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You can view the entire text of Notes to accounts of the company for the latest year

BSE: 500547ISIN: INE029A01011INDUSTRY: Refineries

BSE   ` 335.00   Open: 329.50   Today's Range 326.40
337.50
-6.55 ( -1.96 %) Prev Close: 341.55 52 Week Range 239.00
467.00
Year End :2018-03 

Additional information in respect of Note no. 2 to 6:

a) Land:

i) Freehold land includes Rs, 93.08 Crores (Previous year: Rs, 94.66 Crores) capitalized at various locations for which conveyance deeds are yet to be executed and/or mutation is pending.

ii) Freehold land includes Rs, 2.20 Crores (Previous year: Rs, 2.20 Crores) which is in the process of being surrendered to the Competent Authority.

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

b) Buildings include Ownership flats having gross block of Rs, 41.28 Crores (Previous year: Rs, 41.07 Crores) in proposed / existing co-operative societies and others.

c) Other adjustments include capitalization of foreign exchange differences (net) of Rs, 25.76 Crores (Previous year: Rs, 226.25 Crores) and borrowing costs of Rs, 522.31 Crores (Previous year: Rs, 213.12 Crores).

d) Freehold Land, Plant and Equipment, Tanks and Pipelines, Railway Sidings, Buildings etc. jointly owned in varying extent with other Oil Companies / Railways: Gross Block Rs, 198.77 Crores (Previous year: Rs, 204.55 Crores), Cumulative Depreciation Rs, 29.95 Crores (Previous year: Rs, 20.52 Crores), Net Block Rs, 168.82 Crores (Previous year: Rs, 184.03 Crores).

e) Charge has been created over the fixed assets of the Company, mainly Plant and Machinery at Mumbai Refinery and Kochi Refinery in regard to the borrowings- Refer note no. 25.

f) Compensation received from third parties in respect of items of Property, Plant and Equipment / Capital work in progress that were impaired, lost or given up during the year Rs, 8.11 Crores (Previous year: Rs, 1.82 Crores).

g) Gross Block reclassifications / deductions on account of retirement / disposal includes:

i) Decapitalization of Rs, 57.61 Crores (Previous year: Rs, 27.05 Crores).

ii) Deduction on account of retirement / disposal during the year Rs, 298.46 Crores (Previous year: Rs, 67.07 Crores).

h) Depreciation and amortization for the year is Rs, 2661.00 Crores (Previous year: Rs, 1905.07 Crores) [Refer Note no. 66] from which, after reducing -

i) Depreciation on decapitalization of Rs, 8.28 Crores (Previous year: Rs, 1.75 Crores) and

ii) Depreciation on reclassification of assets of Rs, 4.24 Crores (Previous year: Rs, 12.00 Crores).

Net Depreciation and amortization for the year charged to Profit and Loss statement is Rs, 2648.48 Crores (Previous year: Rs, 1891.32 Crores).

i) Deduction from accumulated depreciation on account of retirement / disposal during the year is Rs, 208.59 Crores (Previous year: Rs, 18.48 Crores).

j) The Corporation has assessed the useful life of Right of way as indefinite where the same is perpetual in nature.

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

* Includes equity component of Rs, 494.40 Crores (Previous year: Rs, 494.40 Crores) recognized on fair valuation of concessional rate loan given to subsidiary.

# Member Companies of Association of Persons are Bharat Petroleum Corporation Limited, Engineers India Limited, Hindustan Petroleum Corporation Limited, Indian Oil Corporation Limited, Reliance Industries Limited, Chennai Petroleum Corporation Limited, Oil and Natural Gas Corporation Limited and Oil India Limited. The total capital is Rs, 0.55 Crore of which share of Bharat Petroleum Corporation Limited is Rs, 0.10 Crore, Indian Oil Corporation Limited is Rs, 0.15 Crore and other members have equal share of Rs, 0.05 Crore each.

* Includes Secured deposits Rs, 18.49 Crores (Previous year: Nil).

** The above includes Rs, 463.87 Crores as at 31st March 2018 pertaining to Loans given to Consumers under Pradhan Mantri Ujjwala Yojana scheme, the recovery period has been deferred beyond one year with effect from 1st April 2018.

The write-down of inventories to net realizable value during the year amounted to Rs, 155.00 Crores (Previous year : Rs, 254.52 Crores). The reversal of write downs during the year amounted to Rs, 3.08 Crores (Previous year : Rs, 2.61 Crores) due to increase in net realizable value of the inventories. The write downs and reversal are included in cost of materials consumed or changes in inventories of finished goods, stock-in-trade and work-in-progress.

Inventories pledged as collateral - Refer Note No. 30

Non Current Assets held for sale consists of items such as Plant and equipment, Dispensing pumps etc. 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 re-classification of these assets, an impairment loss of Rs, 26.72 Crores during the year (Previous year: Rs, 5.52 Crores) has been recognized in the statement of profit and loss.

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

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

iv During the Financial year 2017-18, the Corporation has issued Bonus Shares in the ratio of 1:2 by capitalisation of General Reserves. The total number of shares issued is 72,30,84,248 having face value of Rs, 10 each. During the Financial year 2016-17, the Corporation has issued Bonus Shares in the ratio of 1:1 by capitalization of General Reserves. The total number of shares issued is 72,30,84,248 having face value of Rs, 10 each.

Debenture Redemption Reserve

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

General Reserve

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

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

Retained Earnings

Retained Earnings (excluding accumulated balance of remeasurements of defined benefit plans (net of tax)) represents surplus/accumulated earnings of the Corporation and are available for distribution to shareholders.

*Deferred Income includes unamortized portion of capital grants amounting to Rs, 85.97 Crores as at 31st March 2018 (Previous year: Rs, 82.99 Crores) comprising mainly of works contract tax reimbursement received from Government of Kerala as part of the fiscal incentives sanctioned for IREP and grants received for technology development.

* No amount is due at the end of the Period for credit to Investors Education and Protection Fund.

** Includes deposit received towards Rajiv Gandhi Gramin LPG Vitrak Yojana and Pradhan Mantri Ujjwala Yojana Scheme (Central Scheme) as on 31st March 2018 Rs, 1,625.91 Crores (Previous year: Rs, 1,060.53 Crores). The deposit against these schemes have been funded from CSR fund or Government of India.

# Nil as at 31st March 2018 (Previous year: Rs, 4,087)

NOTE 1.

Consequent to non-revision in retail selling prices corresponding to the international prices and applicable foreign exchange rates prevailing during the year, the Corporation has suffered gross under recovery of Rs, 719.30 Crores (Previous year: Rs, 1,172.83 Crores) on sale of sensitive petroleum products.

As advised by the Ministry of Petroleum & Natural Gas, the Corporation has accounted compensation towards sharing of under-recoveries on sale of sensitive petroleum products as subsidy from Government of India amounting to Rs, 719.30 Crores (Previous year: Rs, 1,172.83 Crores) and the same is accounted as Revenue from operations.

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

Further, subsidies received from State Governments which are recognized in Revenue From Operations is Rs, 14.93 Crores (Previous year: Rs, 11.56 Crores) during current year.

NOTE 2.

As per the scheme of Amalgamation of the erstwhile Kochi Refineries Limited ("KRL") with the Corporation approved by the Government of India, 3,37,28,737 equity shares of the Corporation were allotted (in lieu of the shares held by the Corporation in the erstwhile KRL) to a trust for the benefit of the Corporation in the financial year 2006-07. After the 1:1 Bonus issue in July 2012 and July 2016 respectively and 1:2 bonus issue in July 2017, presently the trust holds 20,23,72,422 equity shares of the Corporation. The cost of the original investment together with the additional contribution to the corpus of the trust made in 2014-15 has been reduced from the total equity of the Corporation. To the extent of the face value of the shares, the same has been reduced from the Paid up Share capital of the Corporation and the balance has been reduced from Other Equity under a separate reserve. Accordingly, the income received from the Trust has been recognized directly under Other Equity of the Corporation.

NOTE 3.

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

NOTE 47

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

Further, pursuant to implementation of the pay revision in the current year and recognition of the employee benefit expenses thereof, an amount of Rs, 455.65 Crores representing past service cost in respect of employee gratuity scheme included in the provisions created in the previous year has been regrouped from “salaries and wages” to “contribution to provident and other funds” of the previous year to that extent.

NOTE 4. SERVICE CONCESSION ARRANGEMENTS

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

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

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

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

A. Leases as lessee

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

b) The Corporation enters into cancellable operating leases in respect of land, office premises, staff quarters and others which are cancellable by giving appropriate notices as per respective agreements. During the year Rs, 339.93 Crores (Previous year: Rs, 311.83 Crores) has been charged to Statement of Profit and Loss on account of lease rentals.

A Post Employment Benefit Plans:

Defined Contribution Scheme

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

The Corporation has the following Defined Benefit Plans

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

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

[B] Provident Fund:

The Corporation’s contribution to the Provident Fund is remitted to a separate trust established for this purpose based on a fixed percentage of the eligible employees salary and charged to Statement of Profit and Loss.

Shortfall, if any, in the fund assets, based on the Government specified minimum rate of return, will be made good by the Corporation and charged to Statement of Profit and Loss. The actual return earned by the fund has mostly been higher than the Government specified minimum rate of return in the past years. There is no shortfall in the fund as on 31st March 2018 and 31st March 2017.

NOTE 5. RELATED PARTY TRANSACTIONS

a) Names of the Related parties

Joint Venture & Associate Companies

1. Indraprastha Gas Limited

2. Petronet India Limited*

3. Petronet CI Limited*

4. Petronet LNG Limited

5. Bharat Oman Refineries Limited

6. Maharashtra Natural Gas Limited

7. Central UP Gas Limited

8. Sabarmati Gas Limited

9. Bharat Stars Services Private Limited

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

10. Bharat Renewable Energy Limited*

11. Matrix Bharat Pte. Ltd.

12. Delhi Aviation Fuel Facility Private Limited

13. Kannur International Airport Limited

14. GSPL India Gasnet Limited

15. GSPL India Transco Limited

16. Mumbai Aviation Fuel Farm Facility Private Limited

17. Kochi Salem Pipeline Private Limited

18. Petroleum India International

19. BPCL-KIAL Fuel Farm Private Limited

20. Haridwar Natural Gas Pvt. Ltd.

21. Goa Natural Gas Pvt. Ltd.

22. FINO Paytech Limited

23. Ratnagiri Refinery & Petrochemicals Limited

24. Ujjwala Plus Foundation (Section 8 company)

25. IBV (Brasil) Petroleo Ltda.

26. Taas India Pte Ltd.

27. Vankor India Pte Ltd.

28. Falcon Oil & Gas BV

29. Mozambique LNG 1 Pte Ltd.

30. LLC TYNGD

31. JSC Vankorneft

32. DNP Limited

33. Brahmaputra Cracker and Polymer Limited *Companies in the process of winding up

Key Management Personnel :

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

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

3. Shri S. Ramesh, Director (Marketing)

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

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

6. Shri S. P. Gathoo, Director (Human Resource) (Up to 31.10.2017)

7. Shri K. Padmakar, Director (Human Resource) Appointed (w.e.f. 01.02.2018)

8. Shri P. Balasubramanian, Director (Finance) (Up to 30.04.2017)

9. Shri K. Sivakumar, Director (Finance) (w.e.f. 01.05.2017)

10. Shri S.V. Kulkarni, (Company Secretary) (Up to 28.02.2017)

11. Shri M. Venugopal, (Company Secretary) (w.e.f. 01.03.2017)

12. Shri Rajesh Kumar Mangal, Independent Director

13. Shri Deepak Bhojwani, Independent Director

14. Shri Gopal Chandra Nanda, Independent Director

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

16. Shri P. H. Kurian, Govt. Nominee Director (up to 18.04.2017)

17. Shri Paul Antony, Nominee Director Appointed (w.e.f. 19.04.2017 up to 19.03.2018)

18. Dr. K. Ellangovan, Govt. Nominee Director Appointed (w.e.f. 20.03.2018)

19. Smt. Jane Mary Shanti Sundharam, Independent Director Appointed (w.e.f. 21.09.2017)

20. Shri Vinay Sheel Oberoi, Independent Director Appointed (w.e.f. 21.09.2017)

21. Dr. (Smt.) Tamilisai Soundararajan, Independent Director Appointed (w.e.f. 28.09.2017)

22. Shri Anant Kumar Singh, Govt. Nominee Director (Up to 27.11.2017)

23. Shri Rajiv Bansal, Govt. Nominee Director Appointed (w.e.f. 28.11.2017)

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

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

- Sales and purchases of goods and ancillary materials;

- Rendering and receiving of services;

- Receipt of dividends;

- Loans and advances;

- Depositing and borrowing money;

- Guarantees; and

- Uses of public utilities.

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

NOTE 6.

Dues from Directors is Rs, 0.34 Crores (31st March 2017: Rs, 0.40 Crores) and Dues from Officers is Rs, 3.54 Crores (31st March 2017: Rs, 4.13 Crores)

# Companies in the process of winding up

@The percentage of ownership interest is after considering proposed increase in equity participation

* In addition to the ownership interest as mentioned above, the Corporation has made an investment in Compulsorily Convertible Debentures and Share Warrants of BORL.

Note: Ujjwala Plus Foundation is a joint venture of IOCL, BPCL and HPCL with fund contribution in the ratio of 50:25:25 which was incorporated as a limited by guarantee company (without share capital) under section 8 of Companies Act, 2013.

*The Corporation has issued bonus shares in the ratio of 1:2 during Financial Year 2017-18. The EPS for the financial year 201617 has been appropriately adjusted.

NOTE 7.

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

The net gain remaining unamortized under Foreign Currency Monetary Item Translation Difference Account as at 31st March 2018 is Rs, 66.76 Crores (net gain as at 31st March 2017 Rs, 206.34 Crores).

NOTE 8. IMPAIRMENT OF ASSETS

It is assumed that suitable mechanism would be in place by the Government of India, in line with earlier/ current year(s), to provide compensation towards under recoveries of margin, if any, and recoveries against Direct Benefit Transfer for LPG Scheme on account of sale of sensitive petroleum products in subsequent years. Hence, there is no indication of impairment of assets of the Corporation as at 31st March 2018.

# The above expenditure includes contribution to funds, expenses through registered trusts / registered society or company established under section 8 of the Act and direct expenses by the company.

* including payables of Rs, 2.75 Crores (Previous year: Rs, 6.09 Crores) as on 31.03.2018.

C. Financial risk management

C. i. Risk management framework

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

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

- Credit risk ;

- Liquidity risk; and

- Market risk

C.ii. Credit risk

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

(a) Trade and other receivables from customers

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

As at 31st March 2018 and 31st March 2017, the Corporation’s retail dealers and industrial customers accounted for the majority of the trade receivables.

Expected credit loss assessment for Trade and other receivables from customers as at 31st March 2018 and 31st March 2017

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

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

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

The Corporation does not provide for any loss allowance on trade receivables where risk of default is negligible such as receivables from other oil marketing companies, if any, hence the same excluded from above.

Loss rates are based on actual credit loss experience over the past three years.

(b) Cash and cash equivalents and Other Bank Balances

The Corporation held cash and cash equivalents and other bank balances of Rs, 88.07 Crores at 31st March 2018 (31st March 2017: Rs, 64.69 Crores). The cash and cash equivalents are held with banks with good credit ratings and financial institution counterparties with good market standing. Further, Corporation invests its short term surplus funds in bank fixed deposits, Government of India Treasury-bills and liquid schemes of mutual funds, which carry no / low mark to market risks for short duration. These instruments do not expose the Corporation to credit risk.

(c) Derivatives

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

(d) Investment in debt securities

I nvestment in debt securities are mainly as loans to subsidiary, joint venture companies and investment in Government securites which do not carry any significant credit risk.

C.iii. Liquidity risk

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

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

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

Maturity Analysis of Significant Financial Liabilities

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

C.iv. Market risk

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

C.iv.a Currency risk

The Corporation is exposed to currency risk on account of its operating and financing activities. The functional currency of the Corporation is Indian Rupee. Our exposure is mainly denominated in U.S. dollars (USD). The USD exchange rate has changed substantially in recent periods and may continue to fluctuate substantially in the future.

The Corporation has put in place a Financial Risk Management Policy to Identify the most effective and efficient ways of managing the currency risks. The Corporation uses derivative instruments, (mainly foreign exchange forward contracts) to mitigate the risk of changes in foreign currency exchange rates in line with our policy.

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

Exposure to currency risk

The currency profile of financial assets and financial liabilities as at 31st March 2018 and 31st March 2017 are as below:

Sensitivity analysis

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

C.iv.b Interest rate risk

Interest rate risk can be either fair value interest rate risk or cash flow interest rate risk. Fair value interest rate risk is the risk of changes in fair values of fixed interest bearing investments because of fluctuations in the interest rates, in cases where the borrowings are measured at fair value through profit or loss. Cash flow interest rate risk is the risk that the future cash flows of floating interest bearing investments will fluctuate because of fluctuations in the interest rates.

The Company’s approach to managing interest rate risk is to have a judicious mix of borrowed funds with fixed and floating interest rate obligation.

Fair value sensitivity analysis for fixed-rate instruments

The Corporation accounts for certain investments in fixed-rate financial assets such as investments in Oil bonds and Government Securities at fair value through profit or loss. Accordingly, a decrease in 25 basis point in interest rates is likely to increase the profit or loss (before tax) for the year ending 31st March 2018 by Rs, 67.15 Crores (31st March 2017 - Rs, 80.21 Crores) and an increase in 25 basis point in interest rates is likely to decrease the profit or loss (before tax) for the year ending 31st March 2018 by Rs, 68.30 Crores (31st March 2017 - Rs, 81.76 Crores).

Cash flow sensitivity analysis for variable-rate instruments

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

C.iv.c Commodity rate risk

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

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

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

C.iv.d Price risk

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

Notes

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

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

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

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

NOTE 9.CAPITAL MANAGEMENT

The Corporation’s objective is to maximize the shareholders' value by maintaining an optimum capital structure.

Management monitors the return on capital as well as the debt equity ratio and makes necessary adjustments in the

capital structure for the development of the business.

The Corporation’s debt to equity ratio as at 31st March 2018 was 0.68 (31st March 2017: 0.78)

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

NOTE 61 SEGMENT REPORTING

As per the requirements of Ind AS 108 on “Operating Segments”, segment information has been provided under the

Notes to Consolidated Financial Statements.

NOTE 10.

In March 2018, the Ministry of Corporate Affairs issued the Companies (Indian Accounting Standards) Amendment Rules, 2018 notifying Ind AS 115 ‘Revenue from Contracts with Customers’ (New Revenue Standard), which replaces Ind AS 11 ‘Construction Contracts’ and Ind AS 18 ‘Revenue’. The core principle of the New Revenue Standard is that an entity should recognize revenue to depict the transfer of promised goods or services to customers for an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Some of the key changes introduced by the New Revenue Standard include additional guidance for multiple-element arrangements, measurement approaches for variable consideration, adjustments for time value of money etc. Significant additional disclosures in relation to revenue are also prescribed. The New Revenue Standard also provides two broad alternative transition options - Retrospective Method and Cumulative Effect Method - with certain practical expedients available under the Retrospective Method. The Company is in the process of evaluating the impact of the New Revenue Standard on the present and future arrangements and shall determine the appropriate transition option once the said evaluation has been completed.

The amendments will come into force from 1st April 2018.

NOTE 11.

The Corporation has changed the useful life of Computer Equipments from 4 to 3 years during the FY 2017-18. The impact of change in useful life has resulted in increase in depreciation of ' 6.46 Crores in Financial Year 2017-18.

NOTE 11

Figures of the previous year have been regrouped wherever necessary, to conform to current period presentation. Signature to Notes ‘1’ to ‘67’