GMI Ratings for BPCL 

September 7, 2010 
 
 

   

GMI Ratings 
for BPCL
 

Submitted to – Dr. Swati Jain 
 
Submitted by‐   IBS, 
Arpita Sharma    (09bshyd0166) 
Ruhi Vadhera      (09bshyd0700) 
Hyderabad 
Rishabh Agarwal (09bshyd0667) 
 

1 

BECG Project | IBS, Hyderabad 
 
 GMI Ratings for BPCL 
September 7, 2010 
 

Bharat Petroleum Corporation Limited                    
Bharat Petroleum Corporation Limited (BPCL) is engaged in the petroleum industry in India.
During the fiscal year ended March 31, 2009 (fiscal 2009), the aggregate refinery throughput at
BPCL’s Refineries at Mumbai and Kochi, along with that of BPCL’s subsidiary company,
Numaligarh Refinery Limited (NRL), was 22.20 million metric tons. The company is engaged in
downstream petroleum sector, which consists of refining and marketing activities. Bharat
Petroleum is considered to be a pioneer in Indian petroleum industry with various path-breaking
initiatives such as Pure for Sure campaign, Petro card, Fleet card etc. Bharat Petroleum produces a
diverse range of products, from petrochemicals and solvents to aircraft fuel and speciality
lubricants and markets them through its wide network of Petrol Stations, Kerosene Dealers, LPG
Distributors, Lube Shoppes, besides supplying fuel directly to hundreds of industries, and several
international and domestic airlines. BPCL holds 61.65% interest in NRL as on March 31, 2009.
BPRL, a 100% subsidiary of the Corporation, holds 50% equity in V B (brazil) Petroleo Private
Ltda , a joint venture company. BPCL has participating interests in nine exploration blocks. Its
subsidiaries include Bharat PetroResources JPDA Limited, BPRL International BV, BPRL
Ventures BV and BPRL Ventures Mozambque BV.

Primary Listing NSE

Market Cap 27849.59Crs

Market Sector Petroleum

Rating
Overall Rating 3

Board Accountability 2.5

 Financial Disclosure and Internal Controls 3

Shareholder Rights 1.5

Remuneration 1
Market for Control 2.5

Corporate Behavior 4.5

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 GMI Ratings for BPCL 
September 7, 2010 
 

GMI Ratings: 
Overall Rating 3
Board Accountability 2.5
Financial Disclosure and Internal Controls 3
Shareholder Rights 1.5
Remuneration 1
Market for Control 2.5
Corporate Behavior 4.5

• Here each factor has been given an equal weight age of 10.
• Various questions have been included within all the factors where each favorable answer
attracts one point.
• Since each factor has different number of questions, therefore every factor then has been
scaled down to 10.
• Average of all the factors is then taken in order to calculate the overall rating of the company.

How to Interpret the Rating? 

The company is rated on a scale of 1.0 (lowest) to 10.0 (highest).

A rating of 9.0 or higher is considered to be well above-average.

7.5 to 8.5 is considered to be above-average
6.0 to 7.0 is considered average
3.5 to 5.5 is considered to be below-average
3.0 Or less is considered well below-average

   

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 GMI Ratings for BPCL 
September 7, 2010 
 

Summary of Key Governance Features                   
Overall  

BPCL has an average Corporate Governance Profile as it maintains a good mix of independent
and non-independent directors in its board. BPCL has an average overall rating of 3 on a scale of
1-5, measuring the level of corporate governance in a company

The board meets the requirement of Clause 49 of the Listing Agreement and has 7 independent
members in its board. It also has over-boarding limits specified for its directors, so that there
management of BPCL is as efficient as possible. The over-boarding limits are in sync with
Clause 49. Therefore BPCL has a decent rating of 3

BPCL’s audit committee comprises entirely of independent directors and the director at the chair
of the committee has sufficient financial and accounting knowledge. BPCL also makes it
necessary for chief executives and chief financial officers to establish and maintain internal
controls and implement remediation and risk mitigation towards deficiencies in internal controls,
among others. BPCL has good financial disclosures and strong internal controls when compared
with other similar players in the Indian market and therefore it has a good rating of 3

BPCL has a low rating in terms of Shareholder rights as it does not disclose any information
about the voting rights

BPCL is again red flagged for Remuneration as it has no stock option plans for its directors and
their performance targets are also not disclosed making it difficult to monitor their performance.
BPCL has a rating of 1 for remuneration

Although BPCL has a majority share holder which means that other shareholders have limited
control over critical company matters, the majority shareholder is in the form of Central
Government. This also makes hostile takeovers impossible. It also has a staggered board and
hence a decent rating of 2.5

BPCL’s corporate behavior has been excellent. They have disclosed all their CSR activities at
length in their annual report. It has actively been involved in various community initiatives and
has good environmental policies in place. BPCL has made sure that it continuously meets the
stringent emission limits set by the government in spite of continuously increasing its refining
capacity

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 GMI Ratings for BPCL 
September 7, 2010 
 

Board Accountability (Rating: 2.5) 
Combined Chair/MD Yes The company discloses an over- Yes
boarding policy limiting the number
of directorships held by executive
directors
Has a designated "lead" or senior No At least one director serves on the Yes
non-executive director boards of four or more public
companies

Non-executive Chair No Executive Chairman, Chief Yes

Directors subject to rotation and
election by all shareholders
Uses, or has adopted, some
form of majority voting in the
election of directors
Discloses corporate governance
policies or guidelines
All directors attended at least
75% of the board meetings and
committee meetings in the last
fiscal year
Executive Officer or Managing
Director (as applicable) serves on
the boards of three or more public
companies
Yes Related-party transactions involving No
officers or directors in the past three
years
Yes Discloses a code of ethics for Yes
senior executives or the employee
code of ethics also covers senior
executives
Yes The company discloses an over- Yes
boarding policy limiting the number of
directorships held by non-executive
directors
Yes All non-executive directors own shares No
after excluding options held

Although BPCL has a majority shareholder, it is in the form of the Central Government and its
board also consists primarily of independent directors. Therefore majority voting rights with one
shareholder is not a corporate governance concern for BPCL as it directors can work independently
and give sufficient independent insight to the working of BPCL.

BPCL discloses its corporate governance guidelines, as it is mandatory under Clause 49 of the

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 GMI Ratings for BPCL 
September 7, 2010 
 
Listing Agreements and Department of Public Enterprises. BPCL annexes a Report on Corporate
Governance along with the Auditor’s Certificate for compliance with corporate governance
guidelines making it easy to ascertain what governance controls have been put in place to protect
the interests of shareholders.

The directors of BPCL change by way of rotation at annual general meetings with the approval of
the shareholders. There’s a proper performance evaluation mechanism in place for the directors at
BPCL and a part of their pay is also linked to their performance. All independent directors of BPCL
have a maximum tenure of not more than 3 years

Every director attended at least 75% of the board and committee meetings in the last fiscal year.
There were 8 board meeting held in the previous fiscal year and the lowest attendance for any
director was 75%. Only Mr. P.H. Kurian and Mr. S.A. Narayan were able to attend only 75% of the
meetings. Everyone else attended at least 7 out of the 8 meetings held

Although there are 2 directors who serve in the board of 4 or more Public Limited Companies and
the Chairman and M.D. of the company, Mr. S Radhakrishnan is in the board of 4 Public Limited
Companies, all these are BPCL’s subsidiaries.

None of the non-executive directors of BPCL have any pecuniary relationship/transactions with the
company. The details of any related party transactions are also given in the Notes forming part of
Accounts

BPCL has not introduced any Stock Options Scheme and its Non Executive directors do not hold
any shares in the company

As required by SEBI the company has a Code of Conduct, Procedure and Disclosure for prevention
of Insider trading in its securities and a Code of Corporate Disclosure Practices in place and a
Company Secretary has also been appointed as the Compliance Officer for implementation of the
said codes

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 GMI Ratings for BPCL
September 7, 2010
Financial Disclosure and Internal Control  
Rating: 3 
Number of independent directors as per
requirement of CPSE
At least one non-executive member of
the audit committee has expertise in
accounting or financial management
Non-executive members of the audit
committee with expertise in accounting
or financial management form a
majority of the committee
Chair of the audit committee is non-
executive and has expertise in
accounting or financial management
Someone other than senior management
(such as the audit committee,
shareholders or the board) has sole
authority to hire and fire the company’s
outside auditor
Non-executive members of the audit
committee with substantial industry
knowledge form a majority of the
committee
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Yes Chairman of the audit committee is Yes
non-executive and has substantial
industry knowledge
Yes Has taken two or more unusual and No
non-recurring charges (representing
five percent or more of revenue, five
percent or more of shareholders equity
(net assets) or more than $500M in
total) within the last three years
No At least one non-executive member of Yes
the audit committee has substantial
industry knowledge
Yes Audit committee has sole authority to Yes
approve any non-audit services from
the company's outside auditor
Yes Makes comprehensive disclosures on No
its enterprise risk management policies
(ERM) in its annual report or in other
publicly available sources
Yes The board has adopted a separate No
committee or subcommittee
responsible for oversight of risk
management
 GMI Ratings for BPCL 
September 7, 2010 
 

Audit Committee 
BPCL took the initiative to introduce Corporate Governance in the organization during the year
1996 itself, by constituting the Audit Compliance Committee. The said Committee was
reconstituted and renamed as the Audit Committee in the year 2000 and the role, powers and
functions of the Audit Committee were specified and approved by the Board. Presently, the
Audit Committee comprises four Part-time (Independent) Directors as per the requirement of
Clause 3.1.4 relating to the number of Independent Directors on the Board of Directors of the
Company. In case of CPSEs listed in Stock Exchanges, the number of independent directors shall
be at least 50% of Board Members.

Prof. A.H. Kalro is the Chairman of the Committee and Prof. A.H.Kalro and Prof. N.
Venkiteswaran of the audit committee possess the requisite knowledge of Finance & Accounting
for effective functioning of the Audit Committee and have enough industry experience. The
terms of reference of the Audit Committee cover all matters specified in Clause 49 of the Listing
Agreement. Under this agreement one of the clause mentions that it would be necessary for chief
executives and chief financial officers to establish and maintain internal controls and implement
remediation and risk mitigation towards deficiencies in internal controls, among others. The
auditors have the responsibility of recommending to the Board, the appointment, re-appointment
and, if required, the replacement or removal of the Statutory Auditor (M/s. B.K.Khare & Co)
and the fixation of audit fee

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 GMI Ratings for BPCL 
September 7, 2010 
 

Shareholder Rights 
All common or ordinary equity shares Yes Shareholders can appoint a Yes
have one-share, one-vote, with no proxy in his absence
restrictions
Has Investors’ Grievance mechanism in Yes Confidential voting with no Not
the company or reasonable exceptions disclosed

Mechanism for prohibiting insider trading Yes Related party disclosure Yes

Has the Company adopted requirements Yes Voting rights different Not
with regard to sending of quarterly/half depending on the duration of disclosed
yearly financial results to the ownership
shareholders of the Company

In order to give wider publicity and to reach the Shareholders and other investing public across
the nation, the half yearly and quarterly results of BPCL are published in various editions of
leading newspapers having wide circulation such as The Economic Times, The Times of India,
The Hindu, The Financial Express etc. Reports on Limited Review were obtained from the
Auditors of the Company and filed with the Stock Exchanges. The Financial Statements were
also sent to all Shareholders at their registered addresses. In order to protect the interest of all
shareholders in Pursuant to the requirements of SEBI (Prohibition of Insider Trading)
Regulations, 1992 as amended, the Company has adopted the ‘Code of Conduct, Procedure and
Disclosures for Prevention of Insider Trading in the Securities of Bharat Petroleum Corporation
Limited’ and ‘Code of Corporate Disclosure Practices’. The Company Secretary has been
appointed as the Compliance Officer for implementation of the said Codes. The company has
made Related Party disclosures as per Accounting Standard 18 in the financial statements
attached to the report in schedule X. A Member entitled to attend and vote at the Meeting is
entitled to appoint a proxy or proxies to attend and vote instead of himself and such proxy need
not be a Member. Proxies, in order to be effective, should be duly completed & affixed with the
revenue stamp and be deposited at the Registered Office of the Company not less than forty eight
hours before commencement of the Meeting. There is Investors’ Grievance Committee in the
company, comprising of Prof. A.H.Kalro, Director, and Shri S K Joshi, Director (Finance), who
monitors the Shareholders’/Investors’ complaints and redress their grievances. The Company
Secretary acts as the Compliance Officer for matters related to investor relations.

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 GMI Ratings for BPCL 
September 7, 2010 
 

Market for Control (Rating 2.5) 
 

Single shareholder controls or Yes Has adopted a shareholder rights plan No

shareholder group acting ("poison pill")
together control over 50% of the
company's voting power

Involved in a series of cross- No Shareholder rights plan ("poison No

shareholdings with other (related
or unrelated) companies
Yes
Has a staggered ("classified") board
pill") has been ratified by a
shareholder vote
Shareholder rights plan includes a No
TIDE provision or a
three-year sunset provision

Directors can be removed without No Shareholder rights plan includes a No

cause provision allowing it to be
redeemed by a vote of the majority of
shareholders other than
the potential acquirer ("chewable"
pill)

Fair price provision is in place or No The company has a unilateral right to No

the company is subject to fair amend the
price protection under applicable by-laws/articles of
law association/constitution without
shareholder
approval
 

• The government of India holds around 55% shares in the company and so the major voting
power is in the hands of government only.
• The company has no right plan till date. It has not issued any plan and nothing is due.
• The company’s board is a staggered one. The company has both government nominated and
independent director with individual charge. Such as finance, human resources, refineries and
marketing department. The company has many directors from ministries also.

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 GMI Ratings for BPCL 
September 7, 2010 
 
• The directors cannot be removed without the consent of the government. Normally the
director is removed or changed if his term expires. The government has all the say in these
matters.
• The company has no fair price protection law.
• The company cannot amend the laws / articles of the companies without government’s
approval. The government with majority control has all the say.
   

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 GMI Ratings for BPCL 
September 7, 2010 
 

Remuneration (Rating 1) 

Remuneration committee wholly No Shareholders have the ability to affect No

composed of independent remuneration policy through
members shareholder approval of the
remuneration committee
report,

Discloses specific numeric No The remuneration committee has No

performance targets for the discretion to alter the criteria and/or
upcoming fiscal year for at least incentive targets for management after
one of the performance being established or has power to grant
objectives (not just a target incentives or bonuses on a
award percentage of salary) discretionary basis.

Discloses a policy requiring No Claw back policy for any bonuses, No

company executives to retain
some or all of the shares
acquired through stock options
for a period of time after the
options have been exercised
options and/or other compensation
based on accounts that end up being
restated at a later date

The retention period for some or No Discloses stock ownership guidelines No

all shares issued upon exercise of for the CEO
stock options is 3 years or longer

Some or all shares issued upon No Discloses stock ownership guidelines No

exercise of stock options are for the rest of senior
required to be held until Management
retirement

Discloses a policy requiring No Discloses stock ownership guidelines No

company executives to retain for non-executive
some or all of restricted shares Directors

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 GMI Ratings for BPCL 
September 7, 2010 
 
for some time after they have
completed their performance
conditions

The retention period for some or No Percent potential dilution as a result of No

all restricted shares that have stock options Outstanding
met all performance conditions is
3 years or longer

Some or all restricted shares that No Percent potential dilution as a result of No

have met all performance stock options outstanding, plus stock
conditions are required to be held options approved for grant but not yet
until retirement granted
 

• The government appointed panel fixes the remuneration for the directors and senior level
management. The directors have no say in the management though they can be in the panel
or can be consulted.
• The company has no stock option plan for employees as per the rules till date.
• Majority of the shares are with the government so the shares can be diluted only with their
permission.
• All the policies requiring remuneration is subject to government rules.

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 GMI Ratings for BPCL 
September 7, 2010 
 

Corporate Behavior (Rating 4.5) 

Involvement in community initiatives Yes Has mechanism to address the Yes

Company (or a current or former senior
executive) has pending criminal litigation
against it, has been found guilty within
the last 3 years, or has pled the equivalent
of no contest in such litigation in the past
three years, or has been under criminal
investigation within the last 3 years
employee related issues
No Company (or a current or former senior No
executive) has been subject to a formal
regulatory investigation for a material
issue other than for accounting
irregularities within the last year

Discloses its workplace safety record in No Has been charged with three or more No
the annual report or in another form serious workplace safety violations
accessible to shareholders within the last two years
Discloses its environmental policies Yes Discloses its related party transaction Yes

Discloses its environmental performance Yes Discloses its policy regarding corporate No
level political donations

BPCL environment policies are excellent. On the environment front, a notable initiative by
BPCL has been the commissioning of a Single Point Mooring (SPM) facility, located 19.4 km
offshore, at Kochi refinery to facilitate crude transfer. This facility has allowed them to bring in
very large crude carriers, thereby achieving freight economics and the likelihood of oil spillage is
also minimized. At Numaligarh they have invested in the development of a pipeline from the
refinery to Siliguri which will reduce the leakages associated with transportation through rail and
road. The Mahul refinery continues to maintain the same stringent emission limits in spite of
employing heavier crude while increasing the refining capacity to 106.2%. In all these efforts,
the concomitant environmental impacts have been reduced.

BPCL has initiated various CSR activities in employee related issues. Some of them are

• Counselling-BPCL has initiated counselling to overcome the different problems of

employees at work.

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 GMI Ratings for BPCL 
September 7, 2010 
 
• Addiction- With the rising awareness about employee welfare and raising the quality of
work, various companies today make efforts to reduce addictions. BPCL has been one of
the first companies to engage in continuous endeavours to help their addicted employees
to overcome their problems
• Women Empowerment

Also BPCL discloses the Related Party transactions as per Accounting Standard 18
Some of the community initiative of BPCL includes providing equal opportunity to people
with disabilities, providing disaster relief and rural development.

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