GAIL (India) Limited

1. GAIL (India) Limited Welcome To Presentation on Challenges in PSUs 11th November 2005

2. CONTENTS Challenges in PSUs Challenges Before GAIL – A Navratna PSU Managing Challenges – Step to Shape Future GAIL - A Success Story Emergence of Corporate Governance to Face PSU Challenges Corporate Governance in GAIL Conclusion

3. When you've got something to prove, there's nothing greater than a challenge. ~ Terry Bradshaw

4. Challenges in PSUs

5. Challenges in PSUs What are the Challenges? Liberalization in the Economy Growing business complexities Business Process Re-engineering – Keeping in view the International Best Practices Rapid changes in Information Technology Prudent use of human resources Corporate Social Responsibility vis-à-vis Profitability Total Quality Management for Customer Satisfaction

6. Challenges in PSUs Why is it necessary to face the challenges? To Retain the Market Share Sustainable improvement in Profitability Growth in Business Technology adoption to control the cost Stake holders satisfaction Customer satisfaction Employees satisfaction

7. Challenges Before GAIL – A Navratna PSU

8. Challenges Before GAIL – A Navratna PSU • Draft pipeline policy • APM to Market driven prices • Regulatory environment • Unbundling process • Sourcing of Gas • Diversification, Mergers & Acquisitions • Financial Re-Engineering including Risk Management • Human Resource Development

9. Managing Challenges - Steps to Shape Future

10. Managing Challenges – Steps to Shape Future Draft Pipeline Policy Identification of Potential market Tie up for sourcing of gas Adoption of Best practices for better Project Management APM to Market driven prices Cost control in order to face the gas market forces Business Process Re-Engineering for reduction in process cost of LPG & Petrochemicals Volume Growth

11. Managing Challenges – Steps to Shape Future Regulatory Environment Representation for Establishing National Gas Grid for effective utilization of resources Representation for exempting GAIL from LPG & Kerosene Subsidy Creation of cell to monitor regulatory environment Unbundling Process Accounting separation of Natural Gas trading and Transmission carried out Preparing for physical and legal separation if required by Regulator

12. Managing Challenges – Steps to Shape Future Sourcing of Gas Creation of dedicated cells for Domestic and International Gas sourcing at competitive prices Adoption of new Technology to bring gas to India Participation of various domestic and international blocks R&D on Alternate sources of gas like CBM & Gas Hydrates Diversification, Mergers & Acquisitions Creation of 100% subsidiary in Singapore for Global Investment opportunities Strategic investment in equity Diversified into E&P and Sale of Crude oil Entry into retail marketing of LPG

13. Managing Challenges – Steps to Shape Future Financial Re-Engineering including Risk Mgt Prepayment of High cost bearing loans Restricting of loan portfolio Advanced stage of setting up of integrated Treasury and Risk Management Desk Effective utilization of temporary surplus funds Human Resource Development International exposures to the executives for adoption of international best practices State of Art GAIL Training Institutes Sharing of Experiences of eminent personalities through Looking Beyond series of lectures

14. GAIL - A Success Story

15. TRACK RECORD OF STEADY GROWTH IN RUPEES BILLION GAIL - A Success Story PROFIT AFTER TAX REVENUES 5 year CAGR of T.O 11%& PAT 18%

16. GAIL - A Success Story GAIL – Recent Significant Achievements 70% Growth in PAT of Q2 over Q1 05-06 Steady growth in Market Cap Consistent growth in value added per employee High leverage due to low debt equity ratio Increasing trend in EPS Growth in Gas transmission volumes Lean & Thin Organization

17. GAIL - A Success Story Laurels of GAIL Golden Peacock for National Training Award for FY 2004-05 Golden Peacock Award for Corporate Governance for FY 2003-04 Hewitt Award For Best Employer In India 2004 NPMP Awards For Excellence in Project Management 2003-04 National Merit Award (Public Sector) for excellence in Cost Management from ICWAI. Best overall performance in upstream sector by PCRA for energy efficiency/saving measures Scope Excellence Award (2002-03) – Outstanding Contribution To Public Sector Management 12th amongst 30 Indian companies appearing in the list of Forbes 2000 – The world’s wealthiest companies 2005

18. Emergence of Corporate Governance to face PSU Challenges

19. What is Corporate Governance? “Corporate Governance is nothing but a step towards strengthening of the organization so as to face the challenges” “It is stepping into the shoes of the shareholders, stakeholders, vendors, suppliers & employees by the Top Managers and CEO of the company” “Process and mechanisms by which the capital market monitors the actions of corporate management”

20. Why Corporate Governance? • TRANSPARENCY • ACCOUNTABILITY • CONTROL • TRUSTEESHIP • ETHICS

21. Emergence of Corporate Governance in India • SEBI appointed in May 1997 the Kumar Mangalam Birla Committee • Companies Amendment Act, 2000 introduced - Setting up of Audit Committee - Directors’ Responsibility Statement • Kumar Mangalam Birla Committee recommendations adopted by SEBI in 2000 • Clause 49 introduced in Listing Agreement • Narayana Murthy Committee recommendations revised Clause 49 • Definition of independent directors • Certificate by CFO & CEO • Risk Assessment & Mitigation strategy of the company • Code of Conduct for top Management

22. Corporate Governance in GAIL

23. Corporate Governance in GAIL • Equal number of Independent and full time Functional Directors • Regular Board Meetings • Regular Audit committee meetings • E-payments, E-receivable, E-investments for transparency • Payment of Dividend through Electronic clearing • Bill Watch System • Meeting the compliance requirements • Shareholders / Investors Grievance Committee • Implemented code of conduct Board members and senior management • Voluntary Secretarial Audit

24. Conclusion

25. Conclusion PSU Challenges : How it is good for improvement of the Company? • Challenge - A Stimulator • Food for thinking out of Box • Striving for doing the things differently • Challenge is the doing the thing Right first time • Maintaining Balance between commercial & Social obligations

26. There are no laurels in life... just new challenges. ~ Katharine Hepburn

27. THANK YOU

28. Areas of corporate challenge Global Challenges • Integrate with gas projects which can supply gas to India (pipelines, LNG, CNG) • Enter new & emerging gas rich countries with good relations with India (Egypt, South Africa) • Enter (selectively) other countries with expanding gas sector and good project opportunities (China, West-Asia, Africa) • Partner with Reputed Companies • Limited period for opportunities - Global Majors consolidating • Enter into strategic alliance for production of petrochemicals (Iran)

29. Areas of corporate challenge Other Challenges • Fight for Market Share • Customer delight • Wealth Creation • CSR • Environment Friendly approach • Investor Satisfaction • R&D • Cost Control • Manpower – Quality Selection + Training + Retention • Technology Savvy – Adoptability to latest technology • Project Management Skills

30. Identified Corporate Challenges • Gas metering issues in HBJ & Regional pipelines • Recovery of outstanding amounts from gas customers • Benchmarking issues: • Stock loss • Energy consumption • Effective Tax management • Activity based budgeting • Investor Relationship management • Decision Making process re-engineering

31. Corporate Challenges Schemes – Step to Shape Tomorrow • Identified 2 projects under Corporate Challenge Scheme: • Waste heat recovery in compressor station and process plants • To make GAIL Tel a Profitable & competitive SBU of the company • Objectives: • Team Work • Cost Reduction • Entrepreneurship feeling among the employee • Leveraging the in-house talent pool • Achieving operational excellence in core business

32. Areas of corporate challenge Business Related Challenges • Gas Sourcing – Domestic & International • Awareness of Fuel for Tomorrow • Upstream & Downstream Integration • Merger & Acquisition • Financial Risk Management • Diversification

33. Areas of corporate challenge Regulatory Challenges • Promoted by GoI • Regulatory Sector • Downstream - Allocation of Gas, Delivered Price, Tariff Control • PSU Culture – CAG & Vigilance • Statutory Compliance • LPG & Kerosene Subsidy

34. Meeting the Challenges - Global • CITY GAS • INTERNATIONAL PIPELINES TO INDIA* HIGH • INTERNATIONAL PIPELINES OUTSIDE INDIA • PETRO-CHEMICALS • SOURCING • ATTRACTIVE-NESS OF OPPORTUNITY • RAROIC** • ABILITY TO EXECUTE' PURSUE AGGRESSIVELY PURSUE OPPORTUNISTICALLY • E&P • WHOLESALE MARKETING / TRADING MODERATE CAUTIOUS APPROACH PARTNERING MODERATE HIGH IMPORTANCE - BUSINESS PORTFOLIO * SUBJECT TO GEO-POLITICAL SCENARIO ** RISK ADJUSTED RETURN ON INVESTED CAPITAL

35. Meeting the Challenges - Business New sources • Reliance (KG basin) • Other producers/ GSPCL (new fields) • Domestic sources • International sources • Blocks where GAIL is partner • Potential supply sources for domestic demand • CBM Blocks, Coal Gasification, Gas Hydrates • Cross border pipelines (Iran, Myanmar) • LNG ; CNG by ship Gas Sourcing

36. Meeting the Challenges - Other Innovation The introduction of something new Quality Special, distinctive, or essential character – the degree of excellence Efficiency Producing results through minimum effort, time and waste Training Skill enhancement

37. Corporate Governance in GAIL GAIL believes that effective Corporate Governance is characterized by the practice of principles of transparency , fairness, disclosure and accountability. The Board pursues its Corporate Governance objective by demonstrating sincerity in dealing with management, fairness in dealing with employees, meeting the compliance requirements of the Government and practice of ethical corporate citizenship in the society.

38. Corporate Governance in GAIL Keeping the tradition of believing in the highest standard of Corporate Governance, GAIL has received the “Golden Peacock Award” for excellence in Corporate Governance for the year 2003-04.

39. Corporate Governance in GAIL • The Board of Directors of GAIL has implemented a CODE OF CONDUCT FOR BOARD MEMBERS AND SENIOR MANAGEMENT PERSONNEL in accordance with revised Clause 49 of Listing Agreement of Stock Exchanges on Corporate Governance. The Code has also been posted on the web-site of the Company. • The Code was put in place by GAIL well ahead of the deadline of 31st December, 2005 set by SEBI for implementation of the revised Clause 49. • The revised Clause 49 provides for minimum of four meetings of the Board of Directors, with a maximum time gap of three months between any two meetings. In GAIL, during fiscal 2004-05, fifteen meetings of the Board of Directors were held. During the current fiscal, nine meetings of the Board of Directors have already been convened.

40. Corporate Governance in GAIL • The revised Clause 49 provides for minimum of four meetings of the Audit Committee with an interval of not more than four months between two meetings. In GAIL, during fiscal 2004-05, ten meetings of the Audit Committee were held. During the current fiscal, seven meetings of the Audit Committee have already been convened. • GAIL has voluntarily undergone SECRETARIAL AUDIT by an independent firm of Company Secretaries. • Although a non-mandatory requirement under Clause 49, GAIL already has a WHISTLE BLOWER POLICY in place. • GAIL is fully compliant with the requirement of revised Clause 49 that not less than 50% of the Board of Directors to comprise of Non-executive Directors.

41. Corporate Governance in GAIL Corporate Governance of GAIL includes Reporting of • Board Meetings • Audit Committee • Composition & Qualifications • Audit Committee Meetings and attendance thereat • Shareholders’/ Investors’ Grievance Committee • General Body Meetings • Disclosures • Disclosure on materially significant related party transactions • Details of non-compliance relating to Capital Market

42. Corporate Governance in GAIL Cont… • Means of Communication • Forthcoming AGM – Date, Time and Venue • Financial Calendar • Dividend Payment Date • Date of Book Closure • Payment of Dividend through Electronic Clearing Service (ECS) • Transfer of Unclaimed Dividend Amount to Investor Education and Protection Fund (IEPF) • Particulars of Directors appointed/re-appointed • Listing Fees • Share Transfer System