Phase 1 projects are "quick wins" that would add value to LPG streams from current refinery in Vadinar by transforming them into petrochemicals and high-value gasoline blending components. As part of Phase-1, Nayara Energy proposes to add the following petrochemical units:

• a Propylene Recovery Unit (PRU),
• a Polypropylene Unit (PP),
• a Methyl-Tert-Butyl-Ether (MTBE) Unit and
• revamp of the Fluid Catalytic Cracking Unit (FCCU) to generate the required petrochemical feedstock. The proposed configuration will allow in the short term to improve the financial performance of the business.

The Company's investment will give it a competitive edge, both in domestic market and internationally. The proposed solution for producing polypropylene will benefit from comparatively low capex and the advantaged feedstock from the refinery, securing us a top quartile position on the international cost curve.

Current Price Gross Refinery Margin (CP GRM) was lower at USD 6.97/bbl in FY 2018-19 as against USD 8.95/bbl in FY 2017-18. Earnings before interest, tax, depreciation and amortisation (EBITDA) was lower by 36% to ₹ 44,977 million from ₹70,228 million in the preceding financial year mainly on account of lower margin and higher forex fluctuation loss.

The Company earned a profit after tax (PAT) ₹ 3,442 million in the current financial year against PAT of ₹ 5,320 million in the preceding financing year.

Considering the accumulated losses of previous years, the Board of Directors has not recommended any dividend for the financial year ended March 31, 2019. Further, no amounts are proposed to be transferred to the General Reserve except for transfer of ₹ 2 million from Debenture Redemption Reserve to General Reserve, during the financial year.

Standalone and Consolidated Financial Statements

The audited standalone financial statements, prepared as per Indian Accounting Standards (Ind AS) for the financial year ended March 31, 2019, form part of the Annual Report.

The audited consolidated Financial Statements of the Company, as required under Section 129 of the Companies Act, 2013 (Act), also form part of this Annual Report.

Ownership

Nayara Energy does not have any holding company. Rosneft Singapore Pte. Limited (formerly known as Petrol Complex Pte. Ltd.), a subsidiary of Rosneft Oil Company and Kesani Enterprises Company Limited, a consortium led by Trafigura Group and UCP Investment Group, continue to hold 49.13% shareholding each in share capital of the Company.

Subsidiary Companies

Pursuant to the Order passed by Hon'ble National Company Law Tribunal approving the Scheme of Amalgamation on October 30, 2018, Vadinar Power Company Limited ("VPCL") and Nayara Energy Properties Limited ("NEPL"), wholly owned subsidiaries of the Company have merged with the Company, effective November 30, 2018. During the year, the Company acquired balance 49% stake in share capital of its subsidiary, Coviva Energy Terminals Limited (formerly known as "Vadinar Liquid Terminals Limited"). Consequent to this acquisition, Coviva Energy Terminals Limited became a wholly owned subsidiary of the Company. There was no other change in the position of subsidiary companies during the year. The Company does not have any associates.

A report on the performance and financial position of each of the subsidiaries, in Form AOC -1, forms part of Annual Report and hence is not repeated here for the sake of brevity.

Post end of the financial year, the Board of Directors of your Company at its meeting held on July 24, 2019 in terms of the provisions of section 230 and 232 of the Companies Act, 2013 approved a Scheme of Amalgamation of its subsidiary, Vadinar Oil Terminal Limted (VOTL) with the Company, subject to receipt of approval of shareholders and other regulatory approvals. VOTL owns and operates the port and crude / product handling and storage facilities.

The Financial Statements of the subsidiaries as on March 31, 2019 and other related information will be made available to any member of the Company / its subsidiary(ies) seeking such information at any point of time and are also available for inspection by any member at the Registered Office / Corporate Office of the Company.

Share Capital

Pursuant to the Scheme of Amalgamation with the Company, which became effective on November 30, 2018, the authorized share capital of VPCL and NEPL was combined with the authorized share capital of the Company.

Accordingly, the authorised Share Capital of the Company stands increased to ₹ 90,007 million. There is no change in the subscribed and the paid up share capital of the Company.

Issue of Non-Convertible Debentures

The Company successfully completed its maiden issue of debt securities in the domestic bond market on August 2, 2018, with the allotment of 2,400 Secured, Unlisted, Redeemable Non-Convertible Debentures of ₹ 10 million each at par aggregating ₹ 24,000 million on private placement basis.

Building a Strong and Balanced Culture

Nayara Energy undertook a culture shaping exercise in collaboration with Spencer Stuart, a premier leadership advisory and executive search firm. The culture survey results show the Company to be a balanced organization, both result orientated as well as caring. The Company believes in building relationships based on trust and respect for employees across all levels. This in turn ensures we are focused on the right things to drive success and deliver results.

The culture survey emphasized retaining focus on results and caring, and work towards strengthening the elements of learning and purpose. The following initiatives have been progressed in this Culture sharping journey

• Capability needs mapping against target results
• Digital solutions for learning and continuous development
• Behavioural interventions such as targeted Leadership coaching - for executive employees

Compensation and Benefits

The Company also conducted compensation benchmarking and restructuring to build market parity and enable high performance. Apart from Group term life insurance for employees, the Company also introduced an extended medical insurance for parents/parents-in-law, along with spouse and children. The Company is also exploring new ways to leverage Digital at work.

In accordance with ‘The Sexual Harassment at Workplace (Prevention, Prohibition and Redressal) Act, 2013' ['Prevention of Sexual Harassment (POSH) Act'], the Company has set up POSH Committee in Mumbai and Vadinar to promote a safe working environment.

The Company emphasizes the need for regular awareness through sensitization sessions for both male and female employees.

Online mandatory module on POSH was also launched along with periodic employee communications. We had no POSH complaints registered in the current financial year.

The Company has constituted a Corporate Social Responsibility (CSR) Committee named the CSR, Safety and Sustainability Committee. The Board of Directors, on the recommendations of the Committee, has adopted a CSR Policy identifying activities to be undertaken by the Company. The policy can be accessed on the Company website at https://www.nayaraenergy.com/sustainability/csr-policy

The annual report on CSR containing the details of the CSR Policy adopted by the Company, and other particulars specified in the companies (Corporate Social Responsibility Policy) Rules 2014, is annexed to this Report as Annexure A. In line with the Company’s CSR policy, the Company's CSR interventions span across Livelihoods, Education, and Health & Sanitation. From a CSR budget of ₹ 211 million for the financial year 2018-19, ₹ 90 million was spent. Efforts to sharpen and develop an integrated plan for local programmes, to make a long term sustainable impact in the communities have resulted in a lower spend.

As part of its sustainability mission, Nayara Energy launched a revolutionary climate-smart agriculture project in partnership with the Government of Gujarat. The project aims to double farmer-income through integrated water resource management, soil quality improvement and crop diversification techniques. Going ahead, the project plans to revamp 11000 hectares in 15 villages of Devbhoomi Dwarka district with an endeavor to make the region water neutral by 2026.

Directors

Mr. Didier Casimiro, nominee of Rosneft Singapore Pte. Limited was appointed as Director w.e.f. July 5, 2018 in place of Mr. Marcus Cooper. In accordance with the nomination received from Kesani Enterprises Company Limited, Mr. Alexander Bogdashin was appointed as Director w.e.f. October 9, 2018 in place of Ms. Elena Sapozhnikova. Mr. Alexey Karavaykin, nominee of Rosneft Singapore Pte. Limited was appointed as Director w.e.f. December 28, 2018 in place of Mr. Andrew Balgarnie.

Pursuant to a letter received from Life Insurance Corporation of India withdrawing nomination of Mr. R. Sudarsan from the Board of the Company, Mr. Sudarsan ceased to be Director of the Company w.e.f. February 1, 2019.

The Board wishes to place on record its appreciation for the valuable services rendered by Ms. Elena Sapozhnikova, Mr. Andrew Balgarnie, and Mr. R. Sudarsan during their tenures as Directors of the Company.

The Company has received declarations of independence as stipulated under Section 149 (6) of the Act from both the Independent Directors.

Directors’ Responsibility Statement

Pursuant to the provisions of Section 134(3)(c) of the Act, it is hereby confirmed that:

• In the preparation of the annual accounts for FY 2018 – 19, applicable accounting standards have been followed along with proper explanation relating to material departures.
• The Directors had selected such accounting policies, and applied them consistently and made judgments and estimates that are reasonable and prudent so as to give a true and fair view of the Company’s state of affairs at the end of FY 2018 – 19 and of the profit and loss for the same period.
• The Directors had taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of the Act to safeguard Company's assets and prevent and detect fraud and other irregularities.
• The Directors had prepared the accounts for the year ended March 31, 2019 on a 'going concern' basis.
• The Directors had devised proper systems to ensure compliance with the provisions of all applicable laws, and that such systems were adequate and operating effectively.

Policy on Appointment of Directors and Remuneration

The Board has adopted a policy for appointment, remuneration, training, and evaluation of Directors and employees. The policy, interalia, includes the criteria and procedures for selection, identification and appointment of Directors, criteria for appointment of Senior Management Executives, remuneration to Executive and Non-Executive Directors, training and performance evaluation of the Board, etc. and other matters provided under Section 178(3) of the Act. The above policy is available on the website of the Company at
https://www.nayaraenergy.com/investors/information

Performance Evaluation of the Board, Chairman, Committees and Individual Directors

Formal evaluation of the performance of the Board, its Committees, the Chairman, and Individual Directors for FY 2018 – 19 was carried out. The Independent Directors evaluated performance of the Chairman, Non-Independent Directors, and the Board. Feedback from Individual Directors was sought based on a structured questionnaire covering, among others, Board and Committee composition, skills of Directors, quality and content of agenda and performance of Directors at the meetings. Evaluation was carried out by an independent agency, based on responses from all the Directors. The evaluation was reviewed by the Nomination and Remuneration Committee and the Board of Directors.

Key Managerial Personnel

During FY 2018 – 19, the following executives were designated as Key Managerial Personnel under the Act:

Mr. Charles Anthony Fountain
Executive Chairman

Mr. B. Anand
Chief Executive Officer

Mr. Anup Vikal
Chief Financial Officer

Mr. C. Manoharan
Director & Head of Refinery

Mr. Mayank Bhargava
Company Secretary

Risk Management

The complex operations, dynamic economic environment coupled with the growth plans of Nayara bring with them several strategic and operational risks. Nayara is also committed to highest levels of Ethics and ensuring highest standards of safety for its employees and the community which requires effective management of HSE and Ethical Compliance risks. The Management recognises that these risks need to be understood and managed effectively in order to ensure sustainable growth and meet business objectives.

Hence, the Company has set up a robust and effective Enterprise Risk Management framework that drives a risk aware culture across the organisation and ensures all key risks are effectively identified and managed.

The key risks are addressed by implementing appropriate and adequate risk response plans and internal control measures that brings down the risks to acceptable levels. Through its ERM framework, the Company manages both financial risks such as movements in crude & product prices, forex rates and interest rates as well as non-financial risks such as legal and regulatory compliance, health, safety & environment, cyber, reputational, geo-political, security risks, etc. During the year the Company has adopted consolidated Price and Market Risk Management Policy to manage price, treasury and market risks. The Price and Market Risk Management Committee manages the financial risks and take strategic decisions on forex and commodity hedging in line with the formulated Policy.

The Board of Directors keeps continuous oversight of the key risks to the organisation through the Audit Committee. In 2018, the Audit Committee set up the Risk Management Working Group (“RMWC”). The RMWC, jointly with the Risk function, reviewed the risk assessment and minimization procedures for the key business operations of Nayara Energy (Refinery, IST, and Marketing) and made presentations to the Audit Committee. In the opinion of the Board, with its Enterprise Risk Management framework, the Company is identifying and mitigating all possible key risks.

Internal Financial Controls and their adequacy

The Company has in place a robust system and framework of Internal Financial Controls. This framework provides a reasonable assurance regarding the adequacy of operating effectiveness of controls with regards to financial reporting, operational, and compliance risks. The framework ensures that the Company has policies and procedures for ensuring orderly and efficient conduct of the business, safeguarding of assets of the Company, prevention and detection of frauds, accuracy and completeness of accounting records, and timely preparation of reliable financial information. The Company has devised appropriate systems and framework including proper delegation of authority, effective IT systems aligned to business requirements, risk based internal audits, risk management framework and whistle blower mechanism.

The Company has also developed and implemented a framework for ensuing internal controls over financial reporting. This framework includes a risk and control matrix covering entity level controls, process and operating level controls and IT general controls. Such controls have been assessed during the year under review taking into consideration the essential components of internal controls stated in the Guidance Note on Audit of Internal Financial Controls over Financial Reporting issued by The Institute of Chartered Accountants of India.

The entity level policies include anti-fraud policies such as code of conduct, conflict of interest, confidentiality and whistle blower policy and other policies (viz. organization structure, HR policies, IT security policies).

During the year, controls were tested and no material weakness in design and effectiveness was observed. Nonetheless your Company recognizes that any internal control framework, no matter how well designed, has inherent limitations and accordingly, regular audits and review processes ensure that such systems are reinforced on an ongoing basis.

Vigil Mechanism

The Company is committed to adhere to the highest standards of ethical, moral and legal conduct of business operations, including the measures against bribery, corruption and corporate fraud, as well to manage conflict of interest situations. Towards this end, the Company has established a Hotline Whistle-blower Policy and also established a robust Vigil Mechanism for Directors, Employees, Associates and other Stakeholders to report concerns about unethical behavior/conduct without fear of punishment or unfair treatment. The policy also has a process for providing direct access to the Chairman of the Audit Committee. All the reported complaints are reviewed and investigated in the right earnest and appropriate actions initiated as deemed necessary.

The details of Hotline Whistleblower Redressal System can be accessed on the website of the Company at https://www.nayaraenergy.com/whistle-blower