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DIRECTOR'S REPORT

GAIL (India) Ltd.

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Market Cap. (₹) 57790.91 Cr. P/BV 1.26 Book Value (₹) 101.18
52 Week High/Low (₹) 191/120 FV/ML 10/1 P/E(X) 8.83
Bookclosure 20/08/2019 EPS (₹) 14.39 Div Yield (%) 5.62
Year End :2019-03 

Dear Shareholders,

On behalf of the Board of Directors of your Company, I am delighted to present the 35th Directors’ Report of your Maharatna Company, along with Audited Financial Statements for the financial year 2018-19.

Performance Review

The important financial highlights on standalone basis for the year 2018-19 are as under:

Particulars

2018-19

2017-18

US $ Million

(Rs. in Crore)

US $ Million

(Rs. in Crore)

Gross sales

10,722

74,808

8,181

53,690

Other income (including other operating income)

267

1864

171

1,122

Cost of sales (excluding Finance cost and depreciation)

9,398

65,572

7,038

46,192

Net Exceptional Items (Impairment of Investments)

47

326

(4)

(28)

Gross margin

1,544

10,774

1,318

8,649

Finance Cost

20

139

42

275

Depreciation

222

1,550

216

1,415

Profit Before Tax (PBT)

1,302

9,085

1,060

6,958

Provision for tax

438

3,059

357

2,340

Profit After Tax (PAT)

864

6,026

704

4,618

Appropriations

Final Dividend for previous year

47

325

70

457

Interim Dividend for current year

202

1,409

197

1,294

Corporate Dividend Tax

51

356

54

353

Net transfer to/from Bond Redemption Reserve

2

15

(42)

(277)

Transfer to CSR Reserve

-

-

-

-

Transfer to General Reserve

86

603

70

462

Net surplus after Appropriations

476

3,318

355

2,329

1 US $ in INR converted at the exchange rate as on 31st March of the respective financial year

69.77

65.63

Key Ratios

- Gross Sales

Gross sales increased by 39 % from Rs. 53,690 crore during 2017-18 to Rs. 74,808 crore in 2018-19.

- Profit Before Tax (PBT)

PBT registered a jump of 31% from Rs. 6,958 crore in 2017-18 to Rs. 9,085 crore during 2018-19.

- Profit After Tax (PAT)

Profit after Tax increased by 30% from Rs. 4,618 crore during 2017-18 to a record high of Rs. 6,026crore in 2018-19.

- Earnings Per Share (EPS)

In view of the increase in PAT, EPS has gone up from Rs. 20.48 per share as or March 31st, 2018 to Rs. 26.72 per share as on March 31st, 2019.

- Consolidated Financial Statements

Your Company has prepared the Consolidated Financial Statements in accordance with the IND- AS consolidating its subsidiaries, associates and joint venture entities. The highlights of the Consolidated Financial Results are as follows:

(Rs. in Crore)

Particulars

2018-19

2017-18

Gross Sales

75,912

54,556

Profit Before Tax

9,831

6,936

Profit After Tax

6,546

4,799

Other comprehensive income

(123)

(321)

Business Overview

During the year under review, the segment wise business performance of your Company is as under:

- Natural Gas Marketing

Natural gas trading continues to be the focus area of your Company. During FY 2018-19 Natural Gas sales totalled 96.93 MMSCMD with sales within India being 86.39 MMSCMD and overseas sales being 10.54 MMSCMD. Gross revenue of your Company from Natural Gas Marketing in FY 2018-19 was Rs. 57,024 crore as against Rs. 38,021 crore in FY 2017-18.

- Transmission

- Natural gas transmission

Your Company owns and operates a network of around 12,200 km of natural gas high pressure trunk pipeline. The average gas transmission during the year 2018-19 increased to 107.43 MMSCMD as compared to 105.23 MMSCMD in the previous financial year. Gross sales of your Company from Natural Gas Transmission in FY 2018-19 was Rs. 5,194 crore as against Rs. 4,446 crore in FY2017-18.

- LPG transmission

Your company operates 2,038 km of pipeline for LPG transmission. Jamnagar-Loni and the Vizag-Secunderabad pipeline networks achieved a throughput of 3.97 MMTPA during the year against 3.72 MMTPA in the previous fiscal year, thereby registering a growth of more than 6%.Gross sales of your Company from LPG Transmission in FY 2018-19 was Rs. 614 crore as against Rs. 558 crore in FY 2017-18.

- Petrochemicals

During 2018-19, your Company’s production increased by 13% to 751KTA of polymers and sales increased by 9% to 735 KTA of polymers from the Pata plant. Additionally, more than 289 KTA of polymer produced by BCPL was sold by GAIL. Gross sales of your Company from Petrochemicals in FY 201819 was Rs. 6,631 crore as against Rs. 5,788 crore in FY 2017-18.

- LPG and Other Liquid Hydrocarbon

Your Company has five LPG plants at four locations in the country having a production capacity of 1.4 Million MT. In 2018-19, total liquid hydrocarbon production was about 1.32 Million MT as against 1.28 Million MT in FY 2017-18, of which almost 90% constitutes LPG and Propane. Gross sales of your Company from Liquid Hydrocarbons in FY 2018-19 was Rs. 4,633 crore as against Rs. 4,179 crore in FY2017-18.

GAIL Board approved revival of existing LPG plant at Usar, Maharashtra and converting it into 500 KTA Polypropylene complex. This is first of its kind project in India which would be using Propane Dehydrogenation technology for production of Propylene integrated with the downstream Polypropylene unit.

- Exploration and Production (E&P)

Your Company has participating interest in II E&P blocks of which 9 blocks are in India and 2 blocks in Myanmar. Out of these, your Company is Operator in two on-land blocks viz. CB-ONN-2010/II and CB-OnHp-2017/12 in Cambay basin awarded during NELP-IX and OALP-I bidding rounds respectively.

Appraisal activities were continued in two NELP-IX blocks namely GK-OSN-2010/I (Operator: ONGC) and CB-ONN-2010/II (Lead Operator: GAIL). Development activities were initiated in one NELP-IX blocks namely CB-ONN-2010/8 (Lead Operator: Bharat Petro Resources Limited).

Phase-II Development activities in blocks AI and A3 were initiated during FY 2018-19.

Exploratory activities are in progress in two blocks namely (i)AA-ONN-2010/2 of NELP-IX(Operator OIL), and (ii) CB-ONHP-2017/12 (Operator GAIL) of OALP-I

Revenue of Rs. 639 Crores has been generated from sale of hydrocarbons from 4 producing blocks namely A-I & A-3, Myanmar and CB-ONN-2000/I and CB-ONN-2003/2 (Cambay onland) during the year 2018-19 as against Rs. 631 crore during the FY 2017-18.

- Projects Execution

At present your Company is expanding the Natural Gas pipeline network by executing more than 5700 Kms. of Major Pipeline projects, out of which around 1050 Km of pipeline projects has been completed during the FY 2018-19. The completed pipeline project consists of 475 Km section from Varanasi-Dobhi-Patna/Barauni of prestigious Jagdishpur Haldia & Bokaro Dhamra Pipeline project popularly known as ‘Pradhan Mantri Urja Ganga’, 315 Km of Auraiya-Phulpur pipeline and other last mile consumer connectivities.

Supply of Natural Gas also commenced in Patna City by commissioning of 2 CNG station and PNG which was inaugurated by Hon’ble Prime Minister of India. Further, supply of gas to CGD Cuttack & Bhubaneswar were started from new LCNG (Liquefied CNG) satellite terminal (First of its kind in India) commissioned in Bhubaneswar City. Supply of gas to these CGDs were earlier started last year through cascade mode.

Disinvestment by President of India

The government of India disinvested 1,16,75,668 shares in July 2018 & I,98,43,410 shares in February 2019 through CPSE Bharat 22 ETF. After disinvestment, the President of India’s shareholding is 1,17,70,29,046 equity shares, representing 52.19% of paid-up share capital of GAIL.

Dividend

Your Company has a consistent track-record of dividend payment. The Board of Directors of your Company had earlier approved payment of an interim dividend @ 62.50% on equity share of Rs. 10 each C 6.25 per equity share) amounting to Rs.1,409.42 crore on the paid-up equity share capital of the Company C 2,255.07 crores), which was paid in February, 2019. Further, the Board has recommended payment of final dividend @17.70% on an equity share of Rs.10 each (Rs.1.77 per equity share) amounting to Rs. 399.16 crore. With this the total dividend for the FY 2018-19 will be 80.2% on equity share of Rs.10 each amounting to Rs. 1,808.57 crore on paid-up equity capital of Rs. 2,255.07 crore (pre-bonus) which is 30% of PAT or 5.15% of Opening net-worth of Rs. 35,142 crore as per Companies Act, 2013 and in compliance of DIPAM guidelines. Further, during the year, your company also paid Dividend Distribution tax of Rs. 356.46 crore.

Contribution to Exchequer

Your Company has contributed Rs. 8,070 crore in 2018-19 to the exchequer through dividend, duties, taxes and others, as compared to Rs. 6,782 crore in 2017-18.

Credit Rating

- Domestic rating

Your Company has been reaffirmed the highest domestic credit rating of AAA from ICRA, CARE and India Rating. This signifies the highest credit rating in India, hence, carries lower credit risk of the Company.

- International Rating

The International rating agency, Moody’s International, Singapore, has assigned the corporate issuer rating of Baa2 with stable outlook which is equal to the sovereign rating of India. Further, Fitch Ratings has also assigned a long-term foreign currency issuer default rating of BBB- with a stable outlook, which is also equivalent to the sovereign rating of India. The agencies have indicated that your Company’s rating may be upgraded once the sovereign rating of India improves.

Particulars of Loans, Investments and Corporate Guarantees Details of investments, loan and guarantee covered under Section 186 of the Companies Act, 2013 forms part of the financial statement, as a separate section in the Annual Report FY 2018-19.

Related Parties - Subsidiaries/ Associates/ Joint Ventures

Your Company has formed subsidiaries/ associates/ joint venture companies for City Gas Distribution, such as GAIL Gas Limited, Indraprastha Gas Limited, Mahanagar Gas Limited etc.; petrochemicals such as Brahmaputra Cracker and Polymer Limited, ONGC Petro-addition Limited; LNG/ Re-gasification, such as GAIL Global (USA) LNG LLC, Petronet LNG Limited etc.; gas trading, power generation and shale gas. All the Contracts or arrangements/ transactions with related parties were carried on an arm’s length basis and in ordinary course of business.

In order to facilitate City Gas Distribution Projects in Kolkata, your Company has formed a Joint Venture Company named “Bengal Gas Company Limited on 04.0I.2019 “ and in order to lay down natural gas pipelines in North East India, your Company has formed a Joint Venture named “Indradhanush Gas Grid Limited on 10.08.2018 “.

No subsidiary / joint venture company ceased to exist during the year. However, GAIL China Gas Global Energy Holdings Limited ceased to exist w.e.f. 3 I st May, 2019. The subsidiaries/ associates/ joint venture companies of your Company have contributed significantly to its business expansion activities. A statement containing the salient features of the financial statements of your Company’s Subsidiaries, Associate Companies and Joint Ventures as per first proviso of section 129(3) of the Companies Act, 2013 including details of Individual contribution of all subsidiaries, associates and joint venture companies towards the overall performance of Company during the period is given under Consolidated Financial Statements.

Vigilance

Corporate Vigilance department of your Company is ISO-900I:2015 certified for having adopted Quality Management System in compliance with the requirements of ISO. A number of system improvements were affected in your company during the year for effective utilization of its resources, which in turn would help to prevent corruption and ensure all round good governance. Some of these improvements are:

- Award of contract through Board Purchase has been limited to for a period of 6 months quantity only.

- In order to eliminate high and low rate items in routine/Maintenance contract, percentage rate bidding by contractors in the tenders has been adopted.

- To avoid delay in bill processing, provision has been made in Bill Watch System to generate email alerts after regular intervals to EIC as well as to the OIC and in case of extraordinary delay alerts will be sent to the concerned Director.

- For the benefit of vendors and suppliers, status of e-tendering, e-payments & receipts is monitored and reported to MoP&NG.

The Vigilance Awareness Week-2018 was observed on the theme “Eradicate Corruption - Build a New India” at the corporate office and at all the work centers from 29th October, 2018 to 3rd November, 2018. The inauguration of VAW-2018 commenced by taking the Integrity Pledge by GAIL Employees followed by release of GAIL “JAGROOK” Magazine by C&MD for spreading awareness on vigilance. Customer Interactive Meets were organized at Delhi- NCR and Guwahati Marketing office for Natural Gas, Petrochemicals & Liquid Hydrocarbon customers. Vendor Interactive Meet was also organized at New Delhi where booklet containing compendium of the initiatives taken by GAIL to enhance efficiency and transparency in Tendering/ Contracts was released.

During Vigilance Awareness Week various competitions such as debate/ elocution/ quiz/ essay writing/ slogan/ cartoon/ poster competitions on moral values ethics, good governance practices etc. were conducted in 12 schools and II colleges in various Work centers of GAIL, wherein 1753 students participated. Gram Sabhas were organized in 2 villages to sensitized villagers against corruption related practices wherein 180 villagers participated.

Representation of Priority Section

Your Company has been complying with the Presidential Directives and other instructions/guidelines issued from time to time pertaining to Policies and Procedures of Government of India in regard to reservation, relaxations, concessions etc. for Scheduled Castes (SCs), Scheduled Tribes (STs), Other Backward Classes (OBCs) and Persons with Disabilities (PWDs) in Direct Recruitment.

Details with regard to group-wise total number of employees and the representation of Scheduled Castes, Scheduled Tribes, and Other Backward Classes and PWDs amongst them, in your Company as on March 31, 2019 are given in table below:

Group

Employees on Roll

SC

ST

OBC

PWD

A

3280

521

212

622

50

B

459

79

50

104

8

C

730

I 30

24

246

36

D

54

I 3

6

17

0

C&MD DIRECTORS

6

0

I

0

0

Total

4529

743

293

989

94


A total of 154 new employees joined your Company during the FY 2018-19. Total Manpower of the Company as on March 31, 2019 stood at 4529 (including Whole-time Directors) with 16.40 % of its employees belonging to the SC category, 6.47 % to the ST category, 21.83 % to the OBC category, 8.04 % to the Minorities and 2.08 % to the Persons with Disabilities (PWDs) category. Your Company’s workforce includes 284 women employees as on March 31, 2019. Official Language

The Official Language Implementation Committees at the Corporate and Work Centre level meet on a quarterly basis to monitor and review the progress made for achieving the targets fixed in the Annual Program issued by the Official Language Department, Ministry of Home Affairs, Govt. of India.

Hindi workshops/trainings are organized on regular basis at Corporate Office and all work centres including training centres at GTI Noida and GTI Jaipur. Hindi computer training sessions are also integral part of these programs. As many as 126 Hindi workshops were conducted during 2018-19 in which 2,613 employees were provided training.

Hindi Fortnight was observed across GAIL from September 14th to 28, 2018 to propagate linguistic harmony and to motivate the employees for the progressive usage of Hindi in their day-to-day work. Several Competitions were organized to encourage the employees to work in Hindi and create a conducive atmosphere. Your Company also publishes its Quarterly Hindi magazine “Rajbhasha Sahyog” to promote Hindi language. During the year “Compilation of Bilingual Forms and standard drafts” has been prepared and hosted on GAIL intranet for the benefit of the employees.

The 19th GAIL Rajbhasha Sammelan* was organized on 04th January, 2019 at Mysuru (Karnataka), chaired by Director (HR). The purpose was to spread and propagate the essence of Hindi and simultaneously review the progress made on the implementation of the official language in the Company.

Your Company was awarded third Prize for the year 2018-19 by the Ministry of Petroleum & Natural Gas for Promoting & Implementing Official Language successfully.

The First Sub-Committee of Committee of Parliament on Official Language inspected GAIL, Khera Compressor Station and GAIL Corporate office to review the steps undertaken to promote the official language and the efforts were appreciated by the Parliamentary Committee.

Vishwa Hindi Divas was celebrated across GAIL on 10th January, 2019. To mark the occasion, a special workshop was organised indicating the importance of Official Language. Hindi books were also distributed to employees.

Sexual Harassment of Women at Workplace

Your Company has in place a Policy on Prevention, Prohibition and Redressal of Sexual Harassment of Women at Workplace in line with the requirements of the Sexual Harassment of Women at the Workplace (Prevention, Prohibition & Redressal) Act, 2013.The Internal Complaints Committee (ICC) has been set up to redress complaints received regarding sexual harassment.

Disclosures in relation to the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013:

a. number of complaints pending at the beginning of the financial year : Nil

b. number of complaints filed during the financial year : Nil

c. number of complaints disposed of during the financial year : NA

d. number of complaints pending as on end of the financial year : Nil

Procurement from Micro and Small Enterprises (MSEs)

The Government of India has notified a Public Procurement Policy for Micro and Small Enterprises (MSEs), Order 2012 and its amendments thereof.

In terms of the said policy, out of the total eligible value of annual procurement of approx. Rs. 5,677 crore for GAIL towards goods produced and services rendered by MSEs (including MSEs owned by SC/ST Entrepreneur) during the FY 2018-19 the value of total procurement made from MSEs by GAIL was Rs. 1,662 crore, which is approx. 29.27%.

Further, more than 16 Vendor Development Program for MSEs and 6 Special Vendor Development Program/ Hand Holding Session especially for MSEs owned by SC/ST Entrepreneurs were conducted.

GAIL is already registered on Trade Receivable e-Discounting System (TReDS) portal of all the three service providers (i.e. M/s Mynd Solutions, M/s A TReDS and M/s RXIL) and also making payment to MSEs vendors through TReDS).

A. Initiatives taken for minimizing disputes

In order to develop Good stakeholder management practices w.r.t. vendors/contractors and establish a lasting buyer-seller relationship, GAIL (India) Limited has implemented a series of industry first measures:-

1.0 Samadhan mechanism:-

a) Health Monitoring of contracts (HMC): Measuring health of contract against certain parameters. The issues (including AHR items, Extra Items, Time Extension, Hindrance, disputes etc.) identified during monthly health monitoring of contracts are reported and resolved by the Engineer-In-Charge (EIC).

b) SAMADHAN Committee- The issues that are unresolved by the EIC are referred to a high power committee to resolve. The committee hears the view point of both contractor and EIC before giving a recommendation.

c) Monitoring the closure of issues raised in exceptional reporting on a quarterly basis via Quarterly Closure of Contracts

The Samadhan Mechanism has potential to prevent disputes escalate into Arbitration/Litigation and delayed execution.

2.0 Engineer-in-charge coaching programme

In order reduce the disputes it is important to make the Engineer-in-Charges (EICs) aware on various aspects of contract and its management so as to make them better equipped to deal with different situations that may arise during the execution of the contracts. This internal capability enhancement programme is conducted in GAIL on a regular basis.

3.0 Vendor coaching programme

Vendor Coaching Program are being organized for vendors to make EICs aware about this mechanism along with other objective such as eliminate the gaps in understanding, inform the consequences of Corrupt/ Fraudulent/ Collusive /Coercive Practices and reduce the disputes, disagreements, arbitrations, etc.

4.0 Pre-tender conference (PTC)

In PTC, all issues pertaining to scope, specifications, design details/data, specific requirements, if any, etc. shall be open for discussion, except for commercial terms and conditions of tendering process, which may of course be opened for discussions to some extent with prior approval. A dedicated portal showing details of Pre-Tender Conference has been hosted on GAIL tenders website

B. Initiatives for ease of doing business

GAIL endeavors to procure material or services following transparent procedure and guidelines & policies of the company and Govt. of India. In order to provide equal opportunities and generate competition and ease of doing business, GAIL has taken following steps:

1 Review of CPBG in Work Contracts & time period for submission of CPBG

2 Review of Procedure for Vendor Performance Evaluation (Yellow/ Red Card)

3 Introduction of Percentage tendering in other Services/ Works

4 Revised Dispute Resolution Mechanism clause

5 Provision for submission of security deposit/ contract performance guarantee & EMD through additional mode- online bank transaction

6 Relaxation of Prior Experience-Prior Turnover Criteria Norms for Startups

7 Policy guidelines to encourage development of indigenous sources on continuous basis

8 General Conditions of Contract for Services

9 Verification and certification of documents pertaining to bid evaluation criteria (BEC)

10 Rationalization of Mobilization Advance

11 Provision for Pradhan Mantri Suraksha BimaYojna (PMSBY) And Pradhan MantriJeewan Jyoti BimaYojana

12 DO’S & DON’T’S: Do and Don’t for Contractor published and circulated all sites.

13 Introduced a comprehensive policy to promote procurement from Government e Marketplace (GeM), which is an online procurement portal providing access to a host of products and services.

14 Registration on the TReDS platform of all the three service providers i.e. M/s RXIL, M/s Mynd Solution and M/s Invoicemart.

MoU Performance

A Memorandum of Understanding (MoU) is signed every year between your Company and its administrative ministry i.e. MoP&NG, through which performance targets for the year are set.

Your Company achieved ‘Excellent’ MoU rating for the financial year 2017-18 with a score of92.76.

MoU for the year 2018-19 was signed between Chairman & Managing Director, GAIL and Secretary (P&NG), Government of India on 5th June, 2018.

In 2018-19 GAIL’s MoU was majorly aligned towards achieving GOI’s vision of making India a gas-based economy. The thrust while fixing MoU targets was on increasing the number of PNG connections and CNG stations while other critical aspects of the MoU included key financial parameters, gas marketing, gas transmission, project implementation, capital expenditure etc.

The evaluation of MoU 2018-19 is under progress and the final evaluated MoU score and rating is expected to be announced by December 2019.

Right to Information(RTI)

In order to promote transparency and accountability, an appropriate mechanism has been set up across the Company in line with the provisions of the Right to Information Act, 2005. Your Company has nominated CPIO/ACPIOs/ Appellate Authorities at its units/offices across the Company to provide information to citizens under the provisions of the RTI Act.

Your Company has hosted RTI Guidelines and related information on its site and these may be accessed at http://www.gailonline.com/final site/RTI.html Besides, MIS Report on RTI Applications, Record Retention Schedule and latest RTI Audit Report have also been hosted under the same link.

Section 4(I) (b) of the RTI Act, 2005 lays down the information which should be disclosed by any Public Authorities on a suo-motu or proactive basis. Section 4(2) and Section 4(3) of the Act, prescribes the method of dissemination of this information. Accordingly, keeping in view the purpose of suo-motu disclosures under Section-4 of the Act, GAIL’s Corporate RTI Cell has hosted a dedicated page on GAIL’s website, through which large amount of information in the public domain on proactive basis is placed. This is being done to make the functioning of your Company more transparent and reduce the need for filing individual RTI applications.

Further, your Company has been made ‘LIVE’ on the Govt. of India’s-DoPT Online RTI Portal from July, 2016 and ever since, we are providing information Online, apart from providing the requested information offline.

For the Financial Year 2018-19, GAIL’s Corporate RTI Cell has 100% disposal rate in respect of RTI Applications received. As on 31st March, 2019, we had a pendency of 23 RTI Applications, which were disposed-off subsequently within time schedule/as per the provisions of the RTI Statute. Further, your Company has received ‘NIL’ penalty/adverse remarks from Central Information Commission for the year 2018-19 in respect of second Appeals filed by Appellants. Management’s Discussion and Analysis

In terms of Regulation 34 of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, and clause 7.5 of DPE Guidelines on Corporate Governance, the detailed Management’s Discussion and Analysis forms part of this report at Annexure- A.

Corporate Governance

Your Company believes that good corporate governance plays a critical role in establishing a positive organizational culture. It is evident by responsibility, accountability, consistency, fairness and transparency towards our stakeholders. Pursuant to the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015and DPE guidelines on Corporate Governance, a report on Corporate Governance forms part of this Report at Annexure- B.

The details of the meetings of the Board, Company’s policy on Directors’ appointment and their remuneration, details of establishment of whistle blower mechanism and other matters, etc. forms part of report on Corporate Governance.

There are no significant and material orders passed by the regulators or Courts or tribunals impacting the going concern status and the Company’s operations in future.

The statutory auditors of the Company have examined and certified your Company’s compliance with respect to conditions enumerated in SEBI (LODR) Regulations, 2015 and DPE guidelines on Corporate Governance. The certificate forms a part of this Report at Annexure- C.

Auditors

- Statutory Auditors

The statutory auditor of your Company is appointed by Comptroller & Auditor General of India (CAG). M/s O P Bagla & Co. LLP, Chartered Accountants, New Delhi and M/s ASA Associates LLP, Chartered Accountants, New Delhi were appointed as Joint Statutory Auditors of your Company for the FY 2018-19.

Review and Comments of CAG, if any, on the Company’s Financial Statements for the financial year ending March 31st, 2019, form part of Financial Statement. Notes on Financial Statement referred to in the Auditors’ Report are self-explanatory.

There are no qualifications on the financial statements by the statutory auditors for FY 2018-19.

- Cost Auditors

Your Company has appointed M/s Ramanath Iyer & Co., New Delhi for Northern Region , M/s Bandyopadhyaya Bhaumik & Co., Kolkata for Northern and Eastern Region , M/s A C Dutta & Co., Kolkata for Southern Region, M/s Musib& Company, Mumbai for Western Region Part-I, M/s N.D Birla & Co., Ahmedabad for Western Region Part-II and M/s Sanjay Gupta & Associates, New Delhi for Central Region as cost auditors for FY 2018-19. M/s Ramanath Iyer & Co. is the lead cost auditor.

Your Company is maintaining cost records as specified by the Central Government under sub-section (I) of section 148 of the Companies Act, 2013 and Rule 8(5)(ix) of the Companies (Accounts) Amendment Rules, 2018.

Cost audit reports for the financial year ended March 31st, 2018 were filed with Registrar of Companies on August 24th, 2018.

- Internal Auditor

Your Company has an in-house Internal Audit Department, which is headed by Executive Director.

- Secretarial Auditor

Your Company has appointed M/s Agarwal S. & Associates as secretarial auditors for 2018-19. Secretarial Audit Report confirming compliance by Practicing Company Secretary to the applicable provisions of the Companies Act, 2013, SEBI LODR Regulations, 2015 and other applicable laws, forms part of this Report at Annexure-D. Pursuant to SEBI Circular Number CIR/CFD/CMD I /27/20 I 9 dated 08.02.2019, Annual Secretarial Compliance Report is also attached as Annexure-E The observation made by Secretarial Auditor and Company’s response to the observations is as under:-

Observation No. I : Non-compliance of Regulation 17 (10) & 25 (4) of SEBI (Listing Obligations & Disclosure Requirements) Regulations, 2015, the Company has not carried out the performance evaluation of the directors. Company’s Response: GAIL is a Government Company, appointment/ nomination of all the Directors including Independent Directors are being done by the President of India, through the MoP&NG, Government of India. Therefore, performance evaluation of individual Directors including Independent Directors is to be undertaken by Government of India being the appointing authority.

In this regard, MCA vide notification dated 5th June, 2015 & 5th July, 2017 has exempted Government Companies from applicability of the following provisions:

- Section 134 (3)(p) and 178 (2) of the Companies Act, 2013 & - Sub-Para (2) and (7) of Para II, Para IV, Para V, clauses (a) and (b) of sub- Para (3) of Para VII and Para VIII of Schedule IV (Code for Independent Directors) respectively.

In this regard, SEBI has been approached for similar exemption is awaited from the provisions of SEBI LODR Regulations 2015 relating to Performance Evaluation of Board and its directors in line with exemptions granted to Government Companies in the Companies Act, 2013.

Observation No. 2: In terms of Regulation 17(I) of SEBI (LODR) 2015 the Company should have the requisite number of Independent Directors on the Board of Company during the period from 05.06.2018 to 05.08.2018.

Company’s Response: During the year, GAIL’s Board had an optimum combination of executive and non-executive directors on the Board from 01.04.2018 to 04.06.2018 & 06.08.2018 to till date. However the position of an independent Director on the Board of the Company was vacant from 05.06.2018 to 05.08.2018.

GAIL is a Government Company and falls under the administrative control of the Ministry of Petroleum and Natural Gas, Government of India. The Directors are nominated/appointed by the Government of India. The Company has continuously pursued with the Government of India for the appointment of requisite number of Independent Directors on its Board during the vacant period in order to comply with the provisions of the SEBI (Listing Obligations & Disclosure Requirements) Regulations, 2015 & the Companies Act, 2013. The vacant position was filled up on 06.08.2018 consequent upon the appointment of Smt. Banto Devi Kataria as Independent Director.

Performance Evaluation

As per notification dated 5th June, 2015 issued by the Ministry of Corporate Affairs, Government of India, Government Companies are exempted from complying with the provisions of section 134(3)(p) of the Companies Act, 2013 with respect to performance evaluation of Board and its Committees.

Corporate Social Responsibility

Your Company firmly believes that the commitment towards playing a defining role in the development of its stakeholders extends to uplifting lives of the marginalised segments of the society, living in and around its areas of operation. The principles of Corporate Social Responsibility (CSR) are deeply imbibed in your company’s corporate culture. To amplify outreach efforts, your Company has incurred an expenditure of 2.74% of the average net profit of the preceding three years on CSR projects/activities during FY 2018-19 Rs. 119.29 Crore) exceeding the government mandated 2% Rs.87.21 crores).

Annual Report on CSR activities as required under Rule 8 of the Companies (Corporate Social Responsibility Policy) Rules, 2014 read with section 134(3) and 135(2) of the Companies Act, 2013 is placed at Annexure-F.

Energy Conservation, Technology Absorption and Foreign Exchange Earnings & Outgo

As per requirement of 134 (3)(m) of the Companies Act, 2013 read with Rule 8(2) of the Companies (Accounts) Rules, 2014, details of conservation of energy and technology absorption and foreign exchange earnings and outgo forms part of this report at Annexure-G

Particulars of contracts or arrangements with related parties

As per requirement of 134 (3) (h) of the Companies Act, 2013 read with Rule 8(2) of the Companies (Accounts) Rules, 2014 particulars of contracts or arrangements with related parties as referred in section 188(I) of the Companies Act, 2013 in the prescribed form AOC-2 is placed at Annexure-H.

Your Company has formulated the policy on dealing with Related Party Transactions and the same is hosted on your Company’s website at http://gailonline.com/pdf/InvestorsZone/GAIL Related Party Transaction Policy.pdf,

Particulars of Employees

As per provisions of section 197(12) of the Companies Act, 2013 read with the Rule 5 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, every listed Company is required to disclose the ratio of the remuneration of each director to the median employee’s remuneration etc., in the Directors’ Report. In terms of the provisions of section 197(12) of the Companies Act, 2013, read with the Rule 5(2) and 5(3) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, every Company is required to give a statement showing the names and other particulars of the employees drawing remuneration in excess of the limits set out in the said rules in the Annual Report.

However, as per notification dated June 5, 2015 issued by the Ministry of Corporate Affairs, Government of India, Government Companies are exempted from complying with provisions of section 197 of the Companies Act, 2013. As your Company is a Government Company, such particulars have not been included as part of the Directors’ Report.

Extract of Annual Return

Extract of Annual Return forms part of this Report at Annexure-I. The Extract of Annual Return for the Financial Year ended 31st March 2019 is also available on the Company’s website www.gailonline.com Dividend Distribution Policy

As per Regulation 43A of the SEBI LODR Regulation, 2015, your Company has formulated a Dividend Distribution Policy. The dividend pay-out is in accordance with the Company’s Dividend Distribution Policy.

The Dividend Distribution Policy of the Company is available on the Company’s website, at http://gailonline.com/pdf/InvestorsZone/GAI L%20Dividend% 20Distribution%20Policy.pdf.

Issue of Shares and Fixed Deposits

In Financial Year 2018-19, there was no issue or buyback of shares.

However, your company has issued bonus share in the ratio of one equity share for every one equity share held in the month of July 2019. Consequent upon issue of bonus shares, share capital has increased to Rs. 4510.14 crore.

Your Company has not accepted any fixed deposits during the financial year 2018-19 and, as such, no amount of principal or interest was outstanding as on the balance sheet date.

Fund Raising

During FY 2018-19, your Company has not raised funds through preferential allotment or qualified institutions placement.

Foreign Exchange Earnings and Outgo

During FY 2018-19, Foreign exchange inflow was Rs. 14,805 crore and foreign currency outgo was Rs. 29,869 crore.

Key Managerial Personnel and Directors

The following Key Managerial Personnel (KMP) were appointed/re-appointed on the Board of your Company:

- Shri Manoj Jain, Director (Business Development) was appointed w.e.f June 05th, 2018.

- Shri Anjani Kumar Tiwari, Director (Finance) was appointed w.e.f December 0151, 2018 (from the date of obtaining DIN).

- The tenure of Dr. Ashutosh Karnatak as Director (Projects) was extended for a period beyond 0I.03.2019 till 30.06.2020 i.e the date of his superannuation by Ministry of Petroleum & Natural Gas.

The following were appointed/re-appointed on the Board of your Company as Director(s):

- Smt. Banto Devi Kataria, Independent Director was appointed w.e.f August 06th, 2018 (from the date of obtaining DIN).

- Shri Anupam Kulshreshta, Shri Sanjay Tandon and Shri S.K. Srivastava, Independent Directors were re-appointed w.e.f November 19, 2018 for a period of one year from the date of completion of their exiting tenure i.e., 19.11.2018or until further orders, whichever is earlier.

- Shri Ashutosh Jindal, Government Nominee Director was appointed w.e.f May 27th, 2019.

The Board placed on record its deep appreciation for the valuable services rendered by Shri Subir Purkayastha and Smt. Indrani Kaushal during their association with your Company.

Code of Conduct

Pursuant to the requirements of SEBI LODR Regulations, 2015 and DPE Guidelines on Corporate Governance, the Board Members and Senior Management Personnel have affirmed compliance with the Code of Conduct for the financial year ending 31st March, 2019.

Directors Responsibility Statement

Yours Directors confirm that they have:

i) followed applicable accounting standards, alongwith proper explanation relating to material departures, in the preparation of the annual accounts for the financial year ending March 31st, 2019;

ii) selected such accounting policies and applied them consistently and made judgments and estimates that are reasonable and prudent to give a true and fair view of the state of affairs of the Company at the end of the financial year and of the profit of the Company for the year under review;

iii) taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act, 2013, for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities;

iv) prepared the annual accounts for the financial year ended March 31st, 2019 on a going concern basis;

v) devised proper systems to ensure compliance with the provisions of all applicable laws and such systems were adequate and operating effectively; and

vi) laid down internal financial controls to be followed by the Company and that such internal financial controls are adequate and are operating effectively.

Acknowledgment

Your Directors express their gratitude for help, guidance and support received from the Government of India, especially the Ministry of Petroleum and Natural Gas, various state governments, regulatory and statutory authorities.

Your Directors acknowledge wise counsel received from Statutory Auditors and CAG and are grateful for their consistent support and co-operation.

Your Directors also wish to thank all the shareowners, business partners and members of the GAIL family for reposing their faith, trust and confidence in your Company.

On behalf of your Directors, I would like to place on record our deep appreciation for the hard work, dedication, commitment and solidarity of your Company’s employees.

Your Directors and employees look forward to the future with confidence and stand committed towards creating a mutually rewarding future for all stakeholders.

For and on behalf of the Board

B.C. Tripathi

Place: New Delhi Chairman & Managing Director

Dated: 08th July, 20 9 (DIN: 01657366)

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