Hindustan Petroleum Corporation

Dear Shareholders,
 
 It is once again my privilege and pleasure to share the details of the
 performance of your Corporation for the financial year 2008-09.
 
 The year gone by was marked by volatility and trauma with catastrophic
 events that have reshaped the world. Oil prices touched 7 per barrel
 in July 2008. As sub-prime mortgage crisis unfolded, the global economy
 suffered one of the worst economic contractions since the Great
 Depression. Oil prices fell dramatically to /bbl by December 2008 in
 response to the crisis. The governments all over the world have
 deployed a series of measures, conventional and unconventional, to
 stabilize the financial system and to contain the fallout on the real
 sector.
 
 As oil prices rose, the Government of India increased prices of diesel
 and petrol in June 2008 to reduce the under-recovery/subsidy burden
 borne by the oil companies. Growth decelerated sharply in the third
 quarter as a result of uncertain economic climate. Exports as well as
 capital inflows were affected adversely by global economic crisis. The
 Indian government also introduced a series of fiscal stimulus to
 minimize the impact of slowdown. The Government brought down petrol and
 diesel prices as oil prices declined in the second half of the year.
 Consumption of products whose prices are controlled such as petrol,
 diesel and LPG has held up while demand for industrial products whose
 prices follow international trends such as ATF, FO/LSHS, Bitumen etc.
 fell due to a combination of high prices and economic slowdown.
 
 Even under these difficult conditions, your Corporations physical
 performance exceeded targets. Refineries at Mumbai (MR) and Visakh (VR)
 achieved a combined thruput of 15.81 million metric tonnes. Market
 sales (including exports) were 25.39 million metric tonnes compared
 with 24.47 million metric tonnes in 2007-08. The product pipelines
 achieved a thruput of 10.58 million metric tonnes vis-a-vis the target
 thruput of 9.20 million metric tonnes.
 
 The Company achieved highest ever turnover of Rs.l,16,428 crores during
 the year as against Rs.1,03,837 crores in 2007-08. The profit after tax
 for the year is Rs.575 crores compared to Rs.1135 crores for the
 previous year. The financial performance of the Corporation was
 affected by the higher interest cost of Rs.2083 crores, an increase of
 Rs.1317 crores over the previous year. The increase in the interest
 cost was mainly on account of higher borrowings, arising due to
 increase in gross under-recoveries in the current year and the delay in
 receipt of oil bonds, to finance the working capital requirements.
 Borrowings at the end of the year were Rs.22,755 crores. The funds
 requirement was managed through a combination of short and long term
 loans and thru judicious treasury management.
 
 India is a growing economy and it needs energy including oil. Hence,
 demand for oil will increase in foreseeable future. Oil prices have
 firmed up recently in the wake of OPEC output cuts. Private sector
 players are again focusing on domestic markets as external markets
 shrink due to slowdown. Volatility is an inherent trait of oil
 industry. Our strategy is to ensure steady capital investment for
 long-term growth and reduce the impact of volatility through rigorous
 scrutiny of costs. We have improved our competitiveness by
 consolidating our asset base underpinned by operational excellence. We
 are investing in upstream, city gas distribution, and renewable energy
 to diversify our revenue stream and to take advantage of emerging
 opportunities. We have continuously utilized technology to improve
 offerings to customers and to improve business processes.
 
 The Green Fuel Projects at MR and VR are near completion and in the
 process of stage-wise commissioning.  MR has started producing Euro
 III/IV quality petrol and VR will start producing the same during the
 second quarter of 2009-2010. Both the Refineries are also currently
 implementing Diesel Hydrotreater Projects at an estimated cost of
 Rs.6900 crores. The projects, slated for completion in 2011, will
 enable the Refineries to produce Euro III/IV quality diesel.
 
 The Mumbai Refinery is also setting up a new FCCU Unit to enhance the
 production of LPG, Petrol and Diesel. The project is due for completion
 by May 2010. The Lube Oil Upgradation project at MR costing nearly
 Rs.1030 crores for producing lube oil base stocks of Group 11/ III
 quality is in progress and is also scheduled for completion by May
 2010.
 
 HPCL Mittal Energy Ltd., a JV company of HPCL with M/s. Mittal Energy
 Limited, is in the process of setting up a 9 MMTPA grass root refinery
 near Bhatinda in Punjab. The project is slated for mechanical
 completion by Dec 2010 and commissioning by March 2011.
 
 The Corporation has varied participating interests in 26 exploration
 blocks. We are rigorously looking for prospective fields domestically
 as well as internationally and aim to achieve the status of fully
 integrated Oil Company. Current downturn could provide some attractive
 opportunities.
 
 Thrust for renewable energy has come from concerns about energy
 security and climate change. We have invested in wind energy projects
 in the states of Maharashtra and Rajasthan. In the initial phase, a
 total of 25 MW capacity projects have been commissioned. The project
 work for ethanol production in Bihar and Jatropha plantation in
 Chattisgarh is progressing. Our projects in these states while
 providing profitable opportunities for us also act as catalyst for new
 investments.
 
 We have maintained our focus on improving service offerings to
 consumers. One example is HP Anytime launched in Kerala. The system
 provides 24-hour LPG refill booking facility to consumers through an
 interactive voice response system. We have kept our focus on rural
 markets with low-cost Hamara Pump to meet the requirements of farmers
 besides catering to the new found prosperity in these areas.
 
 Information technology has become the core of your companys operation.
 The Enterprise Resource Planning (ERP) system has provided essential
 support to main business processes of the Corporation. The availability
 of on-line and real time information in these systems enables speedy
 decision making, improved responsiveness, reduced cycle times and
 better customer service. IT enabled solutions are also being used to
 simplify and improve processes and bring in more transparency in
 operations.
 
 Commitment, experience and hard work of our people have been an
 essential part of our success. We aim to improve capabilities of our
 people through training programmes and through sharing of expertise
 available within the Corporation. HR initiatives like Balanced
 Scorecard, Competency Mapping, Six Sigma have enhanced the competency
 and productivity levels across the organization. Our employees
 demonstrated their commitment by maintaining the fuel supply during the
 strike by officers of some of the PSU oil companies, thereby preventing
 total chaos in the system. Your Corporation , hence had the privilege
 of being the sole supplier of petroleum products to the nation for
 three days in January 2009.
 
 It is a matter of pride for us that your Company is ranked 311 amongst
 Global Fortune 500 Companies, 1002 amongst Forbes Global 2000 Companies
 and 111 in the list of Worlds Most Reputed Companies brought out by
 the Global Reputation Institute. We aim to conduct our business with
 highest standards of corporate governance. We have implemented the
 Right to Information Act (RTI) in letter as well as spirit. We have
 also implemented the Integrity Pact in liaison with Transparency
 International. The Integrity.Pact forbids vendors from using any type
 of unwarranted influence for furthering their interests while in turn
 ensuring them fairness, transparency and equal opportunity in their
 association with the Corporation.
 
 We have reached out to the Society in general and the underprivileged
 in particular through our CSR initiatives by providing for education,
 health, water, sanitation, rural developmental activities, vocational
 training and income generating schemes to make them self-reliant. We
 have resolved to keep aside 2% of our Profit after tax (PAT) for
 Corporate Social Responsibility (CSR) from the current year onwards.
 
 We thank all our shareholders for the trust reposed in us. Payout of
 dividend this year has been lower as compared to earlier years due to
 large under-recoveries. The Government of India is fully seized of the
 matter and has provided support to Oil Marketing Companies via a number
 of measures including issue of oil bonds and subsidy sharing by
 upstream oil companies. We are quite hopeful that in the coming years
 we would be in a position to improve the returns to our valued
 shareholders.
 
 The support of our customers and business associates has always been a
 source of strength and I thank them for being part of our growth story.
 
 The Independent directors, with their wide knowledge and experience,
 have been a source of wise counsel.  The guidance of the Government
 directors has been invaluable in the progress of your company. Our
 Administrative Ministry, the Ministry of Petroleum & Natural Gas, has
 been providing continuous guidance and support in all our efforts. We
 look forward to their continuing support in all our endeavors.
 
                                               Thank you,
                                       Arun Balakrishnan