Corporate Governance Introduction

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1 Stakeholder Analysis of Pakistan State Oil

The work on this report projects the emphasis on the need of Stake holder’s analysis of the organization, For this purpose we have chosen the Pakistan state oil, The Stakeholder Audit was part of this report, We have audited the stakeholders of Pakistan State oil in conjunction to the information available in its annual report of 2007.Other sources of the information were the company information on its web portal. The key part was complex that finding all the information from the data available was tough task for us. But we honestly work with all the available information available and made the analysis of the company in compliance to the good Corporate Governance practice and procedures.

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Corporate Governance Pakistan State Oil

2 Stakeholder Analysis of Pakistan State Oil

The Pakistan state Oil is the largest oil marketing company in Pakistan with the annual turnover of over $ 6.8 billion with the marketing share of 80 % in black oil and 59% in white oil market in Pakistan. Pakistan State Oil is an organization with market capitalization of around $ 1 billion with the winner of award of Karachi stock Exchange top Companies Award .It is also the Pakistan first public sector company to become the member of World Economic Forum it has about 3700 retail outlets across the country with vast infrastructure of 9 installation and 23 depots ranging from south of Pakistan to the north, It maintains the strong supply chain with tank lorry fleet and railway wagons. The company is full aware of its corporate social responsibility and takes it as a continuous process of improvement .The Company has always been in the forefront of humanitarian efforts, like health, education and welfare and women empowerment. Mission “We are committed to leadership in energy market through competitive advantage in providing the highest quality petroleum products and services to our customers “. Core Values The core values of Pakistan State Oil are “Excellence, Cohesiveness, Respect, Integrity, Innovation, andCorporate Responsibility.”

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Corporate Governance Company Information Board of Management

3 Stakeholder Analysis of Pakistan State Oil

1. Pervaiz Kausar Chairman, Board of management, Paksitan State Oil 2. Jalees Ahmed Siddique Managing Director and CEO, Pakistan State Oil 3. Shaukat Hayat Durrani Additional Secretary, Ministry of Petroleum & Natural Resources 4. Mehmood Akhtar Joint Secretary (Budget), Ministry Of finance 5. Tariq Kirmani Former Chairman & CEO, Pakistan International Airlines Corporation 6. Tariq Iqbal Khan Chairman & Managing Director, National Investment Trust Limited 7. Istaqbal Mehdi Managing Director, Pak Kuwait Investment Company 8. Muhammad Yasin Malik Chairman, Hilton Pharma (Pvt.) limited 9. Kamran Mirza Chairman, Export Processing Zones Authority, Pakistan 10. Arshad Said Former Senior Executive, Shell Pakistan Secretary 1. Syed Hassan Sikoh Auditors 1. A.F.Fergosun & Co. 2. Ford Rhodes Sidat Hyder & Co. Solicitors 1. Orr Dignam & Co.

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Corporate Governance Stake holder’s Analysis Stakeholder

4 Stakeholder Analysis of Pakistan State Oil

Stakeholders in a process are actors (persons or organizations) with a vested interest in the policy being promoted. These stakeholders, or “interested parties,” can usually be grouped into the following categories: international/donors, national political (legislators, governors), public (ministry of health [MOH], social security agency, ministry of finance), labor (unions, medical associations), and commercial/private for-profit, nonprofit (nongovernmental organizations [NGOs], foundations), civil society, and users/consumers. Characteristics of Stakeholders The analysis includes such stakeholder characteristics as knowledge of the policy, interests related to the policy, position for or against the policy, potential alliances with other stakeholders, and ability to affect the policy process (through power and/or leadership). Analysis of Pakistan State Oil Stakeholders are the primary concern of every publicly listed and responsible organization. In conjunction to this providing relevant information about the organization timely and regularly is the important issue. Many companies follow the corporate governance principles and procedures listed by Security and Exchange Commission of Pakistan to provide the timely and relevant information in the form of its annual report by using the company public relation department and its web portal to convey the information. The Pakistan State Oil is a public sector organization to which the corporate governance principles and procedures are very important. We analyze the following Stakeholders 1. 2. 3. 4. 5. 6. 7. 8. 9. Shareholders Customers Employees Creditors Directors Society Competitors Government International Organizations

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Corporate Governance Analysis of Shareholders

5 Stakeholder Analysis of Pakistan State Oil

The board of management of Pakistan State Oil Co. Ltd (PSO) has recently issued its thirty first annual report and audited financial statements of the company and in its report to shareholders. It emphasizes on the structure of the organization its working, its capital, petroleum industry overview, marketing activities, total quality management tools used by PSO. The supply, logistics, information technology uses has been widely and truly presented to the shareholders. The following corporate and financial reporting framework has been followed by PSO board of management is fully responsible towards the board of good corporate governance issued by SECP. 1. The financial statements, prepared by the management of the company, present fairly its state of affairs, the result of its operations, cash flows and changes in equity. 2. Proper books of account of the company have been maintained. 3. Appropriate accounting policies have been consistently applied in preparation of financial statements and accounting estimates are based on reasonable and prudent judgment. 4. International accounting standards, as applicable in Pakistan, have been followed in preparation of financial statements and departure, if any, has been adequately disclosed. 5. The system of internal control is sound in design and has been effectively implemented and monitored. 6. There are no significant doubts upon the company’s ability to continue as a going concern. 7. There has been no material departure from the best practices of corporate governance, as detailed in the listing regulations. 8. The key operating and financial data of last ten years is summarized in the report. 9. During the year, eight meetings of the Board of Management were held and the attendance by each member is listed in annual report.

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Corporate Governance Analysis of Customers

6 Stakeholder Analysis of Pakistan State Oil

To add value to its customers experience PSO introduced Green Station concept in 2007 to incorporate state-oil-of-the-art technology in its new vision retail outlet system so that customers may enjoy the world class user-friendly retail environment while fueling their vehicles. With this concept, the company is heading towards environmental-friendly, maintenance-free retail outlets with substantial savings in the years to come. The Green concept will enhance visibility and brand image by creating an overall soothing aura to attract customers in the most convenient style. Yet another initiative successfully implemented in the current financial year was the introduction of auto Car Wash System at various outlets jto provides quick service to customers on the go. A number of joint promotions and alliances, involving some of the leading entities in their specialized segments, were also run to further facilitate our consumers. PSO currently has a network of around 200 Shop Stops nation-wide, 33 Business Centers providing electronic services such as fax, photocopying, e-mail and pay phone services. This is complemented by approximately 1,150 internet Kiosks aimed at promoting the use of Information Technology throughout Pakistan. Since the introduction of PSO Fleet & Corporate Cards, the customer base has been growing at a steady pace and now over 5,000-strong clientele enjoys the benefit of convenience and savings for over 80,000 vehicles on a daily basis. Earlier, PSO had provided the value-added Fleet Management Solution (FMS) for Fleet & Corporate Card customers. The facility was relaunched during 2007 with enhanced functionality. Another momentous accomplishment for PSO has been the exceptional performance of Prepaid Cards, with an exuberant upsurge of 100% in its sales figure hitting a highest sale ever, in February 2007. During 2007, new denominations of RS 1,000 and Rs 10,000 were introduced for a different niche of customers. ISO 9001-2000 Certification is recognition of the systems put in place by PSO Cards. PSO introduced yet another convenience for its customers in collaboration with SSGC: “Easy Pay” for gas bills at PSO outlets. The round-the-clock outlets are operating in Sindh and Balouchistan. After the successful launch of PSO Road Miles Card with UBL in 2005, another strategic alliance was established in the form of PSO-UBL CO-branded Credit Card. Analysis of Employees For employees PSO has been investing in the development of its human resource through training, skills development and performance management and has found success in aligning business goals with those of human resource. The transparent recruitment system implemented in 2007, following in the wake of thorough right-sizing, has resulted in a positive change enabling the organization to meet the challenges of an increasingly competitive business environment. The company’s focus on attracting and retaining capable qualified employees has paid off. Various multi-dimensional efforts have led to

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Corporate Governance

7 Stakeholder Analysis of Pakistan State Oil

an ever-improving image in the job market. The company now has more than half of its management employees professionally qualified as compared to one-in-five in the year 2000, while the below-30 employee group has increased four-fold to over 16%. With a focus on creating an enthusiastic team, the company gives greater value to the dedication and motivation of its workforce to help them perform better. It aims at motivating employees through proper placement, job rotation, employee recognition and appreciation, performance based rewards, two-way communication and enhancing capabilities of people. The Managing Director’s award went, for the first time, to a semi-skilled worker in the operations department for unearthing attempts at product pilferage thus averting any possibility of huge financial loss to the company. Organizational health surveys are also now a regular feature to get employees candid feedback on business systems and strategies. In 2007, an employee motivation survey was conducted by an external consultant, Ferguson Associates (Pvt.) Ltd., which will assist the management in bringing about further improvements in the business and working environment, to improve employee motivation and satisfaction. PSO encourages recreational activities of workforce at all levels. Reactivation of PSO Club during 2007 was a major step in providing assistance to employees for their mental and physical health as well as for their social activities. Sports and recreational activities are organized through this forum where employees and their families are encouraged to participate. PSO has adopted a Zero Tolerance policy against unethical activities since the introduction of Business Principles and Ethics Policy in January 2004 to which all employees are signatories. The company believes it necessary to continuously renew one’s commitments and resolves to keep the ethics benchmark high. In this regard, the company has re-issued ‘Rules Governing Conduct’ in 2007, acknowledged by all employees. Analysis of Creditors The creditors of Pakistan State Oil are attributed from Government agencies and autonomous bodies. The credit risk of the bodies is mentioned in the annual report 2007 and it amounts to Rs. 202, 092, 57. The creditors risk on liquid fund is limited because the counter parties are banks with reasonably high credit rating. The company attempts to control credit risk by monitoring credit exposures, limiting transactions with specific customers in legally binding contracts. The risk on private sector other than retail sales is covered by legally binding contracts also.

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Corporate Governance Analysis of Directors

8 Stakeholder Analysis of Pakistan State Oil

The company provides its directors to perform the duties and responsibilities in overseeing and in guiding the corporate strategy, which otherwise liable in the following sense,  Maintain the fiduciary relationships in the form of trust  Presentation of books i.e., financial statements with transparent evidence  Maintaining the good relationships and in Good Faith. Analysis of Society Open and transparent business practices, based on ethical values and respect for employees, community and the environment, are at the heart of CSR activities at PSO. Since the introduction of corporate good governance in 2000, PSO is building on uncompromising ethical business practices to reinforce our commitments to customers, employees, suppliers, partners and the community. PSO core values stem from the following socially responsible principles and business practices: • Striving to create a work environment where everyone has an opportunity to fully participate in achieving business success and is valued for his/her distinctive skills, experiences and perspectives • Creating fair value for our stakeholders in ways that are transparent and ethical while conducting our business with uncompromising integrity • Improving the economic conditions of the community in which we work through job creation, business engagement and philanthropy • Preserving and nurturing our heritage • Providing access to healthcare facilities to the under-privileged • Investing in education and e-inclusion programs enabling access to Information Technology Analysis of Competitors Despite of the PSO market share of 59.2% in white oil, (mogas, HSD, kerosene and jet fuel), and 80.1% in the black oil market. It is out performing the industry whose total growth is by sales is 14% only. Being a believer in catering the market needs PSO is responsible organization to its competitors which are multinationals as well as nationals the large competitors of PSO are Shell, Caltex, Total, and Admore. The company believes in the survival of the fittest approach in view of stiff competition and excessive pressures on earning owing to externalities. Being fully aware of competitive pressures, PSO would continue to achieve more cost-effectiveness and operating efficiencies, combined with innovation and access to assured supply sources. With

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Corporate Governance

9 Stakeholder Analysis of Pakistan State Oil

heavy dependence on external supply sources, PSO is reconsidering vertical integration so that its long-term survival can be protected. Analysis of Government as a Stakeholder The Pakistan State Oil is a public sector organization which works under the federal government and follows the code of good corporate governance in Pakistan and also pays their taxes about 2.42 billion rupees annually. Analysis of International Organizations as a Stakeholder International organizations which are stakeholders of PSO to some extent are world economic forum (WEF), world business council for sustainable development. The commitment of a company committed to support ongoing and innovative social and charitable projects in the field of education, health, welfare and women empowerment puts Pakistan State Oil in the forefront of the humanitarian causes and its following of the good corporate governance principles made it a reputable organization in international forum. Statement of Compliance with Corporate governance The Compliance of PSO with Corporate Governance is as follows 1-According to The federal Control Act of the Marketing of Petroleum Products 1974 has the Federal Government has taken over the management of the Company and. A tenmember Board of Management (BOM) including a Managing Director (MD), is appointed by the Federal Government to run the operations of the Company. Under section 6 of the Act, the administration and management of the Company is vested in MD of the Company and the MD shall exercise and perform all the powers and functions of the Board of Directors of the Company. . 2-The members of BOM have confirmed that none of them is serving as a director in more than ten listed companies, including this Company, except Mr. Tariq Iqbal Khan who has been exempted by the SECP of this rule. 3-The Company Confirmed that all the resident members of the BOM 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 or has been declared as a defaulter by that stock exchange. 4- The Company has prepared a 'Statement of Ethics and Business Practices and it has been signed by employees of the Company.

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Corporate Governance

10 Stakeholder Analysis of Pakistan State Oil

5-The BOM has developed a vision/mission statement, overall corporate strategy and significant policies of the Company. A complete record of particulars of significant policies, approved or amended, has been maintained by the company. 6-The powers of the BOM 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, have been taken by the BOM. 7-The meetings of the BOM were presided over by the Chairman and the BOM met at least once in every quarter. Written notices of the BOM meetings, along with agenda and working papers are regularly circulated at least seven days before the meetings. The minutes of the meetings were appropriately recorded and circulated. 8- The members of BOM are well aware of their duties and responsibilities as outlined by corporate laws and listing regulations. 9- The position of CFO, Company Secretary and Head of Internal Audit is not changed, 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. The financial statements of the Company were duly endorsed by CEO and CFO before approval of the BOM. 11-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. 12-The Company has complied with all the corporate and financial reporting requirements of the Code. 13-The BOM has formed an audit committee. It comprises of 4 members, all of whom are non-executive directors. 14-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. 15-The BOM has set-up an effective internal audit function. The statutory auditors of the Company have confirmed that they have been given a satisfactory rating under the quality control review

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