Pakistan Refinery Limited (annual Report 2008)

Contributing to nation's energy needs

with a difference

report

2008 PAKISTAN REFINERY LIMITED

Balance Sheet as at June 30, 2008

Note

2008

2007

(Rupees in thousand) ASSETS Non-current assets Fixed assets Intangible assets Investment in associate Long-term loans and advances Long-term deposits Deferred taxation Retirement benefit obligations - prepayments

8

Current assets Stores, spares and chemicals Stock-in-trade Trade debts Loans and advances Accrued interest / mark-up Trade deposits and short-term prepayments Other receivables Tax refunds due from Government - Sales tax Investments Cash and bank balances

4 5 6 7

975,774 14,091 58,238 13,588 14,012 9,520 1,085,223

930,675 21,443 54,077 10,943 2,887 38,583 39,809 1,098,417

9 10 11 12 13 14 15 16 17 18

233,425 9,102,109 10,427,821 18,795 47 48,844 21,180 188,152 365 2,646,115 22,686,853 23,772,076

229,371 5,107,781 4,789,762 22,439 7,726 49,091 15,891 1,476,306 201,769 1,698,277 13,598,413 14,696,830

19

350,000 69,829 6,386,076 6,805,905

300,000 129,751 4,375,332 4.805,083

7,078 40,042 47,120

4,373 4,373

15,904,758 77,558 936,735 16,919,051 16,966,171

9,537,222 1,989 348,163 9,887,374 9,891,747

23,772,076

14,696,830

Total assets EQUITY AND LIABILITIES Share capital Reserves Special reserve

20

LIABILITIES Non-current liabilities Retirement benefit obligations Deferred taxation

21

Current liabilities Trade and other payables Accrued interest / mark-up Taxation - provision less payments

22

Total liabilities

pakistan refinery limited

Contingencies and commitments

43

24

Total equity and liabilities The annexed notes 1 - 41 form an integral part of these financial statements.

Farooq Rahmatullah

Ijaz Ali Khan

Chairman

Chief Executive

Profit and Loss Account for the year ended June 30, 2008

Note

2008

2007

(Rupees in thousand) Sales

25

95,564,006

57,404,065

Cost of sales

26

(91,232,240)

(56,628,114)

Gross profit

4,331,766

775,951

Distribution cost

26

(129,400)

(89,434)

Administrative expenses

26

(698,143)

(134,977)

Other operating expenses

27

(252,177)

(46,252)

Other income

28

230,897

73,746

3,482,943

579,034

Operating profit Finance costs

29

Share of income of associate Profit before taxation Taxation

30

Profit after taxation Earnings per share

31

(253,047)

(81,718)

24,722

6,949

3,254,618

504,265

(1,143,874)

(253,451)

2,110,744

250,814

Rs. 60.31

Rs. 7.17

The annexed notes 1 - 41 form an integral part of these financial statements.

Ijaz Ali Khan

Chairman

Chief Executive

annual report 2008

Farooq Rahmatullah

44

Cash Flow Statement for the year ended June 30, 2008

Note

2008

2007

(Rupees in thousand) CASH FLOW FROM OPERATING ACTIVITIES Cash generated from operations

36

Mark-up paid Income taxes paid Receipts from / (contribution to) defined benefit retirement plans

1,595,463 (5,627)

(83,431)

(474,147)

(285,894)

8,210

Long-term loans and advances (net) Long-term deposits (net) Net cash generated from / (used in) operating activities

2,783

(40,288)

(2,645)

288

(11,125)

-

1,110,129

(406,542)

CASH FLOW FROM INVESTING ACTIVITIES Purchase of fixed assets

(189,458)

Proceeds from sale of fixed assets

(268,919)

571

2,254

Profit on deposits

118,692

30,732

Dividend received

8,504

6,803

Net cash used in investing activities

(61,691)

(229,130)

(100,600)

(78)

CASH FLOW FROM FINANCING ACTIVITIES Dividend paid Net increase / (decrease) in cash and cash equivalents

947,838

Cash and cash equivalents at the beginning of the year Cash and cash equivalents at the end of the year

37

(635,750)

1,698,277

2,334,027

2,646,115

1,698,277

pakistan refinery limited

The annexed notes 1 - 41 form an integral part of these financial statements.

45

Farooq Rahmatullah

Ijaz Ali Khan

Chairman

Chief Executive

Statement of Changes in Equity for the year ended June 30, 2008

SHARE CAPITAL

CAPITAL Exchange Equalisation Reserve

RESERVES REVENUE FAIR General Unappropriated VALUE Reserve Profit RESERVE

SPECIAL RESERVE

TOTAL

5,385

4,224,518

4,551,548

-

-

-

(Rupees in thousand) Balance as at June 30, 2006

250,000

897

1,050

50,000

-

-

Net profit for the year 2007

-

-

-

250,814

-

-

250,814

Change in fair value reserve on account of available for sale investments of associate - net of deferred tax

-

-

-

-

2,721

-

2,721

Transferred to Special Reserve

-

-

-

-

150,814

-

300,000

897

1,050

8,106

4,375,332

4,805,083

-

-

-

(100,000)

-

-

50,000

-

-

(50,000)

-

-

-

Net profit for the year 2008

-

-

-

2,110,744

-

-

2,110,744

Change in fair value reserve on account of available for sale investments of associate - net of deferred tax

-

-

-

-

(9,922)

-

Transferred to Special Reserve

-

-

-

-

2,010,744

-

350,000

897

1,050

(1,816)

6,386,076

6,805,905

Issue of 1 bonus share for every 5 shares held

Balance as at June 30, 2007

Final dividend for the year ended June 30, 2007 @ Rs. 3.33 per share Issue of 1 bonus share for every 6 shares held

Balance as at June 30, 2008

69,698

(50,000)

(150,814) 119,698

(2,010,744) 69,698

(100,000)

(9,922)

The annexed notes 1 - 41 form an integral part of these financial statements. annual report 2008

Farooq Rahmatullah

Ijaz Ali Khan

Chairman

Chief Executive

46

Notes to and Forming Part of the Financial Statements for the year ended June 30, 2008

1.

THE COMPANY AND ITS OPERATIONS Pakistan Refinery Limited was incorporated in Pakistan as a public limited company in May 1960 and is quoted on Karachi and Lahore Stock Exchanges. The address of its registered office is Korangi Creek Road, Karachi. The Company is engaged in the production and sale of petroleum products.

2.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The significant accounting policies adopted in the preparation of these financial statements are set out below:

2.1

Basis of preparation These financial statements have been prepared in accordance with approved accounting standards as applicable in Pakistan and the requirements of the Companies Ordinance, 1984. Approved accounting standards comprise of such International Financial Reporting Standards as have been notified under the provisions of the Companies Ordinance, 1984. Wherever, the requirements of the Companies Ordinance, 1984 or directives issued by the Securities and Exchange Commission of Pakistan differ from the requirements of these standards, the requirements of the Companies Ordinance, 1984 or the requirements of the said directives have been followed. Amendment to published standard that became effective in the current year and is relevant i.

IAS 1 (Amendment) - 'Presentation of Financial Statements - Capital Disclosures', is mandatory for company's accounting periods beginning on or after January 1, 2007. It introduces capital disclosure requirements regarding how the entity manages its capital. Adoption of this amendment only impacts the format and extent of disclosures as presented in note 34 to the financial statements.

Standards, interpretations and amendments to published approved accounting standards that are considered relevant, but not yet effective

pakistan refinery limited

Following amendments to existing standards and interpretations have been published that are mandatory for accounting periods beginning on the dates mentioned below:

47

i.

IAS 1 - 'Presentation of Financial Statements' was issued in September 2007 and will be effective for the periods beginning from or after January 1, 2009. The amendments to the standard mandate various disclosures and presentation of transactions with owners in statement of changes in equity and with non-owners in the Comprehensive Income Statement.

ii.

IAS 23 (Amendment) - 'Borrowing Cost' effective for the periods beginning from or after January 1, 2009, requires an entity to capitalise borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset as part of cost of that asset.

iii.

IFRIC 14 'IAS 19 - The limit on a defined benefit asset, minimum funding requirements and their interaction' was issued in July 2007 and will be effective for the periods beginning from or after January 1, 2009. This interpretation provides general guidance on the amount of a pension surplus that may be recognised as an asset. Adoption of the above amendments, standard and interpretation does not have any effect on the amounts recognised in these financial statements.

Notes to and Forming Part of the Financial Statements for the year ended June 30, 2008

Interpretations to published approved accounting standards that are not yet effective and are not considered relevant i.

2.2

IFRS 3 (Revised) - 'Business combinations'

Effective from January 1, 2010

ii.

IFRIC 11 - 'IFRS 2 - 'Group and treasury share transactions'

Effective from January 1, 2008

iii.

IFRIC 12 - 'Service Concession Agreements'

Effective from January 1, 2008

iv.

IFRIC 13 - 'Customer Loyalty Programmes'

Effective from July 1, 2008

Overall valuation policy These financial statements have been prepared under the historical cost convention except as stated below in the respective policy notes.

2.3

Fixed assets Fixed assets are stated at cost less accumulated depreciation / amortisation except capital work-in-progress, which is stated at cost. Depreciation / amortisation is charged to income by applying the straight-line method whereby the cost less residual value, if not insignificant, of an asset is written off over its estimated useful life to the Company. Full month's depreciation / amortisation is charged in the month of acquisition and no depreciation / amortisation is charged in the month of disposal. Cost of leasehold land is amortised fairly over the period of lease. Costs associated with developing or maintaining computer software programmes are recognised as an expense when incurred. However, costs that are directly associated with identifiable and unique software products controlled by the Company and that have probable economic benefits exceeding their cost and beyond one year, are recognised as intangible assets. Assets' residual values and useful lives are reviewed and adjusted if expectations significantly differ from previous estimates, at each balance sheet date. Company accounts for impairment, where indication exists, by reducing its carrying value to the assessed recoverable amount. Maintenance and normal repairs are charged to income as and when incurred. Renewals and improvements are capitalised and assets so replaced, if any, are retired. Gains and losses on disposal of fixed assets are included in income currently.

2.4

Investment in associate annual report 2008

Investment in associate is accounted for using equity method of accounting and is initially recognised at cost. The Company's share in its associate post-acquisition profits or losses is recognised in the income statement and its share in post-acquisition movements in reserves is recognised in reserves. The cumulative post-acquisition movements are adjusted against the carrying amount of the investment. When the Company's share of losses in an associate equals or exceeds its interest in the associate, including any other unsecured receivables, the Company does not recognise further losses, unless it has incurred obligations or made payments on behalf of the associate.

48

Notes to and Forming Part of the Financial Statements for the year ended June 30, 2008

2.5

Taxation

2.5.1

Current Charge for the current taxation is based on applicable provisions of the Income Tax Ordinance, 2001.

2.5.2

Deferred Deferred tax is provided in full, using the liability method, on temporary differences arising between the tax base of assets and liabilities and their carrying amounts in the financial statements.

2.6

Stores, spares and chemicals These are valued at cost, determined using weighted average method, less provision for obsolescence. Items in transit are valued at cost comprising invoice value plus other charges incurred thereon.

2.7

Stock-in-trade Stock of crude oil is valued at lower of cost determined using “first-in first-out” method and net realisable value except crude oil in transit which is valued at cost. Finished products are valued at lower of cost and net realisable value. Cost in relation to finished products represents cost of crude oil and appropriate manufacturing overheads. Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and estimated costs necessary to make the sale.

2.8

Trade debts Trade debts are carried at the fair value of consideration to be received against goods and services. Provision is made in respect of doubtful debts, if any.

2.9

Investments Financial assets at fair value through profit and loss Financial assets held for trading are classified in this category. These are initially measured at fair value which is reassessed at each reporting date. Transaction cost, if any, are charged directly to income. In the case of investments in open ended mutual funds, fair value is determined on the basis of period end Net Asset Value (NAV) as announced by the Asset Management Company.

pakistan refinery limited

2.10

49

Cash and cash equivalents Cash and cash equivalents are carried in the balance sheet at cost. For the purposes of the cash flow statement, cash and cash equivalents comprise cash in hand, with banks on current, savings and deposit accounts, running finance under mark-up arrangements and short-term finance.

2.11

Trade and other payables Trade and other payables are carried at the fair value of the consideration to be paid for goods and services.

Notes to and Forming Part of the Financial Statements for the year ended June 30, 2008

2.12

Borrowing costs Borrowing costs are recognised as an expense in the period in which these are incurred.

2.13

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

2.14

Retirement benefits The Company operates recognised Provident, Gratuity and Pension Funds for all its eligible employees. The Provident Fund is a defined contribution plan. All others are defined benefit plans. Actuarial valuations of defined benefit plans are carried out on periodical basis using the projected unit credit method and the latest valuations were carried out at the balance sheet date (June 30, 2008). Actuarial gain / loss is amortised over a period of 11 years for the management staff gratuity and pension funds and 17 years for non-management staff pension and gratuity funds, if it exceeds the 10% corridor limit. The unrecognised past service cost is amortised over its vesting period.

2.15

Foreign currency translation These financial statements are presented in Pak Rupees which is also the functional currency of the Company. Transactions in foreign currencies are translated to rupees at the rates of exchange prevailing on the date of the respective transactions. Monetary assets and liabilities in foreign currencies are translated to rupees at rates prevailing at the balance sheet date. Gains and losses resulting from the above are recognised in the profit and loss account.

2.16

Financial instruments All financial assets and liabilities are recognised at the time when the Company becomes a party to the contractual provisions of the instrument. The carrying values of all financial assets and liabilities reflected in the financial statements approximate their fair values. Any gains and losses on derecognition of financial assets and liabilities are taken to income statement currently.

2.17

Revenue recognition Local sales are recorded on the basis of products pumped in oil marketing companies’ tanks.

(b)

Export sales are recorded on the basis of products shipped to customers.

(c)

The prices of refinery products are notified by the Oil & Gas Regulatory Authority (OGRA) which are primarily based on import parity pricing formula. However, in order to enable certain refineries including the Company to operate on a self financing basis, the Government effective from July 1, 2002 had introduced a tariff protection formula under which deemed duty is built into the import parity based prices of some of the products. Under this formula, any profit after taxation above 50% of the paid-up capital as it was on July 1, 2002 (Rs 200 million), is required to be transferred to a "Special Reserve" to offset any future losses or to make investment for expansion or upgradation of the respective refineries. Discount on local crude, if any, wharfage and insurance is paid to Government.

annual report 2008

(a)

50

Notes to and Forming Part of the Financial Statements for the year ended June 30, 2008

2.18

(d)

Dividends are recognised when the right of receipt is established.

(e)

Income on bank deposits is recognised on accrual basis.

Government grants Government grants related to costs are deferred and recognised in the income statement as a deduction from the related expense over the period necessary to match them with the costs that they are intended to compensate.

2.19

Dividends Dividend distribution to the Company's shareholders is recognised as a liability in the Company's financial statements in the period in which the dividends are approved.

3.

CRITICAL ACCOUNTING ESTIMATES, JUDGEMENTS AND POLICIES The preparation of financial statements in conformity with approved accounting standards requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Company's accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements are; provision for income tax and provision for post employment benefits. The Company recognises provision for income tax based on best current estimates. However, where the final tax outcome is different from the amounts that were initially recorded, such differences will impact the income tax provision in the period in which such determination is made. Significant estimates relating to post employment benefits are disclosed in note 8. Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Management believes that the change in outcome of estimates would not have a material effect on the amounts disclosed in the financial statements. No critical judgement has been used in applying the accounting policies.

2008

pakistan refinery limited

4.

51

FIXED ASSETS Property, plant and equipment Operating assets - note 4.1 Capital work-in-progress - note 4.2

2007

(Rupees in thousand)

776,372 199,402 975,774

805,841 124,834 930,675

Notes to and Forming Part of the Financial Statements for the year ended June 30, 2008

4.1 OPERATING ASSETS Leasehold Buildings land and on improvements leasehold thereon land

Processing plant

Korangi tank farm

Keamari terminal

TANGIBLE Pipelines Steam Power generation generation, plant transmission and distribution (Rupees in thousand)

Water treatment and cooling system

Equipment including furniture

Fire fighting and telecommunication systems

Vehicles and other automotive equipment

TOTAL

Net carrying value basis Year ended June 30, 2008

Opening net book value (NBV)

2,186

34,036

383,363

52,254

38,519

51,740

16,211

42,822

32,602

117,243

22,997

11,868

805,841

Additions (at cost)

-

17,843

19,776

1,218

9,269

15,276

-

10,109

-

31,233

3,310

6,856

114,890

Disposals (at NBV)

-

-

-

-

-

-

-

-

-

(528)

-

-

(528)

Depreciation charge

(39)

(4,635)

(74,592) (10,500)

(3,008)

(7,808)

(3,437)

(5,149)

(5,273)

(22,093)

(1,862)

(5,435) (143,831)

2,147

47,244

328,547

44,780

59,208

12,774

47,782

27,329

125,855

24,445

13,289

3,939

77,151

783,475

160,283 106,156

115,372

44,378

71,367

60,300

317,395

38,862

52,424 1,831,102

Closing net book value

42,972

776,372

Gross carrying value basis At June 30, 2008

Cost Accumulated depreciation Net book value

(1,792) (29,907) (454,928) (117,311) (61,376)

(56,164) (31,604) (23,585) (32,971) (191,540) (14,417) (39,135) (1,054,730)

2,147

47,244

328,547

42,972

44,780

59,208

12,774

47,782

27,329

125,855

24,445

13,289

776,372

Opening net book value (NBV) 2,225

27,936

193,486

51,576

32,570

59,722

19,865

17,628

32,579

83,777

10,033

8,214

539,611

Net carrying value basis Year ended June 30, 2007

Additions (at cost)

-

9,227

261,455

10,833

8,842

-

-

27,695

5,204

53,290

14,251

8,355

399,152

Disposals (at NBV)

-

-

-

-

-

-

-

-

-

(284)

-

(528)

(812)

(3,127) (71,578) (10,155)

(2,893)

(7,982)

(3,654)

(2,501)

(5,181)

(19,540)

(1,287)

(4,173) (132,110)

2,186

34,036

383,363

52,254

38,519

51,740

16,211

42,822

32,602

117,243

22,997

11,868

3,939

59,308

763,699

159,065

96,887

100,096

44,378

61,258

60,300

286,690

35,552

45,568 1,716,740

Depreciation charge Closing net book value

(39)

805,841

Gross carrying value basis At June 30, 2007

Cost Accumulated depreciation Net book value

(1,753) (25,272) (380,336) (106,811) (58,368) (48,356) (28,167) (18,436) (27,698) (169,447) (12,555) (33,700) (910,899) 2,186

34,036

383,363

52,254

38,519

51,740

16,211

42,822

32,602

117,243

22,997

11,868

1

5 to 20

10 to 33

10

5 to 10

10

10

10

10

10 to 33

5 to 10

25

805,841

Depreciation rate % per annum

annual report 2008

52

Notes to and Forming Part of the Financial Statements for the year ended June 30, 2008

4.1.1

Details of disposals are: Description

Cost

Accumulated Book depreciation value (Rupees in thousand)

Sale proceeds

Mode of disposal

Particulars of purchaser

Net book value exceeding Rs 50,000: Equipment including furniture

148

(59)

89

89

Negotiation

Zafar Haleem Ex-executive

Negotiation

Zubair A. Sattar Ex-executive

Tender

Muhammad Saleem Employee

''

''

79

(21)

58

58

''

''

86

(33)

53

3

313

(113)

200

150

2,100 2,413

(1,772) (1,885)

328 528

421 571

Net book value not exceeding Rs 50,000: Equipment including furniture (in aggregate)

2008

2007

(Rupees in thousand) 4.2

Capital work-in-progress - at cost

pakistan refinery limited

Buildings Processing plant Korangi tank farm Keamari terminal Pipelines Power generation, transmission and distribution Water treatment and cooling systems Equipments Fire fighting and telecommunication systems Vehicles and other automotive equipment

53

16,316 13,680 92,068 10,135 3,790 7,081 16,257 11,691 27,502 882 199,402

17,292 13,958 52,454 9,554 3,455 5,996 5,103 12,806 4,216 124,834

Notes to and Forming Part of the Financial Statements for the year ended June 30, 2008

5.

2008 INTANGIBLE ASSETS - COMPUTER SOFTWARE

2008 2007 (Rupees in thousand)

Net carrying value basis Opening net book value (NBV) Additions (at cost) Amortisation charge Closing net book value

21,443 (7,352) 14,091

22,056 (613) 21,443

33,834 (19,743) 14,091

33,834 (12,391) 21,443

58,238

54,077

54,077 24,722

50,609 6,949

(12,057) (8,504) 58,238

3,322 (6,803) 54,077

Gross carrying value basis Cost Accumulated amortisation Net book value Amortisation is charged at the rate of 33.33% per annum. 6.

INVESTMENT IN ASSOCIATE Investment in related party In an unquoted associated company - equity method 850,401 (2007: 850,401) fully paid ordinary shares of Rs. 10 each of Pak Grease Manufacturing Company (Private) Limited - note 6.1

6.1

The Company holds 27.26% (2007: 27.26%) of the investee's total equity. Opening balance Share of income for the year Change in fair value reserve on account of available for sale investment Dividend received

annual report 2008

54

Notes to and Forming Part of the Financial Statements for the year ended June 30, 2008

2008

2007

(Rupees in thousand) 6.2

Summarised results of the Company's associate (2008: unaudited) are as follows: Total assets Total liabilities Revenue Profit after tax

7.

229,658 15,828 161,944 90,689

216,655 18,061 165,622 25,686

6,982 16,911 23,893

6,120 14,292 20,412

LONG-TERM LOANS AND ADVANCES – secured and considered good To executives To other employees

Recoverable within one year – note 12 Executives Other employees

(3,506) (6,799) (10,305) 13,588

(3,221) (6,248) (9,469) 10,943

6,120 318 9,254 (8,710) 6,982

6,864 63 4,514 (5,321) 6,120

Reconciliation of carrying amount of loans to executives: Opening balance Promotion to executive Disbursements Repayments

The maximum amount due from executives at the end of any month during the year was Rs 9.35 million (2007: Rs 7.33 million).

pakistan refinery limited

The loans and advances to all eligible employees are given in accordance with the Company’s policy for payment of house rent, to defray personal expenditure and for purchase of motor vehicles. These carry interest ranging from 1% to 10% per annum and are repayable over a period of three to six years.

55

Notes to and Forming Part of the Financial Statements for the year ended June 30, 2008

8.

RETIREMENT BENEFITS PENSION FUNDS GRATUITY FUNDS Management Non-Management Management Non-Management 2008 2007 2008 2007 2008 2007 2008 2007 (Rupees in thousand)

8.1

Expense / (income) recognised during the year Current service cost Interest cost Expected return on plan assets Amortisation of past service cost actuarial loss / (gain) recognised Amount not recognised as an asset

8.2

Actual return on plan assets

834 2,210 (315) 543

2,914 4,855 (5,553) -

2,856 4,227 (4,207) -

449 631 (3,129) -

562 729 (2,204) Net

16,539 16,539

16,836 16,836

203 2,705 2,705

673 3,945 3,945

2,216 3,324 5,540

2,876 1,014 3,890

(935) (2,984) 2,984 -

(484) (1,397) 7,843 6,446

34,649

22,780

(4,373)

(5,628)

5,160

2,667

-

6,446

(16,539)

(16,836)

(2,705)

(3,945)

(5,540)

(3,890)

-

(6,446)

(17,031) 1,079

-

-

-

-

-

-

-

28,705 34,649

(7,078)

5,200 (4,373)

3,118 5,703 8,441

6,383 5,160

-

-

(23,622) 7,326 (16,296) 5,816 3,402 (7,078)

(20,769) 7,740 (13,029) 4,711 3,945 (4,373)

(53,564) 61,565 8,001 4,778 (4,338) 8,441

(48,544) 55,871 7,327 (1,153) (1,014) 5,160

5,819

8,023

3,100

5,671

(523,037) (451,412) 477,166 456,440 (45,871) 5,028 45,502 28,028 1,448 1,593 1,079 34,649

197

(7,654) (6,120) (2,071) (2,071) 34,425 31,325 24,700 23,134 (13,873) (15,291) (10,827) (7,843) -

61,554

35,619

254

451,412 16,821 45,312 39,972

424,303 16,351 38,367 1,750

20,769 677 2,061 1,062

24,634 834 2,210 (5,951)

48,544 2,914 4,855 6,198

48,401 2,856 4,227 (240)

6,120 449 631 454

8,283 562 729 (3,454)

(30,480) 523,037

(29,359) 451,412

(947) 23,622

(958) 20,769

(8,947) 53,564

(6,700) 48,544

7,654

6,120

55,871 5,553 5,703 (5,829) 267 61,565

48,165 4,207 6,383 (6,700) 3,816 55,871

31,325 3,129 (29) 34,425

25,654 2,204 3,467 31,325

Movement in defined benefit obligation Beginning of the year Current service cost Interest cost Actuarial (gains) / losses Actual benefits paid by the Fund during the year End of year

8.5

677 2,061 (779) 543

Prepayment / (liability) as at June 30 Present value of obligations to members Obligation to Company Fair value of plan assets Funded status Unrecognised net actuarial loss / (gain) Unrecognised past service cost Amount not recognised as an asset Prepayment / (liability) as at June 30

8.4

16,351 38,367 (38,027) 145

Balance sheet reconciliation Prepayment / (liability) as at July 1 (Expense) / income recognised during the year Payments made by the Fund to the Company Payment made by the Company on behalf of the fund Contributions Prepayment / (liability) as at June 30

8.3

16,821 45,312 (45,739) 145

Movement in the fair value of plan assets 418,381 38,027 28,705 (29,359) 686 456,440

7,740 779 (947) (246) 7,326

3,301 315 5,200 (958) (118) 7,740

annual report 2008

Beginning of the year 456,440 Expected return on plan assets 45,739 Actual contributions by / (refunds to) the employer (17,031) Actual benefits paid by the Fund during the year (30,480) Asset Gain / (Loss) 22,498 End of year 477,166

56

Notes to and Forming Part of the Financial Statements for the year ended June 30, 2008

2008 8.6

The principal actuarial assumptions used were as follows: Discount rate Expected return on plan assets Future salary increases Future pension increases

8.7

2007

12% 12% 12% 7%

10% 10% 10% 5%

Comparision for five years 2008

2007

2006 2005 (Rupees in thousand)

2004

MANAGEMENT PENSION FUND Present value of defined benefit obligation Obligation to Company Fair value of plan assets Surplus / (deficit) Experience loss on obligation Experience (loss) / gain on plan assets

(523,037) 477,166 (45,871)

(451,412) 456,440 5,028

(424,303) 421,475 (2,828)

(377,061) 351,129 (25,932)

(315,022) (8,522) 311,579 (11,965)

39,972 22,498

1,750 (2,408)

11,722 8,474

44,420 35,602

22,764 26,710

(23,622) 7,326 (16,296)

(20,769) 7,740 (13,029)

(24,634) 3,301 (21,333)

(20,709) 4,095 (16,614)

(22,618) 4,737 (17,881)

1,062 (246)

(5,951) (118)

2,472 (189)

3,335 (164)

3,158 (171)

(53,564) 61,565 8,001

(48,544) 55,871 7,327

(48,401) 48,165 (236)

(39,985) (8,162) 39,695 (8,452)

(33,233) (2,134) 33,927 (1,440)

NON-MANAGEMENT PENSION FUND Present value of defined benefit obligation Fair value of plan assets Deficit Experience (gain) / loss on obligation Experience (loss) / gain on plan assets MANAGEMENT GRATUITY FUND Present value of defined benefit obligation Obligation to Company Fair value of plan assets Surplus / (deficit) Experience (gain) / loss on obligation Experience gain on plan assets

6,198 267

(240) 3,816

3,729 4,424

4,856 3,230

3,398 2,551

(7,654) (2,071) 34,425 24,700

(6,120) (2,071) 31,325 23,134

(8,283) (2,071) 25,654 15,300

(5,954) (2,071) 21,427 13,402

(8,852) (1,395) 18,019 7,772

454 (29)

(3,454) 3,467

1,326 2,361

(56) 1,892

725 1,518

pakistan refinery limited

NON-MANAGEMENT GRATUITY FUND

57

Present value of defined benefit obligation Obligation to Company Fair value of plan assets Surplus Experience (gain) / loss on obligation Experience gain on plan assets

Notes to and Forming Part of the Financial Statements for the year ended June 30, 2008

8.8

Plan assets comprise the following: PENSION FUNDS Management Non-Management 2008 2007 2008 2007 Equity Debt Others

47.5% 50.1% 2.4% 100%

6.6% 92.5% 0.9% 100%

40.5% 0.0% 59.5% 100%

0.0% 96.9% 3.1% 100%

GRATUITY FUNDS Management Non-Management 2008 2007 2008 2007 15.0% 78.7% 6.3% 100%

0.6% 93.9% 5.5% 100%

19.8% 70.2% 10.0% 100%

0.7% 99.3% 0.0% 100%

The average life expectancy of a pensioner retiring at age 60 on the balance sheet date is as follows: 2008

2007 Years

Male Female

16.8 21.2

16.8 21.2

17.8 21.7

17.8 21.7

The average life expectancy of a pensioner retiring at age 60, 20 years after the balance sheet date is as follows: Male Female 8.9

During the year, Company recognised Rs 9.99 million (2007: Rs 7.83 million) as contribution for employees’ provident fund. 2008

2007 (Rupees in thousand)

9.

10.

STORES, SPARES AND CHEMICALS Stores Spares Chemicals

29,769 218,569 16,050 264,388

23,634 214,347 16,406 254,387

Provision for slow moving stores, spares and chemicals

(30,963) 233,425

(25,016) 229,371

6,589,352 2,512,757 9,102,109

3,279,878 1,827,903 5,107,781

STOCK-IN-TRADE annual report 2008

Raw material Crude oil [including in transit Rs 912.8 million (2007: Rs 38.50 million)] Finished products

58

Notes to and Forming Part of the Financial Statements for the year ended June 30, 2008

2008

2007

(Rupees in thousand) 11.

TRADE DEBTS – considered good Due from related parties – note 11.1 Others

7,732,582 2,695,239 10,427,821

4,125,393 664,369 4,789,762

11.1

These represent receivables from Pakistan State Oil Company Limited, Shell Pakistan Limited, Chevron (Pakistan) Limited and Pak Arab Refinery Company Limited, and are in the normal course of business.

12.

LOANS AND ADVANCES – considered good 2008

2007

(Rupees in thousand) Loans and advances recoverable within one year – note 7 Executives Other employees Advances for supplies and services

13.

3,506 6,799 10,305 8,490 18,795

3,221 6,248 9,469 12,970 22,439

914 47,930 48,844

664 48,427 49,091

2,900 2,071 14,543 -

1,876 2,071 7,606 2,915

1,666 21,180

1,423 15,891

ACCRUED INTEREST / MARK UP This represents interest accrued on term deposits.

14.

TRADE DEPOSITS AND SHORT-TERM PREPAYMENTS Trade deposits Short-term prepayments

15.

OTHER RECEIVABLES

pakistan refinery limited

Receivable from related parties Provident Fund Non-management staff gratuity fund Insurance commission receivable Workers' profits participation fund – note 22.5 Others [including Rs 1.02 million (2007: Rs 1.02 million) receivable from related parties]

59

16.

TAX REFUNDS DUE FROM GOVERNMENT - SALES TAX Refundable from Government Payable to Government

1,310,150 (1,121,998) 188,152

1,476,306 1,476,306

The Federal Government, through S.R.O. 1164(I)/2007 dated November 30, 2007 has directed that sales tax shall be charged at the rate of zero percent on Petroleum Crude Oil. Sales tax refund due from Government represents the refunds due before the said change.

Notes to and Forming Part of the Financial Statements for the year ended June 30, 2008

2008 2007 (Rupees in thousand) 17.

INVESTMENTS Financial assets at fair value through profit and loss Investment in open ended mutual fund - held for trading 3,537 (2007:1,830,198) units of United Money Market Fund

18.

365

201,769

1,881,055 570,100 189,695 5,265 2,646,115

13,350 652,082 1,027,794 5,051 1,698,277

CASH AND BANK BALANCES With banks on current accounts savings accounts term deposits Cash and cheques in hand

As at June 30, 2008 the effective rates of mark-up on savings accounts and term deposits range from 6% to 9% per annum (2007: 0.50% to 12% per annum). Maturity of term deposits ranges from 7 days to 89 days (2007: 2 days to 89 days). 2008

2007

(Rupees in thousand) 19.

SHARE CAPITAL Authorised 40,000,000 'A' ordinary shares of Rs. 10 each 60,000,000 'B' ordinary shares of Rs. 10 each

400,000 600,000 1,000,000

400,000 600,000 1,000,000

‘A’ ordinary shares fully paid in cash

24,000

24,000

‘B’ ordinary shares fully paid in cash

36,000 60,000

36,000 60,000

116,000

96,000

174,000 290,000 350,000

144,000 240,000 300,000

Issued, subscribed and paid-up ordinary shares of Rs 10 each 2007 2007 2,400,000

3,600,000 6,000,000 11,600,000

3,600,000 6,000,000 9,600,000

17,400,000

14,400,000

29,000,000 35,000,000

24,000,000 30,000,000

‘A’ ordinary shares issued as fully paid bonus shares ‘B’ ordinary shares issued as fully paid bonus shares

annual report 2008

2008 2008 2,400,000

60

Notes to and Forming Part of the Financial Statements for the year ended June 30, 2008

2008

2007

Number of shares (In thousand) 19.1

Reconciliation of number of ordinary shares outstanding At the beginning of the year Issue of 1 bonus share for every 6 (2007: 5) shares held - Note 19.2 At the end of the year

19.2

30,000 5,000 35,000

25,000 5,000 30,000

Issue of bonus shares The Company made a bonus issue of 16.67% (i.e. one bonus share for every six shares held) accumulating to Rs 50 million out of the reserves available as at December 31, 2007 in its extraordinary general meeting held on March 17, 2008.

19.3

As at June 30, 2008 the number of ordinary shares held by associates was 21,012,250 shares of Rs 10 each (2007: 18,009,580 shares).

20.

SPECIAL RESERVE This represents the reserve created under the Ministry of Petroleum and Natural Resources’ (the Ministry) directive making the new tariff protection formula applicable to the Company, as described in note 2.17(c). This amount is not available for distribution to shareholders. The Ministry through its directive further clarified that the refineries can distribute dividend out of net profit after tax up to a maximum of 50% of the paid-up capital of the company as at the date of applicability of the tariff protection formula i.e. July 1, 2002 and the remaining amount should be transferred to the Special Reserve. 2008

2007

(Rupees in thousand) 21.

DEFERRED TAXATION

pakistan refinery limited

Debit / (credit) balance arising in respect of temporary differences: - stores, spares and chemicals - property, plant and equipment - investment in associate - old outstanding liabilities offered for tax - excess of minimum tax over normal tax

61

9,320 (58,232) (20,081) 28,951 (40,042)

8,756 (7,852) (5,320) 42,999 38,583

Notes to and Forming Part of the Financial Statements for the year ended June 30, 2008

2008

2007

(Rupees in thousand) 22.

TRADE AND OTHER PAYABLES Creditors – note 22.1, 22.2 Accrued liabilities Advances from Customers – note 22.1 Payable to the Government – note 22.3 and 22.4 Retention money Workers' profits participation fund – note 22.5 Workers' welfare fund Unclaimed dividend Tax deducted at source Others

22.1

13,177,426 207,657 7,452 2,340,889 4,245 23,381 117,035 18,371 988 7,314 15,904,758

7,796,524 196,228 127,483 1,346,764 3,969 44,263 18,971 2,033 987 9,537,222

2,468,750 3,211

1,045,451 20,014

Related party balances Creditors Advances from customers

}

note 22.1.1

22.1.1

These include payables to Pak Arab Refinery Company Limited, and advances from Pakistan State Oil Company Limited, Shell Gas LPG (Pakistan) Limited and Chevron (Pakistan) Limited.

22.2

These include Rs 1.41 billion (2007: Rs 679.47 million) representing amount payable in respect of local crude supplies exceeding the maximum slab rates for calculation of discount to Government of Pakistan (GoP) as provided in the respective Crude Oil Sale and Purchase Agreements (COSAs). The Ministry of Petroleum and Natural Resources (MoP & NR) through its directive dated December 17, 2005, instructed the refineries to withhold such payments until the matter is resolved among the parties to the above agreements. A directive was issued by MoP & NR dated December 4, 2007 requiring the amounts above the maximum slab rates to be equally distributed to the GoP and Oil Exploration Companies (E&Ps). However, payments of such amounts have again been directed to be withheld through notification dated March 7, 2008 in case E&Ps do not get the supplement COSAs signed till May 10, 2008. Further, an amount of Rs 523.9 million (2007: Rs 279.35 million) has been withheld on amounts of COSAs not finalised under the directive of MoP & NR. Under the directives of MoP & NR dated May 31, 2006 and December 23, 2006 respectively, the amounts being withheld as mentioned above are required to be kept at 90 days interest bearing deposits, to be paid with the principal amount when the matter is finalised. As also discussed in 22.2, the balance includes Rs 1.25 billion (2007: Rs 679.47 million) representing amount payable in respect of local crude supplies exceeding the maximum slab rates provided in respective COSAs. These amounts are also required to be kept at 90 days interest bearing deposits to be paid with the principal amount when the matter is finalised.

22.4

The balance is net of Rs 410.92 million (2007: Rs 134 million) receivable from the Government of Pakistan in respect of price differential claims. Such claims resulted from restricting the ex-refinery prices charged by the Company to the oil marketing companies on instructions from the MoP & NR.

annual report 2008

22.3

62

Notes to and Forming Part of the Financial Statements for the year ended June 30, 2008

2008

2007

(Rupees in thousand) 22.5

WORKERS’ PROFITS PARTICIPATION FUND Balance as at July 1

(2,915)

21,515

Allocation for the year

171,296

27,106

Interest on funds utilised in Company's business

168,381

464 49,085

(145,000) (145,000)

(30,000) (22,000) (52,000)

23,381

(2,915)

Amount paid to Trustees Government

Balance as at June 30 23.

SHORT-TERM BORROWINGS Running finance under mark-up arrangements The running finance facilities available under mark-up arrangements from various banks amounted to Rs 9.05 billion (2007: Rs 2.57 billion). The arrangements are secured by way of hypothecation over stock of crude oil and finished products and trade debts of the Company. The rates of mark-up range between 9.23% to 13.88% per annum as at June 30, 2008 (2007: 9.12% to 11.5% per annum). The purchase prices are payable by September 2008.

23.1

Unutilised credit facility

pakistan refinery limited

The facility for opening letters of credit and guarantees as at June 30, 2008 amounted to Rs 18.89 billion (2007: Rs 13.29 billion) of which the amount remaining unutilised at year end was Rs 14.53 billion (2007: Rs 11.4 billion).

63

24.

CONTINGENCIES AND COMMITMENTS

24.1

The Company has to-date raised claims to certain oil marketing companies (OMCs) in respect of late payments against sales receivables cumulating to Rs 363.64 million. However, these have not been recognised in the financial statements as these have not been acknowledged by the OMCs in view of their contention that delays in making payments is attributed to their non-receipts from the Government of Pakistan.

24.2

Bank guarantees of Rs 369.36 million (2007: Rs 30.9 million) were issued in favour of third parties.

24.3

Aggregate commitments for capital expenditure as at June 30, 2008 amounted to approximately Rs 33.2 million (2007: Rs 18.89 million).

Notes to and Forming Part of the Financial Statements for the year ended June 30, 2008

24.4

Commitments for rentals under lease agreements amounted to Rs 38.47 million (2007: Rs 32.19 million), payable as follows: 2008

2007

(Rupees in thousand) Not later than 1 year Later than 1 year but not later than 5 years

25.

11,901 26,573 38,474

9,477 22,717 32,194

107,300,775

67,385,920

SALES Gross sales – note 25.1 and 25.2 Less: - Sales tax - Excise duty and development levy / surcharge

(10,811,924) (924,845) 95,564,006

(7,681,796) (2,300,059) 57,404,065

25.1

These include price differential claims from the Government amounting to Rs 514.78 million (2007: Rs 86.21 million).

25.2

Sales pertaining to the year are based on prices notified by OGRA which are subject to policy clarification from the Federal Government. Any subsequent adjustment arising therefrom shall be accounted for as and when the said policy is finalised.

annual report 2008

64

Notes to and Forming Part of the Financial Statements for the year ended June 30, 2008

26.

OPERATING COST Administrative Distribution cost expenses 2008 2007 2008 2007 (Rupees in thousand)

Cost of sales 2008 2007

Crude oil consumed - note 26.1 Stores, spares and chemicals Consultancy Transportation and handling charges Fuel, power and water

56,317,752 148,919 10,078

-

-

-

249,723

247,794

13,846 6,401

3,000 6,390

1,640

1,793

13,846 257,764

3,000 255,977

Salaries and wages Retirement benefits Repairs and maintenance

218,626 25,320 60,611

198,210 30,004 92,638

14,774 2,204 12,457

17,230 2,020 15,530

76,357 7,252 1,796

58,057 6,921 2,088

309,757 34,776 74,864

273,497 38,945 110,256

Insurance Staff transport Lease rentals Depreciation Amortisation of intangible Travelling and entertainment Subscription

33,017 12,384 6,090 120,066 7,352 15,471 4,569

34,730 9,742 4,123 115,035 613 4,753 4,888

12,655 1,838 168 11,815 1,206 3,604

12,580 1,549 326 11,408 405 2,916

3,519 4,449 4,617 11,950 10,858 2,252

3,946 4,362 4,154 5,667 8,794 2,395

49,191 18,671 10,875 143,831 7,352 27,535 10,425

51,256 15,653 8,603 132,110 613 13,952 10,199

13,457 7,372 -

19,485 7,210 -

43,262 4,414 -

12,628 2,812 -

828 2,561 4,680

2,461 4,247

56,719 12,614 2,561 4,680

32,113 10,022 2,461 4,247

-

-

-

-

7,144 6,660 408

4,929 5,353 272

7,144 6,660 408

4,929 5,353 272

-

-

756 129,400

640 89,434

5,639 3,120 516,889 25,524 698,143

license expenses Communication Directors' fee Legal and professional charges

Auditors' remuneration - note 26.2 Refinery upgradation studies - note 26.3 Other expenses 12,712 8,722 Cost of goods manufactured 91,917,094 57,254,696 Opening stock of finished products 1,827,903 1,201,321 Closing stock of finished products (2,512,757) (1,827,903) 91,232,240 56,628,114

pakistan refinery limited

65

2007

91,019,969 106,127 4,228

Rent, rates and taxes Security expenses Publicity Printing and stationery Computer related and software

26.1

Total 2008

Crude oil consumed Opening stock Purchases Discount to Government Closing stock

3,279,878 92,980,134 1,349,309 (6,589,352) 91,019,969

2,642,301 56,086,782 868,547 (3,279,878) 56,317,752

- 91,019,969 56,317,752 106,127 148,919 4,228 10,078

4,861 5,639 4,861 3,694 3,120 3,694 516,889 10,983 38,992 20,345 134,977 92,744,637 57,479,107

Notes to and Forming Part of the Financial Statements for the year ended June 30, 2008

2008

2007

(Rupees in thousand) 26.2

Auditors' remuneration Audit fee Taxation services Limited review, special reports and certifications, consultation services and audit of staff retirement funds Out of pocket expenses

26.3

600 625

550 1,500

1,630 265 3,120

1,394 250 3,694

Refinery upgradation studies These represent costs incurred in respect of planning phase and other related studies for future upgradation of refinery. 2008

2007

(Rupees in thousand) 27.

OTHER OPERATING EXPENSES Donations - note 27.1 Workers' profits participation fund Workers' welfare fund

27.1

8,110 171,296 72,771 252,177

8,855 27,106 10,291 46,252

Donations Donations include the following in which a director, Mr. Farooq Rehmatullah is interested: Interest in Donee Member Resource Development Committee

28.

Name and address of Donee Aga Khan University Hospital Stadium Road, Karachi

300

1,000

111,013 8,586

37,187 2,444

11

1,769

12,026 14,643 643 43 82,902 1,030 230,897

10,050 7,606 7,250 1,442 5,998 73,746

OTHER INCOME

annual report 2008

Income from financial assets Profit on savings accounts and term deposits Gain on redemption of open ended mutual fund units Gain on re-measurement of fair value of open ended mutual fund units Others Rent of equipment, storage and handling charges [including Rs. 2.61 million (2007: Rs 1.58 million) from related parties] Insurance commission Sale of scrap Gain on disposal of fixed assets Exchange gain - net Others

66

Notes to and Forming Part of the Financial Statements for the year ended June 30, 2008

2008

2007

(Rupees in thousand) 29.

FINANCE COSTS Mark-up on running finance under mark-up arrangements Interest on amounts withheld against purchases of local crude oil under directives of MoP & NR - notes 22.2 and 22.3 Exchange loss - net Interest on workers' profits participation fund Bank charges

30.

81,196

76,638

167,908 3,943 253,047

3,300 464 1,316 81,718

1,153,180 (9,306) 1,143,874

288,440 (34,989) 253,451

Accounting profit

3,254,618

504,265

Tax at the applicable tax rate of 35% Expenses not deductible for tax purposes Income not subject to tax Effect of applicability of final tax Tax expense for the year

1,139,116 43,628 (3,009) (35,861) 1,143,874

176,493 24,295 (1,475) 54,138 253,451

Profit after taxation attributable to ordinary shareholders

2,110,744

250,814

Number (in thousand) of ordinary shares of Rs 10 each issued and subscribed at the end of the year

35,000

35,000

Rs. 60.31

Rs. 7.17

TAXATION Current - for the year Deferred

30.1

31.

Relationship between tax expense and accounting profit

EARNINGS PER SHARE

Basic earnings per share

For the purposes of calculating earnings per share, number of ordinary shares outstanding as at June 30, 2007 has been increased to reflect the bonus shares issued during the year.

pakistan refinery limited

There were no dilutive potential ordinary shares in issue as at June 30, 2007 and 2008.

67

Notes to and Forming Part of the Financial Statements for the year ended June 30, 2008

32.

REMUNERATION OF DIRECTORS, CHIEF EXECUTIVE AND EXECUTIVES The aggregate amounts of remuneration including all benefits to Directors, Chief Executives and Executives of the Company are as follows:

Directors

Fees Managerial remuneration Leave encashment Bonus Ex gratia allowacne Honorarium Retirement benefits Housing Utilities Leave passage Club memberships Others

408 600 36 36 1,044

Number of persons

10

2008 2007 Chief Executives Directors Chief Executives Executives Executives (Rupees in thousand)

3,625 1,820 2,094 1,457 789 1,631 362 1,135 1,048 436 4,612 14,397

44,982 915 9,810 9,623 17,920 4,156 5,004 5,224 13,015 45,319 110,649

2*

42

272 113 600 36 36 1,021 10

3,003 1,324 1,018 1,351 300 348 72 2,071 7,416

42,365 1,747 13,279 2,744 12,882 15,863 3,732 4,260 1,515 3,630 29,000 102,017

1

36

One director, the Chief Executive and certain executives of the Company are provided with free use of cars and household equipments. * During the year Mr. Zafar Haleem completed his tenure as Chief Executive and Mr. Ijaz Ali Khan took over the position. 2008

2007

(Rupees in thousand) 33.

TRANSACTIONS WITH RELATED PARTIES Nature of transaction

(i)

Associated companies

Dividend received Sale of goods Sale of services Purchase of goods Purchase of services

8,504 75,959,940 2,608 27,921,379 3,079

6,803 44,796,012 1,580 17,005,260 13,297

(ii)

Entities whose directors and that of the Company have been appointed by the same person(s) Sale of goods Purchase of services

505,756

1,206,089 6,060

Sale of certain products is transacted at prices fixed by the Oil & Gas Regulatory Authority. Other transactions with related parties are carried out on commercially negotiated terms.

annual report 2008

Relationship

68

Notes to and Forming Part of the Financial Statements for the year ended June 30, 2008

2008

2007

(Rupees in thousand) (iii)

Key management compensation: Salaries and other short-term employee benefits Post-employment benefits

39,171 2,884 42,055

43,722 6,115 49,837

The status of outstanding balances in respect of related parties as at June 30, 2008 is included in trade debts, other receivables and trade and other payables. 34.

CAPACITY AND ACTUAL PERFORMANCE Against the designed nominal annual capacity of 2,133,705 metric tons, the actual throughput during the year was 2,123,145 metric tons (2007: 1,978,563 metric tons).

35.

FINANCIAL INSTRUMENTS

35.1

Financial assets and liabilities Interest / mark-up bearing Non-interest bearing Maturity Maturity Total Maturity Maturity Total up to after one up to after one one year year one year year (Rupees in thousand)

Total

FINANCIAL ASSETS Loans to employees Deposits Trade debts Accrued interest / mark-up Other receivables Financial assets at fair value through profit and loss

10,043 2,348,574

13,533 -

23,576 2,348,574

262 914 8,079,247

55 14,012 -

-

-

-

47 21,180

-

-

-

-

365

-

Cash and bank balances

759,795 3,118,412 1,686,862

13,533 8,976

759,795 3,131,945 1,695,838

1,886,320 9,988,335 5,022,820

14,067 4,854

1,886,320 2,646,115 10,002,402 13,134,347 5,027,674 6,723,512

3,185,629

-

3,185,629

12,570,273

-

12,570,273 15,755,902

pakistan refinery limited

2008 2007

69

317 23,893 14,926 14,926 8,079,247 10,427,821 47 21,180

47 21,180

365

365

FINANCIAL LIABILITIES Trade and other payables Accrued interest / mark-up 2008 2007

-

-

-

77,558

-

3,185,629 1,358,932

-

3,185,629 1,358,932

12,647,831 8,003,480

-

77,558

77,558

12,647,831 15,833,460 8,003,480 9,362,412

Notes to and Forming Part of the Financial Statements for the year ended June 30, 2008

35.2

Financial risk management objectives and policies The Company's objectives when managing capital are to safeguard the Company's ability to continue a going concern in order to provide returns for shareholders and benefit for other stakeholders. However, as also mentioned in note - 2.17, the Company operates under tariff protection formula whereby profits after tax in excess of 50% of the paid up capital as of July 1, 2002 are diverted to special reserve. Taken as a whole, risk arising from the Company's financial instruments is limited as there is no significant exposure to price and cash flow risk in respect of such instruments.

(i)

Concentration of credit risk Credit risk represents the accounting loss that would be recognised at the reporting date if counterparties failed to perform as contracted. The financial assets that are subject to credit risk amount to Rs 13.09 billion (2007: Rs 6.5 billion). The Company believes that it is not exposed to any major credit risk as it operates in an essential products industry and has as its customers only a few sound organisations.

(ii)

Foreign exchange risk Foreign currency risk arises mainly when payables exist due to transactions in foreign currencies. Amounts exposed to such risk included in creditors are Rs 5.23 billion (2007: Rs 2.82 billion). The Company believes that it is not materially exposed to foreign exchange risk as its product prices are linked to the currency of its imports.

(iii)

Liquidity Risk The Company manages liquidity risk by maintaining sufficient cash balances and the availability of financing through banking arrangements.

(iv)

Fair values of financial assets and liabilities The carrying values of all financial assets and liabilities reflected in the financial statements approximate their fair values.

annual report 2008

70

Notes to and Forming Part of the Financial Statements for the year ended June 30, 2008

2008

2007 (Rupees in thousand)

36.

CASH FLOW FROM OPERATING ACTIVITIES Profit before taxation Adjustments for non-cash charges and other items Depreciation / amortisation Share of income of associate Gain on disposal of property, plant and equipment Profit on deposits Mark-up expense Provision for slow moving stores and spares Unrealised gain on revaluation of investments at fair value through profit and loss Provision for defined benefit retirement plans Working capital changes – note 36.1 Cash generated from operations

36.1

Increase in trade and other payables

pakistan refinery limited

151,183 (24,722) (43) (111,013) 249,104 5,947

132,723 (6,949) (1,442) (37,187) 76,638 -

(11) 24,784 295,229 (1,954,384) 1,595,463

(1,769) 31,117 193,131 (694,613) 2,783

(10,001) (3,994,328) (5,638,059) 3,644 247 (5,289) 1,288,154 201,415 (8,154,217) 6,199,833 (1,954,384)

53,426 (1,264,159) (1,104,691) 3,413 6,934 (12,359) (642,635) (197,801) (3,157,872) 2,463,259 (694,613)

2,646,115

1,698,277

CASH AND CASH EQUIVALENTS Cash and bank balances

71

504,265

Working capital changes (Increase) / decrease in current assets Stores, spares and chemicals Stock-in-trade Trade debts Loans and advances Trade deposits and short-term prepayments Other receivables Tax refunds due from Government - Sales tax Investments

37.

3,254,618

Notes to and Forming Part of the Financial Statements for the year ended June 30, 2008

38.

CORRESPONDING FIGURES Previous year's figures are re-arranged and re-classified wherever necessary for the purpose of comparison. Major changes made for better presentation during the year are as follows: Note

Reclassification from component Trade debts - others Trade debts - Related parties

11 11

Note 11 22

Reclassification to component Trade debts - Related parties Trade and other payables - creditors

(Rupees in thousand) 2,922 10,297

Reclassifications due to directives of MoP & NR in relation to local crude purchases are as follows: Note 22

39.

Reclassification from component Trade and other payables - creditors

Note 22

Reclassification to component Trade and other payables - payable to government

(Rupees in thousand) 679,466

PROPOSED DIVIDEND The Board of Directors in their meeting held on August 21, 2008 have proposed a cash dividend of Rs 1.42 per share accumulating to a total of Rs 50 million, that has not been accounted for in these financial statements.

40.

DATE OF AUTHORISATION These financial statements were authorised for issue on August 21, 2008 by the Board of Directors of the Company.

41.

EVENT OCCURRING AFTER THE BALANCE SHEET DATE Subsequent to the year end, the Government has changed the pricing formula of certain products including reduction in deemed duty impacting future selling prices of the products.

Farooq Rahmatullah

Ijaz Ali Khan

Chairman

Chief Executive

annual report 2008

72

PAKISTAN REFINERY LIMITED P.O. Box 4612, Korangi Creek Road, Karachi-74900, Pakistan. Tel: (92-21) 5122131-40, Fax: (92-21) 5060145, 5091780 Email: [email protected] Website: http://www.prl.com.pk