. The Reserve accretion is the highest in the last two decades, whichis a commendable performance in the context of waning reserve accretiontrend across the globe.

Annexure-1

Discoveries in FY11

During April 10, three hydrocarbon discoveries have been notified byONGC.The details are as under:-

New Prospects Discovery

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1. Well Karvan-1, Karjan Extn-II PEL Block, Western Onland Basin

The exploratory well Well Karvan-1, drilled to a depth of 540m in Karjan Extn-II PEL Block of Western Onland Basin, flowed gas from 2 intervals (328-325,

315-313m and 309-305, 293-290m in Babaguru Formation) @16,738 and17,324 m3/d with 7 mm bean. The well also gave influx of oil (6.74 m3/d)from Ankleshwar Formation in the interval 421-417m.

New Pool Discovery

2. Well GK-28-2, Kutch Offshore Block-I Extn. PEL, WesternOffshore Basin

The Exploration well GK-28-2, drilled to a depth of 4087m in Kutch OffshoreBlock-I Extn. PEL Block of Western Offshore Basin, flowed oil from MundraFormation of Late Cretaceous age in the interval 2557-2558.5 @ 672 Bbl/dthrough 12 mm bean with 30% water. The oil is of good quality with an APIgravity of 41.86 degrees.

This is a fault closure prospect off Kutch where for the first time oil is reportedin sediments of Cretaceous age. This is also the first Cretaceous oil in theentire Western Offshore area.

3. Well Ahmedabad-124, PEL Block, Western Onland Basin The

well Ahmedabad-124, drilled to a depth of 1976 m in Valod Extn-I PEL Block of Western Onland Basin, flowed oil from K-XI sand in interval 1510.5-1506.5m@ 4 tonnes/d. The oil is of good quality with an API gravity of 38.86 degrees.Additionally, K-X sand is also found to be oil bearing in the intervals 1480-1475 & 1486-1480m where an influx of 30.86 m3 was observed. The oil is of good quality with an API gravity of 37.86 degrees.

ONGC VISION & MISSION To be a world class Oil and Gas Company integrated in energy business withdominant Indian leadership and Global presence.

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ORGANIZATION CHART

SWOT ANALYSIS OF THE COMPANy

STRENGHT ONGC ranks as the Numero Uno Oil & Gas E&P Company in Asia. ONGC has a very efficient and professional management team. ONGC being an international company has sufficient resources and

capital to invest.

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ONGC has ISO-9001 & ISO-14001 registration. The investment procedure of ONGC to invest its surplus funds is

satisfactory.

WEAKNESS ONGC is facing difficulties to produce oil from aging reservoirs.

OPPOURTUNITIES Natural Gas: Natural Gas has the potential to be the fuel of the future

with demand outpacing supply by more than two times. Such highscarcity of natural gas provides big opportunities for Oil companies.

Out of 26 sedimentary basins in India only 6 are being exploited today,so there is a large for those willing to assume the risk of exploitation.

Along with the upstream sector Company is also into the downstreamsector with its subsidiary MRPL, it has a scope to go into the powergeneration as the major worlds player are in.

Automobiles sale have been surging every year. Consumption of petrol,diesel and LPG are on a steep rise.

In terms of its investments of short-term surplus, the company hasmany untouched avenues from where it can get good returns on itsmoney.

THREATS The Mumbai High field remains the biggest producing property in the

country, but it is entering into plateau phase with yields failing. In some exploration Campaigns Company involves high technology and

high risks.

COMPETITORS OF ONGCAs ONGC is the Numero Uno Company in the E&P sector in Asia, thus it has nocompetitors. There are a few other players in the upstream sector and theyare

OIL, JV/ Private players and they include Reliance, Cairn Energy, HOEC,

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Premier Oil, GSPC, etc.

RESEARCH METHODOLOGY

The project is to study the short-term investment policy of ONGC.

I have followed the following approach:

Study of DPE guidelines:All the PSEs have to follow the guidelines of DPE to park their idle funds.Hence these are the basic guidelines, which the company keeps in mindbefore taking any investment decisions.

Study of CRISIL report:

The Company has appointed CRISIL in 2009 to study its investmentprocedure and it has devised Risk based limit structure for banks forthe company.

Study of Investment Procedure of the Company: The Company has its own investment procedure to park its idle funds.

Study of Investment Avenues of ONGC:Currently, the Company invests in very few avenues. DPE and theInvestment Committee of ONGC restrict the investment avenues of theCompany. This portion deals with the study of those investmentavenues of the company.

Study of Investment Portfolio of the Company: This portion deals with the current investments of the company, andthe analysis of the returns, which the Company gets from them.

Study of other investment avenues:In this part of the study all those investments avenues are studied inwhich DPE allows the company to invest. So this portion deals with the studyof those investments avenues, which are untouched by the company till date.

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INTRODUCTION TO THE TOPIC OF STUDY: (STUDY OF SHORT TERM INVESTMENT POLICY OF ONGC)

TREASURY MANAGEMENT (TM)

INTRODUCTION

TM is the area, which was linked with the accounting related activities tillsome years back. But now the focus has been completely shifted fromaccounting activities to decision-making activities.

TM is fast emerging as a specialization in many companies and theaccounting function is being de-linked from the finance function. Highlyfocused knowledge of capital markets, money markets, instruments andinvestment avenues, treasury and risk management and related areas, hasbecome essential for managing the treasury, profit center.

MEANING OF TREASURY MANAGEMENT

TM generally refers to the set of policies, strategies and transactions that a

company adopts and implements to raise finance at acceptable cost and risk,to manage its cash resources, and to reduce interest rate, foreign exchangeand commodity price risks, as well as in the conduct of its relationships withits financial stakeholders (mainly banks).

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So, in simple terms TM is management of an organizations total wealth(Resources) management, from the viewpoint of liquidity, safety and returnsin tune with its mission/ business objectives and in consonance with aregulatory framework to achieve the interest of all its stakeholders. Itincludes management of cash flows, banking, money market, and capitalmarket transactions, the effective control of the risks associated with thoseactivities and the pursuit of optimum performance consistent with thoserisks.

The scope of work involved under treasury management differs for banks,financial institutions and other organizations. Normally, TM is linked withbank and financial institutions where it involves many functions:

Investment Management Liquidity Risk Management Cash Management Interest Risk Management Currency Risk Management Equity Risk Management Commodity Risk Management

But, now days, other organizations are also putting focus on TM, though theirscope may be limited as compared to Banking Institutions. Remarkablechanges have taken place in the field of TM in the last decade. Today, theprimary goal of a treasurer is to pursue investment decision in line withoverall goals of a company. In an attempt to maximize the earnings, thetreasurer is required to provide appropriate decision making tools andoptimize the liquidity position of the organization.

TREASURY MANAGEMENT IN ONGC (INVESTMENT OF SHORT TERM SURPLUS FUNDS OF ONGC)

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Treasury department in ONGC has been involved in different activities. Ittakes care of the Cash Management, Working Capital Management andInvestment of Short-term Surplus Funds apart from some routine nature of work like approving expenses, bills, etc.

Investment of Short-term surplus funds is the main function of treasurydepartment in ONGC. While taking decision regarding investment,various other factors like maintaining liquidity (Cash Management),taking care of future requirements of funds etc, are kept in mind.

These factors are required to be always considered to ensure availability of required funds in proper time to ensure smooth conduct of the business of the Company and to deploy the surplus funds of the Company from time-to-

time to avoid idling and generate returns and making availability of fundswhenever required in future.

FINANCIAL RESULTS OF MRPL FOR 4th QUARTER & YEARENDED 31ST MARCH 2010.

The board of directors of Mangalore Refinery and Petrochemicals Limited, asubsidiary company of ONGC and a category I Mini Ratna, approved itsaudited results for the Fourth quarter and Financial Year 2009-10 recording anexcellent physical and financial performance in the continuing globalrecessionery conditions.

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HIGHLIGHTS for FY 2009-10:

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The turnaround of the 6 MMTPA unit was successfully completed as perschedule.

The company successfully completed the revamp of Gas Oil Desulphurisationunit commissioned the same and rededicated it to the Nation on 30th April2010

Energy index of 58.27 MBN which is the lowest ever achieved

MRPL received the first parcel of Cairn "Mangala" crude on 9th October 2009

The distillate yield was highest ever 72.8% at an operating level of 12.5MMTPA

The domestic dispatches were highest during the FY 2009-10.

In FY 2009-10 MRPL's performance on fiscal and physical parameters havebeen quite appreciable and the company earned a net profit of Rs.1112 croreas compared to Rs.1193 crore in the previous year, after providing for interestand finance charges of Rs. 116 crore (Rs. 143 core), depreciation of Rs. 389crore (Rs 382 crore) and tax provision of Rs. 580 crore (Rs. 619crore ). Exportsduring the year were Rs. 11,083 crore ( Rs. 11,608 crore ).

GRM for the year is US$5.46 / bbl (US$ 5.33 / bbl) Despite marginal lower netProfit after Tax, the Board of Directors recommended a dividend of Rs. 1.20per share of Rs 10 each (Rs.1.20 per share of Rs. 10 each).

PERFORMANCE in the Q4:

During the 4th quarter ended 31st March'2010, MRPL has recorded a crudethroughput at 3.06 MMT (3.42MMT). Turnover during the quarter was Rs. 9723crore (Rs. 7630 crore). The Net Profit after tax for the quarter is Rs. 253 Crore(Rs. 608 crore), after providing for interest and finance charges of Rs. 26 crore(Rs.33 core), depreciation of Rs. 97 crore (Rs.95 crore) and Tax Provision of Rs.135 crore (Rs.276crore). GRM for the quarter is US$ 5.25 / bbl (US$ 7.54 /

bbl). (Figures in bracket represent corresponding quarter / previous yearfigure) AWARDS, RECOGNITION AND ACHEIVEMENTS:

Company has achieved "Excellent" performance results under the MOU withits holding company. The excellent operating, production and safety standardsmaintained by the Refinery have enabled the company to achieve remarkableenergy saving and also achieve an accident free year in the safety front. Thishas enabled us to bag many awards:

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MRPL adjudged the winner in the 'Most Safe Refinery in last three years' andrunner up in 'Refineries' categories of OISD awards for the year 2008-09.

MRPL has won the Jawaharlal Nehru Centenary Award 2008-09 Joint 1st Prize

in specific Energy Consumption Performance amongst all Refineries in PublicSector.

MRPL secured the Superstar Achiever Award - 2008 for best exportperformance from Kanara Chamber of Commerce and also State level Exportaward for the Year 2005-06 and 2006-07 from Govt. of Karnataka

ICRA has reaffirmed their Issuer rating of 'Ir AAA' to MRPL for lowest credit risk.CRISIL issued rating of 'Cr AAA' to MRPL indicating highest safety continues .

MARKETING INTITIATIVES

Direct Marketing Sales registered an overall growth of 3% covering productsBitumen, Furnace Oil, Naphtha Mixed Xylene, LSHS and Sulphur under directmarketing with Sales of 800 TMT in 2009-10 vis-a-vis 775 TMT in 2008-09.

MRPL Shell Aviation Fuel Services Pvt. Limited (a Joint Venture Company of MRPL and Shell Global) has made good progress in marketing ATF to domesticairlines at Bangalore and Hyderabad and is likely to commence operation atMangalore shortly

PHASE III: REFINERY PROJECT:

Financial Year 2009-10 has been a significant year for Phase III. A number of milestones have been crossed at a rapid phase.

The project has achieved the physical progress of 38.8 % as on date againstthe stretched plan progress of 41.5 %.

The orders for all major process plants and auxiliary equipments including off site facility have been placed .The commitment made against the project sofar is Rs 9585 crore.

With a view to add value to the propylene, MRPL and ONGC board hadapproved the implementation of Poly propylene unit at accost of Rs 1803Crore. The order for execution of ISBL facility has been placed for executionunder open Book execution method on Engineers India Ltd

In respect of Poly Propylene unit, the progress has been 10.3% as againststretched schedule progress of 14.5%. The project progress setback was

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mainly for non availability of encumbrance free land.

ONGC the parent Company has approved to extend a Loan facility of Rs 5000crore at interest rate of 7.90% p.a. (3.85% lesser than present SBI PLR of 11.75%) for financing part of the project cost. OIDB has also sanctioned a loan

of Rs. 200 crore for the project.

CORPORATE SOCIAL RESPONSIBILITY:

The company as a socially conscious corporate continues its 'Samrakshan',programme. The company during the year contributed Rs 50 lakhs towardsthe Chief Ministers Relief Fund and also has contributed 495 lakhs towardsconstruction of houses for flood-affected people at Karnataka. In addition he

activity of providing electricity for drawing water at rehabilitation colony fordrinking water, donation of medical equipment to hospitals, construction of anganwadi building, donating scientific teaching aids, scholarships todeserving students, providing infrastructure facility to schools, women's helpprogrammes, providing generators to hospitals, development of parks in thecity etc has been undertaken. Total expenditure during the year is Rs.12.54crore (Rs. 3.70 crore).

Speaking on the occasion Mr. R S Sharma, Chairman complimented the TeamMRPL for the excellent physical and financial performance during the quarter /year despite lower product prices and continuing downturn in the industry. He

also thanked all the stakeholders for their unstinted support and confidence inMRPL.

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PRINCIPLES CONCERNING INVESTMENTS

The PSEs should observe the following guidelines in regard toinvestment of surplus funds.

Investments should be made only in instruments with maximumsafety.

There should be no element of speculation on the yield obtaining fromthe investment.

There should be a proper commercial appreciation before anyinvestment decision of surplus funds is taken. The surplus availabilitymay be worked out for a period of minimum one year at any point of time.

Funds should not be invested by the PSE at a particular rate of interestfor a particular period of time while the PSE is resorting to borrowing atan equal or higher rate of interest for its requirements for the sameperiod of time.

Investment decision should be based on sound commercial judgment. The availability should be worked out based on cash flow estimatestaking into account working capital requirements, replacement of assets and other foreseeable demands.

The remaining period of maturity of any instrument of investmentshould not exceed one year from the date of investment where theinvestment is made in an instrument already issued. Where investment

is made in an instrument newly issued, the final maturity of theinstrument should not exceed one year. However, only in the case of term deposits with banks, it can be up to three years.

ELEGIBLE INVESTMENTS AVENUESInvestments may be made in one or more of the following instruments,subject to principles outlined in the previous paragraph:

Term deposits with any scheduled commercial bank (i.e., banksincorporated in India) and Rs.100 Crores as net worth of the bank, i.e.the paid up capital plus free reserves of the bank should not be lessthan Rs.100 Crores, fulfilling the capital adequacy norms as prescribedby the R.B.I. from time to time. These adequacy norms should bereflected in the last published balance sheet.

Instruments which have been rated by an established Credit RatingAgency and are falling under investment credit rating e.g. Certificatesof deposits, Deposits schemes or similar instruments issued by

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scheduled commercial banks/term lending institutions including theirsubsidiaries, as well as Commercial paper of corporates.

Inter-corporate loans are permissible to be lent only to the CentralPSEs, which have obtained highest credit rating awarded by one of theestablished Credit Rating Agencies for borrowings for the

corresponding period. Any debt instrument, which has obtained highest credit rating from an

established Credit Rating Agency. Mutual funds subject to following conditions:

Only Navratna and Miniratna CENTRAL PUBLIC SECTOR ENTERPRISES (CPSEs)are permitted to invest in SEBI regulated public sector mutual funds.

Investments in schemes of such mutual funds, having equity investments,should not exceed 30% of the available surplus funds of the concerned CPSE.

The Board of Directors of these CPSEs would decide the guidelines,procedures and management control systems for investment in such mutualfunds in consultation with the Administrative Ministries. CPSEs are notallowed to invest their surplus funds in the Call Money Market.

DPE GUIDELINES

S NoPERMISSIBLEINSTRUMENTS

MAXIMUM TENOR/RESIDUALMATURITY

RATING OTHER CRITERIA

1 Fixed Depositswith banks

3 years N/A Any Scheduled CommercialBank (Banks incorporated inIndia)

2. Net Worth of minimum100 Crores 3.Meetscapital adequacyrequirements as prescribedby RBI

2 GovernmentSecurities and

Treasury Bills

3 year Sovereign

N/A

3 Bonds/Commercial

1 year Investment

N/A

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Paper issued byCentral PSEs

Grade

4 Inter-corporatedeposits to

Central PSEs

1 year Investment

Grade

N/A

5 Certificates of deposits

1 year InvestmentGrade

N/A

6 Public SectorMutual Funds

N/A N/A Investments in schemes of such mutual funds, havingequity investments, shouldnot exceed 30% of the

available surplus funds withthe Company

*Under current DPE guidelines direct investment in equity is not permitted.

*PSEs are also not allowed to directly invest in the call money market.

REVIEW OF PERMITTED INVESTMENT AVENUES

CURRENTLY PERMITTED*INVESTMENT AVENUES

CURRENTLY APPLICABLE*CONDITIONS

COMPARISIONWITH DPEGUIDELINES

Term deposits with scheduledcommercial banks

Such banks to beincorporated in India with aminimum net worth of Rs.100 Crores and also

meeting the capitaladequacy norms, asprescribed by the RBI.

Meets DPEGuidelinesrequirements

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Certificates of Deposits,Deposits Schemes or similarinstruments issued byscheduled commercial banks,and subsidiaries of termlending institutions.

Instruments rated "AA" or"P-2" equivalent or above.


Short-term deposit scheme of Primary Dealers

Instruments/ schemes to bewith highest credit rating(P1+ or equivalent). 50% ormore of the equity of suchPrimary Dealers is to beheld by scheduledcommercial banks/ financialinstitutions. The maximumduration of such depositshall be 91 days.


Commercial paper issued bycorporates

Corporate to have highestcredit rating (P1+ orequivalent) from anestablished credit ratingagency. In case of CP of corporates, other than

central PSEs, the issuermust be a company whoseshares are listed as"Category A" shares onBombay Stock Exchange.


Inter-corporate loans tocentral 'Navratna' PSEs

Borrower to have highestcredit rating (AAA orequivalent) from anestablished rating agency

for borrowing for thecorresponding period.


Bond issued by central PSEs Issuer to have highest creditrating (AAA or equivalent)


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Treasury Bills andGovernments of IndiaSecurities


*Currently refers to the period

of 2003

PROPOSED INSTRUMENTWISE LIMITSCRISIL has recommended that the instrument wise limits be changed asfollows:

The limits for TDRs/ STDRs of banks have been raised from Rs. 6000Crores to Rs. 10000 Crores.

The limit for investment in T Bills/ GOI securities is raised to Rs. 10000Crores.

The limit for Rated Instruments of Banks has been changed to Rs. 1000Crores and for Rated Instruments of Term Lending Institutions hasbeen changed to Rs. 1000 Crores as compared to the existingcombined limit of Rs. 6000 Crores for these two categories.

On the basis of the relatively low liquidity and lack of availability of high volumes of good credit quality of commercial paper/ bonds of corporates the investment limit on Commercial Paper/ Bonds of CentralPSEs have been reduced to Rs. 1000 Crores from the current level of Rs. 2000 Crores.

PROPOSED INSTRUMENTWISE LIMIT STRUCTURE

INSTRUMENT EXISTING LIMITS(Rs. CRORES) PROPESEDINVESTMENT LIMITS(Rs. CRORES)

T Bills/ GOI Securities 6000 10,000

TDRs/ STDRs of Banks6000 10,000

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Rated Instruments of Banks

6000

1000

Rated Instruments of Term Lending

Institutions 1000

Commercial Paper/Bonds of Corporates 2000 1000

Intercorporate loansto Central PSEs 2000 2000 (No Change)

Deposits with PDs 500 500 (No Change)

PROPOSED RISK BASED LIMIT STRUCTURE FOR BANKS

The risk based limit structure developed by this process is applicable ascounter party limits for banks covering all investments with banks-Termdeposits as well as investment in other rated instruments.

This process has following steps:

INITIAL SHORTLIST OF BANKS RISK GRADING OF BANKS CONVERTING RISK GRADES INTO RISK LIMITS

The initial shortlist of banks is based on certain qualifying criteria. It isoperated at two levels.

LEVEL 1 CRITERIA TYPE OF BANK NET WORTH CAPITAL ADEQUACY RATIO (CAR)

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Public SectorBanks

Minimum of Rs. 100Crores

Fulfilling norms as prescribed by RBI (Thecurrent norms of RBI require banks tomaintain a minimum Capital to Risk-weighted Assets Ratio of 9% on anongoing basis.Private Sector

Banks

Minimum of

Rs. 500Crores

CRISIL has justified their recommendation on the ground that the credit-worthiness in the banking sector has a very linkage to size, and Networth isa very good proxy for size.

LEVEL 2 CRITERIA

Only banks in the Risk grades A, B and C will qualify for allocation of limits.

MAIN PROCESS I: RISK GRADING OF BANKS

Risk Grades are obtained from a Cramel based model developed by CRISIL. The Cramel based model uses financial and other business information toassess the creditworthiness of banks. Banks are graded into four categories-a, b, c, d- in decreasing order of creditworthiness.

An equity price based dynamic scoring model provides a one-year forwardestimate of default probability measure for each bank. Based on thismeasure the banks are again graded into four categories- 1, 2, 3, 4- in thedecreasing order of credit quality.

A combined grade is obtained for each bank based on a decision logic thatensures that the Cramel model retains primacy.

MAIN PROCESS: CONVERTING RISK GRADES TO RISK LIMITS

Mapping Crisil Default Probability Data to the Risk Grades- A, B, C. Conversion of Default Probabilities to Risk Weights.

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Allocation of risk based limits to banks based on risk grades.

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RISK BASED LIMITS

MAPPING CRISIL DEFAULTPROBABILITIES TO RISK GRADES- A, B, C

CONVERSION OFDEFAULT PROBABILITIES

TO RISK WEIGHTS

COMBINED RISK GRADES OFBANKS (A, B, C, D)

CRAMEL BASED RISK SCORES (a, b, c, d)

EQUITY PRICE BASEDDYNAMIC SCORING (1, 2, 3,

INITIAL SHORT LIST OF BANKS


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RISK BASED LIMT STRUCTURE OF BANKS PROPOSED BY

CRISIL MAIN PROCESS I: RISK GRADING OF BANKS

SUB PROCESS I: CRAMEL BASED RISK SCORING

CRAMEL BASED MODEL Parameters for risk scoring:

Capital Adequacy (sub parameters: Capital Adequacy Ratio, Tier I

Capital ratio, Net Worth/ Net NPA, Advances Growth, Net Worth Size) Resources and Liquidity (Sub parameters: Cost of Deposits, DepositGrowth, Deposit Size)

Asset Quality (Sub parameters: Average Net NPA, Advances Growth,Advances Size)

Earnings (Sub parameters: Return on Assets, Operating Expenses/TotalIncome, Profit After Tax Size)

37

INPUTS

Financial performance and other businessfactors data of banks.

CRAMEL BASED CRISIL PROPRIETARY SCORING TOOL


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OUTPUTS

Calculation of Risk Scores and ordering of banks

CRAMEL BASED RISK SCORES

(a, b, c, d)


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SCALES USED FOR SCORING

PERFORMANCE SUB

FACTORS

VALUE OF SUB

FACTOR

SCORE

Capital Adequacy Ratio(%)

Less than 8%Greater than 15%Between 8% to 15%

010Proportionately on a scale of 1- 10

Tier I Capital Ratio (%) Less than 5%Greater than 14%Between 5% to 14%


Net Worth/ Net NPA Less than 0.5Greater than 5.0Between 0.5 to 5.0


Cost of Deposits Less than 6%

Greater than 10%Between 6% to 10%

10


Deposit Growth (%) Less than 10%Greater than 35%Between 10% to35%


Average Net NPA 0%Greater than 14%Between 0% to 14%


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MAIN PROCESS I: RISK GRADING OF BANKS

107

INPUTS

Financial parameters and equity prices/volatilitydata, market interest rates

EQUITY PRICE BASED CRISIL PROPRIETARYDYNAMIC SCORING TOOL

OUTPUTS

Calculation of default probabilities and orderingof banks into four grades according to default

EQUITY PRICE BASED DYNAMIC SCORE


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SUB PROCESS III: COMBINING CRAMEL BASED SCORE AND EQUITYPRICE BASED SCORE TO GRADE BANKS

A combined grade is obtained for each bank based on a logic which ensuresthat the CRAMEL model retains primacy the combined grade cannot bebetter than the CRAMEL based grade but it can be lower than the CRAMELbased grade.

The grades of Cramel based scoring are a, b, c, d (descending credit quality)and the grades of equity prices based model are 1, 2, 3, 4 (descending creditquality) and the grades of the combined grading are A, B, C, D (descending

credit quality). The decision logic is as follows:A a1, a2

B a3, a4, b1, b2, b3

C b4, c1, c2, c3

D c4, d1, d2, d3, d4

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INPUTS

Cramel based risk scores. Equity price based

DECISION LOGIC TO COMBINE SCORES

OUTPUTS

Gradation of banks into four-risk grades-

A B C D


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MAIN PROCESS II: TRANSFORMING RISK GRADES TO RISK LIMITS

SUB PROCESS I: MAPPING CRISIL DEFAULT PROBABILITY DATA TO

THE RSK GRADES A, B, C.

CRISIL has a proprietary database of default probabilities of different creditcategories. This is derived from the history of rating movements over 11years.

The mapping of CRISIL Default probability data to Risk Grades is done asfollows:

Risk Grades are mapped to appropriate groups of company ratings inthe Crisil Database using percentile matching.

Default probability of each group of company ratings is extracted fromthe Crisil Database.

These default probabilities are assumed to be the default probabilitiesfor the corresponding risk grades.

109

INPUTS

Risk Grades of the banks i.e. out ut of Main Process I

CRISIL DEFAULT PROBABILITY DATABASE

OUTPUTS

Default robabilit for each risk rade


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SUB PROCESS II: CONVERSION OF DEFAULT PROBABILITES TORISK WEIGHTS

On the basis of pooled survey and model-based evidence, Basel Committeehas devised a functional relationship between the Default Probability (DP)and the risk weights. The relationship is:

Risk Weight = 976.5*N (1.118*G (DP)+1.288)*[1+0.0470*(1-DP)/DP 0.44 ]

Where N is the cumulative Normal Distribution and G is the inverse of cumulative Normal Distribution.

This relationship is used to convert the default probabilities associated withRisk Grades A, B, C, into risk weights.

The relative limit allocations in the Risk Grades A, B, C is approximately70:20:10 on the basis these risk weights.

GRADES

No OFBANKS INCATEGORY

PROBABILITYOF DEFAULT(CRISILDATEBASE)

RISK WEIGHTS(BASLEFORMULA)

ALLOCATIONRATIO

ALLOCATIONPROPORTION

A 13 0.00315 60.10291 11.63065 0.701028

B 9 0.02305 209.8547 3.331048 0.200776

C 8 0.0799 429.0785 1.629157 0.098196

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INPUTS

Default Probability for each risk grade A, B,

FORMULA DEVELOPED BY BASLE COMMITTEEON BANKING SUPERVISION

OUTPUTS

Risk Weight for each risk grade A, B, C.


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SUB PROCESS III: CALCULATING RISK BASED LIMITS

The following limit allocation rules are used to operationalise a risk basedlimit structure for banks.

LIMIT ALLOCATION RULES ONGC will estimate the Maximum Investible Surplus (MIS) bimonthly.

Crisil will use this figure as the base for the base for development of limit structure.

Overall Limit amount allocated to banks would be 1.5 times the MIS Overall limit amount is allocated to each risk grade in the inverse

proportion of their risk weights. This proportion is 70:20:10. Limits are allocated to banks with Risk Grade of A, B, C . For Grade A, bank wise limits are capped at a prudential limit of 12.5%

of overall limit. Similarly the caps would be 3.5714% of overall totallimit for Grade B and 1.7857% of overall limit for Grade C. State bankof India would be an exception to this rule and would have the higherof the following as its upper cap: Rs. 1000 Crores OR 12.5% of overalllimit.

Limits are allocated to each bank within a risk grade in proportion of itsadjusted Net Worth. For Public Sector Banks the adjusted Net Worth isthe same as the Net Worth. For private sector banks the adjusted NetWorth is 0.06 times their net Worth. Additionally, the limits of smallprivate sector banks (Less than Net Worth of Rs. 2000 Crores) wouldbe capped at 5% of their Net Worth.

In case allocation of the full amount (worked out in the ratio of 70:20:10) is not possible in Category B or Category C on account of hitting of prudential limits for individual for individual banks or the 5%of net worth cap for small private banks, such unallocated amount willbe shifted to Category A.

To ensure that banks in the lower credit quality grades do not have ahigher Limit/ Net Worth percentage than the banks in higher gradesthe following iterative process is followed:

o The Limit/ Adjusted Net Worth percentage for any bank inCategory B would be capped at the Highest Limit/ Adjusted NetWorth Percentage for Category A. The Highest Limit/ AdjustedNet Worth Percentage for Category A is the highest Limit/Adjusted Net Worth percentage of all the banks in Category Aexcept the ones that are capped by the 12.5% prudential limit or

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the 5% of net worth cap on small private banks. Any unallocatedamount in Category B would be shifted to Category A.

o The Limit/ Adjusted Net Worth percentage for any bank inCategory C would be capped at the Highest Limit/ Adjusted NetWorth Percentage for Category B. The Highest Limit/ Adjusted

Net Worth Percentage for Category B is the highest Limit/Adjusted Net Worth percentage of all the banks in Category Bexcept the ones that are capped by the 3.5714% prudential limitor the 5% of net worth cap on small private banks. Anyunallocated amount in Category C would be shifted to CategoryA.

o Limits to banks in Category A would be recalculated afteraddition of the amounts shifted from Category B and Category C.

If actual invested amounts in Grade B and Grade C together is 30% ormore of the actual total investments no fresh bids may be invited fromthe banks in Grade B and Grade C.

These limits were calculated on publicly available audited financial results forthe year ending March 2003.

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INPUTS

Risk Weights for each risk

grade Adjusted net worth of all

ALLOCATION RULES TO CONVERTINPUTS TO LIMITS

OUTPUTS


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PROCEDURE FOR INVESTMENTS OF SURPLUS FUNDS

Investment of surplus funds involves the following activities:

Preparation of Cash Forecast and determining Investible surplus, if any. Inviting quotations from eligible parties, as may be approved by the

competent authorities from time to time. Investments decisions after necessary deliberations and

recommendations by ONGC Board and approval by a designatedCommittee of Directors comprising of C&MD & Director (Finance) andDirector (HR), to whom powers of investment of surplus funds up tospecified limit have been delegated by the Board.

Deployments of funds with successful bidders in line with investmentdecisions.

Settlement activities at the time of investments as well as at the timeof maturity.

Generating relevant MIS based on financial results of the empanelledentities/ market intelligence reports or other sources and providing thesame to the higher management. In particular, reporting of theinvestment transactions to the Board as required by DPE Guidelinesand seeking Board approval/ ratification, wherever required.

INVESTMENT PROCEDURE

OBJECTIVE:-1. The objective of the cash management activity is to ensure availability

of required funds in proper time to ensure smooth conduct of thebusiness of the Company and to deploy the surplus funds of theCompany from time to time to avoid idling and generate returns.

CASH FORCASTING

(Responsibility)

2. The Fund Section of the Corporate Accounts Department, Dehradun,has the responsibility of cash forecasting activity.

Nature & Periodicity of Cash Forecast:-

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3. The Funds Section will prepare cash-forecast for the next one year withmonthly break-up on roll-over basis and weekly break-ups for the firsttwo months, as also break-ups in between wherever major cash flows

such as offshore royalty, advance tax, dividend payment etc areinvolved. The Cash Forecast will be accompanied by and advice to callquotations, along with indicative amount/ range of funds for whichquotations are to be invited. The Cash Forecast will detail theassumptions made for the preparation of forecast, the variation vis--vis the previous forecast and the reasons thereof, to the extentpracticable. The Cash Forecast will be sent to Treasury ManagementGroup, New Delhi (TMG) every week on a fixed day (such as, everyWednesday) to be decided by Funds Section with the approval of Headof Corporate Accounts to have regularity and better control over theforecasting system. In addition, Cash Forecast will also be sent on

request from TMG/ Investment Committee.

Communication of Cash Forecast to TMG:-

4. The Cash Forecast will be sent by fax/ e-mail to TMG with a post copyby Dak Box/ Courier.

PROCESS OF INVITATION OF OFFERS UPTO APPROVAL OF INVESTMENT PROPOSAL AND ISSUE OF INVESTMENT AUTHORITY NOTE:-

(Responsibility)

5. TMG will have the responsibility to coordinate the process of invitationof offers, preparation of comparative statement, providing requiredassistance to the Investment Committee, and issue of investmentauthority to the Accounts Department for effecting the investmenttransactions.

Invitation of Bids

6. The Treasury Management (TMG) on the basis of the Cash Forecastand considering actual/ anticipated changes, if any, in the fund

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position, will invite quotations, with the approval of an InvestmentCommittee member, from the eligible parties, as per the approved listof invitees, from time to time. Offers are to be invited for investment inavenues by the Board. Bids may be invited from the eligible bidders fora minimum amount of Rs. 5.00 Crores.

7. The invitation letter inter-alia, will specify the indicative investmentamount, indicative dates of investment, indicative tenure and the lastdate/time for the submission of bids. Such amounts and tenures will besubject to change depending upon availability of funds, yields forvarious maturities, etc and approval of the competent authority forinvestment decision.

8. Bids will be invited from eligible parties. Invitations should be sentthrough fax/ e-mail/ website and quotations be invited in sealed cover/e-mail from the eligible parties. In case, it is not feasible to send theinvitation by fax/ e-mail due to non-availability of fax/ e-mail facility atbidders end or for any other reason, invitation may be sent by ordinary

post or handed over to authorized representative of the bidders to theextent practicable.9. The invitation of bids will not in any way bind ONGC for placement of

fund with any of the bidders. ONGC will reserve the right to reject anybid without any further reference to the bidders.

10. The bids should be invited directly from the bidders and nobroker should be involved in the transaction between the bidder andONGC.

Submission of Bids:-

11. The bidders will be requested to submit their bids within the dateand time specified in the invitation letter. Bids should be submitted in abid box (Treasury Bid Box) to be kept at a location (to be specified inthe invitation letter) in office of the ONGC at New Delhi. The biddersmay, if they so like, submit their bids by courier or registered postprovided that the bids must reach the addressee specified in theinvitation letter within the stipulated date and time. Under suchcircumstances, offers received by any other mode such as fax withinthe date and time will also be taken into consideration. However,ONGC will not be responsible for any loss or delay of bids in transit.

12. Late offers are not to be considered.13. The Bids should be firm and unconditional and give the

information requested in the invitation letter in the manner requested.Investment Committee will have full powers to reject any incompletebid.

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14. If any bidder after submission of bids, withdraws/ amends anyterm or condition and/ or expresses inability in acceptance of anyterm/ rate quoted, such bidder, with the approval of D (F) and C&MD,may not be considered for future invitation of bids. Upon request of thebidder or otherwise under a general review, invitation to such bidder

may be re-initiated with the approval of D (F) and C&MD.

Opening of Bids and Comparative Statements

15. The bids will be opened by (a) at least two members of theInvestment Committee, or (b) at least one member of the InvestmentCommittee and an official of the TMG.

16. Bidders will be invited to depute, if they so wish, their authorized

representative to be present at bid opening.17. A bid opening register, showing the details of bids received andduly signed by the bidders representatives, if any, present at the timeof bid opening, has to be maintained by the TMG.

18. The Comparative Statement will be prepared and signed by twoofficers of TMG and the same along with the offers will be put up to theInvestment Committee for its deliberation and recommendations.

Investment Committee Proceedings

19. The Investment Committee will comprise of such officials andshall have such quorum as may be decided by the Board from time totime.

20. The deliberations and recommendations of the InvestmentCommittee shall be recorded and signed by the participating members.Where any particular member of the Investment Committee is unableto be physically present at the location where the InvestmentCommittee is deliberating, he may, with consent/ request of otherparticipating members, participate in the deliberations by telephone or

other communication modes and sigh the Investment Committeeminutes on fax.

Guiding Principles for Investment Committee

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21. The following guiding principles are to be kept in view by theinvestment Committee:

Investment Committee will evaluate the offers on commercial

principles. The investments shall strictly be made on the basis of tenderssubmitted by the bidders and further negotiations or matchingbe held. Any changes in bid after tender closing will not beconsidered. However, if better rates are offered by the bidder(s)who is (are) in reckoning otherwise, the same maybe considered.

Investments are to be made in accordance with the variousexposure limits as may be approved by the Board from time totime.

Investment Committee will recommend investment up tomaximum one year (including one year and one/ two days).Investment transactions for more than one year would be put upto Broad for ratification.

Where the funds are available for a longer period but withtemporary decline in availability during the fund availabilityperiod, Investment Committee may recommend investment of funds for the longer period by availing cash credit facility forsuch temporary deficit period where such temporary deficit willlead to investment at higher yield and is consideredcommercially beneficial. However, such recommendations willnormally consider maintaining at all times a cushion of Rs 100crores in cash credit limit for any day-to-day variations orunforeseen requirement of funds. Working Capital Demand Loan(WCDL) limit is not to be exposed for investments and should bekept fully available over and above the cushion in CC limit forany contingencies.

In case of a tie in rates, the Investible amount may be distributedbroadly in proportion to the net worth of the respective bidders,subject to their exposure limits and minimum/ maximum amountacceptable to them. If such distributed amount falls below theminimum amount acceptable to any bidder or less than Rs. 5.00crores, then no amount may be placed with the said bidder.

Investment Committee shall ensure that its recommendationsare in accordance with the DPE Guidelines on the subject.

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Documents29. In case of all investments, proper documentary evidence such

TDR receipt should be obtained expeditiously and in a reasonable time.If instruments are not received within one week from the date of investment, Head of Finance, Delhi Office/ Head of Fund Section,Dehradun, as the case may be, should follow up the matter with theconcerned bank/ institution. After a period of two weeks, the mattershould be formally informed to TMG.

30. Photocopy of all investment instruments are to be retained bythe Head of Finance, Delhi Office/ Head of Fund Section, Dehradun, asthe case may be.

31. A register containing details of investment & maturity should bemaintained by Head of Finance, Delhi Office/ Head of Fund Section,Dehradun, as the case may be. A column, showing the date of receiptof instrument, may be maintained in the register.

32. There should be a system of monthly reconciliation of recordsmaintained by Head of Finance, Delhi Office/ Head of Fund Section,Dehradun and TMG, wherein all information and calculations arecrosschecked to ensure correctness of the available data/ details. Incase of shorter duration investments, the above reconciliation must bedone before the date of maturity of such investments.

Discrepancies33. Within two working days of receipts of the instrument, Finance,

Delhi Office/ Fund Section, Dehradun, as the case may be, shouldcheck up the interest and maturity value. In case of any discrepancy inthe maturity amount intimated in the Investment Authority Note andthe maturity amount mentioned in the instrument, the matter shouldbe taken up with the concerned bank/ institution by the Head of Finance, Delhi Office/ Head of Fund Section, Dehradun, as the casemay be, in consultation with TMG.

MIS & REPORTING TO BOARD

34. A copy of every Investment Authority Note would be invariablysent to Head of Corporate Accounts, Dehradun, for information andaccounting purposes.

35. TMG would inform, on monthly basis, the monthly investmentdetails to the Funds Section and Corporate Budget Section regularly.

36. TMG would also regularly put up note giving details of investments for the information/ ratification of the Board.

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AUDIT 37. The investment transactions would be periodically reviewed by

Internal Audit, to ensure compliance with Board approved policy andprocedures. The audit would inter alia carry out securitiesreconciliation that is reconciliation of investment documents such as

TDR receipts with investment registers and accounting records.38. TMG would maintain the records of Investment Committee

deliberations/ approvals and make the same available for audit(internal as well as statutory/ Government) as and when required.

MISCELLANEOUS

39. TMG will periodically update the panel of invitees and theirfinancial details, audited balance sheets, exposure limits etc.

40. It is the intention to use information technology measures suchas web-based bidding to increase efficiency of bidding process andreduce cycle time. Procedures for such web-based bidding may beevolved with approval Director (HR) and Director (Finance) &C&MD.

41. This procedure applies to all the investments to be made throughInvestment Committee and with the approval of Director (HR) andDirector (Finance) & C&MD under delegated powers in accordance withthe decisions taken by the Board from time to time.

42. Director (HR) and Director (Finance) & C&MD are authorized toalter the constitution of Investment Committee whenever neededprovided that any such alteration shall be reported to the Board assoon as practicable, preferably at its next meeting.

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PERMITTED INVESTMENT AVENUES

Investments in following avenues are permitted by the Board of Directors of ONGC:

Term Deposits with scheduled commercial banks (incorporated inIndia):

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o Public sector banks with a minimum net worth of Rs. 100 Croresand also meeting the capital adequacy norms, as prescribes bythe RBI.

o Private sector banks, with a minimum net worth of Rs.500 Croresand also meeting the capital adequacy norms prescribed by RBI

from time to time.

These adequacy norms should be reflected in the last published balance

sheet of the bank. List of empanelled banks and the bank-wise exposure

limit shall require approval of the Board.

Instruments rated AA or P-2 or equivalent e.g., Certificates of Deposits, Deposit Schemes or similar instruments issued by scheduledcommercial banks.

Commercial paper issued by corporates having highest credit rating(P1+ or equivalent) from an established credit rating agency. In case of CP of corporates, other than central PSEs, the issuer must be acompany whose shares are listed as Category A shares on BombayStock Exchange.

Inter-corporate loans to central Navaratna PSEs having highest creditrating (AAA or equivalent) from an established rating agency forborrowing for the corresponding period.

Bonds issued by central PSEs having highest credit rating (AAA orequivalent).

o Treasury Bills and Governments of India Securities.o Liquid TDR, automatic and value-dated, with SBI, Tel Bhavan for the

minimum period.

The maximum investment duration shall be one year (including one year andone/ two days). Also, if the maturity date happens to be a holiday, theninvestment/ maturity shall be for tenure up to the next working day, as perthe banking practice.

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ONGC INVESTMENT POLICY - INVESTMENT AVENUESS No PERMISSIBLE

INSTRUMENTS

MAXIMUM

TENOR/RESIDUALMATURITY

RATING OTHER CRITERIA

1 Fixed Depositwith PublicSector banks

1 year N/A 1. Any scheduledcommercial bank (Banksincorporated in India)

2. Net worth of minimum100 Crores

3. Meets capital adequacyrequirements asprescribed by RBI

2 Fixed Depositwith PrivateSector banks

1 year N/A 1. Any scheduledcommercial bank (Banksincorporated in India)

2. Net worth of minimum500 Crores

3. Meets capital adequacyrequirements asprescribed by RBI

3 Certificate of deposits of scheduledcommercialbanks

1 year AA/ P-2Orequivalent

N/A

4 CommercialPaper

1 year P1+ Orequivalent

N/A

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T-Bills/ GOI Securities: Rs 10,000 Crores TDRs/ STDRs of banks: Rs. 25,000 Crores Certificates of deposits and other rated instruments of banks/ FIs: Rs.1,

000 Crores Commercial Paper/ Bonds of corporates: Rs. 1,000 Crores Inter-corporate loans to central PSEs: Rs 2,000 Crores. UTI Liquid Fund: Rs 1,000 Crores.

INVESTMENT POLICY-EXPOSURE LIMITSS No PERMISSIBLE INSTRUMENTS EXPOSURE LIMITS

1 Fixed Deposits withscheduled commercialbanks

As per bank-wise exposurelimit approved by the board

2 UTI Liquid Fund Up to 6 days subject to amaximum limit of 1000Crores

3 CP/ Bonds of Corporates 1.Central PSEs: 25% of itsNetworth, subject to a cap of Rs. 250 Crores.

2.Other Corporates: 25% of its Networth, subject to a capof Rs. 25 Crores

4 Inter-corporate deposits 25% of Networth, subject toa cap of 1. Rs. 1000 Crores for OilSector PSEs, and2. Rs. 500 Crores for Non-OilSector PSEs

5 Treasury Bills andGovernment Securities

No Credit Exposure Limit

ANALYSIS OF INVESTMENT INSTRUMENTS

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3 Certificates of Depositsand other ratedinstruments of Banks/

FIs 1,000 NIL

4 CP/ Bonds of corporates 1,000 NIL

5 Inter-corporatedeposits 2,000 NIL

6 Treasury Bills andGovernment Securities 10,000 NIL

CURRENT INSTRUMENTS :

The Company has its own Investment Committee that finally takes the

decision of parking the idle funds with different instruments, keeping in mindthe DPE Guidelines.

At present the company invests only in three instruments. They are asfollows:

Fixed Deposits with scheduled commercial banks Inter-corporate deposits UTI Liquid Fund (if the surplus cash is there for less than 7 days)

FIXED DEPOSITS WITH SCHEDULED COMMERCIAL BANKS

A deposit held at a financial institution that has a fixed term. These aregenerally short-term with maturities ranging anywhere from a month to a

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few years. When a fixed deposit is purchased the lender (the customer)understands that the money can only be withdrawn after the term has endedor by giving a pre-determined number of days notice. Fixed deposits alsogive a higher rate of interest than savings banks account. The facilities varyfrom bank to bank.

FEATURES:

SAFE:

Bank deposits are fairly safe because banks are subject to control of RBI(Reserve Bank of India).

As the Companys main Criteria of investments are protection of capital, thusthis is the safest avenue for the company to park its idle funds. So, to reduceits risk the Company has locked 97% of its investments into fixed deposits.

VARYING INTEREST RATES:

The banks are free to offer varying interests in fixed deposits of differentmaturities. Interest is compounded once a quarter, leading to somewhathigher effective rates. The rate of interest of bank fixed deposits varies

between 4 to 11% depending on the maturity period (duration) of FD and theamount invested. Interest rate also varies with each bank. A bank FD doesnot provide a regular interest income, but a lump-sum amount on itsmaturity.

Thats why the Company has adopted a policy of inviting bids for investmentin fixed deposits, and invests with the bank offering the highest interestrates. For the quarter-ended September 30, 2007, the weighted averageannualized pre-tax yield on bank deposits was 9.96%p.a.

DEPOSIT AMOUNT :

The minimum deposit amount varies with each bank. It can range from aslow as Rs. 100 to an unlimited amount with some banks. Deposits can bemade in multiples of Rs. 100.

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The Company has its own list of empanelled banks, as approved by theBoard for investments of surplus funds, and their exposure limits are also setdepending upon the Risk based limit structure given by CRISIL.

TENOR:

The term of fixed deposits vary from one month to few years. Dependingupon which the interest rates also vary.

ONGC can place its funds only for a tenor of 1year.

ADVANTAGES:

Bank Deposits are the safest after the post office deposits.

It is possible to get loans up to 75-90% of the deposit amount from banksagainst the fixed deposit.

PRESENT SCENARIO:

ANALYSIS OF INVESTED AMOUNT IN FDs

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The company has locked 97% of its funds in the fixed deposits with differentbanks. Following is the amount invested by the Company in the fixeddeposits.

DATES(QUARTERENDED)

June30,2008

September30,2008

December31.2008

March31,2009

June30,2009

September30,2009

December 31,2009

March31,2010

FDs (INRCRORES)

The data is from June 30,2008 to March 31,2010. The Companys

investments in the same have grown by ..% over the past eightquarters. This clearly shows that Company parks most of its funds in FDs.

ANALYSIS OF RETURNS IN FDs

Returns varies from the amount invested and the rates offered at the time if bidding for the investments from different banks.

Following are the rate of returns obtained for the Eight quarters:

QUARTERS

Q1FY2008-09

Q2 FY2008-09

Q3 FY2008-09

Q4 FY2008-09

Q1FY2009-10

Q2 FY2009-10

Q3 FY2009-10

Q4 FY2009-10

RATE(%p.a)

8.75% 8.75% 8.75% 7.50% 7.50% 7.50% 6.00% 6.00%

The data is for the past eight quarters. The rate of returns has shown aconsistent decrease. It has decreased from 8.75% to 6.00% in two years.

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INTER-CORPORATE DEPOSITS (ICDs)

The Inter-corporate deposits are referred to as the deposits made by onecompany with another company. The Inter-corporate deposits are usuallymade of six months. The three types of ICDs are three months deposits, sixmonths deposits, call deposits.

THREE MONTHS DEPOSITS:

The three months deposits are the most popular among the three types of the deposits. These deposits are generally considered by the borrowers inorder to solve the short-term capital inadequacy problems. This type of short-term cash problem may develop due to various reasons such as- taxpayment, excessive raw material imports, break in the production, paymentsof dividends, delay in collection, and excessive expenditure of capital. Therate of interest given for three months deposits is 12% per year.

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SIX MONTHS DEPOSITS:

The six months deposits are made for first class borrowers and the term

period for such deposits is six months. The interest rate defined for this typeof deposit is 15%.

CALL DEPOSITS:

The concept of call deposits is different from the previous two deposits. Ongiving the notice of one day, this deposit can be withdrawn from the lender.Interest rates on call deposits are around 10%.

FEATURES:

The inter-corporate market shows a number of interesting features. Thebiggest advantage of investing in ICDs that the transaction is free frombureaucratic and legal hassles. The business world otherwise is regulated bya number of rules and regulations. The existence of ICDs market shows thatthe business world can be regulated without rules. The market of ICDsmaintains secrecy. The brokers in this market never reveal their lenders and

borrowers, as they believe if proper secrecy is not maintained then the rateof interest can fall abruptly. The market of ICDs crucially depends on thepersonal contacts. The biggest risk investing in ICDs is that it is an unsecuredinvestment avenue. And the market for ICDs is not very liquid. And thus,ONGC invests very less percentage of its funds in this instrument.

PRESENT SCENARIO:

The Company invests mostly in FDs and very few of its funds in ICDs.

As per DPE guidelines, ONGC is permitted to make ICDs only with centralPSEs having highest investment rating. However as per the presentinvestment policy ONGC is allowed to make ICDs only with the following sixcentral Navratna PSUs: IOC, HPCL, BPCL, NTPC, SAIL, and BHEL.

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ANALYSIS OF INVESTMENTS IN FDs AND ICDs (PORTFOLIO

COMPOSITION):As most of the chunk of surplus funds of ONGC goes in to the FDs and a verysmall amounts goes in to the ICDs. Its portfolio of investment has a majorcontribution by the investments in FDs. The portfolio composition of ONGCtill March 31,2010 is as follows:

DATES

(QUARTER ENDED)

June

30,2008

Septem

ber30,2008

Decemb

er31.2008

March

31,2009

June

30,2009

Septem

ber30,2009

Decemb

er31,2009

March31,2010

FDs (INRCRORES)

ICDs (INRCRORES)

The Company does not invest regularly in ICDs as it is shown by the portfoliocomposition.

ANALYSIS OF RETURNS FROM FDs AND ICDs:

As the Company does not invest in the ICDs regularly thus the returnsearned on them are well understood by comparing them with the returnsearned on FDs. The returns earned from both of these are following:

QUARTERS

Q1 FY2008-09

Q2 FY2008-09

Q3 FY2008-09

Q4 FY2008-09

Q1 FY2009-10

Q2 FY2009-10

Q3 FY2009-10

Q4 FY2009-10

RATE FDs 8.75% 8.75% 8.75% 7.50% 7.50% 7.50% 6.00% 6.00%

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(%p.a)

RATE ICDs(%p.a)

Inter-corporate deposits is a