25047923 Pakistan State Oil Company

8/8/2019 25047923 Pakistan State Oil Company

1/43

PAKISTAN STATE OIL COMPANY

INSTITUTE OF COST & MANAGEMENT ACCOUNTANT OF PAKISTAN


2/43




3/43




4/43


DEP ARTMENT O F BUS I NES S ADMI NI S TRATI O N

PALISTAN STATE OIL COMPANY LIMITED

SUBMITTING TO

MR: -Abdul SamadFaculty Business Administration

SUBMITTING BY

Saleem Ahmed (ID # 48)Sonia Nabi (ID # 52)

Sabiha Arshad (ID # 44)

Yasir Ali (ID # 57)



5/43


Table of Contact

Title Fly

Title Page

Letter of Authorization

Letter of Transmittal

Letter of Acknowledgement

Company Introduction

Company Profile

Short History PSO

Organizational Structure Chart

Company Object

Future Outlook

Quality Policy

Customer Care

Company Vision

Company Mission Statement

Core Value of PSO

Management Profile

Departments PSO

Sales Division

Financial High Lights 2007

Competitor Profile

SWOT of PSO

Matching strategies

Strategic Position and evaluation matrix

Power Project (PSO Role in the Power Sector

Company Balance Sheet

Company Profit Loss Cash Flow Statement

Corporate Profile

Our Plans in 2007-08

Bibliography

Appendix



6/43


Letter of Authorization

MBA StudentsGROUP (FUUAST)3rd Stage

Subject Pakistan State Oil Company Limited

Dear Students:

You are instructed to do term report on Analysis StratrgicManagment and submit a report on the same as part of yourcurriculum by May 03, 2009. The report must contain all thenecessary requirements of the report writing as taught in thelectures.

Your summary must contain all the information on the topic,which must appeal the readers. You can consult the books

referred by me and other sources like magazines, Internet and ofcourse you can also find about this topic from any advertisingagency of repute. There are lots of advertising agencies workingin this area that can provide you the correct information in thisregard.

Your report must have all the parts including prefatory parts,body, findings and addenda. You have to submit the report on orbefore the due date in order that your report must be analyzedand graded. You must develop interest in the report so that the

information provided by you must attract readers. Nowadaysadvertising and print media are very important for business; infact business cannot go along smoothly without taking onaccount of this important aspect. Advertising is promotion andboosting of any company so without presence of advertisingnobody will be aware of any company.



7/43


You are advised to put you utmost in this report and produce aprofessional report. You can get any sort of help from me onbehalf of this topic and developing of report.


Letter of Transmittal


Subject: Analysis of Financial Statement of PSO andStrategic Managment

Respected Sir:

You are informed here by Group of Saleem Ahmed, Yasir, Sabihaand Sonia that we have completed our report as per yourinstructions.

During the research work we met different Finance departmentemployees of PSO organization from whom we gathered lot ofinformation. They have plenty of experience behind them in lieuof Strategic Management.

You will find this report very informative as we have doneanalysis for this topic from resources like direct interviews,magazines, journals and Internet. The rest of the information

about resources is provided in the bibliography and appendixsection.

Your guidance really helped us to work out on this report. Yourfeedback will enhance further our capabilities and reduce themissing areas in the report.



8/43


MBA StudentsGROUP (FUUAST)

3rd Semester

Company Introduction

The history of Pakistan State Oil starts from mid-70s when the Government of

Pakistan amalgamated three OMCs: Esso Eastern, Pakistan National Oil (PNO)

and Dawood Petroleum as part of its reorganization plan. It is considered as one of

the most successful mergers in the history of Pakistan. The main objective of the

Nationalization of POL Giant was backed by the facilitation of the sensitive

national issue of providing fuel to Defense forces. Because, during the war of

1971, the nation suffered from the problem that no fuel company was interested to

provide fuel to the Armed forces at that and the sensitivity of the nation was in

very crucial condition.

The than Federal government decided to nationalize three petroleum companiesalong with management control.



9/43


The company is the only public sector entity in Pakistan that has been competing

effectively with three multinationals companies which are supported technically

by their parent organization.

Pakistan State Oil Company Ltd; is the largest oil marketing company of Pakistan.

It is engaged in the Storage, Import, Distribution and Marketing of Petroleum

Products, Petrochemicals, Aviation & Bunker Fuels, LPG and CNG Dominates

the Countrys Fuel and Energy Need.

Since its inception in 1976 the company has been meeting more than 70% of the

countrys fuel needs. PSOs 3805 outlets all across the country markets more than

12 million tons of fuel products annually. This network is supported by PSOs 28

storage facilities with a capacity of more than 800,000 tons. PSO took a major step

in improving its distribution facilities by acquiring 12% equity in the 800km long

Karachi-Mehmoodkot White Oil Pipeline.

As part of PSOCLs policy of providing better customer service, it has embarked

upon its New Vision of retail development program. Equipped with the most

modern facilities like electronic dispensing units, auto car wash, convenience

stores, internet facilities and business centers. These state of the art designed

stations provide greater customer confidence and a friendlier environment. As a

manifestation of PSOCLs greater customer focus a PSO 24hr Customer Service

has been launched where customers can lodge their queries and suggestions about

various PSO products and services.

Along side its retail network, PSO is playing an equally important role in the

industrial sector. From the locomotives of Pakistan Railways to the giant turbines

of Power Projects, all are fuelled by PSO. Being fully alive to its responsibilities

towards the agriculture sector PSOs 700 strong agency network helps keep the



10/43


farm machinery running. Further, its kerosene sales are a major source of energy

for the rural and lacking gas facilities.

Pakistan State Oil Company Limited remains equally strong in Aviation andBunker Sales. PSO has been constantly upgrading its facilities to serve a wide

range of commercial aircrafts. Through a chain of eight Aviation Service Stations

scattered all across the country PSO fuels the aircrafts of many local and

international airlines. Acquisition of new Lahore Terminal Complex at the Lahore

International Airport has enabled PSO to serve the busiest corridor of East/West

bound flights benefiting the airlines in shape of time saving and lesser fuel burn

off. While its bunkering facilities at all the major ports of country fill up the

ocean liners of many nationalities facilitating the nations international trade.

In its endeavor to provide quality lubricants, PSO has formed an alliance with

world-renowned company Castrol whose products are manufactured at PSOs own

ISO 9000 certified facilities ensuring the highest quality standards for both retail

and industrial sales.

More cordial relationship with its dealers is one of the important objectives of

PSOs New Vision Program. To give them a sense of participation PSO has

instituted TOP DEALER AWARDS and MILLION LITER AWARDS

whereby efforts of the high performing dealers are recognized.

Emergence of Health Safety & Environment (HSE) as the corner stone of PSOs

corporate governance testifies to its commitment to environmental protection.

Complete HSE Certification of all its facilities and installations is one of its major

goals for the coming months, which are being vigorously pursued.



11/43


Privatization of Pakistan State Oil Company Ltd; is underway whereby JP

Morgans financial advisory consortium is assisting the Government of Pakistan in

the privatization process. They have undertaken the initial due diligence including

financial and regulatory issues and subsequent to which the interest of thepotential investors in the transaction will be solicited.

COMPANY PROFILE

Pakistan State Oil (PSO) is the oil market leader in Pakistan enjoying over 79%

share of Black Oil market and 58% share of White Oil market. It is engaged in

import, storage, distribution and marketing of various POL products, including

Mogas, HSD, Fuel Oil, Jet Fuel, Kerosene, LPG, CNG and petro-chemicals. This

blue chip company, the winner of "Karachi Stock Exchange Top Companies

Award" and a member of World Economic Forum, has been a popular topic of

case studies in Pakistan and abroad based on its radical corporate turnaround over

the last few years.

Excellence in Customer Service

PSO serves a wide range of customers throughout Pakistan, including retail,

industrial, aviation, marine and government/defence sectors. Professionals at PSO

strive for providing unmatched and diverse services to the customers in line with



12/43


best international practices. PSO's state-of-the-art New Vision retail outlets are

equipped with the most modern facilities, including auto car wash, electronic

dispensing units, convenience stores, business centres, internet facilities and Easy

Payment Centres for payment of utility and Citibank credit card bills. The conceptof Quick Oil Lube Vans introduced by PSO, provides the lube change facilities at

customers' doorsteps. About 21 Mobile Quality Testing Units ensure top of the

line quality of products and services. As innovative customer service initiatives,

PSO has launched Loyalty Card, Corporate Card, Fleet Card and Prepaid Card.

These cards provide added convenience, flexibility and security to the customers

while enabling them to earn redeemable loyalty points and avail attractive

discounts for purchase of non-petroleum products at a large number of merchant

outlets in various cities on use of Loyalty and Corporate Cards.

For efficient handling of customer complaints, queries and suggestions, PSO has

developed Customer Service Centres at all its 14 divisional offices. Furbished with

a toll free telephone number (0800-03000) and automated customer feedback

registration system, these centres provide an efficient system of 24-hour customer

care. An attractive and comprehensive PSO website (www. psocl.com) is available

as a source of PSO-related news and information.

Total Quality Control

PSO has been meeting the country's fuel needs by merging sound business sense

with national obligation. In order to satisfy the customers' needs while ensuring

the highest quality of products and services, PSO has introduced total quality

management system in its operational activities. Consistent conformance to

prescribed standards and specifications across the whole range of activities from

receipt, storage, transportation and delivery of products is the cornerstone of PSO's

quality management system. In addition to quality assurance in upkeep and

maintenance of existing facilities, compliance with quality standards is ensured in



13/43


construction of new facilities like recently developed state-of-the-art facilities for

Aviation customers at Lahore Airport.

Health, Safety and EnvironmentEnsuring the health and safety of PSO employees, contractors, customers and

members of public likely to be affected by the Company's operations is one of the

basic corporate objectives, and as a priority it ranks equally with market share and

profit. Accordingly, it is the Company's policy to perform work in the safest

practicable manner, consistent with best industrial practices while adhering

completely to the requirements of health and safety codes and practices. The

Company's Health, Safety & Environment (HSE) Steering Committee monitors

HSE compliance on regular basis while HSE Site Committees ensure that HSE

Requirements are met at all operating locations, including Depots, Terminals,

Plants, Retail Outlets and Airports. Use of relevant safety equipment at work is

mandatory for employees. Regular HSE audit of facilities and HSE training of

relevant staff is carried out and commissioning of new facilities is subject to HSE

clearance. Adequate resources are made available to ensure the success of HSE

policy.



14/43


Short History of PSO

Chronology of Events leading to the formation of: Pakistan State Oil Co. Ltd.(PSO)

01-01-1974

Federal Government takes over management of PNO (Pakistan National Oil) and DPL(Dawood Petroleum Limited), renamed into POCL (Premier Oil Company Limited)

under marketing of Petroleum Products (Federal Control) Act, 1974.

03-06-1974

Government incorporates "Petroleum Storage Development Corporation" PSDC.

23-08-1976

Name of PSDC changed to State Oil Company Limited (SOCL).

15-09-1976

Government purchases ESSO Undertakings, vests their control in SOCL.

(State Oil Company Limited) and names it as Pakistan State Oil Company Limited

(PSO).



15/43




16/43



BOARD OF

DIRECTORS

MANAGING

DIRECTOR

MDS

SECRETARIAT

INTERNAL AUDIT

PURIFICA

TION AND

TRANSMISS

ION

DIVISION

DISTRIBU

TION

DIVISIO

N

ENGINEE

RING

SERVICE

DIVISION

KARACHI

PLANN-ING &DEVEL-OPMENT

PURIFICA-TION

TRANSMI-SSION

COMPRE-SSION

SINDH(EXCL

KARACHI)

CONSTRUCTION

BALOC

HISTAN SERVIC-ES

INFORMATION

TECHNOLOGY

LEGALSERVIC

ES

EXTERNAL

RELATIONS

PROCUREMENT &

INVENTORY

MANAGEMENT

CONSUMERSERVICE

PRIVITIZATION TREA

SURY

BILLING

ADMININISTRATI

VESERVICES

BUDGET

SALES

HUMANRESOU

RCE

ACCOUNTS

COMMERCIAL

DIVISIO

N

MANAGEME

NTSERVI

CE

DIVISION

FINANCEAND

MATERIAL

DIVISION

MEASUREMENT &METERMANUFACTURING

SAFETY,HEALTH &ENVIRONM

ENT

ORGANIZATIONAL CHART OF PSO


17/43


COMPANY OBJECTIVES

1. Excellence

We believe that excellence in our core activities emerges from a passion for satisfyingour customers' needs in terms of total quality management. Our foremost goal is to retain

our corporate leadership.

2. Cohesiveness

We endeavor to achieve higher collective and individual goals through team. This isinculcated in the organization through effective communication.

3. Respect

We are an Equal Opportunity Employer attracting and recruiting the finest people from

around the country. We value contribution of individuals and teams. Individualcontributions are recognized through our reward and recognition program.

4. Integrity

We uphold our values and Business Ethics principles in every action and decision.

Professional and personal honesty, dedication and commitment are the landmarks of our

success. Open and transparent business practices are based on ethical values and respectfor employees, communities and the environment.

5. Innovation

We are committed to continuous improvement, both in New Product and Processes as

well as those existing already. We encourage Creative Ideas from all stakeholders.

6. Corporate Responsibility

We promote Health, Safety and Environment culture both internally and externally. We

emphasize on Community Development and aspire to make society a better place to live

in.



18/43


QUALITY POLICY:

Pso will Continuously Endeavor to Better Satisfy the Needs ofCustomers and Stakeholders and will Promote Innovation, Creativityand Pursuit of Excellence by Employees for Providing Quality Service inall Areas of Company Operations.

CUSTOMER CARE:

We're committed to providing you with a high level ofservice that you might not expect from your local

utility. From our meter readers and service crews toour customer service representatives, all of us arecommitted to providing you with the highest possiblestandard of customer service.

Vision Statement

To excel in delivering value to customers as an

innovative and dynamic energy company that

gets to the future first.

Mission Statement

We are committed to leadership in energy market through competitive advantage in

providing the highest quality petroleum products and services to our customers, based on:

Market leader providing the highest quality petroleum products and

services to its customers

Professionally trained, high quality, motivated workforce, working as a

team in an environment, which recognizes and rewards performance, innovation and

creativity, and provides for personal growth and development

Lowest cost operations and assured access to long-term and cost effective

supply sources

Sustained growth in earnings in real terms



19/43


Highly ethical, safe environment friendly and socially responsible

business practices

PSO Departments

Legal Department

With a view to protect the company as a corporate entity and in order to safeguard thecompany interest and position against all sorts of litigation and other legal matters, the

legal department has, as part of its contribution to the organization's corporate

governance and in order to take necessary, calculated, effective and successful measuresand to overcome the flaws & weaknesses came up with a number of objectives and in

order to achieve the same adopted numerous strategies, and as a result of the

implementation of such strategies the legal department has managed to achieve numberof accomplishments.

Special Projects Department

1. Retail Construction

The Retail Construction department has been responsible for the development of NewVision Retail and Consumer Outlets throughout Pakistan since the inception of the New

Vision Programme in 1999. During the past 5 years PSO completed a total number of

over 1000 NVRO's and another 200 outlets will be developed during the current fiscal

year. Outlets are constructed on fast track basis with some outlets completing within 30days. One outlet was completed in 15 days - an industry record in Pakistan.

2. Retail Facilities

Retail facilities department has always played a vital role in promoting company imagethrough better up keep of retail outlets- especially New Vision Retail Outlets (NVRO's)

and made significant contributions in companies strive to gain market share by means of

reduced forecourt downtime.

Corporate Planning Level

This is no longer a news that PSO's corporate development has been widely

acknowledged as one of the most dramatic examples of corporate turnaround in the

world. Today, PSO is a popular topic of case studies in Pakistan and abroad and one ofthe most sought out sources of corporate advice and guidance in the country. Several

major business enterprises have obtained permission to replicate PSO's Corporate

Planning model. Based on its corporate excellence, PSO ranks among top global



20/43


companies by way of its membership of the World Economic Forum. Qualification for

the Forum's membership, based on stringent and forward looking criteria, is a unique

distinction for PSO as a Pakistani company.

This unprecedented level of corporate accomplishment and such a high international

ranking achieved by a Pakistani company is a product of professional teamwork andoutstanding corporate leadership. Nevertheless, the story of PSO's global renaissance

would be incomplete without due recognition and acknowledgement of the dedicated

professional support of a very high caliber provided by the newly established CorporatePlanning department (CP) of PSO, based on world-class qualifications and high-level

international exposure of CP team.

The legendary rise of PSO to global horizon, duly decorated by global recognition ofcorporate excellence, involved dedicated hard work of highest professional standard in

the following broad areas:

Establishment of a robust framework of the state-of-the-art systems and procedures ofcorporate planning, management and performance review

Without a well-established and competitive framework of corporate systems, no company

can achieve such a high professional ranking that PSO has achieved. Usually, the

companies get such systems developed on a turnkey basis by external consultants, based

on payment of heavy fees and expenses. PSO has a unique distinction of developing andputting in place such systems through in-house teamwork. CP played a key role in this

regard. The in-house systems development enabled PSO professionals to internalize the

systems for effective implementation.

Today, PSO's planning and management structure is highly regarded. In addition to

formulating PSO's first ever Corporate Plan in line with best business practices, CPassisted all the departments of PSO in developing their plans. Today, every department of

PSO, particularly each business unit, has a robust business plan. Together, the Corporate

Plan and departmental plans form a cohesive, dynamic and internationally competitivestrategic framework for good corporate governance.

PSO's systems and procedures have been extensively reviewed and evaluated by leading

international organizations and individuals, who have been involved in study and duediligence of PSO's corporate development. While acknowledging PSO's remarkable

corporate transformation in categorical terms, the independent international Financial

Advisory consortium, JP Morgan, made special references in their InformationMemorandum to the elements of reform established by CP. That Memorandum,

circulated around the world, contained the following statement:

"Significant progress has been made towards putting in place the basic framework for

corporate reform in line with the modern concepts and practices. This includes

streamlining the investment planning process, developing a model for business-wise and



21/43


product-wise profitability analysis and developing a comprehensive corporate plan."

Subsequent to the assessment by JP Morgan, several additional systems and models havebeen developed at PSO, including the Corporate Performance Reporting System (CPR)

and the Capital Resource Planning, Management and Optimization System (Capex

System). CPR operates by way of obtaining and analyzing up-to-date sales and expenseinformation relating to products and business units, translating that information into

comparable benchmarks and conducting comparison of the present level of performance

with past and planned levels of performance. CPR is a powerful analytical tool andcontrol mechanism, which serves as a watchdog to ensure that implementation of the

Corporate Plan is on-course and the performance milestones are achieved in a timely

manner. It helps reconceptualise the corporate business and establish primacy of Strategic

Business Units with clear allocation of responsibility and accountability. Capex Systemfacilitates understanding, development and implementation of Investment Plan as well as

on-line management of capital resources. It helps eliminate the hassle-factor inherent in

manual budget operation, including appropriation, re-appropriation, re-allocation,

contingency utilization, record reconciliation, reporting, and periodic monitoring &review.

While serving as Secretariat of PSO's Management Committee (Man-Com), CP helped

redefine the role and restructure the operations of Man-Com to transform it into an

institution playing a pivotal role in PSO's corporate renewal and market success.

Presentations to Man-Com utilize numeric and graphic depictions of how the companymeasures up not only against the industry but also against itself. Meetings of Man-Com

provide useful corporate exposure and learning opportunity to young professionals, who

are encouraged to participate and present in the meetings.

In recognition of PSO's glaring progress and significance of CP's assistance in this

regard, Mr. Amjad Parvez, General Manager, CP, received invitations to lecture atleading business schools of USA and UK. Professor Thomas W. Dunfee invited Mr.

Amjad Parvez to lecture at the Wharton Business School, USA, in the following words:

"I am delighted to invite you to participate as a guest lecturer in my class the PSO case

you are presenting will enhance the course and promote class discussion."

Compilation of PSO's corporate accomplishments in terms of strategy, structure,processes and performance

This is a prerequisite to sustainable market leadership and professional recognition of acompany. Higher professional and scholarly circles give serious consideration to

corporate reform initiatives only if they are carried out in context of classical and neo-

classical management and organization theories and within the framework of comparativeresearch on corporate transformation. Such corporate modeling and research is

undertaken by world's leading companies, either by establishing internal R&D units

equipped with adequate professional resources, or by assigning the work to international

consulting firms. It is yet another distinction of PSO to undertake and successfully



22/43


complete this work in-house, without external advisory support. CP played a vital role in

this regard.

CP developed a corporate model to work as a capstone on PSO's transformation

initiatives. This model tracks success from corporate policies and management behavior

through employee attitude to customer satisfaction and financial performance. It providesan effective framework for analyzing various elements of PSO's corporate renewal

program in context of classical and modern research. This corporate model triggered and

facilitated various landmark studies on PSO as well as consideration and recognition ofPSO's accomplishments by international forums. This exercise resulted in exponential

rise in PSO's professional reputation and ranking.

In this context, internationally renowned management scholar Professor Roderick Martinacknowledged PSO's remarkable corporate development, in the following words:

"The direction of structural change has been identified, which increased decentralization,

management autonomy and the change from reliance on managerial authority toteamwork and the delegation of responsibility. The purpose of the structural change is to

increase the flexibility of the firm and its ability to respond to different marketconditions."

In addition to playing a vital role in institutionalizing PSO's corporate reform and

securing glittering recognition benchmarks for the Company, CP orchestrated PSO'ssuccess story as a case of exemplary corporate transformation through presentations to

business professionals in seminars on best corporate practices, and lectures at the

advanced courses for senior government officers. CP's relentless quest for corporateexcellence marked a new era of professional dynamism and management excellence in

PSO. The successive waves of value addition, in terms of innovative and high-tech

systems, international studies and global recognitions, rocked the corporate scene.

Aviation & Marine

Our objective is to provide reliable, timely & safe service to all our valued customers.

Technical Support

PSO is in technical & commercial collaboration with Air Total International, Paris, one

of the largest oil companies of the world.

Every year PSO is sending 3 employees to France for Aviation training,

which keeps them abreast with the technological development in the industry



23/43


a) Our Valued Customers

We are proud to serve both national & international air carriers like Aero Asia, Aeroflot,Air France, Air China, Defence Aviation Wings, Emirates Airlines, Gulf Airways, Iran

Air, Kuwait Airways, Pakistan International Airlines, Qatar Airways, Saudi Arabian

Airlines, Shaheen Air International, Singapore Airlines, Swiss Air, Thai Airways andmany other small carriers/charters etc.

In addition to contractual customers, we also accept carnet of Air Total International, AirBP, WFS, UV Air, AVCARD. Aviation Department is proud that

Our quality service has given us a market share of approx. 70% volume inthe aviation industry of Pakistan.

We are in the process of getting ISO-9001/2000 certification for

Islamabad, Lahore, Peshawar, Multan & Faisalabad Airports by 1st quarter of 2004.

Marine Business Line

Marine Business deals in selling of fuels to ships at Karachi & Port Qasim and is also

called the Bunkering Department.

Products

There are 3 major fuels, which are used by the ships for their own use.

BFO (Bunker Fuel Oil) commonly known as Furnace Oil.

MGO (Marine Gas Oil) commonly known as High Speed Diesel.

MDO (Marine Diesel Oil) commonly known as Light Diesel Oil.

Supply of DIESO F-76 (Filtered HSDO) to Pakistan Navy.

A special quality treatment unit - Pre-coat unit was installed in July 1997 to cater entireHSDO (Dieso F-76) requirements of Pakistan Navy for supplying Clear and Bright

Colour filtered HSDO, which not only enhance the life of the machinery but also helps in

preserving a healthy pollution free environment.



24/43


Our Products

Motor Gasoline

Kerosene

High Speed Diesel

Light Diesel Oil

Furnace Oil

Lubricants

Sales Division

Product Movement-The Back Bone of PSOPSO, being a flagship company, carries a strong and wide logistics network to cater 70%

of total country's demand of POL products timely and efficiently, from Karachi to the

remotest areas of the country, through 29 storage points spread throughout the country.

At present, most of the POL product movement is carried through self-owned andoutsourced tank lorries and rest through tank wagons and pipelines. Recently the

adequate availability of alternate fuels like gas has drastically reduced the demand ofFurnace oil by 50% which has resulted in surplus fleet of tank lorries and tank wagons.

1. Financial Ratios - PSO at a glance:

Year 2007 2006 2005 2004 2003 2002

Sales Revenue 195,110 206,376 182,323 195,039 135,040 115,636

Marketing &

AdministrativeExpenses 2,022 1,982 1,411 1,640 1,452 1,153

Profit before

Tax7062 6,263 6,209 5,137 3,451 3,581

Profit afterTax

5002 4,212 4,030 3,188 2,251 2,231



25/43


Capital

Expenditure2516 2,096 1,643 1,430 1,254 967

Shareholders'Equity

14996 14,160 13,063 11,253 9,808 8,986

No. of Shares

Outstanding(in million)

172 172 172 143 143 143

Profitability

Gross Profit

ration% 4.7 4.3 3.7 3.3 4.2 4.5

Net Profit

ration% 2.2 2.0 1.7 1.2 1.7 2.3

Return on

Shareholders'

Equity

% 29.7 30.9 28.3 23.0 24.8 32.6

Return on

CapitalEmployed

% 10.8 13.8 12.1 9.0 8.9 12.2

Return on total

assets% 9.9 12.5 9.7 7.5 7.2 10.4

Asset utilization

Inventory

turnover ration(x) 13.1 19.7 18.7 18.5 16.0 13.1

Debtor


Total asset


Fixed asset

turnover(x) 27.5 34.8 36.3 45.8 37.3 34.4

Investment

Earning per

share24.6 23.5 18.6 15.8 15.6 18.7

Market value

per share256.8 228.4 140.0 132.5 163.0 92.5

Price Earning

ratio(x) 10.4 9.7 7.5 8.4 10.4 5.0

Dividend per

share17.5 16 13 10 10 9



26/43


Leverage

Debt: Equityratio

- - - - - -

Interest Coverratio (x) 34.1 23.6 10.0 10.3 11.3 12.6

Current Ration 1.25:1 1.25:1 1.20:1 1.28:1 1.27:1 1.31:1

Value Addition

Employees asremuneration

1,474 1,403 990 1,292 1,102 776

Government

as taxes50,942 53,699 45,946 52,933 33,923 54,625

Shareholdersas dividends

3,002 2,744 1,858 1,429 1,429 1,072

Retained

within thebusiness

1,210 1,290 1,040 820 800 1,360



27/43


FINANCIAL HIGHLIGHTS 2007

Recorded an all-time high profit before tax of Rs. 11.7 billion

Posted unprecedented profit after tax of Rs. 7.5 billion, up by around 33%

over prior year

Declared an all-time record cash dividend of 340% (Rs. 34 per share) to its

shareholders

Recorded highest Mogas market share in last ten years, i.e. 45.3%.

With an addition of 209 leased retail outlets, the New Vision networkexpanded to 1,459 across the country

Expanded PSO Cards infrastructure to 1,200 Point-of-Sale Terminals in

over 170 cities

Assumed lead role at World Business Council for Sustainable Development

as the first company in the Muslim world to have its CEO on WBCSDs

Business Role Focus Area Core Team

Began the year with full implementation of SAP ERP system.

Won NFEH Award 2005, Help International Trust Award 2005 and

EFP/ILO Occupational Health & Safety Award 2006.

Received Management Excellence Award 2005 from Management

Association of Pakistan.

Rated as AAA (Triple A) company by Pakistan Credit Rating Agency

(PACRA).



28/43


COMPETITOR PROFILE

The Shell brand name enjoys a 100-year history in this part of the world, datingback to 1899 when Asiatic Petroleum, the far eastern marketing arm of two

companies: Shell Transport Company and Royal Dutch Petroleum Company,

began importing kerosene oil from Azerbaijan into the subcontinent. Even today,

the legacy of the past is visible in a storage tank carrying the date - 1898.

Shell Pakistan Ltd. recognizes five areas of responsibility. It is the duty of

management continuously to assess the priorities and discharge these inseparable

responsibilities on the basis of that assessment.

a. To shareholders b. To customers c. To employee

d. To those with whom we do business e. To society

In the line of competition in Pakistan, PSO, Shell Pakistan and Caltex are majorcompetitor to ane an others. PSO and Shell are arch competitors with respect to same

product in market.

Shell Products

Motor Gasoline

Kerosene

JP-1

Green Diesel Oil

Furnace Oil



29/43


SWOT (Strength, Weakness. Opportunities, Threats)

A situation (SWOT) analysis is critical to the creation of any strategic plan. The SWOT

analysis begins with a scan of the external environment. Organization must examine their

situation in order to seek opportunities and monitor threats. Sources on informationinclude customers (internal or external), supplier, government (local, state, international)

professional or trade association (convention and exhibition), journal and reports

(scientific, professional and trade).

SWOT is the assumption and facts on which a plan will be based. Analyzed strengths and

weaknesses comprise the internal assessment of the organization. Assess the strengths of

the organization. What makes the organization distinctive? How efficient is ourmanufacturing? How skilled is our workforce? What is our market share? What financing

is available? Do we have a superior reputation? Assess the weakness of the organization.

What are te vulnerable areas of the organization that could be explored/ Are our facilitiesoutdated? Is research and development adequate? Are our technologies obsolete? What

does the competition do well?

Analyzing opportunities and threats comprises the external assessment of the

environment. Identify opportunities. In which area is the competition not meeting

customer needs? What are the possible new markets? What is the strength of the

economy? What is the strength of the economy? Are our rivals weak? Identify threats. Inwhich area does the competition meet customer needs more effectively? Are there new

competitors? Is there a shortage of resources? Are market tastes changing? What are the

new regulations? What substitute products exist? The best strategy is one that fits theorganizations strengths to opportunities in the environment.

The SWOT analysis is used as a baseline for the future improvement, as well as gapanalysis. Comprising the organization to external benchmarks (the best practices) is used

to assess current capabilities. Benchmarking systematically compares measures such as

efficiency or outcome of an organization against similar measure from other internal orexternal organization. This analysis helps uncover best practices that can bee adopted for

improvement. (See camp, R. C> Benchmarking: The search for industry best practices

that lead to superior performance. Norcross, GA: Industrial engineering and management

press 1993) Benchmaking with other organization can help identify a gap. Gap analysisidentifies the progress required to move the organization can help identify a current

capabilities to its desired future state. In this way, the organization can adapt the best

practices to improve organizational performance.

Strengths

Our vast storage capacity means ensured supplies



30/43


Our strong logistic support meeting huge demands in short time

Our widespread depots and divisions to serve the customer better

Fleet and corporate cards adds value to our customer

Achievements

a) Industrial

Consumer (Head Office) - The First Marketing Department To Be

ISO 9001-2000 Certified

Industrial Consumer is proud to announce that we have achieved ISO 9001-2000

Certification for the Head Office. We are the first marketing department at PSO to be ISOCertified.

This is a great achievement for Industrial Consumer Department. It will help improve our

processes as well as further enhance our image with our customers. The QualityManagement System will help us streamline our processes to improve efficiency and be

PRO-active rather than RE-active. This will directly benefit our customers in terms of

improved service quality.

b) Pakistan Steel

Mills Business Gained

Pakistan Steel Mills is one of the most sought customers by OMCs in Pakistan. Having

business of Pakistan Steel Mills not only adds prestige to that particular OMC but alsosignificantly improves that OMC's market share and overall standing. Pakistan Steel

Mills is the largest POL consuming manufacturing facility in Pakistan. After long and

intense series of negotiations, we have gained considerable business of Pakistan SteelMills.

c) PSO Fleet and

Corporate Cards

With a view to provide a Total Solution to our IC customers, we have launched the

PF&CC in March 2003. This is a technical and innovative product geared towards better

management of IC customers' fleet. Through the PF&CC, the IC customers can utilize theservices of the wide range of stations in the major cities. It offers convenience and time-

saving to our customer. The PF&CC allows setting of credit limits through increased

monitoring for the clients.

IC is Proud that

More than 2,000 industrial units & business houses are being catered through PSO'sIndustrial Consumer department

We are serving all the existing industries in Pakistan through quality products andtechnical back up



31/43


We are utilizing Fleet and Corporate cards for giving more benefits to our customers

exclusively

IC Department is being ISO Certified to improve the quality of service

Our People

We have a team of well-qualified professionals who are dedicated to achieve the tasksassigned to them most efficiently.

Our people are our strength. We have a customer-focused approach to decision making.

We believe in teamwork to accomplish tasks and encourage empowering our team to take

timely decisions. Together we work as a team to achieve our objectives.

Power Projects Department

PSO's Role in the Power Sector

The primary source for generation of Thermal Power Stations is through Furnace Oil.

The demand of FO depends on the electricity generation from the FO powered plants

after having exhausted available generation from Hydel, Gas, Nuclear and Coalresources. The reason being, FO generation is the most expensive as compared to other

sources.

In 1994, PSO was the only OMC which made huge investment of around 2.2 billion andaggressively entered the power sector and captured a market share of approximately 88% by supplying product to all power plants from its state of art oil installations at

Zulfiqarabad and from up country Depots and Installations.

Products Handled

High Sulphur Furnace Oil-(HSFO) Low Sulphur Furnace Oil-(LSFO)

High Speed Diesel (HSD)\ Lubricants

a) Nature Of Business

Non Contractual Business (WAPDA)/(KESC) Contractual Business (IPPs)

b) Power Customers



32/43


RPPL (Rousch Power Co. Ltd.)-Abdul Hakim AES (AES Lalpir Ltd. & AES Pakgen (Pvt.) Co. Ltd)-Lalpir SABA (Saba Power Co. Ltd.)-Farooqabad

KEL (Kohinoor Energy Ltd.)-Raiwand

JPGL (Japan Power Generation Ltd.)- Raiwand SEPCOL (Southern Electric Power Co. Ltd.)- Raiwand

TEL (Tapal Energy Ltd.)-Karachi GAEL (Gul Ahmed Energy Ltd.)-Karachi HUBCO (Hub Power Co. Ltd.)-Hub River Road Baluchistan

KAPCO (Kot Addu Power Co. Ltd.)-Kot Addu

WAPDA (Water and Power Development Authority)- At various locations

in Pakistan KESC (Karachi Electric Supply Corporation)-Karachi

Graphical Presentation Of Power Sector Scenario


PSO Contribution in FO Industry (2006-2007)

PSO

90%

APL

3%TPPL

3%

SPL0%

COPL4%


33/43


Source: OCAC


F O S a le s B re a k u p o f P o w e r S e c to r (2

P r i v a

P o w e

3 0 %

K E S

1 9 %

K A P C

( L S F O

9 %

H U B C

1 1 % W A P D

3 1 %


34/43


Source: OCAC

Source: PSO


FO Sales Breakup of PSO (2006 - 2007)

ROAD

TRANSPOR

26%

KESC

0%KAPCO (LSFO)

0%

HUBCO

20%

Private Power

24%

WAPDA

30%


35/43


Corporate Profile

Founded in 1976, PSO has inherited a wealth of experience in oil marketing from itspredecessor companies - PNO, POCL and SOCL.

With 32 depots and terminals, nearly 4,000 outlets and more than 8,500 enlisted tanklorries, PSO enjoys 67% of total market share of petroleum products in the country. A

well-established infrastructure, at par with international standards, provides PSO an edge

over its competitors.

During the last 3 years, PSO has undergone a radical change and has emerged with a new

corporate outlook as a market leader with a long-term vision. It is a blue chip company

with market capitalization of around Rs. 48-50 billion (USD 825-860 million).

1. Corporate Governance Model

In order to establish good corporate governance framework, the Ministry of Petroleum &

Natural Resources has reconstituted the Board of Management (BoM) of PSO by giving

it the autonomy to run the company on a professional and commercial basis. The Boardcomprises ten members - two each representing the government and the public sector

financial institutions, and six from the private sector.

The Board is responsible for management and control of the company business. It meetsperiodically to comply with the statutory requirements of the national legislations and the

Memorandum and Articles of Association of the Company, and to meet the requirementsof the shareholders. The Board is assisted by three Board Committees in its decision-making process - the Board Audit Committee, the Board Finance Committee and the

Board Human Resource Committee.

The Board Audit Committee reviews, amongst other areas, management policies and

practices to ensure adequacy and effectiveness of the companys system of internal

controls. It also reviews business ethics violations, conflict-of-interest issues andirregularities as well as managements compliance with relevant policies set by the BoM.

The Board Finance Committee reviews and evaluates the financial performance of the

company as well as major projects and plans, based on economical viability oroperational necessity, as directed by the Board of Management.

The Board Human Resource Committee is responsible for developing a sound

organizational plan for the company, and effective employee development programs,compensation and benefits plans and policies that would help attract and retain high

quality professionals.



36/43


PSOs current BoM is fully autonomous with the statutory powers under the Companies

Ordinance 1989.

In addition to these Board Committees, the following committees assist the Management

of PSO:

Management (Man-Com) and Executive (Ex-Com) Committees

Compensation, Organizational & Employee Development (COED)

HSE Steering Committee

Audit Committee

SAP and Purchase Committees

Cross-Functional Teams

2. Financial Performance

Effective implementation of corporate reform and business development strategies, in

line with best international practices, enabled PSO to maintain its market leadershipposition in a highly competitive business environment. Accordingly, PSO increased its

market share in key products, including Mogas, HSD and Jet A-1.

PSOs sales revenue during FY03 surged to Rs.206.37 billion; up by 13.2 % over prioryear. The company earned highest-ever profit before tax of Rs.6.21 billion, up by 20.9%,

while the profit after tax reached an all-time high figure of Rs.4.03 billion, up by 26.4%.

Based on this remarkable financial performance, the company announced a final cash

dividend of Rs 7/- per share (70%) to its shareholders, resulting in total dividend of 160%

for the whole year, as against 130% cash dividend plus 20% bonus shares declared duringthe preceding year.

The company spent Rs 1,643 million during FY03 to expand its retail network and

enhance infrastructure along with sizeable expenditure on information technology.

During the period under review, PSO contributed approximately Rs.54 billion to the

national exchequer in terms of taxes, duties, dividends and levies thus supporting thegovernment in its revenue generation targets.

Other performance indicators like Return on Assets, Return on Capital Employed andReturn on Equity reveal that PSO has outperformed its competitors in terms of operating

performance.

PSOs impressive business performance has resulted mainly from the managements



37/43


thrust on increased operating efficiency, concentration on higher margin products,

expansion of new product lines and services, and margins.

Our Plans in 2006:07



38/43


Energy conservation

Use and promotion of renewable energy resources

We plan to improve our performance matrix to make the results

measurable

Solid waste management of PSO House

Waste treatment plant for Zulfiqarabad Oil Terminal

Oil separators at our New Vision Retail Outlets

Purchasing based on environmental concerns

Training program in tackling oil spills

Induction of Tier-1 oil spill equipment at Installations

Gender Justice

The company has ensured environment conducive to, and free from, gender

discrimination and harassment. Recently the management enforced Gender Justice Code

of Conduct for safe working condition for one of the important stakeholders of thecompany. This has contributed to further enhancing the confidence of female employees.

The commitment to gender justice is practically reflected in PSOs recruitment andpromotion policy.



39/43


Bibliography:

Global Network:

http://www.psocl.com/

(Pakistan State Oil Company Limited)

http://WWW.kse.com.pk

(Karachi Stock Exchange Pakistan)

http://www.Google.com

Books and Journal

Annual Report of Pakistan State Oil Company Limited

VISSION - A PSO Magazine

Management - A Global Perspective



40/43


Appendix


Sales Revenue

195,110

206,376

182,323

195,039

135,040

115,636

0

50,000

100,000

150,000

200,000

250,000

2007 2006 2005 2004 2003 2002

Year

Am

ountinFigua


41/43



Marketing & Administrative Expenses

2,0221,982

1,411

1,640

1,452

1,153

0

500

1,000

1,500

2,000

2,500

2006 2005 2004 2003 2002 2001

Year

AmountinFigua

Net Profit ration

2.2

2

1.7

1.2

1.7

2.3

0

0.5

1

1.5

2

2.5

2007 2006 2005 2004 2003 2002

Year

AmountinFiguar


42/43




43/43


Fixed asset turnover

27.5

34.8

36.3

45.8

37.3

34.4

0

5

10

15

20

25

30

35

40

45

50

2007 2006 2005 2004 2003 2002

Year

AmountinFiguar

Documents

25047923 Pakistan State Oil Company