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report

2008
Contributing to nation's energy needs
with a difference

PAKISTAN REFINERY LIMITED


Balance Sheet
as at June 30, 2008

Note 2008 2007


(Rupees in thousand)

ASSETS
Non-current assets
Fixed assets 4 975,774 930,675
Intangible assets 5 14,091 21,443
Investment in associate 6 58,238 54,077
Long-term loans and advances 7 13,588 10,943
Long-term deposits 14,012 2,887
Deferred taxation - 38,583
Retirement benefit obligations - prepayments 8 9,520 39,809
1,085,223 1,098,417
Current assets
Stores, spares and chemicals 9 233,425 229,371
Stock-in-trade 10 9,102,109 5,107,781
Trade debts 11 10,427,821 4,789,762
Loans and advances 12 18,795 22,439
Accrued interest / mark-up 13 47 7,726
Trade deposits and short-term prepayments 14 48,844 49,091
Other receivables 15 21,180 15,891
Tax refunds due from Government - Sales tax 16 188,152 1,476,306
Investments 17 365 201,769
Cash and bank balances 18 2,646,115 1,698,277
22,686,853 13,598,413
Total assets 23,772,076 14,696,830

EQUITY AND LIABILITIES


Share capital 19 350,000 300,000
Reserves 69,829 129,751
Special reserve 20 6,386,076 4,375,332
6,805,905 4.805,083
LIABILITIES
Non-current liabilities
Retirement benefit obligations 7,078 4,373
Deferred taxation 21 40,042 -
47,120 4,373
Current liabilities
Trade and other payables 22 15,904,758 9,537,222
Accrued interest / mark-up 77,558 1,989
Taxation - provision less payments 936,735 348,163
16,919,051 9,887,374
Total liabilities 16,966,171 9,891,747

Contingencies and commitments 24


pakistan refinery limited

Total equity and liabilities 23,772,076 14,696,830

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

Farooq Rahmatullah Ijaz Ali Khan


Chairman Chief Executive
43
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

Operating profit 3,482,943 579,034

Finance costs 29 (253,047) (81,718)

Share of income of associate 24,722 6,949

Profit before taxation 3,254,618 504,265

Taxation 30 (1,143,874) (253,451)

Profit after taxation 2,110,744 250,814

Earnings per share 31 Rs. 60.31 Rs. 7.17

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

annual report 2008

Farooq Rahmatullah Ijaz Ali Khan


Chairman Chief Executive
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 1,595,463 2,783

Mark-up paid (5,627) (83,431)

Income taxes paid (474,147) (285,894)

Receipts from / (contribution to) defined benefit retirement plans 8,210 (40,288)

Long-term loans and advances (net) (2,645) 288

Long-term deposits (net) (11,125) -

Net cash generated from / (used in) operating activities 1,110,129 (406,542)

CASH FLOW FROM INVESTING ACTIVITIES

Purchase of fixed assets (189,458) (268,919)

Proceeds from sale of fixed assets 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)

CASH FLOW FROM FINANCING ACTIVITIES

Dividend paid (100,600) (78)

Net increase / (decrease) in cash and cash equivalents 947,838 (635,750)

Cash and cash equivalents at the beginning of the year 1,698,277 2,334,027

Cash and cash equivalents at the end of the year 37 2,646,115 1,698,277

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


pakistan refinery limited

Farooq Rahmatullah Ijaz Ali Khan


Chairman Chief Executive
45
Statement of Changes in Equity
for the year ended June 30, 2008

SHARE RESERVES SPECIAL TOTAL


CAPITAL CAPITAL REVENUE FAIR RESERVE
Exchange General Unappropriated VALUE
Equalisation Reserve Profit RESERVE
Reserve

(Rupees in thousand)

Balance as at June 30, 2006 250,000 897 1,050 69,698 5,385 4,224,518 4,551,548

Issue of 1 bonus share for every 5


shares held 50,000 - - (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) - 150,814 -

Balance as at June 30, 2007 300,000 897 1,050 119,698 8,106 4,375,332 4,805,083

Final dividend for the year ended


June 30, 2007 @ Rs. 3.33 per share - - - (100,000) - - (100,000)

Issue of 1 bonus share for every 6


shares held 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) - (9,922)

Transferred to Special Reserve - - - (2,010,744) - 2,010,744 -

Balance as at June 30, 2008 350,000 897 1,050 69,698 (1,816) 6,386,076 6,805,905

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

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

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
pakistan refinery limited

asset.

Adoption of the above amendments, standard and interpretation does not have any effect on the amounts
recognised in these financial statements.

47
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. 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

2.2 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

Investment in associate is accounted for using equity method of accounting and is initially recognised at cost. The
annual report 2008

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.

2.10 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.
pakistan refinery limited

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.

49
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

(a) 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
annual report 2008

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.

50
Notes to and Forming Part of the Financial Statements
for the year ended June 30, 2008

(d) Dividends are recognised when the right of receipt is established.

(e) Income on bank deposits is recognised on accrual basis.

2.18 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 2007

4. FIXED ASSETS (Rupees in thousand)

Property, plant and equipment


Operating assets - note 4.1 776,372 805,841
Capital work-in-progress - note 4.2 199,402 124,834
pakistan refinery limited

975,774 930,675

51
Notes to and Forming Part of the Financial Statements
for the year ended June 30, 2008

4.1 OPERATING ASSETS


TANGIBLE
Leasehold Buildings Processing Korangi Keamari Pipelines Steam Power Water Equipment Fire Vehicles TOTAL
land and on plant tank farm terminal generation generation, treatment including fighting and other
improvements leasehold plant transmission and furniture and tele- automotive
thereon land and cooling communication equipment
distribution system systems
(Rupees in thousand)

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)

Closing net book value 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

Gross carrying value basis


At June 30, 2008

Cost 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
Accumulated depreciation (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)

Net book value 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

Net carrying value basis


Year ended June 30, 2007

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
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)

Depreciation charge (39) (3,127) (71,578) (10,155) (2,893) (7,982) (3,654) (2,501) (5,181) (19,540) (1,287) (4,173) (132,110)

Closing net book value 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

Gross carrying value basis

At June 30, 2007

Cost 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

Accumulated depreciation (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)

Net book value 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

Depreciation rate

% per annum 1 5 to 20 10 to 33 10 5 to 10 10 10 10 10 10 to 33 5 to 10 25
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 Sale Mode of Particulars of


depreciation value proceeds disposal purchaser
(Rupees in thousand)

Net book value exceeding


Rs 50,000:

Equipment including
furniture 148 (59) 89 89 Negotiation Zafar Haleem
Ex-executive

'' '' 79 (21) 58 58 Negotiation Zubair A. Sattar


Ex-executive

'' '' 86 (33) 53 3 Tender Muhammad Saleem


Employee
313 (113) 200 150

Net book value not exceeding


Rs 50,000:

Equipment including
furniture (in aggregate) 2,100 (1,772) 328 421
2,413 (1,885) 528 571

2008 2007
(Rupees in thousand)

4.2 Capital work-in-progress - at cost

Buildings 16,316 17,292


Processing plant 13,680 13,958
Korangi tank farm 92,068 52,454
Keamari terminal 10,135 9,554
Pipelines 3,790 3,455
Power generation, transmission and distribution 7,081 5,996
Water treatment and cooling systems 16,257 5,103
Equipments 11,691 12,806
Fire fighting and telecommunication systems 27,502 4,216
Vehicles and other automotive equipment 882 -
pakistan refinery limited

199,402 124,834

53
Notes to and Forming Part of the Financial Statements
for the year ended June 30, 2008

2008 2007
2008 (Rupees in thousand)
5. INTANGIBLE ASSETS - COMPUTER SOFTWARE

Net carrying value basis

Opening net book value (NBV) 21,443 -


Additions (at cost) - 22,056
Amortisation charge (7,352) (613)
Closing net book value 14,091 21,443

Gross carrying value basis

Cost 33,834 33,834


Accumulated amortisation (19,743) (12,391)
Net book value 14,091 21,443

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 58,238 54,077

6.1 The Company holds 27.26% (2007: 27.26%) of the investee's total
equity.

Opening balance 54,077 50,609


Share of income for the year 24,722 6,949
Change in fair value reserve on account of available
for sale investment (12,057) 3,322
Dividend received (8,504) (6,803)
58,238 54,077
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 229,658 216,655


Total liabilities 15,828 18,061
Revenue 161,944 165,622
Profit after tax 90,689 25,686

7. LONG-TERM LOANS AND ADVANCES


– secured and considered good

To executives 6,982 6,120


To other employees 16,911 14,292
23,893 20,412

Recoverable within one year – note 12


Executives (3,506) (3,221)
Other employees (6,799) (6,248)
(10,305) (9,469)
13,588 10,943

Reconciliation of carrying amount of loans to executives:

Opening balance 6,120 6,864


Promotion to executive 318 63
Disbursements 9,254 4,514
Repayments (8,710) (5,321)
6,982 6,120

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).

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.
pakistan refinery limited

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 16,821 16,351 677 834 2,914 2,856 449 562
Interest cost 45,312 38,367 2,061 2,210 4,855 4,227 631 729
Expected return on plan assets (45,739) (38,027) (779) (315) (5,553) (4,207) (3,129) (2,204)
Amortisation of past service cost 145 145 543 543 - - - - Net
actuarial loss / (gain)
recognised - - 203 673 - - (935) (484)
16,539 16,836 2,705 3,945 2,216 2,876 (2,984) (1,397)
Amount not recognised as an asset - - - - 3,324 1,014 2,984 7,843
16,539 16,836 2,705 3,945 5,540 3,890 - 6,446

8.2 Balance sheet reconciliation

Prepayment / (liability) as at July 1 34,649 22,780 (4,373) (5,628) 5,160 2,667 - 6,446
(Expense) / income recognised
during the year (16,539) (16,836) (2,705) (3,945) (5,540) (3,890) - (6,446)
Payments made by the Fund
to the Company (17,031) - - - - - - -
Payment made by the Company on
behalf of the fund - - - - 3,118 - - -
Contributions - 28,705 - 5,200 5,703 6,383 - -
Prepayment / (liability) as at June 30 1,079 34,649 (7,078) (4,373) 8,441 5,160 - -

8.3 Prepayment / (liability) as at June 30

Present value of obligations to members (523,037) (451,412) (23,622) (20,769) (53,564) (48,544) (7,654) (6,120)
Obligation to Company - - - - - - (2,071) (2,071)
Fair value of plan assets 477,166 456,440 7,326 7,740 61,565 55,871 34,425 31,325
Funded status (45,871) 5,028 (16,296) (13,029) 8,001 7,327 24,700 23,134
Unrecognised net actuarial loss / (gain) 45,502 28,028 5,816 4,711 4,778 (1,153) (13,873) (15,291)
Unrecognised past service cost 1,448 1,593 3,402 3,945 - - - -
Amount not recognised as an asset - - - - (4,338) (1,014) (10,827) (7,843)
Prepayment / (liability) as at June 30 1,079 34,649 (7,078) (4,373) 8,441 5,160 - -

Actual return on plan assets 61,554 35,619 254 197 5,819 8,023 3,100 5,671

8.4 Movement in defined benefit obligation

Beginning of the year 451,412 424,303 20,769 24,634 48,544 48,401 6,120 8,283
Current service cost 16,821 16,351 677 834 2,914 2,856 449 562
Interest cost 45,312 38,367 2,061 2,210 4,855 4,227 631 729
Actuarial (gains) / losses 39,972 1,750 1,062 (5,951) 6,198 (240) 454 (3,454)
Actual benefits paid by the Fund
during the year (30,480) (29,359) (947) (958) (8,947) (6,700) - -
End of year 523,037 451,412 23,622 20,769 53,564 48,544 7,654 6,120

8.5 Movement in the fair value of plan assets


annual report 2008

Beginning of the year 456,440 418,381 7,740 3,301 55,871 48,165 31,325 25,654
Expected return on plan assets 45,739 38,027 779 315 5,553 4,207 3,129 2,204
Actual contributions by / (refunds to) the employer (17,031) 28,705 - 5,200 5,703 6,383 - -
Actual benefits paid by the Fund during the year (30,480) (29,359) (947) (958) (5,829) (6,700) - -
Asset Gain / (Loss) 22,498 686 (246) (118) 267 3,816 (29) 3,467
End of year 477,166 456,440 7,326 7,740 61,565 55,871 34,425 31,325

56
Notes to and Forming Part of the Financial Statements
for the year ended June 30, 2008

2008 2007

8.6 The principal actuarial assumptions used were as follows:

Discount rate 12% 10%


Expected return on plan assets 12% 10%
Future salary increases 12% 10%
Future pension increases 7% 5%

8.7 Comparision for five years

2008 2007 2006 2005 2004


(Rupees in thousand)
MANAGEMENT PENSION FUND

Present value of defined benefit obligation (523,037) (451,412) (424,303) (377,061) (315,022)
Obligation to Company - - - - (8,522)
Fair value of plan assets 477,166 456,440 421,475 351,129 311,579
Surplus / (deficit) (45,871) 5,028 (2,828) (25,932) (11,965)

Experience loss on obligation 39,972 1,750 11,722 44,420 22,764


Experience (loss) / gain on plan assets 22,498 (2,408) 8,474 35,602 26,710

NON-MANAGEMENT PENSION FUND

Present value of defined benefit obligation (23,622) (20,769) (24,634) (20,709) (22,618)
Fair value of plan assets 7,326 7,740 3,301 4,095 4,737
Deficit (16,296) (13,029) (21,333) (16,614) (17,881)

Experience (gain) / loss on obligation 1,062 (5,951) 2,472 3,335 3,158


Experience (loss) / gain on plan assets (246) (118) (189) (164) (171)

MANAGEMENT GRATUITY FUND

Present value of defined benefit obligation (53,564) (48,544) (48,401) (39,985) (33,233)
Obligation to Company - - - (8,162) (2,134)
Fair value of plan assets 61,565 55,871 48,165 39,695 33,927
Surplus / (deficit) 8,001 7,327 (236) (8,452) (1,440)

Experience (gain) / loss on obligation 6,198 (240) 3,729 4,856 3,398


Experience gain on plan assets 267 3,816 4,424 3,230 2,551

NON-MANAGEMENT GRATUITY FUND


pakistan refinery limited

Present value of defined benefit obligation (7,654) (6,120) (8,283) (5,954) (8,852)
Obligation to Company (2,071) (2,071) (2,071) (2,071) (1,395)
Fair value of plan assets 34,425 31,325 25,654 21,427 18,019
Surplus 24,700 23,134 15,300 13,402 7,772

Experience (gain) / loss on obligation 454 (3,454) 1,326 (56) 725


Experience gain on plan assets (29) 3,467 2,361 1,892 1,518

57
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 GRATUITY FUNDS


Management Non-Management Management Non-Management
2008 2007 2008 2007 2008 2007 2008 2007

Equity 47.5% 6.6% 40.5% 0.0% 15.0% 0.6% 19.8% 0.7%


Debt 50.1% 92.5% 0.0% 96.9% 78.7% 93.9% 70.2% 99.3%
Others 2.4% 0.9% 59.5% 3.1% 6.3% 5.5% 10.0% 0.0%
100% 100% 100% 100% 100% 100% 100% 100%

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

2008 2007

Years

Male 16.8 16.8


Female 21.2 21.2

The average life expectancy of a pensioner retiring at age 60, 20 years


after the balance sheet date is as follows:

Male 17.8 17.8


Female 21.7 21.7

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. STORES, SPARES AND CHEMICALS

Stores 29,769 23,634


Spares 218,569 214,347
Chemicals 16,050 16,406
264,388 254,387

Provision for slow moving stores, spares and chemicals (30,963) (25,016)
233,425 229,371

10. STOCK-IN-TRADE

Raw material
annual report 2008

Crude oil [including in transit Rs 912.8 million


(2007: Rs 38.50 million)] 6,589,352 3,279,878
Finished products 2,512,757 1,827,903
9,102,109 5,107,781

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 7,732,582 4,125,393


Others 2,695,239 664,369
10,427,821 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 3,506 3,221


Other employees 6,799 6,248
10,305 9,469
Advances for supplies and services 8,490 12,970
18,795 22,439

13. ACCRUED INTEREST / MARK UP

This represents interest accrued on term deposits.

14. TRADE DEPOSITS AND SHORT-TERM PREPAYMENTS

Trade deposits 914 664


Short-term prepayments 47,930 48,427
48,844 49,091
15. OTHER RECEIVABLES

Receivable from related parties


Provident Fund 2,900 1,876
Non-management staff gratuity fund 2,071 2,071
Insurance commission receivable 14,543 7,606
Workers' profits participation fund – note 22.5 - 2,915
Others [including Rs 1.02 million (2007: Rs 1.02 million)
receivable from related parties] 1,666 1,423
21,180 15,891
pakistan refinery limited

16. TAX REFUNDS DUE FROM GOVERNMENT - SALES TAX

Refundable from Government 1,310,150 1,476,306


Payable to Government (1,121,998) -
188,152 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
59 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 365 201,769

18. CASH AND BANK BALANCES

With banks on
current accounts 1,881,055 13,350
savings accounts 570,100 652,082
term deposits 189,695 1,027,794
Cash and cheques in hand 5,265 5,051
2,646,115 1,698,277

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 400,000 400,000
60,000,000 'B' ordinary shares of Rs. 10 each 600,000 600,000
1,000,000 1,000,000

Issued, subscribed and paid-up


ordinary shares of Rs 10 each

2008
2008 2007
2007
2,400,000 2,400,000 ‘A’ ordinary shares fully paid in cash 24,000 24,000

3,600,000 3,600,000 ‘B’ ordinary shares fully paid in cash 36,000 36,000
6,000,000 6,000,000 60,000 60,000
11,600,000 9,600,000 ‘A’ ordinary shares issued as fully
paid bonus shares 116,000 96,000
17,400,000 14,400,000 ‘B’ ordinary shares issued as fully
paid bonus shares 174,000 144,000
annual report 2008

29,000,000 24,000,000 290,000 240,000


35,000,000 30,000,000 350,000 300,000

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 30,000 25,000


Issue of 1 bonus share for every 6 (2007: 5) shares held - Note 19.2 5,000 5,000
At the end of the year 35,000 30,000

19.2 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

Debit / (credit) balance arising in respect of


temporary differences:
- stores, spares and chemicals 9,320 8,756
- property, plant and equipment (58,232) (7,852)
- investment in associate (20,081) (5,320)
- old outstanding liabilities offered for tax 28,951 -
- excess of minimum tax over normal tax - 42,999
(40,042) 38,583
pakistan refinery limited

61
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 13,177,426 7,796,524


Accrued liabilities 207,657 196,228
Advances from Customers – note 22.1 7,452 127,483
Payable to the Government – note 22.3 and 22.4 2,340,889 1,346,764
Retention money 4,245 3,969
Workers' profits participation fund – note 22.5 23,381 -
Workers' welfare fund 117,035 44,263
Unclaimed dividend 18,371 18,971
Tax deducted at source 988 2,033
Others 7,314 987
15,904,758 9,537,222
22.1 Related party balances

Creditors
Advances from customers } note 22.1.1 2,468,750
3,211
1,045,451
20,014

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.

22.3 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
annual report 2008

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.

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 - 464


168,381 49,085
Amount paid to
Trustees (145,000) (30,000)
Government - (22,000)
(145,000) (52,000)

Balance as at June 30 23,381 (2,915)

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

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).

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.
pakistan refinery limited

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

63
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 11,901 9,477


Later than 1 year but not later than 5 years 26,573 22,717
38,474 32,194

25. SALES

Gross sales – note 25.1 and 25.2 107,300,775 67,385,920


Less:
- Sales tax (10,811,924) (7,681,796)
- Excise duty and development levy / surcharge (924,845) (2,300,059)
95,564,006 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
Cost of sales Distribution cost expenses Total
2008 2007 2008 2007 2008 2007 2008 2007
(Rupees in thousand)

Crude oil consumed - note 26.1 91,019,969 56,317,752 - - - - 91,019,969 56,317,752


Stores, spares and chemicals 106,127 148,919 - - - - 106,127 148,919
Consultancy 4,228 10,078 - - - - 4,228 10,078
Transportation and
handling charges - - 13,846 3,000 - - 13,846 3,000
Fuel, power and water 249,723 247,794 6,401 6,390 1,640 1,793 257,764 255,977
Salaries and wages 218,626 198,210 14,774 17,230 76,357 58,057 309,757 273,497
Retirement benefits 25,320 30,004 2,204 2,020 7,252 6,921 34,776 38,945
Repairs and maintenance 60,611 92,638 12,457 15,530 1,796 2,088 74,864 110,256
Insurance 33,017 34,730 12,655 12,580 3,519 3,946 49,191 51,256
Staff transport 12,384 9,742 1,838 1,549 4,449 4,362 18,671 15,653
Lease rentals 6,090 4,123 168 326 4,617 4,154 10,875 8,603
Depreciation 120,066 115,035 11,815 11,408 11,950 5,667 143,831 132,110
Amortisation of intangible 7,352 613 - - - - 7,352 613
Travelling and entertainment 15,471 4,753 1,206 405 10,858 8,794 27,535 13,952
Subscription 4,569 4,888 3,604 2,916 2,252 2,395 10,425 10,199
Rent, rates and taxes 13,457 19,485 43,262 12,628 - - 56,719 32,113
Security expenses 7,372 7,210 4,414 2,812 828 - 12,614 10,022
Publicity - - - - 2,561 2,461 2,561 2,461
Printing and stationery - - - - 4,680 4,247 4,680 4,247
Computer related and software
license expenses - - - - 7,144 4,929 7,144 4,929
Communication - - - - 6,660 5,353 6,660 5,353
Directors' fee - - - - 408 272 408 272
Legal and professional
charges - - - - 5,639 4,861 5,639 4,861
Auditors' remuneration - note 26.2 - - - - 3,120 3,694 3,120 3,694
Refinery upgradation studies - note 26.3 - - - - 516,889 - 516,889 -
Other expenses 12,712 8,722 756 640 25,524 10,983 38,992 20,345
Cost of goods manufactured 91,917,094 57,254,696 129,400 89,434 698,143 134,977 92,744,637 57,479,107
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

26.1 Crude oil consumed


pakistan refinery limited

Opening stock 3,279,878 2,642,301


Purchases 92,980,134 56,086,782
Discount to Government 1,349,309 868,547
Closing stock (6,589,352) (3,279,878)
91,019,969 56,317,752

65
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 600 550


Taxation services 625 1,500
Limited review, special reports and certifications, consultation
services and audit of staff retirement funds 1,630 1,394
Out of pocket expenses 265 250
3,120 3,694
26.3 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 8,110 8,855


Workers' profits participation fund 171,296 27,106
Workers' welfare fund 72,771 10,291
252,177 46,252
27.1 Donations

Donations include the following in which a director, Mr. Farooq Rehmatullah is interested:

Interest in Donee Name and address of Donee


Member Resource Aga Khan University Hospital
Development Committee Stadium Road, Karachi 300 1,000

28. OTHER INCOME

Income from financial assets


Profit on savings accounts and term deposits 111,013 37,187
Gain on redemption of open ended mutual fund units 8,586 2,444
Gain on re-measurement of fair value of open ended
mutual fund units 11 1,769
Others
Rent of equipment, storage and handling charges
[including Rs. 2.61 million (2007: Rs 1.58 million) from
related parties] 12,026 10,050
Insurance commission 14,643 7,606
Sale of scrap 643 7,250
Gain on disposal of fixed assets 43 1,442
annual report 2008

Exchange gain - net 82,902 -


Others 1,030 5,998
230,897 73,746

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 81,196 76,638


Interest on amounts withheld against purchases of
local crude oil under directives of MoP & NR
- notes 22.2 and 22.3 167,908 -
Exchange loss - net - 3,300
Interest on workers' profits participation fund - 464
Bank charges 3,943 1,316
253,047 81,718
30. TAXATION

Current - for the year 1,153,180 288,440


Deferred (9,306) (34,989)
1,143,874 253,451

30.1 Relationship between tax expense and accounting profit

Accounting profit 3,254,618 504,265

Tax at the applicable tax rate of 35% 1,139,116 176,493


Expenses not deductible for tax purposes 43,628 24,295
Income not subject to tax (3,009) (1,475)
Effect of applicability of final tax (35,861) 54,138
Tax expense for the year 1,143,874 253,451

31. EARNINGS PER SHARE

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

Basic earnings per share Rs. 60.31 Rs. 7.17

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.

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

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:

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

Fees 408 - - 272 - -


Managerial remuneration - 3,625 44,982 113 3,003 42,365
Leave encashment - 1,820 915 - - 1,747
Bonus - 2,094 9,810 - 1,324 13,279
Ex gratia allowacne - 1,457 - - - 2,744
Honorarium 600 - - 600 - -
Retirement benefits - 789 9,623 - 1,018 12,882
Housing - 1,631 17,920 - 1,351 15,863
Utilities - 362 4,156 - 300 3,732
Leave passage - 1,135 5,004 - 348 4,260
Club memberships - 1,048 5,224 - - 1,515
Others 36 436 13,015 36 72 3,630
36 4,612 45,319 36 2,071 29,000
1,044 14,397 110,649 1,021 7,416 102,017

Number of persons 10 2* 42 10 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

Relationship Nature of transaction

(i) Associated companies Dividend received 8,504 6,803


Sale of goods 75,959,940 44,796,012
Sale of services 2,608 1,580
Purchase of goods 27,921,379 17,005,260
Purchase of services 3,079 13,297

(ii) Entities whose directors and that of the Company have


annual report 2008

been appointed by the same person(s)


Sale of goods - 1,206,089
Purchase of services 505,756 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.
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 39,171 43,722


Post-employment benefits 2,884 6,115
42,055 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 Total


Maturity Maturity Total Maturity Maturity Total
up to after one up to after one
one year year one year year
(Rupees in thousand)

FINANCIAL ASSETS

Loans to employees 10,043 13,533 23,576 262 55 317 23,893


Deposits - - - 914 14,012 14,926 14,926
Trade debts 2,348,574 - 2,348,574 8,079,247 - 8,079,247 10,427,821
Accrued interest /
mark-up - - - 47 - 47 47
Other receivables - - - 21,180 - 21,180 21,180
Financial assets at
fair value through
profit and loss - - - 365 - 365 365
Cash and bank balances 759,795 - 759,795 1,886,320 - 1,886,320 2,646,115
2008 3,118,412 13,533 3,131,945 9,988,335 14,067 10,002,402 13,134,347
2007 1,686,862 8,976 1,695,838 5,022,820 4,854 5,027,674 6,723,512

FINANCIAL LIABILITIES
pakistan refinery limited

Trade and other payables 3,185,629 - 3,185,629 12,570,273 - 12,570,273 15,755,902


Accrued interest /
mark-up - - - 77,558 - 77,558 77,558
2008 3,185,629 - 3,185,629 12,647,831 - 12,647,831 15,833,460
2007 1,358,932 - 1,358,932 8,003,480 - 8,003,480 9,362,412

69
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 3,254,618 504,265


Adjustments for non-cash charges and other items
Depreciation / amortisation 151,183 132,723
Share of income of associate (24,722) (6,949)
Gain on disposal of property, plant and equipment (43) (1,442)
Profit on deposits (111,013) (37,187)
Mark-up expense 249,104 76,638
Provision for slow moving stores and spares 5,947 -
Unrealised gain on revaluation of investments at fair value through
profit and loss (11) (1,769)
Provision for defined benefit retirement plans 24,784 31,117
295,229 193,131
Working capital changes – note 36.1 (1,954,384) (694,613)
Cash generated from operations 1,595,463 2,783

36.1 Working capital changes

(Increase) / decrease in current assets


Stores, spares and chemicals (10,001) 53,426
Stock-in-trade (3,994,328) (1,264,159)
Trade debts (5,638,059) (1,104,691)
Loans and advances 3,644 3,413
Trade deposits and short-term prepayments 247 6,934
Other receivables (5,289) (12,359)
Tax refunds due from Government - Sales tax 1,288,154 (642,635)
Investments 201,415 (197,801)
(8,154,217) (3,157,872)
Increase in trade and other payables 6,199,833 2,463,259
(1,954,384) (694,613)

37. CASH AND CASH EQUIVALENTS

Cash and bank balances 2,646,115 1,698,277


pakistan refinery limited

71
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 Note Reclassification to (Rupees in


component component thousand)
11 Trade debts - others 11 Trade debts - Related parties 2,922
11 Trade debts - Related parties 22 Trade and other payables - creditors 10,297

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

Note Reclassification from Note Reclassification to (Rupees in


component component thousand)
22 Trade and other payables - creditors 22 Trade and other payables - payable 679,466
to government

39. 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: info@prl.com.pk Website: http://www.prl.com.pk