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Bharat Petroleum Corporation Ltd.
Market Cap. (Rs.) 81910.98 Cr. P/BV 2.68 Book Value (Rs.) 140.74
52 Week High/Low (Rs.) 552/360 FV/ML 10/1 P/E(X) 9.09
Bookclosure 11/09/2018 EPS (Rs.) 41.53 Div Yield (%) 5.74
NOTES TO ACCOUNTS
You can view the entire text of Notes to accounts of the company for the latest year
Year End :2017-03 

Corporation Overview

Bharat Petroleum Corporation Limited referred to as “BPCL’ or “the Corporation” was incorporated on 3rd November, 1952. BPCL is a Government of India Enterprise listed on Bombay Stock Exchange Limited and National Stock Exchange of India Limited. The Corporation is engaged in the business of refining of crude oil and marketing of petroleum products. It has refineries at Mumbai and Kochi, LPG bottling plants and Lube blending plants at various locations. The Corporation’s marketing infrastructure includes vast network of Installations, Depots, Retail Outlets, Aviation Fuelling Stations and LPG distributors.

Additional information in respect of Notes no. 2, 4 and 5:

a) Land:

i) Freehold land includes Rs.94.66 Crores (as at 31st March 2016 Rs.126.33 Crores and as at 1st April 2015 Rs.387.56 Crores) capitalized at various locations for which conveyance deeds are yet to be executed and/ or mutation is pending.

ii) Freehold land includes Rs.2.20 Crores (as at 31st March 2016 Rs.2.20 Crores and as at 1st April 2015 Rs.2.20 Crores) which is in the process of being surrendered to the Competent Authority.

iii) Leasehold land represents land taken on finance lease for more than 99 years.

b) Buildings include Ownership flats of Rs.41.07 Crores (as at 31st March 2016 Rs.40.02 Crores and as at 1st April 2015 Rs.39.02 Crores) in proposed / existing co-operative societies and others.

c) Other adjustments include capitalization of foreign exchange differences (net) of Rs.226.25 Crores (Previous year Rs.313.52 Crores) and borrowing costs of Rs.212.89 Crores (Previous year Rs.35.54 Crores).

d) Freehold Land, Plant and Equipment, Tanks and Pipelines, Railway Sidings and Buildings jointly owned in varying extent with other Oil Companies / Railways: Gross Block Rs.248.65 Crores (as at 31st March 2016 Rs.243.22 Crores and as at 1st April 2015 Rs.185.18 Crores), Cumulative Depreciation Rs.65.18 Crores (as at 31st March 2016 Rs.54.45 Crores and as at 1st April 2015 Nil), Net Block Rs.183.47 Crores (as at 31st March 2016 Rs.188.77 Crores and as at 1st April 2015 Rs.185.18 Crores).

e) Charge has been created over the fixed assets of the Company, mainly Plant and Machinery at Mumbai Refinery and Kochi Refinery in regard to the borrowings- Refer Note no. 24.

f) Compensation received from third parties in respect of items of Property, Plant and Equipment that were impaired, lost or given up during the year Rs.1.82 Crores (Previous year Rs.2.09 Crores).

g) Deduction from Gross Block includes :

i) Reversal of excess capitalization of Rs.27.05 Crores (Previous year Rs.27.03 Crores)

ii) Deletions during the year Rs.66.89 Crores (Previous year Rs.47.76 Crores)

h) Depreciation and amortization for the year includes:

i) Charged to Statement of Profit and Loss Rs.1901.61 Crores (Previous year Rs.1852.17 Crores)

ii) Depreciation of Rs.3.46 Crores (Previous year Rs.6.53 Crores) has been provided for asset not in use and has been classified as non current asset held for sale.

i) Deductions from depreciation includes:

i) On reversal of excess capitalization Rs.1.75 Crores (Previous year Rs.0.05 Crores).

ii) On withdrawal of depreciation on deletion during the year Rs.15.02 Crores (Previous year Rs.9.93 Crores).

iii) On reclassification of assets Rs.12.00 Crores (Previous year Rs.14.09 Crores).

j) The Right of Way has been acquired under the Petroleum & Mineral Pipelines Act, 1962. As per the provisions of the Act, the Right of Way is perpetual in nature. Accordingly, the Corporation has assessed the useful life as indefinite.

iii The Corporation has only one class of shares namely equity shares having a par value of Rs.10 per share. Each holder of equity shares is entitled to one vote per equity share. In the event of liquidation of the Corporation, the holders of equity shares will be entitled to receive the remaining assets of the Corporation in proportion to the number of equity shares held.

The Corporation declares and pays dividend in Indian Rupees. The final dividend, if any, proposed by the Board of Directors is subject to the approval of the shareholders in the ensuing Annual General Meeting.

iv During the Financial year 2016-17, the Corporation has issued Bonus Shares in the ratio of 1:1 by capitalization of General Reserves. The total number of shares issued is 72,30,84,248 having face value of Rs.10 each. During Financial Year 2012-13, the Corporation had issued Bonus Shares in the ratio of 1:1 by capitalization of General Reserves. The total number of Bonus Shares issued is 36,15,42,124 equity shares having face value of Rs.10 each.

Nature and purpose of Reserves Capital Reserve

It represents capital reserve appearing in the financial statements of erstwhile Kochi Refineries Limited (KRL) transferred on amalgamation.

Debenture Redemption Reserve

Debenture Redemption Reserve represents reserve created out of the profits of the Corporation available for distribution to shareholders which is utilised for redemption of debentures/bonds.

General Reserve

General Reserve represents appropriation of retained earnings and are available for distribution to shareholders. Foreign Currency Monetary Item Translation Difference Account

Foreign Currency Monetary Item Translation Difference Account represents amounts recognised on account of translation of long term foreign currency denominated borrowings not related to acquisition of depreciable assets. Amounts so recognised are amortized in the Statement of Profit and Loss over the remaining maturity of related borrowings.

Retained Earnings

Retained Earnings represents surplus/accumulated earnings of the Corporation and are available for distribution to shareholders.

* The Corporation had allotted redeemable non-convertible 8.65% Debentures of face value of Rs.700 Crores on 8th October 2012 redeemable on 8th October 2017 with a put call option which was exercised on 8th October 2015. Accordingly Corporation has redeemed the debentures during the Financial Year 2015-16. These were secured by first legal mortgage by way of a Registered Debenture Trust Deed over the fixed assets of the Company, mainly Plant and Machinery at Mumbai Refinery. The relevant charge has been satisfied.

** The Corporation had allotted non-convertible 7.35% Debentures of face value of Rs.550 Crores on 10th March 2017 redeemable on 10th March 2022. These were secured by first legal mortgage by way of a Registered Debenture Trust Deed over the fixed assets of the Company, mainly Plant and Machinery at Mumbai Refinery.

*** Term Loan is secured by first legal mortgage mainly over Plant and Machinery at Mumbai Refinery and Kochi Refinery.

NOTE 1 TRANSITION TO IND AS

These are the Corporation’s first financial statements prepared in accordance with Ind AS. The Corporation has adopted all the Ind AS and the adoption was carried out in accordance with Ind AS 101 First time adoption of Indian Accounting Standards. The transition was carried out from Generally Accepted Accounting Principles in India (Indian GAAP) as prescribed under Section 133 of the Act, read with Rule 7 of the Companies (Accounts) Rules, 2014, which was the “Previous GAAP”.The Significant Accounting Policies set out in Note No. 1 have been applied in preparing the financial statements for the year ended 31st March 2017, 31st March 2016 and the opening Ind aS balance sheet on the date of transition i.e. 1st April 2015. In preparing its Ind AS Balance Sheet as at 1st April 2015 and in presenting the comparative information for the year ended 31st March 2016, the Corporation has adjusted amounts previously reported in the financial statements prepared in accordance with previous GAAP. This note explains the principal adjustments made by the Corporation in restating its financial statements prepared in accordance with previous GAAP and how the transition from previous GAAP to Ind AS has affected the Corporation’s financial position, financial performance and cash flows.

I. Explanation of transition to Ind AS

In preparing the financial statement, the Corporation has applied the below mentioned optional exemptions and mandatory exceptions.

Business combination exemption

The Corporation has elected to apply the requirements of Ind AS 103, “Business Combinations” prospectively to business combinations on or after the date of transition (1st April 2015). Pursuant to this exemption, goodwill arising from business combination has been stated at the carrying amount under previous GAAP

Property, Plant and Equipment; Investment Property and Intangible Assets exemption

The Corporation has elected to use the exemption available under Ind AS 101 to continue the carrying value for all of its Property, Plant and Equipment, investment properties and intangible assets as recognised in the financial statements as at the date of transition to Ind AS, measured as per the previous GAAP and use that as its deemed cost as at the date of transition (1st April 2015).

Investment in equity shares other than Subsidiaries, Joint Ventures and Associates

The Corporation has designated its investment in equity shares other than subsidiaries, Joint Ventures and Associates held as at 1st April 2015 as Fair Value through Other Comprehensive Income based on facts and circumstances at the date of transition to Ind AS.

Investment in Subsidiaries, Joint Ventures and Associates

The Corporation has elected to use the exemption to measure all investments in Subsidiaries, Joint Ventures and Associates as recognised in the financial statements as at the date of transition to Ind AS, measured as per the previous GAAP and use that as its deemed cost as at the date of transition (1st April 2015).

Derecognition of financial assets and financial liabilities

The Corporation has elected to use the exemption for derecognition of financial assets and liabilities prospectively i.e. after 1st April 2015.

Long Term Foreign Currency Monetary Items

The Corporation has elected to continue the policy adopted under previous GAAP for accounting the foreign exchange differences arising on settlement or translation of long-term foreign currency monetary items outstanding as of 31st March 2016 i.e. foreign exchange differences arising on settlement or translation of longterm foreign currency monetary items relating to acquisition of depreciable assets are adjusted to the carrying cost of the assets and depreciated over the balance life of the asset and in other cases, if any, accumulated in “Foreign Currency Monetary Item Translation Difference Account” and amortized over the balance period of the liability.

Classification and measurement of financial assets

Ind AS 101 requires an entity to assess the classification of financial assets on the basis of facts and circumstances existing as on the date of transition. Further, the standard permits measurement of financial assets accounted at amortized cost based on facts and circumstances existing at the date of transition if retrospective application is impracticable. Accordingly, the Corporation has determined the classification of financial assets based on facts and circumstances that exist on the date of transition. Measurement of financial assets accounted at amortized cost has been done retrospectively except where the same is impracticable.

Service Concession Arrangement

The Corporation has elected to use the exemption available under Ind AS 101 to continue the carrying value as per previous GAAP for all of its intangible assets under the service concession arrangements.

Notes to reconciliations:-

A. Proposed Dividend

Under previous GAAP proposed dividend including dividend distribution tax (DDT), were recognised as a liability in the period in which they relate, as the same was considered as an adjusting event. Under Ind AS, proposed dividend is recognised as a liability in the period in which it is authorised and the distribution of dividend is no longer at the discretion of the Corporation.

B. Equity Investments at Fair Value through Other Comprehensive Income

Under previous GAAP the Corporation accounted for non-current investments in equity shares of companies other than Subsidiaries, Joint Ventures and Associates at cost less any provision for other than temporary diminution in the value of investments. Under Ind AS, the Corporation has designated these investments at Fair Value through Other Comprehensive Income.

C. Loan given to Subsidiary

The Corporation has given a concessional rate loan to one of its Subsidiary company. As per the requirements of Ind AS, this loan is to be measured at fair value on initial recognition. Since the differential on account of fair valuation of the loan on initial recognition is in the nature of equity component, the same has been considered as part of investment in Subsidiary.

D. Fair valuation of investments in Government Securities

Under previous GAAP investment in Government securities are classified as current investments and were carried at lower of cost or fair value. Under Ind AS, these investments are measured at Fair Value through Profit or Loss.

E. Trade receivables

Under previous GAAP the Corporation had recognised provision on trade receivables based on the expectation of the Corporation. Under Ind AS, the Corporation provides loss allowance on receivables based on the Expected Credit Loss (ECL) model which is measured following the “simplified approach” at an amount equal to the lifetime ECL at each reporting date.

F. Derivative Contracts

Under previous GAAP in respect of all derivative contracts (except forward contracts), only mark-to-market loss was provided. Premium / discount arising at the inception of the forward exchange contracts to hedge foreign currency risks were amortized as expense or income over the life of the contract. Exchange differences on such forward exchange contracts were recognised in the Statement of Profit and Loss. Under Ind AS, all derivative contracts are measured at fair value through profit or loss.

G. Borrowings

Under previous GAAP transaction costs in relation to borrowings were initially recognised as an asset and subsequently, amortized over the period of the loan as borrowing costs. Under Ind AS, financial liabilities in the form of borrowings have been measured at amortized cost using the effective interest rate method.

H. Spare parts

Under previous GAAP machinery spares that were specific to a particular Property, Plant and Equipment (PPE) were capitalized to the cost of the PPE. Replacement of such spares were charged to the Statement of Profit and Loss. Spares other than above, were inventorised on procurement and were charged to Statement of Profit and Loss on consumption. Under Ind AS, all significant spare parts which meet the definition of Property, Plant and Equipment are capitalized as Property, Plant and Equipment and in other cases, the spare part is inventorised on procurement and charged to Statement of Profit and Loss on consumption.

I. Capital Grant

Under previous GAAP Government Grants in respect of Property, Plant and Equipment was presented as part of Reserves and Surplus. Under Ind AS, Government Grants in respect of Property, Plant and Equipment need to be presented as deferred income as part of liabilities.

J. Excise Duty

Under previous GAAP revenue from sale of goods was presented net of the Excise Duty. Under Ind AS, revenue from sale of goods is presented inclusive of Excise Duty. Accordingly, Excise Duty has been presented in the Statement of Profit and Loss as an expense.

K. Inventory valuation

Under previous GAAP the Corporation had during financial year 2015-16, changed the method of determination of cost of inventories from ‘Weighted Average’ to ‘First in First Out’ (FIFO) in respect of crude oil and finished products (except lubricants which were continued to be determined at weighted average). Under Ind AS, the Corporation is required to use the same accounting policies in its Opening Ind AS Balance Sheet and throughout for all periods presented in its first Ind AS financial statements. Accordingly, the Corporation has restated the opening value of inventories as per FIFO method.

L. Remeasurement of defined benefit liabilities

Under previous GAAP the Corporation recognised remeasurement of defined benefit plans under Profit or Loss. Under Ind AS, remeasurement of defined benefit plans are recognised in Other Comprehensive Income.

M. BPCL Trust for investment in shares

As per the scheme of Amalgamation of the erstwhile Kochi Refineries Limited (“KRL”) with the Corporation approved by the Government of India, 3,37,28,737 equity shares of the Corporation were allotted (in lieu of the shares held by the Corporation in the erstwhile KRL) to a trust for the benefit of the Corporation in the financial year 2006-07. After the 1:1 Bonus issue in July 2012 and July 2016, presently the trust holds 13,49,14,948 equity shares of the Corporation. Under Ind AS, the cost of the original investment together with the additional contribution to the corpus of the trust made in 2014-15 has been reduced from the total equity of the Corporation. To the extent of the face value of the shares, the same has been reduced from the Paid up Share capital of the Corporation and the balance has been reduced from Other Equity under a separate reserve. Accordingly, the income received from the Trust during the financial year 2015-16 has been recognised directly under Other Equity of the Corporation.

N. Fair value measurement of optionally convertible debentures

Under previous GAAP the Corporation accounted for optionally convertible debentures which are classified as non-current investments at cost. Under Ind AS, these investments are measured at fair value through profit or loss.

O. Others

Other adjustments on account of transition to Ind AS include reversal of amortization of Intangible asset at indefinite useful life, reclassification of Property, Plant and Equipment to Intangible asset as part of service concession arrangements, amortization impact of land leases classified as Finance Lease and reclassification of Land lease classified as Operating Leases from Property, Plant and Equipment to Prepaid rentals, classification of Investment Property, fair valuation of deposits and loans given at concessional rate of interest to employees and effect of adjustments relating to revenue recognition.

P. Deferred Tax

Under previous GAAP deferred tax accounting was done using the income statement approach, which focuses on differences between taxable profits and accounting profits for the period. Under Ind aS, accounting of deferred taxes is done using the Balance Sheet approach, which focuses on temporary differences between the carrying amount of an asset or liability in the balance sheet and its tax base.

Consequent to non-revision in retail selling prices corresponding to the international prices and applicable foreign exchange rates prevailing during the year, the Corporation has suffered gross under recovery of Rs.1,172.83 Crores (Previous year Rs.1,796.50 Crores) on sale of sensitive petroleum products. As advised by the Ministry of Petroleum & Natural Gas, the Corporation has accounted compensation towards sharing of under-recoveries on sale of sensitive petroleum products as follows:

a) Nil (Previous year Rs.198.01 Crores) discount on crude oil / products purchased from ONGC/GAIL/NRL which has been adjusted against purchase cost;

b) Rs.1,172.83 Crores (Previous year Rs.1,598.49 Crores) subsidy from Government of India has been accounted as Revenue from operations.

After adjusting the above compensation, the net under recovery absorbed by the Corporation is Nil (Previous year under recovery Nil).

NOTE 2

As per the scheme of Amalgamation of the erstwhile Kochi Refineries Limited (“KRL”) with the Corporation approved by the Government of India, 3,37,28,737 equity shares of the Corporation were allotted (in lieu of the shares held by the Corporation in the erstwhile KRL) to a trust for the benefit of the Corporation in the financial year 2006-07. After the 1:1 Bonus issue in July 2012 and July 2016, presently the trust holds 13,49,14,948 equity shares of the Corporation. The cost of the original investment together with the additional contribution to the corpus of the trust made in 2014-15 has been reduced from the total equity of the Corporation. To the extent of the face value of the shares, the same has been reduced from the Paid up Share capital of the Corporation and the balance has been reduced from Other Equity under a separate reserve. Accordingly, the income received from the Trust during the financial years 2016-17 and 2015-16 has been recognised directly under Other Equity of the Corporation.

NOTE 3

The Corporation has numerous transactions with other oil companies. The outstanding balances (included under Trade Payables / Trade Receivables, etc.) from them including certain other outstanding credit and debit balances are subject to confirmation/reconciliation. Adjustments, if any, arising therefrom are not likely to be material on settlement and are accounted as and when ascertained.

NOTE 4

During the Financial Year 2016-17, provision has been made under Salaries and Wages in respect of pay revision dues (including retiral dues) to employees w.e.f. 1st January 2017 at an estimated amount of Rs.596.86 Crores based on the available information and judgement.

NOTE 5 SERVICE CONCESSION ARRANGEMENTS

The Corporation has entered into service concession arrangements with entities supplying electricity (“The Regulator”) to construct, own, operate and maintain a wind energy based electric power generating station (“Plant”).

Under the terms of agreement, the Corporation will operate and maintain the Plant and sell electricity generated to the Regulator for a period which covers the substantial useful life of the Plant which may be renewed for such further period as may be mutually agreed upon between the parties. The Corporation will be responsible for any maintenance services during the concession period.

The Corporation in turn has a right to charge the Regulator at the agreed rate as stated in the service concession arrangement.

The fair value towards the construction of the Plant has been recognised as an Intangible Asset and is amortized over the useful life of the asset or period of contract whichever is less.

During the year ended 31st March 2017, the Corporation has earned Nil profit (Previous year Rs.2.42 Crores) from construction of the plant. The Corporation has recognised an intangible asset of Rs.57.82 Crores as at 31st March 2017 (31st March 2016: Rs.61.36 Crores and 1stApril 2015: Rs.16.66 Crores) of which Rs.0.58 Crores (Previous year Rs.0.24 Crores) has been amortized during the period.

Operating leases

A. Leases as lessee

The Corporation enters into cancellable/non-cancellable operating lease arrangements for land, godowns, office premises, staff quarters and others. The lease rentals paid for the same are charged to the Statement of Profit and Loss.

a) The future minimum lease payments under non-cancellable leases payable as at the year ending are as follows:

b) The Corporation enters into cancellable operating leases in respect of land, office premises, staff quarters and others which are cancellable by giving appropriate notices as per respective agreements. During the year Rs.237.20 Crores (Previous year Rs.327.90 Crores) has been charged to Statement of Profit and Loss on account of lease rentals.

B. Leases as lessor

a) The Corporation enters into cancellable/non-cancellable operating lease arrangements in respect of land, commercial spaces, storage distribution facilities, etc. The details are as follows:

b) Total contingent rent recognised as income in the Statement of Profit and Loss during 2016-17 is Rs.25.16 Crores (Previous year Rs.23.20 Crores)

c) The future minimum lease payments under non cancellable leases receivable as at the year ending are as follows:

Finance Lease Leases as lessee

i) The Corporation has finance lease arrangements for various Land leases. The carrying amount of these assets are shown below:

NOTE 6 EMPLOYEE BENEFITS

[A] Post Employment Benefit Plans:

Defined Contribution Scheme

Defined Contribution Scheme (DCS) was introduced effective from 1st January 2007. Corporation contributes at a defined percentage of the employee salary out of the total entitlements on account of superannuation benefits under this scheme. This Fund is maintained under a trust.

Defined Benefit Plans

The Corporation has the following Defined Benefit Plans

Gratuity: The Corporation has a defined benefit gratuity plan managed by a trust. The Trustees administer contributions made to the trust, investments thereof etc. Based on actuarial valuation, the contribution is paid to the trust which is invested in plan assets as per the investment pattern prescribed by the Government. Gratuity is paid to a staff member who has put in a minimum qualifying period of 5 years of continuous service, on superannuation, resignation, termination or to his nominee on death.

Other Defined Benefits: These are (a) Post Retirement Medical Scheme (managed by a trust) to employees, spouse, dependent children and dependent parents;(b) Pension / Ex-Gratia scheme to the retired employees who are entitled to receive the monthly pension / ex-gratia for life;(c) Death in service / Permanent Disablement benefit given to the spouse of the employee / employee, provided the deceased’s family / disabled employee deposits with the Corporation, retirement dues such as PF, Gratuity, Leave Encashment etc., payable to them; (d) Resettlement allowance paid to employees to permanently settle down at the time of retirement; and (e) The Corporation makes contribution towards Provident Fund, which is administered by the trustees. The Corporation has an obligation to fund any shortfall on the yield of the trust’s investments over the interest rates declared by the Government under EPF scheme.

These defined benefit plans expose the Corporation to actuarial risks, such as longetivity risk, interest rate risk, and market (investment) risk.

The estimates for future salary increases, considered in actuarial valuation, take into account inflation, seniority, promotion and other relevant factors.

The expected return on plan assets is based on market expectation at the beginning of the period, for returns over the entire life of the related obligation.

[B] Provident Fund:

The Corporation’s contribution to the Provident Fund is remitted to a separate trust established for this purpose based on a fixed percentage of the eligible employees’ salary and charged to Statement of Profit and Loss. Shortfall, if any, in the fund assets, based on the Government specified minimum rate of return, will be made good by the Corporation and charged to Statement of Profit and Loss. The actual return earned by the fund has mostly been higher than the Government specified minimum rate of return in the past years. There is no shortfall in the fund as on 31st March 2017, 31st March 2016 and 1st April 2015.

NOTE 7 RELATED PARTY TRANSACTIONS

a) Names of the Related parties

Joint Venture & Associate Companies

Indraprastha Gas Limited Petronet India Limited *

Petronet CCK Limited #

Petronet CI Limited*

Petronet LNG Limited

Bharat Oman Refineries Limited

Maharashtra Natural Gas Limited

Central UP Gas Limited

Sabarmati Gas Limited

Bharat Stars Services Private Limited

(Including Bharat Stars Services (Delhi) Pvt. Limited)

Bharat Renewable Energy Limited *

Matrix Bharat Pte. Ltd.

Delhi Aviation Fuel Facility Private Limited

Kannur International Airport Limited

GSPL India Gasnet Limited

GSPL India Transco Limited

Mumbai Aviation Fuel Farm Facility Private Limited

Kochi Salem Pipeline Private Limited

IBV (Brazil) Petroleo Ltda.

Brahmaputra Cracker and Polymer Limited DNP Limited

Petroleum India International BPCL-KIAL Fuel Farm Private Limited Haridwar Natural Gas Pvt. Ltd.

Goa Natural Gas Pvt. Ltd.

FINO Paytech Limited

*Companies in the process of winding up

# Petronet CCK Limited has become Subsidiary w.e.f. 29th May 2015

Key Management Personnel :

Shri S. Varadarajan Chairman & Managing Director (Up to 30.09.2016)

Shri D. Rajkumar Chairman & Managing Director (Appointed w.e.f. 01.10.2016)

Shri K. K. Gupta Director (Marketing) (Up to 29.02.2016)

Shri S. Ramesh Director (Marketing) (Appointed w.e.f. 01.03.2016)

Shri B. K. Datta Director (Refineries) (Up to 31.07.2016)

Shri R. Ramachandran Director (Refineries) (Appointed w.e.f. 01.08.2016)

Shri S. P Gathoo Director (Human Resource)

Shri P Balasubramanian Director (Finance)

Shri Neeraj Mittal Govt. Nominee Director (Up to 11.12.2015)

Smt Sushma Taishete Govt. Nominee Director (Appointed w.e.f. 19.05.2015 to 01.01.2016) Shri Anant Kumar Singh Govt. Nominee Director (Appointed w.e.f. 02.01.2016)

Shri P H. Kurian Govt. Nominee Director

Shri J. R. Varma Independent Director (Up to 09.08.2015)

Shri B. Chakrabarti Independent Director (Up to 09.08.2015)

Shri Rajesh Kumar Mangal Independent Director (Appointed w.e.f. 01.12.2015)

Shri Deepak Bhojwani Independent Director (Appointed w.e.f. 01.12.2015)

Shri Gopal Chandra Nanda Independent Director (Appointed w.e.f. 01.12.2015)

Shri Vishal V Sharma Independent Director (Appointed w.e.f. 09.02.2017)

b) The nature wise transactions with the above related parties are as follows:

The outstanding balances are unsecured and are settled in cash except advance against equities which are settled in equity.

c) In the course of its ordinary business, the Corporation enters into transactions with other Government controlled entities (not included in the list above). The Corporation has transactions with other Government-controlled entities, including but not limited to the followings:

- Sales and purchases of goods and ancillary materials;

- Rendering and receiving of services;

- Receipt of dividends;

- Loans and advances;

- Depositing and borrowing money; and

- Uses of public utilities.

These transactions are conducted in the ordinary course of business on terms comparable to those with other entities that are not Government controlled entities.

d) Key management personnel compensation

NOTE 8

Dues from Directors is Rs.0.40 Crores (31st March 2016: Rs.0.35 Crores and 1st April 2015: Rs.0.32 Crores) and Dues from Officers is Rs.4.13 Crores (31st March 2016: Rs.3.98 Crores and 1st April 2015: Rs.3.30 Crores).

The Corporation has elected to continue the policy adopted under previous GAAP for accounting the foreign exchange differences arising on settlement or translation of long-term foreign currency monetary items outstanding as of 31st March 2016 i.e. foreign exchange differences arising on settlement or translation of long-term foreign currency monetary items relating to acquisition of depreciable assets are adjusted to the carrying cost of the assets and depreciated over the balance life of the asset and in other cases, if any, accumulated in “Foreign Currency Monetary Item Translation Difference Account” and amortized over the balance period of the liability. For the current financial year, the impact on account of above (net of depreciation and amortization) is decrease in profit before tax of Rs.165.19 Crores (increase in profit in Previous year Rs.244.01 Crores). The net gain remaining unamortized under Foreign Currency Monetary Item Translation Difference Account as at 31st March 2017 is Rs.206.34 Crores (net loss as at 31st March 2016 Rs.79.28 Crores and net gain of Rs.27.20 Crores as at 1st April 2015).

NOTE 9

Impairment of Assets: It is assumed that suitable mechanism would be in place by the Government of India, in line with earlier/ current year(s), to provide compensation towards under recoveries of margin, if any, and recoveries against Direct Benefit Transfer for LPG Scheme on account of sale of sensitive petroleum products in subsequent years. Hence, there is no indication of impairment of assets of the Corporation as at 31st March 2017.

NOTE 10

In compliance of Ind AS 37 on “Provisions, Contingent Liabilities and Contingent Assets”, the required information is as under:

The above provisions are made based on estimates and the expected timing of outflows is not ascertainable at this stage.

Above includes provision of Rs.62.57 Crores (Previous year Rs.62.47 Crores) in respect of which deposits have been made.

C. Financial risk management

C. i. Risk management framework

The Corporation’s Board of Directors has overall responsibility for the establishment and oversight of the Corporation’s risk management framework. The Risk Management Committee of the Board has defined roles and responsibilities, which includes reviewing and recommending the risk management plan and the risk management report for approval of the Board with the recommendation of the Audit Committee. The Corporation has adopted a Risk Management Charter and Policy for self-regulatory processes and procedures for ensuring the conduct of the business in a risk conscious manner.

The Corporation has exposure to the following risks arising from financial instruments:

- Credit risk;

- Liquidity risk; and

- Market risk

C.ii. Credit risk

Credit risk is the risk of financial loss to the Corporation if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Corporation’s trade and other receivables, cash and cash equivalents and other bank balances, derivatives and debt securities. The maximum exposure to credit risk in case of all the financial instuments covered below is restricted to their respective carrying amount.

(a) Trade and other receivables from customers

Credit risk in respect of trade and other receivables is managed through credit approvals, establishing credit limits and monitoring the creditworthiness of customers to which the Corporation grants credit terms in the normal course of business.

As at 31st March 2017, 31st March 2016 and 1st April 2015, the Corporation’s industrial customers accounted for the majority of the trade receivables.

Expected credit loss assessment for Trade and other receivables from customers as at 1st April 2015, 31st March 2016 and 31st March 2017

The Corporation uses an allowance matrix to measure the expected credit losses of trade and other receivables.

The loss rates are computed using a ‘roll rate’ method based on the probability of receivable progressing through successive stages till full provision for the trade receivable is made. Roll rates are calculated separately for exposures based on common credit risk characteristics for a set of customers.

The following table provides information about the exposure to credit risk and Expected Credit Loss Allowance for trade and other receivables:

(b) Cash and cash equivalents and Other Bank Balances

The Corporation held cash and cash equivalents and other bank balances of Rs.64.69 Crores at 31st March 2017 (31st March 2016: Rs.2,067.35 Crores, 1st April 2015 : Rs.1,360.20 Crores). The cash and cash equivalents are held with banks with good credit ratings and financial institution counterparties with good market standing. Also, Corporation invests its short term surplus funds in bank fixed deposit, Government of India Treasury-bills and liquid schemes of mutual funds, which carry no / low mark to market risks for short duration, therefore does not expose the Corporation to credit risk.

(c) Derivatives

The derivatives are entered into with banks, financial institutions and other counterparties with good credit ratings. Further exposures to counter-parties are closely monitored and kept within the approved limits.

(d) Investment in debt securities

Investment in debt securities are mainly as loans to Subsidiary, Joint Venture companies and investment in Government securites which do not carry any significant credit risk.

C.iii Liquidity risk

Liquidity risk is the risk that the Corporation will encounter difficulty in meeting the obligations associated with its financial liabilities that are settled by delivering cash or another financial asset.

Liquidity risk is managed by Corporation through effective fund management. The Corporation has obtained fund and non-fund based working capital lines from various banks. Furthermore, the Corporation has access to funds from debt markets through commercial paper programs, foreign currency borrowings and other debt instruments.

The following are the remaining contractual maturities of financial liabilities at the reporting date. The amounts are gross and undiscounted, and include estimated interest payments.

* Guarantees issued by the Corporation on behalf of Joint Venture/Subsidiary are with respect to borrowings raised by the respective entity. These amounts will be payable on default by the concerned entity. As of the reporting date, none of the Subsidiary/Joint Venture has defaulted and hence, the Corporation does not have any present obligation to third parties in relation to such guarantees.

C.iv. Market risk

Market Risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices. Market risk comprises three types of risk: currency risk, interest rate risk and other price risk.

C.iv.a Currency risk

The Corporation is exposed to currency risk on account of its operating and financing activities. The functional currency of the Corporation is Indian Rupee. Our exposure is mainly denominated in U.S. dollars (USD). The USD exchange rate has changed substantially in recent periods and may continue to fluctuate substantially in the future. The Corporation has put in place a Financial Risk Management Policy to Identify the most effective and efficient ways of managing the currency risks. The Corporation uses derivative instruments (mainly foreign exchange forward contracts) to mitigate the risk of changes in foreign currency exchange rates in line with our policy.

The Corporation do not use derivative financial instruments for trading or speculative purposes.

Exposure to currency risk

The currency profile of financial assets and financial liabilities as at 31st March 2017, 31st March 2016 and 1st April 2015 are as below:

Sensitivity analysis

A reasonably possible strengthening/(weakening) of the USD against INR at 31st March would have affected the measurement of financial instruments denominated in US dollars and affected profit or loss by the amounts shown below. This analysis assumes that all other variables, in particular interest rates, remain constant and ignores any impact of forecast sales and purchases. In cases where the related foreign exchange fluctuation is capitalized to fixed assets or recognised direclty in reserves, the impact indicated below may affect the Corporation’s income statement over the remaining life of the related fixed assets or the remaining tenure of the borrowing respectively.

C.iv.b Interest rate risk

Interest rate risk can be either fair value interest rate risk or cash flow interest rate risk. Fair value interest rate risk is the risk of changes in fair values of fixed interest bearing investments because of fluctuations in the interest rates, in cases where the borrowings are measured at fair value through profit or loss. Cash flow interest rate risk is the risk that the future cash flows of floating interest bearing investments will fluctuate because of fluctuations in the interest rates. The Company’s approach to managing interest rate risk is to have a judicious mix of borrowed funds with fixed and floating interest rate obligation.

Exposure to interest rate risk

Corporation’s interest rate risk arises primarily from borrowings. The interest rate profile of the Corporation’s interest-bearing financial instruments is as follows:

Fair value sensitivity analysis for fixed-rate instruments

The Corporation accounts for certain investments in fixed-rate financial assets such as investments in Oil bonds at fair value through profit or loss. Accordingly, a decrease in 25 basis point in interest rates is likely to increase the profit or loss (before tax) for the year ending 31st March 2017 by Rs.80.21 Crores (31st March 2016 Rs.86.34 Crores) and an increase in 25 basis point in interest rates is likely to decrease the profit or loss (before tax) for the year ending 31st March 2017 by Rs.81.76 Crores (31st March 2016 Rs.88.18 Crores).

Cash flow sensitivity analysis for variable-rate instruments

A reasonably possible change of 25 basis points in interest rates at the reporting date would have increased/ (decreased) profit or loss by the amounts shown below. This analysis assumes that all other variables, in particular foreign currency exchange rates, remain constant. In cases where the related interest rate risk is capitalized to fixed assets, the impact indicated below may affect the Corporation’s income statement over the remaining life of the related fixed assets.

C.iv.c Commodity rate risk

BPCL’s profitability gets affected by the price differential (also known as Margin or Crack spread) between prices of products (output) and the price of the crude oil and other feed-stocks used in production (input), prices of both are set by markets. Hence BPCL uses derivatives instruments (swaps, futures, options, and forwards) to hedge exposures to commodity price risk to cover refinery operating cost using Basic Swaps on various products cracks like Naphtha, Gasoline (Petrol), Jet/Kerosene, Gasoil (Diesel) and Fuel Oil against Benchmark Dubai Crude. Further volatility in freight costs is hedged through Freight Forwards and bunker purchases. Settlement of all derivative transactions take place on the basis of monthly average of the daily prices of the settlement month quoted by Platts.

BPCL measures market risk exposure arising from its trading positions using value-at-risk techniques. These techniques make a statistical assessment of the market risk arising from possible future changes in market prices over a one-day holding period.

BPCL uses historical model of VAR techniques based on variance/covariance to make a statistical assessment of the market risk arising from possible future changes in market values over a 24-hour period and within a 95% confidence level. The calculation of the range of potential changes in fair value takes into account positions, the history of price movements for last two years and the correlation of these price movements.

C.iv. d Price risk

The Corporation’s exposure to equity investments price risk arises from investments held by the Corporation and classified in the financial statements at fair value through OCI. The corporation intends to hold these investments for long-term for better returns and price risk will not be significant from a long term perspective.

Notes

A. The Corporation has Collaterised Borrowing and Lending Obligations limits from Clearing Corporation of India Limited, which are secured by 6.90% Oil Marketing Companies GOI Special Bonds 2026. As the Counterparty currently does not have a legally enforceable right to off set these amounts, these amounts have not been offset in the balance sheet, but have been presented separately in the table above.

B. The Corporation purchases and sells petroleum products from different Oil Marketing Companies. Under the terms of the agreement, the amounts payable by the Corporation are offset against receivables and only the net amounts are settled. The relevant amounts have therefore been presented net in the balance sheet.

C. The Corporation enters into derivative transactions under the International Swaps and Derivatives Association (ISDA) master netting agreements. In general, under such agreements the amounts owed by each counterparty on a single day in respect of all transactions outstanding in the same currency are aggregated into a single net amount that is payable by one party to the other.

D. The Corporation enters into derivative transactions under the International Swaps and Derivatives Association (ISDA) master netting agreements. In general, under such agreements the amounts owed by each counterparty on a single day in respect of all transactions outstanding in the same currency are aggregated into a single net amount that is payable by one party to the other. The ISDA master netting agreements do not meet the criteria for offsetting in the balance sheet. This is because the Counterparty does not currently have legally enforceable right to offset recognised amounts, because the right to offset is enforceable only on the occurrence of future events.

NOTE 11 CAPITAL MANAGEMENT

The Corporation’s objective is to maximize the shareholders’ value by maintaining an optimum capital structure. Management monitors the return on capital as well as the debt equity ratio and makes necessary adjustments in the capital structure for the development of the business.

The Corporation’s debt to equity ratio as at 31st March, 2017 was 0.78 (31st March 2016: 0.58 and 1st April, 2015: 0.55)

Note: For the purpose of computing debt to equity ratio, equity includes Equity Share Capital and Other Equity and Debt includes Long term borrowings, short term borrowings and current maturities of long term borrowings.

NOTE 12 SEGMENT REPORTING

As per the requirements of Ind AS 108 on “Operating Segments”, segment information has been provided under the Notes to Consolidated Financial Statements.

NOTE 13 SPECIFIED BANK NOTES

The details of Specified Bank Notes (SBN) held and transacted during the period from 8th November, 2016 to 30th December, 2016 are provided in the Table below:-

Note:

Above excludes Rs.0.22 Crores collected during 9th December 2016 to 11th December 2016 in one of the Company Owned Company Operated Retail Outlet since the same was stolen before depositing into the bank.

NOTE 14

To the extent, the Corporation has received intimation from the “suppliers” regarding their status under the Micro, Small and Medium Enterprises Development Act, 2006, the details are provided as under:

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