GAIL (India) Limited (“GAIL” or “the company”) is a limited company domiciled in India and was incorporated on August 16, 1984. Equity shares of the Company are listed in India on the Bombay Stock Exchange and the National Stock Exchange. Also Global Depository Receipts (GDRs) of the company are listed at London Stock Exchange. The Government of India holds 54.43% in the paid-up equity capital of the company as on 31st March 2017. The registered office of the Company is located at 16, Bhikaji Cama Place, R K Puram, New Delhi-110066. GAIL is the largest state-owned natural gas processing and distribution company in India. The company has a diversified business portfolio and has interests in the sourcing and trading of natural gas, production of LPG, Liquid hydrocarbons and petrochemicals, transmission of natural gas and LPG through pipelines, etc. GAIL has also participating interest in India and overseas in Oil and Gas Blocks.
The financial statements of the company for the year ended 31st March 2017 were authorized for issue in accordance with a resolution of the directors on 22nd May 2017.
Basis of Preparation
The financial statements of the Company have been prepared in accordance with Indian Accounting Standards (Ind-AS) notified under the Companies (Indian Accounting Standards) Rules, 2015 and Companies (Indian Accounting Standards) Amendment Rules, 2016.
For and upto the year ended 31st March 2016, the Company prepared its financial statements in accordance with Indian GAAP, including accounting standards notified under section 133 of the Companies Act 2013, read together with para 7 of the Companies (Accounts) Rules 2014 (Indian GAAP). The financial statements for the year ended 31st March 2017 have been prepared in accordance with Ind-AS.
The financial statements have been prepared as a going concern on accrual basis of accounting. The company has adopted historical cost basis for assets and liabilities except for certain items which have been measured on a different basis and such basis is disclosed in the relevant accounting policy.
The financial statements are presented in Indian Rupees (Rs.) and the values are rounded to the nearest crore (Rs.0,000,000), except when otherwise indicated.
2. Significant accounting judgements, estimates and assumptions
The preparation of the Company’s standalone financial statements requires management to make judgements, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, and the accompanying disclosures, and the disclosure of contingent liabilities/assets at the date of the standalone financial statements. Estimates and assumptions are continuously evaluated and are based on management’s experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Uncertainty about these assumptions and estimates could result in outcomes that require a material adjustment to the carrying amount of assets or liabilities affected in future periods.
In particular, the Company has identified the following areas where significant judgements, estimates and assumptions are required. Further information on each of these areas and how they impact the various accounting policies are described below and also in the relevant notes to the financial statements. Changes in estimates are accounted for prospectively.
In the process of applying the Company’s accounting policies, management has made the following judgments, which have the most significant effect on the amounts recognized in the standalone financial statements:
Contingent liabilities and assets which may arise from the ordinary course of business in relation to claims against the Company, including legal, contractor, land access and other claims. By their nature, contingencies will be resolved only when one or more uncertain future events occur or fail to occur. The assessment of the existence and potential quantum, of contingencies inherently involve the exercise of significant judgments and the use of estimates regarding the outcome of future events.
2.2 Estimates and assumptions
The key assumptions concerning the future and other key sources of estimation uncertainty at the reporting date that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are described below. The Company based its assumptions and estimates on parameters available when the consolidated financial statements were prepared. Existing circumstances and assumptions about future developments, however, may change due to market change or circumstances arising beyond the control of the Company. Such changes are reflected in the assumptions when they occur.
a) Impairment of non-financial assets
The Company assesses at each reporting date whether there is an indication that an asset may be impaired. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. In determining fair value less costs of disposal, recent market transactions are taken into account. If no such transactions can be identified, an appropriate valuation model is used. These calculations are corroborated by valuation multiples, quoted share prices for publicly traded subsidiaries or other available fair value indicators.
b) Defined benefit plans
The cost of the defined benefit plan and other post-employment benefits and the present value of such obligation are determined using actuarial valuations. An actuarial valuation involves making various assumptions that may differ from actual developments in the future. These include the determination of the discount rate, future salary increases, mortality rates and future pension increases. Due to the complexities involved in the valuation and its long-term nature, a defined benefit obligation is highly sensitive to changes in these assumptions. All assumptions are reviewed at each reporting date.
c) Fair value measurement of financial instruments
When the fair values of financial assets and financial liabilities recorded in the balance sheet cannot be measured based on quoted prices in active markets, their fair value is measured using valuation techniques including the DCF model. The inputs to these models are taken from observable markets where possible, but where this is not feasible, a degree of judgment is required in establishing fair values. Judgments include considerations of inputs such as liquidity risk, credit risk and volatility. Changes in assumptions about these factors could affect the reported fair value of financial instruments.
d) Impairment of financial assets
The impairment provisions for financial assets are based on assumptions about risk of default and expected loss rates. The Company uses judgments in making these assumptions and selecting the inputs to the impairment calculation, based on Company’s past history, existing market conditions as well as forward looking estimates at the end of each reporting period. Impairment of investment in subsidiaries, joint ventures or associates is based on the impairment calculations using discounting cash flow/net asset value method, valuation report of external agencies, Investee Company’s past history etc.
3 First time adoption - Ind AS 101
3.1 Notes to first time adoptions of Ind-AS
(a) Transition to Ind-AS
These financial statements, for the year ended 31st March 2017 are the first financial Statements, the Company has prepared in accordance with Ind-AS. For periods up to and including the year ended 31st March 2016, the Company prepared its financial statements in accordance with accounting standards notified under section 133 of the Companies Act 2013, read together with paragraph 7 of the Companies (Accounts) Rules, 2014 (Indian GAAP).
Accordingly, the Company has prepared financial statements which comply with Ind AS applicable for periods ending on 31st March 2017, together with the comparative period data as at and for the year ended 31st March 2016, as described in the summary of significant accounting policies. In preparing these financial statements, the Company’s opening balance sheet was prepared as at 1st April 2015, the Company’s date of transition to Ind AS. This note explains the principal adjustments made by the Company in restating its Indian GAAP financial statements.
(b) Exemptions and exceptions availed:
Ind AS 101 ‘First time Adoption of Indian Accounting Standards’ allows first-time adopters certain exemptions from the retrospective application of certain requirements under Ind AS. The Company has applied the following exemptions:
Ind-AS optional exemptions
Deemed cost for Property, Plant and Equipments/Intangible assets: Ind-AS 101 permits a first time adopter to elect to continue with the carrying value for all of its Property, Plant and Equipments (PPE) as recognised in the financial statements 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 after making necessary adjustments for de-commissioning liabilities. Since there is no change in the functional currency, the Company has elected to continue with the carrying value for all of its PPE and intangible assets as recognised in its Indian GAAP financials as deemed cost at the transition date.
Leases: The Company has applied Appendix C of Ind AS 17 ‘Determining whether an Arrangement contains a Lease’ to determine whether an arrangement existing at the transition date contains a lease on the basis of facts and circumstances existing at that date.
Investment in subsidiary, joint ventures and associates: Ind AS 101 permits a first time adopter to elect to continue with the carrying value for all of its investments in subsidiaries, joint ventures and associates as recognised in the financial statements 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. The Company has elected to continue with the carrying value for all of its investments in subsidiaries, joint ventures and associates as recognised in its Indian GAAP financials as deemed cost at the transition date.
Designation of previously recognised financial instruments: Ind AS 101 permits an entity to designate particular equity investments (other than equity investments in subsidiaries, associates and joint arrangements) as at fair value through other comprehensive income (FVOCI) based on facts and circumstances at the date of transition to Ind AS (rather than at initial recognition). The Company has opted to avail this exemption to designate certain equity investments as FVOCI on the date of transition.
Business Combination: Ind AS 101 provides the option to apply Ind AS 103 ‘Business Combinations’ prospectively from the transition date or from a specific date prior to the transition date. This provides relief from full retrospective application that would require restatement of all business combinations prior to the transition date. The Company has elected to apply Ind AS 103 prospectively to business combinations occurring after its transition date. Business combinations occurring prior to the transition date have not been restated.
Ind-AS mandatory exemptions
Estimates: As per Ind-AS 101, an entity’s estimates in accordance with Ind AS at the date of transition to Ind-AS at the end of the comparative period presented in the entity’s first Ind AS financial statements, as the case may be, should be consistent with estimates made for the same date in accordance with the previous GAAP unless there is objective evidence that those estimates were in error. The Company has determined that the estimates as at 1st April 2015 and at 31st March 2016 are consistent with those made for the same dates in accordance with Indian GAAP (after adjustments to reflect any differences in accounting policies).
Classification and measurement of financial assets: Ind AS 101 requires an entity to assess 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 amortised cost based on facts and circumstances existing at the date of transition if retrospective application is impracticable. Accordingly, the Company has determined the classification of financial assets based on facts and circumstances that exist on the date of transition.
De-recognition of financial assets and financial liabilities: As per Ind-AS 101, an entity should apply the de-recognition requirements in Ind-AS 109, Financial Instruments, prospectively for transactions occurring on or after the date of transition to Ind-AS. The Company has elected to apply the de-recognition requirements for financial assets and financial liabilities in Ind AS 109 prospectively for transactions occurring on or after the date of transition to Ind AS.
- Under the previous GAAP, investments in equity instruments were classified as long-term investments or current investments based on the intended holding period and realisability. Long-term investments were carried at cost less provision for other than temporary decline in the value of such investments. Current investments were carried at lower of cost and fair value. Under Ind AS, these investments, other than investments in Joint ventures, Subsidiaries and Associates are required to be measured at fair value. The resulting fair value changes of these investments have been recognised in retained earnings as at the date of transition and subsequently in the other comprehensive income for the year ended 31 March 2016.
- Under the previous GAAP, in respect to foreign currency forward contracts covered under AS -11, The Effects of Changes in Foreign Exchange Rates, the premium or discount arising at inception of foreign currency forward contracts is amortised as expense or income over the life of the contract. Derivative instruments not covered under AS 11 are accounted based on the guidance provided by the ICAI. Under Ind AS, derivatives which are not designated as hedging instruments are fair valued with resulting changes being recognised in profit or loss. Accordingly, the resulting fair value changes of all derivatives have been recognised in retained earnings as at the date of transition and subsequently in the statement of profit and loss for the year ended 31st March 2016.
- Under the previous GAAP, foreign currency borrowings were accounted for by combining a derivative and the underlying liabilities together as a single package.Treating the loan and swap as one single contract is termed as ‘synthetic accounting’ and this approach is not permitted under the Ind AS. Under AS, loan liabilities are recognised separately from the swap contracts. Accordingly, the resulting changes has been adjusted in retained earnings as at the date of transition and subsequently in statement of profit and loss for the year ended 31st March 2016.
- Under the previous GAAP, dividends proposed by the board of directors after the balance sheet date but before the approval of the financial statements were considered as adjusting events. Accordingly, provision for proposed dividend was recognised as a liability. Under Ind AS, such dividends are recognised when the same is approved by the shareholders in the general meeting. Accordingly, the liability for proposed dividend included under provisions has been reversed with corresponding adjustment to retained earnings. Consequently, the total equity increased by an equivalent amount.
- Under the previous GAAP, machinery spares are usually charged to the statement of profit and loss as and when consumed. Under Ind AS, spare parts are, retrospectively, recognized in accordance with Ind AS 16 when they meet the definition of property, plant and equipment. Otherwise, such items are classified as inventory. Depreciation of an asset begins when it is available for use. Spare parts are generally available for use from the date of its purchase. Accordingly, spares that meet the definition of PPE are capitalized, with depreciation calculated retrospectively from the date of its purchase.
- Under the previous GAAP, capital expenditure on the assets (enabling facilities), the ownership of which is not with the company, was charged off to statement of profit and loss. Ind AS 16 requires the company to capitalise the capital expenses (e.g. roads, culverts, electricity transmission lines, over bridge, water and drainage system etc.) incurred on land not owned by the entity, which are directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by the management. Consequently, expenditures incurred by the company on enabling facilities have been capitalised from the date of transition.
- Under the previous GAAP, repairs and overhaul expenditure incurred was charged off to the statement of profit and loss in most cases. However, major repairs and overhaul expenditure are capitalized under Ind AS 16 as replacement costs, if they satisfy the recognition criteria of property, plant and equipment.
- Under the previous GAAP, transaction costs incurred in connection with borrowings are amortised upfront and charged to profit or loss for the period. Under Ind AS, transaction costs are included in the initial recognition amount of financial liability and charged to the statement of profit and loss/capitalised using the effective interest method.
- Under the previous GAAP, discounting of provisions was not allowed. Under Ind AS, provisions are measured at discounted amounts, if the effect of time value is material. Accordingly, non-current provisions for decommissioning liability have been discounted to their present values. Impact for the same as at 1st April 2015, has been adjusted with retained earnings; and for the year ended on 31st March 2016 has been recognized in the statement of profit and loss.
- Under the previous GAAP, the Company has created provision for impairment of receivables consists only in respect of specific amount for incurred losses. Under Ind AS, impairment allowance has been determined based on Expected Loss model (ECL). Due to ECL model, the Company impaired its trade receivable on 1st April 2015 which has been eliminated against retained earnings. The impact for year ended on 31st March 2016 has been recognized in the statement of profit and loss.
- Under the previous GAAP, the Company has recognized the government grant related to non-monetary assets under Reserves and Surplus as capital reserves. Under Ind AS, same is not allowed. Government grant is disclosed under non-current financial liabilities.
- Under the previous GAAP, company was following the accounting treatment as per paragraph 46/ 46A of AS 11 ’The Effects of Changes in Foreign Exchange Rates’, with respect to exchange differences arising on restatement of long term foreign currency monetary items. Exchange differences on account of depreciable assets was added/ deducted from the cost of the depreciable asset, which was depeciated over the balance life of the asset. In other cases, the exchange difference was accumulated in Foreign Currency Monetary Items Translation Difference Account (FCMITDA) and amortised over the balance period of such asset. Under Ind AS, company has discontinued the accounting as per paragraph 46/ 46A of AS 11 and FCMITDA has been adjusted with retained earnings as on 1st April 2015 and Statement of profit and loss on 31st March 2016.
- Under the previous GAAP, lease accounting is normally applied to transactions, which are structured as lease. However, in accordance with Appendix C to Ind AS 17, where the company is lessor and the arrangement is determined as finance lease, the asset shall be derecognised from property, plant and equipment and the corresponding finance lease receivables shall be recognised. Consequently, the Company has retrospectively applied the lease accounting and resultant changes have been made in retained earnings as at the date of transition and subsequently in the statement of profit and loss.
- Under the previous GAAP, the useful life of an intangible asset may not be indefinite. Under Ind AS, useful life of an intangible asset may be finite or indefinite. Ind AS 38 does not allow amortization of an intangible asset with indefinite life. Accordingly, depreciation on intangible asset with indefinite life has been reversed in financial year 2015-16.
- Under the previous GAAP, loans to employees were recorded at their transaction value. Under Ind AS, all financial assets are required to be recognized initially at fair value. Accordingly, the Company has fair valued these loans given to employees under Ind AS at the date of transition. Difference between the fair value and transaction value of the loans to employee has been recognized as prepaid employee costs. Subsequent to initial recognition, these loans are measured at amortized cost using the effective interest method. The amount of increase in carrying amount of loan to employees is recognized as interest income. Prepaid benefit is amortized on a straight line basis over the loan period as employee benefit expense.
- Previous 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 new temporary differences which was not required under Indian GAAP.
- In addition, the various transitional adjustments lead to temporary differences. According to the accounting policies, the Company has to account for such differences. Deferred tax adjustments are recognised in correlation to the underlying transaction either in retained earnings or a separate component of equity.
- Both under the previous GAAP and Ind AS, the Company recognised costs related to its post-employment defined benefit plan on an actuarial basis. Under Indian GAAP, the entire cost, including actuarial gains and losses, are charged to profit or loss. Under Ind AS, remeasurements (comprising of actuarial gains and losses, the effect of the asset ceiling, excluding amounts included in net interest on the net defined benefit liability and the return on plan assets excluding amounts included in net interest on the net defined benefit liability) are recognised immediately in the balance sheet with a corresponding debit or credit to retained earnings through Other Comprehensive Income (OCI).
- Under previous GAAP, the Company has not presented Other Comprehensive Income (OCI) separately. Hence, the Statement of Profit and Loss under previous GAAP has been reconciled with profit and loss statement and total Other Comprehensive Income as per Ind-AS.
In the preparation of these Ind AS Financial Statements, the Company has made several presentation differences between previous GAAP and Ind AS. These differences have no impact on reported profit or total equity. Accordingly, some assets and liabilities have been reclassified into another line item under Ind AS at the date of transition. Further, in these Financial Statements, some line items are described differently under Ind AS compared to previous GAAP, although the assets and liabilities included in these line items are unaffected.
4 Contingent Liabilities and Commitments:
I. Contingent Liabilities:
(a) Claims against the Company not acknowledged as debts:
(i) Legal cases for claim of Rs.1,622.61 crore (Previous Year: Rs.1,908.80 crore) by vendors/suppliers/contractors etc. on account of liquidated damages/price reduction schedule, natural gas price differential etc. and by customers for natural gas transmission charges etc.
(ii) Income tax demand of Rs.1,128.26 crore (net of provision) (Previous Year Rs.1,303.67 crore against which the Company has filed appeals before appellate authorities/court. Further, the Income Tax Department has also filed appeals before ITAT against the relief granted to the company by CIT (Appeals) amounting to Rs.628.09 crore (including interest) (Previous Year: Rs.35433 crore).
(iii) Disputed Indirect tax demands are as under:
(iv) Miscellaneous claims of Rs.162.84crore (Previous Year: Rs.238.29 crore)
(b) Corporate Guarantees
The Company has issued Corporate Guarantees for Rs.2,203 crore (Previous Year: Rs.2,352.00 crore) on behalf of related parties for raising loan(s). The amount of loans outstanding as at the end of the year under these Corporate Guarantees are Rs.1,306 crore (Previous Year: Rs.1,390 crore).
II. Capital Commitments:
(a) Estimated amount of contracts (Net of advances) remaining to be executed on capital account as at 31st March 2017 is Rs.3,128.92 crore (Previous Year: Rs.2,036.26 crore).
(b) Other Commitments:
(i) The Company has commitment of Rs.1525.31 crore (Previous Year: Rs.1775.46 crore) towards further investment and disbursement of loan in the subsidiaries, Joint Ventures, Associates and other companies.
(ii) Commitments made by the Company towards the minimum work programme in respect of Jointly Controlled Assets have been disclosed in Note 49 (B) (v).
5 Sales Tax Department has raised a demand of Rs.3,449.18 crore (Previous Year: Rs.3,449.18 crore) and interest thereon Rs.1,513.04 crore (Previous Year: Rs.1,513.04 crore) in respect of Hazira unit in Gujarat, treating the transfer of natural gas from the State of Gujarat to other states, as interstate sales, during the period from April 1994 to March 2001. Aggrieved by the order of the Tribunal in favour of the company, the Sales Tax Department has filed petition in Hon’ble High Court of Gujarat. Final hearing in the matter has concluded in the month of November 2016 and the order of Hon’ble high court is awaited. In the opinion of the management, there is a remote possibility of crystalizing this liability.
6 In terms of the Gas Sales Agreement with the customers, value of Annual Take or Pay Quantity (ATOPQ) of Gas is accounted for on the basis of realization and shown as liability till make up Gas is delivered to customer as per the contract.
7 Disclosure under CSR expenses:
As per Section 135 of the Companies Act 2013 read with DPE guidelines, the Company is required to spend Rs.81.47 crore ( Previous Year Rs.102.34 crore) during the current year. Amount incurred during the year is Rs.123.58 crore (Previous Year Rs.118.64 crore), as per details given below:
8 In respect of certain customers towards Ship or Pay charges being sub-judice/under dispute, the Company has been issuing claim letters, aggregate amount of which is Rs.1725.43 crore (Previous Year Rs.762.47 crore) as at the end of the year. Income in respect of the same shall be recognized on final disposal of the matter.
9 Pending court cases in respect of certain customers for recovery of invoices raised by the company for use of APM gas for non-specified purposes by fertilizer companies pursuant to guidelines of Ministry of Petroleum & Natural Gas (MOP & NG), the Company has issued claim letters amounting to Rs.1975.62 crore on the basis of information provided to company by FICC.
10 Pricing and Tariff
(a) Petronet LNG Ltd (PLL), a supplier of R-LNG, has been raising invoices on the company on provisional basis on certain matters and considering the same the Company has been raising provisional invoices for sale of R-LNG to its customers. Impact of any changes in such provisional invoices is taken as and when settled.
(b) With effect from 1st April 2002, Liquefied Petroleum Gas (LPG) prices has been deregulated and is now based on the import parity prices fixed by the Oil Marketing Companies. However, the pricing mechanism is provisional and is yet to be finalized by the MoPNG. Impact on pricing, if any, will be recognized as and when the matter is finalized.
(c) Natural Gas Pipeline Tariff and Petroleum and Petroleum Products Pipeline Transportation Tariff is subject to various Regulations issued by Petroleum and Natural Gas Regulatory Board (PNGRB) from time to time. Impact on profits, if any, is being recognized consistently as and when the pipeline tariff is revised by orders of PNGRB.
(d) As per directions of Appellate Tribunal (APTEL), PNGRB has issued 06(Six) final tariff orders applicable for financial year 2016-17. The Company has filed appeal(s) before Appellate Tribunal (APTEL), against various moderations done by PNGRB in these tariff orders. Aforesaid appeals are pending for disposal. Nonetheless, the company has recognized net revenue of Rs.360 crore during the year in pursuance of these orders. As regards rest of the provisional orders, PNGRB is yet to issue its final orders.
(e) The Company has filed a Writ Petition, during the financial year 201516, before the Hon’ble Delhi High Court challenging the jurisdiction of PNGRB on fixation of transmission tariff for pipelines. The
Hon’ble Delhi High Court has dismissed the aforesaid Writ Petition vide its Order dated 11.04.2017. In this regard, the Company has filed a Review Petition before the Hon’ble Delhi High Court on 12th May 2017 against the said Order.
11 Pending disposal of cases in relation to transportation charges for Uran Trombay Pipeline, the liability of ONGC Ltd., amounting to Rs.188.3 crore (Previous year Rs.222.14 crore) and corresponding debtors for the same amounting to Rs.186.13 crore (Previous year Rs.171.65 crore) have been continued as at the end of the current financial year. During the year, ONGC in a meeting with the Company has agreed that transportation charges for the said Pipeline be paid only after collection from the respective customers by the Company. In view of this the provision made in the previous year towards doubtful recovery of aforesaid debtors of Rs.171.65 crore has been withdrawn during the year.
12 Land & Building
(a) Freehold and Leasehold Land amounting to Rs.26.14 crore and Rs.40.45 crore (Previous Year: Rs.13.15 crore and Rs.18.29 crore) respectively are capitalized on provisional basis.
(b) Title deeds for freehold (4.81 hectares) and leasehold (197.32 hectares) land amounting to Rs.19.43 crore and Rs.36.75 crore (Previous Year: Rs.7.68 crore and Rs.16.96 crore) respectively are pending execution for transfer in the name of the Company. This includes Rs.939 crore amount of Lease hold Land shown under ‘Prepayments’ in Note no 10 (Other Non-Current Assets - Non financial)
(c) Title Deeds in respect of ten residential flats at Asiad Village, New Delhi, amounting to Rs.1.67 crore (Previous Year: Rs.1.67 crore) are pending for transfer from ONGC to GAIL. The Hon’ble High court of Delhi has referred the matter to cabinet secretary for settlement.
(d) Net Block for “Building” includes an amount of Rs.2.04Crore (Previous Year Rs.0.50 Crore) earmarked for disposal but in use.
13 Earmarked Balances
(a) The balance retention from Panna Mukta Tapti (PMT) JV consortium amounting to Rs.21.80 crore (Previous Year: Rs.20.40 crore) (shown in Note No 9B) is kept as Earmarked Balance in short term deposit in banks. It includes interest accrued but not due amounting to Rs.0.15 crore (Previous Year: Rs.0.26 crore). This interest income does not belong to the Company and not accounted for as income.
(b) Liability on account of “Gas Pool Account” amounting to Rs.268.56 crore (Previous Year: Rs.927.87 crore) (shown in Note No. 14) represents amount held by the Company as custodian pursuant to directions of MOPNG. The amount received is kept as Earmarked Fund in the form of Short Term Deposits in banks (shown in Note No 9B). It includes interest accrued but not due amounting to Rs.4.55 crore (Previous Year: Rs.14.91 crore). This interest does not belong to the Company and not accounted for as income.
(c) Gas Pool Money (Provisional) shown under “Other Long Term Liabilities” amounting to Rs.655.48 crore (Previous Year: Rs.1,006.79 crore) (shown in Note No 14) with a corresponding debit thereof under Trade Receivable (after reversal during the year in case of certain customers) will be invested/paid as and when said amount is received from the customers.
(d) Liability on account of Pipeline Overrun and Imbalance Charges amounting to Rs.99.74 crore (Previous Year: Rs.85.81 crore) (shown in Note No 14) represents amount held by the Company as custodian pursuant to directions of PNGRB. The amount received is kept as Earmarked Fund in the form of Short Term Deposits in banks (shown in Note No.9B). It includes interest accrued but not due amounting to Rs.382 crore (Previous Year: Rs.3.93 crore) on short term deposits. This interest does not belong to the Company and not accounted for as income.
14 The Company has an equity investment amounting to Rs.974.31 crore, in a joint venture company, Ratnagiri Gas and Power Private Limited (RGPPL), which is equivalent to 25.50% of the paid up equity capital of RGPPL as on 31stMarch 2017.
RGPPL is in the process of restructuring its business by way of de-merger of its LNG business into a separate company effective from 1st January 2016. The scheme of Demerger has been approved by the Board of RGPPL, all the Shareholders including GAIL & NTPC, as well as by the majority of Lenders and has been filed with National Company Law Tribunal, New Delhi on 23rd December 2016 for approval.
In order to comply with the provisions of Ind AS 36 on “Impairment of Assets” and for ascertaining the amount to be impaired as on 31st March 2017 from aforesaid investments the company has, along with RGPPL and other shareholder NTPC Ltd, undertaken impairment study of assets of RGPPL. Based upon the impairment study a provision of Rs.783 crore is made during the year towards impairment loss in carrying value of aforesaid investment. Amount of impairment has been shown as exceptional item in the statement of profit & loss.
15 GAIL is acting as pool operator in terms of the decision of Government of India for pooling of natural gas for Urea Plants. The scheme envisages uniform cost of gas for urea production by settlement of difference in weighted average price of gas of each plant to the weighted average price for the industry. Accordingly, an amount of Rs.78.34 crore (Previous Year Rs.604.27 Crore) is payable to and correspondingly receivable from Urea Plants, as on 31st March 2017. After netting of the payable and receivable amounts, there is no impact in the financial statements.
16 GAIL is acting as pool operator in terms of the decision of the Government of India for capacity utilisation of the notified gas based power plants. The Scheme, which was applicable till 31st March 2017, envisaged support to the power plants from the Power Sector Development Fund (PSDF) of the Government of India. The gas supplies were on provisional / estimated price basis which were to be reconciled based on actual cost. Accordingly, current liabilities include a sum of Rs.87.63 Crore (Previous Year Rs.510.89 Crore) on this account, as on 31st March 2017 which is payable to the above said power plants and / or to the Government of India.
17 Trade Receivables continued to (shown in Note No 6) include an amount of Rs.255.36crore(Previous Year Rs.255.36 Crore), from Indian Oil Corporation Ltd (IOCL) towards ship or pay charges for shortfall in the Annual Contracted Quantity (for the period from 2010 to 2015), in pursuance of Gas Transmission Agreement dated 7th October 2005. IOCL, on 22nd March 2016, has disputed the claim of the Company. As per the legal opinion obtained by the Company in the matter, the dispute raised by IOCL is not tenable and hence no provision has been made during the year. IOCL vide letter dated 28th April 2017 has come forward for an amicable settlement. Adjustments, if any, shall be done on final outcome of the matter.
18 PNGRB on 19.02.2014 notified insertion in Affiliate Code of Conduct that an entity engaged in both marketing and transportation of natural gas shall create a separate legal entity for transportation of natural gas by 31.03.2017 and the right of first use shall, however, remain with the affiliate of such entity. The Company has challenged the said PNGRB notification before Hon’ ble Delhi High Court by way of writ and the same is pending adjudication.
19 Pay Revision of the employees of the company is due w.e.f. 1st January 2017. Pending finalization of pay revision by Government of India, a provision of Rs.93.95 Crores has been made based on 3rd Pay Revision Recommendation for CPSEs on estimated basis.
20 Disclosure under the Ind AS 19 on Employee Benefits is given as below:
I. Superannuation Benefit Fund (Defined Contribution Fund)
The Company has paid for an amount of Rs.55.83 crore (Previous Year: Rs.65.66 crore) towards contribution to Superannuation Benefit Fund Trust and charged to statement of profit and loss.
II. Provident Fund
The Company has paid contribution of Rs.54.98 crore (Previous Year Rs.53 23 crore) to Provident Fund Trust at predetermined fixed percentage of eligible employees’ salary and charged to statement of profit and loss. Further, the obligation of the Company is to make good shortfall, if any, in the fund assets based on the statutory rate of interest in the future period. During the year, surplus in the fund is more than the interest rate guaranteed liability of the Company hence, the Company has reversed a provision of Rs.Nil (Previous Year Nil), as per actuarial valuation and the balance provision to meet any short fall in the future period to be compensated by the Company to the Provident Fund Trust as at the end of the current financial year is Nil (Previous Year Nil).
III. Other Benefit Plans
15 days salary for every completed year of service. Vesting period is 5 years and payment is limited to Rs.10 lakh. However, in view of 3rd pay revision recommendations applicable from 01.01.2017, the provision towards for enhanced limit of Rs.20 lakhs has been made during the year. Actual disbursement would be made based on the final order w.r.t. aforesaid pay revision.
b) Post-Retirement Medical Scheme (PRMS)
The Company contributes to the defined benefit plans for Post Retirement Medical Scheme using projected unit credit method of actuarial valuation. Under the scheme eligible ex-employees are provided medical facilities. During the year the Company has earmarked Rs.248.99 crore (previous year Nil) towards the PRMS in a separate bank account.
c) Earned Leave Benefit (EL)
Accrual 30 days per year. Encashment while in service 75% of accumulated Earned Leave balance subject to maximum of 90 days at a time; provided a minimum balance of 15 days is left over in the respective employee’s account. Encashment on retirement or superannuation maximum 300 days.
d) Terminal Benefits (TB)
At the time of superannuation, employees are entitled to settle at a place of their choice and they are eligible for Transfer Traveling Allowance.
e) Half Pay Leave (HPL)
Accrual 20 days per year. The encashment of unavailed HPL is allowed as per approved Company rule.
f) Long Service Award (LSA)
On completion of specified period of service with the company and also at the time of retirement, employees are rewarded monetarily based on the duration of service completed.
The following table summarizes the components of net benefit expenses recognized in the statement of profit and loss based on actuarial valuation.
21. Disclosure as per Ind AS 23 on ‘Borrowing Costs’:
Borrowing costs capitalized in assets including amount allocated towards Capital Work in Progress during the year was Rs.49.16 crore (Previous Year: Rs.42.34 crore).
22. In compliance of Ind AS 108 on “Operating Segment”, the Company has adopted following Business segments as its reportable segments:
(i) Transmission services
a) Natural Gas
(ii) Natural Gas Marketing
(iv) LPG and other Liquid Hydrocarbons
(v) Other Segments (include GAILTEL, E& P and Power Generation)
There are no geographical segments in the Company.
The disclosures of segment wise information is given as per Annexure-A.
23. In compliance of Ind AS 24 on “Related Party Disclosures”, the names of related parties, nature of relationship and detail of transactions entered therewith are given in Annexure - B.
24. Disclosure under Ind AS 112 on “Disclosure of Interests in Other Entities”:
a) Jointly Controlled Assets
I) The Company has participating interest in blocks offered under New Exploration Licensing Policy (NELP), in 10 Blocks (Previous Year: 12 Blocks) for which the Company has entered into Production Sharing Contract(s) with respective host Governments along with other partners for exploration and production of oil and gas. The Company is a nonoperator, except in Block CB-ONN-2010/11, where it is the operator. The expenses, incomes, assets and liabilities are shared by the company based upon its participating interest in production sharing contract(s) of respective blocks.
The participating interest in the ten NELP Blocks in India as at the end of the current financial is as under:
ii) In addition to above, the Company has farmed-in as non - operator in the following blocks:
* In addition, the Company has 8.5% participating interest in SHWE Offshore Midstream pipeline project in Myanmar for the purpose of transportation of gas from the delivery point in offshore, Myanmar to landfall point in Myanmar.
iii) The Company’s share in the assets, liabilities, income and expenditure for the year in respect of joint operations project blocks has been incorporated in the Company’s financial statements based upon un-audited financial statements submitted by the operators and are as given below : (Final adjustments are effected during the year in which audited financial statements are received):
The above value includes the following amounts pertaining to 32 E&P Blocks relinquished till 31st March, 2017 ( including 30 Blocks relinquished till 31st March, 2016) where the Company is non-operator.
iv) The Company has relinquished operated E&P block during the year as below:
v) Share of Minimum work program committed under various production sharing contracts in respect of E&P joint ventures is Rs.174.64 crore (Previous Year Rs.361.30 crore).
vi) Quantitative information:
a) Details of the Company’s Share of Production of Crude Oil and Natural Gas during the year ended 31st March 2017:
i. The Company is Non-operating partner in E&P blocks for which reserves are disclosed.
ii. The initial oil and gas reserve assessment was made through expert third party agency / internal expert assessment by respective Operator of E&P blocks. The year-end oil reserves are estimated based on information obtained from Operator / on the basis of depletion during the year. Re-assessment of oil and gas reserves carried out by the respective Operator as and when new significant data or discovery of hydrocarbon in the respective block.
iii. The Company’s share of crude oil production for the year 2016-17 is 1,28,836 barrels (Previous year 1,45,613 barrels).
iv. E&P blocks are assessed individually for impairment.
c) The Company’s share of balance cost recovery is Rs.970.92 crore (Previous year Rs.1,196.56 crore) to be recovered from future revenues from E&P blocks having proved reserves as per Production sharing contracts.
25. TAPI Pipeline Company Limited (TPCL), a Joint Venture of the Company was incorporated in November, 2014 to construct, operate and maintain Turkmenistan-Afghanistan-Pakistan-India (TAPI) Gas Pipeline. GAIL currently holds 25 equity shares of Nil value inTPCL as shown in Note no.5 (b) 10.
As at 31st March 2017, GAIL has made a total payment of Rs.26.87 crore, equivalent to USD 4.15 million (Previous Year Rs.9.17 crore, equivalent to USD 1.5 million) towards Pre Project Expenditure of the aforesaid project. This amount has been shown as Advance against Equity in Note no.5 (b) 11.
26. The Company has an equity shareholding of 4.1735% in South East Asia Gas Pipeline Company Limited (SEAGP). During the period from November 2010 to April 2012 Company has remitted US$ 22,536,899 to SEAGP towards equity contribution. Out of this, SEAGP has issued 8347 shares of Face Value of US$ 1 each amounting to US$ 8347 to GAIL and the balance amount of US$ 22,528,552 has been shown as advance against equity in the Company books. As per the latest audited accounts available as on 31st March 2016 of SEAGP, the amount of advance against equity are unsecured, interest free and not repayable. This amount has been shown as Other Investment in Note no. 5(d).
27. Exceptional item of Rs.489.31 crore (net of expenses) (Previous Year Nil) represents profit on sale of long term investment from partial off-load of 1,23,47,250 equity shares of Mahanagar Gas Limited (An Associate Company) through Initial Public Offer in June 2016, shown in Note No 5 (c) 3.
28. In compliance of Ind AS 36 on Impairment of Assets, the Company has carried out an assessment of impairment in respect of its following assets as on 31.03.2017:
i) During the year the Company has made net impairment of Rs.0.40 crore (Previous Year:- Rs.0.14 crore) in respect of its GAIL Tel assets and the same has been recognized as impairment loss in the statement of profit and loss.
ii) During the year the Company has made net impairment of Rs.6.82 crore (Previous Year Rs.7.91 crore) in respect of its unused dedicated pipelines and the same has been recognized as impairment loss in the statement of profit and loss.
iii) No impairment loss was considered necessary by the management of the Company in respect of Gas Processing Unit, Usar which is under shutdown condition since 16th July 2014 due to non-availability of rich feed gas. The management has decided to keep the plant in preservation mode till the availability of rich feed gas in the future.
iv) During the year the Company has provided loss on impairment of Rs.5.04 crore (Previous Year Nil) out of carrying value of investment in Fayum Gas Company S.A.E., Egypt.
v) During the year the Company has provided loss on impairment of Rs.783 crore (Previous Year Nil) out of carrying value of investment in Ratnagiri Gas and Power Private Limited (RGPPL) as mentioned at Note no 5 (b) 1.
Aggregate amount of iv) and v) above of Rs.788.04crore has been shown as exceptional item in statement of profit & loss.
29. In compliance of Ind AS 37 on “Provisions, Contingent liabilities and Contingent Assets”, the required information on provision for probable obligation is as under:
30. Foreign Currency exposure not hedged by a derivative instrument or otherwise.
*excludes amount which is naturally hedged against foreign currency inflows.
31. Details of Loans, Investments, Guarantee and Security given by the Company covered U/S 186 (4) of the Companies Act 2013.
a. Investments made and Loans given are disclosed under the respective notes No 5 and 7.
b. Corporate Guarantees given by the Company in respect of loans as at the end of the current financial year are as under:
c. There is no security provided by the Company.
32. Interest free advance has been given to Petronet LNG Ltd. (PLL) for booking of regasification capacity to the tune of Rs.561.80 crore upto 31.03.2017 (Previous year Rs.561.80 crore). The said advance is to be adjusted within 15 years against regasification invoices of PLL. Out of above advance, PLL has adjusted Rs.9.55 crore from OctRs.16 to MarRs.17. Balance amount of Rs.552.25 crore (Previous year Rs.561.80 crore) has been carried over as advance in Note No 10.
33. Out of the outstanding loan of US $7,500,000 given by the company to its wholly owned subsidiary, GAIL Global (Singapore) Pte Ltd. (GGSPL), US $ 5,000,000 has been converted to 5,000,000 equity shares of US $ 1 each at par value during the year.
34. In respect of corporate guarantees provided by the company to its related parties for obtaining loans, the company has opined that fair value of these guarantees is Nil as the beneficiary companies have not been provided any concession in the rate of interest by the lender.
35. In some cases, the Company has received intimation from Micro and Small Enterprises regarding their status under “The Micro, Small and Medium Enterprises Development Act, 2006” As per practice, the payment to all suppliers has been made within 7 -10 days. The amount remaining unpaid to Micro and Small suppliers as at the end of the financial year is Rs.33.28 crore. No interest for delay was paid or payable under the Act.
36. Cabinet Committee on Economic Affairs (CCEA), Government of India in its meeting held on 21st September 2016 has approved 40% capital grant of estimated capital cost of Rs.12,940 crore i.e. Rs.5,176 crore to the Company for execution of Jagdishpur Haldia Bokaro Dhamra Pipeline Project (JHBDPL). During the year, the Company has received Rs.450 crore towards capital grant on above account.
37. During the year the company has changed the estimated useful life for depreciation on furniture and electrical equipments provided for the use of employees (Tangible assets) from 7 years to 6 years and residual value is depreciated accordingly. However, this change has no material impact on financial statements of the company.
38. In compliance with Regulation 34(3) and 53(f) of Listing Obligations and Disclosure Requirements (LODR) of SEBI, the required information is given in Annexure-C.
39. Financial Risk management
The company is exposed to a number of different financial risks arising from natural business exposures as well as its use of financial instruments including market risks relating to commodity prices, foreign currency exchange and interest rates; credit risk; and liquidity risk.
1. Market Risk
Market risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market prices. Market risk comprises three types of risk: interest rate risk, currency risk and other price risk, such as equity price risk and commodity risk. Financial instruments affected by market risk include loans and borrowings, deposits, and derivative financial instruments.
a. Interest rate risk
Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Company’s exposure to the risk of changes in market interest rates relates primarily to the long-term foreign currency loans with floating interest rates. The Company manages its interest rate risk according to its Board approved Foreign Currency and Interest Rate Risk Management policy’. Market interest rate risk is mitigated by hedging through appropriate derivatives products ,such as interest rate swaps & full currency swaps, in which it agrees to exchange, at specified intervals, the difference between fixed and variable rate interest amounts calculated by reference to an agreed-upon notional principal amount.
Interest rate sensitivity
With all other variables held constant, the following table demonstrates the sensitivity to a reasonably possible change in interest rates on floating rate portion of forex loans and borrowings after considering the impact of swap contracts.
b. Foreign Currency Risk
Foreign currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. Company transacts business in local currency and in foreign currency, primarily U.S. dollars. Company has obtained foreign currency loans and has foreign currency trade payables and receivables and is therefore, exposed to foreign exchange risk. As per its Board approved policy, Company may mitigate its foreign currency risk through plain vanilla derivative products such as foreign exchange option contracts, swap contracts or forward contracts towards hedging such risks. These foreign exchange contracts, carried at fair value, may have varying maturities depending upon the underlying contract requirement and risk management strategy of the Company.
Foreign Currency Sensitivity
The following table demonstrates the sensitivity in the USD, Euro and other currencies to the functional currency of Company, with all other variables held constant. The impact on the Company’s profit before tax is due to changes in the fair value of monetary assets and liabilities including foreign currency derivatives.
c. Commodity Price risk
Company imports LNG for marketing and for its internal consumption on an on-going basis and is not exposed to the price risk to the extent it has contracted with customers in India on back to back basis. However, a part of imported volume is not contracted on back to back basis. As most of the LNG purchase contract prices are based on crude based index, therefore Company is exposed to volatility in crude prices. In order to mitigate this crude linked price risk, Company has been taking appropriate derivative products in line with the Board approved ‘ Natural Gas Price Risk Management Policy’ As on 31st March 2017, there is no significant risk with respect to the open derivative contract.
d. Equity Price Risk
The Company’s listed and non-listed equity investments are susceptible to market price risk arising from uncertainties about future values of these investments. The Company manages the equity price risk through review of investments by Company’s senior management on a regular basis. The Company’s Board of Directors reviews and approves all the equity investment decisions of the Company.
At the reporting date, the exposure to unlisted equity investments at fair value was Rs.293.76 Crore (Previous Year Rs.301.79 Crore).
At the reporting date, the exposure to listed equity investments at fair value was Rs.5712.87 Crore (Previous Year Rs.4419.89 Crore). A variation of ( /-) 10% in share price of equity investments listed on the stock exchange could have an impact of approximately ( /-) Rs.571 Crore (Previous Year Rs.442 Crore) on the OCI and equity investments of the Company. These changes would not have an effect on profit or loss.
2. Liquidity Risk
Liquidity is the risk that suitable sources of funding for Company’s business activities may not be available. The Company’s objective is to maintain optimum level of liquidity to meet its cash and collateral requirements. The Company closely monitors its liquidity position and deploys a robust cash management system. It also maintains adequate sources to finance its short term and long term fund requirement such as overdraft facility and Long term borrowing through domestic and international market.
3. Credit risk
Credit risk is the risk that a customer or counter party to a financial instrument will fail to perform or fail to pay amounts due, causing financial loss to the company and arises from cash and cash equivalents, derivative financial instruments and deposits with financial institutions and principally from credit exposures to customers relating to outstanding receivables. Credit exposure also exists in relation to guarantees issued by company. Each segment is responsible for its own credit risk management and reporting. Credit risk is considered as part of the risk-reward balance of doing business. On entering into any business contract the extent to which the arrangement exposes the company to credit risk is considered.
Customer credit risk is managed by each business unit subject to the Company’s established policy, procedures and control relating to customer credit risk management. Outstanding customer receivables are regularly monitored. An impairment analysis is performed at each reporting date on an individual basis for major clients.
Financial Instruments and Cash Deposits
Credit risk from balances with banks and financial institutions is managed by the Company’s treasury department in accordance with approved limits of its empanelled bank for the purpose of Investment surplus funds and foreign exchange transactions. Foreign exchange transaction and Investments of surplus funds are made only with empanelled Banks. Credit limits of all Banks are reviewed by the Management on regular basis.
4. Capital Management
For the purpose of the capital management, capital includes issued capital and all other equity reserves attributable to the equity holders of the Company. The primary objective of the Company’s capital management is to ensure that it maintains a strong credit rating and healthy capital ratios in order to support its business and maximize the shareholder value.
The Company manages its capital structure and makes adjustments in light of changes in economic conditions and the requirements of the financial covenants. To maintain or adjust the capital structure, the Company may adjust the dividend payment to shareholders, return capital to shareholders or issue new shares. No changes were made in the objectives, policies or processes during the reporting years.
5. Accounting classifications and fair value measurements
The Company uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation technique:
Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities
Level 2: other techniques for which all inputs which have a significant effect on the recorded fair value are observable, either directly or indirectly
Level 3: techniques which use inputs that have a significant effect on the recorded fair value that are not based on observable market data.
As at 31st March 2017, the Company held the following financial instruments carried at fair value on the statement of financial position:
Note: The carrying cost of Interest-bearing loans and borrowings is approximately equal to their Fair MarketValue
The fair values of the financial assets and liabilities are included at the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale.
Description for significant unobservable inputs to valuation:
The following table shows the valuation techniques and inputs used for financial instruments:
a. Confirmation of balances has been received in majority of cases for trade receivables and payables. These confirmations are subject to reconciliation and consequential adjustments, which in the opinion of the management are not material.
b. In the opinion of management, the value of assets, other than fixed assets and non-current investments, on realization in the ordinary course of business, will not be less than the value at which these are stated in the Balance Sheet.
6. Other Quantitative details are given in Annexure-D.
7. Previous year’s figures have been regrouped / reclassified wherever necessary to correspond with the current year’s classification / disclosure.