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GAIL India

BSE: 532155|NSE: GAIL|ISIN: INE129A01019|SECTOR: Oil Drilling And Exploration
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Notes to Accounts Year End : Mar '19

1. Corporate Information

GAIL (India) Limited (“GAIL” or “the company”) is a limited company domiciled in India and was incorporated on August 16, 1984. Equity shares of the Company are listed in India on the Bombay Stock Exchange and the National Stock Exchange. Also Global Depository Receipts (GDRs) of the company are listed at London Stock Exchange. The Government of India holds 52.19% in the paid-up equity capital of the company as on 31st March 2019. The registered office of the Company is located at 16, Bhikaiji Cama Place, R K Puram, New Delhi- I10066. GAIL is the largest state-owned natural gas processing and distribution company in India. The company has a diversified business portfolio and has interests in the sourcing and trading of natural gas, production of LPG, Liquid hydrocarbons and petrochemicals, transmission of natural gas and LPG through pipelines, etc. GAIL has also participating interest in India and overseas in Oil and Gas Blocks.

The financial statements of the company for the year ended 31st March 2019 were authorized for issue in accordance with a resolution of the Board of Directors on 27th May 2019.

Basis of Preparation

The financial statements of the Company have been prepared in accordance with Indian Accounting Standards (Ind-AS) notified under the Companies (Indian Accounting Standards) Rules, 2015 and Companies (Indian Accounting Standards) Amendment Rules, 2016.

The financial statements have been prepared as a going concern on accrual basis of accounting. The company has adopted historical cost basis for assets and liabilities except for certain items which have been measured on a different basis and such basis is disclosed in the relevant accounting policy.

The financial statements are presented in Indian Rupees (INR) and the values are rounded to the nearest crore (INR 0,000,000), except when otherwise indicated.

a) Out of aforesaid investments in Subsidiary/ JV/ Associate, few shares are held in the name of GAIL officials jointly with GAIL

b) Investment are valued in accordance with Accounting Policy No. I.22 given in Note No. I

c) Aggregate amount of impairment in value of investments is Rs. 1,086.68 Crore upto end of the year (Previous Year Rs. 760.35 Crore)

d) Investment in other than subsidiary, associate and joint ventures are valued at fair value through OCI at each Balance Sheet date.

e) Investment made in Start-up companies and its fair value is considered to be equal to book value for initial 5 years.

a) The Company has only one class of equity shares having par value of Rs. 10/- per share.. The Holders of the equity shares are entitled to receive dividends as declared from time to time and are entitled to voting rights proportionate to their shareholding at the shareholders meetings.

b) I,92,66,283 shares (Previous Year : 1,52,83, 549) are held in the form of Global Depository Receipts.

c) The Company has not issued any shares for a consideration other than cash in immediately preceding five years except 56,37,67,733 Bonus Shares during the previous FY 2017-18 and 42,28,25,800 Bonus Shares during the FY 2016-17 in the ratio of one equity share for every three equity shares held.

2. Contingent Liabilities and Commitments:

I. Contingent Liabilities:

(a) Claims against the Company not acknowledged as debts:

(i) Legal cases for claim of Rs.1,812.88 crore (Previous Year: Rs.1,805.11 crore) by suppliers/contractors etc. on account of liquidated damages/price reduction schedule, natural gas price differential etc. and by customers for natural gas transmission charges etc.

(ii) Income tax demands of Rs.1,171.09 crore (net of provision of Rs. 265.59 crore) (Previous Year Rs.1,138.04 crore net of provision of Rs. 254.33 crore) against which the Company has filed appeals before appellate authorities & courts. Further, the Income Tax Department has also filed appeals before ITAT against the relief granted by CIT (Appeals) to the Company. The aggregate amount involved in appeals filed by Department is Rs. 721.68 crore (including interest) (Previous Year: Rs. 674.89 crore).

*It includes Rs. 2,888.72 crore towards demand (including interest and penalty) of Central Excise duty in the matter pertaining to classification of ‘Naphtha’ manufactured by the Company. CESTAT, Delhi vide order dated 30.11.2018 has allowed the appeal filed by the Central Excise Department in this matter. Considering the merits of the case, the Company has filed an appeal before the Hon’ble Supreme Court.

The appeal filed by Company has been admitted and stay has been granted by the Hon’ble Court on compliance of the conditions of depositing a sum of Rs. 20 Crore with the court and furnishing security to the extent of Rs. 132 Crore by the Company.

Further, expert opinion from legal experts have been obtained by the Company and according to them, the Company has a good case on merits as well as on limitation.

(iv) Miscellaneous claims of Rs. 268.47 crore (Previous Year: Rs. 160.80 crore) includes mainly arbitration cases filed by vendors for delayed payments and losses incurred by them etc.

The movement of above contingent liabilities from (i) to (iv) under various categories is tabulated below:

(v) Some of the customers have submitted counter claims amounting to Rs. 17,733 crore (PY: Rs. 15,028 crore ) against Ship or Pay charges / consequential losses for not supplying gas.

(b) Corporate Guarantees

(i) The company has issued Corporate Guarantee to banks for Rs. 6,084.99 crore (PY: Rs. 5,951.99 crore) for issuance of Performance Bank Guarantee to one of its subsidiaries in regard to implementation of various City Gas Projects.

In respect of accounting of these guarantees in line with the requirements of Ind AS 109 - “Financial Instruments” and in response to the opinion provided by the Expert Advisory Committee (EAC) of the Institute of Chartered Accountants of India, the company has sought further clarification from EAC. Pending clarification from EAC, no accounting entry has been passed in respect of these corporate guarantees. Management is of the view that the impact, if any, will not be material to the financial statements.

(ii) The Company has issued Corporate Guarantees for Rs. 2,449 crore (Previous Year: Rs. 2,207 crore) on behalf of related parties for raising loan(s). The amount of loans outstanding as at the end of the year under these Corporate Guarantees are Rs. 1,201 crore (Previous Year: Rs. 1,559 crore).

II. Capital Commitments:

(a) Estimated amount of contracts (Net of advances) remaining to be executed on capital account as at 31st March 2019 is Rs. 7,300.66 crore (Previous Year: Rs. 7,472.82 crore).

(b) Other Commitments:

(i) The Company has commitment of Rs.1,394.42 crore (Previous Year: Rs. 771.56crore) towards further investment and disbursement of loan in the subsidiaries, Joint Ventures, Associates and other companies.

(ii) Commitments made by the Company towards the minimum work programme in respect of Jointly Controlled Assets have been disclosed in Note 45 (B) (iv).

3. In respect of certain customers towards Ship or Pay charges, matter being sub-judice/under dispute, the Company has been issuing claim letters, aggregate amount of which is Rs.1,561.97 crore (Previous Year Rs.1,268.77 crore) as at the end of the year. Income in respect of the same shall be recognized on final disposal of the matter.

4. Pending court cases in respect of certain customers for recovery of invoices raised by the company for use of APM gas for non-specified purposes by fertilizer companies pursuant to guidelines of Ministry of Petroleum & Natural Gas (MOP&NG), the Company has issued claim letters amounting to Rs. 3,091.94 crore (PY: Rs. 2,990.39 crore) on the basis of information provided by Fertilizer Industry Coordination Committee (FICC).

5. Pricing and Tariff

(a) With effect from 1st April 2002, Liquefied Petroleum Gas (LPG) prices has been deregulated and is now based on the import parity prices fixed by the Oil Marketing Companies. However, the pricing mechanism is provisional and is yet to be finalized by the MoPNG. Impact on pricing, if any, will be recognized as and when the matter is finalized.

(b) Natural Gas Pipeline Tariff and Petroleum Products Pipeline Transportation Tariff are subject to various Regulations issued by Petroleum and Natural Gas Regulatory Board (PNGRB) from time to time. Impact on profits, if any, is being recognized consistently as and when the pipeline tariff is revised by orders of PNGRB.

(c) (i) As per directions of Appellate Tribunal (APTEL), till date, PNGRB has issued 06(Six) final tariff orders applicable from financial year 2016-17. The Company has filed appeal(s) before Appellate Tribunal (APTEL), against various moderations done by PNGRB in these tariff orders. Aforesaid appeals are pending for disposal.

(ii) PNGRB, vide its Tariff Order no. T0/07/2018 dated 27th September 2018, has approved Final Pipeline Tariffs for South Gujarat Regional Pipeline Networks. Hon’ble High Court of Gujarat, vide its Order dated 20thNovember 2018, has granted interim stay over retrospective implementation of this Final Tariff Order in respect of some of these customers.

Nonetheless, impact on profits, if any, is being recognized consistently as and when the pipeline tariff is revised by orders of PNGRB. As regards rest of the Tariff Orders, PNGRB is yet to issue its final orders.

(d) The Company has filed a Writ Petition, during the financial year 2015-l6, before the Hon’ble Delhi High Court challenging the jurisdiction of PNGRB on fixation of transmission tariff for own requirement capacity in natural gas pipelines. The Hon’ble Delhi High Court has dismissed the aforesaid Writ Petition vide its Order dated llth April 2017. In this regard, the Company has filed a Review Petition before the Hon’ble Delhi High Court on 12thMay 2017 against the said Order which has been admitted by the Hon’ble Court for review and is pending adjudication.

6. Land& Building

(a) Freehold and Leasehold Land amounting to Rs. 22.21 crore and Rs. 7.17 crore (Previous Year: Rs. 26.67crore and Rs. 15.84crore) respectively are capitalized on provisional basis.

(b) Title deeds for freehold (5.31 hectares) and leasehold (61.49 hectares) land amounting to Rs. 10.93 crore and Rs. 15.05 crore (Previous Year: Rs. 23.35 crore and Rs. 8.84 crore) respectively are pending execution for transfer in the name of the Company. This includes Rs. 4.59 crore (Previous year Rs. 4.59 crore ) amount of Lease hold Land shown under ‘Prepayments’ in Note no 12 (Other Non-Current Assets - Non financial)

(c) Net Block for “Building” includes an amount of Rs. 1.32crore (Previous Year Rs.l.90crore) earmarked for disposal but in use.

(d) Details of Land & Buildings booked under CSR activities and not part of Property, Plant & Equipment (PPE) Schedule are as under:

7. Earmarked Balances:

(a) Liabilities on account of the following are kept as Earmarked Balances in short term deposit in banks:

(b) Gas Pool Money (Provisional) shown under “Other Long Term Liabilities” amounting to Rs. 652.45 crore (Previous Year: Rs. 654.83 crore) with a corresponding debit thereof under Trade Receivable (after reversal during the year in case of certain customers) will be invested/paid as and when said amount is received from the customers.

8. (a) The Company is acting as pool operator in terms of the decision of Government of India for pooling of natural gas for Urea Plants. The scheme envisages uniform cost of gas for urea production by settlement of difference in weighted average price of gas of each plant to the weighted average price for the industry. Accordingly, an amount of Rs. 266.83 crore (Previous Year Rs. 368.37 Crore) is payable to and correspondingly receivable from Urea Plants, as on 3lst March 2019. After netting of the payable and receivable amounts, there is no impact in the financial statements.

(b) The Company is acting as pool operator in terms of the decision of the Government of India for capacity utilization of the notified gas based power plants. The Scheme, which was applicable till 3lst March 2017, envisaged support to the power plants from the Power Sector Development Fund (PSDF) of the Government of India. The gas supplies were on provisional / estimated price basis which were to be reconciled based on actual cost. Accordingly, current liabilities include a sum of Rs. 87.63 crore (Previous Year Rs. 87.63 Crore) on this account, as on 3lst March 2019 which is payable to the above said power plants and / or to the Government of India.

9. Ind AS 115 - Revenue from Contracts with Customers

Ind AS 115 has become effective from lst April 2018 and accordingly the Company has adopted this Ind AS for the first time.

Ind AS 115 supersedes Ind AS ll Construction Contracts and Ind AS 18

Revenue and it applies, with limited exceptions, to all revenue arising from contracts with customers. Ind AS 115 establishes a five-step model to account for revenue arising from contracts with customers and requires that revenue be recognized at an amount that reflects the consideration to which an entity expects to be entitled in exchange for transferring goods or services to a customer

Ind AS ll5 requires entities to exercise judgement, taking into consideration all of the relevant facts and circumstances when applying each step of the model to contracts with their customers. The Standard also specifies the accounting for the incremental costs of obtaining a contract and the costs directly related to fulfilling a contract. In addition, the Standard requires extensive disclosures.

The Company adopted Ind AS ll5 using the modified retrospective method of adoption with the date of initial application of 1 April 2018. The Company elected to apply the Standard to all contracts as at l April 2018.

The cumulative effect of initially applying Ind AS ll5 is recognized at the date of initial application as an adjustment to the opening balance of retained earnings. Therefore, the comparative information was not restated and continues to be reported under Ind AS ll and Ind AS l8.

The impact of applying Ind AS ll5 on the Company’s retained earnings as at 1 April 2018 is Nil.

Set out below, are the amounts by which each financial statement line item is affected as at and for the year ended 3l March 2019 as a result of the adoption of Ind AS 115. The adoption of Ind AS ll5 did not have a material impact on OCI or the Company’s operating, investing and financing cash flows. The first column shows amounts prepared under Ind AS ll5 and the second column shows what the amounts would have been, had Ind AS ll5 not been adopted.

The nature of the adjustments and the reasons for the significant changes in the statement of financial position as at 3lst March 2019 and the statement of profit or loss for the year ended 3lst March 2019 are described below:

Repurchase arrangements- Destination swap

GAIL has entered into a contract with customer to purchase and sell the same quantity of liquefied natural gas (LNG) at different locations at fixed prices. Since the transaction is in the nature of repurchase arrangements under Ind AS ll5, no separate purchase and sale is recorded for the consideration transferred/received.

Revenue from Contracts with Customers:

Disaggregation of revenue

Set out below is the disaggregation of the Company’s revenue from contracts with customers:

Management expects that 83 % of the transaction price allocated to unsatisfied contract as on 3lst March 2019 for Rs. 62l.28 cr will be recognized as revenue during the next FY2019-20. 2% of the transaction price allocated to unsatisfied contract as on 3lst March 2019 amounting to Rs. 16.23 cr will be recognized during 2020-21 to 2021-22. The balance l5% amounting to Rs. 113.49 cr will be realized from 2022-23 onwards.

10. The company has given corporate guarantee to lenders on behalf of its related parties in respect of their borrowings.

11. PNGRB on l9.02.20l4 notified insertion of Regulation 5A in the Amended Affiliate Code of Conduct Regulations that an entity engaged in both marketing and transportation of natural gas shall create a separate legal entity on or before 3l.03.20l7 so that the activity of transportation of natural gas is carried on by such separate legal entity and the right of first use shall, however, remain with the affiliate of such separate legal entity. The Company has challenged the said PNGRB Regulations before Hon’ble Delhi High Court by way of writ and the same is pending adjudication.

12. (a) Pay revision of Non-Executives of the Company is due w.e.f. lst Jan 20l7. Pending finalization of pay revision, a provision of Rs. 42.72crore (PY: Rs. 36.00 crore) has been made based on estimated basis. Accordingly, cumulative balance towards pay revision, pending settlement is Rs. 88.93 crore (PY: Rs. 46.21 crore)

(b) Pursuant to implementation of Pay Revision Directions, the Company has evaluated impact of increase in gratuity ceiling from Rs.l0 Lakh to Rs. 20 Lakh and has considered the incremental amount of Rs. 150.51 crore as recoverable from the respective fund as on March 3l, 2018 by reversing the impact taken in Statement of Profit & Loss Account in FY 2016-17. During the year, vide directive of DPE dated l0th July 2018 clarified that gratuity under DPE guidelines dated 3rd August 2017, is subject to affordability of the CPSE concerned effective for the period from 01.01.2017 till 28.03.2018, where pay has been revised w.e.f., 01.01.2017. Accordingly, the Board of Directors in its 394th Meeting held on 22nd October 2018, approved to fund the contribution along with interest and accordingly, a sum of Rs.l82.58 crore has been charged to Statement of Profit and Loss.

13. Disclosure under the Ind AS 19 on Employee Benefits is given as below:

I. Superannuation Benefit Fund (Defined Contribution Fund)

The Company has paid for an amount of Rs.ll5.35 crore (Previous Year: Rs. 56.l6 crore) towards contribution to Superannuation Benefit Fund Trust and National Pension System (NPS) and charged to statement of profit and loss.

II. Provident Fund

The Company has paid contribution of Rs. 63.89 crore (Previous Year Rs. 63.09 crore) to Provident Fund Trust at predetermined fixed percentage of eligible employees’ salary and charged to statement of profit and loss. Further, the obligation of the Company is to make good shortfall, if any, in the fund assets based on the statutory rate of interest in the future period. During the year, surplus in the fund is more than the interest rate guaranteed liability of the Company hence, the Company has reversed a provision of Rs. Nil (Previous Year Rs. Nil), as per actuarial valuation and the balance provision to meet any shortfall in the future period to be compensated by the Company to the Provident Fund Trust as at the end of the current financial year is ‘ Nil (Previous Year ‘Nil).

III. Other Benefit Plans

a) Gratuity:

As per Payment of Gratuity Act, Gratuity is payable for l5 days salary for every completed year of service subject to minimum service period of 5 years. Total Gratuity payable is limited to Rs. 20 lakh as per Central Government notification S.O. 1420 (E) dated 29.03.2018.

b) Post-Retirement Medical Scheme (PRMS)

The Company contributes to the defined benefit plans for Post Retirement Medical Scheme using projected unit credit method of actuarial valuation. Under the scheme eligible ex-employees are provided medical facilities. During the year the Company has earmarked Rs. 281.69 crore (Previous Year Rs. 263.86) towards the PRMS in a separate bank account.

c) Earned Leave Benefit (EL)

Earned Leave is accrued 30 days per year. Earned Leave can be encashed while in service upto 75% of accumulated Earned Leave balance subject to maximum of 90 days at a time; provided a minimum balance of l5 days is left over in the respective employee’s account. Encashment on retirement or superannuation is limited to 300 days.

d) Terminal Benefits (TB)

At the time of superannuation, employees are entitled to settle at a place of their choice and they are eligible for Transfer Traveling Allowance from place of their last posting.

e) Half Pay Leave (HPL)

HPL is accrued 20 days per year. The encashment of unavailed HPL is allowed as per approved Company rule at the time of Superannuation.

f) Long Service Award (LSA)

On completion of specified period of service with the company and also at the time of retirement, employees are rewarded monetarily based on the duration of service completed as per approved policy of the Company.

i. The actuarial valuation takes into account the estimates of future salary increases, inflation, seniority, promotion and other relevant factors.

ii. The management has relied on the overall actuarial valuation conducted by the actuary.

14. Disclosure as per Ind AS 23 on ‘Borrowing Costs’:

Borrowing costs capitalized in assets including amount allocated towards Capital Work in Progress during the year was Rs.l .06 crore (Previous Year: Rs. 8.57 crore).

15. In compliance of Ind AS 108 on “Operating Segment”, the Company has adopted following Business segments as its reportable segments:

(i) Transmission services

a) Natural Gas

b) LPG

(ii) Natural Gas Marketing

(iii) Petrochemicals

(iv) LPG and other Liquid Hydrocarbons

(v) Other Segments (include GAIL TEL, E&P, Power Generation and City Gas)

There are no geographical segments in the Company.

The disclosures of segment wise information is given as per Annexure-A.

16. In compliance of Ind AS 24 on “Related Party Disclosures”, the names of related parties, nature of relationship and detail of transactions entered therewith are given in Annexure-B.

B) Jointly Controlled Assets

i) The Company has participating interest in blocks offered under New Exploration Licensing Policy (NELP) / Open Acreage Licensing Policy (OALP) in 9 Blocks (Previous Year: 8 Blocks) for which the Company has entered into Production Sharing Contract(s) (PSCs) with Government of India along with other partners for exploration and production of oil and gas. The Company is operator in Blocks CB-ONN-20l0/ll and CB-ONHP-20l7/l2 and it is Non-Operating Partner in other 7 blocks. The expenses, incomes, assets and liabilities are shared by the company based upon its participating interest in PSC(s) of respective blocks.

i. The Company is Non-operating partner in E&P blocks for which reserves are disclosed.

ii. The initial oil and gas reserve assessment was made through expert third party agency / internal expert assessment by respective Operators of E&P blocks. The year-end oil reserves are estimates based on information obtained from Operator / on the basis of depletion during the year. Re-assessment of oil and gas reserves carried out by the respective Operator as and when new significant data or discovery of hydrocarbon in the respective block.

iii. The Company’s share of Crude Oil Production in FY 2018-19 is 91,075 barrels (PY l,15,057 barrels).

iv. E&P blocks are assessed individually for impairment.

c) The Company’s share of balance cost recovery is Rs. 499.20 crore (Previous Year Rs. 738.l2 crore) to be recovered from future revenues from E&P blocks having proved reserves as per Production sharing contracts.

17. Advance against equity pending allotment with South East Asia Gas Pipeline (SEAGP)as on 3lst March 2019 is Rs.95.78 crore (Previous Year Rs.95.78 crore) equivalent to USD 20,288,217. The Board of Directors and shareholders of SEAGP decided that refund, if any, will be determined based on their future cash flows and shall be subject to the approval of Board and Shareholders of SEAGP. During the year, SEAGP has not approved any further refund.

18. In compliance of Ind AS 36 on Impairment of Assets, the Company has carried out an assessment of impairment in respect of its following assets as on 31.03.2019:

i) During the year the Company has made net impairment of Rs. 0.35 crore(Previous Year Rs. 0.27 crore) in respect of its GAIL Tel Assets and the same has been recognized as impairment loss in the statement of profit and loss.

ii) During the year the Company has made impairment provision of Rs. 19.02 crore (Previous Year: Rs. Nil) in respect of unused assets of LPG plant at Usar and the same has been recognized as impairment loss in the statement of profit and loss.

iii) During the year based on Project Evaluation of E&P Blocks, the following impairment provision has been made:

19. In compliance of Ind AS 109 on Impairment of Financial Assets, the Company has carried out an assessment of impairment in respect of its following assets as on 3l.03.2019:

i) During the year, based on increase in fair value of Company’s investment in Fayum Gas Company S.A.E., Egypt, the Company has made a reversal of impairment of Rs. 3.03 crore (Previous Year: Rs.l.55 crore). The Carrying Value of Company’s investment in Fayum Gas Company S.A.E., Egypt after reversal of aforesaid impairment provision as on 3l.03.2019 stands at Rs. 7.64 crore. (Previous year: Rs. 4.62 crore).

ii) During the year, based on increase in fair value of Company’s investment in Konkan LNG Private Limited (KLPL), the Company has made a reversal of impairment of Rs. 2.l8 crore out of the impairment provision of Rs. 139.75 crore provided during the last financial year on account of accumulated losses and eroded net worth.

During the year Company has infused further capital of Rs. 143.0l crore ir Equity and Rs. 252 crore in Preference Share Capital of KLPL for construction of Breakwater and other business purpose. In order to assess impairment on further capital infusion as aforesaid, the Company has carried out fresh impairment study, which projects future positive cash flows after commencement of Operation of Breakwater and accordingly, the carrying value of Company’s investment in KLPL as on 31 .03.2019 stands at Rs. 397.20 crore (Previous year : Rs.NIL), after reversal of aforesaid impairment provision.

iii) During the year, based on fair value of Company’s investment in RGPPL, the Company has provided for loss on impairment of Rs. 157.92 crore (Against reversal of impairment provision of Rs. 26.l4 crore in Previous Year). The Carrying Value of Company’s investment in RGPPL after making the aforesaid impairment provision as on 3l.03.2019 stands at Rs. 59.53 crore (Previous year: Rs. 2l7.45 crore).

iv) During the year, based on fair value of Company’s investment in GAIL Global USA Inc. (GGUI), the Company has provided for loss on impairment of Rs. 173.62 crore. The Carrying Value of Company’s investment in GGUI after making the aforesaid impairment provision as on 3l.03.2019 stands at Rs. 5.55 crore (Previous year: Rs. 179.l7 crore).

20. Details of Loans, Investments, Guarantee and Security given by the Company covered u/s l86 (4) of the Companies Act 20l3.

a. Investments made and Loans given are disclosed under the respective notes No 5 and 7.

b. Corporate Guarantees given by the Company in respect of loans as at the end of the current financial year are as under:

21. Interest free advance has been given to Petronet LNG Ltd.(PLL) for booking of regasification capacity to the tune of Rs. 561.80 crore (Previous Year: Rs. 561.80 crore). The said advance is to be adjusted within 15 years against regasification invoices of PLL. Out of above advance, PLL has adjusted Rs. 38.20 crore during the year(Previous Year: Rs. 38.20 crore). Balance amount of Rs. 475.84 crore (Previous year Rs. 514.04 crore) has been accounted as advance in Note No l2 and 12A.

22. In some cases, the Company has received intimation from Micro and Small Enterprises regarding their status under “The Micro, Small and Medium Enterprises Development Act, 2006”. As per practice, the payment to all suppliers has been made within 7 -10 days of receipt of valid invoice.

23. Cabinet Committee on Economic Affairs (CCEA), Government of India in its meeting held on 21st September 20l6 has approved 40% capital grant of estimated capital cost of Rs. 12,940 crore i.e. Rs. 5,176 crore to the Company for execution of Jagdishpur Haldia Bokaro Dhamra Pipeline Project (JHBDPL). The Company has received Rs. 2056.60 crore (Previous year Rs. 850 crore) towards Capital Grant on above ground till 3l.03.2019. Further, the Company has shown Rs. 54l.60 crore as receivable towards Capital Grant as on 3l.03.2019 for the amount to be received based on the letter received from the Ministry of Petroleum and Natural Gas. During the year, the Company has amortised the capital grant amounting Rs. 8.00 crore (Previous year Rs. 0.24 crore) based on the life of the asset capitalized.

24. Financial Risk management

The company is exposed to a number of financial risks arising from natural business exposures as well as its use of financial instruments including market risks relating to commodity prices, foreign currency exchange and interest rates; credit risk; and liquidity risk.

a. Market Risk

Market risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market prices. Market risk comprises three types of risk: interest rate risk, currency risk and other price risk, such as equity price risk and commodity risk. Financial instruments affected by market risk include loans and borrowings, deposits, and derivative financial instruments.

(i) Interest rate risk

Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Company’s exposure to the risk of changes in market interest rates relates primarily to the long-term foreign currency loans with floating interest rates. The Company manages its interest rate risk according to its Board approved Foreign Currency and Interest Rate Risk Management policy’. Market interest rate risk is mitigated by hedging through appropriate derivative products such as interest rate swaps & full currency swaps, in which it agrees to exchange, at specified intervals, the difference between fixed and variable rate interest amounts calculated by reference to an agreed-upon notional principal amount.

Interest rate sensitivity

With all other variables held constant, the following table demonstrates the sensitivity to a reasonably possible change in interest rates on floating rate portion of forex loans and borrowings outstanding as on 3l.03.2019, after considering the impact of swap contracts.

(ii) Foreign Currency Risk

Foreign currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. Company transacts business in local currency and in foreign currency, primarily U.S. dollars. Company has obtained foreign currency loans and has foreign currency trade payables and receivables and is therefore, exposed to foreign exchange risk. As per its Board approved policy, Company may mitigate its foreign currency risk through plain vanilla derivative products such as foreign exchange option contracts, swap contracts or forward contracts towards hedging such risks. These foreign exchange contracts, carried at fair value, may have varying maturities depending upon the underlying contract requirement and risk management strategy of the Company.

Foreign Currency Sensitivity

The following table demonstrates the sensitivity in the USD, Euro, and other currencies to the functional currency of Company, with all other variables held constant. The impact on the Company’s profit before tax is due to changes in the fair value of monetary assets and liabilities including foreign currency derivatives.

(iii) Commodity Price risk

Company imports LNG for marketing and for its internal consumption on an on-going basis and is not exposed to the price risk to the extent it has contracted with customers in India and overseas on back to back basis. However, the company is exposed to the price risk on the volume which is not contracted on back to back basis. As most of the LNG purchase and sales contracts are based on natural gas or crude based index, such price risk arises out of the volatility in these indices. In order to mitigate this index linked price risk, Company has been taking appropriate derivative products in line with the Board approved ‘ Natural Gas Price Risk Management Policy’

(iv) Equity Price Risk

The Company’s listed and non-listed equity investments are susceptible to market price risk arising from uncertainties about future values of these investments. The Company manages the equity price risk through review of investments by Company’s senior management on a regular basis. The Company’s Board of Directors reviews and approves all the equity investment decisions of the Company.

At the reporting date, the exposure to unlisted equity investments at fair value was Rs.188.77 Crore (Previous Year Rs.172.90Crore).

At the reporting date, the exposure to listed equity investments at fair value was Rs. 4924.61 Crore (Previous Year Rs. 5488.92 Crore). A variation of ( /-) 10% in share price of equity investments listed on the stock exchange could have an impact of approximately ( /-) Rs. 492 Crore (Previous Year Rs. 549 Crore) on the OCI and equity investments of the Company. These changes would not have an effect on profit or loss.

b. Liquidity Risk

Liquidity is the risk that suitable sources of funding for Company’s business activities may not be available. The Company’s objective is to maintain optimum level of liquidity to meet its cash and collateral requirements. The Company closely monitors its liquidity position and deploys a robust cash management system. It also maintains adequate sources to finance its short term and long term fund requirement such as overdraft facility and Long term borrowing through domestic and international market.

c. Credit risk

Credit risk is the risk that a customer or counterparty to a financial instrument will fail to perform or fail to pay amounts due, causing financial loss to the company and arises from cash and cash equivalents, derivative financial instruments and deposits with financial institutions and principally from credit exposures to customers relating to outstanding receivables. Credit exposure also exists in relation to guarantees issued by company. Each segment is responsible for its own credit risk management and reporting. Credit risk is considered as part of the risk-reward balance of doing business. On entering into any business contract the extent to which the arrangement exposes the company to credit risk is considered.

Trade receivables

Customer credit risk is managed by each business unit subject to the Company’s established policy, procedures and control relating to customer credit risk management. Outstanding customer receivables are regularly monitored. An impairment analysis is performed at each reporting date on an individual basis for major clients.

Financial Instruments and Cash Deposits

Credit risk from balances with banks and financial institutions is managed by the Company’s treasury department in accordance with approved limits of its empanelled bank for the purpose of Investment surplus funds and foreign exchange transactions. Foreign exchange transaction and Investments of surplus funds are made only with empanelled Banks. Credit limits of all Banks are reviewed by the Management on regular basis.

d. Capital management

For the purpose of the capital management, capital includes issued capital and all other equity reserves attributable to the equity holders of the Company. The primary objective of the Company’s capital management is to ensure that it maintains a strong credit rating and healthy capital ratios in order to support its business and maximize the shareholder value.

The Company manages its capital structure and makes adjustments in light of changes in economic conditions and the requirements of the financial covenants. To maintain or adjust the capital structure, the Company may adjust the dividend payment to shareholders, return capital to shareholders, or issue new shares. No changes were made in the objectives, policies or processes during the reporting year.

25. The Company is evaluating applicability of provisions of Ind AS 109 w.r.t certain contracts of the Company with vendors awarded through ICB (International competitive bidding) which are denominated in third currency (i.e. a currency which not the functional currency of any of the parties to the contract). In this regard, in line with other PSU, the Company has sought opinion from the Expert Advisory Committee (EAC) constituted by The Institute of Chartered Accountants of India on the above matter vide letter no GAI^ND/F&A/CO/EAC Opinion/2018-19 dated 2lstMay 2018. On receipt of opinion / clarification from EAC, the Company will take necessary action in the matter.

26. Accounting classifications and fair value measurements

The Company uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation technique:

Level l: quoted (unadjusted) prices in active markets for identical assets or liabilities

Level 2: other techniques for which all inputs which have a significant effect on the recorded fair value are observable, either directly or indirectly Level 3: technique which use inputs that have a significant effect on the recorded fair value that are not based on observable market data.

1. The carrying cost of Interest-bearing loans & borrowings is approximately equal to their Fair Market Value

2. The carrying amount of trade receivables, cash and cash equivalents, other bank balance, others receivables, trade payables, interest accrued and due, other payables and other financial liabilities are considered to be same as their fair value due to their short term nature.

3. With respect to loans, the fair value were calculated based on cash flows discounted using the current lending rate. They are classified as level 3 fair values in the fair value hierarchy due to the inclusion of unobservable inputs including counter party credit risk.

1. The carrying cost of Interest-bearing loans & borrowings is approximately equal to their Fair Market Value

2. The carrying amount of trade receivables, cash and cash equivalents, other bank balance, others receivables, trade payables, interest accrued and due, other payables and other financial liabilities are considered to be same as their fair value due to their short term nature.

3. With respect to loans, the fair value were calculated based on cash flows discounted using the current lending rate. They are classified as level 3 fair values in the fair value hierarchy due to the inclusion of unobservable inputs including counter party credit risk.

The fair values of the financial assets and liabilities are included at the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale.

27. Hedging activities and derivatives

Derivatives not designated as hedging instruments

The Company uses forward currency contracts, interest rate swaps, cross currency interest rate swaps, commodity swap contracts to hedge its foreign currency risks, interest rate risks and commodity price risks. Derivative contracts not designated by management as hedging instruments are initially recognized at fair value on the date on which a derivative contract is entered into and are subsequently remeasured at fair value on each reporting date. Such contracts are entered into for periods consistent with exposure of the underlying transactions.

Derivatives designated as hedging instruments:

Cash flow hedges

The Company enters into hedging instruments in accordance with policies as approved by the Board of Directors with written principles which is consistent with the risk management strategy of the Company. Company has decided to apply hedge accounting for certain derivative contracts that meets the qualifying criteria of hedging relationship entered into post October 0l, 20l7.

Foreign currency risk

Foreign exchange forward contracts are designated as hedging instruments in cash flow hedges of firm commitment of capital purchases in US dollar and existing borrowings e.g. US dollars/ Japanese Yen etc.

Commodity price risk

The Company purchases and sells natural gas on an ongoing basis as its operating activities. The significant volatility in natural gas prices over the years has led to Company’s decision to enter into hedging instruments through swaps transactions including basis swaps. These contracts are designated as hedging instruments in cash flow hedges of forecasted sales and purchases of natural gas.

28. a. Confirmation of balances has been received for trade receivables and payables. These confirmations are subject to reconciliation and consequential adjustments, which in the opinion of the management are not material.

b. In the opinion of management, the value of assets, other than fixed assets and non-current investments, on realization in the ordinary course of business, will not be less than the value at which these are stated in the Balance Sheet

29. Statement containing salient features of the financial statements of Subsidiaries/Joint Ventures of the Company pursuant to Section 129 (3) of Companies Act, 2013 in form AOC I is attached in Annexure-D.

30. Previous year’s figures have been regrouped wherever necessary to correspond with the current year’s classification / disclosure.

Source : Dion Global Solutions Limited
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