Attock Refinery Limited (annual Report 2007)

In the Name of Allah, Most Gracious, Most Merciful

Corporate Social Responsibility (CSR) CSR is a concept which encourages organizations to consider the interests of society by taking responsibility for the impact of the organization's activities on customers, employees, shareholders, communities and the environment in all aspects of its operations. ARL promotes CSR as part of its core values to create the foundation for a more equitable, just, productive, competitive and knowledge-based environment.

ANNUAL REPORT

2007

Contents Honours & Achievements Vision & Mission Statement Board of Directors Company Information Company Profile Management Committee HSEQ Policy Notice of Annual General Meeting Chairman’s Review Human Resource Policy The Management The Directors’ Report Pattern of Shareholding Financial Statistical Summary Financial Highlights - ARL Financial Highlights - AHL Review Report to the Members Statement of Compliance with the Code of Corporate Governance Balance Sheet Composition Contributions & Value Additions Financial Statements of Attock Refinery Limited Auditor’s Report to the Members Balance Sheet Profit and Loss Account Cash Flow Statement Statement of Changes in Equity Notes to the Financial Statements Consolidated Financial Statements

Preserving our environment - Ficus Religiosa planted on the commissioning of the Refinery in 1922.

Auditor’s Report to the Members Consolidated Balance Sheet Consolidated Profit and Loss Account Consolidated Cash Flow Statement Consolidated Statement of Changes in Equity Notes to the Consolidated Financial Statements Form of Proxy

02 03 04 05 06 07 08 09 12 16 17 18 36 38 40 42 44 45 47 48 49-82 51 52 54 55 56 57 83-118 85 86 88 89 90 91 119

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Honours & Achievements

Awards include : 1

Corporate Social Responsibilty Award (Helpline Trust)

2

Annual Environment Excellence Award (NFEH)

3

Best Corporate Report Award (ICAP & ICMAP)

4

Special Merit Exporter Award (FPCCI)

Striving for excellence

ANNUAL REPORT

2007

Vision & Mission Vision 2020 To be a world class and leading organization continuously providing high quality and environment-friendly energy resources. Mission 2010 To be a model diversified energy resources and petrochemical organization exceeding expectations of all stakeholders. We will achieve this by utilizing best blend of state-of-the-art technologies, high performing people, excellent business processes and synergetic organizational culture.

Core Values Our success will not be a matter of chance, but of commitment to the following enduring beliefs and values that are engrained in the way we think and take actions to pursue a climate of excellence: Integrity & Ethics: Integrity, honesty, high ethical, legal and safety standards are cornerstones of our business practices. Quality: We pursue quality as a way of life. It is an attitude that affects everything we do for relentless pursuit of excellence. Social Responsibility: We believe in respect for the community and preserving the environment for our future generations and keeping National interests paramount in all our actions.

Strategic Plan Learning & Innovation: We embrace lifelong learning and innovation as an essential catalyst for our future success. We believe in continuous improvement and to seize opportunities inherent in change to shape the future. Team Work: We believe that competent and satisfied people are the company’s heart, muscle and soul. We savour flashes of genius in organization’s life by reinforcing attitude of teamwork and knowledge sharing based on mutual respect, trust and openness. Empowerment: We flourish under an ecosystem of shared understanding founded on the concept of empowerment, accountability and open communication in all directions.

Company's strategic plans include enhancement of its refining capacity and production of better, more environment-friendly petroleum products to maintain and expand its market. The plans include installation of a Preflash Unit, an Isomerization Complex and a Diesel Hydrodesulfurization unit in first phase. Further, the Company is actively engaged in diversification of its operations within the energy sector which includes the white oil pipeline project and a power project. Projects targeting environmental and social improvement for community development are also being planned.

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Board of Directors

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Dr. Ghaith R. Pharaon Shuaib Anwar Malik Deputy Chairman (Alternate Director to Dr. Ghaith R. Pharaon)

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Laith Ghaith Pharaon Wael Ghaith Pharaon Bashir Ahmad Abdus Sattar Babar Bashir Nawaz (Alternate Director to Laith Ghaith Pharaon)

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Sajid Nawaz (Alternate Director to Wael Ghaith Pharaon)

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Tariq Iqbal Khan Chairman

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M. Adil Khattak Chief Executive Officer

Board Committees Audit Committee Abdus Sattar, Chairman Babar Bashir Nawaz, Member (Alternate Director)

Sajid Nawaz, Member (Alternate Director)

Technical & Finance Committee Abdus Sattar, Chairman Sajid Nawaz, Member M. Adil Khattak, Member

Audit Committee - TOR The Audit Committee's primary role is to ensure compliance with the best practices of Code of Corporate Governance, statutory laws, safeguard of Company's assets through monitoring of internal control system and fulfill other responsibilities under the Code. Technical & Finance Committee - TOR To recommend annual capital and revenue budget and review any other key financial matters or technical aspect relating to refinery operations / upgradation etc.

ANNUAL REPORT

Company Information

Company Secretary Khurram Shiraz ACA

Auditors A.F. Ferguson & Co. Chartered Accountants

Legal Advisor Zafar Law Associates Advocates & Solicitors

Ali Sibtain Fazli & Associates Legal Advisors, Advocates & Solicitors

Registered Office The Refinery Morgah, Rawalpindi Tel: (051) 5487041-5 Fax: (051) 5487254 E-mail: [email protected] website: www.arl.com.pk

Group photograph at the 137th Board of Directors meeting held in Damascus, Syria on 10th September, 2007.

2007

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Company Profile Attock Refinery Limited (ARL) was incorporated as a Private Limited Company in November, 1978 to take over the business of the Attock Oil Company Limited (AOC) relating to refining of crude oil and supplying of refined petroleum products. It was subsequently converted into a Public Limited Company in June, 1979 and is listed on the three Stock Exchanges of the country. The Company is also registered with Central Depository Company of Pakistan Limited (CDC). Original paid-up capital of the Company was Rs 80 million which was subscribed by the holding company i.e. AOC, Government of Pakistan, investment companies and general public. The present paid-up capital of the Company is Rs 568.62 million. ARL is the pioneer of crude oil refining in the country with its operations dating back to 1922. Backed by a rich experience of more than 85 years of successful operations, ARL’s plants have been gradually upgraded/replaced with state-of-the-art hardware to remain competitive and meet new challenges and requirements. It all began in February 1922, when two small stills of 2,500 barrel per day (bpd) came on stream at Morgah following the first discovery of oil at Khaur where drilling started on January 22, 1915 and at very shallow depth of 223 feet 5,000 barrels of oil flowed. After discovery of oil in Dhulian in 1937, the Refinery was expanded in late thirties and early forties. A 5,500 bpd Lummus Two-Stage-Distillation Unit, a Dubbs Thermal Cracker, Lubricating Oil Refinery and Wax Purification facility and the Edeleanu Solvent Extraction unit for smokepoint correction of Kerosene were added.

There were subsequent discoveries of oil at Meyal and Toot (1968). Reservoir studies during the period 1970-78 further indicated high potential for crude oil production of around 20,000 bpd. In 1981, the capacity of Refinery was increased by the addition of two distillation units of 20,000 and 5,000 bpd capacity, respectively. Due to their vintage, the old units for lube/wax production, as well as Edeleanu, were closed down in 1986. In 1999, ARL commenced JP-1 pipeline despatches, and in 2000, a Captive Power Plant with installed capacity of 7.5 Megawatt was commissioned. Another expansion and upgradation project was completed in 1999 with the installation of a Heavy Crude Unit of 10,000 bpd and a Catalytic Reformer of 5,000 bpd. ARL’s current nameplate capacity stands at 40,000 bpd and it possesses the capability to process lightest to heaviest (10-65 API) crudes.

M. Adil Khattak

Mansoor Shafique

Chief Executive Officer

Assistant General Manager (Operations)

Manager (Maintenance)

Deputy General Manager (Finance & Corporate Affairs)

Ejaz H. Randhawa

S. Ahmed Abid

Khurram Jalil

Iqbal Ahmad

Manager (Operations)

Khurram Shiraz

Zia Uddin Kirmani

Senior Manager (Technical Services)

Manager (Finance & Accounts) / Company Secretary

Dr. M. Ilyas Fazil

Malik Masood Sadiq

Asif Saeed

Salman Tariq

Assistant General Manager (Technical Services, Planning & Development)

Senior Manager (Commercial & Materials Management)

Manager (Human Resources & Administration)

Adnan Hussain Senior Executive (Business Review & Assurance)

Manager (Health, Safety, Environment & Quality Control) Deputy Manager (Engineering)

Management Committee Series of Firsts • First refinery of the region (1922) • First to start dispensing major products through pipeline using computerized metering system (1987) • First to produce low sulfur furnace (less than 1%) (1998) • First to produce low sulfur diesel (less than 0.5%) (1998) • First to achieve ISO 9002 certification for quality control laboratory (1999) • First to produce low lead premium gasoline direct from refinery process (1999) • First to produce polymer modified asphalt (2001) • First refinery/first petro-chemical plant / first major industry to get ISO 9001:2000 certificate (2001) • First refinery / first petrochemical plant/first major industry to get ISO 14001 certificate (2002). • First major industry to get OHSAS 18001 certification (2006).

ARL Products • Premium Motor Gasoline (PMG) • High Speed Diesel (HSD) • Kerosene Oil (KO) • Furnace Fuel Oil (FFO) • Low Sulfur Furnace Fuel Oil (LSFO) • Jet Fuels (JP-1, JP- 4 & JP - 8) • Paving Asphalt (various grades) • Cut Back Asphalt (various grades) • Polymer Modified Bitumen (PMB) • Mineral Turpentine (MTT)

• • • • • •

Light Diesel Oil (LDO) Naphtha Liquefied Petroleum Gas (LPG) Jute Batching Oil (JBO) Solvent Oil (SO) Premium JBO

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Health, Safety, Environment and Quality Policy (HSEQ)

ARL is committed to provide the best quality products in the market, endeavors to protect the environment and to ensure health and safety of its employees, contractors, and customers and work for continual improvements in Health, Safety, Environment and Quality (HSEQ) systems. ARL is committed to comply with all applicable Health, Safety, Environment and Quality laws and regulations.

Environment ARL is committed to prevent pollution by the efficient use of energy throughout its operations, recycle and reuse of the effluent wherever possible, and use of cost-effective cleaner production techniques that lead to preventive approach for sustainable development.

Quality

The Policy shall be used to demonstrate this commitment through:

ARL recognizes employees' input towards quality by emphasizing skills development and professionalism.

Health

ARL must be customer driven, cost effective and continuously improving services, works and products to meet requirements of the market.

ARL seeks to conduct its activities in such a way as to promote the health of, and avoid harm to its employees, contractors, visitors and the community.

Safety ARL ensures that every employee or contractor works under the safest possible conditions. It is our firm belief that every effort must be made to avoid accidents, injury to people, damage to property and the environment. ARL believes that practically all accidents are preventable by carrying out risk assessments, and reducing risks identified, by appropriate controls.

ARL conducts periodic audits and risk assessment of its activities, processes and products for setting and reviewing its objectives and targets to provide assurance, to improve HSEQ standards and loss control. ARL is committed to share all pertinent information related to HSEQ with all concerned parties.

ANNUAL REPORT

2007

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Notice of Annual General Meeting

Notice is hereby given that the 29th Annual General Meeting of the Company will be held at Pearl Continental Hotel, Rawalpindi on Thursday, October 25, 2007 at 11:00 a.m. to transact the following business:

as fully paid bonus shares to the members of the Company, whose names appear on the register of members as at close of business on October 17, 2007, in the proportion of one (1) new share for every four (4) shares held;

Ordinary Business 1.

To confirm the minutes of the Fifteenth (15th) Extra-Ordinary General Meeting held on 11th January, 2007.

2.

To receive, consider and approve the Audited Accounts of the Company together with the Directors’ and Auditor’s Reports for the year ended June 30, 2007.

3.

To appoint auditors for the year ending June 30, 2008 and fix their remuneration.

4.

To consider and, if thought fit, declare a final cash dividend as recommended by the Board of Directors for the year ended June 30, 2007.

5.

To transact such other business as may be placed before the meeting with the permission of the Chairman.

Special Business 6.

To consider and, if thought fit, to pass the following Resolution as an ordinary resolution:

b.

that the Bonus Shares so allotted shall rank pari passu in every respect with the existing shares;

c.

that the members entitled to fractions of a share shall be given sale proceeds of their fractional entitlement for which purpose the fractions shall be consolidated into whole shares and sold in the stock market; and

d.

that the Secretary of the Company be authorised and empowered to give effect to this resolution and to do or cause to do all acts, deeds and things that may be necessary or required for issue, allotment and distribution of Bonus Shares, including export of bonus shares in respect of non-resident shareholders.” By Order of the Board

“Resolved: a.

that a sum of Rs 142,155,000 out of the profits of the Company available for appropriation as at June 30, 2007, be capitalized and applied for issue of 14,215,500 ordinary shares of Rs 10 each allotted

The Refinery Morgah, Rawalpindi

Khurram Shiraz Company Secretary

October 04,2007

October 04, 2007

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Notes: i. Share Transfer Books of the Company will remain closed and no transfer of shares will be accepted for registration from October 18, 2007 to October 24, 2007 (both days inclusive). Transfers received in order at the Shares Department of M/s. Noble Computer Services (Pvt) Limited, 2nd Floor, Sohni Centre, BS 5&6, Main Karimabad, Block-4, Federal B Area, Karachi-75950, Pakistan, by the close of business on October 17, 2007 will be treated in time for the entitlement to Bonus Shares, if declared.

ii.

iii.

A member entitled to vote at this meeting may appoint another member as his/her proxy to attend and vote. Proxies in order to be effective must be received by the Registered Office of the Company, duly stamped and signed, not later than 48 hours before the time of the meeting. CDC account holders shall follow the under mentioned guidelines as laid down in Circular No.1 dated January 26, 2000 issued by the Securities & Exchange Commission of Pakistan: a.

In case of individuals, the account holder or subaccount holder and/or the person whose securities are in group account and their registration detail is uploaded as per the regulations, shall authenticate identity by showing his/her original National Identity Card (NIC), or original Passport at the time of attending the meeting.

b.

In case of corporate entity, the Board of Directors’ resolution/power of attorney with specimen signature of the nominee shall be produced (unless provided earlier) at the time of meeting.

iv.

Members are requested to promptly notify the Company of any change in their address.

v.

Form of proxy is enclosed herewith.

vi.

Statement of material facts, under Section 160 (1) (b) of the Companies Ordinance, 1984, pertaining to the Special Business referred above under Agenda item 6 is annexed to this Notice of Meeting being sent to the members.

Statement under Section 160 (1) (b) of the Companies Ordinance, 1984 Issue of Bonus Shares: The Directors are of the view that with the existing profitability, the Company’s financial position justifies capitalization of Rs 142,155,000 out of profits available for appropriation as at June 30, 2007, by issuing fully paid Bonus Shares in the proportion of one (1) Bonus Share for every four (4) ordinary shares held. The Directors of the Company, directly or indirectly, are not personally interested in this issue, except to the extent of their shareholding in the Company.

ANNUAL REPORT

2007

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Chairman's Review

On behalf of the Board I am pleased to welcome our esteemed shareholders to the 29th Annual General Meeting of the Company and to present annual review of the results of Company’s operations and audited financial statements for the financial year ended 30 June, 2007. Business Review The current financial year witnessed record high oil prices in 2006 before declining sharply towards the end of the year. In an attempt to support prices at a level sought by its members, OPEC was forced to cut its supply. However, the prices went up again in 2007 and the refiners’ margin which had become negative at the end of 2006, once again became favourable. Oil prices remain uncertain for the foreseeable future as political tensions and civil unrest refuse to ease in major oil producing countries like Iraq and Nigeria. Global political uncertainties also remain factors in the instability of price. An overall increase was observed in the international prices for crude oil during the year 2006-07. Like last year, the financial year 2006-07 was once again punctuated with fluctuating refiners’ margins arising from price movements in international markets. After ending up with disappointing margins insufficient to cover the operating costs in the first three quarters, the refiners’ margin showed significant improvement in the 4th quarter and thus enabled your Company to close the financial year on a positive note. Profit from refinery operations increased to Rs 504.3 million in the current year as against Rs 80.5 million in the year 2005-06. With dividend income of Rs 244.6 million from its investments in associated undertakings, the total profit for the year was Rs 748.9 million with an EPS of Rs 13.17. The detailed financial results of the Company’s operations for the year ended June 30, 2007 are given in the annexed Directors’ Report and financial statements.

Business Risks, Challenges and Future Outlook As was reported last year, the public debate triggered by increase in domestic petroleum products prices, following global increase in these prices, continues to pose a serious challenge to the existing pricing formula under which the Refinery is operating. While the Company has a strong view point that the pricing formula was agreed after full deliberations, implications and incentives required for long-term sustainability of refinery operations, political and public pressure has forced the Government to review the pricing formula that has adversely impacted the ex-refinery prices of certain products like kerosene oil, light diesel oil and Jet fuel. Through adjustments in pricing mechanism, the Government has also recently curtailed the margin of oil marketing companies and dealers. While these curtailing measures are being utilized apparently to settle the huge price differential deficits of refineries and oil marketing companies which had benefited the consumers at large, the eventual burden is being taken-up by the oil industry with such curtailments. The Company has emphasized upon the Government that continued operations of the local refineries is critical as it relates to strategic petroleum products supplies, indigenous crude oil production as well as to safeguard the investors interest in the oil refinery sector. It is expected that Government shall consider these matters in the light of above considerations and in the best long-term national interest. With the new refineries being set-up in the country, continuing challenges in the phased deregulation process and changes in product specifications warranted by environment your Company has undertaken the task of implementing certain projects that shall cater to the market requirements of cleaner fuels, higher RON motor gasoline as well as to maintain and enhance its oil

ANNUAL REPORT

Gross Refiner's Margin US $ Per Barrel

Products and Crude Average Prices US $ Per Barrel

Simultaneously, your Company continues to emphasise upon the Government that for continued development of environmental clean products it is imperative to provide sufficient incentives to the refineries for them to undertake refinery upgradation projects which require intensive capital outlay.

Production M. Tons in Thousands

Your Company is closely watching the developments in international and domestic market with its implications and is confident that the Government shall continue to support the oil refineries in a manner that it provides due incentives for fresh investment that can bring substantial economic benefits to the country and provide protection from any possible disruption in global supplies strategically important for the country. refining facilities to meet any future growth in crude oil availability in the northern region. The Company is working on its plan to construct a Pre-Flash Unit that shall not only replace the aging Lummus Unit but shall also enhance the overall refining capacity to 48,400 barrels per day. Work to install an Isomerisation Unit that shall upgrade its motor gasoline by raising its octane level is also being actively pursued. These projects shall not only let your company retain its market share in production and supply of petroleum products but also provide operational flexibility in its future operations.

Your Company would continue to pursue new business opportunities, focus its operating strategies on reliability, efficiency and profitability to create shareholders value.

Corporate Awards and Recognitions i.

2007

Corporate Social Responsibility (CSR) Award organized by Help Line Trust Your Company was awarded Corporate Social Responsibility Award (CSR) organized by the Help Line Trust in collaboration with Pakistan Standards and Quality

Control Authority (PSQCA). This award is a mark of recognition of companies/corporations for their active participation in social causes of Pakistan. ii.

NFEH Environmental Excellence Award 2007 For the 2nd year in a row, your Company was awarded the Environmental Excellence Award of the National Forum for Environment and Health (NFEH). This award demonstrates your Company’s commitment to establish, implement and maintain a successful HSEQ Management system and its continued efforts to improve its effectiveness in accordance with the requirements of ISO 14001 and OHSAS 18001 standards.

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Chairman's Review Employee Relations

iii. Exports Trophy 2006 Based on achieving highest exports in the region the Company also won the Rawalpindi Chamber of Commerce and Industry Export Trophy for the year 2006. Further, the Company was also awarded Special Merit Exporter Award for 2006 for its exports and foreign exchange earnings of over Rs 7 billion by the Federation of Pakistan Chambers of Commerce & Industry (FPCCI). iv.

A healthy and cordial relationship with its employees with congenial atmosphere at work place remain to be the main focus of the management in its employee relations functionalities. Your Company’s management is actively engaged in employees career development and progression. An environment exists where employees understand the Company’s objectives, the market conditions in which the Company operates and the risks it must mitigate to ensure ideal working conditions for both, labour and management. The labour – management relationship continues to be cordial and is based on cooperation and trust with positive and flexible attitude from both sides creating a good working environment with the common objective of serving the Company’s interests and employee welfare.

On behalf of the shareholders and the Board of Directors, I wish to congratulate and compliment the Company’s management and staff for bringing these laurels.

On behalf of the Board, I would like to acknowledge the support received from the Ministry of Petroleum & Natural Resources and other Government organizations and express gratitude to our valued customers, crude oil suppliers, banks, suppliers and contractors for their continued cooperation. Further, I would also like to thank my colleagues on the Board and record my appreciation of the services and contributions of the Directors who are representing the Audit, Technical and Finance Committees of the Board.

Best Corporate Report Award In addition, the Company ever since the inception of Best Corporate Report Award in 2000 continues to receive awards for Top positions in Fuel & Energy Sector for presenting the best corporate annual reports. For the Annual Report 2005, it has received Award for 2nd position in the sector.

Acknowledgement

I would like to appreciate the efforts and dedication of the officers, staff, workers of the Company and the CBA who enabled the management to run the Company smoothly and efficiently during the year for profitable operations.

Before concluding, I also wish to express my thanks for the continued interest and support of our esteemed shareholders and on behalf of the Board would like to extend our assurance that the Board of Directors would continue to work in the best interest of the Company and to create value addition for its shareholders.

Tariq Iqbal Khan September 10, 2007

Chairman

ANNUAL REPORT

2007

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Human Resource Policy ARL Corporate policy on human resources is to attain the highest standards of professionalism throughout the organization by recognizing and revealing individual capabilities, productivity, commitment and contribution. ARL firmly believes that the continued progress and success of the Company depends upon to a great extent on its personnel - that only with a carefully selected, well trained, achievement orientated and dedicated employee force, can the company maintain its Leadership in the Refining industry. And because the most valuable asset of the company is its personnel, ARL has the following human resource policies :

1.

Employ the best-qualified persons available, recognizing each person as an individual thus affording equal opportunity.

2.

Pay just and responsible compensation in line with the industry standards, job requirements and work force.

3.

Help employees to attain their maximum efficiency and effectiveness through a well-rounded training and development program.

4.

Provide and maintain comfortable, peaceful and orderly working conditions.

5.

Promote from within whenever possible and provide opportunities for growth and promotion to the employees.

6.

Treat each employee with fairness and respect and in return expect from him service marked by dedication, devotion, commitment and loyalty.

7.

Encourage each employee to improve and develop himself and thereby prepare him for positions of higher responsibility.

8.

Recognize and reward efficiency, team work, discipline and dedication to duty and responsibility.

9.

Exhaust all means to resolve Labor-Management differences, if any, promptly and amicably.

10. Provide a wholesome and friendly atmosphere for harmonious Labor Management relations.

ANNUAL REPORT

The Management

2007

Various Committees have been formulated to look after the operational and financial matters of the Company. Brief description of the role of Committees involved in strategic matters is given below :

Management Committee

Econo-Tech. Committee

Central HSE Committee

This Committee which is constituted of all departmental heads meet fortnightly under the chairmanship of CEO to coordinate the activities and refinery operations and to discuss various issues.

This Committee reviews all new proposals relating to Refinery operations and projects and formulates recommendations after discussing/evaluating it from technical and economic aspects.

Value & Ethics Committee

This Committee reviews and recommends the annual budget proposals for the approval of the Board of Directors. It also monitors the approved budget utilisation.

The primary role of The 'Central HSE Committee' is to set operating policy and procedures consistent with HSEQ Policy and to monitor implementation of the policy. Furthermore, this Committee provides a strategic direction, sets goals and objectives, monitors performance and provides a mechanism for dealing with safety behavior issues.

The primary role of this committee is to investigate and advise the Chief Executive Officer (CEO) appropriate action regarding violation of ARL Core Values and related codes and policies.

Succession Planning and Career Management Committee This committee is responsible for initiating and taking all necessary steps towards formulation and implementation of an appropriate Succession Planning and Career Management System in the Company.

Budget Committee

Information Technology Committee

Pricing Committee

Responsible for automation of processes and systems in line with latest technology.

Responsible for determining prices of deregulated products from time to time.

Risk Management & Strategic Plan Committee This committee discusses and decides all matters related to risk management and strategic plan of Attock Refinery Limited.

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Directors' Report On behalf of the Board of Directors, I am pleased to present the Company’s 29th Annual Report which includes the Audited Financial Statements of the Company together with Auditors' Report thereon for the year ended June 30, 2007. 1.

Financial Results The Company has earned net profit after tax of Rs 748.98 million during the year. Although the international prices for both crude oil and products increased sharply during the year 2006-07, the increase in products prices during the 2nd half was higher than the crude prices due to which the refiners’ margin increased during the year. Changes in products mix also favourably contributed to the margin with increase in sales of motor gasoline and consequent decrease in the exports of naphtha at higher prices. The gross refiner’s margin (GRM) continued to decline during the first two quarters and part of third quarter of the year 2006-07 which resulted in a loss from refinery operations of Rs 49.12 million. However, during the third quarter the GRM started improving and during the fourth quarter the overall annual average improved to convert from negative margin to positive margin resulting in profit from refinery operations of Rs 504.33 million. This change in profitability was also contributed by increased demand for motor gasoline, with corresponding reduction in naphtha exports, as a result of curbing of smuggling of this product due to domestic rationing of this product in one of the neighbouring countries and geo-political changes in the border areas. The industry had always been demanding that in order to promote the sales of local refineries production, it was imperative to halt the smuggling menace.

The financial results for the year ended June 30, 2007 are summarized below: Rs 000’s

Profit before tax from refinery operations

960,883

Less: Provision for taxation

456,550

Profit after taxation from refinery operations

504,333

Income from non-refinery operations after tax

244,652

Net profit for the year after taxation

748,985

Unappropriated profit brought forward

267,428

Profit available for appropriation

1,016,413

Appropriations: The Directors propose that this should be utilized in providing for: - Transfer to reserve for expansion/ modernization as per the stipulations of the pricing formula - Final cash dividend at the rate of 40% (equivalent to Rs 4.00 per share of Rs 10/- each) now proposed - Transfer to reserve for issue of bonus shares in the proportion of 1 share for every 4 shares held i.e. 25%

2.

Pricing Formula It would be recalled that the refineries Import Parity Pricing Formula was modified with effect from July 1, 2002 whereby the minimum rate of return of 10% on paid-up capital, was dispensed with and net profit after tax from refinery operations (if any) above 50% of the paid-up capital at that time is required to be diverted to a special reserve to offset any future loss or make investment for expansion / upgradation of the Refinery. As the shareholders have continuously been advised in the earlier reports, the Company has contested the abolition of the minimum guaranteed rate of return as a clause in the existing Agreement between the Company and the Government of Pakistan to this effect cannot be changed unilaterally by either party. The Government has recently through the Federal Budget 2007-08 made certain modifications in the products pricing mechanism, whereby 5% + 1% deemed duties on Kerosene Oil and LDO and additional 1% surcharge included in JP-8 pricing has been withdrawn. This has resulted in reduced ex-refinery prices of these products

358,533 Sales Revenue Composition (Rupees in Million)

227,448

20,000

15,000

10,000

142,155

5,000

728,136 - Leaving an un-appropriated profit to be carried forward to next year

0 2002-03

288,277

2003-04

2004-05

Motor gasoline

Naphtha

Diesel

Kerosene/Jet Fuels

FFO

Asphalt

2005-06

Others

2006-07

ANNUAL REPORT

2007

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Directors' Report ceased effective September 2006 as a result of which the 3 years average cannot be determined, a revised formula was to be given for motor gasoline effective July 2007. A dialogue and a process of exchange of information was initiated during the year with several options being considered as an alternate method for PMG pricing. However, after several joint meetings, despite assurances given by the Government that refineries shall not be put into an adverse financial position, the Government was inclined to opt for a PMG pricing formula proposed by the World Bank and linked to 95 RON Arab Gulf prices that would have effectively reduced the ex-refinery prices with a negative impact of over Rs 700 million. This matter was again taken-up with the Ministry of Petroleum & Natural Resources at a joint meeting and after deliberations it was agreed to defer the matter of revision in motor gasoline pricing and to review the position with a view to determine a viable pricing formula that would effectively safeguard refineries’ revenues and protect their profitability and keep them operational.

Product's Prices US $ Per Ton 800

600

400

200

0 PMG

KERO

HSD

F.F.O.

and shall have a corresponding impact on Company’s profitability. The Company immediately responded to this measure and requested the Government to compensate for this loss through adjustments in products pricing mechanism. The prices of motor gasoline (PMG) were being calculated by including an element of price differential based on Caltex Bahrain Naphtha and 87 RON motor gasoline price. However, since the publication of prices of Caltex Bahrain 87 RON motor gasoline in Platts Oilgram has

The Company alongwith other two refineries operating on same pricing formula continues to strongly defend the pricing formula on the contention that the pricing formula and profitability has to be seen in a long term perspective rather than a short term approach which position has been vindicated by losses suffered during the prior periods while operating under the same pricing mechanism. Your Company expects that all concerned authorities shall review the subject rationally without being influenced by the high prices arising from international prices which are beyond any one’s control.

Cash Dividend and Bonus Shares 0

3.

10%

20%

30%

40%

50%

Dividend The Directors are recommending a final dividend at the rate of 40% (Rs 4 per share of Rs 10 each) and issue of bonus shares 25% i.e. one share for every four shares held for the year ended June 30, 2007.

4.

Share Capital The issued, subscribed and paid up capital of the Company as at June 30, 2007 was Rs 568.62 million.

ANNUAL REPORT

5.

Refinery Management and Operations The Refinery processed 14,074,644 barrels (2006: 14,567,216 barrels) of crude oil received from both northern and southern oilfields. As reported in prior years, the allocation of southern crude to the company is based on the national freight economics and foreign exchange savings as a result of processing this crude at the Refinery. It has resulted in savings to the national exchequer of Rs 58 million (2006: Rs 170 million) in freight and foreign exchange savings of US $ 30 million (2006: US $ 52 million) during 2006-07 and accumulated freight savings of over Rs 2.828 billion and foreign exchange savings of US $ 210 million since commencement of these supplies from November 1997. Further, the entire indigenous crude production from the northern region including enhanced production from certain fields continued to be processed at the Refinery. A total of 14.092 million barrels of crude oil (2006: 14.759 million barrels) was received from 84 different oilfields which was successfully processed at various refining units. Your refinery has the unique capability and distinction

Crude Oil Receipts & Composition (Northern Vs Southern)

2007

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Directors' Report 6.

Ongoing and Future Projects

6.1

White oil pipeline project As reported in previous years, the Company is making all efforts to implement the White Oil Pipeline Project (WOPP), between Machhike (near Lahore) and Taru Jabba (near Peshawar) in partnership with Pakistan State Oil Company Limited (PSOCL) for transportation of petroleum products. The Company has updated the project feasibility after taking into account the revised growth volumes and updating the project capital cost. On the basis of the revised project feasibility an Action Plan is being evolved to ensure an early implementation of this project of national vital interest.

6.2

of processing varied quality of both heavy and light crude oil produced from fields across the whole country. All the crude processing units operated smoothly. The Company supplied 1.77 million Tons (2006: 1.819 million Tons) of various petroleum products during the year meeting the standard quality specifications. This included the sale of 0.304 million Tons Premium Motor Gasoline (PMG) (2006:0.275 million Tons). During the year, the Company has successfully started supply of a new product Premium JBO to meet the requirements of customers.

150 MW Furnace Fuel Fired Power Plant As the shareholders have been apprised in the quarterly reports, significant milestones were achieved in respect of the Power Project including tariff determination by NEPRA, award of Engineering Procurement and Construction (EPC) contract to Wartsila and successful negotiations on Power Purchase Agreement (PPA) and the Implementation Agreement (IA) with NTDC and PPIB respectively. The Company is pleased to inform that both PPA and IA which had earlier been initialled have now been formally signed. Attock Gen Limited has also successfully arranged the debt financing of Rs 8.580 billion and the sponsors including your Company have already subscribed to their respective equity contributions. The Company’s equity subscription todate amounts to Rs 540 million. It is expected that the power plant will start commercial operations in the second quarter of financial year 2008-09. The documents for debt financing have been negotiated / finalized and relevant Agreements have been signed on 4th September, 2007.

6.3

Production of 90 RON Unleaded Gasoline (Isomerization Unit) and HSD HydroDesulfurization Unit In line with its policy to target better and more environmentfriendly petroleum products, ARL is planning to upgrade its PMG and High Speed Diesel (HSD) quality through a Light Straight Run Naphtha (LSRN) Isomerization Complex to produce 90 RON with low benzene and aromatics and a Diesel HydroDesulfurization Unit to target sulfur reduction to meet Euro Standards. The Front End Engineering Design (FEED) for both these Units is expected in January 2008, through Engineering / Licensing agreements with M/s UOP, the leading

ANNUAL REPORT

2007

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Directors' Report Licensor/Technology providers in the world. ARL will then be in a position to move to the next phase, i.e. Engineering, Procurement and Construction. The decision for the implementation of the Diesel HydroDesulfurization Unit Project would however be subject to certain incentives required from the Government in the pricing of this product to cover the intensive capital cost required for its completion. Several joint meetings of the refineries with the Government have already taken place on this subject. 6.4

PMG and future requirement to upgrade the product from present 87 RON to 90 RON, the installation of Isomerization unit has also become necessary and economically justified. 6.5

Work on the DCS project at Heavy crude unit and Reformer plant has been completed and is nearing completion at HB Units at a total cost of over Rs 75 million. Further, a new Heater for HB-II Unit is being procured and installed at a total cost of Rs 76 million. This would not only prevent unplanned shut downs but would also make the unit to safely operate at a higher throughput of 6,000 bpd as against the nameplate capacity of 5,000 bpd.

Pre-flash Unit for capacity enhancement The Company had originally planned to proceed with the EPC contract for Pre-flash, Isomerization and Diesel HydroDesulfurization units after the Front-End Engineering Design (FEED) package for the Isomerization unit was received from the Licensor M/s UOP of USA in January 2008. However, the Lummus Distillation unit which has been operating for over 65 years has outlived its life and has now started showing signs of various operational problems. Since, it may not be advisable to continue operating with this plant for further extended time, it has become essential to expedite the installation of a Pre-flash unit, for which the feed package has already been received, that shall enhance the overall refining capacity to 48,400 bpd. Accordingly, the Company has planned to proceed with the preparation of ITB documents for both the Pre-flash and Isomerization units alongwith feed package for offsite facilities as well as soliciting interest of international engineering contractors. The projects relating to Isomerization units and Pre-flash are estimated to cost over US $ 85 million and are economically feasible to prevent loss of production once the Lummus unit is closed down on account of operational safety. Further, with the recent growth in the demand for

Distributed control system (DCS) for Howe-Baker (HB) Units I & II and new Heater for HB-II Unit

6.6

Storage capacity The Company, as part of its on-going activity, and in order to have more operational flexibility as well as to replace old tanks had undertaken construction of crude oil and products storage tanks of various capacities. While the construction of a 100,000 barrels crude oil storage tank is in progress with a total capital outlay of Rs 69 million, two Jute Batching Oil (JBO), one tank for HSD and one tank for asphalt storage were completed during the year at a total cost of Rs 55 million. Additionally, as part of reorganizing the storage tanks for various products including naphtha and meeting the requirements for supply of fuel oil to the Power Plant , one new furnace fuel storage tank of 5,000 M. tons capacity and one naphtha storage tank of 4,000 M. tons capacity are being constructed to be completed in 2008-09 at an estimated cost of Rs 88 million.

ANNUAL REPORT

2007

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Directors' Report 7.

In accordance with its vision and mission statement, all efforts are made to improve the process and administrative efficiency throughout the Company. During the year, your Company continued with its practice of business process re-engineering and review to further improve its product quality and simultaneously boost production efficiencies. Major efforts in this direction are outlined below: •

•

•

•

operational flexibility as it will also be used as standby cooling tower for the other cooling tower.

Business Process Re-engineering, Research & Development

Reformer and HCU DCS system was upgraded. New system has increased operational reliability and the upgraded software has the facility to store up to 5 years historical data. Further, the DCS can be remotely accessed via Local Area Network (LAN) and the Operator security has also been enhanced.

•

Enterprise Resource Planning (ERP) system, an IT based solution, is an effective tool for optimizing working of today’s modern and complex organisation. After successfully implementing the ERP financials the Company is now moving towards the implementation of MAXIMO for its Procurement, Material management and Plant Maintenance module. MAXIMO is capable of effective material control and overall control over quality of maintenance system.

8.

Corporate Social Responsibility Social responsibility is one of the Core Values of the Company. Your Company has committed itself to conduct the business in an honest, ethical, transparent and legal manner. Your Company wants to be seen as a role model in the Corporate World and Community by its conduct and business practices.

At Effluent Treatment Plant (ETP), the SRC and DAF units’ controls have been switched from manual operation to PLC system enabling simultaneous monitoring of all units from single location, remote access to data and storage/retrieval of historical data. Successful PIGG decoking was carried out at crude charge heaters tubes at HBU-I, HBU-II and HCU. Besides prolonging the life of heaters, it has helped to improve heaters’ performance and enabled the plants to run at higher heater transfer temperatures, consequently obtaining increased middle distillates. A new cooling tower (CT-3) has been successfully commissioned. Now all plants have more reliable, compact and efficient cooling towers in place of old water showering system. Addition of this cooling tower has given the

Your Company continued to carry out its responsibility with respect to protection and promotion of interest of its customers, employees, shareholders, communities and the environment in all aspects of its operations. Various initiatives taken by the Company in this respect are given below. 8.1 Social and Environmental Welfare Projects: i.

Attock Sahara Foundation (ASF) is a non-profit NGO sponsored by the Company involved in the areas of women development, vocational/technical training, poverty alleviation and basic health. The Company promotes all activities organized by ASF for the purpose of raising funds by providing required administrative support. Recently ASF has been awarded a project (the only NGO

ANNUAL REPORT

ASF Vocational & Technical Training Centre

2007

27

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Directors' Report selected from Punjab) by PAIMAN/USAID for creating awareness about the health and care of women and children. ii.

Attock Hospital (Private) Limited, which is a wholly owned subsidiary of the Company continued to provide basic and advanced healthcare facilities to the employees and local community. AHL provided free or discounted services to the needy persons and conducted Health awareness programs.

iii.

National Cleaner Production Centre (NCPC) is another organization co-sponsored by the Company that continued to render valuable services for environment protection. During the year NCPC has performed several Environmental Impact Assessments (EIA) and other analytical services in relation to waste water and flue gases to various companies. It also provided its services for incineration of wastes and bio-remediation of oil spills due to accidents during crude oil transportation.

iv.

i.

Training and Development: In line with the Company’s Core values of learning & innovation, every effort is made to develop and train the employees in a systematic way; based upon employees’ training needs, succession planning, and the organizational requirement. As part of a continuous process various in-house training courses as well as participation in external courses both within and outside the country were arranged for the company employees. Internships, apprenticeship, training programs and study projects are also provided to students and fresh graduates for their practical training. Further, merit scholarships are also awarded to employees’ children from primary up to post graduation level to assist them in getting education from top rated institutions including GIK & LUMS.

ii.

Succession and Career Planning: There is a consistent endeavor by the management in pursuing different programmes to ensure meaningful development and career progression for all staff members that would contribute towards enhanced motivation level of our staff and will ensure continuous supply of talent to fill future management gaps in our organization. Succession

Morgah Biodiversity Park is a project sponsored by the Company in collaboration with UNESCAP on Public Private Partnership basis, for conservation of biodiversity of the Potohar region while providing opportunities to the local community to earn their living. Simultaneously, it is a source of entertainment and education for the visiting community.

8.2 Human Resource and Organisation Development The Company’s corporate policy on human resources is to attain the highest standards of professionalism throughout the organization by recognizing and revealing individual capabilities, productivity, commitment and contribution. Various steps taken by the Company for development of its human resource capital included:

ANNUAL REPORT

2007

29

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Directors' Report world class sustainable HSE good management practices for the overall benefit of all stakeholders including the surrounding community. All efforts are being made to make all processes environment friendly, safe and efficient. Some of the initiatives taken during the year in this respect are summarized below: i.

Planning and Career Management Project started during the year is one of major initiatives in this direction. This enormous work has been divided in two phases. During the year, Phase-I has been completed under which succession plan for sixteen critical positions has been developed. iii.

iv.

8.3

Solar Water and Space Heating System: The Company had taken initiative in the field of solar thermal energy. The measures taken thus far include use of solar energy for water heating within ARL’s estate, development of a solar space heating system and solar distilled water still. National Institute of Silicon Technology has provided the technical support for this work.

Climate Survey: Human Resources Department carried out an Organizational Climate Survey. The objective of this survey was to examine employee opinions about the quality of their organization's work climate. The feedback obtained from employees is being used to identify opportunities for improvements and make the Company an employer of choice. Awards and Recognition: In order to recognize the valuable services rendered by the employees, the Company distributes various awards that include Long Service Award, Man of the Quarter Award, Safety Award and House Keeping Award. Health, Safety and Environment (HSE) The Company remains committed towards achieving the highest standards of HSE. To realize this mission a customized plan was drawn by adopting and implementing

ii.

Zero Effluent Discharge: The objective of Zero Effluent is to recycle and minimize the water requirement for refinery and to conserve the environment and save energy. The Company has successfully completed the recycling of cooling towers blow down, drinking water treatment plant wastewater, car wash wastewater and kitchen wastewater.

iii.

Oily Sludge Bioremediation: The Company has started disposing its oily sludge through bioremediation thus contributing towards the sustainability of clean environment.

iv.

Drinking Water Treatment: The Company has its own water treatment facility through which drinking water is supplied not only to the employees but also to surrounding areas. Continuous awareness is also being created for use of solar disinfected water. Reverse Osmosis plant is also in commissioning phase, which will provide further purified water.

v.

Solid Waste Composting: Your Company has started an Integrated Solid Waste Management system to control generation, storage, collection, transport, processing and disposal of solid wastes. Composting of solid waste consisting of biodegradable organic materials is carried out in an environmental friendly way to produce fertilizer that can be used to support plant growth and as a soil amendment. The fertilizer produced through composting is being used in household lawns and at vegetable gardens that supply vegetable to employees and refinery canteen.

vi.

Hazardous Waste Incineration: Hazardous waste poses potential threat to public health and environment. Your Company has taken the lead to manage hazardous waste by installing three stage state of the art incinerator which is incinerating not only the Refinery facilities’ hazardous waste but also providing services to other interested industries and hospitals.

ANNUAL REPORT

2007

Solar Water Disinfection Unit

Hazardous Waste Incinerator

Solar Clock in Morgah Biodiversity Park

31

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Directors' Report

8.4

Other CSR Activities

and Annual Sports Competition were organized throughout the year in which Company’s employees, their children and people of surrounding areas participated. Your Company takes pride that the sports facilities and conducive environment provided by it has contributed in producing national heroes like Naseer Bunda and Shoaib Akhtar.

The Company continued to provide potable water to the surrounding villages of Morgah, Nai Abadi, Kotha Kalan, Jhamra and welfare organizations like SOS Village, Deaf & Dumb School, other schools and mosques in the vicinity thus providing lifeline to the surrounding population of more than 50,000 people. The company continued its quest for environment endeavors using recycled water in ARL orchards through drip irrigation system and growing vegetables through organic farming. ARL has also stopped the use of polythene bags and introduced paper bags at Fair Price Shop at Morgah. The Company firmly believes in the promotion of sports for healthy development of community. In this connection a number of sports events like Annual Swimming Gala

9.

Meeting the petroleum products demand of both the civil and defense market

•

Foreign exchange savings by providing import substitution of petroleum products

•

Generation of Government duties and taxes in the form of excise duty, petroleum development levy, sales tax and customs duties on crude oil and sale of petroleum products both local and exports

•

Deployment of a large transportation fleet for crude oil and products movement

•

Employment and work opportunities

Contribution to the National Economy Attock Refinery is the only refinery located in the Northern Region of Pakistan and thus holding a high strategic position. It continues to make valuable contributions to the National Economy some of which are enumerated below:

•

•

Providing an outlet to country’s indigenous production of crude oil and more particularly from the Northern Region

The Company’s contribution to the national exchequer in the form of taxes and duties amounted to over Rs 14,361 million. Further, foreign exchange savings of

ANNUAL REPORT

2007

Potable Water Supply to Surrounding Villages

33

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Directors' Report US $ 52.44 million were achieved through import substitution and exports.

•

The system of internal controls are sound in design and are effectively implemented by the management and monitored by the internal and external auditors as well as the Board of Directors and the Audit Committee. The Board reviews the effectiveness of established internal controls through the Audit Committee and suggests, wherever required, further improvement in the internal control systems.

•

There are no significant doubts upon the Company’s ability to continue as a going concern.

•

There is no reported instance of any material departure from the best practices of Corporate Governance.

•

Significant deviations from last years operating results, future plans and changes, if any, in pricing formula have been separately disclosed, as appropriate, in the Chairman’s Review and this Report of the Directors.

•

Sales tax amounting to Rs 8.158 million for the month of June 2007 was outstanding as at June 30, 2007 which has been subsequently paid.

•

The value of investment of employees provident and pension funds, as at 31st December, 2006, based on their latest audited accounts is given below:

10. Credit Rating The Company successfully maintained its long-term and the short-term ratings of ‘AA-’ (Double A Minus) and ‘A1+’ (A One Plus), respectively. The credit rating was conducted by The Pakistan Credit Rating Agency (PACRA).

11. Corporate Governance The Board of Directors and the Company remain committed to the principles of good corporate management practices with emphasis on transparency and disclosures. The Board and management are cognizant of their responsibilities and monitor the refinery operations and p e r f o r m a n c e t o e n h a n c e t h e a c c u r a c y, comprehensiveness and transparency of financial and non-financial information. The Company is fully compliant with the Code of Corporate Governance and as per the requirements of the listing regulations, following specific statements are being given hereunder: •

Proper books of accounts of the Company have been maintained.

•

The financial statements prepared by the management present fairly its state of affairs, the results of its operations, cash flows and changes in equity.

•

Appropriate accounting policies have been consistently applied in preparation of financial statements which conform to the International Accounting Standards as applicable in Pakistan. The accounting estimates, wherever required, are based on reasonable and prudent judgment.

Rs in million Management Staff - Pension Fund - Provident Fund

150.207 143.137

Non-Management Staff - Provident Fund

112.838

An unfunded gratuity provision of Rs 85.8 million also exists in the accounts of the Company under deferred liabilities

ANNUAL REPORT

•

Key operating and financial data of last 6 years is annexed.

Debt Equity Position (Rupees in Million)

A separate statement of compliance signed by the Chief Executive Officer is separately included in this Annual Report.

Total No. of meetings(*)

Mr. Tariq Iqbal Khan, Chairman

2*

Dr. Ghaith R. Pharaon ***

5

Mr. Shuaib Anwar Malik

5

Mr. Laith Ghaith Pharaon **

4*

Mr. Wael Ghaith Pharaon **

5

Mr. Bashir Ahmad

4*

Mr. Abdus Sattar

5

Mr. M. Adil Khattak, CEO

5

*

Leave of absence was granted to the Chairman / Directors who could not attend the meeting.

**

Overseas directors attended the meetings either in person or through alternate directors.

in share capital on capitalisation of profits for issue of bonus shares during the year.

The Attock Oil Company Limited, incorporated in England, is the Holding Company of Attock Refinery Limited.

17. Subsidiary

The three years term of office of seven (7) directors shall expire on July 16, 2009. The three years term of Chief Executive Officer, Mr. M. Adil Khattak expires on July 5, 2009.

Name of Directors

35

16. Holding Company

12. Directors and Board Meetings held during the Year

Five meetings of Board of Directors were held between July 1, 2006 and June 30, 2007 and the attendance of each director is given below:

2007

13. Auditors The Auditors Messrs A.F. Ferguson & Co. Chartered Accountants retire and offer themselves for reappointment. The Audit Committee recommends the reappointment of Messrs A.F. Ferguson & Co. Chartered Accountants as auditors for the financial year ending June 30, 2008.

14. Shareholding The total number of Company’s shareholders as at June 30, 2007 was 4,098 as against 3,044 on June 30, 2006. The pattern of shareholding as at June 30, 2007 alongwith necessary disclosure as required under the Code of Corporate Governance is annexed. No trading in the shares of the Company has been reportedly carried out during the year by the Directors, Chief Executive Officer, Chief Financial Officer, Company Secretary and their spouses and minor children.

The Company has a wholly owned subsidiary, Attock Hospital (Pvt) Limited (AHL).The accounts of AHL have been consolidated with the accounts of ARL and are annexed to these accounts.

18. Investment in Associated Undertakings In addition to the investments made in prior years, the Company enhanced its investment in Attock Petroleum Limited from 20.91% as at June 30, 2006 to 21.70% as at June 30, 2007. Further, the Company acquired 30% shares of Attock Gen Limited by making an investment of Rs 540 million. The details of these investments are contained in Note 13 of the attached accounts for the year ended June 30, 2007. The results of these associated undertakings in so far as they relate to the Company’s share in these entities have been incorporated in the enclosed Consolidated financial statements. On behalf of the Board

15. Earning Per Share Based on the net profit for the current year the earning per share was Rs 13.17 (2006 : Rs 5.34). The last year earning diluted from Rs 6.68 consequent to the increase

Rawalpindi September 10, 2007

Tariq Iqbal Khan Chairman

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Pattern of Shareholding Form 34 (Section 236)

as at June 30, 2007 CDC

No. of Shareholders Others

Total

659 1,103 721 911 146 63 25 18 10 18 7 8 11 3 4 2 3 2 1 1 1 2 2 2 1 2 2 1 1 1 1 1 1 1 1

100 68 149 25 4 Nil 1 Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil

759 1,171 870 936 150 63 26 18 10 18 7 8 11 3 4 2 3 2 1 1 1 2 2 2 1 2 2 1 1 1 1 1 1 1 1

Total Shares Held

Shareholding

From From From From From From From From From From From From From From From From From From From From From From From From From From From From From From From From From From From

1 101 501 1,001 5,001 10,001 15,001 20,001 25,001 30,001 35,001 40,001 45,001 50,001 55,001 60,001 65,001 70,001 75,001 80,001 85,001 95,001 105,001 110,001 115,001 125,001 140,001 145,001 165,001 175,001 180,001 185,001 200,001 215,001 220,001

to to to to to to to to to to to to to to to to to to to to to to to to to to to to to to to to to to to

100 500 1,000 5,000 10,000 15,000 20,000 25,000 30,000 35,000 40,000 45,000 50,000 55,000 60,000 65,000 70,000 75,000 80,000 85,000 90,000 100,000 110,000 115,000 120,000 130,000 145,000 150,000 170,000 180,000 185,000 190,000 205,000 220,000 225,000

38,850 386,191 717,489 2,215,697 1,143,326 793,016 479,249 429,318 288,948 583,115 267,400 346,510 533,437 160,500 233,700 123,750 202,325 145,750 75,032 81,250 85,200 200,000 220,000 223,525 119,000 256,650 287,600 149,175 170,000 180,000 184,700 188,020 203,210 216,037 220,100

ANNUAL REPORT

2007

Form 34 (Section 236) CDC

No. of Shareholders Others

Total

1 1 1 1 1 1 1 1 1 1 1 1 1 1 – 3,750

Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil 1 348

1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 4,098

Categories of Shareholders

Joint Stock Companies: The Attock Oil Company Limited (Holding Company) Others Financial Institutions: National Investment Trust (NIT) PICIC Others Insurance Companies Investment Companies Leasing Companies Modarabas (including Management Companies) Mutual Fund Charitable Trusts Individuals: Dr. Ghaith R. Pharaon (Director) Mr. Shuaib Anwar Malik (Director) Others Total

Total Shares Held

Shareholding

From From From From From From From From From From From From From From From

240,001 245,001 260,001 355,001 380,001 395,001 690,001 980,001 1,035,001 1,440,001 1,445,001 1,755,001 2,755,001 2,840,001 29,000,001

CDC

Numbers Others

to to to to to to to to to to to to to to to

245,000 250,000 265,000 360,000 385,000 400,000 695,000 985,000 1,040,000 1,445,000 1,450,000 1,760,000 2,760,000 2,845,000 30,000,000 Total

243,500 249,825 263,200 358,100 383,125 400,000 693,807 983,000 1,036,012 1,441,600 1,448,920 1,759,788 2,758,756 2,841,747 29,852,550 56,862,000

Total

Shares Held

Percentage (%)

1 83

1 2

2 85

31,274,150 2,875,688

55.00 5.06

1 1 44 6 9 2 6 9 1

1 – – – – – – – –

2 1 44 6 9 2 6 9 1

5,600,603 1,036,012 2,112,720 552,250 541,174 82,250 35,937 787,630 20,000

9.85 1.82 3.72 0.97 0.95 0.14 0.06 1.39 0.04

– – 3,587 3,750

1 1 342 348

1 1 3,929 4,098

16 1 11,943,569 56,862,000

0.00 0.00 21.00 100.00

37

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Financial Statistical Summary June 30 (Rupees in Million) Trading Results Sales (Net of Govt. Levies) Reimbursement from / (to) Government Turnover Cost of Sales Gross profit Administration and distribution cost Other income Non–Refinery income Operating profit Financial and other charges Profit before tax Taxation Profit after tax Dividend Bonus shares Transfer to reserves Balance Sheet Summary Paid–up capital Reserves Unappropriated Profit Shareholder' funds Financing facilities (Long term including current portion) Property, plant & equipment (less depreciation) Net current assets

2007

2006

2005

2004

2003

2002

59,108.53 355.39 59,463.92 58,609.95 853.97 191.82 635.17 244.65 1,541.96 336.43 1,205.53 456.55 748.98 – (113.72) (358.53)

55,828.14 234.24 56,062.37 55,490.68 571.69 197.08 627.08 223.19 1,224.89 566.34 658.55 354.84 303.71 – (104.98) –

41,606.17 133.46 41,739.63 39,190.43 2,549.21 328.83 218.09 73.50 2,511.96 248.92 2,263.04 1,040.44 1,222.60 (116.64) (58.32) (1,003.30)

25,412.73 – 25,412.73 24,481.13 931.60 203.53 140.62 8.47 877.16 93.04 784.12 392.17 391.96 (145.80) – (237.68)

23,381.00 8.90 23,389.90 22,785.90 604.00 133.40 207.90 10.80 689.30 133.40 555.90 276.20 279.70 (145.80) – (123.20)

20,684.60 – 20,684.60 19,282.20 1,402.40 124.90 165.50 14.10 1,457.10 330.30 1,126.80 385.70 741.10 (131.20) – (610.40)

568.62 2,828.89 381.15 3,778.66

454.90 2,392.36 182.42 3,029.68

349.92 2,376.05 138.08 2,864.06

291.60 1,190.33 21.44 1,503.38

291.60 952.70 12.90 1,257.20

291.60 829.50 2.20 1,123.30

–

3,410.25

–

30.00

90.00

960.70

2,968.13 (6,610.38)

3,243.95 (2,440.47)

3,354.72 (1,124.17)

3,524.64 89.18

3,747.80 (225.70)

3,936.40 100.00

ANNUAL REPORT

2007

June 30 (Rupees in Million) 2007

Key Financial Ratios Gross profit / turnover ratio Profit before tax / turnover ratio Return on capital employed (%) Interest coverage (times) Inventory turnover (times) Debtors turnover (times) Fixed assets turnover (times) Debt : Equity ratio Liquidity ratios Current Quick asset Shares and Earnings Break–up value (Rs per share) without surplus on revaluation of property, plant & equipment Break–up value (Rs per share) with surplus on revaluation of property, plant & equipment Price earning ratio (times) * Earning (Rs per share) (on shares outstanding at 30 June) Dividend Bonus Shares Issue ** Highest market value per share during the year Lowest market value per share during the year Market value per share Cash dividend per share Dividend yield ratio Dividend payout ratio

2006

2005

2004

2003

2002

1.4 2.0 23.2 6 20.90 13.41 43.43 00:100

1.0 1.2 10.3 2 22.61 15.35 38.24 48:52

6.1 5.4 56.0 194 20.42 12.84 25.85 1:99

3.7 3.1 28.4 68 16.73 11.87 14.29 2:98

2.6 2.4 23.5 9 20.65 17.82 11.88 9:91

6.8 5.4 90.6 6 18.13 18.91 9.18 24:76

0.75 0.58

0.87 0.66

0.92 0.72

1.01 0.76

0.96 0.70

1.02 0.77

66.45

66.60

81.85

51.56

43.11

38.52

100.28 12.31 13.17

108.88 16.48 6.68

136.81 4.84 34.94

117.51 6.81 13.44

109.07 9.97 9.59

104.48 2.33 25.41

0% 30% 123.80 72.40 162.10 – 4.01% 15.18%

0% 30% 238.00 84.05 110.00 – 2.27% 34.57%

40% 20% 215.00 72.25 168.95 3.33 2.96% 14.31%

50% – 149.00 50.50 91.50 5.00 5.46% 37.20%

50% – 113.50 58.00 95.60 5.00 5.23% 52.13%

45% – 69.00 39.00 59.10 4.50 7.61% 17.70%

* The price earning ratio is without the effect of Bonus issue. ** In addition the Board has proposed a cash dividend @ 40% and bonus issue @ 25% in their meeting held on September 10, 2007.

39

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Financial Highlights - ARL

Profitability and Dividend Analysis

Turnover

Shareholders Funds

(Rupees in Million)

(Rupees in Million)

(Rupees in Million)

Break-up of Refining Cost

Break-up Value of Shares

Fixed Assets

(US $ Per Barrel)

(Rupees Per Share)

(Rupees in Million)

3,000 2,500 2,000

1,500 1,000

500 0 2000

2001

Gross profit

2002

2003

Operating profit

2004 Profit after tax

2005

2006

2007

Dividend including bonus shares

ANNUAL REPORT

2007

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Financial Highlights - AHL

Equities & Liabilities

Fixed and Current Assets

Total Revenue including other Income

(Rupees)

(Rupees)

(Rupees in Million)

Total Expenses including Taxation

Composition of Revenue from Private Patients

(Rupees in Million)

(Rupees)

ANNUAL REPORT

2007

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Review Report to the Members A member firm of

on Statement of Compliance with Best Practices of Code of Corporate Governance We have reviewed the Statement of Compliance with the best practices contained in the Code of Corporate Governance (the Code) as applicable to Attock Refinery Limited (the Company) for the year ended June 30, 2007 prepared by the Board of Directors of Attock Refinery Limited, to comply with the Listing Regulations of the Karachi, Lahore and Islamabad Stock Exchanges where the Company is listed. The responsibility for compliance with the Code of Corporate Governance is that of the Board of Directors of the Company. Our responsibility is to review, to the extent where such compliance can be objectively verified, whether the Statement of Compliance reflects the status of the Company’s compliance with the provisions of the Code of Corporate Governance and report if it does not. A review is limited primarily to inquiries of the Company personnel and review of various documents prepared by the Company to comply with the Code. As part of our audit of financial statements we are required to obtain an understanding of the accounting and internal control systems sufficient to plan the audit and develop an effective audit approach. We have not carried out any special review of the internal control system to enable us to express an opinion as to whether the Board’s statement on internal control covers all controls and the effectiveness of such internal controls.

Based on our review, nothing has come to our attention which causes us to believe that the Statement of Compliance does not appropriately reflect the Company’s compliance, in all material respects, with the best practices contained in the Code of Corporate Governance as applicable to the Company for the year ended June 30, 2007.

Chartered Accountants Islamabad: September 10, 2007

ANNUAL REPORT

2007

Statement of Compliance with the Code of Corporate Governance Name of Company Year Ended

– –

ATTOCK REFINERY LIMITED JUNE 30, 2007

This statement is being presented to comply with the Code of Corporate Governance contained in listing regulations of Karachi, Lahore and Islamabad Stock Exchanges for the purpose of establishing a framework of good governance, whereby a listed company is managed in compliance with the best practices of corporate governance. The Company has applied the principles contained in the Code in the following manner: 1.

2.

3.

The Company encourages representation of independent non-executive directors and directors representing minority interests on its Board of Directors. At present the Board comprises of seven non-executive directors of whom three are independent directors including one director representing institutional equity interest and minority shareholders. None of the directors is serving as a director in more than ten listed companies, including this Company, unless specifically exempt. All the resident directors of the Company are registered as taxpayers and none of them has defaulted in payment of any loan to a banking company, a DFI or an NBFI or, being a member of a stock exchange, has been declared as a defaulter by that stock exchange.

4.

No casual vacancy occured on the Board during the year.

5.

The Company has prepared a ’Statement of Ethics and Business Practices’, which has been signed by all the directors and employees of the Company.

6.

The Board has developed a vision/mission statement, overall corporate strategy and significant policies of the Company. A complete record of particulars of significant

policies along with the dates on which they were approved or amended has been maintained. 7.

All the powers of the Board have been duly exercised and decisions on material transactions, including appointment and determination of remuneration and terms and conditions of employment of the CEO and other executive directors are taken by the Board.

8.

The meetings of the Board were presided over by the Chairman and the Board met at least once in every quarter. Written notices of the Board meetings, along with agenda and working papers, were circulated at least seven days before the meetings. The minutes of the meetings were appropriately recorded and circulated.

9.

The directors were apprised of their duties and responsibilities through various in-house and external orientation courses.

10.

The directors’ report for this year has been prepared in compliance with the requirements of the Code and fully describes the salient matters required to be disclosed.

11.

The financial statements of the Company were duly endorsed by CEO and CFO before approval of the Board.

12.

The directors, CEO and executives do not hold any interest in the shares of the Company other than that disclosed in the pattern of shareholding.

13.

The Company has complied with all the corporate and financial reporting requirements of the Code.

14.

The Board has formed an audit committee. It comprises 3 members, all non-executive directors including the Chairman of the committee who is an independent non-executive director.

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15.

The meetings of the audit committee were held at least once every quarter prior to approval of interim and final results of the Company and as required by the Code. The terms of reference of the committee have been formed and advised to the committee for compliance.

18.

The statutory auditors or the persons associated with them have not been appointed to provide other services except in accordance with the listing regulations and the auditors have confirmed that they have observed IFAC guidelines in this regard.

16.

The Board has set-up an effective internal audit function who are considered suitably qualified and experienced for the purpose and are conversant with the policies and procedures of the Company and they are involved in the internal audit function on a full time basis.

19.

We confirm that all other material principles contained in the Code have been duly complied with.

17.

The statutory auditors of the Company have confirmed that they have been given a satisfactory rating under the quality control review programme of the Institute of Chartered Accountants of Pakistan, that they or any of the partners of the firm, their spouses and minor children do not hold shares of the Company and that the firm and all its partners are in compliance with International Federation of Accountants (IFAC) guidelines on code of ethics as adopted by Institute of Chartered Accountants of Pakistan.

M. Adil Khattak September 05, 2007

Chief Executive Officer

ANNUAL REPORT

Balance Sheet Composition as at June 30, 2007

Equity and Liabilities

Assets

3% 2% 16%

0%

79%

Issued, subscribed and paid-up capital Reserves and surplus (before dividend) Long term loans and Deferred Liabilities Trade & other payables Provision for taxation

Property, Plant & Equipment Stores, spares and loose tools Stock-in-trade Trade debts Long Term Investments Deferred taxation & other receivables Cash and bank balances

2007

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Contributions & Value Additions

Contribution to National Exchequer

Value additions during the year Rs in million

•

Government levies on petroleum products

•

Income tax paid

•

Import / export duties Total

•

Foreign exchange savings US$ 52.44 million

Rs in million

14,107

•

Employees as remuneration

231

•

Government as taxes

362

23

•

Shareholders as dividend

114

14,361

•

Retained within the business

359

14,361

ANNUAL

REPORT

2007

ANNUAL AUDITED FINANCIAL STATEMENTS 2007 ATTOCK REFINERY LIMITED

49

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ANNUAL

REPORT

2007

Auditors' Report to the Members A member firm of

We have audited the annexed balance sheet of Attock Refinery Limited as at June 30, 2007 and the related profit and loss account, cash flow statement and statement of changes in equity together with the notes forming part thereof, for the year then ended and we state that we have obtained all the information and explanations which, to the best of our knowledge and belief, were necessary for the purposes of our audit.

(b)

(i)

It is the responsibility of the Company's management to establish and maintain a system of internal control, and prepare and present the above said statements in conformity with the approved accounting standards and the requirements of the Companies Ordinance, 1984. Our responsibility is to express an opinion on these statements based on our audit. We conduct our audit in accordance with the auditing standards as applicable in Pakistan. These standards require that we plan and perform the audit to obtain reasonable assurance about whether the above said statements are free of any material misstatement. An audit includes examining on a test basis, evidence supporting the amounts and disclosures in the above said statements. An audit also includes assessing the accounting policies and significant estimates made by management, as well as, evaluating the overall presentation of the above said statements. We believe that our audit provides a reasonable basis for our opinion and, after due verification, we report that: (a)

in our opinion, proper books of account have been kept by the Company as required by the Companies Ordinance, 1984;

in our opinion

(c)

the balance sheet and profit and loss account together with the notes thereon have been drawn up in conformity with the Companies Ordinance, 1984, and are in agreement with the books of account and are further in accordance with accounting policies consistently applied;

(ii)

the expenditure incurred during the year was for the purpose of the Company's business; and

(iii)

the business conducted, investments made and the expenditure incurred during the year were in accordance with the objects of the Company;

in our opinion and to the best of our information and according to the explanations given to us, the balance sheet, profit and loss account, cash flow statement and statement of changes in equity together with the notes forming part thereof conform with approved accounting standards as applicable in Pakistan, and, give the information required by the Companies Ordinance, 1984, in the manner so required and respectively give a true and fair view of the state of the Company's affairs as at June 30, 2007 and of the profit, its cash flows and changes in equity for the year then ended; and

(d)

in our opinion no Zakat was deductible at source under the Zakat and Ushr Ordinance, 1980.

Chartered Accountants Islamabad: September 10, 2007

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Balance Sheet as at June 30, 2007

Note

2007 Rupees

2006 Rupees

Share capital and reserves Share capital Authorised Issued, subscribed and paid-up Reserves and surplus

4 4 5

1,000,000,000 568,620,000 3,210,044,648 3,778,664,648

1,000,000,000 454,896,000 2,574,783,836 3,029,679,836

Surplus on revaluation of freehold land

6

1,923,338,591 5,702,003,239

1,923,338,591 4,953,018,427

7

– 85,800,000 85,800,000

3,410,250,000 75,800,000 3,486,050,000

Current maturity of long term loans Short term finance Trade and other payables Provision for taxation

7 8 9

– – 25,393,520,229 1,006,629,216 26,400,149,445

1,136,750,000 – 18,772,869,711 747,596,998 20,657,216,709

Contingencies and commitments

10 32,187,952,684

29,096,285,136

Long term and deferred liabilities Long term loans Provision for staff gratuity

Current liabilities and provisions

ANNUAL

Balance Sheet as at June 30, 2007

Note

REPORT

2007

2007 Rupees

2006 Rupees

Property, plant and equipment Operating assets Capital work-in-progress Stores and spares held for capital expenditure

11 12

2,730,262,269 217,682,385 20,190,054 2,968,134,708

2,945,709,003 220,546,344 77,695,655 3,243,951,002

Long term investments

13

9,261,339,056

8,622,913,930

Long term loans and deposits

14

10,954,309

11,613,726

Deferred taxation

15

157,755,940

137,805,949

16 17 18 19 20

630,835,993 3,852,645,836 6,234,917,655 191,255,471 8,880,113,716 19,789,768,671

585,992,163 3,523,807,730 4,675,133,457 263,473,099 8,031,594,080 17,080,000,529

32,187,952,684

29,096,285,136

Current assets Stores, spares and loose tools Stock-in-trade Trade debts Loans, advances, deposits, prepayments and other receivables Cash and bank balances

The annexed notes form an integral part of these financial statements.

Chief Executive

Director

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Profit & Loss Account for the year ended June 30, 2007

2007 Rupees

2006 Rupees

21

59,154,779,218 46,247,604 59,108,531,614

55,936,831,735 108,693,725 55,828,138,010

22

355,392,880 59,463,924,494 58,609,954,476 853,970,018

234,236,228 56,062,374,238 55,490,680,059 571,694,179

175,107,589 16,716,333 234,277,979 102,150,812 528,252,713 325,717,305 635,166,064 960,883,369 456,550,009 504,333,360

183,298,609 13,779,850 498,424,775 67,912,109 763,415,343 (191,721,164) 627,082,965 435,361,801 354,844,084 80,517,717

244,651,452 748,984,812

223,188,311 303,706,028

13.17

6.68

Note

Sales Less: Discount

Reimbursement due from the Government under import parity pricing formula Less: Cost of sales Gross profit

23

Less: Administration expenses Distribution cost Finance cost Other charges

24 25 26 27

Other income Profit before taxation from refinery operations Provision for taxation Profit after taxation from refinery operations Income from non-refinery operations less applicable charges and taxation Profit for the year

29

Earnings per share

30

31

35.1

The annexed notes form an integral part of these financial statements.

Chief Executive

Director

ANNUAL

Cash Flow Statement

REPORT

2007

2007 Rupees

2006 Rupees

72,705,853,274 98,995,648 72,804,848,922 (52,802,255,187) (14,106,632,140) (231,352,655)

69,286,514,375 131,684,336 69,418,198,711 (52,412,273,161) (12,089,104,107) (824,721,231)

5,664,608,940

4,092,100,212

(81,160,249) 954,362 (638,425,126) 659,417 529,356,513 277,697,450

(230,284,848) 2,309,505 (6,213,929,559) 426,715 501,987,969 253,335,200

89,082,367

(5,686,155,018)

Cash flows from financing activities Long term loans Repayment of principal portion of finance lease Financial charges paid Dividends paid

(4,547,000,000) – (358,411,079) (30,173)

4,547,000,000 (30,000,000) (374,917,154) (8,606)

Net cash flows from financing activities

(4,905,441,252)

4,142,074,240

269,581

2,992,990

848,519,636

2,551,012,424

8,031,594,080 8,880,113,716

5,480,581,656 8,031,594,080

for the year ended June 30, 2007 Cash flows from operating activities Cash receipts from – customers – others Cash paid for operating costs Cash paid to Government for duties, taxes and other levies Income tax paid Net cash flows from operating activities Cash flows from investing activities Additions to property, plant and equipment Proceeds from sale of property, plant and equipment Long term investments Long term loans and deposits Income on bank deposits received Dividends received Net cash flows from investing activities

Effect of exchange rate changes Increase in cash and cash equivalents Cash and cash equivalents at the beginning of the year Cash and cash equivalents at the end of the year The annexed notes form an integral part of these financial statements.

Chief Executive

Director

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Share capital Rupees

Capital reserve Rupees

Special reserve for expansion / modernisation Rupees

General reserve Rupees

Un-appropriated Profit Rupees

Surplus on revaluation of freehold land Rupees

Balance at June 30, 2005

349,920,000

5,948,506

2,187,628,247

55,000

182,422,055

1,923,338,591

4,649,312,399

Bonus shares @ 30% related to the year ended June 30, 2005

104,976,000

–

–

–

(104,976,000)

–

–

Profit for the year

–

–

–

–

303,706,028

–

303,706,028

Transfer to reserve for expansion / modernisation

–

–

–

–

–

–

–

Balance at June 30, 2006

454,896,000

5,948,506

2,187,628,247

55,000

381,152,083

1,923,338,591

4,953,018,427

Bonus shares @ 25% related to the year ended June 30, 2006

113,724,000

–

–

–

(113,724,000)

–

–

Profit for the year

–

–

–

–

748,984,812

–

748,984,812

Transfer to reserve for expansion / modernisation

–

–

358,533,360

–

(358,533,360)

–

–

568,620,000

5,948,506

2,546,161,607

55,000

657,879,535

1,923,338,591

5,702,003,239

Statement of Changes in Equity for the year ended June 30, 2007

Balance at June 30, 2007

Total Rupees

The annexed notes form an integral part of these financial statements.

Chief Executive

Director

ANNUAL

REPORT

2007

Notes to the Financial Statements for the year ended June 30, 2007 1.

Legal status and operations

The Company was incorporated in Pakistan on November 8, 1978 as a private limited company and was converted into a public limited company on June 26, 1979. The registered office of the Company is situated at Morgah, Rawalpindi. Its shares are quoted on the Karachi, Lahore and Islamabad Stock Exchanges in Pakistan. It is principally engaged in the refining of crude oil. The Company is a subsidiary of The Attock Oil Company Limited, UK and its ultimate parent is Bay View International Group S.A.

2.

Summary of significant accounting policies

2.1

Basis of presentation of financial statements These financial statements have been prepared in accordance with approved accounting standards as applicable in Pakistan and the requirements of the Companies Ordinance, 1984 (the Ordinance). Approved accounting standards comprise of such International Accounting Standards as notified under the provisions of the Ordinance. Wherever, the requirements of the Ordinance or directives issued by the Securities and Exchange Commission of Pakistan differ with the requirements of these standards, the requirements of the Ordinance or the requirements of the said directives take precedence. Amendments to the published standards and new interpretations effective for accounting periods beginning on or after January 1, 2006: IAS 19 (Amendment) – Employee Benefits is mandatory for the Company’s accounting periods beginning on or after January 1, 2006. This amendment introduces the option of an alternate recognition approach for actuarial gains and losses and requires new disclosures. As the Company does not intend to change its accounting policy adopted for the recognition of actuarial gains and losses, the adoption of this amendment only impacts the format and extent of disclosures as given in note 28 to these financial statements. Standards, amendments and interpretations effective for accounting periods beginning on or after January 1, 2006 but not relevant: The other new standards, amendments and interpretations that are mandatory for accounting periods beginning on or after January 1, 2006 are not considered to be relevant or do not have any significant effect on the Company’s operations. Standards or interpretations not yet effective but relevant: The following new accounting standards and amendments to existing accounting standards have been published and are not effective for the purpose of these financial statements. i)

IAS 1 Presentation of Financial Statements – Capital Disclosures

ii)

IFRS 7 – Financial Instruments: Disclosures

iii)

IAS 39 and IFRS 4 (Amendment), Financial Guarantee Contracts

Adoption of the above accounting standards is not considered to have any significant effect on the Company's financial statements. 2.2

Basis of measurement These financial statements have been prepared under the historical cost convention modified by revaluation of free hold land referred to in note 2.5 and certain other modifications as required by International Accounting Standards referred to in the accounting policies given below.

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Notes to the Financial Statements for the year ended June 30, 2007 2.3

Dividend appropriation Dividend is recognised as a liability in the financial statements in the period in which it is declared.

2.4

Taxation Provision for current taxation is based on taxable income at the current rates of taxation or half percent of turnover, whichever is higher. Deferred income tax is accounted for using the balance sheet liability method in respect of all temporary differences arising between the carrying amount of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit. Deferred tax liabilities are recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that future taxable profits will be available against which the deductible temporary differences can be utilised. Deferred tax is calculated at the rates that are expected to apply to the period when the differences reverse based on the tax rates that have been enacted. Deferred tax is charged or credited to income except in the case of items credited or charged to equity in which case it is included in equity.

2.5

Property, plant and equipment a)

Cost Operating fixed assets except freehold land are stated at cost less accumulated depreciation. Freehold land is stated at revalued amount. Capital work-in-progress and stores held for capital expenditure are stated at cost. Cost in relation to certain plant and machinery items includes borrowing cost related to the financing of major projects during construction phase.

b)

Depreciation Depreciation is charged to income on straight line method to write off the cost of an asset over its estimated useful life at the rates specified in note 11. The carrying values of tangible fixed assets are reviewed for impairment when events or changes in circumstances indicate that carrying value may not be recoverable. If any such indication exists and where the carrying value exceeds the estimated recoverable amount, the assets are written down to recoverable amount.

c)

Repairs and maintenance Maintenance and normal repairs, including minor alterations, are charged to income as and when incurred. Renewals and improvements are capitalised and the assets so replaced, if any, are retired.

d)

Gains and losses on deletion Gains and losses on deletion of assets are included in income currently.

2.6

Investments a)

Investments in subsidiary and associated companies These investments are initially valued at cost. At subsequent reporting dates, the Company reviews the carrying amount of the investment to assess whether there is any indication that such investments have suffered an impairment loss. If any such indication exists, the recoverable

ANNUAL

REPORT

2007

Notes to the Financial Statements for the year ended June 30, 2007 amount is estimated in order to determine the extent of the impairment loss, if any. Such impairment losses or reversal of impairment losses are recognised in the profit and loss account. The profits and losses of subsidiary and associated companies are carried in the financial statements of the subsidiary and associated company and are not dealt with for the purpose of the financial statements of the Company except to the extent of dividend declared by the subsidiary and associated companies. b)

Available for sale investments Investment securities held by the Company which may be sold in response to needs for liquidity or changes in interest rates, exchange rates or equity prices are classified as available for sale. These investments are initially recognised at cost and subsequently re-measured at fair value. Unrealised gains and losses arising from changes in the fair value in respect of exchange differences of available for sale investments are treated as referred to in note 2.9.

2.7

Stores, spares and loose tools These are valued at moving average cost less allowance for obsolete items. Items in transit are stated at invoice value plus other charges paid thereon.

2.8

Stock-in-trade Stock-in-trade is valued at the lower of cost and net realisable value. Crude oil in transit is valued at cost comprising invoice value. Cost in relation to crude oil is determined on the basis of annual average cost of purchases during the year on the principles of import parity and in relation to semi-finished and finished products it represents the cost of crude oil and refining charges consisting of direct expenses and appropriate production overheads. Direct expenses are arrived at on the basis of average cost for the year per barrel of throughput. Production overheads, including depreciation, are allocated to throughput proportionately on the basis of nameplate capacity. Net realisable value in relation to finished product represents selling prices in the ordinary course of business less costs necessarily to be incurred for its sale, as applicable, and in relation to crude oil represents replacement cost at the balance sheet date.

2.9

Foreign currency transactions Transactions in foreign currencies are converted into rupees at the rates of exchange ruling on the date of the transaction. All monetary assets and liabilities denominated in foreign currencies at the year end are translated at exchange rate prevailing at the balance sheet date. Exchange differences are dealt with through the profit and loss account.

59

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Notes to the Financial Statements for the year ended June 30, 2007 2.10

Revenue recognition Revenue is recognised to the extent that it is probable that economic benefits will flow to the Company and the revenue can be reliably measured. Revenue is recognised as follows: i)

Revenue from sales is recognised on delivery of products ex-refinery to the customers with the exception that Naphtha export sales are recognised on the basis of products shipped to customers.

ii)

The Company is operating under the import parity pricing formula, as modified from time to time, whereby it is charged the cost of crude on 'import parity' basis and is allowed product prices equivalent to the 'import parity' price, calculated under agreed parameters. The Government has, effective July 1, 2007 made certain modifications in the agreed parameters which has effectively reduced the ex-refinery price of Kerosene oil, Light Diesel Oil (LDO) and JP-8 which will correspondingly reduce the sales revenue. The Government is also reviewing the pricing formula for Motor Gasoline and it is expected that a pricing formula for this product would be finalised with mutual consultations ensuring that the refineries do not suffer loss on account of these changes to remain commercially viable. Under the pricing formula the Company was entitled to a net of tax return on its paid-up capital with a guaranteed minimum of 10% and allowable maximum of 40% in respect of its refinery operations. Effective July 1, 2002, the Government has further modified the pricing formula applicable to the Company. Under this modified formula the Refinery shall not claim from the Government any shortfall in profitability and net profit after tax (if any) from refinery operations above 50% of paid-up capital as at July 1, 2002 is required to be diverted to a special reserve to offset any future loss or make investment for expansion or upgradation of Refinery. However, the Company has contested the abolition of minimum rate of return of 10% and represented to the Government to modify the already existing agreement for guaranteed return with mutual consent of both the parties.

2.11

iii)

Dividend income is recognised when the right to receive dividend is established.

iv)

Other income is recognised on accrual basis.

Related party transactions The transactions with related parties in respect of sale of petroleum products, the prices of which are regulated and notified by the Government, and crude oil purchases, the prices of which are determined in accordance with the agreed pricing formula as approved by the Government, are recorded at the prices so notified or determined. In case of sale of deregulated petroleum products, the transactions are made at Company notified prices for all its customers. In certain cases, reduced price is allowed on commercial considerations. All other transactions are carried out on commercially negotiated terms.

2.12

Borrowing cost Borrowing cost related to the financing of major projects during construction phase is capitalised. All other borrowing costs are expensed as incurred.

2.13

Staff retirement benefits The main features of the retirement benefit schemes operated by the Company for its employees are as follows:

ANNUAL

REPORT

2007

Notes to the Financial Statements for the year ended June 30, 2007 (i)

Defined benefit plans A pension plan for its Management Staff and a gratuity plan for its Non-Management Staff. The pension plan is invested through an approved trust fund while the gratuity plan is book reserve plan. Contributions are made in accordance with actuarial recommendation. Actuarial valuations are conducted annually using projected unit credit method. The obligation is measured at the present value of the estimated future cash outflows. Unrealised net gains and losses are amortised over the expected remaining service of current members.

(ii)

Defined contribution plans Approved contributory provident fund for all employees to which equal monthly contribution is made both by the Company and the employee at the rate of 10% of basic salary.

2.14

Employees compensated absences The Company also provides for compensated absences for all employees in accordance with the rules of the Company.

2.15

Financial instruments Financial assets and financial liabilities are recognised when the Company becomes a party to the contractual provisions of the instrument and de-recognised when the Company loses control of the contractual rights that comprise the financial asset and in case of financial liability when the obligation specified in the contract is discharged, cancelled or expired. The particular measurement methods adopted are disclosed in the individual policy statements associated with each item as shown below: a)

Trade and other payables Liabilities for trade and other amounts payable including amounts payable to related parties are carried at cost which is the fair value of the consideration to be paid in the future for goods and services received.

b)

Provisions Provisions are recognised when a Company has a legal or constructive obligation as a result of past event if it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate of the amount can be made.

c)

Trade and other receivables Trade receivables and other receivables are recognised and carried at original invoice amount/cost less an allowance for any uncollectible amounts.

d)

Cash and cash equivalents Cash in hand and at banks are carried at fair value. For the purpose of cash flow statement, cash and cash equivalents consist of cash in hand, balances in banks and highly liquid short term investments.

61

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Notes to the Financial Statements for the year ended June 30, 2007 3.

4.

Critical accounting estimates and judgments

Share capital

The preparation of financial statements in conformity with the approved accounting standards requires the use of certain critical accounting estimates. It also requires management to exercise its judgment in the process of applying the Company's accounting policies. Estimates and judgments are continually evaluated and are based on historical experience, including expectation of future events that are believed to be reasonable under the circumstances. The areas where various assumptions and estimates are significant to the Company's financial statements or where judgment was exercised in application of accounting policies are as follows: i)

Revaluation surplus on freehold land - note 11.1

ii)

Estimate of recoverable amount of investment in associated companies - note 13.1

iii)

Price adjustment related to crude oil purchases - note 23.1

iv)

Provision for retirement benefits - note 28

v)

Provision for taxation - note 30 2007 Rupees

2006 Rupees

1,000,000,000

1,000,000,000

80,000,000

80,000,000

Shares issued as fully paid bonus shares 48,862,000 (2006: 37,489,600) ordinary shares of Rs 10 each

488,620,000

374,896,000

56,862,000 (2006: 45,489,600) ordinary shares of Rs 10 each

568,620,000

454,896,000

Authorised 100,000,000 (2006: 100,000,000) ordinary shares of Rs 10 each Issued, subscribed and paid up Shares issued for cash 8,000,000 (2006: 8,000,000) ordinary shares of Rs 10 each

The Attock Oil Company Limited held 31,274,100 (2006: 23,882,040) ordinary shares at the year end.

ANNUAL

REPORT

2007

Notes to the Financial Statements for the year ended June 30, 2007

5.

Reserves and surplus

Capital reserve Liabilities taken over from The Attock Oil Company Limited no longer required Capital gain on sale of building Insurance and other claims realised relating to pre-incorporation period

Revenue reserves Special reserve for expansion/modernisation - note 5.1 Additional revenue under processing fee formula related to 1990-91 and 1991-92 Surplus profits under the import parity pricing formula General reserve Surplus - unappropriated profit

5.1

6.

7.

2007 Rupees

2006 Rupees

4,799,955 653,906

4,799,955 653,906

494,645 5,948,506

494,645 5,948,506

32,929,000 2,513,232,607 2,546,161,607 55,000 657,879,535 3,204,096,142 3,210,044,648

32,929,000 2,154,699,247 2,187,628,247 55,000 381,152,083 2,568,835,330 2,574,783,836

Represents amounts retained as per stipulations of the Government under the pricing formula and is available only for offsetting any future loss or making investment in expansion or upgradation of the refinery. Transfer to / from special reserve is recognised at each quarter end and is reviewed for adjustment based on profit / loss on an annual basis.

Surplus on revaluation of freehold land

This represents surplus over book value resulting from revaluation of freehold land as referred to in note 11.1 and is not available for distribution to shareholders.

Long term loans - secured

Syndicate Financing Facility Morabaha Financing Facility Less:Current portion Syndicate Financing Facility Morabaha Financing Facility

2007 Rupees

2006 Rupees

– – –

3,597,000,000 950,000,000 4,547,000,000

– – – –

899,250,000 237,500,000 1,136,750,000 3,410,250,000

63

64

AT T O C K R E F I N E RY L I M I T E D

Notes to the Financial Statements for the year ended June 30, 2007 7.1

The Company obtained a long term syndicate financing facility of Rs 3,597 million from a consortium of banks under the lead of Faysal Bank Limited and a separate Morabaha financing facility from Faysal Bank Limited of Rs 950 million. These facilities were repayable in eight half yearly equal installments commencing July 2006 and carried profit at base rate (six month KIBOR) plus 2.05% per annum upto January 1, 2006 and thereafter at base rate plus 1.90% per annum for the remaining period of facilities. These facilities were secured by first pari passu charge by way of hypothecation over all present and future current and movable fixed assets of the Company and mortgage over immovable property. During December 2006, the Company repaid the entire outstanding balance of these loans.

8.

9.

Short term finance

Trade and other payables

The Company's short term finance facility under mark-up arrangements aggregating Rs 70 million (2006: Rs 70 million) available from MCB bank expired during the year. The Company is in the process of arranging fresh running finance facilities from various commercial banks to the extent of Rs 3.5 billion at varying mark-up rates linked to three months and one month KIBOR.

Creditors - note 9.1 Due to The Attock Oil Company Limited – Holding Company Due to associated companies Pakistan Oilfields Limited Attock Petroleum Limited Attock Information Technology Services (Private) Ltd. Accrued liabilities and provisions - note 9.1 Due to the Government under pricing formula - note 9.2 Advance payments from customers - note 9.3 Sales tax payable Accrued mark-up/interest on long term loans Workers' Welfare Fund Workers' Profit Participation Fund - note 9.4 Staff Provident Fund Deposits from customers adjustable against freight and Government levies payable on their behalf Security deposits Unclaimed dividends

9.1

2007 Rupees

2006 Rupees

18,020,915,256 275,108,397

11,481,267,334 432,891,332

1,384,104,431 1,430,155 5,542,677 737,636,316 4,707,073,386 5,532,717 7,197,593 – 131,988,739 65,840,211 –

1,471,797,733 21,113,426 – 223,933,625 4,689,396,074 10,518,689 127,011,850 124,133,100 103,033,871 36,869,261 54,127

1,270,705 48,940,150 939,496 25,393,520,229

1,018,470 48,861,150 969,669 18,772,869,711

Creditors include an amount of Rs 5,434.461 million (2006 : Rs 1,615.257 million) in respect of crude oil price in excess of US$ 50 per barrel withheld by the Company, pending finalisation of discount thereon, from payments made to suppliers for purchase of local crude oil as per the directive of Ministry of Petroleum & Natural Resources (the Ministry).

ANNUAL

REPORT

2007

Notes to the Financial Statements for the year ended June 30, 2007 Further, as per directive of the Ministry dated May 31, 2006, the Company is required to make payments alongwith the mark-up generated after the final discount rates in respect of crude oil price in excess of US$ 50 per barrel are decided between the parties and such withheld amounts are being retained in a designated 90-day interest bearing account. Accumulated profits amounting to Rs 377.568 million (2006: Rs 32.000 million) earned thereon are included in accrued liabilities and provisions. 9.2

The amount due to the Government under pricing formula is net of Rs 2,404 million (2006: Rs 1,570 million) price differential claim as referred to in note 21.1 with a corresponding effect in creditors.

9.3

Advance payments from customers include Rs 2,855,486 (2006: nil) from Pakistan Oilfields Limited, an associated company, against sales of LPG.

9.4

Workers' Profit Participation Fund Balance at the beginning of the year Add: Interest on funds utilised in the Company's business - note 26 Less: Amount paid to the Fund Add: Amount allocated for the year - notes 27 and 31

10. Contingencies and commitments

Contingencies: i) Performance and commitment guarantees arranged by the Company on behalf of Attock Gen Limited (AGL), an associated company, as main sponsors ii) Guarantees issued by banks on behalf of the Company iii) Claims for land compensation contested by the Company iv) Price adjustment related to crude oil purchases as referred to in note 23.1, the amount of which can not be presently quantified Commitments outstanding: i) Capital expenditure ii) Letters of credit other than for capital expenditure

2007 Rupees

2006 Rupees

36,869,261

118,649,647

528,081 37,397,342 37,261,056 136,286 65,703,925 65,840,211

2,168,584 120,818,231 120,541,846 276,385 36,592,876 36,869,261

214,255,000 300,000 1,300,000

– 250,000 1,300,000

–

–

55,423,626 125,775,143

41,868,873 33,659,700

65

66

AT T O C K R E F I N E RY L I M I T E D

Notes to the Financial Statements for the year ended June 30, 2007 Freehold land (note 11.1)

Buildings on freehold land

Plant & machinery

Computer equipment

Furniture, fixtures and equipment

Vehicles

Rupees

11. Property, plant and equipment

Total Rupees

Cost As at July 1, 2005 Additions during the year Disposals during the year As at June 30, 2006 Additions during the year Disposals during the year As at June 30, 2007

1,927,250,000 – – 1,927,250,000 – – 1,927,250,000

69,815,152 541,110 – 70,356,262 14,374,730 – 84,730,992

3,711,648,064 84,352,647 (100,000) 3,795,900,711 113,947,125 – 3,909,847,836

50,260,000 3,248,604 (1,631,619) 51,876,985 3,687,304 – 55,564,289

57,144,771 4,187,145 (725,117) 60,606,799 1,545,900 (187,993) 61,964,706

53,664,457 9,961,847 (991,610) 62,634,694 7,974,750 (290,110) 70,319,334

5,869,782,444 102,291,353 (3,448,346) 5,968,625,451 141,529,809 (478,103) 6,109,677,157

– – – – – – –

25,475,882 3,162,722 – 28,638,604 3,908,199 – 32,546,803

2,558,643,971 319,613,278 (100,000) 2,878,157,249 330,938,958 – 3,209,096,207

35,545,197 5,753,320 (1,492,900) 39,805,617 8,998,928 – 48,804,545

28,424,465 4,959,392 (266,881) 33,116,976 4,783,482 (80,056) 37,820,402

37,216,765 6,920,885 (939,648) 43,198,002 8,239,036 (290,107) 51,146,931

2,685,306,280 340,409,597 (2,799,429) 3,022,916,448 356,868,603 (370,163) 3,379,414,888

As at June 30, 2006

1,927,250,000

41,717,658

917,743,462

12,071,368

27,489,823

19,436,692

2,945,709,003

As at June 30, 2007

1,927,250,000

52,184,189

700,751,629

6,759,744

24,144,304

19,172,403

2,730,262,269

–

5

10

20

10

20

Depreciation As at July 1, 2005 Charge for the year On disposals As at June 30, 2006 Charge for the year On disposals As at June 30, 2007 Written down value

Annual rate of depreciation (%)

ANNUAL

REPORT

2007

Notes to the Financial Statements for the year ended June 30, 2007 11.1

Value of freehold land includes revaluation surplus of Rs 1,923.339 million arising from revaluation of freehold land in January 2001 carried out by an independent value. Valuation was made on the basis of market value. The original cost of the land as at June 30, 2007 is Rs 3.911 million.

11.2

Effective from the current year, the Company has revised its estimate regarding useful life of computers. Accordingly, the annual depreciation rate has been increased from 14.3% in previous years to 20% to reflect the pattern in which the assets' economic benefits will be consumed. Had the change in accounting estimate not been made, the depreciation charge for the year would have been lower by Rs 4.470 million and the profit for the year would have been higher to that extent. Correspondingly, the operating assets and equity as at June 30, 2007 would have been higher by the same amount.

11.3

12. Capital work-in-progress

The depreciation charge for the year has been allocated as follows: Cost of sales Administration expenses Distribution cost Desalter operating cost

Civil works Plant and machinery Pipeline project Power plant project - note 12.1

12.1

2007 Rupees

2006 Rupees

341,975,356 13,360,853 899,894 632,500 356,868,603

328,326,550 10,875,215 575,332 632,500 340,409,597

2,486,951 186,976,759 28,218,675 – 217,682,385

11,725,973 161,182,102 27,964,992 19,673,277 220,546,344

Cost incurred by the Company on the Power Plant Project has been fully recovered from Attock Gen Limited, an associated company, set up for the purpose of independently operating the Power Plant.

67

68

AT T O C K R E F I N E RY L I M I T E D

Notes to the Financial Statements for the year ended June 30, 2007 2007

13. Long term investments

Associated companies Quoted National Refinery Limited (NRL) - note 13.1 16,659,700 (2006: 16,659,700) fully paid ordinary shares of Rs 10 each Market value as at June 30, 2007: Rs 5,681 million (2006: Rs 4,448 million) Attock Petroleum Limited 8,681,400 (2006: 8,363,300) fully paid ordinary shares including 3,500,000 (2006: 3,500,000) bonus shares of Rs 10 each Market value as at June 30, 2007: Rs 4,352 million (June 30, 2006: Rs 2,701 million) Unquoted Attock Gen Limited 5,400,000 fully paid ordinary shares of Rs 100 each Value based on net assets as at June 30, 2007: Rs 542 million Attock Information Technology Services (Private) Limited 450,000 (2006 : 450,000) fully paid ordinary shares of Rs 10 each Value based on net assets as at June 30, 2007: Rs 4.92 million (June 30, 2006: Rs 4.62 million)

2006

% age Holdiing

Rupees

% age Holding

Rupees

25

8,046,635,100

25

8,046,635,100

21.70

668,203,956

20.91

569,778,830

30

540,000,000

–

–

10

4,500,000

10

4,500,000

9,259,339,056 Subsidiary company Unquoted Attock Hospital (Private) Limited 200,000 (2006: 200,000) fully paid ordinary shares of Rs 10 each Value based on net assets as at June 30, 2007: Rs 6.761 million (2006: Rs 7.261 million)

100

2,000,000

9,261,339,056

8,620,913,930

100

2,000,000

8,622,913,930

ANNUAL

REPORT

2007

Notes to the Financial Statements for the year ended June 30, 2007 13.1

14. Long term loans and deposits

Based on a valuation analysis carried out by an external investment advisor engaged by the Company, the recoverable amount of investment in NRL exceeds its carrying amount. The recoverable amount has been estimated based on a value in use calculation. These calculations have been made on discounted cash flow based valuation methodology which assumes gross profit margin of 6.4% (2006: 6.30%), terminal growth rate of 5% (2006: 5%) and capital asset pricing model based discount rate of 14.30% (2006: 13.40%).

Loans to employees - considered good - note 14.1 Less: Amounts due within twelve months shown under current assets - note 19 Security deposits

14.1

14.2

2007 Rupees

2006 Rupees

21,079,761 10,990,473 10,089,288 865,021 10,954,309

20,748,226 9,999,521 10,748,705 865,021 11,613,726

Loans to employees are for purchase of car, refrigerator and for other purposes which are recoverable in 36, 24 and 60 equal monthly installments respectively and are secured by a charge on the asset purchased and/or amount due to the employee against provident fund or a third party guarantee. Loans to employees for refrigerator and other purposes are interest free while loans for purchase of car carry interest rates ranging from 3% to 15% (2006: 3% to 15%) per annum. These do not include any amount outstanding for more than three years. These include an amount of Rs 3,551,595 (2006: Rs 2,232,870) receivable from executives of the Company and does not include any amount receivable from Directors or Chief Executive. The maximum amount due from executives of the Company at the end of any month during the year was Rs 3,805,412 (2006: Rs 2,493,776).

2007 Rupees

2006 Rupees

2,232,870 3,922,053 6,154,923 2,603,328 3,551,595

283,000 3,044,644 3,327,644 1,094,774 2,232,870

Reconciliation of carrying amount of loans to executives: Opening balance as at July 1 Add: Disbursements during the year Less: Repayments during the year Closing balance as at June 30

69

70

AT T O C K R E F I N E RY L I M I T E D

Notes to the Financial Statements for the year ended June 30, 2007

15. Deferred Taxation

16. Stores, spares and loose tools

Debit balances arising on Provisions for obsolete stores, doubtful debts and gratuity Accelerated depreciation allowances Credit balance arising on finance lease arrangements

Stores (including items in transit Rs 119.67 million; 2006: Rs 82.54 million) Spares Loose tools Less: Provision for slow moving items

17. Stock-in-trade

Crude oil - in stock - in transit Semi-finished products Finished products

2007 Rupees

2006 Rupees

48,979,811 124,673,071 (15,896,942) 157,755,940

39,315,681 130,284,153 (31,793,885) 137,805,949

446,578,908 219,661,310 595,775 666,835,993 36,000,000 630,835,993

410,806,882 208,976,739 708,542 620,492,163 34,500,000 585,992,163

1,488,647,552 176,064,444 1,664,711,996 311,633,383 1,876,300,457 3,852,645,836

1,310,846,837 173,356,867 1,484,203,704 278,876,166 1,760,727,860 3,523,807,730

Finished products include stocks carried at net realisable value of Rs 236 million (2006: Rs 334 million). Adjustments amounting to Rs 43.8 million (2006: Rs 72.9 million) have been made to closing inventory to write down stocks of finished products to their net realizable value.

18. Trade debts

All debtors are unsecured and considered good. Aggregate amount receivable from an associated company as at June 30, 2007 was Rs 1,010,953,152 (2006: Rs 1,062,120,659).

ANNUAL

REPORT

2007

Notes to the Financial Statements for the year ended June 30, 2007

19. Loans, advances, deposits, prepayments and other receivables

2007 Rupees

2006 Rupees

10,990,473 19,301,031 1,728,728 32,020,232

9,999,521 32,552,811 1,683,662 44,235,994

285,673 17,238,584

285,673 14,269,925

287,247 17,811,504

23,725 14,579,323

1,966,040

1,668,749

4,677,170 2,415,270 – 2,464,971

2,363,777 – 139,817 522,052

– 155,340 4,096,686 78,867,031 39,220,600 7,560,627 141,423,735 191,255,471

– – 1,697,890 39,199,241 150,716,052 8,350,204 204,657,782 263,473,099

Loans and advances - considered good Current portion of long-term loans to employees - note 14 Advances to suppliers Advances to employees

Deposits, prepayments and current account balances with statutory authorities Trade deposits Short term prepayments Current account balances with statutory authorities in respect of petroleum development levy, excise duty and sales tax

Other receivables Due from subsidiary company - Attock Hospital (Private) Limited Due from associated companies National Refinery Limited Attock Gen Limited Attock Information Technology Services (Private) Limited National Cleaner Production Centre Foundation Attock Industrial Products Limited (net of provision of Rs 3,015,145; 2006: Rs 3,015,145) Attock Cement Pakistan Limited Due from Staff Pension Fund Income accrued on bank deposits Crude oil freight recoverable through inland freight equalisation margin Other receivables

Loans to employees include Rs 2,265,248 (2006: Rs 1,289,790) due from executives of the Company and does not include any amount receivable from Directors or the Chief Executive.

71

72

AT T O C K R E F I N E RY L I M I T E D

Notes to the Financial Statements for the year ended June 30, 2007

20. Cash and bank balances

21. Sales

Cash in hand With banks: On current accounts On interest/ mark-up bearing savings accounts (including US $ 379,624; 2006: US $ 643,379)

2007 Rupees

2006 Rupees

291,366

541,946

2,790,058

4,654,915

8,877,032,292 8,880,113,716

8,026,397,219 8,031,594,080

20.1

Balances with banks include Rs 5,381.864 million (2006: 1,000.136 million) in respect of deposits placed on 90-day interest-bearing account consequent to a directive issued by the Ministry on account of amounts withheld as referred to in note 9.1 alongwith related interest earned thereon.

20.2

A lien on the Company's savings account has been marked by a bank to the extent of guarantees issued on behalf of the Company as referred to in note 10 (i).

20.3

Balances with banks include Rs 48.940 million (2006: Rs 48.861 million) in respect of security deposits received.

20.4

The balances in savings accounts at the year end earn weighted average interest/ mark-up of 9.73% (2006: 8.93%) per annum.

Gross sales - note 21.1 Naphtha export sales Less:Cost of Naphtha purchased from third parties and related handling charges recovered Less:Duties, taxes and levies - note 21.2 21.1

21.2

2007 Rupees

2006 Rupees

66,083,778,877 8,232,839,936

61,362,743,941 8,512,982,645

1,175,285,235 7,057,554,701 13,986,554,360 59,154,779,218

1,761,308,376 6,751,674,269 12,177,586,475 55,936,831,735

Under the products import parity pricing formula, effective July 1, 2000, the Government had imposed a cap on an element of pricing of Premium Motor Gasoline (PMG) which has not been accepted by the Company. The Company has strongly urged the Government to remove this cap. The sales revenue to the extent of related aggregate price differential claims of Rs. 2,404 million (including Rs. 1,570 million for prior years) is not being reflected in sales till this matter is resolved. In this context, the tax authorities have raised demands for income tax against these price differential claims which have been contested in appeals by the Company.

Duties, taxes and levies Development surcharge Sales tax Custom duties and other levies

2007 Rupees

2006 Rupees

5,356,523,313 8,166,096,090 463,934,957 13,986,554,360

3,858,634,023 7,810,481,336 508,471,116 12,177,586,475

ANNUAL

REPORT

2007

Notes to the Financial Statements for the year ended June 30, 2007 22. Reimbursement due from the government under import parity pricing formula

This represents amount due from the Government of Pakistan on account of shortfall in ex-refinery prices of certain petroleum products under the import parity pricing formula.

23. Cost of sales

Opening stock of semi-finished products Crude oil consumed - note 23.1 Transportation and handling charges Salaries, wages and other benefits - note 23.2 Printing and stationery Chemicals consumed Fuel and power Rent, rates and taxes Telephone and telex charges Professional charges for technical services Insurance Repairs and maintenance (including stores and spares consumed Rs 65,330,509; 2006: Rs 79,543,503) Staff transport and travelling - note 23.3 Cost of receptacles Research and development Depreciation - note 11.3 Closing stock of semi-finished products Opening stock of finished products Closing stock of finished products

23.1

Crude oil consumed Stock at the beginning of the year Purchases Stock at the end of the year

2007 Rupees

2006 Rupees

278,876,166 56,326,788,162 1,016,614,947 250,261,568 1,822,173 347,235,336 279,485,676 6,524,583 1,602,062 2,455,174 46,544,043

174,528,868 53,529,997,346 1,042,847,253 236,931,536 2,208,099 368,336,337 243,640,822 5,644,009 2,309,376 2,849,672 36,578,388

118,433,291 9,815,175 8,618,744 108,000 341,975,356 59,037,160,456 (311,633,383) 58,725,527,073 1,760,727,860 (1,876,300,457) (115,572,597) 58,609,954,476

141,527,067 12,187,347 24,775,920 8,550,012 328,326,550 56,161,238,602 (278,876,166) 55,882,362,436 1,369,045,483 (1,760,727,860) (391,682,377) 55,490,680,059

1,484,203,704 56,507,296,454 57,991,500,158 (1,664,711,996) 56,326,788,162

557,049,967 54,457,151,083 55,014,201,050 (1,484,203,704) 53,529,997,346

Certain crude purchases have been recorded based on provisional prices notified by the Government and may require subsequent adjustment.

73

74

AT T O C K R E F I N E RY L I M I T E D

Notes to the Financial Statements for the year ended June 30, 2007

24. Administration expenses

23.2

Salaries, wages and other benefits under cost of sales, administration expenses, distribution cost and income from crude desalter operations include the Company's contribution to the Provident Fund amounting to Rs 11,552,458 (2006: Rs 10,682,306).

23.3

Staff transport and travelling Staff transport and travelling under cost of sales, administration expenses and distribution cost include lease rentals amounting to Rs nil (2006: Rs 764,819) related to nil (2006: 11) motor vehicles used during the year under terminable lease agreements.

Salaries, wages and other benefits - note 23.2 Staff transport, travelling and entertainment - note 23.3 Telephone and telex charges Electricity, gas and water Printing and stationery Auditors' remuneration and expenses: Statutory audit Special certifications, half yearly review, audit of consolidated accounts and staff funds Out of pocket expenses Legal and professional charges Repairs and maintenance Subscription Publicity Scholarship scheme Rent, rates and taxes Insurance Donations* Training expenses Other expenses Depreciation - note 11.3

* No director or his spouse had any interest in the donee institutions.

2007 Rupees

2006 Rupees

97,666,151 12,064,930 1,484,554 4,430,040 3,028,350

90,619,295 13,600,784 1,893,125 4,023,580 2,408,355

350,000 553,000 82,995 985,995 5,874,513 21,490,375 5,271,778 4,043,563 2,054,950 1,273,568 866,898 414,619 744,814 51,638 13,360,853 175,107,589

300,000 483,500 91,540 875,040 7,951,800 24,795,439 5,444,940 4,029,913 1,398,801 1,677,635 794,336 10,275,147 2,389,783 245,421 10,875,215 183,298,609

ANNUAL

REPORT

2007

Notes to the Financial Statements for the year ended June 30, 2007

25. Distribution cost

Salaries, wages and other benefits - note 23.2 Staff transport, travelling and entertainment - note 23.3 Telephone and telex charges Electricity, gas, fuel and water Printing and stationery Repairs and maintenance including packing and other stores consumed Rent, rates and taxes Legal and professional charges Cost of samples Depreciation - note 11.3

26. Finance cost

Interest / mark-up on Long term loans Workers' Profit Participation Fund - note 9.4 Financial charges on liability against assets subject to finance lease Bank and other charges

27. Other charges

Employees' retirement benefits Staff gratuity benefits - note 28 Staff pension benefits - note 28 Less: Charged to subsidiary company Contribution to employees old age benefits scheme Provision for slow moving stores Stores written off Workers' Profit Participation Fund - note 9.4 Workers' Welfare Fund

2007 Rupees

2006 Rupees

11,722,058 568,338 209,812 1,476,680 81,097 1,295,190 316,677 144,000 2,587 899,894 16,716,333

8,512,176 661,935 174,908 1,341,193 70,976 1,911,219 263,096 216,285 52,730 575,332 13,779,850

233,361,071 528,081 – 388,827 234,277,979

493,541,346 2,168,584 346,028 2,368,817 498,424,775

15,320,547 8,572,332 (954,525) 7,617,807 2,202,230 25,140,584 1,500,000 12,560 51,819,052 23,678,616 102,150,812

15,378,909 7,008,130 (852,696) 6,155,434 1,717,248 23,251,591 1,500,000 – 23,926,116 19,234,402 67,912,109

75

76

AT T O C K R E F I N E RY L I M I T E D

Notes to the Financial Statements for the year ended June 30, 2007 28. Employees' defined benefit plans

The latest actuarial valuation of the employees' defined benefit plans was conducted at June 30, 2007 using the projected unit credit method. Details of the defined benefit plans are: Defined Benefit Pension Plan 2007 2006 Rupees

a)

b)

The amounts recognised in the profit and loss account: Current service cost Interest on obligation Expected return on plan assets Contribution from an associated company Net actuarial losses / (gains) recognised during the year

12,263,424 27,771,892 (30,234,890) (127,200) (1,100,894) 8,572,332

9,579,615 24,541,741 (26,233,559) (160,898) (718,769) 7,008,130

3,099,301 10,075,566 – – 2,145,680 15,320,547

2,996,315 10,064,728 – – 2,317,866 15,378,909

359,485,371 (291,335,050) 68,150,321 (64,053,635) 4,096,686

280,495,084 (263,054,407) 17,440,677 (15,742,787) 1,697,890

– (121,894,107) (121,894,107) 36,094,107 (85,800,000)

– (96,057,559) (96,057,559) 20,257,559 (75,800,000)

Movement in the present value of defined benefit obligation: Present value of defined benefit obligation as at July 1 Current service cost Interest cost Benefits paid Actuarial (gains) / losses Present value of defined benefit obligation as at June 30

263,054,407 12,263,424 27,771,892 (11,145,551) (609,122) 291,335,050

215,382,051 9,579,615 24,541,741 (9,714,214) 23,265,214 263,054,407

96,057,559 3,099,301 10,075,566 (5,320,547) 17,982,228 121,894,107

88,577,526 2,996,315 10,064,728 (4,493,785) (1,087,225) 96,057,559

Changes in the fair value of plan assets: Fair value of plan assets as at July 1 Expected return Benefits paid Contributions by employer Contributions by associated company Actuarial gains / (losses) Fair value of plan assets as at June 30 Actual return on plan assets

280,495,084 30,234,890 (11,145,551) 10,971,128 127,200 48,802,620 359,485,371 79,037,510

225,120,520 26,233,559 (9,714,214) 9,677,208 160,898 29,017,113 280,495,084 55,250,672

– – – – – – – –

– – – – – – – –

The amounts recognised in the balance sheet: Fair value of plan assets Present value of defined benefit obligations Unrecognised actuarial gains / (losses) Net liability

c)

d)

Defined Benefit Gratuity Plan 2007 2006 Rupees

Expected contributions to the defined benefit pension plans for the year ending June 30, 2008 are Rs 12.6 million.

ANNUAL

REPORT

2007

Notes to the Financial Statements for the year ended June 30, 2007 Defined Benefit Pension Plan 2007 2006 Rupees

e)

f)

g)

The major categories of plan assets: Investment in equities Investment in mixed funds Cash

Defined Benefit Gratuity Plan 2007 2006 Rupees

109,497,755 136,836,898 113,150,718 359,485,371

89,667,869 54,852,274 135,974,941 280,495,084

– – – –

– – – –

11.00% 11.00% 8.89% 5.71%

10.78% 10.78% 8.66% 5.50%

– – – –

– – – –

2007 Rupees

2006 Rupees

2005 Rupees

2004 Rupees

2003 Rupees

Defined Benefit Pension Plan Present value of defined benefit obligation Fair value of plan assets Surplus / (deficit)

(291,335,050) 359,485,371 68,150,321

(263,054,407) 280,495,084 17,440,677

(215,382,051) 225,120,520 9,738,469

(190,998,371) 196,917,528 5,919,157

(176,177,000) 174,386,000 (1,791,000)

Actuarial (gains) / losses on plan liabilities Actuarial (gains) / losses on plan assets

(609,122) (48,802,620)

23,265,214 29,017,113

9,382,000 13,388,000

1,303,000 9,384,000

(11,671,000) 10,642,000

Defined Benefit Gratuity Plan Present value of defined benefit obligation Fair value of plan assets Deficit Actuarial (gains) / losses on plan liabilities Actuarial (gains) / losses on plan assets

(121,894,107) – (121,894,107) 17,982,228 –

(96,057,559) – (96,057,559) (1,087,225) –

(88,577,526) – (88,577,526) 3,611,000 –

(80,831,692) – (80,831,692) 16,991,000 –

(59,094,000) – (59,094,000) (1,085,000) –

Significant actuarial assumptions at the balance sheet date: Discount rate Expected return on plan assets Future salary increases Future pension increases

Comparison for five years:

77

78

AT T O C K R E F I N E RY L I M I T E D

Notes to the Financial Statements for the year ended June 30, 2007

29. Other income

Income from financial assets Income on bank deposits Income on other balances Exchange gain

Income from non-financial assets Income from crude decanting Income from crude desalter operations - note 29.1 Insurance agency commission Rental income Sale of scrap Profit on sale of fixed assets Calibration charges Handling and service charges Registration charges from carriage contractors Penalties from carriage contractors Old liabilities written back Miscellaneous

29.1 Income from crude desalter operations Income Less:Operating costs Salaries, wages and other benefits - note 23.2 Chemical consumed Fuel and power Repairs and maintenance Depreciation - note 11.3

2007 Rupees

2006 Rupees

569,024,303 – 269,581 569,293,884

527,198,018 2,029 2,992,990 530,193,037

11,205,337 9,264,467 4,719,025 3,057,084 10,612,725 846,422 3,742,400 15,900,912 – 3,888,219 693,597 1,941,992 65,872,180 635,166,064

8,835,527 10,541,984 2,206,024 2,003,552 6,957,758 1,660,588 3,996,300 21,419,332 20,941,563 15,070,661 2,603,288 653,351 96,889,928 627,082,965

43,927,953

49,598,239

1,882,227 7,058,352 16,828,288 8,262,119 632,500 34,663,486 9,264,467

2,287,290 8,577,336 20,449,799 7,109,330 632,500 39,056,255 10,541,984

ANNUAL

REPORT

2007

Notes to the Financial Statements for the year ended June 30, 2007

30. Provision for taxation

Current - for the year Deferred - for the year

2007 Rupees

2006 Rupees

476,500,000 (19,949,991) 456,550,009

400,000,000 (45,155,916) 354,844,084

%

%

35.00

35.00

12.51 47.51

46.51 81.51

2007 Rupees

2006 Rupees

208,246,250 69,451,200 277,697,450

183,256,700 70,078,500 253,335,200

13,884,873 5,276,252 13,884,873 33,045,998 244,651,452

12,666,760 4,813,369 12,666,760 30,146,889 223,188,311

Numerical reconciliation between the average effective tax rate and the applicable tax rate

Applicable tax rate Tax effect of: Income chargeable to tax at special rate and other differences Average effective tax rate charged to profit and loss account

31. Income from non-refinery operations

Less applicable charges and taxation Dividend income from associated companies National Refinery Limited Attock Petroleum Limited

Less:Related charges Workers' Profit Participation Fund - note 9.4 Workers' Welfare Fund Taxation

32. Related party transaction

Attock Oil Company Limited holds 55% (2006: 52.50%) shares of the Company at the year end. Therefore, all subsidiaries and associated undertakings of Attock Oil Company Limited are related parties of the Company. The related parties also comprise of directors, major shareholders, key management personnel, entities over which the directors are able to exercise influence and employees' funds. Amount due from and due to these undertakings are shown under receivables and payables. The remuneration of Chief Executive, directors and executives is disclosed in note 33 to the financial statements.

79

80

AT T O C K R E F I N E RY L I M I T E D

Notes to the Financial Statements for the year ended June 30, 2007

Associated companies Sale of goods Sale of services Purchase of goods Purchase of services

2007 Rupees

2006 Rupees

12,941,980,204 76,773,297 13,018,753,501 7,591,741,626 311,331,415 7,903,073,041

15,315,597,351 46,784,718 15,362,382,069 9,016,821,119 296,693,858 9,313,514,977

284,675

–

1,298,842,610 3,988,210 1,302,830,820

1,997,891,103 3,771,792 2,001,662,895

614,043 18,834,184 19,448,227 19,653,041

541,408 16,601,311 17,142,719 18,504,737

22,523,586

20,359,514

Holding company Sale of services Purchase of goods Purchase of services Subsidiary company Sale of goods Sale of services Purchase of services Employees' benefits funds Payments made during the year 33. Remuneration of Chief Executive, Directors and Executives

The aggregate amounts charged in the financial statements for remuneration, including benefits and perquisites, were as follows: Chief Executive 2007 2006 Rupees Rupees

Managerial remuneration / honorarium Company's contribution to provident and pension funds Housing and utilities Leave passage

3,909,722

2,482,256

Directors 2007 Rupees

1,219,140

2006 Rupees

1,215,792

Executives 2007 2006 Rupees Rupees

22,187,830

18,528,616

789,421 574,200 – – 4,738,926 3,994,086 1,037,149 834,960 – – 11,261,606 8,768,688 330,000 298,356 – – 2,100,970 2,034,140 6,066,292 4,189,772 1,219,140 1,215,792 40,289,332 33,325,530 No of person(s) 1 1 3 3 20 18 33.1 In addition, the Chief Executive and 18 (2006: 17) executives were provided with limited use of the Company's cars. The Chief Executive and all executives were provided with medical facilities and 7 (2006: 7) executives were provided with unfurnished accommodation in Company owned bungalows. Limited residential telephone facility was also provided to the Chief Executive and 11 (2006: 7) executives. Payments to Chief Executive include Rs 789,156 representing arrears of salary for the period February 2005 to June 2006. Fee paid to directors during the year was Rs nil (2006: Rs nil).

ANNUAL

REPORT

2007

Notes to the Financial Statements for the year ended June 30, 2007 34. Financial instruments

34.1

Financial assets and liabilities

Financial assets: Maturity upto one year Trade debts Loans, advances, deposits and other receivables Cash and bank balances Foreign currency - US $ Local currency Maturity after one year Long term investments Long term loans and deposits Financial liabilities: Maturity upto one year Long term loans and lease obligations Local currency Short term finance Trade and other payables Maturity after one year Long term loans and lease obligations Local currency Staff gratuity Off balance sheet items Commitments (other than letters of credit) Letters of credit Bank guarantees

Interest/markup bearing Rupees

2007 Non-interest / markup bearing Rupees

Interest/markup bearing Rupees

2006 Non-interest / markup bearing Rupees

Total Rupees

Total Rupees

–

6,234,917,655

6,234,917,655

–

4,675,133,457

4,675,133,457

–

154,428,609

154,428,609

–

214,262,861

214,262,861

22,815,414 8,854,216,878

201,063 2,880,361

23,016,477 8,857,097,239

38,667,078 7,987,730,141

201,063 4,995,798

38,868,141 7,992,725,939

– – 8,877,032,292

9,261,339,056 10,954,309 15,664,721,053

9,261,339,056 10,954,309 24,541,753,345

– – 8,026,397,219

8,622,913,930 11,613,726 13,529,120,835

8,622,913,930 11,613,726 21,555,518,054

– – 9,471,565,027

– – 15,916,422,485

– – 25,387,987,512

1,136,750,000 – 1,615,257,575

– – 17,147,093,447

1,136,750,000 – 18,762,351,022

– – 9,471,565,027

– 85,800,000 16,002,222,485

– 85,800,000 25,473,787,512

3,410,250,000 – 6,162,257,575

– 75,800,000 17,222,893,447

3,410,250,000 75,800,000 23,385,151,022

– – – –

55,423,626 125,775,143 214,555,000 395,753,769

55,423,626 125,775,143 214,555,000 395,753,769

– – – –

41,868,873 33,659,700 250,000 75,778,573

41,868,873 33,659,700 250,000 75,778,573

34.2

Concentration of credit risk The Company's credit risk is primarily attributable to its trade debts and placements with banks. The sales are essentially to six oil marketing companies and reputable foreign customers. The Company's placements are with reputable banks. Due to the high credit worthiness of corresponding parties the credit risk is considered minimal.

34.3

Currency risk Currency risk is the risk of loss through changes in foreign currency rates. The exchange risk against foreign currency liabilities has been hedged by the Company through foreign currency deposits.

81

82

AT T O C K R E F I N E RY L I M I T E D

Notes to the Financial Statements for the year ended June 30, 2007

35. General

34.4

Interest rate risk The effective interest / mark up rates for the monetary financial assets and liabilities are mentioned in respective notes to the financial statements.

34.5

Liquidity risk Liquidity risk reflects an enterprise's inability in raising funds to meet commitments. The Company follows an effective cash management and planning policy to ensure availability of funds and to take appropriate measures for new requirements.

34.6

Fair value of financial assets and liabilities The carrying value of financial assets and liabilities approximates their fair value except for long term investments, which are stated at cost.

35.1

Earnings per share Profit for the year after taxation Number of ordinary shares outstanding during the year Earnings per share

Rs. Rs.

2007

2006

748,984,812 56,862,000 13.17

Rs. 303,706,028 56,862,000 Rs. 5.34

Basic earnings per share for the year 2006 reported in the previous year was Rs 6.68. This has been restated on account of 11,372,400 bonus shares issued without consideration during the year ended June 30, 2007. There is no dilutive effect on the basic earnings per share of the Company for the year ended June 30, 2007. 35.2

Capacity and production Against the designed annual refining capacity of 14,240,000 (2006: 14,280,000) US barrels the actual throughput during the year was 14,074,644 (2006: 14,567,216) US barrels. The actual throughput was lower than the annual refining capacity on account of the plant shut down for maintenance and reductions in throughput to minimize losses during adverse periods of refining margins.

35.3

Number of employees Total number of employees at the end of the year was 731 (2006: 684).

35.4

Corresponding figures Sales for the corresponding year were net of discount of Rs. 108,693,725 which has now been disclosed separately in the profit & loss account.

35.5

Non adjusting events after the balance sheet date The Board of Directors, in its meeting held on September 10, 2007, has proposed for the approval of members at the next Annual General Meeting (i) a 40% cash diviend of Rs. 4 per share and (ii) an issue of bonus share in the proportion of one share for every four shares held i.e. 25% out of unappropriated profits. These financial statements do not include the effect of these appropriations which will be accounted for in the financial statements for the year ending June 30, 2008 as follows: Transfer from unappropriated profit to: Proposed dividend Reserve for issue of bonus shares

35.6

Rupees

227,448,000 142,155,000

Date of authorisation These financial statements have been authorised for issue by the Board of Directors of the Company on September 10, 2007.

Chief Executive

Director

ANNUAL

REPORT

2007

ANNUAL AUDITED CONSOLIDATED FINANCIAL STATEMENTS 2007 ATTOCK REFINERY LIMITED

83

84

AT T O C K R E F I N E RY L I M I T E D

ANNUAL

REPORT

2007

85

Auditors' Report to the Members A member firm of

We have audited the annexed consolidated financial statements comprising consolidated balance sheet of Attock Refinery Limited (ARL) and its subsidiary company, Attock Hospital (Private) Limited as at June 30, 2007 and the related consolidated profit and loss account, consolidated cash flow statement and consolidated statement of changes in equity together with the notes forming part thereof, for the year then ended. We have also expressed seperate opinions on the financial statements of ARL and its subsidiary company. These financial statements are the responsibility of ARL's management. Our responsibility is to express an opinion on these financial statements based on our audit.

Our audit was conducted in accordance with the International Standards on Auditing and accordingly included such tests of accounting records and such other auditing procedures as we considered necessary in the circumstances.

In our opinion, the consolidated financial statements present fairly the financial position of ARL and its subsidiary company as at June 30, 2007 and the results of their operations for the year then ended.

Chartered Accountants Islamabad: September 10, 2007

86

AT T O C K R E F I N E RY L I M I T E D

Consolidated Balance Sheet as at June 30, 2007

Note

2007 Rupees

2006 Rupees

Share capital and reserves Share capital Authorised Issued, subscribed and paid-up Reserves and surplus

4 4 5

1,000,000,000 568,620,000 5,371,775,791 5,940,395,791

1,000,000,000 454,896,000 3,596,538,319 4,051,434,319

Surplus on revaluation of freehold land

6

1,923,338,591 7,863,734,382

1,923,338,591 5,974,772,910

7

– 85,800,000 85,800,000

3,410,250,000 75,800,000 3,486,050,000

Current maturity of long term loans Short term finance Trade and other payables Provision for taxation

7 8 9

– – 25,394,393,517 1,006,629,216 26,401,022,733

1,136,750,000 – 18,774,848,746 747,596,998 20,659,195,744

Contingencies and commitments

10

34,350,557,115

30,120,018,654

Long term and deferred liabilities Long term loans Provision for staff gratuity

Current liabilities and provisions

ANNUAL

Consolidated Balance Sheet as at June 30, 2007

Note

REPORT

2007

2007 Rupees

2006 Rupees

Property, plant and equipment Operating assets Capital work-in-progress Stores and spares held for capital expenditure

11 12

2,734,127,289 217,682,385 20,190,054 2,971,999,728

2,950,640,961 220,546,344 77,695,655 3,248,882,960

Long term investments

13

11,416,311,675

9,637,407,375

Long term loans and deposits

14

10,954,309

11,613,726

Deferred taxation

15

158,007,940

137,805,949

16 17 18 19 20

630,835,993 3,853,388,292 6,235,379,020 192,627,061 8,881,053,097 19,793,283,463

585,992,163 3,524,396,943 4,675,412,060 264,779,937 8,033,727,541 17,084,308,644

34,350,557,115

30,120,018,654

Current assets Stores, spares and loose tools Stock-in-trade Trade debts Loans, advances, deposits, prepayments and other receivables Cash and bank balances

The annexed notes form an integral part of these financial statements.

Chief Executive

Director

87

88

AT T O C K R E F I N E RY L I M I T E D

Consolidated Profit & Loss Account for the year ended June 30, 2007

2007 Rupees

2006 Rupees

21

59,154,779,218 46,247,604 59,108,531,614

55,936,831,735 108,693,725 55,828,138,010

22

355,392,880 59,463,924,494 58,609,954,476 853,970,018

234,236,228 56,062,374,238 55,490,680,059 571,694,179

175,107,589 16,716,333 234,277,979 102,150,812 528,252,713 325,717,305 635,166,064 960,883,369 456,550,009 504,333,360

183,298,609 13,779,850 498,424,775 67,912,109 763,415,343 (191,721,164) 627,082,965 435,361,801 354,844,084 80,517,717

1,384,628,112 1,888,961,472

1,112,353,142 1,192,870,859

33.22

20.98

Note

Sales Less: Discount

Reimbursement due from the Government under import parity pricing formula Less: Cost of sales Gross profit

23

Less:Administration expenses Distribution cost Finance cost Other charges

24 25 26 27

Other income Profit before taxation Provision for taxation Profit after taxation Non-refinery income: Share in profit of associated companies Profit for the year

29

Earnings per share

30

31

35.1

The annexed notes form an integral part of these financial statements.

Chief Executive

Director

ANNUAL

Consolidated Cash Flow Statement

REPORT

2007

2007 Rupees

2006 Rupees

72,736,845,273 98,995,648 72,835,840,921 (52,833,884,020) (14,106,632,140) (231,932,305)

69,316,381,920 131,684,336 69,448,066,256 (52,442,238,773) (12,089,104,107) (823,198,684)

5,663,392,456

4,093,524,692

(81,167,010) 954,362 (638,425,126) 659,417 529,385,678 277,697,450

(230,456,284) 2,309,505 (6,213,929,559) 426,715 502,002,429 253,335,200

89,104,771

(5,686,311,994)

Cash flows from financing activities Long term loans Repayment of principal portion of finance lease Financial charges paid Dividends paid

(4,547,000,000) – (358,411,079) (30,173)

4,547,000,000 (30,000,000) (374,917,154) (8,606)

Net cash flows from financing activities

(4,905,441,252)

4,142,074,240

269,581

2,992,990

847,325,556

2,552,279,928

8,033,727,541 8,881,053,097

5,481,447,613 8,033,727,541

for the year ended June 30, 2007 Cash flows from operating activities Cash receipts from – customers – others Cash paid for operating costs Cash paid to Government for duties, taxes and other levies Income tax paid Net cash flows from operating activities Cash flows from investing activities Additions to property, plant and equipment Proceeds from sale of property, plant and equipment Long term investments Long term loans and deposits Income on bank deposits received Dividends received Net cash flows from investing activities

Effect of exchange rate changes Increase in cash and cash equivalents Cash and cash equivalents at the beginning of the year Cash and cash equivalents at the end of the year The annexed notes form an integral part of these financial statements.

Chief Executive

Director

89

90

AT T O C K R E F I N E RY L I M I T E D

Share capital Rupees

Capital reserve Rupees

Special reserve for expansion / modernisation Rupees

Surplus on revaluation of freehold land Rupees

Total Rupees

Balance at June 30, 2005

349,920,000

44,948,506

2,187,628,247

55,000

276,011,707

1,923,338,591

4,781,902,051

Bonus shares @ 30% related to the year ended June 30, 2005

104,976,000

–

–

–

(104,976,000)

–

–

Profit for the year

–

–

–

–

1,192,870,859

–

1,192,870,859

Transfer to reserve for expansion / modernisation

–

–

–

–

–

–

–

Transfer to special reserves by an associated company

–

–

329,803,946

–

(329,803,946)

–

–

Balance at June 30, 2006

454,896,000

44,948,506

2,517,432,193

55,000

1,034,102,620

1,923,338,591

5,974,772,910

Bonus shares @ 25% related to the year ended June 30, 2006

113,724,000

–

–

–

(113,724,000)

–

–

Profit for the year

–

–

–

–

1,888,961,472

–

1,888,961,472

Transfer to reserve for expansion / modernisation

–

–

358,533,360

–

(358,533,360)

–

–

Transfer to special reserves by an associated company

–

–

124,108,492

–

(124,108,492)

–

–

568,620,000

44,948,506

3,000,074,045

55,000

2,326,698,240

1,923,338,591

7,863,734,382

Consolidated Statement of Changes in Equity for the year ended June 30, 2007

Balance at June 30, 2007

General reserve Rupees

Un-appropriated Profit Rupees

The annexed notes form an integral part of these financial statements.

Chief Executive

Director

ANNUAL

REPORT

2007

Notes to the Consolidated Financial Statements for the year ended June 30, 2007 1.

Legal status and operations

Attock Refinery Limited (ARL) was incorporated in Pakistan on November 8, 1978 as a private limited company and was converted into a public limited company on June 26, 1979. The registered office of the Company is situated at Morgah, Rawalpindi. Its shares are quoted on the Karachi, Lahore and Islamabad Stock Exchanges in Pakistan. It is principally engaged in the refining of crude oil. ARL is a subsidiary of The Attock Oil Company Limited, UK and its ultimate parent is Bay View International Group S.A. Attock Hospital (Private) Limited (AHL) was incorporated in Pakistan on August 24, 1998 as a private limited company and commenced its operations from September 1, 1998. AHL is engaged in providing medical services. The Company is a wholly owned subsidiary of Attock Refinery Limited. For the purpose of these financial statements, ARL and its above referred wholly owned subsidiary AHL is referred to as the Company.

2.

Summary of significant accounting policies

2.1

Basis of presentation of financial statements These financial statements have been prepared in accordance with approved accounting standards as applicable in Pakistan and the requirements of the Companies Ordinance, 1984 (the Ordinance). Approved accounting standards comprise of such International Accounting Standards as notified under the provisions of the Ordinance. Wherever, the requirements of the Ordinance or directives issued by the Securities and Exchange Commission of Pakistan differ with the requirements of these standards, the requirements of the Ordinance or the requirements of the said directives take precedence. Amendments to the published standards and new interpretations effective for accounting periods beginning on or after January 1, 2006: IAS 19 (Amendment) – Employee Benefits is mandatory for the Company’s accounting periods beginning on or after January 1, 2006. This amendment introduces the option of an alternate recognition approach for actuarial gains and losses and requires new disclosures. As the Company does not intend to change its accounting policy adopted for the recognition of actuarial gains and losses, the adoption of this amendment only impacts the format and extent of disclosures as given in note 28 to these financial statements. Standards, amendments and interpretations effective for accounting periods beginning on or after January 1, 2006 but not relevant: The other new standards, amendments and interpretations that are mandatory for accounting periods beginning on or after January 1, 2006 are not considered to be relevant or do not have any significant effect on the Company’s operations. Standards or interpretations not yet effective but relevant: The following new accounting standards and amendments to existing accounting standards have been published and are not effective for the purpose of these financial statements. i)

IAS 1 Presentation of Financial Statements – Capital Disclosures

ii)

IFRS 7 – Financial Instruments: Disclosures

iii)

IAS 39 and IFRS 4 (Amendment), Financial Guarantee Contracts

Adoption of the above accounting standards is not considered to have any significant effect on the Company's financial statements.

91

92

AT T O C K R E F I N E RY L I M I T E D

Notes to the Consolidated Financial Statements for the year ended June 30, 2007 2.2

Basis of measurement These financial statements have been prepared under the historical cost convention modified by revaluation of free hold land referred to in note 2.6 and certain other modifications as required by International Accounting Standards referred to in the accounting policies given below.

2.3

Basis of Consolidation The consolidated financial statements include the financial statements of Attock Refinery Limited and its wholly owned subsidiary, Attock Hospital (Private) Limited. Subsidiaries are all entities over which the Company has the power to govern the financial and operating policies generally accompanying a shareholding of more than one half of the voting rights or otherwise has power to elect and appoint more than one half of its directors. Subsidiaries are fully consolidated from the date on which control is transferred to the Group and are de-consolidated from the date that control ceases. The assets and liabilities of subsidiary company have been consolidated on a line by line basis and the carrying value of investments held by the parent company is eliminated against the subsidiary shareholders' equity in the consolidated financial statements. Material intra-company balances and transactions have been eliminated for consolidation purposes.

2.4

Dividend appropriation Dividend is recognised as a liability in the financial statements in the period in which it is declared.

2.5

Taxation Provision for current taxation is based on taxable income at the current rates of taxation or half percent of turnover, whichever is higher. Deferred income tax is accounted for using the balance sheet liability method in respect of all temporary differences arising between the carrying amount of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit. Deferred tax liabilities are recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that future taxable profits will be available against which the deductible temporary differences can be utilised. Deferred tax is calculated at the rates that are expected to apply to the period when the differences reverse based on the tax rates that have been enacted. Deferred tax is charged or credited to income except in the case of items credited or charged to equity in which case it is included in equity.

2.6

Property, plant and equipment a)

Cost Operating fixed assets except freehold land are stated at cost less accumulated depreciation. Freehold land is stated at revalued amount. Capital work-in-progress and stores held for capital expenditure are stated at cost. Cost in relation to certain plant and machinery items includes borrowing cost related to the financing of major projects during construction phase.

b)

Depreciation Depreciation is charged to income on straight line method to write off the cost of an asset over its estimated useful life at the rates specified in note 11. The carrying values of tangible fixed assets are reviewed for impairment when events or changes in circumstances indicate that carrying

ANNUAL

REPORT

2007

Notes to the Consolidated Financial Statements for the year ended June 30, 2007 value may not be recoverable. If any such indication exists and where the carrying value exceeds the estimated recoverable amount, the assets are written down to recoverable amount. c)

Repairs and maintenance Maintenance and normal repairs, including minor alterations, are charged to income as and when incurred. Renewals and improvements are capitalised and the assets so replaced, if any, are retired.

d)

Gains and losses on deletion Gains and losses on deletion of assets are included in income currently.

2.7

Investments a)

Investments in associated companies Investments in associated companies are accounted for using the equity method. Under this method investments are stated at cost plus the Company's equity in undistributed earnings and losses after acquisition, less any impairment in the value of individual investments.

b)

Available for sale investments Investment securities held by the Company which may be sold in response to needs for liquidity or changes in interest rates, exchange rates or equity prices are classified as available for sale. These investments are initially recognised at cost and subsequently re-measured at fair value. Unrealised gains and losses arising from changes in the fair value in respect of exchange differences of available for sale investments are treated as referred to in note 2.10.

2.8

Stores, spares and loose tools These are valued at moving average cost less allowance for obsolete items. Items in transit are stated at invoice value plus other charges paid thereon.

2.9

Stock-in-trade Stock-in-trade is valued at the lower of cost and net realisable value. Crude oil in transit is valued at cost comprising invoice value. Cost in relation to crude oil is determined on the basis of annual average cost of purchases during the year on the principles of import parity and in relation to semi-finished and finished products it represents the cost of crude oil and refining charges consisting of direct expenses and appropriate production overheads. Direct expenses are arrived at on the basis of average cost for the year per barrel of throughput. Production overheads, including depreciation, are allocated to throughput proportionately on the basis of nameplate capacity. Net realisable value in relation to finished product represents selling prices in the ordinary course of business less costs necessarily to be incurred for its sale, as applicable, and in relation to crude oil represents replacement cost at the balance sheet date.

93

94

AT T O C K R E F I N E RY L I M I T E D

Notes to the Consolidated Financial Statements for the year ended June 30, 2007 2.10

Foreign currency transactions Transactions in foreign currencies are converted into rupees at the rates of exchange ruling on the date of the transaction. All monetary assets and liabilities denominated in foreign currencies at the year end are translated at exchange rate prevailing at the balance sheet date. Exchange differences are dealt with through the profit and loss account.

2.11

Revenue recognition Revenue is recognised to the extent that it is probable that economic benefits will flow to the Company and the revenue can be reliably measured. Revenue is recognised as follows: i)

Revenue from sales is recognised on delivery of products ex-refinery to the customers with the exception that Naphtha export sales are recognised on the basis of products shipped to customers.

ii)

The Company is operating under the import parity pricing formula, as modified from time to time, whereby it is charged the cost of crude on 'import parity' basis and is allowed product prices equivalent to the 'import parity' price, calculated under agreed parameters. The Government has, effective July 1, 2007 made certain modifications in the agreed parameters which has effectively reduced the ex-refinery price of Kerosene oil, Light Diesel Oil (LDO) and JP-8 which will correspondingly reduce the sales revenue. The Government is also reviewing the pricing formula for Motor Gasoline and it is expected that a pricing formula for this product would be finalised with mutual consultations ensuring that the refineries do not suffer loss on account of these changes to remain commercially viable. Under the pricing formula the Company was entitled to a net of tax return on its paid-up capital with a guaranteed minimum of 10% and allowable maximum of 40% in respect of its refinery operations. Effective July 1, 2002, the Government has further modified the pricing formula applicable to the Company. Under this modified formula the Refinery shall not claim from the Government any shortfall in profitability and net profit after tax (if any) from refinery operations above 50% of paid-up capital as at July 1, 2002 is required to be diverted to a special reserve to offset any future loss or make investment for expansion or upgradation of Refinery. However, the Company has contested the abolition of minimum rate of return of 10% and represented to the Government to modify the already existing agreement for guaranteed return with mutual consent of both the parties.

2.12

iii)

Income on investment in associated companies is recognised using the equity method. Under this method, the company's share of post-acquisition profit or loss of the associated company is recognised in the profit and loss account, and its share of post-acquisition movements in reserve is recognised in reserves. Dividend distribution by the associated companies is adjusted against the carrying amount of the investment.

iv)

Dividend income is recognised when the right to receive dividend is established.

v)

Other income is recognised on accrual basis.

Related party transactions Transactions with related parties in respect of sale of petroleum products, the prices of which are regulated and notified by the Government, and crude oil purchases, the prices of which are determined in accordance with the agreed pricing formula as approved by the Government, are recorded at the prices so notified or determined.

ANNUAL

REPORT

2007

Notes to the Consolidated Financial Statements for the year ended June 30, 2007 In case of sale of deregulated petroleum products, the transactions are made at Company notified prices for all its customers. In certain cases, reduced price is allowed on commercial considerations. All other transactions are carried out on commercially negotiated terms. 2.13

Borrowing cost Borrowing cost related to the financing of major projects during construction phase is capitalised. All other borrowing costs are expensed as incurred.

2.14

Staff retirement benefits The main features of the retirement benefit schemes operated by the Company for its employees are as follows: (i)

Defined benefit plans A pension plan for its Management Staff and a gratuity plan for its Non-Management Staff. The pension plan is invested through an approved trust fund while the gratuity plan is book reserve plan. Contributions are made in accordance with actuarial recommendation. Actuarial valuations are conducted annually using projected unit credit method. The obligation is measured at the present value of the estimated future cash outflows. Unrealised net gains and losses are amortised over the expected remaining service of current members.

(ii)

Defined contribution plans Approved contributory provident fund for all employees to which equal monthly contribution is made both by the Company and the employee at the rate of 10% of basic salary.

2.15

Employees compensated absences The Company also provides for compensated absences for all employees in accordance with the rules of the Company.

2.16

Financial instruments Financial assets and financial liabilities are recognised when the Company becomes a party to the contractual provisions of the instrument and de-recognised when the Company loses control of the contractual rights that comprise the financial asset and in case of financial liability when the obligation specified in the contract is discharged, cancelled or expired. The particular measurement methods adopted are disclosed in the individual policy statements associated with each item as shown below: a)

Trade and other payables Liabilities for trade and other amounts payable including amounts payable to related parties are carried at cost which is the fair value of the consideration to be paid in the future for goods and services received.

b)

Provisions Provisions are recognised when a Company has a legal or constructive obligation as a result of past event if it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate of the amount can be made.

95

96

AT T O C K R E F I N E RY L I M I T E D

Notes to the Consolidated Financial Statements for the year ended June 30, 2007 c)

Trade and other receivables Trade receivables and other receivables are recognised and carried at original invoice amount/cost less an allowance for any uncollectible amounts.

d)

Cash and cash equivalents Cash in hand and at banks are carried at fair value. For the purpose of cash flow statement, cash and cash equivalents consist of cash in hand, balances in banks and highly liquid short term investments.

3.

4.

Critical accounting estimates and judgments

Share capital

The preparation of financial statements in conformity with the approved accounting standards requires the use of certain critical accounting estimates. It also requires management to exercise its judgment in the process of applying the Company's accounting policies. Estimates and judgments are continually evaluated and are based on historical experience, including expectation of future events that are believed to be reasonable under the circumstances. The areas where various assumptions and estimates are significant to the Company's financial statements or where judgment was exercised in application of accounting policies are as follows: i)

Revaluation surplus on freehold land - note 11.1

ii)

Estimate of recoverable amount of investment in associated companies - note 13.1

iii)

Price adjustment related to crude oil purchases - note 23.1

iv)

Provision for retirement benefits - note 28

v)

Provision for taxation - note 30 2007 Rupees

2006 Rupees

1,000,000,000

1,000,000,000

80,000,000

80,000,000

Shares issued as fully paid bonus shares 48,862,000 (2006: 37,489,600) ordinary shares of Rs 10 each

488,620,000

374,896,000

56,862,000 (2006: 45,489,600) ordinary shares of Rs 10 each

568,620,000

454,896,000

Authorised 100,000,000 (2006: 100,000,000) ordinary shares of Rs 10 each Issued, subscribed and paid up Shares issued for cash 8,000,000 (2006: 8,000,000) ordinary shares of Rs 10 each

The Attock Oil Company Limited held 31,274,100 (2006: 23,882,040) ordinary shares at the year end.

ANNUAL

REPORT

2007

Notes to the Consolidated Financial Statements for the year ended June 30, 2007

5.

Reserves and surplus

Capital reserve Liabilities taken over from The Attock Oil Company Limited no longer required Capital gain on sale of building Insurance and other claims realised relating to pre-incorporation period Donations received for purchase of hospital equipment Bonus shares issued by associated company Revenue reserves Special reserve for expansion/modernisation - note 5.1 Additional revenue under processing fee formula related to 1990-91 and 1991-92 Surplus profits under the import parity pricing formula Surplus profits of associate under the import parity pricing formula General reserve Surplus - unappropriated profit

5.1

6.

7.

2007 Rupees

2006 Rupees

4,799,955 653,906 494,645 4,000,000 35,000,000 44,948,506

4,799,955 653,906 494,645 4,000,000 35,000,000 44,948,506

32,929,000 2,513,232,607 453,912,438 3,000,074,045 55,000 2,326,698,240 5,326,827,285 5,371,775,791

32,929,000 2,154,699,247 329,803,946 2,517,432,193 55,000 1,034,102,620 3,551,589,813 3,596,538,319

Represents amounts retained as per stipulations of the Government under the pricing formula and is available only for offsetting any future loss or making investment in expansion or upgradation of the refinery. Transfer to / from special reserve is recognised at each quarter end and is reviewed for adjustment based on profit / loss on an annual basis.

Surplus on revaluation of freehold land

This represents surplus over book value resulting from revaluation of freehold land as referred to in note 11.1 and is not available for distribution to shareholders.

Long term loans - secured

Syndicate Financing Facility Morabaha Financing Facility Less: Current portion Syndicate Financing Facility Morabaha Financing Facility

2007 Rupees

2006 Rupees

– – –

3,597,000,000 950,000,000 4,547,000,000

– – – –

899,250,000 237,500,000 1,136,750,000 3,410,250,000

97

98

AT T O C K R E F I N E RY L I M I T E D

Notes to the Consolidated Financial Statements for the year ended June 30, 2007 7.1

The Company obtained a long term syndicate financing facility of Rs 3,597 million from a consortium of banks under the lead of Faysal Bank Limited and a separate Morabaha financing facility from Faysal Bank Limited of Rs 950 million. These facilities were repayable in eight half yearly equal installments commencing July 2006 and carried profit at base rate (six month KIBOR) plus 2.05% per annum upto January 1, 2006 and thereafter at base rate plus 1.90% per annum for the remaining period of facilities. These facilities were secured by first pari passu charge by way of hypothecation over all present and future current and movable fixed assets of the Company and mortgage over immovable property. During December 2006, the Company repaid the entire outstanding balance of these loans.

8.

9.

Short term finance

Trade and other payables

The Company's short term finance facility under mark-up arrangements aggregating Rs 70 million (2006: Rs 70 million) available from MCB Bank Limited expired during the year. The Company is in the process of arranging fresh running finance facilities from various commercial banks to the extent of Rs 3.5 billion at varying mark-up rates linked to three months and one month KIBOR.

Creditors - note 9.1 Due to The Attock Oil Company Limited - Holding Company Due to associated companies Pakistan Oilfields Limited Attock Petroleum Limited Attock Cement Pakistan Limited Attock Information Technology Services (Private) Limited Accrued liabilities and provisions - note 9.1 Due to the Government under pricing formula - note 9.2 Advance payments from customers - note 9.3 Sales tax payable Accrued mark-up / interest on long term loans Workers' Welfare Fund Workers' Profit Participation Fund - note 9.4 Staff Provident Fund Deposits from customers adjustable against freight and Government levies payable on their behalf Security deposits Unclaimed dividends 9.1

2007 Rupees

2006 Rupees

18,021,733,795 275,089,035

11,482,332,142 432,869,001

1,383,270,935 1,045,633 – 5,542,677 738,703,445 4,707,073,386 5,532,717 7,197,593 – 131,988,739 65,840,211 –

1,470,961,701 20,868,383 39,363 – 225,681,895 4,689,396,074 10,518,689 127,011,850 124,133,100 103,033,871 36,869,261 54,127

1,270,705 49,165,150 939,496 25,394,393,517

1,018,470 49,091,150 969,669 18,774,848,746

Creditors include an amount of Rs 5,434.461 million (2006 : Rs 1,615.257 million) in respect of crude oil price in excess of US$ 50 per barrel withheld by the Company, pending finalisation of discount thereon, from payments made to suppliers for purchase of local crude oil as per the directive of Ministry of Petroleum & Natural Resources (the Ministry).

ANNUAL

REPORT

2007

Notes to the Consolidated Financial Statements for the year ended June 30, 2007 Further, as per directive of the Ministry dated May 31, 2006, the Company is required to make payments alongwith the mark-up generated after the final discount rates in respect of crude oil price in excess of US$ 50 per barrel are decided between the parties and such withheld amounts are being retained in a designated 90-day interest bearing account. Accumulated profits amounting to Rs 377.568 million (2006: Rs 32.000 million) earned thereon are included in accrued liabilities and provisions. 9.2

The amount due to the Government under pricing formula is net of Rs 2,404 million (2006: Rs 1,570 million) price differential claim as referred to in note 21.1 with a corresponding effect in creditors.

9.3

Advance payments from customers include Rs 2,855,486 (2006: nil) from Pakistan Oilfields Limited, an associated company, against sales of LPG.

9.4 Workers' Profit Participation Fund Balance at the beginning of the year Add: Interest on funds utilised in the Company's business - note 26 Less:Amount paid to the Fund Add: Amount allocated for the year - notes 27 and 31

10. Contingencies and commitments

2007 Rupees

2006 Rupees

36,869,261

118,649,647

528,081 37,397,342 37,261,056 136,286 65,703,925 65,840,211

2,168,584 120,818,231 120,541,846 276,385 36,592,876 36,869,261

214,255,000 300,000 1,300,000

– 250,000 1,300,000

–

–

55,423,626 125,775,143

41,868,873 33,659,700

Contingencies: i)

ii) iii) iv)

Performance and commitment guarantees arranged by the Company on behalf of Attock Gen Limited (AGL), an associated company, as main sponsors Guarantees issued by banks on behalf of the Company Claims for land compensation contested by the Company Price adjustment related to crude oil purchases as referred to in note 23.1, the amount of which can not be presently quantified

Commitments outstanding: i) Capital expenditure ii) Letters of credit other than for capital expenditure

99

100

AT T O C K R E F I N E RY L I M I T E D

Notes to the Consolidated Financial Statements for the year ended June 30, 2007 Freehold land (note 11.1)

Buildings on freehold land

Plant & machinery

Computer equipment

Furniture, fixtures and equipment

Vehicles

Rupees

11. Property, plant and equipment

Total Rupees

Cost As at July 1, 2005 Additions during the year Disposals during the year As at June 30, 2006 Additions during the year Disposals during the year

1,927,250,000 – – 1,927,250,000 – –

69,815,152 541,110 – 70,356,262 14,374,730 –

3,720,312,389 84,506,557 (100,000) 3,804,718,946 113,952,925 –

50,842,064 3,253,776 (1,631,619) 52,464,221 3,687,304 –

58,561,368 4,199,500 (725,117) 62,035,751 1,546,861 (187,993)

53,664,457 9,961,847 (991,610) 62,634,694 7,974,750 (290,110)

5,880,445,430 102,462,790 (3,448,346) 5,979,459,874 141,536,570 (478,103)

As at June 30, 2007

1,927,250,000

84,730,992

3,918,671,871

56,151,525

63,394,619

70,319,334

6,120,518,341

As at July 1, 2005 Charge for the year On disposals

– – –

25,475,882 3,162,722 –

2,562,496,765 320,495,102 (100,000)

35,979,188 5,837,027 (1,492,900)

28,931,719 5,102,287 (266,881)

37,216,765 6,920,885 (939,648)

2,690,100,319 341,518,023 (2,799,429)

As at June 30, 2006 Charge for the year On disposals

– – –

28,638,604 3,908,199 –

2,882,891,867 331,821,362 –

40,323,315 9,047,232 –

33,767,125 4,926,473 (80,056)

43,198,002 8,239,036 (290,107)

3,028,818,913 357,942,302 (370,163)

As at June 30, 2007

–

32,546,803

3,214,713,229

49,370,547

38,613,542

51,146,931

3,386,391,052

Written down value As at June 30, 2006

1,927,250,000

41,717,658

921,827,079

12,140,906

28,268,626

19,436,692

2,950,640,961

As at June 30, 2007

1,927,250,000

52,184,189

703,958,642

6,780,978

24,781,077

19,172,403

2,734,127,289

–

5

10

20

10

20

Depreciation

Annual rate of depreciation (%)

ANNUAL

REPORT

2007

Notes to the Consolidated Financial Statements for the year ended June 30, 2007 11.1

Value of freehold land includes revaluation surplus of Rs 1,923.339 million arising from revaluation of freehold land in January 2001 carried out by an independent valuer. Valuation was made on the basis of market value. The original cost of the land as at June 30, 2007 is Rs 3.911 million.

11.2

Effective from the current year, the Company has revised its estimate regarding useful life of computers. Accordingly, the annual depreciation rate has been increased from 14.3% in previous years to 20% to reflect the pattern in which the assets' economic benefits will be consumed. Had the change in accounting estimate not been made, the depreciation charge for the year would have been lower by Rs 4.470 million and the profit for the year would have been higher to that extent. Correspondingly, the operating assets and equity as at June 30, 2007 would have been higher by the same amount.

11.3

12. Capital work-in-progress

Civil works Plant and machinery Pipeline project Power plant project - note 12.1

12.1

13. Long term investments

The depreciation charge for the year has been allocated as follows: Cost of sales Administration expenses Distribution cost Desalter operating cost Depreciation of subsidiary company

2007 Rupees

2006 Rupees

341,975,356 13,360,853 899,894 632,500 1,073,699 357,942,302

328,326,550 10,875,215 575,332 632,500 1,108,426 341,518,023

2,486,951 186,976,759 28,218,675 – 217,682,385

11,725,973 161,182,102 27,964,992 19,673,277 220,546,344

Cost incurred by the Company on the Power Plant Project has been fully recovered from Attock Gen Limited, an associated company, set up for the purpose of independently operating the Power Plant.

Investments in associated companies Beginning of the year Investment in associates during the year Share of profit after tax of associated companies for the year Less: Dividend from associated companies received during the year

2007 Rupees

2006 Rupees

9,637,407,375 638,425,126 1,418,176,624 277,697,450 11,416,311,675

2,534,407,873 6,213,929,559 1,142,405,143 253,335,200 9,637,407,375

101

102

AT T O C K R E F I N E RY L I M I T E D

Notes to the Consolidated Financial Statements for the year ended June 30, 2007 2007

13.1

2006

% age Holding

Rupees

% age Holding

Rupees

National Refinery Limited (NRL) - note 13.2 16,659,700 (2006: 16,659,700) fully paid ordinary shares of Rs 10 each Market value as at June 30, 2007: Rs 5,681 million (2006: Rs 4,448 million)

25

9,558,250,900

25

8,715,833,650

Attock Petroleum Limited 8,681,400 (2006: 8,363,300) fully paid ordinary shares including 3,500,000 (2006: 3,500,000) bonus shares of Rs 10 each Market value as at June 30, 2007: Rs 4,352 million (June 30, 2006: Rs 2,701 million)

21.70

1,311,090,646

20.91

916,949,458

Attock Gen Limited 5,400,000 fully paid ordinary shares of Rs 100 each Value based on net assets as at June 30, 2007: Rs 542 million

30

542,053,580

–

–

Attock Information Technology Services (Private) Limited 450,000 (2006 : 450,000) fully paid ordinary shares of Rs 10 each Value based on net assets as at June 30, 2007: Rs 4.92 million (June 30, 2006: Rs 4.62 million)

10

4,916,549

10

4,624,267

The Company's interest in associates are as follows: Quoted

Unquoted

11,416,311,675

9,637,407,375

ANNUAL

REPORT

2007

Notes to the Consolidated Financial Statements for the year ended June 30, 2007 13.2

14. Long term loans and deposits

Based on a valuation analysis carried out by an external investment advisor engaged by the Company, the recoverable amount of investment in NRL exceeds its carrying amount. The recoverable amount has been estimated based on a value in use calculation. These calculations have been made on discounted cash flow based valuation methodology which assumes gross profit margin of 6.4% (2006: 6.30%), terminal growth rate of 5% (2006: 5%) and capital asset pricing model based discount rate of 14.30% (2006: 13.40%).

Loans to employees - considered good - note 14.1 Less: Amounts due within twelve months shown under current assets - note 19 Security deposits

14.1

14.2

2007 Rupees

2006 Rupees

21,079,761 10,990,473 10,089,288 865,021 10,954,309

20,748,226 9,999,521 10,748,705 865,021 11,613,726

Loans to employees are for purchase of car, refrigerator and for other purposes which are recoverable in 36, 24 and 60 equal monthly installments respectively and are secured by a charge on the asset purchased and/or amount due to the employee against provident fund or a third party guarantee. Loans to employees for refrigerator and other purposes are interest free while loans for purchase of car carry interest rates ranging from 3% to 15% (2006: 3% to 15%) per annum. These do not include any amount outstanding for more than three years. These include an amount of Rs 3,551,595 (2006: Rs 2,232,870) receivable from executives of the Company and does not include any amount receivable from Directors or Chief Executive. The maximum amount due from executives of the Company at the end of any month during the year was Rs 3,805,412 (2006: Rs 2,493,776).

Reconciliation of carrying amount of loans to executives: Opening balance as at July 1 Add: Disbursements during the year Less: Repayments during the year Closing balance as at June 30

2007 Rupees

2006 Rupees

2,232,870 3,922,053 6,154,923 2,603,328 3,551,595

283,000 3,044,644 3,327,644 1,094,774 2,232,870

103

104

AT T O C K R E F I N E RY L I M I T E D

Notes to the Consolidated Financial Statements for the year ended June 30, 2007

15. Deferred Taxation

16. Stores, spares and loose tools

Debit balances arising on Provisions for obsolete stores, doubtful debts and gratuity Accelerated depreciation allowances Credit balance arising on finance lease arrangements

Stores (including items in transit Rs 119.67 million; 2006: Rs 82.54 million) Spares Loose tools Less: Provision for slow moving items

17. Stock-in-trade

Crude oil - in stock - in transit Semi-finished products Finished products Medical supplies

2007 Rupees

2006 Rupees

48,979,811 124,925,071 (15,896,942) 158,007,940

39,315,681 130,284,153 (31,793,885) 137,805,949

446,578,908 219,661,310 595,775 666,835,993 36,000,000

410,806,882 208,976,739 708,542 620,492,163 34,500,000

630,835,993

585,992,163

1,488,647,552 176,064,444 1,664,711,996 311,633,383 1,876,300,457 742,456 3,853,388,292

1,310,846,837 173,356,867 1,484,203,704 278,876,166 1,760,727,860 589,213 3,524,396,943

Finished products include stocks carried at net realisable value of Rs 236 million (2006: Rs 334 million). Adjustments amounting to Rs 43.8 million (2006: Rs 72.9 million) have been made to closing inventory to write down stocks of finished products to their net realizable value.

18. Trade debts

All debtors are unsecured and considered good. Aggregate amount receivable from an associated company as at June 30, 2007 was Rs 1,010,953,152 (2006: Rs 1,062,120,659).

ANNUAL

REPORT

2007

Notes to the Consolidated Financial Statements for the year ended June 30, 2007

19. Loans, advances, deposits, prepayments and other receivables

Loans and advances - considered good Current portion of long-term loans to employees - note 14 Advances to suppliers Advances to employees

Deposits, prepayments and current account balances with statutory authorities Trade deposits Short term prepayments Current account balances with statutory authorities in respect of petroleum development levy, excise duty and sales tax Other receivables Due from associated companies Attock Chemicals (Private) Limited National Refinery Limited Attock Gen Limited Attock Information Technology Services (Private) Limited National Cleaner Production Centre Foundation Capgas (Private) Limited Attock Cement Pakistan Limited Attock Industrial Products Limited (net of provision of Rs 3,015,145; 2006: Rs 3,015,145) Due from Staff Pension Fund Income accrued on bank deposits Income Tax Refundable Crude oil freight recoverable through inland freight equalisation margin Other receivables

2007 Rupees

2006 Rupees

10,990,473 19,301,031 1,728,728 32,020,232

9,999,521 32,552,811 1,683,662 44,235,994

285,673 17,266,084

285,673 14,297,425

287,247 17,839,004

23,725 14,606,823

– 4,677,170 2,415,270 – 2,464,971 – 103,492 – 4,096,686 78,867,031 3,361,978 39,220,600 7,560,627 142,767,825 192,627,061

268 2,363,777 – 139,817 522,052 370 – – 1,697,890 39,207,362 2,939,328 150,716,052 8,350,204 205,937,120 264,779,937

Loans to employees include Rs 2,265,248 (2006: Rs 1,289,790) due from executives of the Company and does not include any amount receivable from Directors or the Chief Executive.

105

106

AT T O C K R E F I N E RY L I M I T E D

Notes to the Consolidated Financial Statements for the year ended June 30, 2007

20. Cash and bank balances

21. Sales

Cash in hand With banks: On current accounts On interest / mark-up bearing savings accounts (including US $ 379,624; 2006: US $ 643,379)

2007 Rupees

2006 Rupees

338,827

587,318

2,804,509

4,659,995

8,877,909,761 8,881,053,097

8,028,480,228 8,033,727,541

20.1

Balances with banks include Rs 5,381.864 million (2006: 1,000.136 million) in respect of deposits placed on 90-day interest-bearing account consequent to a directive issued by the Ministry on account of amounts withheld as referred to in note 9.1 alongwith related interest earned thereon.

20.2

A lien on the Company's savings account has been marked by a bank to the extent of guarantees issued on behalf of the Company as referred to in note 10 (i).

20.3

Balances with banks include Rs 49.165 million (2006: Rs 49.091 million) in respect of security deposits received.

20.4

The balances in savings accounts at the year end earn weighted average interest/ mark-up of 9.73% (2006: 8.93%) per annum.

Gross sales - note 21.1 Naphtha export sales Less:Cost of Naphtha purchased from third parties and related handling charges recovered Less:Duties, taxes and levies - note 21.2 21.1

21.2

2007 Rupees

2006 Rupees

66,083,778,877 8,232,839,936

61,362,743,941 8,512,982,645

1,175,285,235 7,057,554,701 13,986,554,360 59,154,779,218

1,761,308,376 6,751,674,269 12,177,586,475 55,936,831,735

Under the products import parity pricing formula, effective July 1, 2000, the Government had imposed a cap on an element of pricing of Premium Motor Gasoline (PMG) which has not been accepted by the Company. The Company has strongly urged the Government to remove this cap. The sales revenue to the extent of related aggregate price differential claims of Rs. 2,404 million (including Rs. 1,570 million for prior years) is not being reflected in sales till this matter is resolved. In this context, the tax authorities have raised demands for income tax against these price differential claims which have been contested in appeals by the Company.

Duties, taxes and levies Development surcharge Sales tax Custom duties and other levies

2007 Rupees

2006 Rupees

5,356,523,313 8,166,096,090 463,934,957 13,986,554,360

3,858,634,023 7,810,481,336 508,471,116 12,177,586,475

ANNUAL

REPORT

2007

Notes to the Consolidated Financial Statements for the year ended June 30, 2007 22. Reimbursement due from the government under import parity pricing formula

This represents amount due from the Government of Pakistan on account of shortfall in ex-refinery prices of certain petroleum products under the import parity pricing formula.

23. Cost of sales

Opening stock of semi-finished products Crude oil consumed - note 23.1 Transportation and handling charges Salaries, wages and other benefits - note 23.2 Printing and stationery Chemicals consumed Fuel and power Rent, rates and taxes Telephone and telex charges Professional charges for technical services Insurance Repairs and maintenance (including stores and spares consumed Rs 65,330,509 ; 2006: Rs 79,543,503) Staff transport and travelling - note 23.3 Cost of receptacles Research and development Depreciation - note 11.3 Closing stock of semi-finished products Opening stock of finished products Closing stock of finished products

23.1 Crude oil consumed Stock at the beginning of the year Purchases Stock at the end of the year

2007 Rupees

2006 Rupees

278,876,166 56,326,788,162 1,016,614,947 250,261,568 1,822,173 347,235,336 279,485,676 6,524,583 1,602,062 2,455,174 46,544,043

174,528,868 53,529,997,346 1,042,847,253 236,931,536 2,208,099 368,336,337 243,640,822 5,644,009 2,309,376 2,849,672 36,578,388

118,433,291 9,815,175 8,618,744 108,000 341,975,356 59,037,160,456 (311,633,383) 58,725,527,073 1,760,727,860 (1,876,300,457) (115,572,597) 58,609,954,476

141,527,067 12,187,347 24,775,920 8,550,012 328,326,550 56,161,238,602 (278,876,166) 55,882,362,436 1,369,045,483 (1,760,727,860) (391,682,377) 55,490,680,059

1,484,203,704 56,507,296,454 57,991,500,158 (1,664,711,996) 56,326,788,162

557,049,967 54,457,151,083 55,014,201,050 (1,484,203,704) 53,529,997,346

Certain crude purchases have been recorded based on provisional prices notified by the Government and may require subsequent adjustment.

107

108

AT T O C K R E F I N E RY L I M I T E D

Notes to the Consolidated Financial Statements for the year ended June 30, 2007

24. Administration expenses

23.2

Salaries, wages and other benefits under cost of sales, administration expenses, distribution cost and income from crude desalter operations include the Company's contribution to the Provident Fund amounting to Rs 11,552,458 (2006: Rs 10,682,306).

23.3

Staff transport and travelling Staff transport and travelling under cost of sales, administration expenses and distribution cost include lease rentals amounting to Rs nil (2006: Rs 764,819) related to nil (2006: 11) motor vehicles used during the year under terminable lease agreements.

Salaries, wages and other benefits - note 23.2 Staff transport, travelling and entertainment - note 23.3 Telephone and telex charges Electricity, gas and water Printing and stationery Auditors' remuneration and expenses: Statutory audit Special certifications, half yearly review, audit of consolidated accounts and staff funds Out of pocket expenses Legal and professional charges Repairs and maintenance Subscription Publicity Scholarship scheme Rent, rates and taxes Insurance Donations* Training expenses Other expenses Depreciation - note 11.3

* No director or his spouse had any interest in the donee institutions.

2007 Rupees

2006 Rupees

97,666,151 12,064,930 1,484,554 4,430,040 3,028,350

90,619,295 13,600,784 1,893,125 4,023,580 2,408,355

350,000 553,000 82,995 985,995 5,874,513 21,490,375 5,271,778 4,043,563 2,054,950 1,273,568 866,898 414,619 744,814 51,638 13,360,853 175,107,589

300,000 483,500 91,540 875,040 7,951,800 24,795,439 5,444,940 4,029,913 1,398,801 1,677,635 794,336 10,275,147 2,389,783 245,421 10,875,215 183,298,609

ANNUAL

REPORT

2007

Notes to the Consolidated Financial Statements for the year ended June 30, 2007

25. Distribution cost

Salaries, wages and other benefits - note 23.2 Staff transport, travelling and entertainment - note 23.3 Telephone and telex charges Electricity, gas, fuel and water Printing and stationery Repairs and maintenance including packing and other stores consumed Rent, rates and taxes Legal and professional charges Cost of samples Depreciation - note 11.3

26. Finance cost

Interest / mark-up on Long term loans Workers' Profit Participation Fund - note 9.4 Financial charges on liability against assets subject to finance lease Bank and other charges

27. Other charges

Employees' retirement benefits Staff gratuity benefits - note 28 Staff pension benefits - note 28 Less: Charged to subsidiary company Contribution to employees old age benefits scheme Provision for slow moving stores Stores written off Workers' Profit Participation Fund - note 9.4 Workers' Welfare Fund

2007 Rupees

2006 Rupees

11,722,058 568,338 209,812 1,476,680 81,097 1,295,190 316,677 144,000 2,587 899,894 16,716,333

8,512,176 661,935 174,908 1,341,193 70,976 1,911,219 263,096 216,285 52,730 575,332 13,779,850

233,361,071 528,081 – 388,827 234,277,979

493,541,346 2,168,584 346,028 2,368,817 498,424,775

15,320,547

15,378,909

8,572,332 (954,525) 7,617,807 2,202,230 25,140,584 1,500,000 12,560 51,819,052 23,678,616 102,150,812

7,008,130 (852,696) 6,155,434 1,717,248 23,251,591 1,500,000 – 23,926,116 19,234,402 67,912,109

109

110

AT T O C K R E F I N E RY L I M I T E D

Notes to the Consolidated Financial Statements for the year ended June 30, 2007 28. Employees' defined benefit plans

The latest actuarial valuation of the employees' defined benefit plans was conducted at June 30, 2007 using the projected unit credit method. Details of the defined benefit plans are: Defined benefit Pension plan 2007 Rupees

a)

b)

The amounts recognised in the profit and loss account: Current service cost Interest on obligation Expected return on plan assets Contribution from an associated company Net actuarial losses / (gains) recognised during the year

d)

2006

12,263,424 27,771,892 (30,234,890) (127,200) (1,100,894) 8,572,332

9,579,615 24,541,741 (26,233,559) (160,898) (718,769) 7,008,130

3,099,301 10,075,566 – – 2,145,680 15,320,547

2,996,315 10,064,728 – – 2,317,866 15,378,909

359,485,371 (291,335,050) 68,150,321 (64,053,635) 4,096,686

280,495,084 (263,054,407) 17,440,677 (15,742,787) 1,697,890

– (121,894,107) (121,894,107) 36,094,107 (85,800,000)

– (96,057,559) (96,057,559) 20,257,559 (75,800,000)

Movement in the present value of defined benefit obligation: Present value of defined benefit obligation as at July 1 Current service cost Interest cost Benefits paid Actuarial (gains) / losses Present value of defined benefit obligation as at June 30

263,054,407 12,263,424 27,771,892 (11,145,551) (609,122) 291,335,050

215,382,051 9,579,615 24,541,741 (9,714,214) 23,265,214 263,054,407

96,057,559 3,099,301 10,075,566 (5,320,547) 17,982,228 121,894,107

88,577,526 2,996,315 10,064,728 (4,493,785) (1,087,225) 96,057,559

Changes in the fair value of plan assets: Fair value of plan assets as at July 1 Expected return Benefits paid Contributions by employer Contributions by associated company Actuarial gains / (losses) Fair value of plan assets as at June 30 Actual return on plan assets

280,495,084 30,234,890 (11,145,551) 10,971,128 127,200 48,802,620 359,485,371 79,037,510

225,120,520 26,233,559 (9,714,214) 9,677,208 160,898 29,017,113 280,495,084 55,250,672

– – – – – – – –

– – – – – – – –

The amounts recognised in the balance sheet: Fair value of plan assets Present value of defined benefit obligations Unrecognised actuarial gains / (losses) Net liability

c)

2006

Defined benefit Gratuity plan 2007 Rupees

Expected contributions to the defined benefit pension plans for the year ending June 30, 2008 are Rs 12.6 million.

ANNUAL

REPORT

2007

Notes to the Consolidated Financial Statements for the year ended June 30, 2007 Defined benefit Pension plan 2007 Rupees

e)

f)

g)

The major categories of plan assets: Investment in equities Investment in mixed funds Cash

2006

Defined benefit Gratuity plan 2007 Rupees

2006

109,497,755 136,836,898 113,150,718 359,485,371

89,667,869 54,852,274 135,974,941 280,495,084

– – – –

– – – –

11.00% 11.00% 8.89% 5.71%

10.78% 10.78% 8.66% 5.50%

– – – –

– – – –

2007 Rupees

2006 Rupees

2005 Rupees

2004 Rupees

2003 Rupees

Defined Benefit Pension Plan Present value of defined benefit obligation Fair value of plan assets Surplus / (deficit)

(291,335,050) 359,485,371 68,150,321

(263,054,407) 280,495,084 17,440,677

(215,382,051) 225,120,520 9,738,469

(190,998,371) 196,917,528 5,919,157

(176,177,000) 174,386,000 (1,791,000)

Actuarial (gains) / losses on plan liabilities Actuarial (gains) / losses on plan assets

(609,122) (48,802,620)

23,265,214 29,017,113

9,382,000 13,388,000

1,303,000 9,384,000

(11,671,000) 10,642,000

Defined Benefit Gratuity Plan Present value of defined benefit obligation Fair value of plan assets Deficit Actuarial (gains) / losses on plan liabilities Actuarial (gains) / losses on plan assets

(121,894,107) – (121,894,107) 17,982,228 –

(96,057,559) – (96,057,559) (1,087,225) –

(88,577,526) – (88,577,526) 3,611,000 –

(80,831,692) – (80,831,692) 16,991,000 –

(59,094,000) – (59,094,000) (1,085,000) –

Significant actuarial assumptions at the balance sheet date: Discount rate Expected return on plan assets Future salary increases Future pension increases

Comparison for five years:

111

112

AT T O C K R E F I N E RY L I M I T E D

Notes to the Consolidated Financial Statements for the year ended June 30, 2007

29. Other income

Income from financial assets Income on bank deposits Income on other balances Exchange gain

Income from non-financial assets Income from crude decanting Income from crude desalter operations - note 29.1 Insurance agency commission Rental income Sale of scrap Profit on sale of fixed assets Calibration charges Handling and service charges Registration charges from carriage contractors Penalties from carriage contractors Old liabilities written back Miscellaneous

29.1 Income from crude desalter operations Income Less:Operating costs Salaries, wages and other benefits - note 23.2 Chemical consumed Fuel and power Repairs and maintenance Depreciation - note 11.3

2007 Rupees

2006 Rupees

569,024,303 – 269,581 569,293,884

527,198,018 2,029 2,992,990 530,193,037

11,205,337 9,264,467 4,719,025 3,057,084 10,612,725 846,422 3,742,400 15,900,912 – 3,888,219 693,597 1,941,992 65,872,180 635,166,064

8,835,527 10,541,984 2,206,024 2,003,552 6,957,758 1,660,588 3,996,300 21,419,332 20,941,563 15,070,661 2,603,288 653,351 96,889,928 627,082,965

43,927,953

49,598,239

1,882,227 7,058,352 16,828,288 8,262,119 632,500 34,663,486 9,264,467

2,287,290 8,577,336 20,449,799 7,109,330 632,500 39,056,255 10,541,984

ANNUAL

REPORT

2007

Notes to the Consolidated Financial Statements for the year ended June 30, 2007

30. Provision for taxation

Current - for the year Deferred - for the year

2007 Rupees

2006 Rupees

476,500,000 (19,949,991) 456,550,009

400,000,000 (45,155,916) 354,844,084

%

%

35.00

35.00

12.51 47.51

46.51 81.51

2007 Rupees

2006 Rupees

1,050,663,500 375,107,502 292,282 2,053,580 1,428,116,864 9,940,240 1,418,176,624

852,455,250 291,193,916 169,568 – 1,143,818,734 1,413,591 1,142,405,143

13,884,873 5,276,252 13,884,873 33,045,998 1,385,130,626

12,666,760 4,813,369 12,666,760 30,146,889 1,112,258,254

(502,514) 1,384,628,112

94,888 1,112,353,142

Numerical reconciliation between the average effective tax rate and the applicable tax rate

Applicable tax rate Tax effect of: Income chargeable to tax at special rate and other differences Average effective tax rate charged to profit and loss account

31. Share of profit of associates

Share in profit of associated companies is based on their audited financial statement for the year ended June 30, 2007 National Refinery Limited Attock Petroleum Limited Attock Information Technology Services (Private) Limited Attock Gen Limited Less:Unrealised profit from intra-group transactions included in closing stocks Less:Related charges Workers' Profit Participation Fund - note 9.4 Workers' Welfare Fund Taxation

(Loss) / profit of Attock Hospital (Private) Limited, a wholly owned subsidiary - note 31.1

113

114

AT T O C K R E F I N E RY L I M I T E D

Notes to the Consolidated Financial Statements for the year ended June 30, 2007

31.1

2007 Rupees

2006 Rupees

31,329,141

29,547,146

17,499,287 2,953,382 571,211 3,433,072 6,331,004 65,000 1,073,699 31,926,655

15,020,268 2,945,262 539,021 3,733,226 6,173,055 60,000 1,108,426 29,579,258

Loss before taxation

(597,514)

(32,112)

Provision for taxation - Current - Deferred

157,000 (252,000) (95,000)

168,000 (295,000) (127,000)

(Loss) / Profit after taxation

(502,514)

94,888

(Loss) / Profit from Attock Hospital (Private) Limited Revenue* Less:Operating expenses Salaries, wages and other benefits (including employees' retirement benefits of Rs 1,063,935; 2006: Rs 923,156) Medical supplies Dietary cost Sanitation and general services Utilities and other office expenses Audit fee Depreciation

* The revenue includes inter - company billings amounting to Rs 22,702,770 (2006 : Rs 21,328,674) which have not been eliminated from revenue and costs. It is considered that this gives a fairer view of the operating results of the Group. The revenue also includes income on bank deposits Rs 21,044 (2006: Rs 22,394).

ANNUAL

REPORT

2007

Notes to the Consolidated Financial Statements for the year ended June 30, 2007 31.2

Summarised financial information of associated companies: The assets, liabilities and equity of National Refinery Limited , Attock Petroleum Limited, Attock Information Technology Services (Private) Limited and Attock Gen Limited as at June 30, 2007 based on their audited financial statements are as follows:

Assets National Refinery Limited Attock Petroleum Limited Attock Information Technology Services (Private) Limited Attock Gen Limited Liabilities National Refinery Limited Attock Petroleum Limited Attock Information Technology Services (Private) Limited Attock Gen Limited Revenue National Refinery Limited Attock Petroleum Limited Attock Information Technology Services (Private) Limited Attock Gen Limited Profit / (loss) National Refinery Limited Attock Petroleum Limited Attock Information Technology Services (Private) Limited Attock Gen Limited

The Company's share in shareholders' equity National Refinery Limited Attock Petroleum Limited Attock Information Technology Services (Private) Limited Attock Gen Limited

2007 Rupees

2006 Rupees

32,641,559,000 8,983,767,000 52,541,040 1,820,220,548 43,498,087,588

24,992,541,000 6,584,116,000 49,060,301 300,500 31,626,017,801

19,895,170,000 5,529,470,000 3,378,234 13,375,281 25,441,393,515

15,545,821,000 4,538,425,000 2,820,320 500 20,087,066,820

91,326,538,000 44,130,536,000 13,641,500 10,531,179 135,481,246,679

80,894,039,000 40,839,299,000 10,366,500 – 121,743,704,500

4,202,654,000 1,728,606,000 2,922,825 6,845,267 5,941,028,092

3,409,821,000 1,392,606,000 1,695,684 – 4,804,122,684

25.00% 21.70% 10.00% 30.00%

25.00% 20.91% 10.00% 0.00%

115

116

AT T O C K R E F I N E RY L I M I T E D

Notes to the Consolidated Financial Statements for the year ended June 30, 2007 32. Related party transaction

The Group is controlled by Attock Oil Company Limited which holds 55% (2006: 52.50%) of ARL's shares. Therefore, all subsidiaries and associated undertakings of Attock Oil Company Limited are related parties of the Company. The related parties also comprise of directors, major shareholders, key management personnel, entities over which the directors are able to exercise influence and employees' funds. Amount due from and due to these undertakings are shown under receivables and payables. The remuneration of Chief Executive, directors and executives is disclosed in note 33 to the consolidated financial statements.

Associated companies Sale of goods Sale of services Purchase of goods Purchase of services

2007 Rupees

2006 Rupees

12,941,980,204 76,773,297 13,018,753,501 7,591,741,626 311,331,415 7,903,073,041

15,315,597,351 46,784,718 15,362,382,069 9,016,821,119 296,693,858 9,313,514,977

284,675

–

1,298,842,610 3,988,210 1,302,830,820

1,997,891,103 3,771,792 2,001,662,895

22,523,586

20,359,514

Holding company Sale of services Purchase of goods Purchase of services Employees' benefits funds Payments made during the year 33. Remuneration of Chief Executive, Directors and Executives

The aggregate amounts charged in the financial statements for remuneration, including benefits and perquisites, were as follows: Chief Executive 2007 2006 Rupees Rupees

Managerial remuneration / honorarium Company's contribution to provident and pension funds Housing and utilities Leave passage No of person(s) 33.1

Directors 2007 Rupees

2006 Rupees

Executives 2007 2006 Rupees Rupees

3,909,722

2,482,256

1,219,140

1,215,792

24,673,508

20,752,589

789,421 1,037,149 330,000 6,066,292 1

574,200 834,960 298,356 4,189,772 1

– – – 1,219,140 3

– – – 1,215,792 3

5,209,292 11,585,996 2,323,690 43,792,486 22

4,422,443 9,064,108 2,256,860 36,496,000 20

In addition, the Chief Executive and 19 (2006: 19) executives were provided with limited use of the Company's cars. The Chief Executive and all executives were provided with medical facilities and 9 (2006: 9) executives were provided with unfurnished accommodation in Company owned bungalows. Limited residential telephone facility was also provided to the Chief Executive and 13 (2006: 9) executives. Payments to Chief Executive include Rs 789,156 representing arrears of salary for the period February 2005 to June 2006. Fee paid to directors during the year was Rs nil (2006: Rs nil).

ANNUAL

REPORT

2007

Notes to the Consolidated Financial Statements for the year ended June 30, 2007 34. Financial instruments

34.1

Financial assets and liabilities

Financial assets: Maturity upto one year Trade debts Loans, advances, deposits and other receivables Cash and bank balances Foreign currency - US $ Local currency Maturity after one year Long term investments Long term loans and deposits Financial liabilities: Maturity upto one year Long term loans and lease obligations Local currency Short term finance Trade and other payables Maturity after one year Long term loans and lease obligations Local currency Staff gratuity Off balance sheet items Commitments (other than letters of credit) Letters of credit Bank guarantees

Interest/markup bearing Rupees

2007 Non-interest / markup bearing Rupees

Interest/markup bearing Rupees

2006 Non-interest / markup bearing Rupees

Total Rupees

Total Rupees

–

6,235,379,020

6,235,379,020

–

4,675,412,060

4,675,412,060

–

155,772,699

155,772,699

–

215,542,199

215,542,199

22,815,414 8,855,093,382

201,063 2,942,273

23,016,477 8,858,035,655

38,667,078 7,989,813,150

201,063 5,046,250

38,868,141 7,994,859,400

– – 8,877,908,796

11,416,311,675 10,954,309 17,821,561,039

11,416,311,675 10,954,309 26,699,469,835

– – 8,028,480,228

9,637,407,375 11,613,726 14,545,222,673

9,637,407,375 11,613,726 22,573,702,901

– – 9,471,565,027

– – 15,917,290,773

– – 25,388,855,800

1,136,750,000 – 1,615,257,575

– – 17,149,072,482

1,136,750,000 – 18,764,330,057

– – 9,471,565,027

– 85,800,000 16,003,090,773

– 85,800,000 25,474,655,800

3,410,250,000 – 6,162,257,575

– 75,800,000 17,224,872,482

3,410,250,000 75,800,000 23,387,130,057

– – – –

55,423,626 125,775,143 214,555,000 395,753,769

55,423,626 125,775,143 214,555,000 395,753,769

– – – –

41,868,873 33,659,700 250,000 75,778,573

41,868,873 33,659,700 250,000 75,778,573

34.2

Concentration of credit risk The Company's credit risk is primarily attributable to its trade debts and placements with banks. The sales are essentially to six oil marketing companies and reputable foreign customers. The Company's placements are with reputable banks. Due to the high credit worthiness of corresponding parties the credit risk is considered minimal.

34.3

Currency risk Currency risk is the risk of loss through changes in foreign currency rates. The exchange risk against foreign currency liabilities has been hedged by the Company through foreign currency deposits.

117

118

AT T O C K R E F I N E RY L I M I T E D

Notes to the Consolidated Financial Statements for the year ended June 30, 2007

35. General

34.4

Interest rate risk The effective interest / mark up rates for the monetary financial assets and liabilities are mentioned in respective notes to the financial statements.

34.5

Liquidity risk Liquidity risk reflects an enterprise's inability in raising funds to meet commitments. The Company follows an effective cash management and planning policy to ensure availability of funds and to take appropriate measures for new requirements.

34.6

Fair value of financial assets and liabilities The carrying value of financial assets and liabilities approximates their fair value except for long term investments, which are stated at cost.

35.1

Earnings per share Profit for the year after taxation Number of ordinary shares outstanding during the year Earnings per share

Rs. Rs.

2007

2006

1,888,961,472 56,862,000 33.22

Rs. 1,192,870,859 56,862,000 Rs. 20.98

Basic earnings per share for the year 2006 reported in the previous year was Rs 26.22. This has been restated on account of 11,372,400 bonus shares issued without consideration during the year ended June 30, 2007. There is no dilutive effect on the basic earnings per share of the Company for the year ended June 30, 2007. 35.2

Capacity and production Against the designed annual refining capacity of 14,240,000 (2006: 14,280,000) US barrels the actual throughput during the year was 14,074,644 (2006: 14,567,216) US barrels. The actual throughput was lower than the annual refining capacity on account of the plant shut down for maintenance and reductions in throughput to minimize losses during adverse periods of refining margins.

35.3

Number of employees Total number of employees at the end of the year was 763 (2006: 706).

35.4

Corresponding figures Sales for the corresponding year were net of discount of Rs. 108,693,725 which has now been disclosed separately in the profit & loss account.

35.5

Non adjusting events after the balance sheet date The Board of Directors, in its meeting held on September 10, 2007, has proposed for the approval of members at the next Annual General Meeting (i) a 40% cash dividend of Rs. 4 per share and (ii) an issue of bonus share in the proportion of one share for every four shares held i.e. 25% out of unappropriated profits. These financial statements do not include the effect of these appropriations which will be accounted for in the financial statements for the year ending June 30, 2008 as follows: Transfer from unappropriated profit to: Proposed dividend Reserve for issue of bonus shares

35.6

Rupees

227,448,000 142,155,000

Date of authorisation These financial statements have been authorised for issue by the Board of Directors of the Company on September 10, 2007.

Chief Executive

Director

ANNUAL

Form of Proxy

I / We

Attock Refinery Limited

of

REPORT

2007

being member(s) of Attock Refinery Limited holding ordinary shares hereby appoint Mr./ Mrs./ Miss of

another member of the Company or failing him / her of

another member of the Company as my / our proxy in my / our absence to attend and vote for me / us and on my / our behalf at the Twenty Nineth Annual General Meeting of the Company to be held on Thursday, 25th October, 2007 at 11:00 a.m. at Pearl Continental Hotel, Rawalpindi and at any adjournment thereof.

As witness my / our hands seal this

day of

2007.

Signed by in the presence of

Folio No.

CDC Account No. Participant I.D. Account No.

Signature on Five Rupees Revenue Stamp

. The Signature should agree with the specimen registered with the Company .

Important: 1.

This Proxy Form, duly completed and signed, must be received at the Shares Department of M/s. Noble Computer Services (Pvt) Limited, 2nd Floor, Sohni Centre, BS 5&6, Main Karimabad, Block-4, Federal B Area, Karachi-75950, Pakistan, not less than 48 hours before the time of holding the meeting.

2.

If a member appoints more than one proxy and more than one instruments of proxies are deposited by a member with the Company, all such instruments of proxy shall be rendered invalid.

3.

For CDC Account Holders / Corporate Entities In addition to the above the following requirements have to be met.

i.

Attested copies of NIC or the passport of the beneficial owners and the proxy shall be provided with the proxy form.

ii. The proxy shall produce his original NIC or original passport at the time of the meeting. iii. In case of a corporate entity, the Board of Directors resolution / power of attorney with specimen signature shall be submitted (unless it has been provided earlier) alongwith proxy form to the Company.

The Company Secretary ATTOCK REFINERY LIMITED P.O. Refinery, Morgah, Rawalpindi - 46600

AFFIX CORRECT POSTAGE

ANNUAL REPORT

2007