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PAKISTAN STATE OIL

22ND ANNUAL REPORT 1997-98

PAKISTAN STATE OIL COMPANY LIMITED

Head Office: P.S.O. House, Khayaban-e-lqbal, Clifton, Karachi

ANNUAL GENERAL MEETING

JANUARY 27 1999

NOTICE OF THE MEETING

PSO AT A GLANCE

MANAGING DIRECTOR'S REVIEW

AUDITORS' REPORT

BALANCE SHEET

PROFIT AND LOSS ACCOUNT

STATEMENT OF CHANGES IN FINANCIAL POSITION

(Cash Flow Statement)

NOTES TO THE ACCOUNTS

STATEMENT PURSUANT TO SECTION 237 OF THE

COMPANIES ORDINANCE, 1984

PATTERN OF HOLDING OF THE SHARES

ACCOUNTS OF SUBSIDIARY COMPANIES

COMPANY INFORMATION

MANAGING DIRECTOR

Iftikhar Alam

SECRETARY

A.R. Mithani

AUDITORS

8idat Hyder Qamar Maqbool & Co.

Taseer Hadi Khalid & Co.

SOLICITORS

Orr Dignam & Co.

BANKERS

ABN AMRO Bank

Allied Bank of Pakistan Limited

American Express Bank Limited

ANZ Grindlays Bank

Askari Commercial Bank Ltd.

Bank of America

Citibank N.A.

Credit Agricole Indosuez

Deutsche Bank AG

Emirates Bank International Limited

Faysal Bank Limited

Habib Bank A.G. Zurich

Habib Bank Limited

Hongkong & Shanghai Banking Corporation Ltd.

Muslim Commercial Bank Limited

Mashreq Bank - PSC

National Bank of Pakistan

Standard Chartered Bank

Societe Generale

Union Bank Limited

United Bank Limited

REGISTERED OFFICE:

PSO House, Khayaban-e-Iqbal, Clifton, Karachi.

BOARD OF MANAGEMENT (01L)

CHAIRMAN

CHAUDHRY NISAR ALl KHAN

Minister for Petroleum & Natural Resources

MEMBERS

MR. G. A. SABRI

Director General (Oil)

Ministry of Petroleum & Natural Resources

MR. ABDUS SATTAR

Financial Advisor

Ministry of Petroleum & Natural Resources

DR. SHAHID K. HAK

Managing Director

Pak Arab Refinery Limited

MR. ASADULLAH KHAWAJA

Managing Director

Investment Corporation of Pakistan

MR. IFTIKHAR ALAM

Managing Director

Pakistan State Oil Company Limited

NOTICE OF THE MEETING

Notice is hereby given that the 22nd Annual General Meeting of the Company will be held at Hotel

Metropole, Club Road, Karachi on Wednesday, 27th January, 1999, at 11:00 A.M. under the

Chairmanship of the Managing Director to transact the following business:

I. Ordinary Business

1. To confirm the minutes of the 21st Annual General Meeting held on 31st December, 1997.

2. To receive and adopt the audited accounts for the year ended 30th June, 1998 together

with Auditors' report and the Managing Director's review thereon.

3. To lay information before the members of the Company of the appointment of Messrs Sidat

Hyder Qamar Maqbool & Company and Taseer Hadi Khalid & Company, Chartered Accountants,

as Auditors of the Company, for the year ending 30th June, 1999.

4. To declare a final dividend of 50% in addition to the interim dividend of 30% already paid,

thereby making a total dividend of 80% for the year ended 30th June, 1998.

II. Special Business

5. To consider and, if thought fit, pass the following Ordinary Resolution for the capitalisation

of profits amounting to Rs. 198,517,250/-.

Resolved that

(i) "a sum of Rs. 198,517,250/- from the Company's profit in the year ended 30th June,

1998, be capitalised for issuing 19,851,725 fully paid-up Ordinary Shares of Rs.10/-

each as Bonus Shares to be allotted to those members whose names appear in the

for every Ten shares held and that the Bonus Shares when issued shall rank pari passu

in all respects with the existing Ordinary Shares of the Company except that the said

Bonus Shares shall not be eligible for the dividend declared for the year ended 30th

June, 1998.

(ii) the members entitled to fractions of shares as a result of their holdings either being

less or in excess of an exact multiple of proportion, referred in 5(i) above, shall be

given the sale proceeds of their fractional entitlements for which purpose the fractions

shall be consolidated into whole shares and sold on the Karachi Stock Exchange; and

(iii) for the purpose of giving effect to the above, the Managing Director be and is hereby

authorised to take all necessary actions and to settle any question or difficulty that may

arise in regard to the distribution of the said Bonus Shares or in the payment of the

sale proceeds of the fractional entitlements (referred above), as he deems fit."

6. To consider and pass, with or without modification, the following resolution as a SPECIAL

RESOLUTION.

"RESOLVED that the share capital of the Company be and is hereby increased from

Rs. 1,00.0,000,000/- (Rupees One Thousand Million) divided into 100,000,000 (One Hundred

Million) Ordinary Shares of Rs. 10/- (Rupees ten) each to Rs. 2,000,000,000/- (Rupees Two

Thousand Million) divided into 200,000,000 (Two Hundred Million) Ordinary Shares of Rs. 10/-

(Rupees ten) each by the creation of 100,000,000. (One Hundred Million) additional Ordinary

Shares of Rs. 10/- (Rupees Ten) each and for this purpose.

(a) the figures and words "Rs. 1,000,000,000/- (Rupees One Thousand Million) divided into

100,000,000 (One Hundred Million) Ordinary Shares of Rs. 10/- (Rupees ten) each" appearing

in Clause V of the Memorandum of Association of the Company be and are hereby substituted

by the figures and words "Rs. 2,000,000,000/- (Rupees Two Thousand Million) divided into

200,000,000 (Two Hundred Million) Ordinary Shares of Rs. 10/- (Rupees ten) each" and

(b) the figures and words "Rs. 1,000,000,000/- (Rupees One Thousand Million) divided into

100,000,000 (One Hundred Million) Ordinary Shares of Rs. 10/- (Rupees ten) each" appearing

in Article 5 of the Articles of Association of the Company be and are hereby substituted by

the figures and words "Rs. 2,000,000,000/- (Rupees Two Thousand Million) divided into

200,000,000 (Two Hundred Million) Ordinary Shares of Rs. 10/- (Rupees ten) each."

AND

7. To transact any other Ordinary Business of the Company with the permission of the Chairman.

By Order of the Managing Director

A. R. MITHANI

Karachi: 14th December, 1998.

Secretary

NOTES:

1. A member entitled to attend and vote at this meeting may appoint any other member as his/

her proxy to attend and vote. A proxy form is enclosed.

2. The Share Transfer Books of the Company will remain closed from Friday, 15th January,

1999 to Wednesday, 27th January, 1999 (both days inclusive). Transfers received in order

at the Registered Office of the Company upto the close of business on Thursday, 14th January,

1999, will be considered in time to be eligible for payment of Final Dividend and issue of

Bonus Shares to the transferees.

3. The instrument appointing a proxy and the power of attorney or other authority under which

it is signed or a notarially attested copy of the power of attorney must be deposited at the

registered office of the Company at least 48 hours before the time of the meeting.

STATEMENT UNDER SECTION 160 (1) (B)

OF THE COMPANIES ORDINANCE, 1984

1. Bonus Shares: The Board has recommended the issue of Bonus Shares in the proportion of two

shares for every ten shares held by members on 14th January, 1999. Upon issuance of the Bonus

Shares, the paid-up capital of the Company shall stand increased to Rs. 1,191,103,480/-.

2. Increase of authorised share capital: The present authorised capital of the Company is

Rs. 1,000,000,000/- The paid-up capital will increase beyond this amount upon issuance of Bonus

Shares now proposed to be issued.

In order, therefore, to enable the Company to issue the said Bonus Shares and to cater for the further

growth in the Company's capital and operations, it is necessary to increase the share capital from

Rs. 1,000,000,000/- to Rs. 2,000,000,000/-.

PSO AT A GLANCE

1998

1997

1996

1995

1994

1993

1992

1991

1990

1989

Earning and

Dividend

Rs. Per Share of Rs. 10

Earning

18.60

24.73

23.54

21.27

18.49

13.63

12.19

10.20

9.64

10.57

Break-up value

66.35

66.89

65.21

62.5

59.91

55.70

56.49

56.41

55.78

55.16

Dividend

8.00

6.00

5.00

4.75

4.50

4.00

Bonus

2:10

3:10

2:10

3:20

1:10

Statistical Summary

Rs. in Million

Shareholders' equity

6,585.6

5.533.2

4,149.2

3,051.8

2,255.4

1,747.7

1,476.9

1,282.5

1,153.0

1,036.5

New capital exp.

408.0

820.5

920.7

461.9

321.8

364.9

207.4

138.9

216.4

374.3

Profit before tax

2,826.4

3,745.8

2,563.2

1,681.1

1,175.6

771.5

526.9

450.7

367.2

330.7

Profit after tax

1,846.4

2,045.8

1,498.2

1,041.1

696.0

427.6

318.7

231.8

199.2

198.7

Cash Dividend

794.1

661.7

381.8

244.7

188.2

156.9

124.2

102.3

82.7

75.2

Financial Ratio

Ratios

Current assets:

Current liabilities

1.2:1

1.1:1

1.2:1

1.1:1

1.4:1

Long term debt: equity

4:96

5:95

7:93

8:92

12:88

17:83

24:76

28:72

33:67

Total Debt: equity

25:75

28:72

29:71

23:77

33:67

24:76

51:49

49:51

51:49

MANAGING DIRECTOR'S REVIEW

I consider it an honour to welcome you to the 22nd

Annual General Meeting of your Company and to

present the Annual Report and Financial Statements

for the year ended June 30, 1998.

Despite the difficult economic scenario of 1997/98,

your Company sold 12.749 million tonnes of petro-

Industry

leum products during the year as against 11.861 mil-

'" P.S.O.

lion tonnes sold during the previous year. Net profit

for the year was Rs. 1.846 billion, as against Rs. 2.046

billion for the previous year. The Shareholders will be

pleased to note that the return for the year under re-

13.1~1

view is 80% Cash Dividend and 20% Bonus shares

which is same as last year despite increase in the capi-

tal base.

10.23

You are well aware that inter corporate debt prob-

lem, created by WAPDA and KESC's inability to settle

PSO's bills against supplies, persisted throughout the

year. Average outstanding receivables remained in

the range of Rs. 14.5 billion . Consequently, the

liquidity pressure compelled us to place increased re-

liance on short term borrowing. However, I am glad

to report that due to astute financial management,

financial charges were contained. As a result of ef-

forts made by your Company, Government is fully

cognizant of the matter and is contemplating certain

measures to redeem the situation. In the meantime,

advance payments received from WAPDA and KESC

are partly being adjusted against previous receivables.

Allow me to go back in time for a moment. Your

Company emerged in its present form on

30th December, 1976. By the grace of God, for 22

years it has continued to successfully perform the

functions for which it was created. PSO has matured.

God willing, it will continue to do so in future as well.

You are no stranger to the track record of your Com-

pany which shows that it has not only increased its

participation in the marketing of petroleum prod-

ucts from year to year but it has also successfully

developed vital petroleum products infrastructure over

the years, which constitute important national as-

sets. This reflects favourably towards your Company's

commitment to the economic self sufficiency of the

Country.

One of the key corporate objectives of PSO is to

ensure availability of the required quantities of all

petroleum products to all sectors of the economy,

which is in consonance with national objective; pro-

viding the energy source to maintain the pace of

economic activity. PSO handled 76.8% of the

petroleum trade during 1997/98. Better apprecia-

tion of this role of PSO, by all of us, will go a long

way in valuing its contribution to socio economic

welfare of the country.

A brief of your Company's infrastructure and devel-

opment activity would not be out of place. During

the year under review, we have completed the

following projects ·

24,000 tonnes furnace oil storage at Lalpir was com-

pleted and commissioned alongwith 12" dia, 2.5 km

long pipeline for supply of fuel oil to AES Power

Plants at Lalpir. Dedicated fuel oil receipt facility

through railway tank wagons was also accomplished

as part of this project.

PSO signed an agreement with Pakistan Railways

for transportation of additional 500,000 tonnes per

annum of furnace oil from Keamari Terminal. To

achieve the required loading capacity, additional rail-

way tank wagons loading infrastructure and pump-

ing capacity was completed and commissioned.

And, at present the following projects are underway:

PSO also signed an agreement with Pakistan Rail-

ways for transportation of 500,000 tonnes per

annum of furnace oil from Pipri Marshaling Yard.

Under construction infrastructure includes 10,000

tonnes storage, tank wagon loading facilities and 24"

dia, 6.5 km long receipt pipeline from Port Qasim-

Pipri Oil Terminal. Furnace oil loaded at this termi-

nal will be supplied to Independent Private Power

Projects with whom PSO has signed long term Fuel

Supply Agreements. This arrangement will substan-

4706.00

tially reduce road traffic congestion on highways, at

Karachi and in particular Keamari area, and railway

tank wagons turn-around time. This Project is ex-

~~~2.~

pected to be completed by March 1999.

PSO is poised to meet the challenges of the future.

We look forward to an era of growth. And, in this

respect our efforts will be concentrated, interalia, on

Retail business in order to further improve our prof-

itability. We are going ahead with a program for

modernizing Retail Outlets equipped with the latest

state-of-the-art technology equipment and facilities,

with back -up control measures to safeguard the quali-

tative and quantitative aspects. As far as develop-

1994

ment projects are concerned PSO is planning to par-

ticipate in the White Oil Pipeline Project, which en

visages construction of a White Oil pipeline, parallel

to the existing PARCO pipeline.

Customer satisfaction and confidence has always re-

mained the guiding principle in formulating your

Company's market strategy. For ensuring supply of

quality products consistent with standard quantity to

our valued customers, efforts are continuing. We

have recently acquired three mobile vans fully

equipped to conduct various quantity and quality tests

together with smoke emission guage. These mobile

laboratories will provide thrust to PSO's ongoing

compaign to achieve above objective.

Your Company has acquired necessary software/

hardware equipment to face the millenium challenge.

We shall be Y2K compliant in due course.

I wish to share with you my deep appreciation for

the untiring efforts of PSO's workforce which has

enabled the Company to meet its objectives.

I also want to share with you my sincere apprecia

tion for the painstaking efforts of the chairman of

the Board of Management and Members of the Board

for their keen participation and guidance in the af-

fairs of your Company.

I conclude with a word about you, our esteemed share-

holders. It is heartening to know that we continue to

receive your support and confidence and trust that

the same will continue in the future as well.

IFTIKHAR ALAM

Managing Director

14th December 1998

AUDITORS' REPORT TO THE MEMBERS

We have audited the annexed balance sheet of PAKISTAN STATE OIL COMPANY LIMITED as at

30 June 1998 and the related profit and loss account and statement of changes in financial position, together

with the notes forming part thereof, for the year then ended and we state that we have obtained all the

information and explanations which to the best of our knowledge and belief were necessary for the purposes

of our audit and, after due verification thereof, we report that:

a) in our opinion, proper books of account have been kept by the Company as required

by the Companies Ordinance, 1984;

b) in our opinion:

i) the balance sheet and profit and loss account, together with the notes thereon, have been

drawn up in conformity with the Companies Ordinance, 1984 and are in agreement with

the books of account and are further in accordance with accounting policies consistently

applied;

ii) the expenditure incurred during the year was for the purpose of the Company's business; and

iii) the business conducted, investments made and the expenditure incurred during the year

were in accordance with the objects of the Company;

c) in our opinion and to the best of our information and according to the explanations given to

us, the balance sheet, profit and loss account and statement of changes in financial position,

together with the notes forming part thereof, give the information required by the

Companies Ordinance, 1984 in the manner so required and respectively give a true and fair

view of the state of the Company's affairs as at 30 June 1998 and of the profit and the changes

in financial position for the year then ended; and

d) in our opinion, zakat deductible at source under the Zakat and Ushr Ordinance, 1980, was

deducted by the Company and deposited in the Central Zakat Fund established under Section

7 of that Ordinance.

Without qualifying our opinion, we draw attention to note 20.1 to the accounts. Efforts need

to be intensified to address the issue stated therein.

Taseer Hadi Khalid & Co.

Sidat Hyder Qamar Maqbool & Co.

Chartered Accountants

Karachi: 14th December, 1998

BALANCE SHEET AS AT 30 JUNE 1998

Rs. 000

Notes

1998

1997

CAPITAL AND RESERVES

Authorised capital

100,000,000 (1997: 100,000,000) ordinary

shares of Rs. 10/- each

1,000,000

==========

Issued, subscribed and paid-up capital

992,587

827,156

Reserves

5,592,987

4,706,042

----------

6,585,574

5,533,198

LONG-TERM LOANS

28,503

54,753

LIABILITIES AGAINST ASSETS SUBJECT

TO FINANCE LEASE

1,924

1,274

LONG-TERM DEPOSITS

269,810

255,278

DEFERRED LIABILITY FOR STAFF GRATUITY

457,333

441,372

CURRENT LIABILITIES

Short-term Loans-Secured

1,878,393

1,879,675

Current portion of long-term loans and

liabilities under finance lease

5 & 6

27,921

57,564

Creditors, accrued expenses and other liabilit

19,193,408

14,998,087

Taxation - net

1,055,268

Dividends

722,326

447,717

----------

21,822,048

18,438,311

CONTINGENCIES AND COMMITMENTS

----------

29,165,192

24,724,186

==========

FIXED ASSETS

Operating fixed assets

2,497,610

1,863,495

Assets subject to finance lease

10,754

24,667

Capital work-in-progress

462,484

1,057,715

Inventory held for capital expenditure

395,983

391,690

----------

3,366,831

3,337,567

LONG-TERM INVESTMENTS

483,660

LONG-TERM DEPOSITS, LOANS, ADVANCES

AND PREPAYMENTS

128,669

125,052

CURRENT ASSETS

Stores and spares

84,888

108,425

Stock-in-trade

4,103,270

5,017,672

Trade debts

17,299,952

10,853,332

Loans, advances, deposits, prepayments

and other receivables

2,652,234

3,595,020

Cash and bank balances

1,045,688