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Corporate Governance Stakeholder Analysis of Pakistan State Oil

Introduction:

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 Stakeholder Analysis of Pakistan State Oil

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 Stakeholder Analysis of Pakistan State Oil

Company Information

Board of Management

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 Stakeholder Analysis of Pakistan State Oil

Stake holder’s Analysis

Stakeholder

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. Shareholders
2. Customers
3. Employees
4. Creditors
5. Directors
6. Society
7. Competitors
8. Government
9. International Organizations

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Corporate Governance Stakeholder Analysis of Pakistan State Oil

Analysis of Shareholders

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 Stakeholder Analysis of Pakistan State Oil

Analysis of Customers

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 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 Stakeholder Analysis of Pakistan State Oil

Analysis of Directors

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 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 ten-
member 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 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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