GAIL (India) Limited

Welcome
To
Presentation
on
Challenges in PSUs
11th November 2005

1
 CONTENTS

1. Challenges in PSUs
2. Challenges Before GAIL – A Navratna PSU
3. Managing Challenges – Step to Shape
Future
4. GAIL - A Success Story
5. Emergence of Corporate Governance to
Face PSU Challenges
6. Corporate Governance in GAIL
7. Conclusion

2
When you've got something to
prove, there's nothing greater
than a challenge.
~ Terry Bradshaw

3
Challenges
in PSUs

4
 Challenges in PSUs
What are the Challenges?
• Liberalization in the Economy
• Growing business complexities
• Business Process Re-engineering – Keeping in
view the International Best Practices
• Rapid changes in Information Technology
• Prudent use of human resources
• Corporate Social Responsibility vis-à-vis
Profitability
• Total Quality Management for Customer
Satisfaction

5
 Challenges in PSUs

Why is it necessary to face the

challenges?
• To Retain the Market Share
• Sustainable improvement in Profitability
• Growth in Business
• Technology adoption to control the cost
• Stake holders satisfaction
• Customer satisfaction
• Employees satisfaction

6
Challenges Before GAIL – A
Navratna PSU

7
 Challenges Before GAIL – A
Navratna PSU

• Draft pipeline policy

• APM to Market driven prices

• Regulatory environment

• Unbundling process

• Sourcing of Gas

• Diversification, Mergers & Acquisitions

• Financial Re-Engineering including Risk Management

• Human Resource Development

8
Managing
Challenges
- Steps
to Shape
Future

9
 Managing Challenges – Steps to
Shape Future

Draft Pipeline Policy

• Identification of Potential market
• Tie up for sourcing of gas
• Adoption of Best practices for better Project
Management

APM to Market driven prices

• Cost control in order to face the gas market forces
• Business Process Re-Engineering for reduction in
process cost of LPG & Petrochemicals
• Volume Growth

10
 Managing Challenges – Steps to
Shape Future

Regulatory Environment
• Representation for Establishing National Gas Grid for
effective utilization of resources
• Representation for exempting GAIL from LPG &
Kerosene Subsidy
• Creation of cell to monitor regulatory environment

Unbundling Process
• Accounting separation of Natural Gas trading and
Transmission carried out
• Preparing for physical and legal separation if
required by Regulator

11
 Managing Challenges – Steps to
Shape Future
Sourcing of Gas
• Creation of dedicated cells for Domestic and International
Gas sourcing at competitive prices
• Adoption of new Technology to bring gas to India
• Participation of various domestic and international blocks
• R&D on Alternate sources of gas like CBM & Gas Hydrates
Diversification, Mergers & Acquisitions
• Creation of 100% subsidiary in Singapore for Global
Investment opportunities
• Strategic investment in equity
• Diversified into E&P and Sale of Crude oil
• Entry into retail marketing of LPG

12
 Managing Challenges – Steps to
Shape Future
Financial Re-Engineering including Risk Mgt
• Prepayment of High cost bearing loans
• Restricting of loan portfolio
• Advanced stage of setting up of integrated Treasury and
Risk Management Desk
• Effective utilization of temporary surplus funds
Human Resource Development
• International exposures to the executives for adoption
of international best practices
• State of Art GAIL Training Institutes
• Sharing of Experiences of eminent personalities through
Looking Beyond series of lectures

13
GAIL - A Success
Story

14
 GAIL - A Success Story
TRACK RECORD OF STEADY GROWTH
IN RUPEES BILLION
160 25
139
140
122 20
117
120
105 19.54
100 18.69
100 15
16.39
80
11.86 10
60 11.26

40
5
20

0 0
SE UNE VE R

T RETF A TI F ORP
2000-01 2001-02 2002-03 2003-04 2004-05

Revenues PAT

5 year CAGR of T.O 11%& PAT 18%

15
 GAIL - A Success Story

GAIL – Recent Significant Achievements

• 70% Growth in PAT of Q2 over Q1 05-06
• Steady growth in Market Cap
• Consistent growth in value added per employee
• High leverage due to low debt equity ratio
• Increasing trend in EPS
• Growth in Gas transmission volumes
• Lean & Thin Organization

16
 GAIL - A Success Story

Laurels of GAIL
• Golden Peacock for National Training Award for FY 2004-05
• Golden Peacock Award for Corporate Governance for FY 2003-
04
• Hewitt Award For Best Employer In India 2004
• NPMP Awards For Excellence in Project Management 2003-04
• National Merit Award (Public Sector) for excellence in Cost
Management from ICWAI.
• Best overall performance in upstream sector by PCRA for
energy efficiency/saving measures
• Scope Excellence Award (2002-03) – Outstanding Contribution
To Public Sector Management
• 12th amongst 30 Indian companies appearing in the list of
Forbes 2000 – The world’s wealthiest companies 2005

17
Emergence of Corporate
Governance to face
PSU Challenges
18
 What is Corporate Governance?

“Corporate Governance is nothing but a step towards

strengthening of the organization so as to face the
challenges”

“It is stepping into the shoes of the shareholders,

stakeholders, vendors, suppliers & employees by the Top
Managers and CEO of the company”

“Process and mechanisms by which the capital market

monitors the actions of corporate management”

19
 Why Corporate Governance?

TRANSPARENCY
•

ACCOUNTABILITY
•

CONTROL
•

TRUSTEESHIP
•

ETHICS
•

20
 Emergence of Corporate
Governance in India
• SEBI appointed in May 1997 the Kumar Mangalam Birla Committee
• Companies Amendment Act, 2000 introduced
- Setting up of Audit Committee
- Directors’ Responsibility Statement
• Kumar Mangalam Birla Committee recommendations adopted by SEBI in
2000
• Clause 49 introduced in Listing Agreement
• Narayana Murthy Committee recommendations revised Clause 49
– Definition of independent directors
– Certificate by CFO & CEO
– Risk Assessment & Mitigation strategy of the company
– Code of Conduct for top Management

21
Corporate Governance in GAIL

22
 Corporate Governance in GAIL

• Equal number of Independent and full time Functional Directors

• Regular Board Meetings
• Regular Audit committee meetings
• E-payments, E-receivable, E-investments for transparency
• Payment of Dividend through Electronic clearing
• Bill Watch System
• Meeting the compliance requirements
• Shareholders / Investors Grievance Committee
• Implemented code of conduct Board members and senior
management
• Voluntary Secretarial Audit

23
Conclusion

24
 Conclusion

PSU Challenges : How it is good for improvement of

the Company?
• Challenge - A Stimulator
• Food for thinking out of Box
• Striving for doing the things differently
• Challenge is the doing the thing Right first time
• Maintaining Balance between commercial &
Social obligations

25
There are no laurels in life...
just new challenges.
~ Katharine Hepburn
26
THANK YOU

27
 Areas of corporate challenge
Global Challenges
• Integrate with gas projects which can supply gas to India (pipelines,
LNG, CNG)
• Enter new & emerging gas rich countries with good relations with
India (Egypt, South Africa)
• Enter (selectively) other countries with expanding gas sector and good
project opportunities (China, West-Asia, Africa)
• Partner with Reputed Companies
• Limited period for opportunities - Global Majors consolidating
• Enter into strategic alliance for production of petrochemicals (Iran)

28
 Areas of corporate challenge

Other Challenges
• Fight for Market Share
• Customer delight
• Wealth Creation
• CSR
• Environment Friendly approach
• Investor Satisfaction
• R&D
• Cost Control
• Manpower – Quality Selection + Training + Retention
• Technology Savvy – Adoptability to latest technology
• Project Management Skills

29
 Identified Corporate Challenges

• Gas metering issues in HBJ & Regional pipelines

• Recovery of outstanding amounts from gas customers
• Benchmarking issues:
• Stock loss
• Energy consumption
• Effective Tax management
• Activity based budgeting
• Investor Relationship management
• Decision Making process re-engineering

30
 Corporate Challenges Schemes –
Step to Shape Tomorrow
• Identified 2 projects under Corporate Challenge
Scheme:
• Waste heat recovery in compressor station and process
plants
• To make GAIL Tel a Profitable & competitive SBU of the
company
• Objectives:
• Team Work
• Cost Reduction
• Entrepreneurship feeling among the employee
• Leveraging the in-house talent pool
• Achieving operational excellence in core business

31
 Areas of corporate challenge

Business Related Challenges

Gas Sourcing – Domestic & International
•
Awareness of Fuel for Tomorrow
•
Upstream & Downstream Integration
•
Merger & Acquisition
•
Financial Risk Management
•
Diversification
•

32
 Areas of corporate challenge

Regulatory Challenges
• Promoted by GoI
• Regulatory Sector
• Downstream - Allocation of Gas, Delivered Price, Tariff
Control
• PSU Culture – CAG & Vigilance
• Statutory Compliance
• LPG & Kerosene Subsidy

33
 Meeting the Challenges - Global
• CITY GAS
 INTERNATIONAL
HIGH • INTERNATIONAL PIPELINES TO INDIA*
PIPELINES OUTSIDE
INDIA • PETRO-  SOURCING
ATTRACTIVE- CHEMICALS
NESS OF
OPPORTUNITY PURSUE AGGRESSIVELY
PURSUE OPPORTUNISTICALLY
– RAROIC**
 E&P
– ABILITY TO
EXECUTE' • WHOLESALE
MARKETING /
TRADING
MODERATE

CAUTIOUS APPROACH PARTNERING

MODERATE HIGH
IMPORTANCE - BUSINESS PORTFOLIO

* SUBJECT TO GEO-POLITICAL SCENARIO

** RISK ADJUSTED RETURN ON INVESTED CAPITAL
34
 Meeting the Challenges - Business
New
sources
Gas Sourcing •Reliance (KG basin)

•Other producers/ GSPCL (new

•Domestic fields)
sources
•Blocks where GAIL is partner
•Potential
supply
sources for •CBM Blocks, Coal Gasification,
domestic Gas Hydrates
demand
•Cross border pipelines (Iran,
•International
Myanmar)
sources
•LNG ; CNG by ship

35
 Meeting the Challenges - Other
Innovation
The introduction
of something new

Efficiency Quality
Producing results through Special, distinctive, or essential
minimum effort, time andcharacter – the degree of excellence
waste

Training
Skill enhancement

36
 Corporate Governance in GAIL

GAIL believes that effective Corporate Governance is

characterized by the practice of principles of
transparency , fairness, disclosure and accountability.

The Board pursues its Corporate Governance objective by

demonstrating sincerity in dealing with management,
fairness in dealing with employees, meeting the
compliance requirements of the Government and practice
of ethical corporate citizenship in the society.

37
 Corporate Governance in GAIL

Keeping the tradition of believing in the

highest standard of Corporate Governance,
GAIL has received the “Golden Peacock
Award” for excellence in Corporate
Governance for the year 2003-04.

38
 Corporate Governance in GAIL
• The Board of Directors of GAIL has implemented a CODE OF
CONDUCT FOR BOARD MEMBERS AND SENIOR MANAGEMENT
PERSONNEL in accordance with revised Clause 49 of Listing
Agreement of Stock Exchanges on Corporate Governance. The Code
has also been posted on the web-site of the Company.
• The Code was put in place by GAIL well ahead of the deadline of
31st December, 2005 set by SEBI for implementation of the
revised Clause 49.
• The revised Clause 49 provides for minimum of four meetings of
the Board of Directors, with a maximum time gap of three months
between any two meetings.
In GAIL, during fiscal 2004-05, fifteen meetings of the Board of
Directors were held. During the current fiscal, nine meetings of the
Board of Directors have already been convened.

39
 Corporate Governance in GAIL

• The revised Clause 49 provides for minimum of four meetings

of the Audit Committee with an interval of not more than four
months between two meetings.
In GAIL, during fiscal 2004-05, ten meetings of the Audit
Committee were held. During the current fiscal, seven meetings
of the Audit Committee have already been convened.
• GAIL has voluntarily undergone SECRETARIAL AUDIT by an
independent firm of Company Secretaries.
• Although a non-mandatory requirement under Clause 49, GAIL
already has a WHISTLE BLOWER POLICY in place.
• GAIL is fully compliant with the requirement of revised Clause
49 that not less than 50% of the Board of Directors to comprise
of Non-executive Directors.

40
 Corporate Governance in GAIL

Corporate Governance of GAIL includes Reporting of

• Board Meetings
• Audit Committee
• Composition & Qualifications
• Audit Committee Meetings and attendance thereat
• Shareholders’/ Investors’ Grievance Committee
• General Body Meetings
• Disclosures
• Disclosure on materially significant related party
transactions
• Details of non-compliance relating to Capital Market

41
 Corporate Governance in GAIL

Cont…
• Means of Communication
• Forthcoming AGM – Date, Time and Venue
• Financial Calendar
• Dividend Payment Date
• Date of Book Closure
• Payment of Dividend through Electronic Clearing Service
(ECS)
• Transfer of Unclaimed Dividend Amount to Investor
Education and Protection Fund (IEPF)
• Particulars of Directors appointed/re-appointed
• Listing Fees
• Share Transfer System

42