1. Corporate Information
Hindustan Petroleum Corporation Limited referred to as “HPCL” or “the Corporation” was incorporated on 5th July, 1952. HPCL is a Government of India Enterprise listed on the Bombay Stock Exchange Limited and National Stock Exchange of India Limited. The Corporation is engaged, primarily in the business of refining of crude oil and marketing of petroleum products. The Corporation has, among others, refineries at Mumbai and Vishakhapatnam, LPG bottling plants and Lube blending plants. The Corporation’s marketing infrastructure includes vast network of Installations, Depots, Aviation Service Stations, Retail Outlets and LPG distributors.
Authorization of financial statements
The Financial Statements were authorized for issue in accordance with a resolution of the Board of Directors on 26th May 2017.
1.1. Basis for preparation:
The Financial Statements are prepared in accordance with Indian Accounting Standards (Ind AS) notified under Section 133 of the Companies Act, 2013 (“Act”) read with Companies (Indian Accounting Standards) Rules, 2015; and other relevant provisions of the Act and Rules thereunder.
The Financial Statements are prepared under historical cost convention basis, except for certain assets and liabilities measured at fair value.
The Corporation has adopted 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 Accounting Standard as prescribed under Section 133 of the Act, read with Rule 7 of the Companies (Accounts) Rules, 2014, (previous GAAP). The Corporation’s Presentation currency and Functional currency is Indian Rupees (‘). All figures appearing in the Financial Statements are rounded to the nearest crores (‘ Crores), except where otherwise indicated.
1.2. Use of Judgement and Estimates
The preparation of the Corporation’s Financial Statements requires management to make judgements, estimates and assumptions that affect the reported amounts of revenue, expenses, assets, liabilities and the accompanying disclosures along with contingent liabilities. Uncertainty about these assumptions and estimates could result in outcomes that require material adjustments to the carrying amount of assets or liabilities affected in future periods. The Corporation continually evaluates these estimates and assumptions based on the most recently available information.
In particular, information about significant areas of estimates and judgments in applying accounting policies that have the most significant effect on the amounts recognized in the financial statements are as below:
- Financial instruments;
- Estimates of useful lives and residual value of Property, Plant and Equipment and intangible assets;
- Valuation of inventories;
- Measurement of recoverable amounts of cash-generating units;
- Measurement of Defined Benefit Obligation, key actuarial assumptions;
- Provisions and Contingencies; and
- Evaluation of recoverability of deferred tax assets;
Revisions to accounting estimates are recognized prospectively in the Financial Statements in the period in which the estimates are revised and in any future periods affected.
Note 2: Property, Plant and Equipments
The following are the carrying values of Property, Plant & Equipment:
1. Includes assets costing Rs.0.007 crores /- (2015-2016 :Rs.0.007 crores; 2014-15 : Rs.0.007 crores) of erstwhile Kosan Gas Company not handed over to the Corporation. In case of these assets, Kosan Gas Company was to give up their claim. However, in view of the tenancy right sought by third party, the matter is under litigation.
2. Includes Rs.464.72 Crores (2015-2016: Rs.477.90 Crores ; 2014-15 : Rs.153.60 crores) towards Building, Other Machinery, Pipelines, Railway Sidings, Right of Way etc. being the Corporation’s Share of Cost of Land & Other Assets jointly owned with other Companies.
3. IncludesRs.35.28 Crores (2015-2016 : Rs.35.28 Crores ; 2014-15: Rs.35.99 crores) towards Roads & Culverts, Transformers & Transmission lines, Railway Sidings & Rolling Stock, ownership of which does not vest with the Corporation . The Corporation is having operational control over such assets. These assets are amortized at the rate of depreciation specified in Schedule II of Companies Act, 2013.
4. a) Includes following assets which are used for distribution of PDS Kerosene under Jana Kalyan Pariyojana against which financial assistance was provided by OIDB.
b) Includes assets held under PAHAL (DBTL) scheme against which financial assistance is being provided by MOPNG.
5. Deduction/ reclassification includes assets Rs.3.96 crores as on 31.03.17 (31.03.16 : Rs.5.32 crores; 01.04.15 Rs.2.00 crores) for which management has given consent for disposal & hence classified as Assets held for sale.
6. Leasehold Land includes Rs.27.57 Crores (2015-16: Rs.26.87 Crores 2014-15 : Rs.25.25 crores) for land acquired on lease-cum-sale basis from Karnataka Industrial Area Development Board (KIADB) which is capitalized without being amortised over the period of lease. Lease shall be converted into Sale on fulfillment of certain terms and conditions, as per allotment letter.
3.1 : Includes amount of Rs.73.96 Crores (31.03.2016 : Rs.73.96 crores, 01.04.2015 : Rs.73.96 Crores) towards subscribed, but not paid shares of HPCL Rajasthan Refinery Limited being part of MOA / AOA for which liability is created under Section 10 (2) of the Companies Act, 2013.
4.1 : The Company has designated these investment at fair value through other comprehensive income because these investments represent the investments that the Company intends to hold for long-term strategic purposes. No strategic investments were disposed of during the year. There have been no transfers of the cumulative gains or losses on these investments
4.2 : Members in Petroleum India International (AOP) : Hindustan Petroleum Corporation Ltd., Bharat Petroleum Corporation Ltd.,
Engineers India Ltd., Indian Oil Corporation Ltd., Indian Petrochemicals Corporation Ltd., Chennai Petroleum Corporation Ltd. and Oil India Ltd. Each one is holding 10% share except Indian Oil Corporation which is holding 30% and Bharat Petroleum Corporation Ltd. which is holding 20%.
5.1. The write-down of inventories to net realisable value during the year amounted to Rs.212.09 crores (31.03.2016 : Rs.58.32 crores; 01.04.2015 : Rs.192.77 crores). The reversal of write downs during the year amount to Rs.Nil (31.03.2016 : Rs.Nil; 01.04.2015 : Rs.Nil). The write downs and reversal are included in cost of materials consumed or changes in inventories of finished goods and work in progress.
6.1: 6.90% Special Bonds of face value of Rs.2,178.64 Crores and 7.59% G-Sec Bonds of face value of Rs.90 Crores are pledged with Clearing Corporation of India Limited against CBLO Loan.
The Company has issued the following Secured Redeemable Non-convertible Debentures:
i. 8.77% Non-Convertible Debentures were issued on 13th March, 2013 with the maturity date of 13th of March, 2018. These are secured by first legal mortgage by way of a Registered Debenture Trust Deed over immovable property of the company being undivided share of land with the entire First Floor in the building High Street 1, situated at Ahmedabad and the first charge of fixed assets mainly certain Plant and Machinery at Visakh Refinery. The value of such assets is Rs.1,111.87 Crs as on 31/03/2017, Rs.1,072.98 Crs. as on 31/03/2016 and Rs.1,126.39 Crs. as on 01/04/2015. During the year ended March, 2017 an amount of Rs.975.00 crores of 8.77% Non-Convertible Debentures is repayable within one year and shown in note # 27.
ii. 8.75% Non-Convertible Debentures were issued on 9th November, 2012 with the maturity date of 9th of November, 2015. These are secured by mortgage, on first pari passu charge basis, by way of a Registered Debenture Trust Deed over immovable property of the company being undivided share of land with the entire First Floor in the building High Street 1, situated at Ahmedabad and the first charge of fixed assets mainly certain Plant and Machinery at Mumbai Refinery. The value of such assets as on 01/04/2015 is Rs.936.15 Crores. During the year ended March, 2017 an amount of Nil (31.03.2016 : Nil; 31.03.2015 : Rs.545.00 crores) of 8.75% Non-Convertible Debentures is repayable within one year and shown in note # 27. These Debentures Matured on 9th November, 2015.
7.2 Syndicated Loans from Foreign Banks (repayable in foreign currency)
The Corporation has availed Long Term Foreign Currency Syndicated Loans from banks at 3 months floating LIBOR plus spread (spread range : 65 to 155 basis point p.a.). These loans are taken for the period of 5 years. Rs.3,008.46 Crores (31.03.2016 : Rs.6,583.00 crores; 31.03.2015 : Rs.2,490.87 Crores) is repayable within 1 year and the same has been shown as “Current Maturity of Long Term Debts” under Note # 27.
8.1: Amount reflected towards deposits received from customers/ dealers have been presented as non-current financial liabilities. In view of the Corporation, such presentation would reflect an appropriate classification based on commercial practice as these are generally not claimed in short term.
8.2: Includes deposit received towards Rajiv Gandhi Gramin LPG Vitrak Yojana and Prime Minister Ujjavala Yojana of Rs.941.61 crores (31.03.2016 : Rs.219.64 crores; 01.04.2015 : Rs.34.07 crores) The deposits against these schemes have been funded from CSR fund or by Government of India.
9.1: To the extent Micro, Small and Medium Enterprises have been identified, the outstanding balance, including interest thereon, if any, as at Balance Sheet date is disclosed on which Auditors have relied upon.
10.1: This includes loans repayable within one year: Syndicated Loans from Foreign Banks (repayable in foreign currency) Rs.3,008.46 crores (31.03.2016 : Rs.6,583 crores; 01.04.2015: Rs.2,490.87 Crores), 8.77% Non-Convertible Debenture Rs.975 crores as on 31.03.2017, 8.75% Non-Convertible Debentures r 545 crores as on 01.04.2015, and Loan from Oil Industry and Development Board Rs.95.69 crores (31.03.2016 : Rs.189.50 crores; 01.04.2015: Rs.234.50 Crores).
10.2: No amount is due as at the end of the year for credit to Investors’ Education and Protection Fund.
11.1: Net of discount of Rs.1,920.07 crores (2015-16 : Rs.1,805.78 crores) and includes amount towards additional SSC of Rs.57.21 Crores (2015-16 : Rs.430.14 Crores).
Note 12: First-time adoption of Ind AS Transition to Ind AS
These are the Corporation’s first financial statements prepared in accordance with Ind AS.
For the year ended 31.03.2016, the Corporation had prepared its financial statements in accordance with Companies (Accounting Standards) Rules, 2014, notified under Section 133 of the Companies Act 2013 and other relevant provisions of the Act (‘IGAAP’).
The accounting policies set out in Note 2 have been applied in preparing the Financial Statements for the year ended 31.03.2016 onwards and the opening Ind AS Balance Sheet on the date of transition (i.e. 01.04.2015).
In preparing its Ind AS Balance Sheet as on 01.04.2015 and in presenting the comparative information for the year ended 31.03.2016, the Corporation has adjusted amounts previously reported in the Financial Statements prepared in accordance with IGAAP. This note explains the principal adjustments made by the Corporation in restating its Financial Statements prepared in accordance with IGAAP, and how the transition from IGAAP to Ind AS has impacted the Corporation’s financial position, financial performance and cash flows.
A. Exemptions and exceptions availed
In preparing the Financial Statements, the Corporation has availed the below mentioned optional exemptions and mandatory exceptions.
A.1 Optional exemptions
A.1.1 Property, Plant and Equipment and Intangible Assets
The Corporation has availed the exemption available under Ind AS 101 to continue the carrying value for all of its Property, Plant and Equipment and Intangible Assets as recognised in the Financial Statements as on the date of transition to Ind ASs, measured as per the IGAAP and use that as its deemed cost as on the date of transition (1 April 2015).
A.1.2 Intangible Assets accounted for in accordance with Service Concession Arrangements
The Corporation has reclassified from its Property, plant and equipment certain Wind Mill Assets forming part of Service Concession Arrangements under Ind AS to Intangible assets on the date of transition. The Corporation has availed exemption available under Ind AS 101 to carry such wind mill assets at its IGAAP carrying values on the date of transition since it is impracticable to apply the requirements of Appendix C, Service Concession Arrangements to Ind AS 11 retrospectively.
A.1.3 Designation of previously recognised financial instruments
As per Ind AS 101, the Corporation has designated its investment in equity shares held as on 1 April 2015 as fair value through other comprehensive income (FVTOCI) based on facts and circumstances on the date of transition to Ind AS (i.e. 1 April 2015). The Corporation has availed this exemption for its investment in equity shares other than Subsidiaries, Joint Ventures and Associates.
A.1.4 Investment in Subsidiaries, Joint Ventures and Associates
The Corporation has availed the exemption available under Ind AS 101 to measure its investments in subsidiaries, joint venture and associates as the IGAAP carrying value as deemed cost as on 1 April 2015.
A.1.5 Long term foreign currency monetary items
For borrowings taken upto 31 March 2016, the Corporation has availed the exemption under Ind AS 101 to continue recognising foreign exchange differences on long-term foreign currency monetary items. Accordingly, exchange difference 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 accumulated in “Foreign Currency Monetary Item Translation Difference Account” and amortised over the balance period of the Borrowings.
A.2 Ind AS mandatory exceptions
Ind AS estimates as on 1 April 2015 are consistent with the estimates as on the same date made in conformity with IGAAP. Corporation has made estimates for following items in accordance with Ind AS on the date of transition as these were not required under IGAAP:
- Investment in equity instruments carried at FVPL or FVOCI;
- Impairment of financial assets based on expected credit loss model.
- Determination of the discounted value for financial instruments carried at amortised cost.
A.2.2 Classification and measurement of financial assets
As permitted under Ind AS 101, the Corporation has determined the classification of financial assets based on facts and circumstances that exist on the date of transition. In line with Ind AS 101, measurement of financial assets accounted at amortised cost has been done retrospectively except where the same is impracticable.
B.1. Statement of Cash Flows
The transition from IGAAP to Ind AS has not made a material impact on Statement of Cash Flows.
Notes to the Equity reconciliation:
Note B.2.1.: Proposed Dividend
Under IGAAP, dividends proposed by the Board of Directors after the Balance Sheet date but before the approval of Financial Statements were considered as adjusting event. Accordingly, provision for proposed final dividend was recognised as a liability. Under Ind AS, proposed dividend is recognised as a liability in the period in which it is declared by Corporation i.e. usually when approved by shareholders in an Annual General Meeting.
Accordingly, the liability for proposed final dividend as on 1 April 2015 and 31 March 2016 included under the Provisions, in respective accounting periods, has been reversed with corresponding adjustments to respective period’s Retained Earnings.
Note B.2.2.: Fair valuation of Equity Instruments
Under IGAAP, Corporation accounted for long term investments in quoted equity shares as investment measured at cost less provision for other than temporary diminution in the value of investments. Under Ind AS, Corporation has designated such investments as FVTOCI (Fair Value through Other Comprehensive Income) investments.
At the date of transition to Ind AS, the difference between the cost of the investments and the fair value is recognised under equity in a separate reserve i.e. Equity Instruments through Other Comprehensive Income reserve.
Note B.2.3.: Investment in Preference Shares of HPCL Biofuels Limited (HBL)
Under IGAAP, investment in preference shares of HBL were carried at its Face Value. Under Ind AS, the investment in Preference Shares is fair valued on initial recognition and subsequently measured at amortised cost. Hence, the difference between the carrying amount as per IGAAP and its amortised cost under Ind AS is recognised in Opening Retained Earnings. Interest income is recognised in Statement of Profit and Loss for the year 2015-16 under Ind AS on account of unwinding of discount of such investments.
Note B.2.4.: Investment in Oil Marketing Companies GOI Special Bonds
Under IGAAP, Corporation had classified the investment in GOI Special Bonds as current investment. These investments were carried at lower of cost or its fair value. Hence, loss in respect of fair valuation of such investments was recognised and gain, if any, was ignored.
Under Ind AS, Corporation has elected to carry these investments at fair value with fair value changes being recognised in Statement of Profit and Loss. Hence, gain or loss on account of fair valuation of such bonds is recognised in Statement of Profit and Loss.
Note B.2.5.: Derivative contracts
Under Ind AS, outstanding derivative contracts are considered as financial instruments and hence, needs to be fair valued at every reporting date.
Consequently, under Ind AS, fair value gain or loss on the date of transition is recognized in Opening Retained Earnings and for other periods in respective period’s Statement of Profit and Loss.
Note B.2.6.: Adjustment of transaction cost on borrowings
Under IGAAP, transaction costs incurred for borrowings were recognised as an asset (Unamortised prepaid expenses) and amortised to Statement of Profit and Loss on a straight-line basis over the tenure of the borrowings. Ind AS 109 requires transaction costs incurred towards origination of borrowings to be deducted from the carrying amount of borrowings on initial recognition and subsequntly measured at amortized cost.
Accordingly, under Ind AS, restatement of outstanding ancillary cost is recognized in Opening Retained Earnings on transition date and subsequently in respective period’s Statement of Profit and Loss.
Note B.2.7.: Capital Grant
Under IGAAP, Capital Grants received from Government are presented as part of Reserves. Under Ind AS, Capital Grants received from Government need to be recognised as a Liability.
Accordingly, under Ind AS, amount of Capital Grant has been reclassified from Reserves to Liabilities.
Note B.2.8.: Timing of Revenue Recognition
Under IGAAP, revenue from sale of goods is recognised when the same is dispatched by the Corporation.
Under Ind AS, in situations where goods have left Corporation’s premises but Corporation continues to exercise effective managerial control on such goods till the time goods reach the customers premises, revenue is deferred and recognised when goods are accepted by the customer.
Accordingly, impact on account of margin elimination on deferred sales is recognised in Retained Earnings on transition date and in Statement of Profit and Loss for Financial Year 2015-16.
Note B.2.9.: Impairment of Trade Receivables
Under IGAAP, the Corporation recognised provision on Trade Receivables based on specific provisions to reflect the Corporation’s expectation. Under Ind AS, impairment of Trade Receivables shall be recognised based on Expected Credit Loss.
Accordingly, Corporation has recognised impairment loss on Trade Receivables at transition date in Opening Retained Earnings and in Statement of Profit and Loss for Financial Year 2015-16.
Note B.2.10.: Reclassification of freehold and leasehold land into operating leases
Under IGAAP, the Corporation has classified leasehold land with a period of 99 years or more as freehold land and accordingly not amortised the same. Also, leasehold land with a lease period of less than 99 years is classified as leasehold land under tangible fixed assets. The same was amortised over the tenure of lease and presented under Statement of Profit and Loss as Depreciation and Amortisation Expense.
Under Ind AS, land leases with long tenure of lease are required to be classified as Finance Lease. Hence, Corporation has decided to consider leasehold lands with lease period of more than 99 years as finance lease. Accordingly, the same will also be subject to amortisation under Ind AS. Also, land with a lease tenure of 99 years or less is treated as operating lease and amortised over the tenure of lease as Rent Expense. The amortisation of prepaid operating lease rentals is presented under Rent Expense.
Accordingly, lease hold land for 99 years has been amortized and impact on account of amortization upto transition date has been recognised in Opening Retained Earnings. Subsequently, the amortization charge is recognized as Rent Expenses in the statement of Profit and Loss. For the purpose of tenure, the Corporation has considered the lease period including the lease period where the Corporation has an un-conditional right to renew the lease at a rate below market price or a fix price.
Note B.2.11.: Reversal of amortisation of Right of Way Assets
Under IGAAP, the Right of Way Assets with indefinite useful lives were amortised over a period of 99 years based on Expert Advisory Committee opinion issued by Institute of Chartered Accountants of India. Under Ind AS, Intangible Assets with indefinite useful life are not required to be amortised but shall be tested for impairment annually or when there is an indication. Accordingly amortisation charge created during Financial Year 2015-16, in Statement of Profit and Loss, on Right of Way Assets with indefinite useful lives has been reversed under Ind AS.
Note B.2.12.: Stores and Spares
Under IGAAP, Stores and Spares which can be identified with a particular item of Property, Plant and Equipment (PPE) and whose use is expected to be irregular is capitalised as part of Tangible Fixed Assets. Other Stores and Spares are treated as inventory and charged to Statement of Profit and Loss on consumption. Under Ind AS, Stores and Spares with a useful life of more than one year shall be treated as PPE. Such Stores and Spares need to be depreciated from the date they are ready for use (based on clarification received from ITFG) over their estimated useful life. Hence, Stores and Spares which were erstwhile treated as inventory under IGAAP have been classified as part of PPE if recognition criteria are met (referred to as capital spares). Also, such capital spares are depreciated from the date of purchase over their estimated useful life. Additionally, since capital spares would be depreciated, spares charged to Statement of Profit and Loss on consumption have been reversed and depreciated over its estimated useful life.
Note B.2.13.: Enabling Asset
Under IGAAP, expenditure incurred on construction/acquisition of enabling assets on which the Corporation does not have a control were expensed out as and when incurred.
Under Ind AS, if the expenditure incurred on such enabling asset is of such nature that it is necessary for making the item of Property, Plant and Equipment capable of operating in the manner intended by the management, then the same has been capitalised with corresponding depreciation expense charged in the statement of Profit and Loss.
Note B.2.14.: Excise duty
Under IGAAP, 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. The excise duty has been presented in the Statement of Profit and Loss as an expense. This has resulted in an increase in the Revenue from Operations and Expenses for the year ended 31 March 2016.
Note B.2.15.: Actuarial gains/(losses)
Under Ind AS, the Corporation’s Accounting Policy is to recognise all actuarial gains and losses on Post-Employment Benefit Plans in other comprehensive income. Under IGAAP the Corporation recognised actuarial gains and losses in the Statement of Profit and Loss. However, this has no impact on the total comprehensive income and total Equity as on 1 April 2015 as well as 31 March 2016.
Note B.2.16.: Deferred tax assets / (liabilities) (net)
Indian GAAP requires deferred tax accounting using the income statement approach, which focuses on differences between taxable profits and accounting profits for the period. Ind AS 12 requires entities to account for deferred taxes 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. The application of Ind AS 12 approach has resulted in recognition of deferred tax on Ind AS adjustments which was not required under Indian GAAP.
Note 13: Fair Value Measurements
13.A. Classification of Financial Assets and Financial Liabilities:
The following table shows the carrying amounts of Financial Assets and Financial Liabilities which are classified as on Fair value through Profit and Loss (FVTPL), Fair value through other comprehensive Income (FVTOCI) and Amortized Cost.
13.B Fair value hierarchy
This section explains the judgements and estimates made in determining the fair values of the Financial Assets and Financial Liabilities that are recognised and measured at fair value and at amortised cost. To provide an indication about the reliability of the inputs used in determining fair value, Corporation has classified its Financial Assets and Financial Liabilities into the three levels prescribed under the accounting standard. It does not include fair value information for financial assets and financial liabilities not measured at fair value if the carrying amount is a reasonable approximation of fair value. An explanation of each level is provided under Significant Accounting Policy.
Note 14: Financial risk management
14.A. Risk management framework
The Corporation has adopted a well-defined process for managing its risks on an ongoing basis and for conducting the business in a risk conscious manner. These self-regulatory processes and procedures are contained in our Risk Management Charter and Policy, 2007. The Corporation has a structures and comprehensive Risk Management Framework, under which the risks are identified, assessed, monitored and reported, as a part of a normal business practice. The Corporation has leveraged technology to seamlessly integrate and automate the entire process of risk monitoring and reporting which also facilitate Corporation-wide process of managing the risks. The Corporation’s risk management system is fully aligned with the corporate and operational objectives.
The Corporation has engaged the services of an independent expert to assist in continued implementation of effective Risk Management Framework. In that direction, Risk Management Steering Committee (RMSC) continues to provide its guidance. The Corporation has put in place mechanism to inform Board Members about the risk management and minimisation procedures, and periodical review to ensure that executive management controls risks by means of a properly defined framework.
14.B. Corporation has identified financial risk and categorised them in three parts Viz. (i) Credit Risk, (ii) Liquidity Risk & (iii) Market Risk. Details regarding sources of risk in each such category and how Corporation manages the risk is explained in following notes:
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 receivables from customers and investment securities. Credit risk is managed through credit approvals, establishing credit limits and continuously monitoring the creditworthiness of customers to which the Corporation grants credit terms in the normal course of business. The Corporation establishes an allowance for doubtful debts and impairment that represents its estimate of incurred losses in respect of trade and other receivables and investments.
The maximum exposure to credit risk in case of all the financial instruments covered below is restricted to their respective carrying amount.
The Corporation’s exposure to credit risk is influenced mainly by the individual characteristics of each customer. Credit risk is managed through credit approvals, establishing credit limits and continuously monitoring the creditworthiness of customers to which the Corporation grants credit terms in the normal course of business.
At 31.03.2017, the Corporation’s most significant customer accounted for Rs.1,068.86 crores of the trade receivables carrying amount (31.03.2016 : Rs.855.93 crores and 01.04.2015 : Rs.704.47 crores).
The Corporation uses an allowance matrix to measure the expected credit losses of trade receivables (which are considered good). The following table provides information about the exposure to credit risk and loss allowance (including expected credit loss provision) for trade receivables:
The amounts written off at each reporting date relates to customers who have defaulted on their payments to the Corporation and are not expected to be able to pay their outstanding balances, mainly due to economic circumstances.
Cash and cash equivalents
The Corporation held cash and cash equivalents of Rs.8.85 crores at 31.03.2017 (31.03.2016 : Rs.8.05 crores; 01.04.2015 : Rs.9.15 crores). The cash and cash equivalents are held with consortium banks. Corporation invests its surplus funds in bank fixed deposit, GOI T-bills and liquid schemes of mutual funds, which carry no mark to market risks for short duration and exposes the Corporation to low credit risk.
The forex and interest rate derivatives were entered into with banks having an investment grade rating and exposure to counter-parties are closely monitor and kept within the approved limits. Commodity derivatives are entered with reputed Counterparties in the OTC (Over-the-Counter) Market.
Investment in debt securities
Investment in debt securities are in government securities or bonds which do not carry any credit risk.
Other than trade receivables, the Corporation has no other financial assets that are past due but not impaired.
14.B.2. Liquidity risk
Liquidity risk is the risk that the Corporation will not be able to meet its financial obligations as they become due. Corporation has a strong focus on effective management of its liquidity to ensure that all business and financial commitments are met on time. The corporation has adequate borrowing limits in place duly approved by its shareholders and board. Corporation sources of liquidity includes operating cash flows, cash and cash equivalents, fund and non-fund based lines from banks and liquid investment portfolio. Corporation ensures that there is minimal concentration risk by diversifying its portfolio across instruments and counterparties. Cash and fund flow management is monitored daily in order to have smooth and continuous business operations.
(i) Financing arrangements
The Corporation has an adequate fund and non-fund based lines from various banks. The corporation has sufficient borrowing limits in place duly, approved by its shareholders and board. Domestic and international credit rating from reputed credit rating agencies enables access of funds both from domestic as well as international market. HPCL’s diversified source of funds and strong operating cash flow enables it to maintain requisite capital structure discipline. HPCL diversifies its capital structure with a mix of instruments and financing products across varying maturities and currencies. The financing products include syndicated loans, foreign currency bonds, commercial paper, non-convertible debentures, buyer’s credit loan, clean loan etc. HPCL taps domestic as well as foreign debt markets from time to time to ensure appropriate funding mix and diversification of geographies.
(ii) Maturities of financial liabilities
The amounts disclosed in the table are the contractual undiscounted cash flows.
14.C.1. Market Risk-Market Risk is further categorized in (i) Currency risk, (ii) Interest rate risk & (iii) Commodity risk: 41.C.3.1. Currency risk:
The corporation is exposed to currency risk mainly on account of its borrowings and import payables in foreign currency. Our exposures are mainly denominated in U.S. dollars. The Corporation has used generic derivative contracts to mitigate the risk of changes in foreign currency exchange rates in line with corporation forex risk management policy. The corporation has a Forex Risk Management Cell (FRMC) which actively review the forex and interest rate exposures. The Corporation does not uses derivative financial instruments for trading or speculative purposes.
14.C.1.2 Interest rate risk
Corporation’s has a long-term foreign currency syndicated loans with floating rate, which expose the Corporation to cash flow interest rate risk. The borrowings at floating rate were denominated in USD. The Corporation manages its cash flow interest rate risk by using floating-to-fixed interest rate swaps. Under these swaps, the Corporation agrees with other parties to exchange, at specified intervals (i.e quarterly), the difference between fixed contract rates and floating rate interest amounts calculated by reference to the agreed notional principal amounts. Corporation monitors the interest rate movement and manages the interest rate risk based on the corporation forex risk management policy. The corporation also has a Forex Risk Management Cell (FRMC) which actively review the forex and interest rate exposures. The Corporation does not uses derivative financial instruments for trading or speculative purposes.
The Corporation’s fixed rate borrowings are carried at amortised cost. They are therefore not subject to interest rate risk as defined in Ind AS 107, since neither the carrying amount nor the future cash flows will fluctuate because of a change in market interest rates.
Following is the derivative financial instruments to hedge the interest rate risk as of dates:
Interest rate risk exposure:
Corporation’s interest rate risk arises from borrowings. The interest rate profile of the Corporation’s interest-bearing financial instruments as reported to the management of the Corporation is as follows.
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. The indicative 25 basis point (0.25%) movement is directional and does not reflect management forecast on interest rate movement.
This analysis assumes that all other variables, in particular foreign currency exchange rates, remain constant.
14.C.1.3. Commodity Risk
The Corporation’s activities are exposed to Oil price risks and therefore its Oil Price Risk Management program focuses on reducing the impact of the volatility of International Oil prices. With this objective, Risk Management activities aspire to protect the Margins of the Organization. In order to therefore manage its exposure to the risks associated with volatile Oil market / Commodity prices, the Corporation enters into derivative contracts in the OTC Market.
The Oil Price Risk Management Committee regularly reviews and monitors risk management principles, policies, and risk management activities.
The following table presents the recognised financial instruments that are eligible for offset and other similar arrangements but are not offset, as on 31.03.2017, 31.03.2016 and 01.04.2015. The column ‘net amount’ shows the impact on the Company’s balance sheet if all set-off rights are exercised.
Note 15 : Leases Operating Lease
A. Leases as lessee
a) The Corporation enters into cancellable/non-cancellable operating lease arrangements for land, office premises, staff quarters and others. Payments made under operating leases are generally recognised in statement of Profit and Loss based on corresponding periods contractual terms of the lease, since the Corporation considers it to be more representative of time pattern of benefits flowing to lease rentals paid for the same are charged to the Statement of Profit and Loss.
Note 16 : Earnings per share (EPS)
Basic EPS amounts are calculated by dividing the profit for the year attributable to equity holders by the weighted average number of Equity shares outstanding during the year.
Diluted EPS amounts are calculated by dividing the profit attributable to equity holders by the weighted average number of Equity shares outstanding during the year.
Note 17 : Capital management
The Corporation’s policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain future development of the business. Management monitors the return on capital as well as the level of dividends to ordinary shareholders.
The Corporation monitors capital using debt equity ratio. The Corporation’s debt to equity ratio at March 31, 2017 is as follows.
18. The Corporation has accounted the discount of Rs.Nil (2015-16: Rs.190.33 crores) on Crude Oil purchased from ONGC and has adjusted it against purchase cost of Crude Oil.
19. During the current financial year 2016-17, Subsidy on PDS Kerosene and Domestic Subsidized LPG from Central and State Governments amounting to Rs.20.01 crores (2015-16: Rs.11.77 crores) has been accounted.
20. Approval of Government of India for Budgetary Support amounting to Rs.1,272.57 crores (2015-16: 1,761.26 crores) has been received and the same has been accounted under ‘Recovery under Subsidy Schemes’.
21. (a) Inter-Oil company transactions are reconciled on a continuous basis. However, year end balances are subject to confirmation/reconciliation which is not likely to have a material impact.
(b) Customers’ accounts are reconciled on an ongoing basis and such reconciliation is not likely to have a material impact on the outstanding or classification of the accounts.
22. In accordance with Para 7AA of Ind AS 21 read with Para D13AA of Ind AS 101, the Corporation has adjusted the exchange differences arising on long term foreign currency monetary items to the cost of assets and depreciated over the balance useful life of the assets.
23. In accordance with the option exercised by the Company as referred in note # 20(a), an exchange loss of Rs.0.44 crores (201516: Rs.194.80 crores) related to non-depreciable assets is remaining to be amortized over the balance period of loan in “Foreign Currency Monetary Item Translation Difference Account” as on March 31, 2017.
24. (a) Current Tax includes MAT Credit utilisation of Rs.327.03 Crore (2015-16: Rs.133.61 Crore).
(b) The recognition of MAT Credit Entitlements of Rs.316.87 Crore as on March 31, 2017 (Rs.429.57 Crore as on March 31, 2016) is on the basis of convincing evidence that the Corporation will be able to avail the credit during the period specified in section 115JAA of the Act.
(c) Provision for tax for earlier years written back(net) of Rs.52.48 Crore (2015-16: Rs.120.38 Crore) represents reversal of excess provision towards current tax of Rs.216.40 Crore (2015-16 : Rs.249.75 Crore), additional provision towards deferred Tax of Rs.232.73 Crore (2015-16: Rs.141.08 Crore) and recognition of MAT credit Entitlements of Rs.68.81 Crore (2015-16: Rs.11.71 Crore).
25. To the extent Micro and Small Enterprises have been identified, the outstanding balance, including interest thereon, if any, as on balance sheet date is disclosed on which Auditors have relied upon:
26. Related Party Disclosure:
A. Names of and Relationship with Related Parties
1 . Jointly controlled entities
i. HPCL-Mittal Energy Ltd.
ii. Hindustan Colas Pvt. Ltd.
iii. South Asia LPG Company Pvt. Ltd.
iv. Petronet India Ltd.
v. HPCL Shapoorji Energy Pvt. Ltd.
2. The Company has not included disclosure in respect of following related parties which are Govt. related entities as per Ind AS 24.
1. HPCL Biofuels Ltd.
2. Prize Petroleum Company Ltd.
ii. Jointly controlled entities
1. CREDA-HPCL Biofuels Ltd.
2. HPCL Rajasthan Refinery Ltd.
3. Bhagyanagar Gas Ltd.
4. Petronet MHB Ltd.
5. Mumbai Aviation Fuel Farm facility Pvt. Ltd.
6. Godavari Gas Pvt Ltd
7. Aavantika Gas Ltd..
1. GSPL India Gasnet Ltd.
2. GSPL India Transco Ltd.
3. Mangalore Refinery and Petrochemicals Ltd.
3. Key Management Personnel
i. Shri Mukesh Kumar Surana, Chairman and Managing Director (w.e.f. 01.04.2016)
ii. Shri J. Ramaswamy, Director - Finance
iii. Shri Vinod S. Shenoy, Director - Refineries (from 01-11-2016)
iv. Shri B. K. Namdeo, Director- Refineries (till 31.10.2016)
v. Shri S. Jeyakrishnan, Director - Marketing (from 01-11-2016)
vi. Shri Y.K. Gawali, Director - Marketing (till 31.10.2016)
vii. Shri Pushp Kumar Joshi, Director - Human Resources
viii. Shri Shrikant Madhukar Bhosekar, Company Secretary
4. Independent Directors
i. Shri Ram Niwas Jain, Independent Director
ii. Smt. Asifa Khan (from 13.02.2017)
iii. Shri G.V. Krishna (from 13.02.2017)
iv. Dr. Trilok Nath Singh (from 20.03.2017)
B. Details of transactions with related parties
C. Transactions with other government-controlled entities
The corporation is a Government related entity engaged in the business of refining of crude oil and marketing of petroleum products. The corporation also deals on regular basis with entities directly or indirectly controlled by the central/state governments through its government authorities, agencies, affiliations and other organizations (collectively referred as “Government related entities”).
Apart from transactions with corporations’ group companies, the corporation has transactions with other Government related entities, including but not limited to the followings:
- sale and purchase of products;
- rendering and receiving services;
- lease of assets;
- depositing and borrowing money; and
- use of public utilities
These transactions are conducted in the ordinary course of the corporation’s business on terms comparable to those with other entities that are not Government related.
27. The Corporation has entered into production sharing oil & gas exploration contracts in India in consortium with other body corporate. These consortia are:
a) The Blocks CY-DWN-2004/1,2,3,4, CY-PR-DWN-2004/1&2, RJ-ONN-2004/1&3, KK-DWN-2002/2, MB-OSN-20010/2, MB-OSN-2004/1, MB-OSN-2004/2 are in the process of relinquishment. The audited financial statements for these UJVs have been received upto March 31, 2016. Blocks KG-DWN-2004/1,2,3,5 and 6 are under relinquishment and the operating committee had decided not to maintain books of accounts for the projects as they are under relinquishment. The audited financial statements for these UJVs have been received upto March 31, 2015. The Company has incorporated the share of the assets, liabilities, income and expenditure based on the unaudited financial statements / data received from operator as on 31st March, 2017.
b) The Blocks AA-ONN-2003/3 and KK-DWN-2002/3 are in the process of relinquishment. The audited financial statements for these UJVs have been received upto March 31, 2011 and March 31, 2012 respectively. The Company has incorporated the share of the assets, liabilities, income and expenditure based on the unaudited financial statements / data received from operator as on 31st March, 2017.
c) The block CB-ONN-2002/3 was awarded under NELP IV bidding round and the production sharing contract was signed on 06.02.2004. The exploration Minimum Work Program has been completed. The block is divided into two areas i.e. Miroli and Sanand. Approval of Mining Lease to commence production from Sanand field has been received from Govt. of Gujarat. Preparation of addendum to Sanand FDP (Field development plan) for additional discovery in Kalol reservoir is in progress.
d) In respect of Cluster - 7, the matter is under arbitration. Please refer Note # 68.1.
28. As per the guidelines issued by Department of Public Enterprises (DPE) in August, 2005, the Board of Directors of Navratna Public Sector Enterprises (PSEs) can invest in joint ventures and wholly owned subsidiaries subject to an overall ceiling of 30% of the net worth of the PSE. The company has requested Ministry of Petroleum & Natural Gas (MOP&NG) to confirm its understanding that for calculating this ceiling limit, the amount of investments specifically approved by Government of India (i.e. investment in HMEL and HPCL Rajasthan Refinery Limited) are to be excluded. The Company has calculated the limit of 30% investment in joint ventures and wholly owned subsidiaries, by excluding the investments specifically approved by Govt. of India. As per financial position as on 31st march 2017, the investments in joint ventures and wholly owned subsidiaries are well within 30% limit.
29. Considering the Government policies and modalities of compensating the oil marketing companies towards under-recoveries, future cash flows have been worked out based on the desired margins for deciding on impairment of related Cash Generating Units. Since there is no indication of impairment of assets as on Balance Sheet date as per the assessment carried out, no impairment has been considered. In view of assumptions being technical, peculiar to the industry and Government policy, the auditors have relied on the same.
30. Disclosure as required by Regulation 34(3) and 53(f) of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015.
31. The Corporation had complied with the requirement of para 4 (a) of Notes to Schedule II to the Companies Act, 2013 relating to componentization from 2015-16. As per para 7 (b) of Schedule II to the Companies Act, 2013, the Corporation has charged Rs.219.49 crores to Statement of Profit and Loss for 2015-16 as one-time impact.
32. The Corporation has considered the ISBL (Inside boundary Limit) pipeline directly associated as an integral part of Plant and Machinery / Tanks and has depreciated such pipelines based on the useful life of respective plants, which is considered as 25 years in line with the Schedule II of the Companies Act, 2013.
33. During the year 2016 - 17, Corporation has spent Rs.108.11 Crores (2015-16: Rs.71.76 Crores) towards Corporate Social Responsibility (CSR) as against the budget of Rs.107.90 crores (2015-16: Rs.71.67 Crores).
34. There are no reportable segments other than downstream petroleum, as per Ind AS-108 on Segment Reporting.
34.1: A claim of Rs.236.81 crores (36.51 Million USD @ Exchange rate of 1 US = $ 64.855), claim by M3nergy on termination of service contract of Cluster-7 field, which was awarded by ONGC to the consortium of M3nergy (Malaysia) BHD (30%), Prize Petroleum Company Limited (10%) and HPCL (60%). HPCL and Prize Petroleum has also initiated arbitration proceedings against M3nergy. The share of the claim of the company is Rs.871.09 crores with loss of profit and other expenses etc. Arbitration was bifurcated into two aspects one is liability and the other is quantification. Liability aspects have been held in favour of Corporation and by an interim award by Hon’ble Arbitral Tribunal, which has been challenged by M3nergy in Bombay High Court. The said Partial Award has been challenged by M3energy before High Court of Bombay wherein Court refused the request of M3nergy to stay arbitration proceedings. The matter is pending for further arguments.
The final hearing set of hearing before the before the Hon’ble Arbitral Tribunal dealing with nature and extent of relief to be granted to the PPCL and HPCL as well as question of costs were held on November 4-5, 2016, as the oral argument could not be completed, by M3nergy filed their written submission on Apr 6, 2017. The rejoinder to the same is now to be filed by PPCL and HPCL. This amount is not included above.
34.2: Company has entered into a long term product off take agreement with M/s HPCL- Mittal Energy Limited (HMEL), its joint venture company, for purchase of petroleum products produced by the refinery. This agreement has a take or pay clause and the Company is committed to purchase the said petroleum products over the tenure of the agreement.
34.3: The Company and Mittal Energy Investment Pte. Ltd. (its joint venture partner in HPCL-Mittal Energy Limited) have committed that they would jointly hold at least 51 % of share capital of HPCL-Mittal Energy Limited till the repayment of certain bank loans / bonds.
35. Details of Specified Bank Notes (SBN) held and transacted during the period 08/11/2016 to 30/12/2016 are produced herein below:
36. Based on 3rd Pay Revision Committee recommendation, a provision of Rs.449.52 crores have been made towards increase in gratuity ceiling from Rs.10 lakhs to Rs.20 lakhs and revision in salary for management staff w.e.f. 01.01.2017.
Note 37 : Employee benefit obligations A: 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.
Present value of benefit obligation at period end is Rs.3,438.00 crores (31.03.2016 : Rs.3,156.89 crores; 01.04.2015 : Rs.2,852.56 crores).
During the year, the company has recognised Rs.128.90 crore (2015-16 : Rs.120.46 crore) as Employer’s contribution to Provident Fund in the Statement of Profit and Loss.
B: Superannuation Fund
The company has Superannuation Scheme - Defined Contribution Scheme maintained by SBFS trust wherein Company contributes a certain percentage every month out of 30% of Basic plus DA (in accordance with DPE guidelines) to the credit of individual employee accounts maintained with LIC.
During the year, the company has recognised Rs.152.15 crore (2015-16 : Rs.178.34 crore) as Employer’s contribution to Superannuation Fund in the statement of Profit and Loss.
Gratuity : All employees are entitled to receive gratuity as per the provisions of Payment of Gratuity Act, 1972. The Defined Benefit Plan of Gratuity is administered by Gratuity Trust. The Board of Trustees comprises of representatives from the Corporation who are also plan participants in accordance with the plans regulation. Based on 3rd pay commission recommendation, the gratuity ceiling has been considered as Rs.20 lakhs due to that, past service cost of Rs.368.44 crores is estimated and provided.
Pension : The employees covered by the Pension Plan of the Corporation are entitled to receive monthly pension for life.
Post Retirement Medical Benefit : The serving and superannuated employees are covered under medical insurance policy taken by Corporation. It provides reimbursement of medical expenses for self and dependents as per the terms of the policy.
Ex-gratia : The ex-employees of Corporation covered under the Scheme are entitled to get ex-gratia based on the grade at the time of their retirement. The benefit will be paid to eligible employees till their survival, and after that, till the survival of their spouse.
Resettlement Allowance : At the time of retirement, the employees are allowed to permanently settle down at a place other than the location of the last posting.
The fair value of the assets of Provident Fund Trust as of balance sheet date is greater than the obligation, including interest, and also the returns on these plan assets including the amount already provided are sufficient to take care of PF interest obligations, over and above the fixed contribution recognized.
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.
The estimates of future salary increases, considered in actuarial valuation, take account of inflation, seniority, promotion and other relevant factors, such as supply and demand in the employment market.
Figures in italics represent last year figures
38 Previous periods figures are reclassified / regrouped wherever necessary.