2.17. Provisions and contingent liabilities
2.17.1. Provisions are recognized when there is a present obligation as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation;
2.17.2. Contingent liabilities are not recognized in the financial statements but are disclosed unless the possibility of an outflow of economic resources is considered remote;
2.17.3. Contingent liabilities and Capital Commitments disclosed are in respect of items which in each case are above the threshold limit (1);
2.17.4. Contingent Liabilities are considered only when show-cause notice is converted into demand.
2.18. Fair value measurement
2.18.1. Fair value is the price that would be received/ paid to sell an asset or to transfer a liability, as the case may be, in an orderly transaction between market participants at the measurement date in the principal or, in its absence, the most advantageous market to which the Corporation has access at that date. The fair value of a liability also reflects its non-performance risk;
2.18.2. While measuring the fair value of an asset or liability, the Corporation uses observable market data as far as possible. Fair values are categorised into different levels in a fair value hierarchy based on the inputs used in the relevant valuation technique.
Financial Instruments
2.19. Financial Assets
2.19.1. Initial recognition and measurement
All financial assets (not measured subsequently at fair value through profit or loss) are recognised initially at fair value plus transaction costs that are attributable to the acquisition of the financial asset. However, trade receivables that do not contain a significant financing component are measured at transaction price.
2.19.2. Subsequent measurement
Subsequent measurement is determined with reference to the classification of the respective financial assets. The Corporation classifies financial assets (other than equity instruments) as under:
(a) subsequently measured at amortised cost;
(b) fair value through other comprehensive income (FVOCI); or
(c) fair value through profit or loss (FVTPL)
on the basis of its business model for managing the financial assets and the contractual cash flow characteristics of the financial asset.
Amortised cost
A 'debt instrument' is measured at the amortised cost if both the following conditions are met. The asset is held within a business model whose objective is:
• Contractual terms of the asset give rise on specified dates to cash flows that are solely payments of principal and interest (SPPI) on the principal amount outstanding.
After initial recognition, such financial assets are subsequently measured at amortised cost using the Effective Interest Rate (EIR) method and such amortization is recognised in the Statement of Profit and Loss.
Debt instruments at Fair value through profit and loss (FVTPL)
Fair value through profit and loss is a residual category for measurement of debt instruments.
After initial measurement, any fair value changes including any interest income, impairment loss and other net gains and losses are recognised in the Statement of Profit and Loss.
Equity investments
All equity investments in scope of Ind-AS 109 (except investments in Subsidiaries, Joint Ventures, and Associates) are measured at fair value. Equity instruments which are held for trading are classified as at FVTPL. For all other equity instruments, the Corporation decides to classify the same either as at FVOCI or FVTPL. The Corporation makes such election on an instrument-by-instrument basis. The classification is made on initial recognition and is irrevocable;
For equity instruments classified as FVOCI, all fair value changes on the instrument, excluding dividends, are recognized in other comprehensive income (OCI);
Equity instruments included within the FVTPL category are measured at fair value, with all fair value changes being recognized in the Statement of Profit and Loss.
2.19.3. Impairment of financial assets
In accordance with Ind-AS 109, the Corporation applies Expected Credit Loss ("ECL") model for measurement and recognition of impairment loss on the financial assets measured at amortised cost;
Loss allowances on trade receivables are measured following the 'simplified approach' at an amount equal to the lifetime ECL at each reporting date.
2.20. Financial Liabilities
2.20.1. Initial recognition and measurement
All financial liabilities (not measured subsequently at fair value through profit or loss) are recognised initially at fair value net of transaction costs that are directly attributable to the respective financial liabilities.
2.20.2. Subsequent measurement
The Corporation classifies all financial liabilities as subsequently measured at amortised cost by using the Effective Interest Rate Method ("EIR") and such amortisation is recognised in the Statement of Profit and Loss.
2.20.3. Derecognition
A Financial Liability is derecognised when the obligation under the liability is discharged or cancelled or expires.
2.21. Financial guarantees
Financial guarantee contracts are recognised initially at fair value. Subsequently on each reporting date, the liability is measured at the higher of the amount of loss allowance determined as per impairment requirements of Ind AS 109 and the fair value initially recognised less cumulative amortisation.
2.22. Derivative financial instruments
The Corporation uses derivative financial instruments, such as forward contracts, interest rate swaps to mitigate its foreign currency risk, interest risk and commodity price risk arising out of highly probable forecast transactions and are presented in Financial Statements, either as Financial Assets or Financial liabilities as the case may be.
2.22.1. Derivatives Contracts designated as hedging instruments
Wherever Hedge Accounting is undertaken, the derivative financial instruments are recognized at fair value with due assessment to effectiveness of the hedge instrument.
By following Cash Flow Hedges, the effective portion of changes in the fair value is recognized in Other Comprehensive Income (OCI) and accumulated under Cash Flow Hedge Reserve within Other Equity, whereas the ineffective portion, if any, is recognized immediately in the Statement of Profit and Loss. The effective portion, previously recognized in OCI and accumulated as Cash
Flow Hedge Reserve is reclassified to the Statement of Profit and Loss in the subsequent period, during which, the hedged expected future cash flows affect profit or loss and presented in the same line item to which the underlying is accounted.
Further, in case of previously recognized forecasted transaction, upon the knowledge of its non-occurrence, the effective portion of cumulative gain or loss is forthwith recognized by transferring from Cash Flow Hedge Reserve to the Statement of Profit and Loss.
If the amount accumulated in Cash Flow Hedge Reserve is a loss and Corporation expects that all or a portion of that loss will not be recovered in one or more future period, the Corporation immediately reclassifies the amount that is not expected to be recovered into profit or loss as a reclassification adjustment. The hedge accounting is discontinued when the hedging instrument expires or is sold, terminated or no longer qualifies for hedge accounting.
2.22.2. Derivatives Contracts not designated as hedging instruments
The derivative financial instruments are accounted at fair value through Profit or Loss and presented under Other Income or Other Expenses, as the case may be.
2.23. Offsetting of financial instruments
Financial assets and financial liabilities are offset and the net amount is reported in the Balance Sheet, if there is a currently enforceable legal right to offset the recognised amounts and there is an intention to settle on a net basis, or to realise the assets and settle the liabilities simultaneously.
2.24. Taxes on Income
2.24.1. Provision for current tax is made in accordance with the provisions of the Income Tax Act, 1961;
2.24.2. Deferred tax liability/asset on account of temporary difference is recognised using tax rates and tax laws enacted or substantively enacted as at the Balance Sheet date;
2.24.3. Deferred tax assets are recognised and carried forward for all deductible temporary differences only to the extent that it is probable that taxable profit will be available in future against which the deductible temporary difference can be utilized;
2.24.4. The carrying amount of deferred tax assets/Liabilities is reviewed at each Balance Sheet date.
2.25. Earnings per share
2.25.1. Basic earnings per share are calculated by dividing the net profit or loss for the period attributable to equity shareholders by the weighted average number of equity shares outstanding during the period;
2.25.2. For the purpose of calculating diluted earnings per share, the net profit or loss for the period attributable to equity shareholders and the weighted average number of shares outstanding during the period are adjusted for the effect of all dilutive potential equity shares.
2.26. Cash and Cash equivalents
Cash and cash equivalents includes cash on hand, balances with banks, other short-term, highly liquid investments with original maturities of three months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value.
2.27. Cash Flows
Cash flows are reported using the indirect method, whereby net profit before tax is adjusted for the effects of transactions of a non-cash nature, any deferrals or accruals of past or future operating cash receipts or payments and item of income or expenses associated with investing or financing cash flows. The cash flows from operating, investing and financing activities are segregated. For the purpose of the Statement of Cash Flows, cash and cash equivalent consist of cash, as defined above, net of outstanding bank overdrafts as they are considered an integral part of the Corporation's cash management.
2.28. Dividend
The Company recognises a liability to make cash distributions to equity holders of the Corporation when the distribution is authorised and the distribution is no longer at the discretion of the Corporation. As per the corporate laws in India, a distribution is authorised when it is approved by the shareholders. A corresponding amount is recognised directly in other equity. 2
Notes
1. Includes assets of gross block H 0.007 Crore (31.03.2023: H 0.007 Crore) of erstwhile Kosan Gas Company that have not been handed over to the Corporation. Though Kosan Gas Company was to give up their claim, in view of the tenancy right sought by third party, the matter is under litigation.
2. Includes Gross Block of H 1,103.36 Crore (31.03.2023: H 1,092.04 Crore) towards Land, Building, Plant & Equipment, Furniture & Fixtures, Transport equipments, Office/lab Equipments, Roads & Culverts, Pipelines, Railway Sidings, etc. representing Corporation's share of Assets, jointly owned with other Companies.
3. Includes Gross Block of H 10.93 Crore (31.03.2023: H 10.93 Crore) towards Roads & Culverts, Transformers & Transmission lines, Railway Sidings & Rolling Stock for which though ownership does not vest with the Corporation, operational control over such assets is exercised. These assets are amortized as per useful life specified in Schedule II of Companies Act, 2013.
4. a) Includes following assets used for distribution of PDS Kerosene under Jana Kalyan Pariyojana against which financial
assistance had been provided by Oil Industry Development Board:
5. Assets held for sale consists of items such as plant and equipment, office equipment, transport equipment, buildings, furnitures & fixtures and roads & culverts which have been identified for disposal due to replacement/ obsolescence of assets which happens in the normal course of business. These assets are expected to be disposed off within the next twelve months. On account of classification of these assets as 'Asset held for sale', a loss of H 6.42 Crore (2022-23: H 54.80 Crore) has been recognised in the Statement of Profit and Loss.
6. Includes Right of Use Assets having Gross Block H 115.63 Crore (31.03.2023: H 103.75 Crore) for land acquired on lease-cum-sale basis from Karnataka Industrial Area Development Board (KIADB), that has not been amortized over the period of lease in view of freehold title that would vest upon fulfilment of certain terms and conditions, as per allotment letter.
7. Includes adjustment to Cost of Assets pursuant to exchange differences arising on long term foreign currency monetary items, which, in accordance with Para 7AA of Ind AS 21 read with Para D13AA of Ind AS 101, are capitalized and depreciated over the balance useful life of the assets.
8. The Corporation has considered pipeline assets laid within the boundary limit of its premises as integral part of Tanks / Other Plant and Machinery and have been depreciating such assets based on the useful life of associated Plant & Equipment, in line with the Schedule II of the Companies Act, 2013.
9. Includes an increase in depreciation by H 135.41 Crore (2022-23 : H Nil Crore) on account of a change in accounting estimate regarding the useful life of Dispensing Unit from 15 years to 10 years, implemented during FY 2023-24 based on assessment carried out by the Management.
10. Includes an increase in depreciation by H 14.07 Crore (2022-23 : H Nil Crore) on account of a change in accounting estimate regarding the useful life of Assets provided to employees, implemented during FY 2023-24 based on Corporation's Furniture Policy.
11. Includes an increase in depreciation by H 18.33 Crore (2022-23 : H Nil Crore) on account of a change in accounting estimate regarding the residual value of certain pipelines including Cross Country Pipelines from 5% to 0%, implemented during FY 202324 based on assessment carried out by the Management.
12. Includes depreciation of H Nil Crore (2022-23: H 9.05 Crore) on account of determining the useful life of assets at lower of life as per specific agreements pertaining to Railway Consumer Depots or Schedule II of the Companies Act, 2013.
13. During the year, in respect of LPG consumers who have been inactive for 15 years and the useful life of equipment they are holding is also over, the equipment value (First Cost: H 1.35 Crore, 2022-23: H 97.11 Crore) along with the LPG consumer deposit (H 2.28 Crore, 2022-23: H 127.88 Crore) has been de-recognized in the books of account.
14. The process of capitalization in respect of Property, Plant and Equipment including accounting of Capital Work-in-Progress is under continuous review and updation, wherever required, and is being carried out on a regular basis
15. In the nature of business carried out by the Corporation, there are certain leasehold immovable properties, which are under its continuous possession, control and use over the period, the lease agreement of which have expired. Pending renewal of such leases, these have not been recognised as Right of Use Assets.
16. Title deeds of Immovable Properties not held in name of the Corporation (Other than properties where the Corporation is the lessee and the lease agreements are duly executed in favour of the Corporation):
39.B Fair value hierarchy
This section explains the judgements and estimates made in determining the fair value of the Financial Assets and Financial Liabilities that are recognised and measured at fair value and 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 Indian 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.
40. Financial risk management 40.A. Risk management framework
The Corporation has established an Enterprise Risk Management (ERM) framework under the Corporation's Enterprise Risk Management Charter and Policy, which is embedded at the forefront of business strategies and focuses on the stronger, deeper and trust-based relationship with the stakeholders. This framework provides necessary support to the business to navigate through the evolving risk landscape through dynamic risk management approach that embraces disruption and enhances resiliency and builds trust.
The Corporation is regularly reviewing the identified and emerging risks and taking appropriate risk mitigation measures.
The Risk Management Committee (RMC), receives regular insights on risk exposures faced by the Corporation, thereby enabling it to provide inputs on prompt actions to be taken as well as monitor the actions taken. The Board is also updated regularly on the risk assessment and mitigation procedures.
Technology has been enabled to support the ERM processes with a focus on optimizing risk exposures and automation of risk reporting across the organization.
40.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:
40.B.1 - Credit risk
Credit risk is the risk of financial loss to the Corporation if a customer or counterparty to a financial instrument fails to meet their contractual obligations. The risk arises principally from the Corporation's Receivables from Customers and so also from Investment Securities. The risk is managed through credit approval, establishing credit limits and continuous monitoring of the creditworthiness of Customers to whom the Corporation extends credit terms in the normal course of business.
The maximum exposure to credit risk in case of all the financial instruments covered below is restricted to their respective carrying amount.
Note: Refer Note 61 regarding loans given to consumers under Pradhan Mantri Ujjwala Yojna (PMUY).
Trade receivables
The Corporation's exposure to credit risk is influenced mainly by the individual characteristics of each customer.
The Corporation assesses impairment of Trade Receivable/Other Receivables both individually and/or grouping large numbers of Customers, homogenously and recognizes a loss allowance towards doubtful debts by estimating its expected losses. In this regard, an allowance matrix is used to measure the expected credit losses on trade receivables that are considered good. The following table provides information about the exposure to credit risk and loss allowance (including expected credit loss provision) on such trade receivables:
The amounts written off relates to customers who have defaulted payments and are not expected to pay their outstanding balances, mainly due to economic circumstances.
Cash and Cash Equivalents
The Corporation held cash and cash equivalents of H 159.07 Crore as on 31.03.2024 (31.03.2023 : H 384.93 Crore). The cash and cash equivalents (other than cash on hand) are held with scheduled banks. The Corporation invests its surplus funds for short duration in fixed deposit with banks, Government of India T-bills, Tri Party Repo System (TREPS), Clearcorp Repo Order Matching System (CROMS) and debt schemes of Mutual Funds, all of which carry no mark to market risks as the Corporation is exposed only to low credit risk.
Derivatives
The forex and interest rate derivatives are entered into with banks having an investment grade rating. Commodity derivatives are entered with reputed Counterparties in the OTC (Over-the-Counter) Market. The exposure to counter-parties are closely monitored and kept within the approved limits.
Investment in Debt Securities
Investment are made in government securities or bonds which do not carry any credit risk, being sovereign in nature.
40.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's sources of liquidity includes operating cash flows, cash and cash equivalents, fund and non-fund based credit 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 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. Corporation's diversified source of funds and cash flow enables it to maintain requisite capital structure discipline. Corporation 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, bank term loans, TREPS loan, CROMS loan, commercial paper, non-convertible debentures, buyer's credit loan, clean loan etc. Corporation taps domestic as well as foreign debt markets from time to time to ensure appropriate funding mix and diversification across geographies.
40.B.3. Market Risk - Market Risk is further categorised in (i) Currency risk, (ii) Interest rate risk, (iii) Commodity risk & (iv Price risk
40.B.3.1. Currency risk
The Corporation is exposed to currency risk, primarily on account of its repayment obligations of loans taken in foreign currency and imports, to be paid in foreign currency. The exposure is mainly denominated in U.S.Dollar. The Corporation has a Forex Risk Management Cell (FRMC) which actively review the forex and interest rate exposures. The Corporation uses generic derivative contracts to mitigate the risk of changes in foreign currency exchange rates in line with Corporation's forex risk management policy. The Corporation does not use derivative financial instruments for trading or speculative purposes.
The Corporation has long-term foreign currency syndicated loans with floating rate of interest, which exposes the Corporation to cash flow interest rate risk. The borrowings at floating rate are denominated in USD. The Corporation manages its cash flow interest rate risk by using floating-to-fixed interest rate swaps. Under this, 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 referring to the agreed notional principal amounts. The Corporation monitors the interest rate movement and manages the interest rate risk, based on the Corporation's Forex Risk Management Policy. The Corporation also has a Forex Risk Management Cell (FRMC) that actively reviews the forex and interest rate exposures. The Corporation does not use derivative financial instruments for trading or speculative purposes.
In March 2021, the Financial Conduct Authority (FCA), UK has confirmed that all LIBOR settings will either cease to be provided by any administrator or no longer be a representative in the following manner:
• Immediately after December 31,2021, in the case of all Sterling, Euro, Swiss franc and Japanese yen settings, and the 1-week and 2-month US dollar settings; and
• Immediately after June 30, 2023, in the case of the remaining USD settings.
The Corporation has no exposure in the form of External Commercial Borrowings, linked to 3-Month LIBOR as at 31.03.2024 (31.03.2023: USD 750 Million). The outstanding loan as at 31.03.2023 aggregating to USD 750 Million have been refinanced and migrated to 3-month Term SOFR i.e., Alternative Reference Rate at a favourable spread during the current financial year.
The Corporation's borrowings which are contracted at fixed rate are carried at amortised cost. These are not affected due to interest rate risk as defined in Ind AS 107 as neither the carrying amount nor the future cash flows will fluctuate in the event of a change in market interest rates.
The Corporation enters into derivative contracts for hedging purpose, to mitigate the commodity price risk on Highly probable forecast transactions and Currency Risk. The Corporation has applied Hedge Accounting on commodity derivative transactions and foreign exchange forward derivatives as per Ind AS 109 (Financial Instruments). Consequent to this a Mark to Market Debit / (Credit) amounting to H (2.92) Crore (2022-23: H (4.01) Crore) has been accounted in Other Comprehensive Income which will be recycled to Statement of Profit and Loss in subsequent period on settlement of respective contracts.
All these hedges are accounted for as Cash Flow Hedges.
Hedge Effectiveness
The Corporation has established a hedge ratio of 1:1 for the hedging relationship as the underlying risk of the commodity derivative contracts are identical to the hedged risk component. Hedge item and the hedging instruments have economic relationship as the terms of the commodity derivative contracts match with the terms of hedge items. Considering the economic relationship and characteristics of the hedging instrument being aligned to the hedged item, the fair value changes in the hedging instrument reasonably approximates the fair value changes in the hedged Item (in absolute amounts).
Source of Hedge Ineffectiveness
The Corporation has identified the following sources of hedge ineffectiveness w.r.t commodity derivative contracts which are not expected to be material as at date:
a. Counterparty Credit Risk impacting the fair value of the hedge instrument and hedge item.
b. Difference in the timing of the cash flows of the hedged items and the hedge instruments.
c. Different indexes used to hedge risk of the hedged item.
d. Changes to forecasted amounts of cash flows of hedged items and hedging instruments.
In case of foreign currency risk, the main source of hedge ineffectiveness is the effect of the counterparty and the Corporation's own credit risk on the fair value of the hedge contracts, which is not reflected in the fair value of the hedged items. The effect of this is not expected to be material.
Disclosures of effects of Cash Flow Hedge Accounting
The Corporation has applied Hedge Accounting prospectively for the highly probable forecast transactions and foreign exchange forwards as stated above. Consequently, disclosure is made only for the transactions designated for Hedge Accounting.
47. 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's debt to equity ratio, used for monitoring capital management is 1.47 (31.03.2023: 2.33) (refer Note 71).
Note # 53.1
The Corporation with a Participating Interest(PI) of 60% along with Prize Petroleum Company Limited (PPCL), having a PI of 10% and M3nergy Sdn. Bhd (M/s M3nergy) having a PI of 30% were awarded service contract in March, 2006 for development of ONGC's offshore marginal oilfields of cluster-7. PPCL was the executing contractor. Parties provided necessary Bank Guarantees to ONGC. Since M/s M3nergy could not meet their contractual obligations, the contract was terminated by ONGC and Bank guarantees were forfeited. HPCL and PPCL demanded the refund of monies forfeited towards encashment of Bank Guarantee along with other claims from M/s M3nergy. A counter claim of USD 36.51 Million was made by M3nergy on termination of such service contract. The matter was referred to Arbitration.
The Arbitral Tribunal passed 3 Awards (09.01.2014, 27.09.2017, 15.06.2018 respectively), all were in favour of the Corporation and PPCL. These Orders were to the effect that M3nergy had committed breach of the contract and hence their counter claims were disallowed and that the Corporation and PPCL are entitled for damages with interest and costs of arbitration to be borne by M3nergy. All the 3 Awards were challenged by M/s M3nergy before the Bombay High Court. However, there was no stay granted by Bombay High Court, hence, HPCL/ PPCL filed applications for (a) Mareva Injunction and (b) Enforcement of the Award before the Courts in Malaysia since M/s M3nergy is located in Malaysia.
By Orders dated 10.01.2019 the Hon'ble Bombay High Court set aside all three Arbitration Awards. As the Awards were set aside (on the basis of which the enforcement application was filed by HPCL), on 28.02.2019 the Malaysian High Court at Kuala Lumpur allowed the application of M/s M3nergy to set aside the enforcement order with liberty to file fresh proceedings, if HPCL/ PPCL succeed later. Meanwhile, HPCL and PPCL have filed Appeals against the setting aside order (of Single Judge Bombay High Court) before the Division Bench of the Bombay High Court. After hearing arguments of parties, on 16.10.2019, the Hon'ble Bombay High Court set aside the Single Judge's Order and remanded all the 3 matters back to the Single Judge of the High Court, to decide the matter afresh on merits. This Order was challenged by M/s M3nergy before the Supreme Court by filing Special Leave Petition (SLP) which, after brief arguments, was dismissed as withdrawn (by M/s M3nergy) on 31.01.2020. As a result, the Single Judge of Bombay High Court will hear the matter afresh on merits. Further, during April 2024, Corporation has filed for execution of the arbitral awards against M3nergy before the Courts in Malaysia.
As a result, the Corporation's share of the awarded amount which is approximately H 420.74 Crore towards loss of profit /damages / costs and interest thereon has not been recognized on a conservative basis. Further, the claim raised by M/s M3nergy to the extent of Corporation's share i.e. approximately H 261.03 Crore @ Exchange rate of 1 USD = H 83.4100 (31.03.2023: H 257.15 Crore @ Exchange rate of 1 USD = H 82.1750), being considered remote is also not recognized.
53.2. Corporation 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 Corporation is committed to purchase the said petroleum products over the tenure of the agreement.
53.3. In respect of certain Joint Venture/Associate Companies, the Corporation and other joint venture partners have committed among others, that they would jointly hold at least 51% of share capital of such Joint Venture/Associate till the repayment of certain bank loans / bonds for which letters of comfort have been issued in certain cases. Expected future outflow of resources emanating out of approved plans on investment in Subsidiaries/Joint Ventures/Associates are not part of 'Capital Commitments' unless investment calls are made as at period end.
53.4. Ministry of Environment, Forest and Climate Change (MoEFCC), GoI, had stipulated vide letter dated 31/01/2017 that at least 2.5% of the total cost of Mumbai Refinery Expansion Project (MREP) shall be earmarked towards Enterprise Social Commitment (ESR) based on Public Hearing issues, which works out to H 134.5 Crore. Corporation has undertaken various activities in line with the discussions held during the Public Hearing / meetings of Expert Appraisal Committee (EAC) of MoEFCC, and an aggregate amount of around H 7 Crore incurred on such activities has been duly accounted for in the books of account as on 31/03/2024.
Note: The above provisions are made based on estimates and expected timing of outflows is not ascertainable at this stage.
55. (a) Inter-Oil Company transactions are reconciled on a continuous basis. However, year end balances (including trade payables /
trade receivables) are subject to confirmation/reconciliation which is not likely to have a material impact.
(b) Customer's 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.
56. Impairment assessment as per the requirements of Ind AS 36 'Impairment of Assets' has been carried out at period end for all Cash-Generating Units (CGUs) by comparing their value-in-use (calculated based on certain assumptions, on which auditors have relied upon) with the carrying value of assets under respective CGUs. Based on such assessment, no impairment loss for CGUs is warranted for the current financial year. For financial year 2022-23, an impairment loss of H 44.28 Crore was recognized towards windmills assets situated at Akal (Rajasthan).
57. On the reporting date, the Corporation has an equity investment of H 1,021.23 Crore (31.03.2023: H 984.61 Crore) in its wholly owned subsidiary, HPCL Biofuels Limited (HBL). Of this, an amount of H 572.16 Crore has been impaired as on 31.03.2024 (31.03.2023: H 572.16 Crore). Considering the Government policy in promoting ethanol blended petrol (subsidiary is engaged in production of ethanol) and business plans for the subsidiary, the current level of impairment is considered appropriate in the opinion of the Management.
58. The Corporation has an equity investment of H 251.27 Crore (31.03.2023: H 250.76 Crore) in its wholly owned subsidiary, Prize Petroleum Company Limited. In line with impairment testing carried out as per the provisions of Ind AS 36, impairment loss of H 47.29 Crore (2022-23 : H 27.00 Crore) was provided for, resulting in carrying value of the investment at H Nil Crore (31.03.2023: H 46.78 Crore).
59. The Corporation has an equity investment of H 66.77 Crore in its Associate, GSPC India Transco Limited. The total amount of impairment towards the carrying value of the investment stands at H 14.00 Crore (31.03.2023: H 14.00 Crore) which was provided in financial year 2021-22. The said impairment is in line with the requirement of Ind AS 36 and is based on the financial performance of the entity. In the opinion of the Management, the current level of impairment is appropriate.
60. Prize Petroleum Company Ltd. (PPCL), a wholly-owned subsidiary, is the upstream arm of the Corporation in the business of Exploration & Production (E&P) of hydrocarbons and management of E&P blocks. PPCL has a wholly-owned subsidiary, Prize Petroleum International Pte Ltd. (PPIPL), which was incorporated in Singapore, as a part of Corporation's upstream strategy to have a balanced portfolio of E&P assets to serve the relatable business interest of the Corporation and commercial expediency. Towards this, a loan of US $86 Million was availed by PPIPL during the financial year 2016-17, for which a Corporate Guarantee (CG) was provided by the Corporation. The carrying value of the obligation towards the said CG (on loan outstanding of US $79 Million) was re-measured under the provisions of Ind AS 109 and an amount of H 21.80 Crore (2022-23: H 300.18 Crore) is provided for during the year and accounted under 'Other Expenses'.
The said loan outstanding was due for repayment during the current year. In view of inability of PPIPL/PPCL to discharge its obligations, the same was directly settled by the Corporation pursuant to CG given, by making payment of H 678.63 Crore [which includes interest due on maturity] to the lenders/agent. Consequently, the carrying value of obligation for H 678.63 Crore (31.03.2023 : H 649.18 Crore) has been reversed and accounted for under 'Other Expenses'. Towards this, receivable of H 678.63 Crore (31.03.2023 : H Nil Crore) from PPIPL has been recognised on one hand, and simultaneously accounted for in 'Other Expenses' on the other hand.
During April 2024, a tripartite Sale and Purchase Agreement (SPA) was entered into amongst PPIPL (Seller), Beach Energy (Operations) Limited (Buyer), and the Corporation (Seller Guarantor) to divest Seller's Participating Interest in E&P Assets located in Australia w.e.f. 1st July 2023, with inter-period adjustments. Under the SPA, a total consideration of AUD 16.6 Million (~H 90 Crore), plus applicable taxes, is payable to the Buyer [comprising of an upfront payment of AUD 11.3 Million (~H 61 Crore) and deferred payment of AUD 5.3 Million (~H 29 Crore) which is contingent upon certain decisions to be taken by the Buyer in future], duly guaranteed by the Corporation towards Seller's performance under the SPA. Further, to facilitate the discharge of obligations by PPIPL, Corporation has infused fresh equity share capital of H 17 Crore into PPCL during April 2024.
61. The Pradhan Mantri Ujjwala Yojana (PMUY) was launched in 2016 to provide LPG connections to women from below-poverty-line (BPL) households. The beneficiary is given an option to avail loan from the respective OMCs to meet the cost of the stove and first fill. This loan is to be recovered from the subsidy payable to the consumer on purchase of the refill cylinder. The loan has been provided to 1.76 Crore PMUY consumers for an amount aggregating to H 2,960.24 Crore (31.03.2023: H 2,960.48 Crore), and of this, H 1,427.43 Crore (31.03.2023: H 1,565.39 Crore) is outstanding at period end. The Loan is classified as 'subsequently measured at amortized cost' in the financial statements. The carrying value of loan outstanding as at Balance Sheet date is re-measured based on revised estimates of future cash flows. Such re-measurement has resulted in change in gross carrying amount of outstanding loan, net of interest unwinding, by H -66.73 Crore (FY 2022-23: H -81.57 Crore) during the year. Considering the cumulative re-measurement loss, net of interest unwinding, amounting to H 376.66 Crore (31.03.2023: H 443.39 Crore) and accounting of Deferred Expense amounting to H 528.29 Crore (net balance after amortisation as of 31.03.2024 is H 287.27 Crore), the outstanding loan at period end is carried in the books at H 522.48 Crore (31.03.2023: H 593.71 Crore). Further, considering the consumption pattern of refills, level of subsidies and consequential impact on repayment of the loan, by following the principles of prudence and conservatism, a cumulative provision of H 326.07 Crore (31.03.2023: H 25.01 Crore) net of reversal, if any, is estimated and recognized in books. The additional provision during the year amounted to H 301.07 Crore (FY 2022-23: H -93.69 Crore) that arose primarily due to active customers turning inactive. The expected credit loss estimate is reasonable.
62. The Corporation implements various schemes of Government of India, such as PMUY, Direct Benefit Transfer scheme, wherein the amount is either received in advance or reimbursed subsequently. As of 31.03.2024, reimbursements amounting to H 21.13 Crore (31.03.2023: H 189.88 Crore) are pending for a period beyond 6 months for which provision of H Nil Crore (31.03.2023: H 159.12 Crore) is carried out in the books.
63. The Company's Board has 6 Independent Directors, which was sufficient to comply with the requirements of Regulation 17(1)(b) of SEBI LODR, 2015, which provides that "where the listed entity does not have a regular non-executive chairperson, at least half of the board of directors to comprise of independent directors". Effective 1st May 2023, with the appointment of 1 non-independent Director on the Board, the Company is required to have one more Independent Director to continue to comply with the requirements of aforesaid regulation. This appointment is awaited from the Administrative Ministry. The Company has also approached the Administrative Ministry for appointment of requisite number of Independent Directors on its Board from time to time.
67. Employee benefit obligations
A. Defined Contribution Plan
Superannuation Fund
The Corporation has Superannuation - Defined Contribution Scheme (DCS) maintained by 'Superannuation Benefit Fund Scheme (SBFS) Trust' wherein Employer makes a monthly contribution of a certain percentage of 'Basic Salary & Dearness Allowance(DA)', out of 30%, earmarked for various Superannuation benefits. This is in accordance with Department of Public Enterprises (DPE) guidelines. These contributions are credited to individual Employee's Account maintained either with Life Insurance Corporation of India (LIC) or an optional National Pension Scheme (NPS) Account. For the financial year 2023-24, the Corporation has made an overall contribution of H 190.57 Crore (2022-23 : H 207.91 Crore) towards Superannuation - DCS [including H 90.44 Crore (2022-23 : H 84.65 Crore) to NPS] by charging it to the statement of Profit and Loss.
Employee Pension Scheme(EPS-95)
During the year, Corporation has recognised H 7.92 Crore (2022-23: H 8.19 Crore) as contribution to Employee Pension Scheme (EPS-95) in the Statement of Profit and Loss.
B. Defined Benefit Plan
Provident Fund
Provident Fund is administered through a separate Trust, established for this purpose in accordance with The Employee Provident Fund and Miscellaneous Provisions Act, 1952. The Corporation's contribution to the Provident Fund is remitted to this trust based on a fixed percentage of the eligible employee's salary and charged to Statement of Profit and Loss. During the year, the Corporation has recognized H 168.97 Crore (2022-23: H 166.71 Crore) as Employer's contribution to Provident Fund in the Statement of Profit and Loss.
Shortfall, if any, in matching the Government specified minimum rate of return, will be made good by the Corporation and charged to Statement of Profit and Loss. During the year, the fund has been able to match the Government specified minimum rate of return. The present value of benefit obligation at period end is H 5,295.62 Crore (31.03.2023: H 5,142.99 Crore). The fair value of the plan assets of Provident Fund Trust at the period end is H 5,269.40 Crore (31.03.2023: H 5,162.93 Crore) resulting in shortfall of H 26.22 Crore (31.03.2023: H Nil Crores) which has been accounted through Other Comprehensive Income.
During the year, an additional provision of H 2.93 Crore has been created against liability towards losses on defaulted investments. The initial provision was created in FY 2019-20.
H. Notes
I. Gratuity : Each employee rendering continuous service of 5 Years or more is entitled to receive gratuity amount equal to 15/26 of the eligible salary for every completed years of service subject to maximum of H 0.20 crore at the time of separation from the Corporation. Besides the ceiling, gratuity increases by 25% whenever IDA rises by 50%. The long term employee benefit of Gratuity is administered through a Trust, established under The Payment of Gratuity Act, 1972. The Board of Trustees comprises of representatives from the Employer who are also plan participants in accordance with the plans regulation. The liability towards gratuity is funded with Life Insurance Companies.
II. Pension : The employees covered by the Pension Plan of the Corporation are entitled to receive monthly pension for life. However, none of the current serving employees are covered under Pension Plan of the Corporation.
III. Post Retirement Medical Benefit (PRMBS) : Post Retirement Benefit medical scheme provides medical benefit to retired employees and eligible dependent family members. This long term employee benefit is administered through a Trust. The liability towards Post-Retirement Medical Benefit for employees is ascertained, yearly, based on the actuarial valuation and funded to the Trust.
IV. Ex-gratia : The ex-employees of Corporation are covered under the Scheme, entitling to get ex-gratia, determined based on their salary grade at the time of their superannuation. The benefit is paid to eligible employees till their survival, and thereafter till the survival of their spouse. However, none of the current serving employees are covered under this Plan.
V. Resettlement Allowance : Upon superannuation from the services of the Corporation, there are employees who permanently settle down at a place other than the location of the last posting. Such employees are provided with resettlement allowance as per policy of the Corporation.
VI. Others : The expected return on plan assets is based on market expectation over the entire life of the related obligation. The actuarial assumption with regard to future salary escalation takes into consideration, the factors such as inflation, seniority, promotion, demand & supply in the employment market.
VII. Figures in italics represent last year figures.
68. As on 31.03.2024, the Corporation has no inventory of Non-Solar Renewable Energy Certificates (RECs) (31.03.2023: 3,275 Units), available for sale after earmarking a requisite quantity already for captive consumption.Traded in Indian Energy Exchange Ltd., the revenue from RECs is recognized as and when the same are sold.
69. As on 31.03.2024, there are no loans or advances in the nature of loans granted to promoters, directors, KMPs and the related parties either severally or jointly with any other person that are repayable on demand (or, without specifying any terms or period of repayment). Further, during the current year, Corporation has entered into an agreement with HPCL Rajasthan Refinery Limited (HRRL), to provide an interest bearing subordinated loan for a sum of H 3,000 Crore to meet HRRL's project expenditure [Govt. of India's approval is awaited for equity infusion into HRRL by the Corporation, beyond the currently approved limit]. Towards this, as of 31.03.2024, a loan of H 500 Crore has been disbursed to HRRL, which would be repayable by way of issue of equivalent amount of Equity Shares to the Corporation. Following are the further details:
72. Other Disclosures
72.1. The Quarterly returns / statements of the first 3 quarters of the current financial year with respect to current assets (Inventories) filed with banks / financial institutions for the financial year 2023-24 are in agreement with the books of accounts. The return for the 4th quarter, being price sensitive information, will be filed after declaration of annual results.
72.2. Compliance with number of layers of companies as per Clause 87 of Section 2 of the Companies Act, 2013 read with Companies (Restriction on number of Layers) Rules, 2017 is not applicable for Government Companies.
72.3. There have not been any revaluation of Property, Plant & Equipment and Intangible Assets.
72.4. The borrowings from banks and financial institutions were used for the purpose for which it was taken.
72.5. There are no proceedings initiated or pending for holding any benami property under the Benami Transactions (Prohibition) Act, 1988 (45 of 1988) and rules made thereunder.
72.6. No Bank or financial institution or other lender has declared the Corporation as willful defaulter.
72.7 There are no Charges or satisfaction yet to be registered with Registrar of Companies beyond the statutory / stipulated period.
72.8. There are no pending applications with any authority for a scheme of arrangement in terms of sections 230 to 237 of the Companies Act, 2013.
72.9. To the best of knowledge and belief, no funds have been advanced or loaned or invested (either from borrowed funds or share premium or any other sources or kind of funds) to or in any other person(s) or entity(ies), including foreign entities ("Intermediaries") with the understanding, whether recorded in writing or otherwise, that the Intermediary shall directly or indirectly lend or invest in other persons or entities identified in any manner whatsoever by or on behalf of the Corporation (Ultimate Beneficiaries) or provide any guarantee, security or the like on behalf of the Ultimate Beneficiaries.
To the best of knowledge and belief, no funds have been received from any person or entity, including foreign entity ("Funding Parties"), with the understanding, whether recorded in writing or otherwise, to directly or indirectly, lend or invest in other persons or entities identified in any manner whatsoever by or on behalf of the Funding Party ("Ultimate Beneficiary") or provide any guarantee, security or the like on behalf of the Ultimate Beneficiaries
72.10. There are no unrecorded transactions, which have been surrendered or disclosed as Income during the year in the tax assessments under the Income tax act, 1961.
72.11. There are no trading entered into or investments made in Crypto Currency or Virtual Currency during the year.
73. Previous periods figures are regrouped wherever necessary.
COMMENTS OF THE COMPTROLLER AND AUDITOR GENERAL OF INDIA UNDER SECTION 143(6)(b) OF THE COMPANIES ACT, 2013 ON THE FINANCIAL STATEMENTS OF HINDUSTAN PETROLEUM CORPORATION LIMITED FOR THE YEAR ENDED 31 MARCH 2024
The preparation of financial statements of Hindustan Petroleum Corporation Limited for the year ended 31 March 2024 in accordance with the financial reporting framework prescribed under the Companies Act, 2013 is the responsibility of the management of the company. The statutory auditors appointed by the Comptroller and Auditor General of India under section 139(5) are responsible for expressing opinion on the financial statements under section 143 of the Act based on independent audit in accordance with the standards on auditing prescribed under section 143(10) of the Act. This is stated to have been done by them vide their Revised Audit Report dated 10 July 2024 which supersedes their earlier Audit Report dated 09 May 2024.
I, on behalf of the Comptroller and Auditor General of India, have conducted a supplementary audit of the financial statements of Hindustan Petroleum Corporation Limited for the year ended 31 March 2024 under section 143(6)(a) of the Act. This supplementary audit has been carried out independently without access to the working papers of the statutory auditors and is limited primarily to inquiries of the statutory auditors and company personnel and a selective examination of some of the accounting records.
In view of the revision made in the statutory auditors' report, to give effect to some of my audit observations raised during supplementary audit, I have no further comments to offer upon or supplement to the statutory auditors' report under section 143(6)(b) of the Act.
For and on behalf of the
Comptroller & Auditor General of India
sd/-
Place: Mumbai Sandip Roy
Date: 16 July 2024 Director General of Commercial Audit, Mumbai
1
To hold assets for collecting contractual cash flows, and
2
Threshold limit, referred to above, for various items is stated as part of Financial Statements.
|