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National Refinery Limited

Annual Report 1999

CONTENTS

COMPANY INFORMATION

MANAGING DIRECTOR

M. M. Husain

COMPANY SECRETARY

Asad A. Siddiqui

AUDITORS

Ford, Rhodes, Robson, Morrow, Chartered Accountants

SOLICITORS

Qamar Abbas & Co.

BANKERS

ABN - AMRO Bank

Allied Bank of Pakistan Limited

American Express Bank Limited

ANZ Grindlays Bank PLC

Bank of America NT & SA

Bank Alfalah

Citibank N.A.

Deutsche Bank A.G.

Habib Bank Limited

Muslim Commercial Bank Limited

National Bank of Pakistan

Standard Chartered Bank

United Bank Limited

REGISTERED OFFICE

7 - B, Korangi Industrial Zone, Karachi - 74900, Pakistan

SHARE DEPARTMENT

1st Floor, Karim Chambers, Merewether Road, Karachi- 75530, Pakistan

REFINERY

7 - B, Korangi Industrial Zone, Karachi - 74900, Pakistan

PHONES (PABX)

310261 - 66, 314160 - 62, 5064135 - 37

FAX

92 - 21 .- 5054663

TELEX

29141 - ENAR - PK

20789- ENAR - PK

CABLE

ENARLUBE

BOARD OF DIRECTORS

Aitzaz Shahbaz

Chairman Petroleum Institute of Pakistan

Abdus Sattar

Financial Advisor Ministry of Petroleum & Nr

G.A. Sabri

Director General Oil Ministry of Petroleum &Nr

Mohammad Abbas

Joint Secretary Ministry of Petroleum & Nr

Tarik Kivanc

Executive Director, Islamic Development Bank, Jeddah

M.M. Husain

Managing Director NRL

Hussain Ahmad Khan

Joint Secretary Ministry of Industries & Production

Ahmed Dawood

Chairman Dawood Group of Industries

J.M. Pereira

Executive Director State Life Ins. Corp. of Pakistan

Brig Abu Rashid

Managing Director KESC.

NRL AT A GLANCE

FIRST LUBE REFINERY

Design Capacity

539,700 tons per year of crude processing

Design Capacity

76,200 tons per year of lube base oils

Date Commissioned

June 1966

Project Cost

103.9 million rupees

FUEL REFINERY

BEFORE REVAMP

Design Capacity

1,500,800 tons per year of crude processing

Date Commissioned

April 1977

Project Cost

607.5 million rupees

AFTER REVAMP

Design Capacity

2,170,800 tons peryearof crude processing

Date Commissioning of Revamp

February 1990

Project Cost of Revamp

125.0 million rupees

B.T.X. UNIT

Design Capacity

25,000 tons per year of B.T.X

Date Commissioned

April 1979

Project Cost

66.7 million rupees

SECOND LUBE REFINERY

Design Capacity

100,000 tons per year of lube base oils

Date Commissioned

January 1985

Project Cost

2,082.4 million rupees

SHARE HOLDERS' EQUITY

June 1996

20.0 million rupees

June 1999

1.980.0 million rupees

FINANCIAL HIGHLIGHTS

1989-90

1991-92

1990-91

1992-93

1993-94

1994-95

1995-96

1996-97

1997-98

1§§8-99

RETURN ON INVESTMENT

Rs. Per Share of Rs.10

EARNING

3.20

476

3.41

4.36

530

(3.83)

4.19

6.84

7.38

965

BREAK-UP VALUE

12.18

13.21

13.32

13.68

14.48

10.65

14.84

1,918

24.06

29.71

DIVIDEND

2.80

3.75

3.30

4.00

4.50

0.00

2.50

4.00

FINANCIAL 6LIMSES

Rs. In 000's

ISSUED & PAID-UP CAPITAL

666,388

SHARE HOLDERS' EQUITY

811,512

880,180

887,567

911,777

964,792

709,735

988,780

1,278,009

1,603,234

1,979,987

CAPITAL EXPENDITURE

156,034

67,751

45,791

65,441

134,355

627244

65,451

82,370

246,516

46,622

PROFIT BEFORE TAX

374,016

552,563

406,295

589,196

633,395

(123,285)

466,284

774,311

738,928

1,230,307

PROFIT AFTER TAX

213,081

318,563

227,295

290.77

352,889

(255,057)

279,045

455,826

491,822

643,308

TAXATION

160,935

234,000

179.00

298,431

280,506

131,772

187,239

318,485

247,106

586,999

MARKET VALUE OF SHARE

2510

37.40

96.00

83.75

103.00

53.50

39.25

28.50

17.50

30.54

FINANCIAL RATIOS

CURRENT RATIO

1:0.99

1:1

1:0.98

1:0.96

1:0.95

1:1

1:1.02

1:1.06

LONG TERM DEBT: EQUITY

50:50

46: 54

40: 60

33: 67

34: 66

47: 53

53: 47

32: 68

18: 82

11: 89

TOTAL DEBT: EQUITY

81: 19

77: 23

84: 16

86: 14

85: 15

90: 10

89:11

85: 15

NOTICE OF MEETING

Notice is hereby given that the Thirty Sixth (36th) Annual General Meeting of National Refinery

Limited will be held on Wednesday, 22rid December, 1999 at 9:00 a.m. at Hotel Beach Luxury,

Karachi to transact the following business:-

ORDINARY BUSINESS

1. To confirm the minutes of the Annual General Meeting held on December 31, 1998.

2. To receive and adopt the Audited Accounts of the Company for the year ended June 30, 1999

together with the Directors' Report and the Auditors' Report thereon.

3. To declare the final dividend.

4. To appoint auditors for the year lg99 - 2000 and to fix their remuneration.

By order of the Board

ASAD A. SIDDIQUI

Company Secretary

Karachi' November 15, 1999.

NOTES:

1. Share Transfer Books of the Company will remain closed from 13th December, 1999 to 23rd

December, 1999 both days inclusive.

2. A member entitled to attend and vote at the meeting is entitled to appoint another member as

proxy.

3. Proxies in order to be effective must be received at the Registered Office of the Company not

less than 48 hours before the meeting and must be duly stamped, signed and witnessed.

4. CDC shareholders are requested to bring their National Identity Card, Account and

Participant's ID Numbers, while attending the Meeting for identification.

5. Shareholders are requested to promptly notify the Company of any change in their address.

DIRECTORS' REPORT

The Directors of the Company have pleasure in presenting their Annual Report and the Audited

Financial Statements of the Company together with Auditors' Report thereon for the year ended June

30,1999.

(Rupees in '000)

The profit of the company for the year ended June 30, 1999

after taking into account the amount of Rs. 1,063.295

million to current income, under import parity pricing

formula and after providing for administrative, selling

and financial charges amounts to:

1,330,368

Less: Provision for

- Workers' Profit Participation Fund

66,518

- Workers' Welfare Fund

33,543

100,061

-------------------

1,230,307

Less: Taxation

- For the year

545,716

- For prior years

94,066

- Deferred Tax

(52,783)

586,999

-------------------

Profit after taxation

643,308

Amount of unappropriated profit brought forward from

previous year

587

-------------------

Profit available for appropriation

643,895

APPROPRIATIONS

- The Directors proposed that this should be

utilized in providing for final dividend at

the rate of 40% equivalent to Rs. 4.0

per share of Rs. 10 each.

266,555

- Transfer to General Reserve

377,000

-------------------

Unappropriated profit carried forward to next year

340

============

The amount taken to income currently and receivable / payable to the Government under the

formula is determined after the audited accounts are submitted to the Government and the approval

is received in due course of time.

BOARD OF DIRECTORS

Since the date of last Annual General Meeting Mr. Kamal Afsar representing Karachi Electric Supply

Corporation (KESC) has been replaced by the new Managing Director, KESC, Brig. Abu Rashid.

INFORMATION TECHNOLOGY AND Y2K COMPLIANCE

To meet the challenges of the 21st Century the Company is vigorously pursuing a policy to provide

maximum computerized facilities to its staff and establishing local area network alongwith

access to internet facilities.

The Company is taking measures to ensure that all its computer applications. operating facilities and

hardware systems are free of the millennium bug and Y2K compliant well before the turn of the

century.

The Company believes that all its major suppliers and customers and associated companies are

taking measures to make their systems Y2K compliant and it is expected that no serious problem

shall be encountered on this account.

PATTERN OF SHAREHOLDINGS

Pattern of shareholding is shown on page 43.

AUDITORS

M/s. Ford, Rhodes, Robson, Morrow, Chartered Accountants, retire and being eligible, offer them-

selves for reappointment.

CHAIRMAN'S REVIEW

The Chairman's Review is endorsed by the Board of Directors of the Company.

On behalf of the Board

AITZAZ SHAHBAZ

Chairman

CHAIRMAN'S REVIEW

Dear Shareholders,

Iam pleased to welcome you to the 36th Annual General Meeting and to present the Annual Report

& the Financial Statements for the year ended June 30, 1999.

Despite the difficult economic scenario of the financial year 1998-99, by the Grace of Allah, the

performance of your company was remarkable having achieved a record after tax profit of Rs. 643.308 million.

The year under report witnessed a squeeze in margins of fuel products. As a. result the

profitability of the Fuel business was pegged to 10% of the equity as admissible under the import

parity formula approved by the Government. The Lube business which was not subject to pricing

control by the Government and operated in an open market and competitive environment was

the key factor in achieving the record profit for the year.

Development surcharge due to the Government, on furnace oil used as feed stock in the Lube

Refinery, in respect of the years ended June 30, 1996 to June 30, 1998 had not been accrued by

the company in its accounts of prior years on the basis that the same was not a part of import

incidentals and, as such, did not consider the same as due to the Government. The

Government, on the other hand, had regarded the above referred development surcharge as a part

of "identifiable charges and duties as applicable on import of furnace oil to be used as feed stock

in the Lube Refinery" and, accordingly, expected the company to pay the same. Subsequent to

the end of the current year, the Ministry of Petroleum and Natural Resources approved the

computation of development surcharge, whereby the amount owed on this account was determined

to be Rs. 131.365 million in respect of the years commencing July 01, 1995 to June 30, 1999.

Accordingly, the company has now provided the same in the Accounts of the current year.

During the year ended June 30, 1998 an agreement for a loan amounting to US$ 30

million was entered into by the company with ANZ Grindlays Bank, Bahrain Branch guaranteed by

the State Bank of Pakistan.

The company has not recorded the above loan in its books of account as the same was not received

by the company and the proceeds were credited to the account of the Government of Pakistan.

CRUDE OIL:

The supplies of Arabian Light and Arabian Extra Light were arranged by the Government from

Saudi Aramco. The crude oil throughput for the year was 2,893 million tons including 0.367 million

tons received from indigenous sources as against 2.903 million tons (including 0.633 million tons

received from indigenous sources) of the previous year which was slightly higher than this year.

PRODUCTION:

The production of finished products was reduced to 2.761 million tons as compared to 2.783 million

tons last year mainly due to lesser crude oil throughput. The product mix was maintained

according to the market demand maximizing production of deficit products as required by the

Government. The production of Lube Base Oils was increased and was recorded at 177,751 tons

compared to 162,995 tons of last year.

SALES:

Sales for the year were 2.795 million tons generating a revenue of Rs. 18.037 billion

including Lube Base Oil sales of Rs. 3.725 billion (excluding refunds from the Government under the

import parity formula amounting to Rs. 1.063 billion) compared to 2.785 million tons and

Rs. 20.078 billion for the year 1997-98. The exports of Naptha and Asphalt for the year were

83,985 tons amounting to Rs. 531.057 million compared to last year figure of 73,094 tons

amounting to Rs. 477.048 million.

MANUFACTURING, SELLING, ADMIN.

AND FINANCIAL EXPENSES:

In order to optimize profitability from operations the company continues to actively monitor and

controls its internal costs. Nevertheless, the company had faced inflationary pressures

prevailing in the country. Consequently the manufacturing expenses increased for the year to

Rs. 2,034 million as against Rs. 1,932 million for the previous year. However due to control

measures adopted by the management the selling and administrative expenses reduced to Rs. 230

million during the year as against Rs. 243 million for the previous year.

The position of inter corporate circular debts has improved during the year 1998-99 and

consequently the financial expenses have been reduced by Rs. 101 million to Rs. 733 million as

compared to previous year figure of Rs. 834 million.

PROJECTS:

M/s Siemens commenced work on the 7.5 MW steam turbo generator in August 1998. The

generator was finally started and produced 200,000 KWH running up to 4 MW. Unfortunately

on February 27,1999 due to some electrical problems (potential transformer failure), the turbo

generator was stopped. At this point M/s Siemens raised certain claims. The case for payment

against the claims to M/s Siemens is under process with the Government. As soon as the

payment would be arranged, the turbo generator would be in operation within a period of three months.

Additional tanks for storage of 45,000 tons crude oil are under installation. On completion, crude oil

cover for production will increase to 22 days. The project is expected to be completed by December 1999.

NRL entered into an agreement with Anoud Power Generation Limited (APGL) for a guaranteed

purchase of 15 MW electricity. However, the agreement could not be executed. APGL served

legal notice for performance of the agreement and filed a claim of damages amounting to Rs. 2.758

billion, whereas NRL filed a counter-claim of Rs. 737 million against APGL.

The issue has now been settled out of the court. APGL has agreed in principle that the guaranteed

purchase of 15 MW electricity by NRL is to be reduced to 4 MW electricity.

On the execution of the revised agreement, APGL and NRL, both would withdraw their claims from

the courts.

INFORMATION TECHNOLOGY AND

Y2K COMPLIANCE:

To meet the challenges of the 21st Century the company is vigorously pursuing a policy to provide

maximum computerized facilities to its staff and establishing local area network alongwith access

to internet facilities.

The company is taking measures to ensure that all its computer applications, operating facilities and

hardware systems are free of the millennium bug and Y2K compliant well before the turn of the century.

The company believes that all its major suppliers and customers and associated companies are

taking measures to make their systems Y2K compliant and it is expected that no serious

problem shall be encountered on this account.

STAFF:

On the job training to technicians and engineers to meet the shortage of trained personnel continued

during the year.

I wish to share with you my deep appreciation for the untiring efforts and dedication of all the

executives, staff and workers during the year in keeping the Refinery operating under difficult

conditions, which has enabled the company to achieve a record profit. I acknowledge their

contribution and assure them of your full support.

I would also like to pay tribute to the Managing Director and the members of the Board for their

keen participation and guidance in the affairs of the company. I am also thankful to all financial

institutions, bankers, leasing companies, World Bank and other suppliers who extended their

support and co-operations to the management in carrying out smooth operation of the company.

I conclude with a word about you, our esteemed shareholders. It is heartening to know that we

continue to receive your support and confidence and trust that this will continue in the future as well.

AITZAZ SHAHBAZ

Chairman

AUDITORS' REPORT TO THE MEMBERS

We have audited the annexed balance sheet of NATIONAL REFINERY LIMITED as at June 30,

1999 and the related profit and loss account and the 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) the ANZ Grindlays Bank has confirmed a loan outstanding from the company of

US $ 30 million which for reasons given in note 30 has not been recorded by the company

in its books of account. Had the company recorded the same, both the current liabilities and

current assets would have increased by US $ 31.463 (1998: US $ 31067) million

(principal and interest), equivalent to approximately Rs. 1,632.904 (1990; Rs. 1,443.373)

million, assuming that the Government would accept the liability for the loan and interest

thereon and on this basis the above would have no effect on the financial results of the

company.

(b) in our opinion, proper books of account have been kept by the company as required by the

Companies Ordinance, 1984;

(i) the balance sheet and the 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 accounts 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;

(d) in our opinion, except for the effect, if any, of the matter referred to in paragraph (a) above,

and to the best of our information and according to the explanations given to us, the

balance sheet, profit and loss account and the 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 June 30, 1999 and of the profit and the

changes in financial position for the year then ended;

(e) 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.

(f) without qualifying our opinion, we draw attention to the matters stated in notes 22.1 and

22.2 the ultimate outcome of which cannot presently be determined and. hence, no

provision that may result therefrom has been made in these accounts.

Karachi -

FORD, RHODES, ROBSON, MORROW

15-Nov-99

Chartered Accountants.

BALANCE SHEET AS AT JUNE 30, 1999

Note

1999

1998

(Rupees in '000)

ASSETS

NON-CURRENT ASSETS

Fixed assets - Tangible

Operating fixed assets at cost less

accumulated depreciation

950,314

1,152,431

Capital work-in-progress

611,157

534,839

---------------------

1,561,471

1,687,270

Long-term investment

Long-term loans, advance and deposits

147,400

144,946

CURRENT ASSETS

Stores, spares and chemicals

546,226

569,248

Stock-in-trade

1,711,974

1,140,130