Untitled - Bharat Petroleum

MANAGEMENT DISCUSSION & ANALYSIS REPORT
INDUSTRY STRUCTURE AND DEVELOPMENTS
As per the revised estimates released by the Central
Statistical Organisation, the Indian economy is
estimated to have grown at a rate of 8.4% in the year
2005-06 as against 7.5% growth achieved in the
previous year. The agricultural and allied sector has
recovered from a sharp decline in the growth rate in
2004-05 to post a growth rate of 3.9% in 2005-06. The
manufacturing and services sectors have continued to
deliver high growth rates, thereby fuelling the overall
growth of the economy. These trends have been
maintained during the first quarter of the current
financial year, when the economy has been estimated
to have grown at a rate of 8.9%.
The growth in Gross Domestic Product (GDP) at rates
in excess of 8% has been achieved by the economy
only in five years of recorded history and in two out of
the last three years. The Economic Survey of 2005-06
attributes the dynamic growth rates in the recent past
to factors like a new industrial resurgence, pick up in
investment, modest inflation despite spiralling global
crude prices, laying of some institutional foundations
for faster development of physical infrastructure, rapid
growth in exports and imports etc. The sharp rise in the
benchmark indices of the Indian stock market reflects
the growing confidence of the investing community on
the sustained growth of the economy in general and the
corporate sector in particular.
Although the economy has grown at a robust pace, the
consumption of petroleum products has remained more
or less static. The consumption of petroleum products
in 2005-06 has been flat as compared to the previous
year. The consumption of petroleum products during
2005-06 stands at 111.92 Million Metric Tonnes (MMT).
With the growing significance of the services sector in
the Indian economy, the high growth in GDP is not
translating into a corresponding growth in the demand
for petroleum products.
Consumption of High Speed Diesel (HSD) has shown a
marginal growth over the previous year. Although the
industrial demand for HSD has been consistently
rising, the decline in the retail sector has led to the
overall demand remaining flat. There has been decline
in consumption of products like Naphtha and Fuel Oil
(FO) in line with increase in consumption of products
like Liquefied Natural Gas (LNG). Only few products
like Motor Spirit (MS), Aviation Turbine Fuel (ATF) and
Lubricants have seen some growth during the year.
While the sales volume of petroleum products in 2005-
06 has not shown any significant change, as compared
to 2004-05, there has been an increase in the
consumption of gas.
The sharp increases in the international prices of crude
oil witnessed in 2004-05 continued during the year
2005-06. The benchmark Brent crude prices touched a
high of USD 67.33 per barrel during the year as
compared to USD 55.72 in the previous year. The
average price of the Indian basket of crude, which had
shown a sharp rise in the previous year, continued its
upward movement and reached a level of USD 55.72
per barrel in 2005-06. This represented a significant
jump over the level of USD 39.30 per barrel in
2004-05. The current financial year has continued to
witness a sustained growth in crude oil prices in the
world markets, even crossing USD 75 per barrel on
several occasions. Although there has been some
recent downward movement, the crude oil prices
have been hovering around USD 58 per barrel. The
impact of these high prices on the economy has been
contained through a policy of distributing the burden
between the Government of India, the oil companies
and the consumer.
The average spread between light – sweet and heavy –
sour crude oils continued to remain at fairly high levels of
around USD 4.50 per barrel. With the commissioning of
the Refinery Modernisation Project at the Mumbai
Refinery and the ongoing Capacity Expansion and
Modernisation Project at the Kochi Refinery, Bharat
Petroleum Corporation Limited (BPC) would be in a position
to take advantage of the high spread by processing a
higher percentage of heavy – sour crude oils.
The prices of finished products in the international
markets have also remained high in line with the high
10 Bharat Petroleum Corporation Limited
DR-10-37-FINAL.P65
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12/1/2006, 2:02 AM