Indian Oil Corporation Limited (IOC) Setting up an Oil Trading & Risk Management (OTRM) Desk

1. Pwc A business of Indian Oil Corporation Limited (IOC)Setting up an Oil Trading & Risk Management (OTRM) Desk rpc Price Bid Submission, including: I. Price Bid and Key Assumptions II. Highlights of our approach III. Plan for Execution of the Job, IV. Structure of the Team, V. Hand-holding Approach April 22, 2002

2. Contents • Requirements • Issues • Approach • Phase1 • Phase 2 • Phase 3 • Work plan • Project organisation structure • Summary C.V.s • Commercial offer • Conclusion • Appendix

3. Management Summary –

4. Requirements – Trading Desk Objectives Refining: • Meet market demand • Maximise refining margins • Optimise procurement costs • Hedge refining margin. Marketing: • Maintain market share • Grow through new contract strategies • Pricing in deregulated market Oil Trading: • Opportunistic trading for profit (on a limited basis). Risk Management: • Control of trading activities • Meet regulatory framework • Use risk instruments linked to physical contract.

5. Requirements (cont) • India’s domestic oil sector undergoing total de-regulation • Oil companies now facing a liberalised market • Oil companies redefining strategies to compete internationally • Shipping – logistics operation end to end process • Critical success factors • Stabilise volatility = stable cash flow • Routinely maximise business margin • Set and manage to a risk tolerance • Establish competence for competitive advantage • Establish correct culture – avoid rogue traders • Adherence to NAVRATNA principles

6. Issues • Soren

7. Approach • The key part of the project is to formulate the Vision, Objectives and Business strategy for the Oil trading and risk management desk. This will require: • a review of the rationale for the establishment of the trading desk • an assessment of the trading model most appropriate for IOC , with a view of industry best practice and IOC requirements • a framing of the scope of the trading desk in terms of its boundaries and interfaces with other functions within the group • This will require a significant input from senior IOC personnel in the form of workshops and discussion and it is our recommendation that an IOC steering team is set up with the mandate to make decisions on these key organisational issues. • When these issues have been resolved it will be possible to • embody them in the high level procedures and policies manual • design the high level organisational structure for the back/middle/front office including risk management/control • advise on infrastructure requirements • form the phase 2 implementation plan and budget requirements

8. Approach - Overview • Phase 1 • Framing and high level design • 2 months • Phase 2 • Implementation • 4 months • Phase 3 • Ongoing support and assistance • 3 to 6 months

9. Phase 1 Weeks 0 2 4 6 8 4 Position & Risk Modeling GovernanceTrack 1 • Framing Document & Governance Policies • Need for an Oil trading and risk man operation • Appropriate trading model for IOC • Trading mandate for year 1 • Trading mandate for years 2-3 8 2 OperationsTrack • Process & Organisational Details • Organogram • Front/Middle/Back office - roles and responsibilities • Framing Document & Trading Scope • Boundaries and interfaces with other functions 5 15 I/TTrack • Determine the IT approach and strategy • Detailed System Requirements • Trade capture • Risk assessment • Settlement • MIS/reporting 3 Special ItemsTrack • Manpower requirements • Selection and training needs 3 10 • Location Analysis Evaluate Site Alternatives 10 Budget & Implementation plan

10. Phase 1 Work plan

11. Phase 1 • Objective • To develop the feasibility for an oil trading and risk management desk to be set up within IOCL • Approach • A series of interviews and workshops will be carried out with IOC staff in order to develop a model for the structure and organisation of the trading function • A hypothesis will be put forward for discussion and evaluation by the IOC management team • Management checkpoints will be incorporated to ensure adherence with the timescale set and confirmation of the direction being taken • Resource • Senior representatives of the PwC energy practice • Energy trading and risk management • Oil markets • Marine and shipping • IOC • Representatives from key stakeholders • Key issue • a significant input from senior IOC personnel in the form of workshops and discussion will be required and it is our recommendation that an IOC steering team is set up with the mandate to make decisions on the key organisational issues.

12. Phase 1 - Work Activity

13. Phase 1 - Work Activity

14. Phase 2 A Weeks 0 4 8 12 16 6 Operationalise Risk management Committee GovernanceTrack 7 7 Delegation of Authority Internal Control Procedures 13 Credit risk assessment & control 8 14 OperationsTrack Transaction process Operating Manuals 16 I/TTrack Management Information Systems

15. Phase 2 Work Plan

16. Phase 2 Work Activity

17. Phase 2 - Work Activity

18. Phase 2 - Work Activity

19. Phase 2 • Objective • To create an operational Oil trading and price risk management desk following the guidelines set out in Phase 1 • Approach • Joint teams will be set up • Management checkpoints will be incorporated to ensure adherence with the timescale set and confirmation of the direction being taken • Resource • specialists from the PwC energy practice with operational experience of • Energy trading and risk management • Oil markets • Marine and shipping • IOC • Representatives from key stakeholders • Operational staff • Key issue • IOC employees will need to be fully engaged in the drawing up of detailed procedures and processes in order to ensure …….

20. Phase 3 • Objectives • To provide ongoing support and assistance to the Oil trading and risk management operations of IOC • Approach • One full time representative on site with a call on the resource of the specialist functions as required • To carry out a monthly review of activity to ensure that smooth development of the trading operation is taking place • Timescale to be a minimum of 3 months and continuing to a maximum of 6 months • Resource

21. Work Plan • Gant chart Months Stage 1 2 3 4 5 6 7 8 9 10 11 12 Phase 1: Design Phase 2: Implementation Phase 3: Ongoing assistance

22. Proposed Joint Team Structure • Chairman • Director – Finance • Director – Refineries • Director - Marketing • ED - International Trade and Treasury IOC Steering Team PwC Engagement Ptnr PwC Project Director IOCProject Sponsor GOI & Regulatory Input OCC, APM Global Advisors Staff Recruitment & Training Team Leaders Team Leaders Governance Governance • Policies & Procedures • Delegation Operations Operations • Marine Expert(s) • Trading & Scheduling Experts I/T Selection & Implementation I/T Selection & Implementation Special Items Special Items

23. Our team • For this assignment we have selected a high calibre team which has extensive knowledge of: • Energy trading and risk management • International Marine markets • International Oil markets Core Team • Subject Matter Experts • Soren Lautrup • Danny Burgess • Vikash Drolia • Manish Joshi Neil Mackinnon Partner Marty Stetzer Team Manager R.Yagnik Project Co-ordinator Andrew Chattrabhuti Energy trading & Risk management Scott Druck IT Systems MK Shrikande Oil trading Ron Crean Marine

24. Summary C.V.s

25. Commercial offer • Part 1 (phase 1 & phase 2) • Lump sum bid • Expense level cap • Part 2 (phase 3) • Per month cost • Min 3 months max 6 months • Quote in Indian Rupees • Net basis • Inclusive of all taxes etc

26. Resources and fees • We propose that we contract on the basis of a fixed fee of £140,000 plus expenses as incurred, plus VAT as applicable • This is based upon an expectation that we will require the following resource inputs Name Expected mandays 1 2 3 4 5 6 7 Other subject matter experts 3 5 25 30 22 5 5 5 Total 100 [Note: these manday estimates are indicative we will deploy the optimum balance of resource to meet the requirements of the project as it evolves]

27. Conclusion

28. Appendix • C.V. • Citations • Terms of Business