Project Duration25th May 2009 to 1st July 2009

Submitted To : Submitted By :

Sonam KumawatMBA-II SEM

Govt. Engineering College, Ajmer

1

Rajasthan Technical University, Kota

INDEX

Sr. no. Content

1. Certificate

2. Preface

3. Acknowledgement

4. Introduction To Industry

4.1 Oil Companies (Petroleum and Oil Companies)4.2 Petroleum, Fuels4.3 Indian Petroleum Industry4.4 Growth of Indian Petroleum Industry4.5 Availability & Utilization of Natural Gas 4.6 Transnational Gas Pipe Line 4.7 Liquified Natural Gas (LNG)4.8 Gas Pricing 4.9 Oil Cost4.10 Oil Prices4.11 Gas : Production & Consumption

5. Introduction To Gail

5.1 Vision and Mission5.2 Ongoing Projects of Gail5.3 Project Supported5.4 Existing Projects5.5 Growth5.6 Corporate Strategy5.7 Business Segment Performance 5.8 Gas Availability5.9 Business Initiative 5.10 Pipe Line Projects 2007-085.11 Subsidiaries and Joint Ventures

6. Report on Jamnagar – Loni pipeline project

7. Team of Gail

8. Budget Allocation and Expenditure

9. Research Methodology

2

9.1 Purpose of the Study9.2 Objectives of the Study9.3 Techniques Used in the Study9.4 Sources of Information 9.5 Limitation of the Study

10.Ratio Analysis : Concept, Meaning & Inferences

11.Suggestion

12.Conclusion

13.Bibliography

Tables

1 Major Companies of Oil Industry in India

2 Companies Marketing Setup

3 Comparison of Production for the year 2006-07, 2007-08

4 Gas Demand Projection

5 Gas Supply Projection

6 Comparative Statement of Ratios

3

CERTIFICATE

4

PREFACE

Financial Statement Analysis is the process of identifying the financial strength and weakness

of the organization from the available accounting data and Financial Statement. The analysis is

done by properly establishing the relationship between the items of balance sheet and Income

and Expenditure accounts The first task of Financial analyst is to determine the information

relevant to the decision under consideration from the total information contained in the financial

statement. The second step is to arrange information in way to highlight significant

relationship. The final step is interpretation and drawing of inferences and conclusion. Thus

financial analysis is the process of selection, relating and evaluation of the accounting

data/Information.

The financial health of a corporate enterprise is the result of many individual decisions made

continually by its management. To draw differences about the corporate financial health,

therefore, involves analyzing and interpreting the cumulative financial and economic effects of

these decisions and judging the results through the use of comparative measures such as

ratios, cash flow and funds flow statements.

5

ACKNOWLEDGEMENT

I express my sincere thanks to my project guide, Mr. M.K. Khichi, Dy. Manager (F&A), Finance

Department, for guiding me right from the inception till the successful completion of the project.

I sincerely acknowledge him for extending their valuable guidance, support for literature,

critical reviews of project and the report and above all the moral support he had provided to me

with all stage of this project.

I would also like to thank Mr. I. K. Kothari, Sr. Officer (T&D) and their supporting staff and my

college faculty Dr. Amit Sharma (Head of training & placement), and my friends for their help

and co-operation throughout our project.

(Signature of Student)

SONAM KUMAWAT

6

EXECUTIVE SUMMARY

7

INTRODUCTION TO OIL & GAS INDUSTRY

Oil industry's major segments  encompass all  the  steps involved in finding,

producing, processing, transporting and marketing oil and natural gas.

The major players of this industry in India comprises of ONGC, HPCL, BPCL, IOCL, IPCL,

CAIRN ENERGY LTD., ESSAR, RPL, etc.

This industry includes the global processes of

exploration,

extraction,

refining,

transporting (often by oil tankers and pipelines), and;

marketing petroleum products.

8

The largest volume products of the industry are fuel oil and gasoline (petrol). Petroleum is also

the raw material for many chemical products, including pharmaceuticals, solvents, fertilizers,

pesticides, and plastics. The industry is usually divided into three major components:

upstream, midstream and downstream. Midstream operations are usually included in the

downstream category.

Petroleum is vital to many industries, and is of importance to the maintenance of industrialized

civilization itself, and thus is a critical concern for many nations. Oil accounts for a large

percentage of the world’s energy consumption, ranging from a low of 32% for Europe and

Asia, up to a high of 53% for the Middle East. Other geographic regions’ consumption

patterns are as follows: South and Central America (44%), Africa (41%), and North

America (40%). The world consumes 30 billion barrels (4.8 km³) of oil per year, with

developed nations being the largest consumers. 24% of the oil produced in 2004 was

consumed in the United States. The production, distribution, refining, and retailing of

petroleum taken as a whole represents the world's largest industry in terms of dollar

value.

9

WORLDWIDE OIL CONSUMPTION

0

10

20

30

40

50

60

EUROPEAND ASIA

MIDDLEEAST

SOUTHAND

CENTRALAMERICA

AFRICA NORTHAMERICA

REGION

CO

NS

UM

PT

ION

(%

)

Series1

Petroleum exports have also emerged as the single largest foreign exchange earner,

accounting for 17.24 per cent of the total exports in 2007-08. Growth continued in 2008-09 with

the export of petroleum products touching US$ 18.34 billion during April-September 2008. In

November 2008, the Cabinet Committee on Economic Affairs awarded 44 oil and gas

exploration blocks under the seventh round of auction of the New Exploration Licensing Policy

(Nelp-VII). The overall number of blocks brought under exploration now exceeds 200.

Oil Companies, Petroleum Companies, Oil & Gas Company

Petroleum companies, also known as Oil companies or Oil & Gas companies, have formed a

key part of the global economy for the last decade, since petroleum or crude oil has become

our main fuel source.

10

Not only have these petroleum companies become amongst the biggest companies in the

world, but thanks to the fundamental importance of this limited resource, they have also

become embroiled in a complex political world of government and national objectives,

international relations - and all too often, outright war.

Oil companies, among the largest employers in the world, cater to the global energy demand.

Their areas of functioning can be grouped into the following:

Production: This involves the extraction of crude oil from reserves, followed by its

refinement in processing plants.

Distribution: The daily distribution quota is delivered to various sectors (e.g.

automobiles, agriculture, residential). This is followed by the commercialization of oil

products.

PETROLEUM

Petroleum is a naturally occurring liquid found in rock formations. It consists of a complex

mixture of hydrocarbons of various molecular weights, plus other organic compounds. It is

generally accepted that oil, like other fossil fuels, formed from the fossilized remains of dead

plants and animals by exposure to heat and pressure in the Earth's crust over hundreds of

millions of years. Over time, the decayed residue was covered by layers of mud and silt,

sinking further down into the Earth’s crust and preserved there between hot and pressured

layers, gradually transforming into oil reservoirs.

The oil and natural gas industry shares a keen interest in the policy issues arena. As demand

for energy to keep our homes, vehicles, and businesses running continues to increase, so

does our advancement in technology, allowing us to provide safe, reliable, and affordable 11

energy. While serious challenges face our nation on a variety of fronts, oil and natural gas

industry representatives remain actively engaged with government leaders to ensure informed

decision making so the energy needs of tomorrow are met. 

Exploration and Production

Exploration for and production of oil and natural gas are

the production of oil and natural gas are the first steps in

delivering gasoline to your car, heat to your home, raw

materials to business and industry, fertilizer to farmers'

fields, and for many other aspects of daily life.  Many

people are unaware of the important role that oil and gas

exploration and production play in their daily lives.  Without successful exploration and

continued production, our nation’s energy security and the economic prosperity that goes

along with it will be compromised

FuelsFor decades, the oil and natural gas industry has been making affordable fuels that have

simultaneously improved the standard of living for American families and contributed to a

cleaner environment

India Petroleum Industry

The India Petroleum Industry is a case in point for exhibiting the giant leaps India has taken

after its independence towards its march to attain a self-reliant economy.

During the Independence era of 1947, the India Petroleum Industry was controlled by foreign

companies and India's own expertise in this sector was limited. Now, after 60 years, the India

Petroleum Industry has become an important public sector undertaking with numerous skilled

personnel and updated technology that is comparable to the best in the world. The vim and the

achievement during these years is the growth of productivity in petroleum and petroleum-

12

based products. Even the consumption has multiplied itself nearly 30 times in the post-

independence era.

An important advancement in the petroleum industry came with the Industrial Policy

Resolution, 1956 which signified the promotion of growth of industries. The ONGC, originally

set up as a Directorate in 1955, was transformed into a Commission in 1956. In 1958, the

Indian Refineries Ltd., a government undertaking, came into existence. The Indian Oil

Company (IOC), also a government undertaking, was set up in 1959 with the purpose of

marketing petroleum-related products. Indian Oil Corporation Ltd. was formed in 1964 with the

merger of the Indian Refineries Ltd. and the Indian Oil Company Ltd. Presently, 17 refineries

operate under the India Petroleum Industry.

Growth of the India Petroleum Industry:

In the post-independence era, India grew tremendously in terms of infrastructure in the

petroleum industry, which in turn helped increase the production of petroleum and petroleum-

related products.

During 1947-57, 3 refineries were set up in Mumbai and Vishakhapatnam by

transnational oil corporations doing business in Indian

During 1957-67, another 3 refineries were established in Guwahati, Barauni, and Koyali

by Indian Refineries Ltd. During 1967-77. 2 more were set up in Chennai by Iranian

companies and in Haldia by Indian Oil Ltd.

13

During 1977-87, 2 more refineries were commissioned. The one at Bongaigaon was the

first to have an amalgamated petroleum refinery-cum-petrochemicals unit. The other was

established at Mathura.

During 1987-97, 2 more were set up at Nagapattinam and Mangalore. During 1998-

2007, refineries at Panipat and Numaligarh were set up.

AVAILABILITY & UTILISATION OF NATURAL GAS

1. Natural gas has emerged as the most preferred fuel due to its inherent environmentally

benign nature, greater efficiency and cost effectiveness. The demand of natural gas has

sharply increased in the last two decades at the global level. In India too, the natural

gas sector has gained importance, particularly over the last decade, and is being

termed as the Fuel of the 21st Century.

2. Production of natural gas, which was almost negligible at the time of independence, is

at present at the level of around 87 million standard cubic meters per day (MMSCMD).

The main producers of natural gas are Oil & Natural Gas Corporation Ltd. (ONGC), Oil

India Limited (OIL) and JVs of Tapti, Panna-Mukta and Ravva. Under the Production

Sharing Contracts, private parties from some of the fields are also producing gas.

Government have also offered blocks under New Exploration Licensing Policy (NELP)

to private and public sector companies with the right to market gas at market

determined prices.

3. Out of the total production of around 87 MMSCMD, after internal consumption,

extraction of LPG and unavoidable flaring, around 74 MMSCMD is available for sale to

various consumers.

4. Most of the production of gas comes from the Western offshore area. The on-shore

fields in Assam, Andhra Pradesh and Gujarat States are other major producers of gas.

Smaller quantities of gas are also produced in Tripura, Tamil Nadu and Rajasthan

States. OIL is operating in Assam and Rajasthan States, whereas ONGC is

14

operating in the Western offshore fields and in other states. The gas produced by

ONGC and a part of gas produced by the JV consortiums is marketed by the GAIL

(India) Ltd. The gas produced by OIL is marketed by OIL itself except in Rajasthan

where GAIL is marketing its gas. Gas produced by Cairn Energy from Lakshmi fields

and Gujarat State Petroleum Corporation Ltd. (GSPCL) from Hazira fields is being sold

directly by them at market determined prices.

MAJOR COMPANIES OF OIL INDUSTRY IN INDIA

COMPANIESSET-UP

OIL Assam, Rajasthan

ONGC Western offshore and in other states

IPCL www.ipcl.co.inVadodara, Nagothane (near mumbai),Dahej (Narmada estuary in bay of Khambhat) Rabale, Navi Mumbai (catalyst manufacturing facility

HPCL www.hindustanpetroleum.com/hp.aspx Mumbai Refinery (Maharashtra), Visakhapatnam Refinery

IOC www.iocl.com/business_refineries.aspxGuwahati, Barauni, Koyali, Haldia, Mathura, Digboi, Panipat

15

IOC SUBSIDIARIES

Chennai Petroleum Corporation Limited (CPCL)- ChennaiNarimanamBRPL- Bongaigaon

BPCL Mumbai (Mahul)

BPCL SUBSIDIARIES

Numaligarh (Assam) Refinery Ltd (62.9% of the share)Kochi Refineries Ltd (Kerala)(BPCL holds 66.04% of the share)

MANGALORE REFINERIES AND PETROCHEMICAL LTD. (MRPL) [under ONGC]

www.mrpl.co.inKuthethoor P. O. Via Katipalla, Mangalore 575030, India

RELIANCE PETROCHEMICALS

www.ril.com/eportal/businesshome.html Jamnagar: Situated on the north-west coast of India, the integrated refinery-cum-petrochemicals complex of Reliance is located in the state of Gujarat at village Motikhavdi, Taluka - Lalpur, District - Jamnagar.

Hazira: The Reliance Industries Hazira complex near Surat in Gujarat is situated on approximately 1000 acres land near the banks of river Tapi and manufactures a wide range of Polymers, Polyesters, Fibre Intermidiates and Petrochemicals.

Patalganga: On the banks of the river Patalganga, 70 kms from Mumbai.

COMPANIES MARKETING SETUP

COMPANIES MARKETING THROUGH

ONGC & JV GAIL

OIL OIL ITSELF(EXCEPT RAJASTHAN

THROUGH GAIL)

CAIRN ENERGY LTD ITSELF

GSPCL ITSELF

16

UTILISATION OF NATURAL GAS

5. The gas produced in the western offshore fields is brought to Uran in Maharashtra and

partly in Gujarat. The gas brought to Uran is utilised in and around Mumbai. The gas

brought to Hazira is sour gas which has to be sweetened by removing the sulphur

present in the gas. After sweetening, the gas is partly utilised at Hazira and the rest is

fed into the Hazira-Vijaipur-Jagdhishpur(HVJ) pipeline which passes through Gujarat,

MadhyaPradesh, Rajasthan, U.P., Delhi and Haryana. The gas produced in Gujarat,

Assam, etc; is utilised within the respective states.

6. Natural Gas is currently the source of half of the LPG produced in the country.

LPG is now being extracted from gas at

Duliajan in Assam,

Vijaipur in M.P.,

Hazira and Vaghodia in Gujarat,

Uran in Maharashtra,

Pata in UP

and Nagapattinam in Tamil Nadu.

Two plants have also been set up at

Lakwa in Assam and

Ussar in Maharastra in 1998-99.

One more plant is being set up at :

Gandhar in Gujarat.

17

Natural gas containing C2/C3, which is a feedstock for the Petrochemical industry, is currently

being used at Uran for Maharashtra Gas Cracker Complex at Nagothane. GAIL has also set

up a 3 lakh TPA of Ethylene gas based petrochemical complex at Auraiya in 1998-99.

Natural Gas Allocation & Supply Scenario

7. As against the total allocation of around 118 MMSCMD, the gas supplies by GAIL is of

the order of 63 MMSCMD spread over about 300 major consumers. Around 32% is

supplied to the fertiliser sector, 41% to power, 4% to sponge iron and the balance 23%

(including shrinkage) goes to other sectors.

8. Around 8.5 MMSCMD of gas is being directly supplied by the JVs/private companies at

market prices to various consumers. This gas is outside the purview of the Government

allocations.

OPPORTUNITIES FOR IMPORT OF NATURAL GAS TO INDIA THROUGH TRANSNATIONAL GAS PIPELINES.

Iran-Pakistan-India (IPI) Pipeline Project

Myanmar-Bangladesh-India Gas Pipeline Project.

Turkmenistan-Afghanistan-Pakistan (TAP) pipeline

Liquefied Natural Gas (LNG)

9. Natural gas at -1610C transforms into liquid. This is done for easy storage and

transportation since it reduces the volume occupied by gas by a factor of 600. LNG is

transported in specially built ships with cryogenic tanks. It is received at the LNG

receiving terminals and is regassified to be supplied as natural gas to the consumers.

LNG projects are highly capital intensive in nature. The whole process consists of five

elements:-

11 Dedicated gas field development and production.

18

11 Liquefaction plant.

11 Transportation in special vessels.

11 Regassification Plant.

11 Transportation & distribution to the Gas consumer.

LNG supply contracts are generally of long term nature and the prices are linked to the

international crude oil prices. However, the LNG importing countries in recent times had

started asking for medium/short term contracts with varying linkages.

LNG Imports to India

2. The LNG trade started in mid 60's and has increased rapidly. In 1992 it was around 80

Billion Cubic Metres (BCM) per annum and crossed the 100 BCM mark in 1996. World

trade in LNG is currently in the range of 150 BCM. The major exporting countries of

LNG are Algeria, Qatar, Indonesia, Malaysia, Australia, whereas, the major importers

are Japan, South Korea, Taiwan and Western Europe.

3. Geographically, India is very strategically located and is flanked by large gas reserves

on both the east and west. India is relatively close to four of the world's top five

countries in terms of proven gas reserves, viz. Iran, Qatar, Saudi Arabia and Abu Dhabi.

The large natural gas market of India is a major attraction to the LNG exporting

countries. In order to encourage gas imports, the Government of India has kept import

of LNG under Open General License (OGL) category and has permitted 100% FDI.

LNG Projects

4. Petronet LNG Limited (PLL), a JV promoted by GAIL, IOCL, BPCL and ONGC was

formed for import of LNG to meet the growing demand of natural gas. PLL has

constructed a 5 MMTPA capacity LNG terminal at Dahej in Gujarat. The terminal was

19

commissioned in February 2004 and commercial supplies commenced from March

2004.

5. Shell's 2.5 MMTPA capacity LNG terminal at Hazira has been commissioned. Dabhol

LNG terminal (total 5 MMTPA capacity, with about 2.9 MMTPA available for merchant

sales) may also become operational by 2006 subject to availability of LNG for the

project. LNG terminals at Kochi in Kerala, Mangalore in Karnataka and

Krishnapatnam/Ennore in Tamil Nadu are also under active consideration and may

fructify in next 4-5 years time.

6. The price of LNG for the Dahej project is linked to the JCC crude oil price. It has a fixed

price for the first five years, and a floating floor and ceiling price thereafter. At present

the selling price of LNG in Gujarat is $4.87/MMBTU (Rs. 8777/MCM) and outside

Gujarat is $4.88/MMBTU (Rs. 8800/MCM). At this price, LNG is comparatively cheaper

than alternative fuels/feedstock's e.g. naphtha, Furnace Oil, LSHS, Light Diesel Oil,

LPG, etc.

GAS PRICING

Prior to 1987, gas prices were fixed by ONGC/OIL. The price is being fixed by Government

w.e.f. 30.1.1987. The price of APM gas of ONGC and OIL was last revised effective 1.7.2005.

The salient features of the revised pricing order effective 1.7.2005 are as follows:-

1i ONGC and OIL produced about 55 MMSCMD APM gas from nominated fields. The

determination of producer price for this gas will be referred to the Tariff Commission. Till the

Commission submits its recommendation and a decision is taken thereon, the consumer price

20

of APM gas will be increased from Rs.2850/MCM to a fixed price of Rs. 3200/MCM on adhoc

basis.

1ii It has been decided that all available APM gas would be supplied to only the

power and fertilizer sector consumers against their existing allocations along with

the specific end users committed under Court orders/small scale consumers

having allocations upto 0.05 MMSCMD at the revised price of Rs. 3200/MCM.

This price is linked to a calorific value of 10,000 K.cal/cubic metre. However, the

gas price for transport sector (CNG), Agra-Ferozabad small industries and other

small scale consumers having allocations upto 0.05 MMSCMD would be

progressively increased over the next 3 to 5 years to reflect the market price.

1iii The gas supplies through GAIL network to non-APM consumers will be at the

price at which GAIL buys from JV producers at landfall point, subject to a ceiling

of ex-Dahej RLNG price of US$3.86/MMBTU for the year 2005-06. For the North-

East region, Rs.3200/MCM considered as the market price for the year 2005-06.

1i The price of gas for the North-Eastern region will be pegged at 60% of the

revised price for general consumers. Thus, the consumer price for the North-East

region will increase from the existing price of Rs.1700 to Rs.1920/MCM.

1 Subject to the determination of producer price, based on the recommendations of

the Tariff Commission, any additional gas as well as future production of gas

from new fields to be developed in future by ONGC/OIL will be sold at market-

related price in the context of NELP provisions.

Oil Costs

21

Oil costs include expenditure on exploration, extraction, refining and transportation. The oil

industry is highly capital intensive. The investment to revenue ratio is about 8% for the entire

sector and approximately 17% for oil producing companies.

The demand and supply cycle also introduces volatility into the oil trade. Demand grows on

average by 2% each year, but will spike with economic growth and political threats, and drop

when recession hits. The lifespan of any oil field is about 15-20 years and requires significant

upfront capital investment. Hence, in order to meet the escalating demand, oil companies have

to continuously search for new fields and take calculated risks in their development based on

expected oil prices over the lifetime of the oil field.

Oil Costs: Types

The major types of oil costs can be categorized as:

Exploration costs : The costs associated with exploration vary significantly, depending

upon the scope of a particular project and the region. The exploration stage includes the

cost of conducting geological surveys and scientific studies (both preliminary and advanced).

Even unsuccessful explorations involve the cost of seismic programs and drilling dry wells,

which can vary between $5 million and $20 million. Drilling expenses are the most dominant

factor, which could be as high as several millions of dollars.

Development costs : These include the cost of developing the extraction site, such as

surface installations, subsea installations and other production units. This stage is also

characterized by heavy labor costs. The magnitude of the project defines the structure and

equipment for installations.

Treatment costs : Crude oil has to be refined for obtaining oil products. The setting up of

refineries requires huge installations. Also, the refining process includes heavy machinery,

which adds to the cost of oil in the international market.

22

Transportation costs : The oil industry is one of the biggest consumers of steel required

for export pipelines and tankers. There are more than 10,000 oil tankers in the world, with

some of them having a capacity of 350 million tons. For an offshore site, export pipelines

have to be laid down, whereas an onshore oil field uses oil tankers. Transportation costs are

less for countries that produce oil by themselves. There it includes only the cost of

transporting oil from the shore to the refinery and further to the distribution centers.

However, for countries that import oil, transportation also includes shipping of the refined oil.

Apart from these visible costs, there are several indirect costs, such as hiring equipment of

production, consumables at oil sites and services.

Oil Prices

A review of historical oil prices shows that oil displays wide price swings when markets suffer

from scarcity or oversupply. The price cycle of crude oil ranges from a small duration to several

years.

Major Events: Historical Oil Prices

From 1948 to 1970, oil prices remained stable at around $3 per barrel. A major development

was the formation of OPEC in 1960; consisting of Iraq, Iran, Saudi Arabia, Kuwait and

Venezuela.

Oil Crisis (1973-1978 )

Oil prices quadrupled from $3 in 1972 to $12 in the later half of 1974. This was triggered by the

Yom Kippur War, when Israel was attacked by Egypt and Syria. The US and some other

Western countries supported Israel. Infuriated Arab nations imposed an embargo on these

countries by curtailing oil production by 5 million barrels per day. The control on oil prices

shifted from the US to the OPEC nations during the ‘Arab Oil Embargo.’

Oil Crisis (1979-1980) 23

In 1979, the Iranian revolution sent oil prices soaring. The country’s oil production plummeted

drastically to 2.5 million barrels a day. The 1980 Iraqi invasion worsened the situation. The

combined production of both the countries reduced to just one million barrels per day (from 6.5

million barrels in 1978). This lowered the global oil production by 10% and oil prices rocketed

to $35 per barrel.

Oil Glut (1980-1986)

The energy crises of the 1970s slowed down the economic activity across the industrial

nations. This resulted in oil conservation and overproduction, pulling down consumption and

prices of crude oil drastically. The import of oil by the US reduced from 46.5% in 1977 to 28%

in 1982-1983. Oil prices which had peaked to $35 in 1980 fell to $10 within six years.

Oil Spike (2003-2008)

Inflation-adjusted oil prices post-Gulf War remained below $25. However, oil prices began

escalating in 2003 due to:

o Dwindling petroleum reserves and ‘peak oil’ concerns,

o Tensions in the Middle-East and

o Oil-price speculation.

Oil price crossed $30 in 2003 and reached $60 in August 2005. Oil price reached a historic

high of $147.30 in July, 2008 amidst global economic recession.

An analysis of historical oil prices exhibits that oil price determination is no longer solely

dependant on the OPEC countries

Oil Price Forecasts, Petroleum Crude Oil Forecasts

24

Economists analyze historical market situations and current trends to make oil price

forecasts. These predictions give an insight into future oil market scenario and helps as a

reference to devise appropriate energy policies.

Factors Determining Oil Price Forecasts

Oil price forecasts are influenced by the following factors:

Supply: The supply side in an oil industry is regulated by major oil producing

nations such as Russia, Saudi Arabia, and the US. The OPEC (Organization of Petroleum-

Exporting Countries) also plays an important role. The International Energy Agency 2008

report (IEA) anticipates a substantial increase in global oil production in the coming decades.

It predicts additional production of 4 million barrels each day, with the discovery and

harnessing of new oil fields.

Demand : While the supply side is monopolized by a handful of oil-producing countries, its

demand curve spans the entire world population. In 2008, the world’s daily oil consumption

totaled to 89.9 million barrels. The IEW expects this figure to rise by 1.6% each year. An

increase in the energy consumption of developing nations in Asia, Latin American and the

Middle East further escalates the demand much further.

In addition to the international demand and supply chain, other factors also affect oil price

forecast and these are:

Political scenarios in oil producing nations

International economic health

Oil trade flow

Transportation charges

Refining costs

25

Oil Price Forecasts: 2008 - 2030

The data from the International Energy Outlook 2008 by the US government indicates that

crude oil will account for 33 percent of the world’s total energy consumption by 2030.

The coming decades will be characterized by oil price hikes due to:

Rising cost of exploration and refining, energy demand in non-OECD nations.

Weakening of the US dollar.

Two different curves are predicted in the report for the oil price hikes. Firstly, it considers

references to price patterns in recent years. Based on previous patterns, it is expected that oil

prices will reach $113 per barrel (after adjusting to inflation) in 2030. The second case

measures the oil price index in extreme situations, such as if the demand soars beyond

proportions. In this situation, the oil prices will fall in the vicinity of $186 per barrel (inflation

adjusted).

Growing global demand for oil is something the 2008 report has considered while predicting

that oil production is expected to rise above 110 million barrels per day.

Gas

Gas demand in India is dominated by the power and fertilizer sectors which account for 66 per

cent of the current consumption. In 2006, the total gas demand was around 152 MSCMD. The

gas demand is expected to increase to 320 MSCMD, according to a report by Ernst & Young.

Significantly, the share of natural gas in the overall fuel mix is expected to increase from 8 per

cent in 2006 to 20 per cent by 2025.

26

Reliance Industries plans to invest between US$ 5.45 billion to US$ 6.54 billion over the next

three years to lay a 10,000 km-pipeline.

Production

Domestic production of crude oil has increased to 34.11 MT in 2007-08 from 33.98 MT

in 2006-07.

The production of petroleum products went up to 144.93 MT in 2007-08, from 135.26

MT in 2006-07.

The production of natural gas went up to 32.27 billion cubic metres tonnes (BCM) in

2007-08, from 31.74 BCM in 2006-07.

The projected production of crude oil during the 11th Five-Year Plan (2007-2012) is

206.76 MMT, while that of natural gas is 255.27 BCM.

Production of gas from Reliance Industries' eastern offshore KG D-6 fields, with a life of

11 years, started on April 1 and will increase to 80 million standard cubic metres per day

(MSCMD) by the end of the year. Production will help save US$ 9 billion in oil import.

Cairn India will commence the commercial production of crude oil from its Rajasthan

fields from September 2009. It is expecting a production of 175,000 barrels per day.

Consumption

India's domestic demand for oil and gas is on the rise. As per the Ministry of Petroleum,

demand for oil and gas is likely to increase from 176.40 million tonnes of oil equivalent

(mmtoe) in 2007-08 to 233.58 mmtoe in 2011-12.

27

INTRODUCTION TO GAIL

The setting up of GAIL(India) LTD., formerly known as GAS AUTHORITY OF INDIA LTD. In

August 1984, heralded a new era of natural gas in the country. GAIL is now completing 25

glorious years of service to the nation.

28

Since 1984, GAIL has made significant contribution to the nation’s economy by supplying

natural gas through its pipeline network for

Generation of over 87,000 MW of power

Production of over 145million tones of urea

Production of LPG for over 7 cr. Households in the country

Over5.7 lacs vehicles in the country today running on CNG supplied by GAIL and over 7

lacs households on piped natural gas (PNG) in the country.

Production of petrochemicals of around 4 lacs MTs which is used in the plastic industry.

The natural gas infrastructure of around 7,000 km. accounting for over 82% of total pipeline

infrastructure in India, set up so far by Gail has contributed enormously to the economically

and socially critical sectors such as fertilizers and power.

GAIL has the distinction of pioneering the clean fuel revolution for transport sector in the

country with the introduction of CNG in Delhi and Mumbai which has significantly helped in

reducing pollution levels in these two cities.

It provides ready market access to the domestic gas producers, making gas available to the

customers including those remotely located and devoid of market access. It has provided

cheaper, environment friendly alternative fuel and has reduced import-dependency as natural

gas has substituted liquid fuel such as Naphtha, fuel oil, etc.

GAIL‘s pipeline network to the gas consumers in the states of

GUJRAT,

MAHARASHTRA,

RAJASTHAN,

29

MADHYA PRADESH

DELHI

HARYANA,

UTTAR PRADESH

ANDHRA PRADESH,

TAMILNADU

ASSAM

AND TRIPURA.

In addition to supplying natural gas to various consumers, GAIL has also setup 7 LPG plants

and a petrochemical plant to extract value added products from gas. GAIL produces around

1.35 MMTPA of liquid Hydrocarbon including LPG fro domestic consumption.

In the area of corporate of corporate social responsibility, one of the major projects of GAIL

has been setting up of AIR POLLUTION RELATED DISEASE DIAGNOSTIC CENTRES

(APRDCs) in over 20 cities in various parts of the country, at a cost of about Rs. 4 cr. APRDC

also works as R&D for development of facilities for diagnosing suspended particles, which are

known to cause acute heart diseases. Ujjain, 28th July 2006. Dr U D Choubey, Director

(Marketing), GAIL (India) Limited today inaugurated the Air Pollution Research and Disease

Diagnostic Centre (APRDC) at Ujjain Charitable Trust Hospital and Research Center, Ujjain.

The senior officials of GAIL were present on the occasion. With the APRDC going functional,

the hospital has acquired a system for pulmonary lung function testing and other base line

investigation of air pollution related diseases. The APRDC at Ujjain is nineteenth of the 23

such centres to become operational. All these APRDCs have been sponsored by GAIL in 23

cities in India.

To Combat the Pollution, GAIL is set to supply Natural Gas in 23 cities under “Blue Sky

Project” in Mumbai, Pune, Sholapur, Agra, Allahabad, Kanpur, Lucknow, Mathura,

Ahmedabad, Hyderabad, Vijaywada, Gwalior, Indore, Jhansi, Bareily, Delhi, Ujjain, Kota,

30

Kochi, Rajahmundry, Chennai, Banglore. Air Pollution is said to be reduced as a consequence

to supply of CNG to transport sector and piped Natural Gas for domestic and commercial

usage in these cities.

GAIL has initiated steam conversion project based on waste heat recovery system from GAIL’s

gas turbines. This rare, multi-benefit project would not only utilize clean development

mechanism (CDM) for power generation, but also lead to conversion of gas as well as

increased energy efficiency. Gail has consistent track record of dividend payment. So far

GAIL has disbursed dividend of Rs. 6,230 cr. to the shareholders including Govt. of India,

which is more than seven times the original investment of rs.845.65 cr. by the Government in

its equity capital.

The Government has been disinvesting its shareholding in GAIL from time to time, bringing

down its equity holding to 57.345 % and therby contributing to the exchequer and additional

amount of Rs. 3400 cr.

The history of GAIL (India) Ltd., erstwhile Gas Authority of India Ltd., is closely aligned to the

growth of the Petroleum Industry in India. Till the mid eighties, state owned public sector

undertaking in the upstream and downstream segments were concentrating on effective

sourcing and utilization of the oil resources of the country. ONGC have already made

important guest discoveries in the western offshore south bassein fields which could not be

utilized in the absence of gas piping infrastructure. The government embarked upon a planned

and focused development of the natural gas sector in the country.

VISION AND MISSION

31

Ongoing projects of Gail

32

Vision

Be the leading company in natural gas and beyond with global focus, committed to customer care, value

creation for all stakeholders and environmental responsibility.

Mission

To accelerate and optimize the effective and economic use of natural gas and its fractions to the benefit of

national economy

1. Dahej-Vijaipur (DVPL)

Gail laid down 610 km. Dahej-vijaipur pipeline to supply re-gasified LNG from Indias first LNG

terminal to Dahej to consumers in western and northern India. This pipeline with a capacity of

23.9 MMSCMD was commissioned in March 2004,6 months ahead of schedule. International

Project Management Association (IPMA) adjudged DVPL project as winner of Silver Medal in

Mega Projects category ub IPMA world Congress Meet-2006 in China.

The DVPL pipeline will lift gas from R-LNG terminal at Dahej to Vijaipur. Its first section Dahej-

Vemar is 82.5 km. The second section 527.5-km Vemar-Vijaipur will run parallel to the existing

HVJ pipeline. The total section of this pipeline is 42" in diameter and 610 km with 30-

MMSCMD capacity.

2. HVJ Expansion Phase-III

HVJ (Hazira-vijaipur-Jagdishpur) being the first Natural Gas pipeline being made by Gail

in 1984-87 is 1800 km long across the country at a cost of Rs. 1700 cr. Its implementation

included many formalities to be completed before its commencement. Like obtaining

clearance, design parameters, documentation, finalizing global bids, setting up of basic

infrastructure, along isolated stretches, 92 river crossing, 50 km. of forest,221 land crossings,

450 km, of rocky terrain and 350 road crossings, across difficult terrains.

The HVJ pipeline was laid with the objective of transporting gas to Fertilizer, power, LPG,

Petrochemical plants, and other industrial consumers in Gujarat, M.P., rajasthan, U.P.,

Haryana, and Delhi.

India used to fulfill 40% of its requirement for Natural Gas from overseas which became self

sufficient after the establishment of HVJ pipeline.

Benefits :33

fuel economy

reduced cost

saving currency

The 920-km HVJ Expansion Phase-III project extends to Punjab, Haryana, Rajasthan and

Uttar Pradesh. This pipeline system with three new compressor stations and 12 terminals is

proposed for countrywide transportation and distribution of R-LNG to the existing and future

consumers.

The pipeline will be extended from Dadri to Sonipat, Panipat, Sangrur, Doraha (Ludhiana) to

Nangal and Bhatinda in Punjab and Haryana sectors. The pipeline will also be extended from

Vijaipur to Kota to Mathania and from Ibrahimpur to Dhaulpur in the Rajasthan sector and the

HVJ Auraiya-Jagdishpur line will be extended to IFFCO Phulpur in the Uttar Pradesh sector.

3. Dahej - Hazira-Uran - Dabhol

The 1166-km Dahej-Hazira-Uran-Dabhol pipeline has a capacity of 24 MMSCMD, 12

MMSCMD from Dahej and 12 MMSCMD from Dabhol. The trunk pipeline route passes from

Dahej to Hazira to Gavlpada to Bhoirpada to Chindhran to Panvel to Dahivli to Ambewadi to

Dabhol. In addition, there are lines from Gavlpada to Nasik, Chindhran to Trombay, Sanpada &

Thana, Panvel to Uran, Dahivili to Pune, Ambewadi to Usar and Dabhol to Kolhapur. The

Hazira-Uran section will be implemented in Phase-I.

4. Dabhol-Bangalore-Chennai

The Dabhol-Bangalore-Chennai project consists of 850-km Dabhol-Bangalore pipeline and

around 300-km Bangalore-Chennai pipeline. The trunk pipeline passes from Dabhol through

Kinjalkarvadi, Kasari river bank, Kharaklat, Tappalkatti Harva forest, Gadag, Gannaikanahalli,

Gullur, Sarajapur, Palmaner, Chittoor, Kattivakkam to Chennai. The capacity of this pipeline is

10 MMSCMD from Dahej.

34

5. Kakinada-Hyderabad-Pune-Panvel

The 1035-km Kakinada-Hyderabad-Pune-Panvel pipeline passes from Kakinada,

Peddapuram, Samalkot, Rajahmundry, Khammam, Hyderabad, Barsi, Pune, Lonavala,

Khandala and Panvel. The pipeline capacity is around 20 MMSCMD from Peddapuram.

6. Kakinada-Kolkata

The 1000-km Kakinada-Kolkata project pipeline passes through Peddapuram to Srikakulam,

Ganjam, Khorda, Bhubaneshwar, Cuttack, Jajpur, Baleshwar, Bhadrake, Kharagpur,

Medinipore, Hugli and Naida to Pandua near Kolkata in West Bengal. The pipeline capacity is

10 MMSCMD.

7. Kakinada-Chennai

The 580-km Kakinada-Chennai pipeline project passes from Peddapuram to Vijaywada to

Machilipatnam to Guntur to Ongole to Nellore to Gammudipudi to Ponneri to Chennai. The

pipeline capacity is 10 MMSCMD.

8. Kolkata - Jagdishpur

The 853-km Kolkata-Jagdishpur pipeline extends from Pandua, Katoya, Bardhman,

Chittranjan, Giridih, Navada, Gaya, Daudnagar, Haziaribag, Buxar, Ballia to Jagdishpur. The

pipeline capacity is 10 MMSCMD.

9. Kochi-Coimbatore-Bangalore

This pipeline project consists of 100 km offshore Kochi-Kayamkulam designed for a capacity of

1.4 MMSCMD and 860 km onshore portion designed for a capacity of 11 MMSCMD. The

35

onshore portion of the pipeline passes from Kochi to Alwaye to Kanjirkod to Mangalore and

Bangalore.

10. Myanmar-India Pipeline Project

This project planned to lay a pipeline from Myanmar-India Border at Tripura to Pandua-

Krishnanagar in West-Bengal through Northeast states or to lay offshore pipeline directly from

Myanmar to Haldia in West-Bengal, India. The approximate length of this pipeline for onshore

alternative through the Northeast states is about 800 km and for direct offshore alternative

route is about 550 km.

11. Pata Petrochemical Project

GAIL's Petrochemical Complex at Pata in Auraiya District of Uttar Pradesh, with a production

capacity of 260,000 TPA of Polyethylenes (LLDPE and HDPE) and 10,000 TPA of Butene-1,

consists of a Gas Sweetening Unit, Gas Cracker and two downstream polyethylene plants:

Dedicated HDPE plant of 100,000-TPA capacity licensed by Mitsui, Japan and LLDPE/HDPE

(Swing plant) of 160,000 TPA capacity licensed by Nova Chemicals, Canada.

Existing Projects

Gas Rehabilitation and Expansion Project (GREP)

In 1998-99, the capacity of HVJ pipeline was expanded to 33.4 MMSCMD under the gas

rehabilitation and expansion project. By construction of a loopline of 505km. from Vijaipur to

Dadri and increasing compression capacity of existing compressor stations and adding 2 more

compressor stations Vaghodia and Khera.

Pipeline in North-eastern Regions.

36

GAIL is also operating in 69 km. regional pipeline in Assam and Tripura. The pipelines

existing in Assam supply gas to GAIL LPG plant and ASEB. In Tripura the pipelines are

connecting ONGC gas fields at Agartala dome, Rokhia and Konaban. GAIL is also supplying

natural gas to Tripura natural gas co. ltd.

Pipeline in Rajasthan

GAIL laid the first pipeline in the country in desert area from Gamnewala upto Ramgarh

(66km.) to supply gas to RSEB’s power plant.

Pipeline in Gujarat

Gujarat has huge resources of natural gas. GAIL has laid Pipeline in north Gujarat and south

Gujarat regions to supply gas to consumers which include power plants, fertilizers and other

industrial units.

Pipeline in Maharashtra

Around 125 km Pipeline network from Ex-Uran terminal in Maharashtra is being operated by

gail to supply gas from Uran gas fields to consumers in Mumbai region. Major consumers

include RCF Thal, RCF Trombay, MGL, IPCL, Ispat Industries, etc.

Growth

37

The company has completed nearly two and half decades of an eventful journey. Starting with

a natural gas transmission co., it is today and integrated energy company along the natural

gas value chain with global footprints. Having started as a gas transmission company in the

year 1984, it grew organically over the years by building a large network of natural gas trunk

pipelines covering a length of around 7000 km. and over 1900 LPG Pipeline Transmission

network. The Company is adding another 5000 km. of new pipelines by the year 2011 at the

estimated cost of Rs. 14,500 cr. Which have been approved by the Board of the Company

under Navratna Powers. Today the company has interest in the business of natural gas, LPG,

liquid Hydrocarbons and Petrochemicals, Exploration and Production, City Gas Distributiion

and is steadily developing its overseas presence.

The major focus of the company is to maintain its dominant position in the gas business,

specially the transmission segment. The thrust is to continue the relationship with existing

customers as well as add new customers. These new Pipeline would include large trunk

Pipelines along with smaller Pipelines which would connectivity along trunk lines so that

prospective sources and consumers are connected.

The year (2007-08) the Board of the Company has recommended the issuance of one bonus

share for every two equity shares held, subject to requisite approvals.

Highlights of the year 2007-08

38

Particulars 2007-08 2006-07

Gas Transmission (MMSCMD) 82.10 77.28

LPG production (TMTs) 1043 1026

Pentane/propane/SBP Solvents/Naptha production (TMTs)

305 317

Polymer production (TMTs) 386 354

LPG Transmission (TMTs) 2754 2491

COMPARISION OF PRODUCTION FOR THE YEAR 2006-07 & 2007-08

INCREASE IN PRODUCTION

0 500 1000 1500 2000 2500 3000

Gas Transmission

LPG production

Pentane/propane/SBPSolvents/Naptha

Polymer production(TMTs)

LPG Transmission(TMTs)

FIG

UR

ES

OF

GR

OW

TH

PRODUCT

2006-07

2007-08

Corporate strategy adopted by Gail

39

The company has develop a long term strategic plan which has been reoriented during the

year, keeping in view the unfolding demand and supply scenario, entry of new competitors,

and changing dynamics in the market place. The goal set by the company includes doubling

of top and bottom lines in the near future.

The strategy developed to realize the set goals is as under :

1. Tying up with producers and suppliers for marketing and transmission of natural gas on

long term and sustainable basis. This is likely to be realized by security more gas from

new gas finds and pursuing early finalization of contract with customers and suppliers.

2. Expanding of the pipeline structure from 7000 km. to 12000 km. with the laying of new

pipelines by 2011-12.

3. Pursuing of city gas distribution opportunities in the country. This requires the

introduction of Compressed Natural Gas for the automotive sector and Piped Natural

Gas for commercial and domestic use in 230 cities in a phased manner.

The company also plans to strengthen E&P capability and resources by participating as

major partner/operator in domestic E&P biddiing. This would help in developing E&P as a

self sustainable business for augmenting additional supplies of natural gas. This would

involve investment both domestic on-land and offshore fields, with a balance portfolio of

developmental and exploratory projects.

The natural gas demand in India is at an inflection point and increase forces are at work

that could dramatically increase the natural gas demand. The present sources of natural

gas are projected to deplete in the coming years and therefore, there is a need to look at

new sources that are coming up. The company is aggressively pursuing gas sourcing

options both from the new domestic sources as well through international sources by way

of Pipelines and LNG routes. Collectively, such a rapid rise in expected demand and

realignment of sources of gas supply will interact to determine the robust future gas

structure.

40

In the area of Petrochemical business, the company is examining the possibility of

expansion of petrochemical complex and exploring Greenfield opportunities in the sector in

India and abroad.

On the globalization front, the company is stepping areas having synergy with existing

businesses by entering into new and emerging gas rich countries with focus on sourcing of

gas and participating in downstream activities.

Business segment performance

The company has been achieving an all round excellent rating by government of India since a

MOU signing. During the year under review, the segment wise business performance of the

company is as under.

1) Natural gas

The company owns and operates a network of 7000km. of natural gas high pressure trunk

Pipeline. It supplies over 80 million cubic meter of natural gas per day as fuel to power plants,

feedstock for gas based fertilizers plants to over 500 small, medium and large industrial units

to meet their energy and process requirements. The company’s share of gas transmission

business is 79% and it holds 70% market share in gas marketing in India. Natural Gas

continues to constitute the core business of the company. During the year 2007-08, gas sales

has increased marginally to 69.10 MMSCMD from 67.83 MMSCMD in the previous financial

year.

The company continues to have focus on securing gas supplies from international markets.

LNG and transnational Pipelines are the two prevalent modes of cross border gas trade and

the company has been making all efforts to bring Natural Gas in the country.

2) Petrochemicals

41

The company owns and operates gas based integrated petro chemical plant at Pata, UP with a

capacity of producing 4,10,000 TPA of polymers i.e HDPE and LLDPE, which has been

enhanced by 1,00,000 TPA from the earlier capacity of 3,10,000 TPA. The company is

currently in the process of setting up of 2,80,000 TPA Assam Petrochemical Complex at a

investment of Rs. 5460 cr. During 2007-08, the production of polymer was 3,86,000 MT and

polymer sales was 3,91,000 MT.

3) LPG Transmission and other Liquid Hydrocarbons

The company has 7 LPG plants in the country. In the year 2007-08, total liquid hydrocarbon

liquid production was over 1.348 million MT which mainly include 1.043 million MT of LPG,

0.156 million MT of Propane and 0.074 million of Pentane.

The company is the only company in India which owns and operates Pipelines for LPG

Transmission. IT has 1900 km LPG Pipeline network, 1300 km. of which connects western

and northern parts of India and 600 km. of network is in the southern part of the country. The

LPG transmission system has a capacity to transport 3.8 MMTPA of LPG. LPG transmission

throughput was 2.754 million MT in the year 2007-08.

4) Exploration and Production

In line the company’s strategy and towards integration along the energy chain, E&P activities

had gathered momentum . The gas discoveries in blocks A1 and A3 in Myanmar is maturing

to development stage and various studies preliminary to finalization of the development plan

and its implementation are underway.

Presently, the company is involved in oil and gas exploration activities over and acreage of 1.7

lacs sq km. The company now holds a participating interest between10% to 80% in 27 oil and

gas exploration blocks. Of these 9 are onland blocks and 18 are off shore blocks.

42

In India, there are 24 blocks which are in basins such as Mahanadi, Bengal, Gujarat-

Saurashtra, Mumbai, Cambay, Assam and Cauvery. The company has got stake in A1 and A3

blocks in Myanmar and block no. 56 in Oman .

A beginning has been made by a company in earning revenue from E&P activities. One of the

onland block in Cambay basin started commercial production from Feb 2008 and Rs.6.90 Cr.

Has been generated as revenue during Feb-March ’08.

5) Coal Bed Methane

The company has been participating interest in 3 coal bed methane blocks within the area of

1561 sq.km., two of which are in Chattisgarh and one in Jharkhand. These blocks were

awarded to GAIL consortium in CBM-III bidding round.

6) Telecommunication

Leveraging on its Pipeline network, the company has build up an OFC network for leasing of

bandwidth as a carriers ‘carrier’. The company’s telecom business unit-‘GAILTEL’ has

approximately 13,000 km. network. During the year under review, GAILTEL achieved profit

before tax of Rs.3 cr.

43

Gas demand projections(MMSCMD)

2008-09 2011-12

Power 91 126

Fertiliser 43 76

City gas 13 16

Industrial 16 20

Petrochemicals 27 33

Sponge Iron 6 8

Total 196 279

Gas Demand Projections

91

43

13 1627

6

76

16 2033

8

126

0

20

40

60

80

100

120

140

Power

Fertili

zer

City G

as

Indu

stria

l

Petro

chem

icals

Spong

e Iro

n

Area

Pro

ject

ion

s

2008-09 2011-12

44

Gas Supply Projections

Sources 2008-09 2009-10 2010-11 2011-12

ONGC + OIL 59 56 55 51

Pvt./JVs 61 60 58 57

Sub-Total 120 116 113 108

LNG 34 53 70 83

Total 154 169 183 191

Gas Supply Projections

59 56 55 5161 60 58 57

34

53

70

83

0102030405060708090

2008-09 2009-10 2010-11 2011-12

Year

Pro

ject

ion

s(M

MS

CM

D)

ONGC+OIL Pvt./JVs LNG

45

Gas Availability

The average indigenous production of natural gas in the country in 2007-08 was around 89

MMSCMD. Out of this, around 68 MMSCMD was produced by the National Oil Companies,

viz., ONGC and OIL, from their nominated blocks. Details are as follows:-

ONGC 61.30

OIL 6.35

Ravva 1 1.05

Ravva Satellite 1.02

Canaro 0.01

PMT 15.8

Cairn 1.00

Niko/GSPCL 2.10

Total 88.63

To meet the shortfall of natural gas in the country, LNG infrastructure has been developed in

the country. PLL's LNG terminal at Dahej and HLPL's LNG terminal at Hazira is being used to

source LNG. PLL has a long term contract with RasGas, Qatar for LNG. Both PLL and HLPL

source spot RLNG. The details are as below:-

PLL RLNG 20.41

PLL Spot RLNG 3.20

Shell LNG 2.50

46

Total 26.11

Note: Figures of spot RLNG have been arrived at by dividing total sales by whole period.

So the total natural gas available in the country is 114.74 MMSCMD. After internal

consumption and flaring, the natural gas available for distribution in the country is 102.68

mmscmd as follows:-

Sector wise breakup Avg. Supply (in MMSCMD) Percentage

Power 36.52 36

Fertilizer 29.66 29

Sponge Iron 5.33 5

PC + LPG + IC 10.20 10

City Gas & CNG 4.43 4

Industry & others 16.54 16

Total 102.68 100

Business Initiatives

With changes taking place in the gas market GAIL is continuously evolving strategies to

prepare itself for the regulatory scenario. With enactment of petroleum and Natural Gas

Regulatory Board Act 2006, by parliament and announcement of gas Pipeline policy by

Government of India for business of Natural Gas transmission, Refining, Processing, Storage,

Transport, Distribution and marketing, the regulator will over see and promote the development

of Natural Gas sector and also envisages an arms length relationship between transmission

activity and marketing/exploration activity.

47

Domestic Initiative

In its efforts to reduce Green House Gas (GHG) emissions, the company has assigned an

agreement with Apollo Tyres for sale of steam through waste heat recovery at its Vaghodia

Processing plant. This project will save substantial energy by utilizing the waste heat and will

lead to emission control by avoiding CO2 generations.

With a view to assist the national capital in increasing power generation, the company has

signed Gas Sales Agreement with Pragati Power for gas supply to Bawana Power Plant. The

company has also executed Gas Supply Agreements with major suppliers like ONGC, PMT,

etc. for augmentation of gas supplies.

The company has entered into Gas Transmission Agreement (GTA) with Reliance Gas

Transportation Infrastructure Ltd. (RGTIL) for Transmission of Natural Gas from the Krishna-

Godavari (KG) basin. The transmission agreement provides fro transportation of Natural Gas

from the exploration block located in the Krishna Godavari basin in the east coast of India

through GAIL’s network and for booking of capacity by GAIL in RGTIL’s east- west Pipeline.

In order to strengthen the business activities in the area of petrochemicals, the company has

signed a MoU with Reliance Industries Ltd. (RIL) for exploring opportunities for setting up

mega petrochemical complex outside India in one of the gas rich countries. Further a

petrochemical plant at Vizag is envisaged with HPCL, TOTAL,OIL and MITTAL Energy.

The Company has signed an MoU with ONGCL to work jointly for transportation, distribution,

marketing of Natural Gas from its new gas finds KG basin and Mahanadi basin.

The company has signed a Gas Co-operation Agreement with Govt.of Puducherry envisaging

setting up of a coordination group to study the demand potential of the union territory of

Puducherry for R-LNG/CNG/PNG.

48

The company has signed an agreement with the consortium of Reliance Industries, BG Group

and ONGC, partner of PMT field for buying the entire quantity of 17.3 MMSCMD and the same

had been effective from 01-04-08.

Global presence

The company is continuing its efforts to build strategic alliance with international companies to

gain entry in the international market.

Apart from its equity participation in three retail gas companies in Egypt and China Gas

Holding Ltd., participating interest in off shore E&P blocks in Myanmar and one on land E&P

block in Oman, the company is pursuing business opportunity in other regions of the world in

its core area of operations. The company has set up a wholly owned subsidiary company

namely GAIL GLOBAL (Singapore ) Pte. Ltd. In Singapore to facilitate overseas investment.

The company has recently formed a joint venture with China Gas Holding Ltd. For taking up

the projects in various cities of China. The Company and China Gas Holding Ltd. Are equal

partners in the JV. This is the first JV company of this company abroad. During the year

under review the company has signed a MoU with IETRA Oil & Gas Company of Russia for

cooperation in projects such as CNG, Gas based petrochemicals and E&P.

PIPELINE PROJECTS

During the financial year 2007-08 the company has completed a major Pipeline project from

Dahej to Dabhol via Panvel to supply gas to RGPPL which started supplying much needed

power to the state of Maharashtra. Branch and spur lines to consumers like Deepak Fertilizers,

MSEB Uran, BPCL and other consumers in the state of Maharashtra have also been

completed.

The works for providing the connectivity to Pune city and the consumers of Thal/Usar region is

under progress. Connectivity to REL’s east west Pipeline which will transport gas from

49

Kakinada to Gujarat is being provided at Oduru in Andhra Pradesh, Mhaskal in Maharashtra

and Ankot in Gujarat to enable the flow of gas to consumers in various regions enabling

optimum utilization of networks on national basis. The company has received grant of

authorization for laying new Pipeline viz. Dadri-Bawana-Nangal Pipeline; Chainsa-Jhajjar-

Hissar Pipeline; Dabhol-Banglore Pipeline ; Jagdishpur-Haldiya Pipeline and Kochi-Kanjirkodd-

Manglore/Banglore Pipeline

In addition to the above, the company would also augment the GREP (VIjaipur-Dadri) Pipeline

in Dahej-Vijaipur Pipeline (DVPL).

These projects are at various stages of implementation. The foremost among them is the

Pipeline from Vijaipur to Bawana which envisages supply of gas to Pragati Power at Bawana

targeted to supply Power to NCR before commcement of Common Wealth Games 2010.

These projects will also enable company to maintain its dominant position in the gas

transmission and distribution business.

Subsidiaries and joint Ventures

The company has been the pioneer for city gas projects in India. With Natural Gas emerging

as a fuel of choice in the country, the company believes that the next decade will belong to the

city gas. The company was the first company to introduce city gas projects in India for

supplies to households, commercial users and for the transport sectors by forming JV

companies.

50

Subsidiaries

Gail Gas Ltd.

The company has formed a wholly owned subsidiary named ‘GAIL GAS LTD.’ for

implementing and CNG corridors in the country. The subsidiary company will act as a vehicle

for bidding for laying of Pipeline infrastructure in the country.

Gail Global (Singapore) Pte. Ltd.

The company has wholly owned subsidiary, namely, GAIL Global (Singapore) Pte.Ltd. to

manage investments in abroad. The company is looking for further business opportunities

through this subsidiary company.

Brahmaputra Cracker and Polymer Ltd.

The company has 70% equity share with Oil India Ltd. (OIL) Numaligarh Refinery Ltd. (NRL),

Govt. of Assam, each having 10% equity share. The authorized capital of the company is Rs.

1200 cr. A Feedstock Supply Agreement has been signed between Brahmaputra Cracker and

Polymer Ltd. (BCPL), and all the three suppliers namely ONGC, OIL and NRL.

Joint Ventures

Avantika Gas Ltd (AGL)

AGL is a JV of a company and Hindustan Petroleum Corporation Ltd. (HPCL) for

implementation of city gas projects in the cities of MP. AGL has started projects

implementation activities in the city of Indore. The company has 22.5% stake in the company

along with HPCL as equal partner.

51

Bhagyanagar gas Ltd.

BGL is currently operating three auto LPG stations in Hyderabad and one auto LPG station in

Tirupathi. It is currently operating six CNG stations in Vijayawada and three LPG stations in

Hyderabad. The company has 22.5% stake in the company along with HPCL as equal partner.

Central U.P. Gas Ltd.

CUGL is currently operating five CNG stations in Kanpur, one CNG station in Bareily

And one CNG station in Kanpur is under commissioning. CNGL is building MDPE network for

supply of PNG to domestic, commercial and industrial sector in the city of Kanpur. The

company has 22.5% stake in the company along with BPCL as equal partner.

Green Gas Ltd. (GGL)

GGL is currently operating four CNG stations in Lucknow and three CNG stations in Agra.

GGL will also take up project implementation in other cities of Western UP on the basis of Gas

availability and project viability. The company has 22.5% stake in the company along with IOC

as equal partner.

Indraprastha Gas Ltd. (IGL)

IGL is supplying piped gas to around one lakh domestic, 276 commercial, 16 small industrial

consumers and CNG to our 1.35 lakhs vehicles through 153 CNG Stations. IGL is catering to

world’s largest CNG bus fleet of over 11,000 buses in Delhi. The company has 22.5% stake in

the company along with BPCL as equal partner.

52

Mahanagar Gas Ltd.

MGL has set up 128 CNG stations catering to over 1.85 lacs vehicles spread over Mumbai,

Thane, Mira-Bhayandar and Navi-Mumbai areas besides supplying PNG to over 3.40 lacs

domestic, 907 commercial and 36 small industrial consumers. The company has 49.7% stake

in the company along with British Gas as equal partner.

Maharashtra Natural Gas Ltd (MNGL)

MNGL is a JV of the company and Bharat Petroleum Corp. Ltd. (BPCL) for implementation of

city gas project in Pune city. The company has 22.5% stake in the company along with BPCL

as equal partner.

Petronet LNG Ltd. (PLL)

PLL was formed for setting up of LNG import and regasification facilities. PLL has a long turn

LNG supply contract with Ras Gas, Qatar for import of 7.5 MMTPA. PLL Dahej terminal is

being expanded to 10MMTPA capacity. The company has 12.5% stake in the company along

with BPCL, IOCL and ONGL as equal partner.

Ratnagiri Gas & Power Pvt. Ltd. (RGPPL)

RGPPL is a JV company between this company, NTPC, Financial Institution and MSEB. The

company has 28.33% stake in the company along with NTPC as equal partner. The capacity of

Ratnagiri Gas and Power Station is 2150MW. The company has made an investment of Rs.

500 crores and has approved additional equaity of Rs. 475 crores to RGPPL, out of the Rs.

475 crores, an amount of Rs. 92.9 crores has been paid during in the month of May 2008.

53

Tripura Natural Gas Company Ltd. (TNGCL)

TNGCL is presently supplying gas to 6600 domestic, 104 commercial, 21 industrial consumer

and has set up one CNG Station in Agartala city. The company has 29% stake in the

company.

The company has approved formation of City Gas project in Vadodara with Vadodara

Mahanagar Sewa Sadan (VMSS) with 26% equity, while VMSS have 24% equity. The

balance of 50% equity will be held by strategic investor and public. And JV agreement has also

been sign with HPCL for City Gas analysis in Rajasthan.

The company is IT savvy organization and has been continuously adopting state-of-the-art IT

solutions keeping pace with fast changing industry. These solutioins are not only helping in

continuous improvement in efficiency and productivity but also ensuring right information to

right person by use of latest security solutions.

Continuing with IT initiatives, your company has launched e-tendering portal in 2007 and a

large number of domestic and international tenders are being processed through this

transparent and secured system across all offices.

There have been a number of e-initiatives for increasing business process efficiency and

development of manpower. Your company has introduced several other web based online

applications like online Recruitment, e-Performance Management System (e-PMS), Grievance

Redressal system, Online Vigilance Complaint Registration system, e-Budgeting System which

has led to enhancing transparency, ready and structured availability of information, enhancing

speed of operation and facilitating efficient decision making.

Another major initiative towards IT risk management was to set up the state-of-the –art 3 way

Disaster Recovery (DR) Centre at Jaipur. This will ensure resumption of business operations in

the eventuality of any disaster like Fire, Flood, Earthquake, Cyber Attack etc. in the primary

54

data centre at Noida. The DR setup will ensure uninterrupted IT operation and business

continuity of your company.

Report on Jamnagar -Loni

Pipeline Project

GAIL primarily a natural Gas company is

focused on all aspects of the Gas Value Chain

including exploration, production , transmission, extraction, processing, distribution &

marketing of natural gas and its related process, products & services.

GAIL had additional interest in Gas processing, petrochemical, LPG, transmission &

telecommunication. The company has also extended its presence in power, LNG re-

gasification, city gas distribution and E&P through Equity/ JV Participation.

To your knowledge GAIL has also entered into an agreement to transport LPG through GAIL’s

Jamnagar-Loni Pipeline (JLPL) project. This agreement has signed between GAIL (India) Ltd.

and Energy Infrastructure India Ltd. (EIIL). This pipeline is laid down specially to transmit LPG

throughout this route that is from Jamnagar to Loni.

Company owns and operates 1900Km. long network of pipelines in India. In which Jamnagar

to Loni pipeline itself covers a distance of 1335Km. this pipeline covers 5 states :

1) Gujarat

2) Rajasthan

3) Haryana

4) Delhi

5) Uttar Pradesh55

and it across seven main stations:-

1) Jamnagar

2) Kandla

3) Samakhaili

4) Nasirabad

5) Aburoad

6) Jaipur

7) Loni

A. Project Description

1) The objective of project was:

To improve the availability of liquefied petroleum gas (LPG) by addressing in

infrastructure constraints.

Minimize the transportation cost of LPG.

Improve the environment by reducing environment energy consumption and exhaust

emission.

56

To enabled public sector importers and traders of LPG to access infrastructure that

was historically captive for public sector companies.

2) The project comprised

Design and construction of a trunk line from Samakhiali to Loni i.e. 1015Km. in

length with a diameter of 12 & 16 inches, and a spur line from Jamnagar to

Sumakhaili that is 156Km. length with diameter of 14 inches.

Construction of pumping facilities at Jamnagar and three main line booster pump

station.

Installation of supervisory control and data acquisition (SCADA) and

telecommunication systems.

Provision of training for GAIL employees (on the operation and safety aspects of

LPG pipeline systems).

3) The project was designed to transport 1.7 million metric tone per annum (MMTPA) of

LPG from the LPG rich western region to the LPG deficient northern region of India.

Along the pipeline route, LPG is tapped for delivery to bottling plants at Ajmer, Jaipur,

Piyala, Madanpur-Khadar and Loni, for easy and convenient delivery in India’s

northern states.

4) Currently, gas meets 8% of India’s total primary energy demand and it is expected to

meet 20% of this demand by 2010. For cooking, LPG and kerosene have been the main

commercial fuels. LPG have been primarily in urban areas while non-commercial fuels

such as wood, dung and crop residuals are widely used in rural areas.

5) GAIL with the support of Government, initiated laying the LPG pipeline between India’s

western and northern regions to Arrest environmental pollution. It provides easy access

to and improves the reliability and availability of the LPG supply.

57

Meet the increasing demand for LPG.

6) A $150 million Asian Development Bank (ADB) was approved in December 1997.

Under this project ADB was to finance $150 million (41%) of the total cost of the project,

and the balance was to be financed by GAIL ($146.6 million), international banks ($58.8

million), and local banks ($8.8 million). The main components financed by ADB were.

i) Line pipes

ii) Line pipes coatings

iii) Optical fiber cables

iv) Sectionalizing main line and conduit gate valves.

v) Laying and installation of line pipes and associated systems.

vi) Training, which was included during the implementation stage, at GAIL’s

request.

B. Project Outputs

The project comprised

Constructing a 1335Km. trunk line, with a diameter of 12 and 16 inches, from

Samakhiali to Loni.

Constructing a 156Km. spur line with a 14 inch diameter from Jamnagar to Samakhiali.

Constructing pumping facilities at dispatch points and three main line pump station.

Installing SCADA and Tele-Communication systems.

58

Conducting for training for GAIL staff. As envisaged during appraisal, all components

except to SCADA system have been installed and commissioned with in the schedule

compression period of 42 months.

A brief review of the status of the completion of project components as follows :

Jamnagar to Loni pipeline comprised the following major components

1) Detail engineering and design

2) Pipes (12-, 14- and 16- inch valves, optical fiber cables, and other associated items.

3) Laying of coat ed line pipes and constructing booster stations.

4) Other civil works.

The pipeline was commissioned on 31st January 2001, 3 months ahead of

schedule. The pipeline throughput from the commissioning date has been the

same as that envisaged at appraisal. (1.7 MMTPA).

Pumps at LPG Input Station

The installation of pumps and booster pumps comprised the following major components:

1) Installation of main line pumps at the Jamnagar LPG input station.

2) Installation of three main line pumps ; one at Samkhaili station, one at Abu Road station

and one at the Ajmer station. The booster pumps were designed based on the requirement of

maintaining the necessary threshold of 20 bars in the pipeline. The pumps were commissioned

59

on 25 January 2001, within the scheduled time allotted time allotted for the completion of the

project.

C. Project Costs

At appraisal, cost of the project was estimated at $364.4 million equivalent comprising, $208.8

million (57%) in foreign currency component and 155.6 (43%) in local currency. The ADB loan

at appraisal was valued at $150million, out of which only $98.19 million was used. Cost saving

was $115.42 million equivalent (33%) were composed of $79.80 million in foreign currency $

35.62 million equivalent in local currency.

Savings in project cost are mostly in foreign currency component of total project cost (38.3%)

when compared to local currency component (22.9%). The foreign exchange cost savings are

attributed to ;

Substantial fall in the international price of steel ( the estimate price was $600 per ton and

actual was $420 per ton) leading to lower procurement price for pipeline.

A general recession in the market and Savings in interest during construction, because the

debt(loan) component of the project was reduced ( the load in foreign currency was $98.10

million, compared with the $155.16 million at appraisal).

The saving in local currency are attributed

Non levy of custom duties, which was envisaged at appraisal, because GAIL got the

exemption from government as a special case.

Saving in telecommunications and SCADA procurement, and Savings related to

engineering services.

D. Project schedule

60

The project was schedule to start from November 1997, with a commissioning date of

Januaury, 2001 except for the SCADA system, which was partly commissioned from Januaury

2003 and fully commissioned and operationalized from November 2003.

1) Pipeline from Jamnagar to Loni

The implementation schedule for the pipeline comprised engineering, procurement and

construction activities

The design process was schedule to begin in November 1997 and be completed by

March 1998. The actual work was completed in January 1998, 2 month ahead of

scheduled. The detail engineering was to begin in April 1998 and be completed by

September 1998. The actual engineering was completed only in April 2000, with a delay

of 18 months. The delay was due to changes and/or modifications in drawings at the

time of execution. The procurement of long lead time items, not affected by these

delays, was ordered at the same time. Thus, there was no impact on the completion

date of the Project.

Procurement of valves and fittings was delayed by 6 to 15 months but there was no

impact on project schedule, as GAIL revised the procurement scheduled of items that

was to be used in under projects.

The construction activities comprised the coating of pipes, pipe laying, and civil works

for the terminal and pump stations. The coating and pipe laying activities were

scheduled to be completed for completion by March 2001, was completed in January

2001 (2 months ahead of schedule). Construction of terminal and pump station

buildings began in December 1998 and was to be completed by February 2001. The

buildings were completed 1 month ahead of schedule, in January 2001.

2) Installation of Pumps

61

Three main line pumps and three boosted pumps are at the LPG input station at

Jamnagar.

3) Installation of Supervisory Control and Data Acquisition and

Telecommunication Systems

The engineering for the two systems, SCADA and telecommunication systems, began

with that for the pipelines. The procurement of optical fiber cables was scheduled to

start in April 1998, and be completed by March 2000. Actual procurement began in

March 1998 and was completed in July 2000, with a delay of 3 months. The SCADA

system was scheduled to begin in February 1999 and completed in January 2001.

Although the work started according to schedule, the SCADA was commissioned in

January 2003 without its dynamic leak detection system and APPS module. With APPS

specialists currently at the site, the system was completed by the end of November

2003. The telecommunications system was installed in March 2001, which was 1 month

past the scheduled date of February 2001.

4) Implementation Arrangements

The implementation arrangements were the same as envisaged at appraisal, and ADB

found the implementation arrangements to be satisfactory.

For this an Indian firm was appointed consultant for the Project and provided

consultation, design, engineering, procurement, expediting, quality assurance and/or

quality control, construction and construction management services. The consulting firm

had also set up a central coordination site office at Jaipur which was headed by a

resident construction manager, who ws assisted by a group of engineers specializing in

construction, construction management, quality assurance, and quality checks. This

62

office also acted as the nodal point for all the spreads for technical assistance,

workforce deployment, execution, project planning, and project monitoring.

The total 1,171 Km. of pipeline, as envisaged during project appraisal, was to be laid

from Jamnagar to Loni. Keeing the length of the pipeline, the terrain through which it

had to be laid, and the implementation schedule, GAIL divided the total length of

pipeline into five. Each section was headed was headed by a person who reported

directly to the general manager (Pipelines), GAIL, Jaipur. The sections are

o From Jamnagar to Bhimasar, with a pipeline length of 207.5 Km and an office at

Jamnagar,

o From Bhimasar to Abu Road with a pipeline length of 231 dKm and an office at

Palanpur

o From Abu road to Kantaliya, with a pipeling lingth of 184.1 Km. and an office at

palanpur,

o From Kantaliya to Jaipur, with a pipeline length of 254 Km and an office at Jaipur,

and

o From Jaipur to Loni, with a pipeline length of 294 Km and an office at Noida.

E. Conditions and covenants

The effective date for the Loan Agreement was specified as 90 days after the date of the

agreement. The additional conditions to be complied with before the loan became effective

were as follows:

The capacity of the pipeline had to be established;

63

GAIL was to have executed binding contracts for at least 90% of the pipeline’s

capacity;

Consultants were to be appointed to undertake a hazardous operations (HAZOP)

analysis; and

The Government was to confirm that no legislative approvals, consents, or permits

would be required for public or private sector entities to have pipeline access.

In addition, before the loan could become effective,

GAIL had to obtain the Government’s approval as the Guarantor,

All corporate and government approvals had to be obtained,

The status of Navaratna1 had to be granted to

GAIL, and

Valid LPG transmission contracts had to be finalized.

The conditions were fulfilled by GAIL. No covenants were modified, suspended, or waived

during implementation. Al covenants were satisfied, except for those relating to divestment of

government equity in GAIL below 70% and the establishment of a gas regulatory authority.

F. Related Technical Assistance

No technical assistance is related to this Project.

G. Consultant Recruitment and Procurement

1) Consultants

64

As decided at appraisal, GAIL, from its own resources, appointed an experienced Indian

engineering firm to be the main consultant. The scope of work entrusted to the consultant

included

Preparing a feasibility study;

Preparing the basic design of pipeline, terminal

Creating the detailed design of and engineering for these

facilities;

Preparing bid documents;

Procuring materials and equipment, which included performance monitoring, expediting

and inspection services at vendors’ shops;

Supervising construction and providing quality assurance activities;

Providing project management services, including monitoring and progress reporting;

and

Providing commissioning and start up assistance.

2. Procurement

The procurement packages funded by ADB covered

Pine pipes,

Pipeline construction,

65

Block and/or sectionalizing valves, and

Coating and transportation.

ADB agreed to advance procurement actions for these items, and GAIL carried out

procurement for ADB-financed contracts in accordance with ADB’s Guidelines for

Procurement. The procurement of line pipes, which accounts for 62% of procurement by value,

was carried out on time. However, there were some delays in the procurement of valves and

pumps. The delays were attributed to the poor performance of vendors. The supply of valves

was delayed, but this, had no impact on the Project’s schedule, as GAIL diverted some of

these items from other projects. The delivery of the pumps was not critical for commissioning.

3. Performance of the Asian Development Bank

ADB closely and regularly monitored project progress, through review measures, and provided

useful advice in several areas, including procurement, project management, and staff planning.

ADB’s India Resident Mission (INRM) also closely monitored project administration.

ADB, GAIL, and the Indian consultant held several tripartite meetings that improved GAIL’s

performance. Various timely corrective measures were suggested and implemented as a result

of those reviews. Thus, ADB’s overall performance was satisfactory.

4. Environmental, Socio-cultural, and Other Impacts

The impact of the pipeline on the environment was assessed in two parts—impact during the

construction and/or operations and impact on a long-term basis.

The land along the right of way was cleared of vegetation and debris in a strip 10

meters wide on side of the right of way’s center line. The strip was reduced to 5.5

meters near the 0.5 km stretch of mangrove on the Hazira-Patan route. The

pipeline was buried at least 1 meter underground.

66

The main impact on the environment during pipeline, booster station, and terminal

construction was caused by the movement of mechanical equipment during the

excavation and pipe laying phases, which generated pollutants like dust, suspended

particle mater, carbon monoxide, and nitrogen dioxide from fuel use. However, these

pollutants were temporary in nature and restricted to the construction area.

The entire pipeline was coated with three layers of polyethylene before being laid,

to prevent corrosion and/or rusting of the underground steel pipes and

contamination of subsoil.

The impact on bodies of water during construction was very minor. Most of the water

bodies that were crossed by the pipeline route are small to medium in size. One major

river (Yamuna) was crossed, under the riverbed, using horizontal directional drilling.

This method did not disturb the banks or the riverbed, and no sediment was washed

away by the river. The path selected keeps the pipeline away, to the extent possible,

from presently developed areas, future growth areas, and intermediate population

clusters.

The pipeline does not pass through any wildlife sanctuaries or national parks.

The degraded forests affected are mostly treeless grassland, which could more

appropriately be classified as scrubland. The pipeline traverses an area where grazing

animals are found, such as goats, sheep, camels, and horses.

The LPG pipeline offers an environment friendly mode of transportation that entails

less energy consumption and exhaust emissions than other modes.

67

The transportation of LPG through the pipeline system helps reduce air pollutants,

including carbon monoxide, suspended particulate matter, unburned hydrocarbons, and

sulfur and nitrogen oxides. Noise pollution is also reduced, as the pipeline makes it

unnecessary to deploy a fleet of 270 trucks per day, each producing 90 decibels of

noise.

The social impact of the Project was directly visible in many ways.

The infrastructure in the form of a pipeline fostered the installation of LPG bottling plants

at various points that have created direct employment opportunities. The pipeline also

provided employment during the construction phase and subsequently during regular

operations.

GAIL has taken up community development programs on an ambitious scale in all the areas

surrounding the pipeline. The various pumping stations have been identified as centers for

affecting those programs. The programs involve

(i) Providing scholarships to needy and economically deprived students;

(ii) Constructing roads and hospitals and supplying medicine;

(iii) Distributing crop seeds and hand pumps to farmers; and

(iv) Carrying out drought relief measures, such as providing drinking water.

Following are financial datas of Jamnagar – Loni pipeline project (JLPL) for

the year 2007-08 and 2008-09 :

During the year 2008-2009 transportation of LPG through JLPL pipeline

was 2089034.740 MT against 2231868.00 MT in the year 2007-2008.

68

Sr. No. Particulars 2008-09

(Rs.in Cr.)

2007-08

(Rs.in Cr.)

Difference

(Rs.in Cr )

1. Net sales 330.41 344.16 (13.75)

2. Total Income 333.11 351.11 (18.00)

3. Total Expences 67.45 72.74 5.29

4. Profit Before Tax

(PBT)

193.67 206.75 (13.08)

Team GAIL - People, Performance & Pride

Team GAIL comprises of a young group of 2,198 executives, the average age being 36 years.

Of these, 1,447 executives deal with the day-to-day execution of the ground-level work. The

youngest members belong to this group hence the team is always abuzz with enthusiasm and

zeal. The 567 executives in the middle order management carry out the administration and

supervision of work. The 114 senior executives are involved in decision-making and setting

69

targets. Their leadership provides direction to GAIL, taking the Company from strength to

strength.

GAIL's pride is the strong 1,050-member technical team. Engineers recruited mostly from

premier technical institutes have built GAIL. Eighty MBAs working with the Company have

helped infuse the spirit of excellence. Finance, one of the key ingredients of business, is

entrusted with finance professionals, mostly Chartered Accountants and Cost Accountants.

Professionals from Humanities in the team have brought about the creative and the artistic

aspect of the company to the fore. The organisation's 1,268 non-executives assist in the

corporate legwork.

Budget Allocation & Expenditure

Budgeting is the company’s formal short term planning process for the acquisition and

investment of capita. In the preparation of the Budgets, the principle of Zero Base Budgeting is

followed according to which expenditure is required to be justified after evaluation of various

alternatives and ranking them in order of importance by systematic analysis.

Two main budgets are prepared annually in GAIL: Revenue Budgets and Capital Budgets. The

revenue budget is the operating budget for income and expenditure. The objective of revenue

budget is to fix a target in respect of physical parameters viz Gas sales, Production and sale of

LPG & other value added products, Petrochemical production, internal consumption of Gas,

shrinkage of Gas for production of LPG, Liquid Hydrocarbons and petrochemicals, power,

water and also that of operating expenses which then become the basis from monitoring and

controlling. Based on the targeted physical parameters/ operating expenses, the likely profit/

internal resource generation are estimated which will form the basis for funds management.

70

The capital budget comprises of capital expenditure on projects. The same is approved by the

MoP&NG and Planning Commission.

Actual performance vis-à-vis MOU targets are monitored by Management Accounting Cell and

periodic reports are submitted to top management.

RESEARCH MEHODOLOGY

PURPOSE OF STUDY

OBJECTIVES OF THE STUDY

TECHNIQUES USED IN THE STUDY

SOURCES OF INFORMATION

LIMITATION OF THE STUDY

71

PURPOSE OF STUDY

A few numbers in financial statements are significant in themselves, but meaningful inferences

can be drawn from their relationship from their relationship to other amounts or their change

from one period to another or from one group to another group or from source to use or vice-

versa or from one activity to another activity.

Ratios are simply a means of highlighting in arithmetical term, the relationship between figures

drawn from financial statements. A ratio can relate to any magnitude to any other, such as net

profit to total assets or current liabilities to current assets, the choices are limited by the

analysts imagination. Meaningful ratio serves best to point out changes in financial conditions

or operating performance and help illustrate the trends and patterns of such changes. This, in

turn, may indicate to the analyst the risks and opportunities for the company under review.

OBJECTIVES OF THE STUDY

To study the meaning of Ratio Analysis

To study the concept, nature, Ratio Analysis

To study the use and need for Ratio Analysis

To calculate the various financial ratios.

To study the problems which are directly affecting liquidity, solvency, profitability and

capital market strength of the organization.

TECHNIQUES USED IN THE STUDY

Consultation and personal observation.

Collection classification, compilation, tabulation analysis and figure relevant to various

financial ratios of the organization.

Calculation of various ratios and their analysis for measuring the liquidity position of the

company.

Discussion with various officers & employees of concern.

72

Drawing conclusion through various ratio analysis & diagrammatic representation of

data.

SOURCES OF DATA

The analysis was based on following document and related Information.

The annual financial statement of the concern i.e. balances sheet, profit & loss account,

annual report.

The company publication includes booklets, news, bulletins, etc

Reference book & journals related financial data of Gail.

LIMITATION OF THE STUDY

The research work relied on certain data & the Information

Provided by the company

There is general paucity of adequate database.

The study is limited to only three-year (2005-2008) performance of the company.

Ratio has overbearing reflection of past position. The same may or may not subsist (good &bad) in faculty, which is fraught with uncertainty especially in business environment.

RATIO ANALYSIS

“RATIO MEANS MEANINGFUL COMPARISON OF TWO DATA”

Ratio analysis is the widely use tool of financial analysis. The term ratio in it refers to

the relationship expressed in the mathematical terms between two individual figures or group

of figures connected with each other in some logical manner and are selected from financial

statement of the concern. The Ratio analysis is based on the fact that a single accounting

73

figure by itself may not communicate a meaningful but when expressed as a relative to some

other figure, it may defiantly provide some significant information. It is an expression of

relationship between one figure and the other figures, which are mutually inter-dependent.

Absolute figure is valuable but not comparable.

But these single become important when studied in relation to other figure either in

the same statement like the amount of profit and total sales are different statement. But, when

compared gives a sensible meaning such relationship of accounting information given in term

of money is commonly referred to as financial/accounting ratio and simple ratio.

Classification of Ratios:-

A. According to Source-

Revenue Ratios-When two or more variables are taken from revenue statement the ratio so computed is known as revenue

Ratios.Balance Sheet Ratios- When two or more variables are taken from Balance Sheet ratio so computed is known as Balance Sheet Ratios.

Mixed Ratios- When one variable is taken from Revenue Statement and other Variable taken from Balance Sheet the Ratio so computed are known as Mixed Ratios.

B. According to usage-

The following seven categories of financial ratios have been advocated by George foster of

Stanford university and these seem to cover exhaustively different aspects of the business

organization these are listed below:-

Cash Position

Liquidity

Working Capital/Cash Flows

Capital Structure

74

Profitability

Debt Service Coverage

Turnover

Broadly Speaking, the operational and financial position of a firm can be described by studying

its short term and long term liquidity position, profitability and its operational activities.

Therefore, Few ratios for GAIL (I) Ltd. are calculated as follows : -

(I) LIQUIDITY RATIO:-

The Term ‘liquidity’ and ‘short term solvency’ are used synonymously. Liquidity or short term

solvency means ability of the business to pay its short term liabilities. Inability to pay-off sort

term liabilities affects its credibility as well as its credit rating Continuous default on the part of

the business leads to commercial bankruptcy, Eventually such commercial bankruptcy may

lead to its sickness and dissolution. Short Term lenders and creditors of a business are very

much interested to know its state of liquidity because of their financial stake.

Liquidity ratio measures the ability of the firm to meet its current obligation. The most common

ratios are – current ratio, quick ratio.

A. Current Ratio

The relationship of current assets to current liabilities is known as current ratio. Current assets

means the assets are either in the form of cash or cash equivalent or can be converted into

cash or cash equivalents in short time (say, within a year’s time) and current liabilities means

liabilities repayable in short time (within a year’s time). The ratios are calculated as follows:

Current Ratio = Current Assets / Current Liabilities

75

Current assets includes cash & bank balances, inventories, sundry debtors, Marketable

securities, prepaid expenses and loans & advances, disposable

Investment.

Current liabilities include sundry creditors, bills payable and provision, bank overdraft,

CC, proposed dividend etc.

Year Current assets Current

liabilities

Ratio

2005-2006 12288.64 8713.99 1.41

2006-2007 7745.51 4551.23 1.70

2007-2008 10410.02 6060.41 1.72

Significance:

Ideal Current ratio is 2:1, logic behind this 2:1 ideal is conservatism. It means your current

assets should be equal to double of current liabilities, so that you never fail to fulfill your

payment commitment will within time. Current assets are maintained higher side because

these are shrinkage in value due to various reasons, such as bad debts, inventory becoming

obsolete or non saleable , or unexpected decline in the market value of non trade investment.

But as Tandon Committee norms ratio is acceptable at 1.33:1.

Although there is no hard and fast tool conventionally the current ratio of 2:1 is considered

satisfactory.

Interpretation:

In the year 2006 the current ratio of the company is 1.41 while in the year 2007 it increase &

reached 1.70 & it has again slightly increased in 2008 by 1.72. In 2007 the company has

76

created less provision i.e. provisions for taxation & FBT & paid some amount of current

liabilities while company has also blocked some amount in purchasing fixed assets

In 2008 the company’s current ratio is 1.72 there was very few increase in its liquidity in

comparison of F.Y. 2007. This change is very minute but there is increase of Rs. 1509.18 crore

in current liabilities and Rs.2664.51 crore in current assets. The change in current assets is

more than the current liabilities.

As a conventional rule, a current ratio of 2to 1 or more is considered satisfactory. The

company has a C.R in 2007-2008 is 1.72:1, therefore it may be interpreted that company’s

liquidity position is lower than to standard due to shortage of stock, less credit sales and

shortage of cash.

The higher Current Ratio refers to the greater margin of safety and the lower Current Ratio

indicates to lows margin of safety.

B. Quick ratio

Quick ratio also called acid test ratio, establishes a relationship between quick or liquid assets

and current liabilities. An assets is liquid it can be converted into cash immediately or

reasonably soon without a loss of value. Cash is the most liquid assets.

The quick ratio is found out by dividing quick assets by current liability

Quick ratio = Liquid Assets

Current Liabilities

OR

Quick ratio = Quick Assets

77

Quick Liabilities

Liquid assets includes cash, debtors, marketable securities, bills receivable, (excluding bad &

doubtful debts)

Quick Assets = Current Assets – Inventories

Quick Liabilities = Current Liabilities – Bank Overdraft – Cash Credit

Significance:

Acid test ratio is a stringent measure of short-term solvency of the firm. It is a measurement of

the firm’s ability to convert its current assets quickly into cash in order to meet its current

liability. It is based on those current assets which are highly liquid and illiquid portion of current

assets are eliminated. It excludes stock & prepaid expenses.

Acid test ratio of 1:1 is considered ideal. Higher the ratio better is the short-term financial

position of the firm

Interpretation

In FY 2006 the quick ratio of the company was 1.35, and in 2007 it increases to 1.58 & after

that it again increases to 1.62 in FY 08. The quick ratio is high in both consecutive years 2007

& 2008, so it proves that company’s financial position is sound and have able to pay its short

78

Year Liquid Assets Current

Liabilities

Ratio

2005-2006 11805.45 8713.99 1.35

2006-2007 7193.15 4551.23 1.58

2007-2008 9840.21 6060.41 1.62

term liabilities, show idle cash & debtor’s balance.

Positive Working Capital is also one of reason of High Quick Ratio.

(II) TURNOVER RATIOS OR ACTIVITY RATIO

The Ratios computed under this group indicates the efficiency of the organization to use the

various kinds of assets by converting them in the form of sales. As the assets can be basically

categorized as fixed assets and current assets and as the current assets may further be

classified according to the individual components of current assets viz. Inventory and

receivables (debtors) or as net current assets i.e., current assets less current liabilities viz.

working capital, under this group of classification of ratios, following ratios may be computed:-

A. Inventory Turnover Ratio

Inventory turnover indicates the efficiency of the firm in producing and selling its

products. It calculates by dividing the cost of goods sold by the average inventory.

Inventory turnover ratio = Cost of goods sold/Sales

Average inventory

Cost of goods sold is calculated as follows:

Cost of good sold = opening stock + purchase + direct expenses –Closing stock

Or

Cost of goods sold = sales- gross profit

Average inventory = (opening inventory+ closing inventory) / 2

79

Year Cost of goods

sold

Avg. Inventory Ratio (Times)

2005-2006 10505.03 482.315 21.78

2006-2007 12505.13 567.95 22.02

2007-2008 13499.73 561.26 24.05

Link with Working Capital Management :

We can calculate collection period with the help of Ratio:

Storage Period = 360 Or 12 / Inventory Turnover

Year Days Ratio Storage Period

2005-2006 360 21.78 16.53

2006-2007 360 22.02 16.35

2007-2008 360 24.05 14.97

Significance:

The inventory turnover ratio measures how fast the stock is moving through the firm

and generating sales It indicates whether stock has been efficiently used or not. The purpose

of the ratio is to check up whether only the required minimum amount has been invested in

stock.

80

Higher the ratio, better it is, since it indicates that more sales are been produced by a

rupee of investment in stocks. A low stock turnover may reflect dull business and cover

investment in stock. Thus only a proper inventory ratio enables a business to earn a

reasonable margin of profits.

However, a minimum amount of stock must be invested in stock to avoid out of stock situation

Interpretation

The inventory turnover ratio shows a rising trend of the company under study for the year from

2005-06 to 2007- 08.

In the year 2007-08 the ratio of inventory turnover was 24.05 Times that shows the company

have efficient inventory management and optimum utilization of resources.

B. Debtors Turnover Ratio

This ratio establishes relationship between net credit sales and average debtors of the year.

Debtor’s turnover indicates the number of times debtor’s turnover each year.

This ratio helps to measures time leg between credit sales and cash collection.

This ratio is calculated as follows:

Debtors turnover ratio = Net Credit Sales

Average Debtors

A net sale has been taken in place of net credit sales.

Average debtors are calculated by dividing the sum of debtors in the beginning and at

the end by to out side analyst, information about credit sales and opening and closing

balance of debtor may not available. Therefore, debtor turnover can be calculated by

dividing total sales by the year-end balance of debtor

Opening Debtors + Closing Debtors / 2

Debtors include Bills receivables also.

81

Year Credit Sales/

Sales

Average

Debtors

Ratio

2005-2006 14459.41 788.165 18.34

2006-2007 16047.18 772.09 20.77

2007-2008 18008.20 932.16 19.32

Year Days Ratio Collection

Period

2005-2006 360 18.34 19.63

2006-2007 360 20.77 17.33

2007-2008 360 19.32 18.63

Significance:

The debtor’s turnover ratio indicates economy and efficiency in the collection of amount due

from debtors. The higher the ratio, the better it is, since it would indicate that debts are being

collected more quickly. Prompt collection of books debts will increase funds, which may then

be put for some other use.

It is not however, very prudent for a firm to have either a very low or a high debtor’s turnover

ratio. A very low debtor’s turnover would imply either poor credit selection or an inadequate

collection effort. The delay in the collection of debtors would mean that, apart from the interest

cost involved in maintaining a higher level of debtors, the liquidity position o f the firm is

adversely affected.

Similarly, too high a turnover ratio is not necessarily good. It may have adverse effect on the

volume of the sales of the firm. Sales may be confined to only such customers as make prompt

payments.

Thus a firm should have neither a very low nor a high debtor’s turnover ratio, it should maintain

82

it at a reasonable level.

Interpretation:

The debtor’s turnover ratio of company since 2006 was 18.34 Times and its collection

period was 19.63 days, In 2007 it significantly increased by 20.77 Times & its collection period

was 17.33 days whereas in 2008 ratio was 19.32 Times and collection period was 18.63 days.

Sales and debtors had been increased every year. From this we can infer that debtor’s

collection period was below to 20 days which reflects company’s goods collection policy, less

chance of bad debts and creditors are also paid fast.

C. Working Capital Turnover Ratio

This ratio indicates the number of times a unit invested in the working capital produces sales.

In others words, the ratio indicates whether the working capital has been effectively utilized or

not in making sales.

The ratio express the number of time a rupee invested in working capital is turn around. The

ratio is calculated as follows:

Working capital turnover ratio (WC) = Sales/Working Capital

Working capital means the excess of current assets over current liabilities i.e., current assets-

current liabilities.

Year Net sales NWC Ratio

2005-2006 14459.41 3574.65 4.04

2006-2007 16047.18 3194.28 5.02

2007-2008 18008.20 4349.61 4.14

83

Significance:

The working capital turnover ratio indicates number of times unit invested in working capital

produces sales. This ratio indicates whether working capital has been effectively utilized or not

in making sales. In other words, it measures the rate of working capital utilization.

The high working capital turnover ratio indicates the capability of the organization to achieve

maximum sales with minimum investment in working capital. it indicates that working capital is

turned over in the form of sales more number of times.

Interpretation

The Working Capital Turnover ratio of company during in the FY 2006-2008 is good and shows

management efficiency in operating the company’s operations. Management of company had

well managed the Company’s working capital’s requirements.

D. Turnover Ratio

This ratio shows the firm’s ability in generating sales from all financial resources committed to

total assets.

Assets Turnover Ratio = Sales/ Total assets

Total assets means total of assets side including intangible assets but excluding

fictitious assets, also book value of non trade investment is replaced by their Market

Value. (TA) include net fixed assets (NFA) and current assets (CA)

(TA = NFA+CA)

84

Year Net sales Total assets Ratio

2005-2006 14459.41 21650.85 0.67

2006-2007 16047.18 18600.62 0.86

2007-2008 18008.20 21903.55 0.82

Significance:

Higher Turnover Ratios indicated that there is sufficient utilization of business assets to

generate Sales.

Interpretation

There is no major difference between all three years it increases with equal percentage in all

three years.

E. Fixed Assets Turnover Ratio

It shows relationship between sales and fixed assets. It can be calculated as follows:-

Fixed assets turnover ratios:- Sales/ Fixed assets

Net sales include sales after return, if any, both cash as well as credit.

Fixed assets include net fixed assets i.e. fixed assets after providing for depreciation.

Year Sales Fixed assets Ratio

2005-2006 14459.41 8171.55 1.77

2006-2007 16047.18 9391.31 1.71

85

2007-2008 18008.20 9749.95 1.84

Significance:

A high fixed assets turnover ratio indicates efficient utilization of fixed assets in generating

Sales. A firm whose plant and machinery are old may shows a higher fixed assets turnover

ratio then the firm which has purchased them recently.

Interpretation:-

In all three years there are no major differences between turnover ratios because of all these

ratios may not differ in short term like 2 or 3 years. And there is optimum utilization of plant and

machinery in generating sales.

F. Current Assets Turnover Ratio

This Turnover Ratios shows sales generating by better utilization of current assets in the

organization. It has calculated as follows:-

Current Assets Turnover Ratio = Sales / Current Assets

Net sales include sales after return, if any, both cash as well as credit.

Current assets include the assets like inventories, sundry debtors, B/R, Cash etc.

Year Sales Current assets Ratio

2005-2006 14459.41 12288.64 1.18

2006-2007 16047.18 7745.47 2.07

2007-2008 18008.20 10410.02 1.73

86

Significance:

A higher current assets turnover ratio indicates the capability of the organization to achieve

maximum sales with the minimum investment in current assets. It indicates that the current

assets are turned over in the form of sales more number of times. As such higher the current

assets turnover ratio better will be the situation.

Interpretation

As we see in table that in the FY year 2005-06 the current ratios is 1.18 Times that has

increased by 2.07 Times in year 2006-07 and in next year 2007-08 it decreased by 1.73

Times, it can be said that company has less current assets in 2007 from 2006 and in 2008

company has increases in sales and current assets both, but current assets has increased in

more proportion as compared to sales, so I find a decrease in current assets turnover ratio in

2008.

(III) PROFITABILITY RATIOS

A. Net profit ratio

A ratio of net profit to sales is called net profit ratio. Generally, this ratio is taken in percentage.

Deducting operating expenses, finance charges and making adjustment for non- operating

expenses and income from gross profit derive net profit. The ratio can be calculated by the

formula

Lower net profit ratio combined with higher operating. Ratio means either the company has big

amount of non operating expenses or lower amount of non operating income.

Net profit ratio =NET PROFIT x 100

87

SALES

Net Profit = Operating Profit + non-operating profit – non Operating Expenses

Year Net Profit Net sales Ratio

2005-2006 2310.07 14459.41 15.98

2006-2007 2386.67 16047.18 14.87

2007-2008 2601.46 18008.20 14.45

Significance:

The net profit margin is indicative of management’s ability to operate the business with

sufficient success not only to recover from revenue of period the cost of merchandise or

service, the expenses of operating the business (including depreciation) and the cost of

borrowed funds, but also to eave a margin of reasonable compensation to the owner for

providing their capital at risk.

The objective of working capital net profit ratio is to determine the overall efficiency of the

business higher the ratio, better it is.

Interpretation

In the current year 2007-08 net profit ratio was 14.45% that slightly less in comparison to

previous years 2006-07 & 2005-06 i.e. 14.87% and 15.98%. In 2006-07 and 2007-08 each

year the profit and sales was increased while the net profit in percent has declined. The reason

behind this is increases in Administration, Selling & Distribution expenses, and increase in

capacity utilization.

B) Gross Profit Ratio:

88

The gross profit margin ratio tells us the profit a business makes on its cost of sales, or

cost of goods sold. It is a very simple idea and it tells us how much gross profit per £1 of

turnover our business is earning.

Gross profit is the profit we earn before we take off any administration costs, selling

costs and so on. So we should have a much higher gross profit margin than net profit margin.

Gross profit Ratio = Gross Profit X 100

Sales

Year Gross Profit Net sales Ratio %

2005-2006 3954.38 14459.41 27.35

2006-2007 3542.05 16047.18 22.07

2007-2008 4508.47 18008.20 25.03

Significance:

This ratio measures the margin of profit available on sales. The higher the gross profit ratio,

the better it is. No ideal standard is fixed for this ratio, but the gross profit ratio should be

adequate enough not only to cover the operating expenses but also to provide for depreciation,

interest on loans, dividends and creation of reserves.

Interpretation

In the FY 2006-07 the gross profit of company was 22.07% is much less of preceding year

2005-06 due to increase on its manufacturing & transmission costs.

In the FY 2007-08 the gross profit was 25.03% which was quite high from the last year. In this

year (07-08) the company’s revenue has increased significantly due to completion of some of

its pipeline projects.

89

IV) Earning Per Share (EPS)

Earning Per Share Ratio (EPS) = Profit Available for Equity Share Holder x 100

No. of Equity Shares

Year Profit Available

for E.S. Holder

No. of Equity

Shares

Ratio

2005-2006 2310.07 84,56,51,600 27.32

2006-2007 2386.67 84,56,51,600 28.22

2007-2008 2601.46 84,56,51,600 30.76

Interpretation

The company Annual Financial Result shows the YOY rising growth. The company is able to

the increase in the worth of its shareholders.

V) Dividend Pay-Out Ratio

This ratio refers to how much percent of profit (after tax & distribution of Preference Dividend)

has distributed among its shareholders.

Dividend Pay-Out Ratio = Equity Dividend x 100

Profit available for Equity Share Holders

Equity Dividend = Interim Div. + Final Div. + Corp. Div. Tax

Year Equity Dividend Profit For Equity

Holders

Ratio (%)

2005-2006 964.25 2310.07 41.74

2006-2007 969.27 2386.67 40.61

2007-2008 989.37 2601.46 38.03

90

Interpretation

In the year 2006-07 the dividend pay-out ratio was declined from its preceding year. And again

in the year 2007-08 it declined. The company is more concerned to increase its amount of

reserve & surplus. Overall I can say that it is a good strategy for future contingencies, growth &

arrange finance for its ongoing projects from its internal sources.

VI) Long Term Debt/Equity Ratio

Long Term Debt/Equity Ratio = Long Term Debt

Equity

Equity = Equity Shares + Reserves & Surplus

Year Long Term Debt Equity Ratio

2005-2006 1916.56 9973.30 0.19

2006-2007 1337.85 11392.91 0.117

2007-2008 1265.87 13004.88 0.097

VII) Total Debt Equity Ratio

Total Debt Equity Ratio = Total Debt

Equity

Year Total Debt Equity Ratio

91

2005-2006 1916.56 9973.30 0.19

2006-2007 1337.85 11392.91 0.117

2007-2008 1265.87 13004.88 0.097

Interpretation

In the year 2006-07 company has paid its long term liabilities of Rs.578.71 crore and increased

the amount in its reserve & surplus of Rs. 1419.61 crore, in 2007-08 long term liabilities has

paid by the company of Rs. 71.98 crore and increased the amount in its reserve & surplus of

Rs. 1611.97 crore.

Here 3 points needs to be considered.

First, from creditors point of view, here the downward trend of ratio is beneficial for creditors as

they will be assured of their return on invested capital.

From shareholders point of view, it is not beneficial as they would be deprived of trading on

equity.

From the company’s point of view, downtrend is considered good as firstly the pressure and

interference of external parties (long term lenders) would be less and company would be able

to arrange for loans at lower rate of interest from the market. \

COMPARATIVE STATEMENT SHOWING RATIO :-

Ratio Units 2005-06 2006-072007-08

LIQUIDITY RATIOS

Current ratio Times 1.21 1.32 1.40

Quick /Liquid Ratio Times 1.16 1.21 1.31

Inventory Turnover Ratio Times 21.78 22.02 24.05

Total assets turnover Ratio Times 0.67 0.82 0.86

MANAGEMENT EFFICIENCY RATIOS

Debtors Turnover Ratio Times 18.34 20.77 19.32

Debtors Collection Period Days 19.63 17.33 18,63

92

Working Capital Turnover Ratio Times 4.04 5.02 4.14

Total Assets Turnover Ratio Times 0.67 0.86 0.82

Fixed assets Turnover Ratio Times 1.77 1.71 1.84

Current assets turnover Ratio Times 1.18 2.07 1.73

PROFITABILITY RATIO

Net Profit Ratio

(PAT/TURNOVER)

% 15.98 14.87 14.45

Gross Profit Ratio % 27.35 28.22 30.76

PAYOUT RATIOS

Earnings Per Share (EPS) Rs. 27.32 28.22 30.76

Dividend Payout Ratio % 41.74 41.61 38.03

LEVERAGE RATIOS

Long Term Debt/ Equity Ratio Times 0.19 0.117 0.097

Total Debt/ Equity Ratio Times 0.19 0.117 0.097

Till the time we completed our project report we did not have any published annual report of GAIL for the FY 2008-09. But through some published data in newspaper (The Hindu).

We got the following details regarding FY 2008-09

Sales has Increased by Rs. 5767.75 Cr. 32.02%

PBT has Increased by Rs. 349.02 Cr. 9.05%

PAT has Increased by Rs. 202.24 Cr. 7.78%

93

Sales (Rs. In Crore)

PBT (Rs. In Crore)

94

PAT (RS. In Crore)

Conclusion:

In the light of the developments that have happened in the past year the company has shown that not only it has creating value for its shareholders but also creating value for other

95

stakeholders as well. The initiatives taken by this company focuses on competitiveness both internally and externally

Internal capabilities building to outperform competitors in the near and long terms is being gradually enhanced through several initiatives such as the e-initiatives for increasing employed competencies. On the external front your company is now poised to strengthen its base in the international markets via its global businessman in the coming years.

The challenges in the Oil & Gas industry are many. Increase in crude oil prices threaten competitiveness and pose marketing challenges. Besides, the Indian natural gas market is maturing and is expected to grow rapidly, bringing newer opportunities. New regulations would govern new paradigm of domestic industry. Being the market leader, the company is better prepared financially and intellectually to drive on the growing Indian gas economy.

During my training period I have noticed some of the following key areas which has really helped company to bring efficiency in its working style. Being a public sector company it is working like a full fledged MNCs.

Through well established SAP System the company has :

Improve operational efficiency and productivity within and beyond your enterprise. Extend transactions, information, and collaboration functions to a broad business

community.

Increase profitability, improve financial control, and manage risk.

Integrate and optimize business processes.

Gail has fulfilled its corporate social responsibilities and followed its business ethics in every stage of its existence.

The company has maintained transparency in its business through E-Banking, in its contract and bidding process which has helped in gaining the confidence of clients.

Considering all the above points I can say that the company has well organized its operational activities which has one hand benefited to company itself and all its stakeholders.

Bibliography

To obtain more information regarding the present study and to substantiate it with theoretical proof, the following reference were made:

Kothari, C.R. Research Methodology & Techniques 2001

96

M.R. Agrawal, Management Accounting –II, First edition

Annual Report of Gail (India) Ltd.,(2005-06, 2006-07, 2007-08)

Hand Book of Gail (India) Ltd.

SEARCH ENGINE:

www.gailonline.com

www.business@mapofindia.com.

www.Ministryofpetroleun.com

www.economywatch.com

97