Manual-formatted

11.13.1.3 E-Collections Account: These accounts are opened and operated centrally at Marketing HO for receiving collections from various customers through electronic mode (RTGS/NEFT, Internet Banking/SBI PoS Machine). • For all E Collections other than SBI PoS Machine, Banks are sending MIS to IOCL and cash receipt(DX document type) entries are getting automatically posted in SAP. • Balances at the end of the day are transferred to CC account. • Reconciliation is carried on daily basis by Marketing HO. • All open items arising out of reconciliation (Error Transactions) are transferred to respective state offices on daily basis. • SO to review these items on regular intervals and clear the same by identifying the customer as per the guidelines issued. 11.13.2 Withdrawal Accounts These types of accounts are opened and operated at a location where at least one finance officer is posted. • As the account is designated for payments, no collections are to be deposited. • Debit balances at the end of the day are transferred to designated Marketing HO pooling bank account. • Reconciliation is to be carried out by respective SO/Location on daily basis based on the bank account statement obtained from SBI. • SO/Locations to check and clear any open items arising out of reconciliation in SAP. There should not be any open items pending for clearance for more than a month. • Payments are released through B2B at HO, SOs, LBPs & FSSH. At other locations, by way of paper based RTGS/NEFT advices or by Cheques. • Each account is assigned a day limit based on the average payments at the SO/Location. • In the case of withdrawal accounts from which B2B payments are made, for e- cheques prepared but not authorized or debited to the bank account in the same quarter, a reversible JV crediting vendor & debiting bank GL (excess debit GL) is to be passed for correct depiction of bank balance. 11.13.2.1 Imprest Account: Imprest accounts are opened at operated for small locations. These accounts are pre-funded by respective state offices based on the approved limit. On submission of details of payments made out of the imprest amount, the amount spent is recouped. Effective Oct 2017, SBI eZ-pay prepaid cards are being issued to in-charge of single officer locations in place of Imprest. These cards can also be issued to other officers based on approval from competent authority. These cards have a limit of Rs. 50,000 and can be recharged by SO using B2B mode. 11.13.2.2 Railway e-Freight Account: These types of accounts are opened and operated for making railway freight payments through electronic mode. Banking Operations Page 274

• Reconciliation is to be carried out by respective SO/Location on periodic basis based on the bank account statement obtained from SBI. • Debit balances at the end of the day are transferred to designated Marketing HO pooling bank account. 11.13.3 Cash Credit Account Cash credit account is operated by Marketing HO and is the principle main account of the corporation. • Balances from all accounts except imprest accounts i.e., collection accounts, withdrawal accounts, etc of all divisions of IOCL are transferred to Cash Credit account. • Interest on bank overdraft/ cash credit utilization on entire IOCL’s accounts is charged in cash credit account. • Reconciliation is carried out by HO on daily basis. 11.13.4 Accounting Guidelines • A certificate from the Bank in confirmation of the Bank balances should be obtained in respect of all Bank Accounts at each reporting period. • Bank reconciliation statement should be drawn out of SAP and the differences in bank balance and balance as per SAP should be identified and analysed on periodical basis. • Bank Reconciliation Statement should be prepared for all Bank Accounts including Current Account opened for Imprest/Specific Advances. Open items in the Bank Reconciliation Statement should normally represent 'cheques issued but not presented' and 'cheques deposited but not credited' • Cheques issued but not presented appearing in the Bank Reconciliation Statement should not include any 'stale' cheques for which the time limit for presentation to the Bank has already expired. • All such cheques if appearing in the Bank Reconciliation Statement should be transferred to 'Uncleared Cheques' Account. Similar treatment should be afforded to DDs. Items over 3 years (from date of cheque) under uncleared cheques should be reviewed thoroughly and transferred to uncleared/unspent liability written-back account' depending upon the merit of each case. • Cheques deposited but not credited by the Bank appearing in the Bank Reconciliation Statement should normally represent the last day's deposit since as per existing arrangement with the banks. Any cases of overdue cheques which has been deposited and not credited by the bank should be analysed, if delay is on the part of the Bank. • Any superfluous item in the Bank Account not relating to the transactions of IOC should be recorded as open item and should form part of the Bank Reconciliation Statement. Intimation in the form of a letter regarding any superfluous debits in the Bank Account should be immediately sent to the Bank clearly stating that such debits are not acceptable to IOC and should be immediately withdrawn by the Bank. A close follow-up should be maintained with the Bank to withdraw such items and it should Banking Operations Page 275

be ensured that all such disputed items are sorted out before the end of the quarter/financial year and necessary accounting entries are carried out in the books of Accounts. • As the balances in all accounts are transferred to main cash credit account at the end of each day, there should not be any interest debited in any of the other accounts. If by any reason the day end balances are not transferred, the same should be taken up with bank for value date transfer to main cash credit account and reversal of interest debited in coordination with HO Banking. • On dishonour of any cheque/DD, it should be ensured that all dishonoured cheques/DDs are received from the Bank and the amount is debited to respective customer or vendor and intimated to the concerned about the dishonour. • Cheques/DDs in hand on any reporting date (i.e., cheques or DDs received but submitted in bank post reporting date) shall be accounted as cheques and DDs in hand as on repowering date. • Fixed deposits, if any made in scheduled bank with maturity date in less than 12 months from reporting date, shall be accounted under Bank balances. Fixed Deposit Receipts should be obtained and kept in safe custody and should be available for verification by Auditors. The interest accrued on Fixed Deposit upto the end of the quarter/financial year should be accounted for. • All Imprest holders should submit the accounts in respect of expenditure incurred upto the last date of the quarter/year and the balance in the Imprest Account should be confirmed by them. For this purpose, it should be ensured that all departments/ locations should render the account of all imprest held by them so that all the expenditure incurred upto the end of the quarter/year is properly accounted for in the books of accounts. Banking Operations Page 276

Annexure – 11.1 PROCEDURE FOR CENTRALISED E –PAYMENTS: In Marketing division all B2B payments except tax payments has been centralised in a phased manner during 2018-19 and 2019-20 1. Head Office, Regional Office, State office, FSSH & all locations under State office shall prepare the payment documents in HO Company Code using the existing process (maker-checker) of liability and payment documents. The GL & account details of HO withdrawal account to be used while processing payment document (YF51 &YF51P) 2. Before processing any payment, all concerned users have to ensure that necessary bank details have been updated (uploaded and approved) in SBI website under HO bank account only. This will avoid failure in payment. SO may reiterate the updation of bank details to all locations & FSSH. 3. T code ‘YF52Q’ – Document Receipt Acknowledgement. A new step has been inserted in payment process after processing payment voucher through T code YF51P and before executing YF52. YF52Q needs to be executed by Section/Concerned user responsible (as shown below) for confirmation regarding availability of the physical payment voucher along with all other supporting documents. SO/HO Cash section Supply Location Location in-charge (or) Officer authorized by Location in-charge FSSH FSSH’ s Location in-charge (or) Officer authorized by FSSH’ s Location-in-charge Hence, the concerned user who has executed the Payment voucher under YF51P has to ensure that all physical payment vouchers along with all other supporting documents are handed over/ reached to the concerned user who has to execute YF52Q. Efforts should be made by the concerned Section/ User as mentioned above to ensure that YF52Q is executed for all the payment vouchers (for which YF51P is done) on the same day. At any point of time, there should not be any payment vouchers (for which YF51P is done) pending for YF52Q execution for more than three working days. 4. YF52 for all payment documents processed in HO GL shall be run centrally by HO Finance (at 12:00 PM) and accordingly payments have to be planned and processed by the concerned at Locations of State Offices, State Offices and Regional Offices. There will not be any flow Banking Operations INDEX Page 277

of physical payment documents, vouchers & supporting bills etc from the respective RO/SO/FSSH/ Locations to HO. 5. Two authorizers from HO shall authorize all E-cheques generated on SBI CINB portal & appearing in the Bulk Inbox without verification of the physical payment documents of HO/RO/SO/FSSH/ Locations. 6. Although the payments are authorised at HO as mentioned at Point No.6 above, the whole responsibility for processing of the payments as per approval, supporting documents, correctness of vendor code, vendor’s bank account number, amount, etc. shall rest with respective users in the processing of the payments as given below: • Users preparing the liability document • Users creating pre-approved payment documents through YF51 • Users approving the payment documents through YF51P 7. Finance officer authorizing the payment (YF51P) must ensure the correctness in all respects of all payment documents/ supporting documents, bills, etc. including that the same are approved by competent authority as per DOA before releasing the payment. 8. Record for all payment documents initiated from HO withdrawal Account shall be maintained by concerned Location who is executing T Code – YF52Q. Details of payment documents initiated by each location for specific period are available in SAP T Code- YF51R. 9. HO/RO/SO/Location/FSSH shall run summary report based on payment document through T code YF51R at the end of each day. All payment vouchers along will all supporting documents shall be preserved/ bound in the order of plant wise serial number (Plant Batch Counter) as per the printout of summary report. 10. Preservation of all records pertaining to payment will be the responsibility of Finance In-charge of the location, wherever finance officers are posted. In other cases, it will be the responsibility of location in-charge to preserve all records pertaining to payment. In case of HO/SO, concerned officer in-charge of cash section shall be responsible to preserve all records pertaining to payments. Failed Transactions / Reversal of entries posted in HO Bank GL 1. All concerned at HO/RO/SO/Location/FSSH shall review failed B2B payment transactions by viewing through status column in T-code YF51R under Tab ‘Summary Report (Based on the payment document)’. 2. In the case of failed transactions, the payment shall be reversed by HO finance (FCH8) on the next working day after due reconciliation. After correction of reason for failure, payment document has to be reprocessed by the concerned user. Banking Operations Page 278

3. In case, the finance officer wants to reverse the payment document which is incorrect or not required: a. If YF52Q has not been processed, then finance officer who has prepared the payment document shall reverse the payment document (835 series) using SAP T-code “FBRA”. b. If YF52Q has been processed (Floppy symbol) but YF52 has not been processed by HO, then the concerned user has to take up with the user who is having authorisation to reset the status (reversal of YF52Q process). Only after carrying out the reset status in YF52Q, the concerned user has to reverse the payment document (835 series) using SAP T-code – “FBRA”. - YF52 & YF52Q - both not processed - YF52Q processed & YF52 not processed - YF52Q & YF52 - both processed c. If YF52Q & YF52 have been processed (Lock symbol), reversal shall not be entertained on routine basis (till the time e-cheque is signed on SBI website). Hence, the concerned user needs to be more vigilant before processing any payment. The specific request for reversal of payment document has to be sent through SO/RO finance to HO Finance for reversal of e-cheque in SBI website & reversal of payment document. The officer in HO will attempt to cancel the e-cheque as soon as the communication is received. Banking Operations Page 279

CHAPTER 12 : INVESTMENTS This Chapter Deals with the following • Applicable Provisions and guidance • Presentation & Disclosures • PACE reports 12.1 APPLICABLE GUIDANCE References and related guidance on investments are available in the following standards/ Companies Act provisions: • Ind As Provisions - Ind AS-109 Financial instruments - Ind AS -107 Financial instruments disclosures - Ind AS 32 Financial instruments presentation - Ind AS 113 Fair Value Measurement • Ind AS Compliant Schedule III to Companies Act 2013 • ICAI's Guidance note on Schedule-III 12.1.1 Ind-AS Provisions Under the Old IGAAP, there was no distinction between financial and non-financial items. Under Ind-AS, financial and non-financial items are treated differently. Ind-AS prescribes different requirement for recognition, measurement, impairment, presentation and disclosures for financial instruments. A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity. As per Ind-AS, a financial asset is any asset that is: a. Cash; b. An equity instrument of another entity; c. A contractual right: • To receive cash or another financial asset from another entity; or • To exchange financial assets or financial liabilities with another entity under conditions that are potentially favourable to the entity; or d. A contract that will or may be settled in the entity's own equity instruments and is: • A non-derivative for which the entity is or may be obliged to receive a variable number of the entity's own equity instruments; or • a derivative that will or may be settled other than by the exchange of a fixed amount of cash or another financial asset for a fixed number of the entity's own equity instruments. Investments INDEX Page 280

Accordingly, all the investments held by the corporation qualify the definition of financial assets as either they are equity instrument of another entity i.e. investment in shares or carries contractual right to receive cash or other financial assets i.e. debt instruments. 12.1.1.1 Classification of Investments All financial assets are recognized initially at fair value plus, in the case of financial assets not recorded at fair value through profit or loss, transaction costs e.g. acquisition charges such as brokerage fees and duties that are attributable to the acquisition of the financial asset. The classification of investment is relevant for subsequent measurement. Investments can be classified under the following 3 categories: Financial assets shall be classified on the basis of both: • The entity’s business model for managing the financial assets and • The contractual cash flow characteristics of the financial assets. The classifications rules are as under: Rule Classification Investments are held to collect contractual cash flows in the form ofAmortized cost principal and interest (Solely payment of principal and interest (SPPI test) Investments are held to collect contractual cash flows in the form ofFVTOCI principal and interest and to sell whenever required Investments are for trading/ Residual category FVTPL In case of equity shares, SPPI test can never be fulfilled. However, Ind-AS provides an irrevocable option for FVTOCI classification of equity investments (without recycling to P&L). IOCL has exercised this option. Accordingly, all equity investments (other than subsidiaries, JVs and associates) are classified under FVTOCI category. Following chart brings more clarity in the classification: Investments Page 281

12.1.1.2 IOCL Specific examples are given below a. Investment in Equity shares (other than subsidiaries, JVs and Associates) Investments in equity shares (other than subsidiaries, JVs & Associates) which are not held for trading purposes, the management has selected an irrevocable option to classify and measure at fair value through Other Comprehensive Income (OCI) with no recycling to P&L. Accordingly, Equity investments in ONGC, GAIL, Oil India, Haldia Petrochemical Limited etc. are classified in this category. b. Investment in Equity shares (subsidiaries, JVs and Associates) Investments in equity shares of subsidiaries, JVs & Associates are to be classified and measured at cost as management has not elected the fair value through profit and loss under Ind AS 109. c. Investment in Government Securities (Debt) (GOI Oil Bonds) As our business model in this investment is hold for contractual cash flows (Interest) and sell as and when required, these investments shall be classified & measured as fair value through Other Comprehensive Income (OCI) with Recycling to P&L. d. Investment in Compulsorily Convertible Debentures (CCDs) issued by Indian Oil LNG Private Limited (IOLPL) Being the convertible debentures, cash flows from debentures does not pass the SPPI test (sole payments of principal and interest), and hence these bonds shall be classified as at fair value through profit or loss. Investments Page 282

e. Investment in Non- Convertible Redeemable Preference Shares issued by Chennai Petroleum Corporation Limited (CPCL) There is no contractual obligation on part of CPCL to pay dividends (Interest) till the time CPCL generates profit and hence this investment shall be classified at fair value through profit or loss. 12.1.1.3 Initial Recognition and Measurement The investments are initially recognized at fair value of the investment. Cost of an investment also includes acquisition charges such as brokerage fees and duties if the same is not classified as FVTPL. However, cost of investments should not include the element of dividend and interest, when the same is ascertained as on the date of sale and purchase and is separately paid/payable to the seller from whom such investments have been purchased. If an investment is acquired in exchange or in part exchange for another asset, acquisition cost of the investment is determined by reference to the fair value of the asset given up. However, it may be appropriate to consider the fair value of the investment acquired, if it is more clearly evident. 12.1.1.4 Subsequent Measurement At the time of sale of investment, the difference between the cost of investments and the amount realized should be accounted as loss/gain on sale of Investments, except for investments classified at fair value through OCI without recycling option. Investments Page 283

Equity Investments in Subsidiary, JV & associate companies shall be recognized under investments only upon allotting shares by subject company and till such time all such cases are reported under ‘Advances for Investments’. Dividend from a subsidiary, a joint venture or an associate shall be accounted in P&L when the right to receive the dividend is established i.e. dividend approved in AGM in case of final dividend and dividend approved by board in case of Interim dividend. Fair value Fair value of Quoted investments in equity shares is the closing price of the equity share on National Stock Exchange (NSE) as on the date of reporting or the previous close in case of Holiday. Fair Value of Quoted bonds can be obtained from the website https://www.ccilindia.com/RiskManagement/SecuritiesSegment/Pages/MTMPrice s.aspx Fair Value of other unquoted investments has to be obtained from third party valuers. Interest on investments in Bonds should be accounted on accrual basis under head ‘Interest Accrued but not Due’. While calculating MTM, following book value to be considered: a. In case of GOI bonds, interest accrued is settled separately with the buyer in addition to the fair value quoted in the market. The amount appearing in investments in the Balance sheet should be considered for the purpose of book value b. In case of other assets (like compulsory convertible debutantes), values are not quoted in the market and third-party values are appointed who quotes the value cum interest/ dividend. Thus, the book value should include interest accrued and due/ dividend receivables for the purpose of calculation of MTM. Investments Page 284

12.1.2 PROVISIONS OF IND AS SCHEDULE III TO THE COMPANIES ACT 2013: Investments shall be classified as • Investments in Equity Instruments; • Investments in Preference Shares; • Investments in Government or trust securities; • Investments in debentures or bonds; • Investments in Mutual Funds; • Investments in partnership firms; or • Other investments (specify nature). Under each classification, details shall be given of names of the bodies corporate that are- • subsidiaries, • associates, • joint ventures, or • structured entities, in whom investments have been made and the nature and extent of the investment so made in each such body corporate (showing separately investments which are partly paid). Investments Page 285

Investment in partnership firms alongwith names of the firms, their partners, total capital and the shares of each partner shall be disclosed separately. The following shall also be disclosed: • Aggregate amount of quoted investments and market value thereof; • Aggregate amount of unquoted investments; and • Aggregate amount of impairment in value of investments. 12.1.3 Major guidance/ requirements emerged from ICAI's July 2017 Guidance Note: 12.1.3.1 Body Corporate wise disclosures: Ind AS Schedule III requires companies to give names of the bodies corporate that are (i) subsidiaries, (ii) associates, (iii) joint ventures, or (iv) structured entities. It has done away with the requirement to give names of all other bodies corporates in which a company has made any form of investment (i.e. equity shares, preference shares, debentures, mutual fund units). However, Ind AS 107 para 11A requires, among other things, entities to disclose which investments in equity instruments have been designated to be measured at FVOCI along with the fair value of each such investment at the end of the reporting period. Accordingly, over and above the requirements of Ind AS Schedule III, companies will be required to disclose the names, number of equity instruments held and the face value of such instrument of all other bodies corporate for which they have designated the Investments in equity instruments at FVOCI. However, apart from investments in equity instruments designated at FVOCI and investments in subsidiaries, associates, joint ventures and structured entities, if a company intends to provide such additional disclosure, it may choose to do so. What is Nature and extent: The nature and extent would imply the number of such instruments held and the face value of such instrument. There is also a requirement to disclose separately, investments which are partly paid. It is advisable to clearly disclose whether investments are fully paid or partly paid. 12.1.3.2 Disclosure of aggregate amount of investments and market value thereof (Para 8.1.8.2.) Ind AS Schedule III requires disclosure of the aggregate amount of quoted investments and market value thereof and the aggregate amount of unquoted investments. The aggregate amount of such investments would include aggregate amount of carrying value of these investments as at the reporting date as included in the financial statements. This disclosure would need to be made separately for non-current investments and current investments. Where the investments are measured at either FVTPL or FVOCI, as per Ind AS 109, the carrying amount and the market value of such investments are expected to be same subject Investments Page 286

to considerations of fair value as per the above paragraph and should be disclosed accordingly. The term “quoted investments” has not been defined in Ind AS Schedule III. The expression “quoted investment”, as defined in the erstwhile pre-Revised Schedule VI under the Companies Act, 1956, means an investment in respect of which there has been granted a quotation or permission to deal on a recognized stock exchange, and the expression “unquoted investment” shall be construed accordingly. 12.1.3.3 Aggregate amount for impairment in value of investments (Para 8.1.8.3.) As per Ind AS Schedule III, this amount should be disclosed separately. As per Ind AS 109, the company is required to recognize a loss allowance (i.e. impairment) for expected credit losses on investments measured at amortized cost. Such loss allowance should be presented as an adjustment to the amortized cost of the investment. As per Ind AS 109, • in case of debt investments measured at FVOCI, the fair value changes will be presented in other comprehensive income. A company shall estimate a portion of fair value change, if any, attributable to a change in credit risk of such investment, by applying the impairment requirements of Ind AS 109 in recognising and measuring the loss allowance, and disclose the same in the statement of profit and loss with a corresponding impact in other comprehensive income. In other words, the company shall not reduce the carrying amount of such investment in the balance sheet as the investment needs to be presented at fair value. • all equity investments measured at fair value and all other investments measured at FVTPL do not require a separate calculation / evaluation of impairment amount. Hence, in case of such investments, this disclosure is not applicable. For the purpose of disclosing aggregate provision for impairment in the value of investments, an entity shall disclose an amount equal to the aggregate amount of impairment recognized and measured in accordance with Ind AS 109, as stated in the paragraphs above. The aggregate provision for impairment in the value of investments may be either presented in totality for all the investments or separately for each class of investments (e.g., ‘Investment at amortized cost’, ‘Investment in debt instruments at FVOCI’) disclosed in the financial statements. 12.1.3.4 Investments in Subsidiaries / Associates / Joint Ventures (Para 8.1.8.4.) Investments Page 287

In its Standalone Financial Statements, the entity shall present its interests in a subsidiary, associate or joint venture under the head ‘Investments’ separately on the face of a company’s standalone balance sheet or in the notes, grouped under ‘Financial Assets’. For an entity’s Consolidated Financial Statements, investments accounted using the equity method (i.e. associates and joint ventures) need to be shown as a separate line item outside ‘Financial Assets’, as per the requirements of Ind AS 1, para 54. 12.1.3.5 Classification of Investments (Para 8.1.8.6.) As per Ind AS 107, para 8, the carrying amounts of each investments under the scope of Ind AS 109 shall be disclosed either in the Balance Sheet or in the Notes under the following categories: • Measured at amortized cost; • Mandatorily measured at FVTPL; • Designated at FVTPL; • Measured at FVOCI; • Designated at FVOCI (e.g., investments in equity instruments). Ind AS Schedule III does not specify whether the Investments should first be categorized as above or should be first classified as per the nature (e.g., investment in equity instruments, investment in preference shares, investment in debentures or bonds, etc.). Ind AS Schedule III allows addition or substitution of line items on the face of the Financial Statements in order to comply with the Act or with Ind AS. Accordingly, the companies may disclose Investments by grouping them in the following manner: • Broad Categories as per Ind AS 107 (see above (a) to (e)); • Under each broad categorization, nature-based classification e.g., Investment in Equity / Preference Shares etc.) • Under each nature-based classification, grouping based on the relationship of bodies corporate (viz., subsidiaries, associates, JVs, and structured entities) and • Under each grouping of bodies corporate, details giving names of bodies corporate and nature and extent of investments in bodies corporate as required by Ind AS Schedule III. An example is given below only for illustrative purposes, wherein it is assumed that each investment has such terms and conditions that qualify them for being presented under respective categories of classification and measurement as per Ind AS 109. Companies should carefully assess the terms and conditions specific to each investments for presenting them under the classification and measurement categories of Ind AS 109: 12.1.3.6 Investments Investments Page 288

• Investments at amortized cost - Investments in Redeemable Preference Shares - Investments in Redeemable Debentures - Investments in Redeemable Bonds - Investments in Government Securities - …….. • Investments at fair value through other comprehensive income - Investments in Equity Instruments - Investments in Redeemable Preference Shares - Investments in Redeemable Debentures - Investments in Redeemable Bonds - Investments in Government Securities - ……. • Investments at fair value through profit or loss - Investments in Equity Instruments - Investments in Redeemable Preference Shares - Investments in Optionally Convertible Preference Shares - Investments in Optionally Convertible Debentures - Investments in Redeemable bonds - Investments in Government Securities - ……. Where an entity chooses not to provide investment details in the format given above, it could present the information in other ways by changing the order of grouping. For e.g., Investments may be classified first as per their nature (investment in equity instruments, investment in preference shares, etc.) as given in Ind AS Schedule III and then within each nature, sub-classified into broad categories (investments at amortized cost, etc.). 12.2 PRESENTATION AND DISCLOSURES Face of Balance sheet Investments are to be classified into current investments and long-term investments. A current investment is an investment that is by its nature readily realizable and is intended to be held for not more than one year from the date on which such investments is made. A long-term investment is an investment other than a current investment. Investments are presented in the following format as notes to balance sheet. For each item, further details of Investment Currency, Face Value, Number of Shares, Paid up Value, Investment Value, Impairment Loss & Carrying Value are to be disclosed. NON-CURRENT INVESTMENTS : I In Equity Shares A In Subsidiaries (At Cost): Investments QUOTED: Page 289 UNQUOTED: INDEX

B In Associates (At Cost): QUOTED: UNQUOTED: C In Joint Ventures (At Cost): QUOTED: UNQUOTED: D In Others Investments designated at fair value through OCI: QUOTED: UNQUOTED: II In Preference Shares A In Subsidiary Companies: Quoted: Investments at fair value through profit or loss Unquoted: Quoted: B In Others Unquoted: III In Government Securities Quoted: Investments at fair value through OCI Unquoted: IV In Debentures or Bonds Quoted: Investments at fair value through profit or loss Unquoted: CURRENT INVESTMENTS: Quoted: In Government Securities (at fair value through OCI) Unquoted: Other disclosures in notes Investments Page 290

Investments Page 291

12.3 PACE REPORTS AND INPUTS a. Saving the investment information in PACE – Formats are developed for collection of data from divisions in PACE. These formats are in the form of input forms which allows divisions to save the data directly in the required format on PACE server. Screen shots of the PACE input forms are as under: Investments INDEX Page 292

b. After saving the above information, divisions are required to take the printout of the report and get it signed from their respective statutory auditors and forward to CF along with audited accounts. c. Same format for the corresponding period of previous year shall also be provided along with the accounts Investments Page 293

CHAPTER 13 : PURCHASE OF CRUDE OIL & PRODUCTS 13A. IMPORT OF CRUDE OIL 13.1 INTRODUCTION Crude oil is imported by IOC mainly for requirement of IOCL & CPCL. The crude oil is sourced from multiple countries (i.e. from Gulf countries, West African Countries, Malaysia, Brunei, Qatar, Mexico etc.). Crude is transported through tanker vessels and discharged at West coast and East coast ports for IOCL/CPCL refineries. Following are the major elements of payments for crude oil imports: • Crude Oil Payment (FOB/CFR/Others)Freight Payments (Time Charter/ Voyage Charter) • Port Charges • Port Disbursement Advance (PDA) • Survey Fees • Insurance • Demurrage • Other related charges Payments for Crude Oil, Freight, Survey Fees and Demurrages etc. are made in US Dollars for foreign beneficiaries. However, in case of NIOC, due to US OFAC sanctions, payments are being made in EURO. In case of Indian vessel owner, the payments for Freight/ Demurrage etc. are made in equivalent INR by suitable currency exchange rates agreed in Charter Party/ Fixture Note. Insurance premium for each cargo is paid in INR to the Indian Insurance Company from which Crude Oil Marine policy is obtained. 13.2 CRUDE OIL PROCUREMENT 13.2.1 Tender for crude oil procurement is finalized by International Trade Department on the following basis: 13.2.2 • Term Contract (Mainly Annual contract with fixed term) • Spot Contracts Crude Oil Term Contracts are mostly on FOB basis. After finalisation of Contract by CO (IT), a copy is forwarded to Shipping department Refinery Head Quarter (RHQ) for execution and arranging necessary logistic. Shipping department finalises the Laycan with the supplier and line up vessel for loading. An independent surveyor is appointed by IOC to check the accuracy of quantity loaded at load port. 13.3 LETTER OF CREDIT FOR CRUDE IMPORTS 13.3.1 LC is opened as per the terms and conditions of the import contracts entered into by IOCL with the supplier. Letter of Credit is opened by Finance as per request of Shipping department for the proposed crude oil loadings from concerned Supplier. The LCs are Purchase of Crude Oil & Products INDEX Page 294

opened thru empanelled Bankers, which are revised after receipt of necessary guidelines from CO(T), In case of SOMO LC is opened thru a separate empanelled bankers. 13.3.2 Shipping Department advises requisite details of the Loading and the LC values to Finance. Based on above advice, the value of LC and tolerances, if any, above the value of LCs, are finalised. Finance after following the bidding/enquiry process, open the LC as per the format prescribed in the Import Contract by supplier. 13.3.3 After establishment of the LC, a copy of the same is forwarded to Shipping department for intimation to supplier. All LC's are transmitted through SWIFT Currently LCs are opened for imports from: • Saudi Aramco: Irrevocable, Standby letter of Credit to be confirmed by list of Saudi Banks (if LC opening banks are other than Euro-American Banks). The LCs are revolving in nature and presently opened for values, after reducing credit limit of USD 625 mn provided by the supplier. The LCs are monitored on the basis of loading and repayment schedule advised by Shipping department. Based on that, either current LCs are extended or fresh LCs are opened. LC charges, including confirming bank charges if any of foreign bank, are borne by IOC. • SOMO IOCL can either open Standby letter of Credit or documentary Letter of credit against crude imported from SOMO. After cost analysis, shipping department advised Shipping Finance to open either Documentary LC or Standby LC. Irrevocable, Documentary Letter of Credit for each loading separately, to be opened through approved Banks for 90 days and to be issued & confirmed to SOMO by Central bank of Iraq, Baghdad. Presently, it is being done through bidding to empanelled five banks. After loading of crude, LC amount is changed automatically correspond to Invoice Value and refund is paid by bank/additional charges are paid to bank for change in value amount for unexpired period. Whenever the payment is made to the SOMO against relevant loading, the LC closure advice is sent to LC Bank and relevant credit for pro rata period is received in our account. Irrevocable, Documentary Standby Letter of Credit: Amount and duration of standby LC is provided by Shipping Department as per SOMO Letter. • TASWEEQ- Standby letter of Credit to be opened for TASWEEQ if credit limit of USD 190 Mn (Crude & Product Import) exceeds on a day. Marketing HO is monitoring the limit. The LC is non-revolving in nature. For other suppliers, LC is opened as and when required as per the terms of Contract. • Post facto approval is obtained from HOD of Finance for opening of new LCs/extension of existing LCs. LC charges are generally paid within few days of opening of LC and are accounted for on payment basis except in case of SBI CAG Mumbai which is authorized to debit our bank account to recover LC charges. 13.4 CRUDE OIL (FOB/ CIF) PAYMENT CYCLE: 13.4.1 Shipping department prepares monthly crude oil loading schedule which mentions day wise details of Crude oil lifting from crude oil suppliers on behalf of IOCL & CPCL called as Cashflow. It includes details like Supplier name, Load Port, Crude grade, Tanker name, Purchase of Crude Oil & Products INDEX Page 295

13.4.2 Operator, Owner, Tanker Flag, Quantity, BL Date, Unit Price, FOB value, Provisional and final 13.4.3 date of payment, and Disport location, Purchase Order etc. On the basis of above information, the crude purchase is bifurcated into CPCL/IOCL purchases. 13.4.4 13.4.5 Based on the above schedule an intimation of Fund requirement in USD is sent to CO (T) on 13.4.6 regular basis for the current month called as Payment Details. BL Holder is also specified in 13.4.7 Payment Details. Payment to NIOC is being made in equivalent EURO based on the ECB Reference Rate of EURO/USD published on Reuters two target business days prior to the contractual due date of payment. Accordingly, intimation for purchases of EURO is sent to CO (T) separately thru email. Based on agreement between NIOC and Indian government authorities, payment to NIOC is also permissible in INR. Accordingly, CO (T) is informed for such INR payments in advance as a part of INR Budget. The Forex cash flow for next month is generally prepared by 20th of current month and thereafter updated as when information is received from Shipping Department. Treasury based on the corporate fund position decides on the mode of payment i.e. thru currency purchase from different banks or through availment of Buyers Credit (BC) and advises the same to RHQ (Finance) for execution. Payment in INR is remitted thru RTGS to the banks (authorized dealers- ADs) from which Currency is purchased and the banks are intimated to remit funds to NOSTRO ACCOUNT of State Bank of India, CAG Mumbai (with SBI New York) held with the designated bank in New York for USD settlements. Banks from which BC is arranged are also requested to remit the funds to the Nostro Account of State Bank of India., State Bank of India, Mumbai (with SBI New York) remit the funds to beneficiary, after receiving funds from all banks. Based on the above advise, the remittances are executed by Refinery Finance thru State Bank of India, CAG Mumbai branch (being IOCL’s Agency Banker). 13.5 FLOW OF DOCUMENTS 13.5.1 Shipping department receives the following documents from crude oil suppliers: • Invoice • Bill of Lading • Certificate of quality and quantity. • Certificate of origin • Letter of Indemnity, where above is/are not available. After calculating the value date of payment & FOB value based upon the pricing formula and contract, Shipping department forwards the same to Finance for further verification and payment to supplier. 13.5.2 After receipt of complete set of documents from Shipping department, Finance checks the Payment Instructions, Premium/ Discount as per the terms of contract and finalises the final value & date for crude oil payment. Purchase of Crude Oil & Products INDEX Page 296

13.5.3 Debit Notes are raised on CPCL where the imports are for CPCL which is being settled in 13.5.4 fortnightly settlement with them & IOC as a whole (RHQ & Marketing HO) 13.5.5 Based on the plan advised by CO(T), the Crude Oil payments is effected to the beneficiary 13.5.6 either through Loan availments or thru Currency Purchases or combination of both. 13.5.7 At times Pricing for Crude Oil per BBL is not final till the payment date as some of our contract are based on Monthly average of Crude oil and thus as per contract term, Supplier raises a Provisional Invoice demanding provisional payment on due date of Payment. Once the prices for crude oil is finalised for that lifting, a Debit/Credit note is raised by Supplier based on the payment made earlier. If the remaining Debit/Credit is less than USD 0.5 Mio, the same is purchased/sold by RHQ directly through SBI. In case of amounts higher than USD 0.5 Mio, the same is informed to CO(T) and covered by them. In case of receipt of payment from supplier (where we have paid more while making provisional payment) Shipping department raises a debit note on supplier to make payment to IOCL in designated bank account. Credit received from supplier for CPCL lifting is passed to CPCL in their fortnightly settlement. 13.6 PAYMENTS THRU LOAN AVAILMENTS (BUYERS’ CREDIT) & IDPMS SYSTEM In view of the implementation of Import Data Processing and Management System (IDPMS) w.e.f. 01.12.2016 AD Code of remitter bank is to be updated in IDPMS system by port offices for Crude oil imports at the time of filling of Bill of entry itself. In view of the same, all the port offices have been advised to update the AD code of SBI, Mumbai in IDPMS system and accordingly all Loan Banks are advised to transfer the funds to the Nostro A/c of SBI, Mumbai (with SBI New York), instead of remitting the funds directly to beneficiary. SBI, Mumbai further remits the funds to beneficiary as per the separate instructions. 13.7 PAYMENTS THRU CURRENCY PURCHASES CO (T) purchase currencies from the different Panel Banks through Dealing Desk at Corporate Office and the details of same are advised to RHQ Finance for: a. Effecting the payment in INR to Banks thru which Foreign currency is being purchased b. Intimating our Agency banker (SBI, CAG Mumbai) about the NOSTRO funding being done by above bankers in SBI's designated NOSTRO Account. c. For the Foreign currency purchased from each bank, the respective bank is given the below mentioned documents along with instructions to transfer the USD amount purchased to SBI's Nostro Bank account: • FEMA declaration • Copy of FOB Invoice • Copy of Bill of Lading/ Letter of Indemnity (LOI) • Form A2 is not provided to these banks because remittance from these banks to SBI NOSTRO is treated as interbank transfer in terms of guidelines issued by RBI. Purchase of Crude Oil & Products INDEX Page 297

d. Simultaneously, Payment Authorisation letter in the prescribed format is also issued to State Bank of India, CAG Branch, Mumbai advising them: • AD's Banks name and the USD amount to be received as Nostro Funding • Loan USD to be received in Nostro Account. • The Payment Instructions for effecting the consolidated USD amount to the Beneficiary Bank account. • Value date of such payment • Copy of Invoice • Copy of Bill of Lading/ Letter of Indemnity (LOI) • Form A1 e. Taxation department has advised that no Form 15CAand 15CB is currently issued to SBI for crude payments as crude payments to foreign suppliers who do not have any business connection in India except sale of crude oil from foreign countries to IOCL, does not attract any tax liability. INR Payment to NIOC is exempt from income tax in terms of relevant Notification of CBDT. 13.8 ACCOUNTING ENTRIES FOR FOB/CIF PAYMENTS 13.8.1 All accounting entries are effected in SAP directly. Shipping department creates a Purchase Order (except for CPCL supplies which is undertaken on an agency basis) with different cost elements for the said imports. Goods Received entry (MIGO) is being done by department with the exchange rate (USD/INR) as on Bill of Lading date. Inventory account, Purchase Accounts are debited and GR/IR clearing account & purchase offset account is credited. 13.8.2 Finance executes MIRO t-code in SAP wherein Vendor liability is booked by debiting GR/ IR Clearing account and crediting Vendor with the amount converted into INR by applying exchange rate (USD/INR) as on Bill of Lading date. Exchange rate is taken from SAP (T-code YF116 Type ZPUR). In case of CIF contracts, exchange rate of discharge date is used instead of BL date. 13.8.3 On payment to the vendor in USD, the Vendor A/c is debited and Bank is credited with actual amount of payment in INR i.e. with the amount charged by the Bank in INR for currency purchased from them. 13.8.4 The difference between “12.8.2” and “12.8.3” above (i.e. Liability booked and Actual payment) is booked as Foreign Exchange Fluctuation in respective GL codes of Gain and Loss separately for each PO. 13.9 ACCOUNTING ENTRIES FOR HIGH SEA SALES 13.9.1 High Sea sale agreement is sometime required when sale is made to OMC's (including CPCL) on high seas. High Sea Sale (HSS) is one, where cargo lifted for IOC's Consumption (IOC is B/L holder of that cargo) is sold (Full/Part cargo) by IOC during transit (after departure from loading port but before it reaches discharge port) to another OMC's. In case of High sea sale, shipping department creates sale order on date of High Sea sale agreement. 13.9.2 The Sale is booked at USD INR rate prevailing as on date of endorsement of Bill of Lading. Purchase of Crude Oil & Products INDEX Page 298

13.9.3 The Foreign currency to be paid to supplier is covered by IOC and as per the terms of agreement the Debtor (OMC) is required to reimburse IOC at the rate at which IOC buys the Foreign Currency. 13.9.4 The difference between two rates (i.e. rate prevailing on date of sale and actual currency reimbursed rate) which otherwise is booked to Foreign exchange fluctuation account as Gain/Loss is recovered from the OMCs/CPCL. 13.9.5 High Sea Sale amount along with HSS Agreement is informed to DSO for inclusion in Sales Tax Return. 13.10 ACCOUNTING ENTRIES FOR HIGH SEA PURCHASE 13.10.1 Similarly, sometimes, the company may be required to purchase crude on high seas and consequently enter into high seas purchase agreement. In case of high sea purchase, shipping department creates purchase order on high sea purchase agreement date. 13.10.2 The purchase is booked at USD INR rate prevailing as on date of endorsement of Bill of Lading. 13.10.3 The Foreign currency to be paid to supplier is covered by OMC (Vendor) and as per the terms of agreement, IOC is required to reimburse the vendor at the rate at which it buys the Foreign Currency. 13.10.4 The difference between two rates is booked to Foreign exchange fluctuation account as Gain/ Loss. 13.11 ACCOUNTING FOR FORWARD CURRENCY PURCHASE ON CRUDE In order to take advantage of strong rupee as well as to cover excessive forex exposure on particular dates in future, sometimes USD/INR forward covers is also taken. As per these forward covers, the Banks will sell specified quantum of US Dollars to IOC at an agreed exchange rate. These covers are generally taken for crude payments falling in near dates usually (5-10 days forward). 13.12 DEMURRAGE PAYMENT CYCLE 13.12.1 Shipping department negotiates the demurrage claim with the party and finalise the demurrage claim payable to the vessel owner. 13.12.2 The demurrage claim is examined, concurred and approved by the competent authority in Shipping Department as per separate Delegation of Power prescribed for shipping related activities. 13.12.3 After approval, Shipping department forwards the payment papers to Finance for remittance of the same. Purchase of Crude Oil & Products INDEX Page 299

13.12.4 Payment of demurrage of less than USD 0.5 Million are made thru currency purchase thru SBI-CAG, Mumbai directly. Payments more than USD 0.5 Million would be affected thru currency purchase by CO (Treasury) thru dealing desk. 13.12.5 Finance, after verification executes necessary documentation to affect the remittance thru our agency banker SBI, CAG Mumbai. 13.12.6 Brokerage is remitted separately in INR as per the Invoice received from shipping department. 13.13 FLOW OF DOCUMENTS FOR DEMURRAGE PAYMENTS 13.13.1 Shipping department collects following documents and forward to finance for payment: • Invoice • Fixture note/ Charter party copy • Form Q-88 for vessel details • Calculation of Demurrage payable • Approval note After receipt of complete set of documents from shipping department , Finance verifies same for amount validation, approval for payment as per DOA and payment instructions validation as per Charter party/ Fixture note and arranges for remittance. 13.13.2 From gross Demurrage, deductions for Brokerage and Address commission are done and net amount is paid to the Vessel Owner. Address commission is an income to IOCL hence demurrage cost is accordingly reduced. Brokerage is separately paid to the Shipping Agents in INR on receipt of their brokerage invoices. Invoice for tankers whose CP date is after 1st July 2017, GST on brokerage is also deducted from gross demurrage and same is paid on receipt of demurrage invoice. 13.13.3 Inward on account of demurrage received from crude oil suppliers is negotiated by shipping department. As and when the supplier agrees to it, the same is informed to Finance by shipping department. The demurrage is either received in IOC's bank account or sometimes deducted from payment made to supplier on account of crude bill.(In Case of SOMO) 13.14 ACCOUNTING ENTRIES FOR DEMURRAGE 13.14.1 Cases where payment has been made during the quarter, Demurrage value in INR is computed for each cargo based upon the bank advise and accounting entry is passed based on B/L holder (IOCL or CPCL). Difference in INR between the liability created and the actual payment to the vendor is debited/ credited to the Exchange Fluctuation a/c or debited to CPCL if demurrage is on account of CPCL. 13.14.2 Cases where liability is outstanding at the end of quarter, list of liability is provided by Shipping Department. Based on this list, liability is provided in books after converting the same into INR by applying exchange rate of B/L or Date of discharge date as the case may be. Separate liabilities are booked for load port and discharge port. Load port liabilities are Purchase of Crude Oil & Products INDEX Page 300

converted to INR using exchange rate of B/L date and discharge port liabilities are converted to INR using exchange rate of discharge date. For tankers which are in transit during quarter end, only load port liabilities are booked. Outstanding liability on account of CPCL is debited to CPCL with a corresponding entry to Sundry Creditors. 13.15 FREIGHT Freight is the charge payable to the Ship/Tanker or Vessel owner for the crude oil transportation from various ports of world to ports in India. Agreement defining the Terms and conditions (T&C) of transportation is called as Charter Party (CP). A brief document containing major T&C of charter party is called as Fixture note. 13.16 CHARTERING The process of hiring or fixing a ship for transportation of crude oil is called Chartering and the hirer (IOCL) is called as Charterer. The three parties involved in the process of chartering are as follows: • The Charterer- (IOCL) • The Vessel Owners. • The Broker (through whom the Vessel is fixed) Types of chartering The chartering is done on the following basis: • Voyage chartering. • Time chartering. 13.17 VOYAGE CHARTERING 13.17.1 Salient Features of Voyage Chartering a. The Voyage Charter Contract is entered between the Vessel owner/ Commercial operator and the Charterer (IOC) to fix a vessel for transportation for one specific voyage from a load port to discharge port in India. b. In this contract the Charterer pays all costs of freight, port charges, port dues etc. c. The freight charges are generally paid on per ton basis based on the applicable World Scale rates for the said voyage between the load port and the disports. d. The actual freight value is worked on the basis of quantity of crude transported and varies accordingly but there is always some minimum commitment of quantity to be loaded. e. For West African Loadings generally the freight rate is fixed on a Lump sum basis i.e. a fixed amount of USD for the entire voyage irrespective of the volume of crude transported. f. Freight payment for the Vessels hired for Iran crude loadings are being made in EURO. 13.17.2 Payment and accounting for Voyage Charter Vessel Purchase of Crude Oil & Products INDEX Page 301

On receipt of invoice from shipping department for payment of freight for vessel on voyage charter, following steps are followed viz: Step no. 1: Check whether the documents mentioned below are there: a. Freight debit note b. Fixture note c. Sailing detail d. DG Shipping certificate (not applicable for voyage charter) e. Empty tank certificate Step no. 2: a. Name of the registered owner as specified in DG shipping certificate should correspond with the Fixture note. b. IMO (International Maritime Organization) Number (which is a registration number issued by IMO for every sea going vessel in the world and will never change) of the vessel should be mentioned on the face of every Inter Office Memo. In case, it is not available, same should be obtained thru’ e-mail from Shipping Department and attached with payment documents. c. OFAC/Non-OFAC status of the vessel is checked on http://sdnsearch.ofac.treas.gov. If no results are found in the OFAC list related to above vessel then the payment is advised to SBI, CAG Mumbai, otherwise no payment is advised for the said vessel. d. Beneficiary to whom payment is being made must be either the owner or disponent owner or technical operator or commercial operator of vessel. Step No. 3: a. Check the fixture note and sailing detail to ensure that minimum quantity as specified in the fixture note has been loaded at the load port. b. If the quantity loaded is less than the minimum quantity as specified in the fixture note, then mail should be sent to shipping department to obtain confirmation that no dead freight is involved. c. If dead freight is involved appropriate explanation is sought from shipping department. Step No. 4: a. Check the freight debit note with fixture note to ensure that the banking instruction cited in debit note correspond with the one specified in Fixture note. Banking instruction should contain these details: • Beneficiary bank name • Account no. • SWIFT Code • IBAN No. (if Available) • Corresponding Bank • Corresponding Bank's SWIFT code Purchase of Crude Oil & Products Page 302

b. If there is a mismatch in the banking instruction, then mail should be sent to shipping department for getting the same corrected as per fixture note or else addendum is required to release payment. Step No. 5: Check the fixture note on following additional grounds: a. If the payment of freight is made on per ton basis, check whether the world scale rate and per ton voyage rate corresponds with the invoice. b. If the payment of freight is made on lump sum basis, check whether the lump sum amount tallies with the freight debit note or not. c. Also check whether the deduction of address commission @ 2.5% and brokerage @ 1.25%, if any, and GST thereon has been deducted from the freight amount. Step No. 6: Empty Tank Certificate a. Check Empty tank certificate to ensure whether total quantity loaded has been discharged or not. b. And in case Total quantity is not discharged then deduction is made from freight amount for ROB quantity and prorata amount of freight is also deducted from the total freight or claim for the same is raised on Freight Beneficiary. c. For deduction of ROB Quantity of crude is taken from empty tank certificate and rate of crude oil for the same is taken from recent cash flow. d. As a general practice if the ROB quantity is less than 100 BBL no deduction is made from freight amount and total amount of freight is released. Step No. 7: Payment of freight a. After following the procedures outlined in steps 1 to 6 arithmetical accuracy of freight amount approved is checked. b. After the finalization of freight amount currency is purchased for payment of freight if amount is less than 0.5 million else CO (T) is advised to purchase the same thru payment details. c. Depending upon the mode of currency purchase, Payment Instruction (PI) are given to SBI CAG Mumbai. Copy of Invoice & DG Shipping Certificate is attached with PI. PI is either sent by scan e-mail or FAX. After sending mail/ fax a excel file “Control Register” is updated and send to SBI for confirmation of receipt of email at their end. d. A separate Payment Instruction is sent to bank (authorized dealers) from which currency is purchased by CO(T) to transfer the specified currency to Nostro Account of SBI, CAG Mumbai(with SBI New York). e. No exchange Gain/ Loss is booked for Freight payment in INR. Step No. 8: Accounting of Freight a. IOCL Freight Goods Received entry is being done by shipping department in which Inventory account is debited and GR/IR clearing account is credited. Following entries are recorded in the books by Finance dept: Purchase of Crude Oil & Products Page 303

• Vendor liability is booked by debiting GR/ IR Clearing account and crediting Vendor with the amount converted into INR by taking exchange rate (USD/INR) as on Date of discharge. • Second entry is posted by debiting the freight vendor with (USD/INR) as on Date of discharge and bank is credited by the Actual amount paid to freight vendor in INR and for differential amount Ex-Gain/Loss is booked. Brokerage amount is credited to Broker's Vendor Account after deducting TDS. b. CPCL Freight Freight paid on behalf of CPCL is debited to CPCL with the exchange rate (USD/INR) as on Date of payment and credit for payment made to freight vendor is passed to bank. 13.18 TIME CHARTERING In Time chartering contract, the ship is hired at a Hire rate which is payable at fixed periodic intervals, for the performance of any voyage determined by the Charterer, during this period. In this case, the charterer pays the hire charges at fixed interval on per day basis. 13.18.1 Salient Features of Time Charter contract a. Vessel is chartered for a period – month(s)/year(s). b. Owners are paid the Charter Hire Amount on fortnightly/ monthly basis in advance. c. In case of Indian flag vessels, the exchange rate for dollar conversion to rupees shall be average of TT selling and TT buying rate published by State bank of India on the first working day of the month. Income tax at applicable rates is deducted from the charter hire payment. d. In case brokerage is payable to broker for time charter vessel, then, same is deducted from charter hire payment. e. Owner‘s pay for fixed costs – vessel related & organizational overheads and charterer pay for the variable costs – voyage & cargo related. f. Off-hire periods, unauthorized detention/ movement by the tanker, performance recovery etc if any, is recovered from the monthly charter hire by the shipping department and balance amount is certified for the payment. g. Performance analysis undertaken for speed, bunker consumption & pumping and any under performance by the vessel is charged to the Charter Hire payable. h. Bunkers at delivery and redelivery: IOC shall pay to vessel owner for all bunkers on board at the time of delivery and owner shall pay to IOC on redelivery, at bunker prices ruling at the port of delivery or redelivery as the case may be. i. Contract clearly states place of delivery/re-delivery, trading limits, grade of bunkers etc. j. For the Lighterage (i.e. transfer of crude from mother vessel (VLCC) to smaller sized vessels known as daughter vessels) operations, IOCL is hiring vessels on Time Charter. Both foreign flag as well as Indian flag vessels are taken on hire. 13.18.2 Payment of Time Charter Vessel a. Invoice for payment is received from Shipping department in the first week of every month. Purchase of Crude Oil & Products INDEX Page 304

b. Arithmetical accuracy of freight amount approved is checked and relevant details such as Per Day Charter Hire rate, Address Commission (Adcom), Brokerage, g on Brokerage amount payable, is maintained in a Master File. Check whether the amount computed in the excel sheet correspond with the amount approved in invoice. c. For Forex payments, a separate Payment Instruction(PI) is sent to bank (authorized dealers) from which currency is purchased to transfer the specified currency to NOSTRO Account of SBI, CAG Mumbai with SBI New York. A copy of Invoice is attached with Payment Instruction along with Form A1/A2 and are submitted to these banks in view of RBI guidelines. d. For INR payments, vendor document is prepared through T-Code FB-60/MIRO. Thereafter, document is pre-approved and is presented to the concerned section-in- charge for approval in SAP. After this approval, an 835* series document is printed with signature of section-in-charge and officer concerned and presented to Banking section for payment to vendor. 13.18.3 Accounting of Time Charter Vessel 13.19 a. At the end of the quarter, voyage performance sheet of the vessels is received from the shipping department. On the basis of voyage performed freight cost in INR (value of foreign exchange converted into INR) is allocated to the relevant purchase order b. Goods Received entry is being done by Shipping department in which Inventory account is debited and GR/ IR clearing account is credited. c. after the allocation of cost to relevant purchase order, through T-code YMIROOTH, MIRO is done for all the purchase order. d. Balance Cost, if any, remaining unallocated as per vessel performance sheet, is treated as advance payment to vendor to be allocated in the subsequent period(s) e. DV cost: At the quarter end, daughter vessel cost is apportioned among the various mother vessels. The quantity lightered during the period is informed by shipping department. Various costs incurred for time-chartered vessels (both Indian and foreign flag) are summed up and apportioned on the basis of quantity to the relevant purchase order information received from shipping department. PORT CHARGES Port charges at load port/ disport are borne by IOCL depending on the agreement between the vessel owner and charterer i.e. as per the clauses of Charter party. Vessel owner prima facie pays Port charges to the Port Authorities and claims re-imbursement from IOCL for the same, provided the Port charges of the Load port or Disport are not included in the World Scale rate applicable for the voyage. Reimbursement is effected by RHQ Finance to vessel owner based on Invoice (which is duly certified by Shipping department for payment) raised by vessel owner and necessary supporting documents like Port Trust invoices, remittance account details, payment proof etc. Finance department releases the payment after verifying its admissibility as per charter party and port tariff rates. This cost is accounted for by using subsequent debit in freight line item. Purchase of Crude Oil & Products INDEX Page 305

13.20 PORT DISBURSEMENT ADVANCE (PDA) 13.20.1 PDA is generally paid on Load port to an agent/ agency that intimates IOCL about the proper sailing of ship from Load Port and incurs expenses to get the sailing properly effected. These expenses are paid by IOC only in case of Time charter (TC) vessel. These expenses include: • Reimbursement of actual expenses at Load Port. • Agency Fee for providing such services 13.20.2 At the time of requirement/ finalization of voyage of TC vessels the appointed agent is nominated for that particular voyage and is asked to send the estimated Port Disbursement Advice (PDA) giving details/estimates of payments like port dues, berth hire charges, customs clearance charges, light dues, pilotage charges etc. 80% of estimated PDA amount is paid in advance to the Agent for disbursement to Port Authority. 13.20.3 Amount is paid by agent to Port Authority on behalf of IOCL. After making above payments, the receipts/ required documents are sent by the Agent to IOCL. The accounts with agent are reconciled after receiving the necessary documents and the final bill for differential amount (approx.20%) along with agency fee is processed. 13.20.4 The agency fee paid during the quarter is booked using the T-code YMIROOTH in the respective purchase order, in the respective line item for PDA. The 20% amount, if not paid in the same quarter as that of 80% payment quarter, a provisional amount is booked using the estimate sent by the party and the differential is accounted for in the period of actual payment by running the subsequent debit/credit, using the T-code: YMIROOTH, in the respective purchase order. These expenses are also incurred on behalf of CPCL as, Time charter vessel are used for CPCL also. Separate debit note is raised on CPCL as per the Agency agreement. 13.21 SURVEY FEES 13.21.1 Load port survey is conducted by approved surveyors. Approval for surveyors and survey fee is taken by shipping department on monthly basis. Invoice in USD are raised by the surveyors periodically. These invoices are certified by shipping department and sent to Finance for payment. Survey fee as per Bank advice is booked in books by using T- code YMIROOTH i.e. the survey fee costs are booked in accounts on payment basis. 13.21.2 In case survey fee payment, pertaining to current financial year, is not released till end of the year, necessary liability is created. 13.22 SETTLEMENT WITH CPCL This is as per the Agency agreement signed between IOC & CPCL. Latest agreement was signed on 15th October 2012. 13.23 BANK RECONCILIATION Purchase of Crude Oil & Products INDEX Page 306

13.23.1 The bank statement, pertaining to our account is received from banks periodically. The debits and credits made to the account by bank are identified and allocated to specific areas and respective officers in the section, which are then confirmed by them and any discrepancies, are taken up with the bank and resolved. 13.23.2 Once the bank statement is finalised, the bank entries are booked in G/L codes and the balance in these G/Ls is reconciled with balance as per balance certificate received from banks on quarterly basis. 13.24 BILL OF ENTRIES (B/E) With effect from 1sDec 2016, bill of entries pertaining to Crude oil imports are updated in the newly launched system of Custom department i.e. Import Data Processing and Monitoring System (IDPMS), in which Authorised Dealer Code of respective banks are being updated by port offices. Since most of the payments related to Crude Oil are being made from SBI, Mumbai, AD Code of SBI Mumbai has been advised to all port office to update in IDPMS portal as a standard practise. In case where payments are not being made from SBI Mumbai, AD code of respective bank is advised to port offices accordingly. 13.25 TDS (DEPOSIT) TDSdeducted in SAP SAP JVs are posted by the concern and activities related to deposit of TDS dealt centrally by RHQ Taxation Cell. 13.26 GST 13.26.1 Liability & Cenvat Credit of GST is booked in SAP thru T-Code FB-60/MIRO 13.26.2 GST (Reverse Charge) GST on reverse charges arises on services rendered by foreign parties to us. The same applies to import section on Freight/Demurrage payment of Foreign Vessels. Liability & Cenvat Credit of GST is booked in SAP thru T-Code FB-60/MIRO by inputting SAC Code/HSN Code, Tax Code, Plant Code/Business Area etc. Self-Invoice for RCM is generated from SAP T-Code YF88R. 13.27 COMMODITY HEDGING 13.27.1 Commodity hedging contracts are entered by International Trade Department. It involves buying and/or selling of crude/ product futures in lots. The Gain/ Loss on these lots is settled on 14th day of month subsequent to the pricing month. As soon as the contract is entered the same is advised by IT to Ref HQ. 13.27.2 Accounting treatment of Commodity hedging contract: Purchase of Crude Oil & Products INDEX Page 307

a. The realised gain or loss in respect of commodity hedging contracts, the pricing period of which has been expired during the reporting period, are recognised in the Profit & Loss Account after adjusting for any provision which has earlier been made against the contract b. However, in respect of contracts, the pricing period of which extends beyond the reporting date/ balance sheet date, suitable provision for likely loss (on MTM basis) is provided Pursuant to implementation of IndAS, assets are created for likely income also on MTM basis. 13B. INDIGENOUS CRUDE 13.28 INDIGENOUS CRUDE 13.28.1 Actions at Refinery Head Office 13.28.1.1 Offshore Crude Oil a. Refineries HO Finance department creates the PO with reference to contract created in SAP for each tanker. The PO conditions include FOB, Freight (if it is to be borne by IOC) & Insurance only. b. The loading confirmation is created by RHQ finance for offshore indigenous crude oil at the High seas Plant based Custody transfer certificate / bill of lading received from Port locations. The quantity posted in case of Bombay high crude is net custody transfer quantity and in case of Panna Mukta tanker the same is equal to the bill of lading quantity pending finalisation of COSA. c. At the time of each loading confirmation for indigenous offshore crude oil, provisional liabilities against various cost elements based on the PO conditions are created in the books of Refinery HO. d. The payments for FOB on indigenous offshore crude oil and the voyage cost of Panna Mukta Crude oil during the monsoon season is effected by Refineries HO Finance department. These payments are based on the quantities which have been loaded in the system as stock in transit. It also carries out the MIRO for these elements on a periodic basis and squares off the same against the payments effected. Since the provisional rate is inclusive of Sales Tax, MIRO is also done with the rate inclusive of sales tax. 13.28.1.2 Onshore Crude Oil a. Refineries HO Finance department creates the PO with reference to contracts created in SAP based on allocated quantity of crude oil by MOP&NG, on ONGC & OIL, Cairn, Ravva and PSC Contractor for each month in Refinery HO company code, with delivery location as Guwahati, Gujarat, BGR and Digboi Refinery unit. The rate mentioned in the PO is inclusive of transportation charges, VAT etc. Purchase of Crude Oil & Products INDEX Page 308

b. The payment for the onshore crude oils including for supplies from small oilfields (Production Sharing Contract oilfields) are effected regularly by Refinery HO finance based on the respective agreements. c. As the crude from small oilfields are commingled and supplied with the crude oil from ONGC, no separate PO are prepared for each of PSC crude oil. Two PO’s are prepared for NG & SG small PSC fields. The refinery receipts posted against the PO are the supplies from small PSC oilfields. d. The Refineries HO Finance department carries out the MIRO on a periodic basis for the onshore supplies including PSC fields. Since the provisional rate is inclusive of Transportation, Sales Tax etc, MIRO is also done with the rate inclusive of transportation, sales tax. e. The various payments effected for the onshore crude oil supplies are adjusted against the liability created by MIRO transactions. 13.28.2 Actions by Finance users at port offices a. Since 15-Feb-05, bonded movement of crude oil has been done away with and the stock at all locations except at the tanks in Haldia which are received directly and not through PHBPL, are duty paid. The payment for the Customs Duty is effected at the port offices in case of West coast (Vadinar) and East Coast (Paradip) and at Kolkata in case of direct receipts at Haldia. Kolkata office intimates to HBCPL & Haldia refinery, the amount of Duty remitted with respect to each DV consignment. b. The provisional liability for Customs Duty is generated at the time of GR based on the STOs in the books of the recipient company code. As stated earlier the liability is created at the time of receipt from High seas to the shore tanks, except in case of direct receipts at Haldia shore tanks. As the shore tanks for direct receipt at Haldia are bonded, the liability is created only at the time the crude oil is pumped out into the HBCPL system and not at the time of receipts at the shore tanks from High seas. c. The user at port offices/ refineries clears the provisional liability so created by MIRO. The execution of MIRO would result in clearing the provisional liability and creation of the actual liability in the vendors’ account. Thereafter, the user adjusts payments lying in the vendors’ account against the liability generated thru MIRO. d. The port offices/ Haldia refinery does the payment of port charges, wharfage, etc. The MIRO for the same is done is also done by them based on the actual payments effected against the same. Then the payments and the liabilities are squared off. 13C. FUNCTIONS OF FINANCE IN SHIPPING DEPARTMENT 13.29 INTRODUCTION Indian Oil has been associated with shipping business since 1973. The shipping department was operating from Mumbai till mid 2002 under Marketing Division. In June 2002, a part of the Shipping department, which deals with crude import was shifted to Refineries Division at New Delhi while import of products is still under Marketing Division at Mumbai. However, Purchase of Crude Oil & Products INDEX Page 309

vessel requirement for coastal movement of indigenous crude oil and products is handled by RHQ Shipping. Till mid-2005, chartering of ships for import of oil was done through Transchart, the chartering wing of Ministry of Shipping, Road Transport and Highways. However, Government of India vide MoP&NG’s letter no. P-23011/3/2002-Sup. Dated 25th April 2005 permitted IOC to charter ships directly for own oil import instead of going through Transchart. This permission was initially given for one year. Subsequently, Government of India vide MoP&NG’s letter no. P-23011/3/2002-Sup. Dated 18th May 2007 permitted IOC to continue with direct chartering of ships for own oil import. After obtaining permission for ship chartering, procedures for ship chartering were developed keeping in view the directives of Govt. and guidelines of DG (Shipping). The basic features of the format used by Transchart such as competitive bidding through panels of brokers and Indian Ship Owners and negotiation with all technically acceptable bidders were adopted. 13.30 OBJECTIVE OF SHIPPING DEPARTMENT 13.30.1 The main objective of shipping department is to arrange sea borne transportation of crude oil and to ensure that the cargo reaches the targeted disport in time 13.30.2 Shipping Department is to implement all crude oil import contracts finalized by International Trade Department who procures crude oil for IOC and CPCL. 13.30.3 It has also got the responsibility to provide suitable vessels for lifting of indigenous crude oil e.g. Mumbai High (MH) for IOC/CPCL, Panna-Mukta crude for IOC, PY-3/ KG Basin Crude for CPCL and Ravva crude for Bongaigaon refinery. Further, Shipping department has to arrange ships for lighterage for handling additional crude requirement. 13.30.4 Besides, the Chartering Cell of RHQ Shipping also arranges ships for Marketing Division for POL products & LPG. 13.31 FUNCTIONS OF SHIPPING DEPARTMENT The Shipping department has three main functions: • Chartering • Operations • Finance Chartering covers all kinds of charters like Spot Charters, Contract of Affreightment(CoA), Time Charters etc. As per the Board approval for procedure of Ship chartering, all chartering activities are performed by team consisting of one finance officer and one shipping/Chartering officer. Under operations, there are various activities namely Scheduling of crude oil lifting from various load ports under Term and Spot Contracts, monitoring of voyages, operation of TC Purchase of Crude Oil & Products INDEX Page 310

vessels, engagement of agents and surveyors, performance analysis of TC vessels, Demurrage claims and Ocean Loss monitoring. The role of finance in shipping is very vital and finance is associated in all the activities performed by shipping department. 13.32 FINANCE FUNCTION The major role and responsibility of finance in shipping is as under: • Preparation of cash flow statement • Processing of cargo invoice for payment • Issuance of payment undertaking to Suppliers’ Bankers • Ensuring compliance of various contractual terms • Intimation to Finance for LC opening and monitoring • Intimation to Insurance Company for Insurable value of the cargo • Verification & Certification of freight and other Bills for Payment • Freight assessment to International Trade department for crude oil buying • Finance concurrence for demurrage/ appointment of surveyors, agency fees, bunkering, Port Disbursement amount, subscriptions payment • Generation of various MIS for internal and external usage • Special studies involving financial issues and shipping strategy. • Timely information to Finance for quarterly closing of accounts and liability provision • Coordination and Facilitating Govt./Statutory/ Internal Audit. • Arranging insurance cover for vessels • Creating Purchase order in SAP for Imported Crude Oil • Other SAP Activities like updating freight, insurance rates in SAP PO, vendor updation in SAP, executing high sea sale transactions in SAP The Key activity of Shipping finance related to crude oil contracts and other activities are briefly discussed as under 13.32.1 Request to RHQ Finance for L.C. establishment a. Inter/ Intra-departmental and external interface • IT, CO – Contract copy & G.T.C. • Scheduling Section – Monthly loading plan. • PLATT’s – Daily market wire Supplier – List of accepted Banks for L.C. Establishment and confirmation, LC amendments. • LPG Group – Marketing division for monthly LPG import schedule • Finance Department RHQ – For taking required action for L.C. establishment and liaising with bankers for amendments if any. • Coordination with supplier for foreclosure of SBLC after full and final payment b. Vital Control Purchase of Crude Oil & Products INDEX Page 311

• L.C. for covering the value of cargo should be established and confirmed by the supplier’s banker to the supplier well ahead of the accepted lay days – Presently SOMO Credit monitoring in case of Saudi ARAMCO lifting. Stand-by L.C. is to be established for the value by which the sanctioned credit line is likely to exceed. If standby LC is not established in time, we run the risk of missing the lay days and attracting penal clauses of the contract. LPG and crude liftings and remittances against the same need very close monitoring to avoid financial hold on vessels at Rastanura/ Juaymah • SBLC for cargo loading from Qatar Petroleum and any other spot contract on case to case basis The relevant SOP for LC establishment is SHIPPING/FIN/005. 13.32.2 Processing Cargo Invoices a. Inter/ Intra-departmental and external interface • IT, CO – Contract & GTC. • PLATT’s – Daily market wire. • Supplier –Invoice, Shipping documents/ LOI, Monthly/ Quarterly OSP. • New York/ New Delhi/ Mumbai banking holiday list b. Vital Controls • All Invoices are to be obtained from Suppliers, processed & forwarded to Finance at least 3 banking days prior to the value date. • Payment due date is to be calculated in line with holiday and weekend split clause. • Price calculation should be as per linkage, price-out and discount/premium clauses. • If required, provisional invoice should be insisted from the suppliers as per contract and the differential amounts can be settled on price finalization. The relevant SOP for FOB payments is SHIPPING/FIN/001. 13.32.3 Payment Undertaking a. Inter/ Intra-departmental and external interface • IT, CO – Contract & GTC • Scheduling Section – Sailing Details • Supplier & Suppliers’ Banker for formal request b. Vital Control • While processing the cargo invoice for payment, it is to be ensured that remittance instructions furnished in the Invoice bears the same Bankers name in whose favour the undertaking has been issued. • PU to be issued for BL quantity/nominated quantity as per contract terms 13.32.4 Cash Flow c. Inter/ Intra-departmental and external interface • IT, CO – Contract & GTC Purchase of Crude Oil & Products Page 312

• Scheduling section – Monthly loading plan • PLATT’S – Daily market wire • Supplier – Monthly/Quarterly OSP • PLATT’s/New York/ Mumbai Bank Holiday list d. Vital Control • Benchmark crude and premium/ discount to arrive at final price • Calculation of payment due date considering week-end split clause, New York/ Mumbai bank holydays etc. The relevant SOP for Cash Flow is SHIPPING/FIN/002. 13.32.5 Submission of MIS reports to Ministry • Vital reports to Ministry/ IT, CO – Monthly quantitative sourcing (Country-wise) of imported crude • Monthly lifting of crude oil: port-wise • Monthly average rate of imported crude • Crude oil prices grade-wise 13.32.6 Raising Debit/Credit Note a. Inter/ Intra-departmental and external interface • Supplier – OSP, Credit Note, Debit/Credit Note and remittance advice • Treasury , C.O.: For LIBOR • Ref. HQ Finance: For intimation regarding receipt of debit amounts b. Vital Point Interest charges on the differential amount are to be worked out, depending on the contract terms, based on LIBOR 13.32.7 Concurrence of Demurrage Proposals • Checking lay time commencement & completion timings • Checking deductible time for delays on account of vessel owner – Break-down, pressure maintenance etc • Checking time calculation on account of bad weather etc • Checking of Statement of fact (SOF) at load and discharge ports. Vital Point The above checks are to be done through critical analysis of Statement of Facts. This is done prior to intimating the demurrage time and amount to the vessel owners for mutual acceptance. The relevant SOP for Demurrage Concurrence is SHIPPING/FIN/004 13.32.8 Review of Performance Analysis of TC Vessels Purchase of Crude Oil & Products Page 313

Critical review of calculation leading to recoveries from owners on account of bunkers, speed etc. The relevant SOP for Checking of Performance of TC Vessels is SHIPPING/FIN/008 13.32.9 Quarterly Closing and Audit Support • Providing timely information to RHQ Finance regarding various liabilities/provisions to be made in RHQ books. • Providing back-up paper to RHQ Finance for the queries raised by Auditors. • Coordinate and Facilitate Audit by Govt Audit, Statutory and Internal Audit. 13.32.10Coordinating with RHQ for arranging Insurance Cover for Vessels a. Inter/Intra-departmental & external interface • Operations- Monthly crude oil lifting Plan • Provisional rates from Cash Flow • Provisional Freight –Chartering Finance • Insurance Co- Certificate No’s to cover b. Vital Control • Insurance for disport other than Chennai loading Provisional Declaration within 15 days from loading date • Certificates to be forwarded to discharge ports for each loading. • Final Declaration within 2 months from the month of Provisional Declaration. c. Information to RHQ Finance for Insurance Policy Tender • Operations- Annual lifting Plan • Pricing from IT • Provisional Freight –Chartering Finance • Calculation of annual value of Insurance Policy Coverage for tendering. The relevant SOP for Insurance is SHIPPING/FIN/003. 13.33 CHARTERING FUNCTION The Key activity of Chartering group of finance is to finalize all shipping contracts in line with the approved process and also to associate in all chartering related negotiations. The relevant SOP is SHIPPING/CHART/001. Other than chartering, finance is associated with freight and other activities which are briefly discussed as under: Freight: A contract to carry goods by sea is called the “contract of affreightment” and the consideration or charges paid for the carriage is called “freight”. Broadly there are three types of Shipping Contracts: • Time Charter: A vessel is hired for a specific period of time. • Voyage Charter: A vessel is hired for a particular voyage. • COA (Contract of Affreightment): No of voyages to be performed over a period of time 13.33.1 Time Charter Vessels INDEX Purchase of Crude Oil & Products Page 314

a. Charter Hire Payment for Time Charter Vessels For the vessels hired on time charter (TC) basis for a specific period, hire rate as per the agreed contract terms of CP is normally payable at the beginning of each month in advance during the hire period. Generally, hire rate is specified on per day prorata (PDPR) basis. Owner raises a debit note/invoice at the beginning of month as per terms of the Charter Party. While verifying and certifying the payments, following needs to be considered • Special clauses associated with hire rate (such as inclusion or exclusion of overtime of crew etc.) • Deduction on account of off-hire period and corresponding bunker charges, if any in accordance with CP, during previous month. • Foreign exchange variation clause, if included in CP. • Foreign exchange conversion rate • Applicability of GST Verified debit note/invoice for payment of net hire charges is forwarded to Finance Department for payment. b. Payment of Port Dues/ Indian Light House Dues for Time Charter Vessels In case of Time Charter Vessels port dues are on IOC account. Verified debit note/invoice for payment of applicable port dues is forwarded to Finance Department. Ports levy charges for various services provided to the Port Users. These include: • Pilot Services • Tugs and Boats • Berth Hire • Fresh Water (if availed) • Ship to Ship Transfer (STS) operations • Wharfage • Any other service provided by the Port Different Ports have different Tariff structures, which are notified. Some Ports may not classify the services and charge single point rate based on reduced GRT of the vessel for handling the same. This is applicable for STS operation in the sea where Port not only provides tug, boats, but also carry out STS operation under the supervision of their loading masters. ‘Wharfage’ and ‘STS Charges’ are cargo related payments and specified in rate per MT. Services like pilot, tugs and boats and berth hire are provided on time basis. c. Freight calculations for all TC vessels for each voyage In case of imported crude oil liftings by TC vessels, freight for a particular voyage (Disport – Loadport – Disport) is calculated for the purpose of Insurance and customs related payments. Immediately after completion of loading, provisional freight is to be Purchase of Crude Oil & Products Page 315

calculated for Insurance purpose and the same is given to Disport Finance Dept for customs purpose. After completion of voyage, final freight to be calculated for Insurance purpose and the same is duly certified by Chartered Accountant for onward submission to Disport finance for Customs related activities. Similarly, in case of Indigenous crude, provisional and final freight is calculated for the purpose of Insurance. 13.33.2 Voyage Charter Vessels 13.33.2.1 Payment of Freight Freight to a vessel Owner is payable: • At the rates specified in the tanker voyage charter party • For the cargo loaded, transported and discharged. • In accordance with the terms and conditions specified in the vessel fixture note and the charter party (CP) A vessel owner (Owner) becomes eligible for freight as soon as the cargo is delivered at the disport, warehoused and documentary records to this effect are available. Payment of freight is to be made on receipt of all relevant documents and as per the provisions of applicable charter party. Freight paid to an owner can be netted of any money paid in advance to the owner by the charterer or any disbursements made by the charterer on behalf of the owner. Freight is normally payable on the gross BL quantity. Normally no deductions are made from the applicable freight. Recoveries/ claims if any, such as for ROB quantity etc. will be governed as per the terms of the applicable charter party. 13.33.2.2 Dead freight Dead freight occurs when a vessel carries cargo less than the guaranteed minimum cargo. This may arise due to the following reasons: • Supplier fails to supply the minimum cargo • Due to operational/ other constraints vessel fails to load Minimum Guaranteed Quantity (MGQ) • Dead freight is the freight on the cargo not carried – it represents the difference between the freight on loaded cargo and freight as per MGQ. 13.33.2.3 Spot Freight Market: Freight rates are fixed based on World Scale flat rates (WS 100) or on lump sum basis. a. WS based Freight World scale is a schedule of freight rates applied to tankers carrying oil in bulk. These rates are published by World Scale Association in London and New York and revised Purchase of Crude Oil & Products Page 316

annually to take care of change in the price of bunker, port costs and currency exchange rates. Spot market rate for each of various routes (TD) is updated and published in the website www.balticexchange.com on all working days. These rates are expressed in terms of a direct percentage of WS flat rates and reflect the market sentiment. CP specifies the percentage of World Scale (WS) to be adopted for freight payment for the minimum quantity agreed between the Charterer and the Owner for a particular load port and specified discharge port (Disport). CP, beside WS, also specifies: • Address commission which is deductible from freight. • Overage i.e. if a vessel is able to take more cargo than specified minimum quantity, subject to availability, additional freight at a percentage (normally 50%) of agreed WS points will be payable for additional cargo. • Brokerage commission deductible from the freight and payable to the broker who arranges the fixture of the ship. Net Freight = Min. Guaranteed Quantity, MT x WS Rate x WS Point/ 100 Plus Difference between B/L Qty. (Gross) & Min Qty. x WS Rate x WS Point/ 200 (for 50% Overage) Minus Address Commission (as per CP/ Fixture Note). Minus Brokerage Commission (As per CP/ Fixture Note). b. Lump Sum Freight Many times, vessels are fixed on lump sum freight basis instead of on WS basis. This is adopted specially to cover cargos when ships are on backhaul voyage. In IOC context, liftings from West Africa, Angola, Mediterranean, South American and Mexico region are done on lump sum freight basis. The freight for indigenous offshore crude oil is also done on lump sum basis. The freight is payable on agreed lump sum basis irrespective of the quantity loaded, provided vessel is able to load MGQ as specified in the applicable Charter Party. Commissions (address and brokerage) as specified in the fixture note are deducted from Lump sum freight also. In case the BL quantity is less than the minimum guaranteed quantity for a voyage fixed on lump sum basis, then Freight is payable on minimum guaranteed quantity unless it is established that dead –freighting is due the fault of Owner of the vessel. 13.33.2.4 Freight Settlement The relevant SOP is SHIPPING/CHART/003. The owner submits Freight Debit Note containing details like load port, disport B/L date/ Gross B/L quantity in MT etc. and beneficiary’s name & address, and complete payment instructions. For processing the same, the following are required. a. World Scale book to ascertain WS rate in USD per MT from load port to disport. Sometimes rate for a port (Load port and or Disport) may not be available in World scale Purchase of Crude Oil & Products Page 317

Book. In such a case World Scale Association can be approached to provide rates for the specific voyage. Such rates may not include port dues in the WS rates especially if the port is newly commissioned. In such cases, these elements are separately payable to the Owners on actual payment basis on production of documents. b. Fixture note or CP of the vessel. In case signed CP is not available by then, settlement can be made on the basis of Fixture Note. c. ROB report/ Empty Tank Certificate from disport duly signed by Chief Officer of Ship/ Owner of Ship/ Charterer & Surveyor. d. Sailing Details (Prepared by operations containing the B/L quantity, loadport and disport information) e. License from DG (Shipping) for the voyage, in case of foreign flag ships. The relevant SOP is SHIPPING/CHART/002. 13.33.3 Other Miscellaneous Charges a. Deviation Charges If a vessel is asked to deviate from its route to reach a port not earlier specified and such deviation results in extra voyage than the vessel was chartered originally to perform, then Owner is eligible for deviation charges for additional voyage as per the terms of the Charter Party. b. Additional War Risk Premium (AWRP) During voyage, if a ship is likely to enter a declared ‘ Listed Area ‘ i.e. a zone where risks due to Hull War, Strikes, Terrorism and related perils or other hostile activities that can cause damage to the ship arise, additional war risk premium (AWRP) is payable. Such ‘Listed Areas’ are specified from time to time by Joint War Risk Committee, London. For ship and crew, such premium is specified in the CP at the time of finalizing the fixture and payable to the Owner on submitting the claim with supporting documents towards the additional premium paid. 13.33.4 Freight Assessment/ Future Freight Market International Trade Department requests for Freight Assessments for evaluation of term and spot crude oil tenders. The assessment is required for various crude oil variants loaded from various terminals across the world. The assessment is worked out on the basis of past average and futures of the relevant route indices. The relevant SOP is SHIPPING/CHART/004. 13.33.5 Documents to Locations The signed & certified copies of commercial invoice, Bill of Lading (B/L), Freight, Insurance, additional war risk premium etc. are to be sent to the cargo receiving location for filing bill of entry for payment of custom duty and obtaining custom clearance of the subject vessel. 13D. PURCHASE OF PRODUCTS Purchase of Crude Oil & Products INDEX Page 318

Purchases should include the cost of purchase of all petroleum products from all sources, which are purchased with the intention of resale. For this purpose, cost of goods purchased should include purchase price of goods, transportation and delivery to the point where they are to be used and other cost pertaining to their procurement and receipt. Purchases for this purpose would mainly include: • Purchase of products from associate refineries like CPCL, MRPL, NRL BORL. • Import of finished products. • Purchase of product from OMCs under purchase/sale arrangement. • Any other purchase of petroleum products from outside parties like ONGC, GAIL, OIL etc. • Purchases from Private Refineries like RIL and EOL. However, it will exclude the purchase of raw materials like base oils, additives, etc., which are purchased for the purpose of manufacturing/ processing activities. • Any raw materials purchased for resale should be accounted under purchases and should not be included as a part of consumption of raw materials. • Regions /states to carry out a reconciliation of purchases made during the quarter/financial year with the stock records. • All purchases should be accounted based on the proof of despatch/invoice /BL as per the despatched quantities irrespective of the fact whether the consignments despatched in a quarter/financial year have been received by the receiving locations by the end of quarter/financial year or not. However, liability provision should be made in respect of purchases made during the quarter/financial year for which the payments are yet to be arranged. • All imported shipments against which the bill of lading is dated on or before the end of quarter/financial year should be accounted for under purchases irrespective of the fact whether the goods have been received or not. New Process for Interstate Purchase for BULK LPG Prerequisites: a. Get logical plants created for IOCL purchasing plants with following nomenclature (region code for corresponding plant appended as N/E/W/S behind plant code last three digits)(By COIS): • 1171-171N • 2171-171E • 3171-171W • 4171-171S b. Add LST & CST no. of physical plant for logical plant also (By COIS) c. Map physical plant & logical plant in “YVA_LOG_PLT_MAPP” (By COIS) d. Get authorization extended for above mentioned logical plants (By COIS) Purchase of Crude Oil & Products Page 319

e. Get authorization for transaction code YVC402N (By COIS) f. Extend material to logical plants (YMATX) in storage location ‘LOG1’, create valuation type & batch (dutypaidfg) in logical plants (SLOC – LOG1) g. Create ZC**** customers corresponding to logical plants (By COIS) h. Create invoicing number ranges for logical plants in 371N in YV05 (By COIS) i. Create / modify exchange agreement from OMC vendor to accommodate logical plants j. Create individual purchase orders against exchange agreement k. Maintain RTD from interstate “Vendor” / “OMC” from logical plant 371N to 1371 l. Create STO for supply from logical plant to physical plant (375N to 1375) Steps to be followed: a. Access transaction code YVC402N. Record logical plant code of RC office operated at vendor premises, e.g. plant 3144 being used for interstate purchase at EOL, Jamnagar. Purchase of Crude Oil & Products Page 320

Execute and proceed to next screen for recording transaction related details and to display already existing records b. Select to record linkage of purchase order & stock transfer order for any IOC purchasing plant (Existing records will be displayed). Create new records if required and ‘SAVE DATA’ for updating linkages. A new line will be added every time is clicked c. On “Shipment Details – Input” screen click on append row icon to add another row for data input. Record following data: • IOCL receiving / purchasing plant code – e.g. 1375 (Jhunjhunu BP) Purchase of Crude Oil & Products Page 321

• Vehicle No. – Vehicle being planned / loaded for executing the supply to IOCL plant (a) • Material – IOCL material code, of material being purchased for supply to IOCL plant (a) • Quantity – Limiting to capacity of vehicle (including check on permitted quantity as per RLW & ULW maintained in vehicle master) • Unit – Unit of measurement (limited to KL / TO depending on basic UOM of material) * Multiple records can be created for simultaneous or individual processing. d. Proceed to after recoding required data in 3 above. Select the check box in from of the record (multiple record selection & processing permitted) and lick on create delivery button. Individual deliveries shall be created and relevant field will be updated. e. Loading advise can be printed for deliveries, individually or collectively as required, if required. Select the check box and click on . For multiple selection following screen will appear prompting for option to print individual slips of collective advise f. After loading is completed at vendor premises / actual loading figures are received, record actual loaded quantity & loading time and click . Following activities will be completed by system in background: • Shipment creation • Exchange assignment (for goods receipt from vendor) • Goods Issue (O4G1), resulting in goods issue at logical plant and simultaneous dispatch to IOC purchase plant. • Invoicing. g. Invoice printout can be taken for issuance. 13.34 INTERSTATE PURCHASE PROCESS (Stand Alone Refineries / OMC Refineries & locations - SAR) The existing process is to receive / purchase product in a logical location attached to the SAR and then carrying out stock transfer to the actual receiving IOC locations. New process: The basic philosophy involves processing transactions through each interstate receiving location’s Logical plants (RLLP). The product purchase from SAR shall be booked into the RLLP. Then stock transfer to be booked from RLLP to IOCL receiving physical plant (RP). The product shall move against the OMC / SAR invoice. Stock transfer invoice from RLLP Purchase of Crude Oil & Products INDEX Page 322

to RP will be dummy invoice only. The new process is dependent on type of mode of transport. 13.34.1 Road movement (MOT-01): 13.34.1.1 Bulk LPG (& other products transacted on weight basis) – Processing can be done through new transaction code YVC402N for all background processing involving following steps: a. Mapping of purchase order (from SAR / OMC to RLLP) & stock transfer order (RLLP to RP) b. Processing loads for receiving plants / vehicle / material • Delivery creation for loading (RLLP to RP) • Printing loading statement (individual loading slip / collective loading slip as per requirement of individual locations). • Invoicing involves creation of shipment for load from RLLP against delivery crated in b(i), creating exchange assignment, booking receipt (against mapped PO) and issue from the logical plant. c. The receiving location shall receive product against shipment as per existing procedure in O4H1. d. Transportation bill processing shall be done for RP / RLLP as per business practice. (For LPG - Transportation will be payable to the transporters in case of road movement based on ST from RLLP to RP where distance shall be picked for SAR vendor and RLLP from vendor RTD masters.) 13.34.1.2 Bulk POL etc. – Processing has to be done manually till processing in line with LPG (weight basis) transactions is rolled out with following steps: a. Create delivery against STO from RLLP to RP. b. Create shipment against the delivery created in last step, along with maintaining exchange assignment in the shipment (refer SD manual for details) Purchase of Crude Oil & Products Page 323